1
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 September 30, 2000
Commission File Number 0-23373
LANDMARK SYSTEMS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
VIRGINIA 54-1221302
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12700 Sunrise Valley Drive 20191
Reston, VA
(Address of principal executive offices) (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
October 31, 2000:
Class Number of Shares Outstanding
----- ----------------------------
Common Stock, par value $.01 per share 13,112,631
1
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LANDMARK SYSTEMS CORPORATION
QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Operations for
the three and nine months ended September 30, 2000 (unaudited)
and September 30, 1999 (unaudited) 4
Condensed Consolidated Balance Sheets as of September 30,
2000 (unaudited) and December 31, 1999 5
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 2000 (unaudited) and
September 30, 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements (unaudited) 7-8
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
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 13
Item 6. Exhibits and Reports on Form 8-K 13-14
SIGNATURES 15
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated financial statements set forth below for the
three and nine-month periods ended September 30, 2000 and 1999 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 nine-month periods ended September 30, 2000 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, 1999).
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------- --------------------------------------
2000 1999 2000 1999
------------------- ------------------- ------------------- ------------------
Revenues
License revenues $ 6,115,350 $ 5,606,778 $ 16,032,634 $ 18,843,477
Maintenance revenues 7,896,825 7,394,495 23,632,219 22,280,969
------------- ------------- ------------- -------------
Total revenues 14,012,175 13,001,273 39,664,853 41,124,446
------------- ------------- ------------- -------------
Cost of revenues
Cost of license revenues 633,388 356,600 1,508,205 1,037,715
Cost of maintenance revenues 1,518,931 1,168,089 4,447,713 3,392,552
Cost to acquire distribution rights 601,372 424,197 1,714,759 1,271,429
------------- ------------- ------------- -------------
Total cost of revenues 2,753,691 1,948,886 7,670,677 5,701,696
------------- ------------- ------------- -------------
Gross profit 11,258,484 11,052,387 31,994,176 35,422,750
------------- ------------- ------------- -------------
Operating expenses
Sales and marketing 6,366,175 5,355,794 17,607,665 14,923,380
Product research and development 3,667,428 4,168,596 11,132,823 12,502,270
General and administrative 1,515,825 1,503,313 4,761,984 4,398,578
------------- ------------- ------------- -------------
Total operating expenses 11,549,428 11,027,703 33,502,472 31,824,228
------------- ------------- ------------- -------------
Operating (loss) income (290,944) 24,684 (1,508,296) 3,598,522
Interest and other income, net 542,948 461,670 1,643,384 1,569,789
------------- ------------- ------------- -------------
Income before income taxes 252,004 486,354 135,088 5,168,311
Provision for income taxes 95,732 186,027 51,304 1,976,875
------------- ------------- ------------- -------------
Net income $ 156,272 $ 300,327 $ 83,784 $ 3,191,436
============= ============= ============= =============
Earnings per share
Basic $ 0.01 $ 0.02 $ 0.01 $ 0.26
Diluted $ 0.01 $ 0.02 $ 0.01 $ 0.24
See accompanying notes to condensed consolidated financial statements.
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 29,466,709 $ 32,135,952
Accounts receivable, net of allowance for
doubtful accounts of $544,000 and
$795,000 12,605,225 13,987,545
Unbilled accounts receivable 5,238,346 5,353,362
Other current assets 4,656,727 4,101,196
------------- -------------
Total current assets 51,967,007 55,578,055
Unbilled accounts receivable - noncurrent 6,833,578 7,063,059
Fixed assets, net 5,592,587 5,363,273
Capitalized software costs, net 2,783,184 866,959
Intangible assets, net 4,869,030 5,854,112
Other assets 1,763,967 1,781,297
------------- -------------
Total assets $ 73,809,353 $ 76,506,755
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, accrued expenses and
other current liabilities $ 4,107,607 $ 4,802,286
Deferred revenue 20,042,590 21,529,799
------------- -------------
Total current liabilities 24,150,197 26,332,085
Deferred revenue - noncurrent 10,089,161 11,866,661
Other liabilities 170,958 366,115
------------- -------------
Total liabilities 34,410,316 38,564,861
------------- -------------
Stockholders' equity:
Common stock, $0.01 par value, 30,000,000
shares authorized, 13,112,631 and
12,838,090 issued and outstanding 131,126 128,381
Additional paid-in capital 35,408,644 34,049,244
Retained earnings 4,042,302 3,958,518
Accumulated other comprehensive loss (183,035) (194,249)
------------- -------------
Total stockholders' equity 39,399,037 37,941,894
------------- -------------
Total liabilities and stockholders' equity $ 73,809,353 $ 76,506,755
============= =============
See accompanying notes to condensed consolidated financial statements.
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LANDMARK SYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------
2000 1999
---------------- ---------------
Cash flows from operating activities
Net income $ 83,784 $ 3,191,436
Adjustments to reconcile net income to net
cash flows from operations
Depreciation and amortization 2,588,717 2,497,842
Tax benefit for exercise of stock options 253,312 1,422,511
Sale of unbilled accounts receivable 3,398,286 7,063,764
Changes in working capital (6,663,444) (8,552,319)
------------- --------------
Net cash (used in) provided by operating activities (339,345) 5,623,234
------------- --------------
Cash flows from investing activities
Acquisition of distribution rights (78,201) (4,496,842)
Capitalized software development costs (2,103,731) -
Capital expenditures (1,567,242) (2,291,218)
------------- --------------
Net cash used in investing activities (3,749,174) (6,788,060)
------------- --------------
Cash flows from financing activities
Proceeds from sale of common stock 1,108,833 3,428,348
------------- --------------
Net cash provided by financing activities 1,108,833 3,428,348
------------- --------------
Effect of exchange rate changes on cash 310,443 (135,885)
------------- --------------
Net (decrease) increase in cash and cash equivalents (2,669,243) 2,127,637
Cash and cash equivalents, beginning of period 32,135,952 28,322,234
------------- --------------
Cash and cash equivalents, end of period $ 29,466,709 $ 30,449,871
============= ==============
See accompanying notes to condensed consolidated financial statements.
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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, 1999, as filed with
the Securities and Exchange Commission on Form 10-K.
NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS
In December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000. The adoption did not have a material effect on the Company's financial
condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements"
to provide guidance regarding the recognition, presentation and disclosure of
revenue in the financial statements. In March 2000, 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. Subsequently, the
SEC released SAB 101B which further delays the implementation date of SAB 101
until no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. While the Company will continue to assess the provisions of
SAB 101, the Company does not expect a material effect on the Company's
financial position, results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board (the "FASB") issued
FASB Interpretation ("FIN") 44, "Accounting for Certain Transactions Involving
Stock Compensation: Interpretation of APB Opinion No. 25". The Interpretation is
intended to clarify certain problems that have arisen in practice since the
issuance of APB Opinion No. 25, "Accounting for Stock Issued to Employees." The
effective date of the Interpretation is July 1, 2000. The provisions of the
Interpretation will apply prospectively but will also cover certain events
occurring after December 15, 1998 and other certain events occurring after
January 12, 2000. The adoption did not have a material effect on the Company's
financial condition or results of operations.
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
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Company is reviewing the provisions of SFAS 140.
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 nine months ended
September 30, 2000 and 1999. 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 September 30, 2000
Basic earnings per share $ 156,272 13,094,503 $ 0.01
=======
Effect of dilutive securities
Stock options and warrants - 52,912
------------ ----------
Diluted earnings per share $ 156,272 13,147,415 $ 0.01
============ ========== =======
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INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
For the three months ended September 30, 1999
Basic earnings per share $ 300,327 12,601,102 $ 0.02
=======
Effect of dilutive securities
Stock options and warrants - 584,572
------------ ----------
Diluted earnings per share $ 300,327 13,185,674 $ 0.02
============ ========== =======
For the nine months ended September 30, 2000
Basic earnings per share $ 83,784 12,997,098 $ 0.01
=======
Effect of dilutive securities
Stock options and warrants - 213,414
------------ ----------
Diluted earnings per share $ 83,784 13,210,512 $ 0.01
============ ========== =======
For the nine months ended September 30, 1999
Basic earnings per share $ 3,191,436 12,286,879 $ 0.26
=======
Effect of dilutive securities
Stock options and warrants - 820,212
------------ ----------
Diluted earnings per share $ 3,191,436 13,107,091 $ 0.24
============ ========== =======
NOTE 4 - COMPREHENSIVE INCOME
The Company's total comprehensive income is comprised of net income and
other comprehensive income, which consists of foreign currency translation
adjustments. Total comprehensive income for the three months ended September 30,
2000 and 1999 was $181,172 and $449,166, respectively. Total comprehensive
income for the nine months ended September 30, 2000 and 1999 was $94,998 and
$2,965,228, 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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------ ----------------------------------------
2000 1999 2000 1999
----------------------- ----------------------- -------------------- ---------------
OS/390 $ 11,827,679 $ 10,977,996 $ 33,390,892 $ 33,746,781
Client/server 2,184,496 2,023,277 6,273,961 7,377,665
------------- ------------- ------------- -------------
Total revenues $ 14,012,175 $ 13,001,273 $ 39,664,853 $ 41,124,446
============= ============= ============= =============
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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- ---------------------------------------------
2000 1999 2000 1999
------------------------ ------------------------ ------------------------ --------------------
United States $ 8,830,099 $ 8,815,014 $ 25,429,840 $ 28,425,753
Germany 747,605 835,790 2,487,683 2,733,111
United Kingdom 830,586 710,406 2,501,092 1,920,832
Benelux 504,492 294,821 1,240,382 1,481,416
France 365,430 472,954 1,301,836 1,360,987
Australia 235,671 626,911 928,506 1,419,504
Other 2,498,292 1,245,377 5,775,514 3,782,843
------------- ------------- ------------- -------------
Total revenues $ 14,012,175 $ 13,001,273 $ 39,664,853 $ 41,124,446
============= ============= ============= =============
The Company's long-lived assets, which consist of fixed assets, capitalized
software and intangible assets, by country or geographic region are as follows:
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------ ---------------------
United States $12,950,134 $ 11,815,246
Europe 265,089 220,807
Other 29,578 48,291
----------- -----------------
Total long-lived assets $13,244,801 $ 12,084,344
=========== =================
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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 SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------- ------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------ -----------
Revenues
License revenues 43.6% 43.1% 40.4% 45.8%
Maintenance revenues 56.4 56.9 59.6 54.2
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues
Cost of license revenues 4.5 2.7 3.8 2.5
Cost of maintenance revenues 10.9 9.0 11.2 8.3
Cost to acquire distribution rights 4.3 3.3 4.3 3.1
----- ----- ----- -----
Total cost of revenues 19.7 15.0 19.3 13.9
----- ----- ----- -----
Gross profit 80.3 85.0 80.7 86.1
----- ----- ----- -----
Operating expenses
Sales and marketing 45.4 41.1 44.4 36.3
Product research and development 26.2 32.1 28.1 30.4
General and administrative 10.8 11.6 12.0 10.7
----- ----- ----- -----
Total operating expenses 82.4 84.8 84.5 77.4
Operating (loss) income (2.1) 0.2 (3.8) 8.7
Interest and other income, net 3.9 3.5 4.1 3.9
----- ----- ----- -----
Income before income taxes 1.8 3.7 0.3 12.6
Provision for income taxes 0.7 (1.4) 0.1 (4.8)
----- ----- ----- -----
Net income 1.1% 2.3% 0.2% 7.8%
===== ===== ===== =====
TOTAL REVENUES. Total revenues increased 7.8% from $13.0 million for the
three months ended September 30, 1999, to $14.0 million for the three months
ended September 30, 2000, and decreased 3.5% from $41.1 million to $39.7 million
for the nine months ended September 30, 1999 and 2000, respectively. Revenues
for the three months ended September 30, 2000 from OS/390 (formerly referred to
as "mainframe") products and services were $11.8 million, an increase of 7.7%
from the same period in the prior year; revenues for the three-month period
ended September 30, 2000 from client/server products and services were $2.2
million, an increase of 8.0% from the same period in the prior year. Revenues
for the first nine months of 2000 from OS/390 products and services were $33.4
million, a decrease of 1.1% from the same period in the prior year; revenues for
the first nine months of 2000 from client/server products and services were $6.3
million, a decrease of 15.0% from the same period in the prior year. Management
believes that the decrease in revenues in the first nine months 2000 versus 1999
is primarily due to a sales slowdown in the industry caused by overbuying of
capacity prior to December 31, 1999 in anticipation of Year 2000 problems.
Revenues may also have decreased due to a delay in customer purchases in
anticipation of the release of IBM's 64-bit technology. Management believes that
revenues have increased in the third quarter of 2000 versus as the capacity
which was overbought in anticipation of Year 2000 problems is no longer excess
capacity; additionally, now that IBM has announced an outline of their pricing
structure, customers appear to be reinstituting their system management software
buying plans.
LICENSE REVENUES. License revenues increased 9.1% from $5.6 million for the
three months ended September 30, 1999, to $6.1 million for the three months
ended September 30, 2000, and decreased 14.9% from $18.8 million to $16.0
million for the nine months ended September 30, 1999 and 2000, respectively.
MAINTENANCE REVENUES. Maintenance revenues increased 6.8% from $7.4 million
for the three months ended September 30, 1999 to $7.9 million for the three
months ended September 30, 2000, and increased 6.1% from $22.3 million to $23.6
million for the nine months ended September 30, 1999 and 2000, respectively.
COST OF LICENSE REVENUES. Cost of license revenues includes amortization of
capitalized software costs, product royalties, materials and packaging expenses.
Costs of license revenues were $0.4 million and $0.6 million for the three
months ended
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September 30, 1999 and 2000, representing 6.4% and 10.4% of license revenues in
such periods. Costs of license revenues were $1.0 and $1.5 million for the nine
months ended September 30, 1999 and 2000, respectively, representing 5.5% and
9.4% of license revenues in such periods. The increase in cost of license
revenues from 1999 to 2000 is primarily due to the payment of third party
royalties arising from sales of the RTD product in 2000.
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 $1.2 million and $1.5 million for the
three months ended September 30, 1999 and 2000, respectively, representing 15.8%
and 19.2% of service revenues in such periods. Costs of maintenance revenues
were $3.4 million and $4.4 million for the nine months ended September 30, 1999
and 2000, respectively, representing 15.2% and 18.8% of service revenues in such
periods. The increase in costs from 1999 to 2000 is the result of additional
personnel costs in connection with a new Global Services initiative to provide
better post-sales support to the Company's current customers and products, as
well as incremental costs associated with new products that are being developed.
Management believes that the Global Services business area will break-even by
the first quarter of 2001.
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 the three months ended September 30, 1999 and 2000 were $0.4 million
and $0.6 million, respectively. Cost to acquire distribution rights for the nine
months ended September 30,1999 and 2000 were $1.3 million and $1.7 million,
respectively. The increase in 2000 is primarily due to the amortization of
distribution rights acquired in October 1999 from the Company's former
distributors in France, and royalties of $0.2 million and $0.6 million paid
during the three and nine months ended September 30, 2000, respectively, to the
Company's former distributor in the Nordic region.
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 $5.4 million and $6.4
million for the three months ended September 30, 1999 and 2000, respectively,
representing 41.1% and 45.4% of total revenues in such periods. Sales and
marketing expenses were $14.9 million and $17.6 million for the nine months
ended September 30, 1999 and 2000, respectively, representing 36.3% and 44.4% of
total revenues in such periods. The increase in sales and marketing expenses
continues to be primarily due to an increase in personnel in the worldwide
direct sales organization, and an increase in marketing personnel and activities
for the Company's OS/390 and e-business products.
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 $4.2 million and $3.7 million for the
three months ended September 30, 1999 and 2000, respectively, representing 32.1%
and 26.2% of total revenues in such periods. Product research and development
expenses were $12.5 million and $11.1 million for the nine months ended
September 30, 1999 and 2000, respectively, representing 30.4% and 28.1% of total
revenues in such periods. The decrease in product research and development
expenses from 1999 to 2000 is primarily due to the capitalization of $1.0
million and $2.1 million of software development costs during the three and nine
months, respectively, ended September 30, 2000. These costs were primarily
related to the development of WebWatcher and three new OS/390 products that are
expected to go GA in the next few months.
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 $1.5
million for the three months ended September 30, 1999 and 2000, representing
11.6% and 10.8% of total revenues in such periods. General and administrative
expenses were $4.4 million and $4.8 million for the nine months ended September
30, 1999 and 2000, respectively, representing 10.7% and 12.0% of total revenues
in such periods. The increase in general and administrative expenses for the
first nine months of 1999 to the same period in 2000 is primarily due to
increased occupancy costs at the Company's new and larger corporate
headquarters. Additionally, during the third quarter, the Company wrote off a
receivable of $0.2 million that was fully reserved.
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 were $0.5
million for the three months ended September 30, 1999 and 2000. Net interest and
other income were $1.6 million for the nine months ended September 30, 1999 and
2000. Of these amounts, $0.4 million and $0.3 million represent interest earned
on the Company's bank balances for the three months ended September 30, 2000 and
1999, respectively.
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LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had cash and cash equivalents of $29.5
million and working capital of $27.8 million. During the nine months ended
September 30, 2000, net cash provided by financing activities was $1.1 million,
while net cash used in operating and investing activities were $0.3 million and
$3.7 million, respectively. 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 September 30, 2000,
other than normal trade payables and accrued liabilities. Stockholders' equity
at September 30, 2000 was $39.4 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% and had an expiration
date of June 30, 2000. In June 2000, the line of credit was extended until June
30, 2001. No advances have been made on the line of credit.
For the nine months ended September 30, 2000, cash flow used in operations
was $0.3 million. The Company periodically sells unbilled accounts receivable,
on a non-recourse basis, to augment its operating cash flows. In September 2000,
the Company sold $1.8 million of unbilled accounts receivable; in March and June
2000, the Company sold $1.0 million and $0.9 million, respectively, of unbilled
accounts receivable. These sales of unbilled receivables resulted in a loss of
$0.3 million for the Company during the nine months ended September 30, 2000. In
the future, the Company may sell additional unbilled accounts receivable from
time to time depending on the Company's cash flow requirements and whether the
terms are financially acceptable to the Company.
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 nine months ended September 30,
2000, the Company invested $1.6 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 September 30, 2000,
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 December 1998, the American Institute of Certified Public Accountants
(the "AICPA") issued Statement of Position ("SOP") 98-9, "Modification of SOP
97-2, Software Revenue Recognition, With Respect to Certain Transactions." SOP
98-9 modifies SOP 97-2 by requiring revenue to be recognized using the "residual
method" if certain conditions are met. The Company adopted SOP 98-9 on January
1, 2000. The adoption did not have a material effect on the Company's financial
condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements"
to provide guidance regarding the recognition, presentation and disclosure of
revenue in the financial statements. In March 2000, 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. Subsequently, the
SEC released SAB 101B which further delays the implementation date of SAB 101
until no later than the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. While the Company will continue to assess the provisions of
SAB 101. the Company does not expect a material effect on the Company's
financial position, results of operations or cash flows.
In March 2000, the Financial Accounting Standards Board (the "FASB") issued
FASB Interpretation ("FIN") 44, "Accounting for Certain Transactions Involving
Stock Compensation: Interpretation of APB Opinion No. 25". The Interpretation is
intended to clarify certain problems that have arisen in practice since the
issuance of APB Opinion No. 25, "Accounting for Stock Issued to Employees." The
effective date of the Interpretation is July 1, 2000. The provisions of the
Interpretation will apply prospectively but will also cover certain events
occurring after December 15, 1998 and other certain events occurring after
January 12, 2000. The adoption did not have a material effect on the Company's
financial condition or results of operations.
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 collecteral for fiscal years ending after
December 15, 2000. The
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Company is reviewing the provisions of SFAS 140.
YEAR 2000 COMPLIANCE
Subject to continued monitoring of third party suppliers, the Company's Year
2000 program is complete, and no material problems have arisen since the end of
calendar year 1999. The Year 2000 program addressed ability of information
technology hardware and software to correctly interpret and manipulate dates up
to and through the year 2000 without interruption as a result of the change to
this date. The Company's business computer systems are Year 2000 compliant.
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.
Specifically, the following may be impeded by events that have not been
presently anticipated: the timing of the release of new products, the sale of
unbilled accounts receivable, the upgrade of the Company's development
environments, the Company's ability to sell or issue equity or debt securities
or to enter into credit facilities on acceptable terms, the Company's ability to
make its acquisitions accretive, the success of the Company's more focused sales
approach and the Company's ability to increase license revenues, maintain the
level of maintenance renewal rates and limit cost of sales, and the ability of
existing and planned hardware and software systems to accommodate transition to
the Euro without material effect on results of operations or financial
condition. Forward-looking statements are based on management's current
expectations and assumptions, which may be affected by a number of factors,
including, without limitation, a lengthening of the sales cycle possibly
attributable to Year 2000 issues and/or other timing issues, competitive product
introductions, price competition, the Company's ability to consummate license
transactions as anticipated, any failure or delay in the Company's ability to
develop and introduce 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, the recent introduction and subsequent fluctuations in value of the
Euro currency, the "Year 2000" software and systems issue, and other factors.
Therefore, there can be no assurance that actual future results will not differ
materially from anticipated results.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company has subsidiaries in the United Kingdom, 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 September 30, 2000, 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 or any other
derivative financial instruments.
The Company's exposure to market risk for changes in interest rates relates
primarily to unbilled accounts receivable. At September 30, 2000, the Company
has $12.1 million of unbilled accounts receivable, the estimated fair market
value of which was $12.7 million. If market interest rates had been 10% higher
at September 30, 2000, 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
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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
None
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.)
10.1 Employment agreement between the Company and Ralph E.
Alexander dated April 9, 1997 (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.)
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
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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 Stock Incentive Plan, as amended. (incorporated by
reference to Exhibit 99.1 forming a part of the
Company's registration statement on Form S-8 (File No.
333-37950) filed with the Securities and Exchange
Commission under the Securities Act of 1933, as
amended.)
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, as amended.
(incorporated by reference to Exhibit 10.7 forming a
part of the Company's Form 10-Q for the quarter ended
March 31, 1999.)
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 10.9 forming a part of the
Company's Form 10-Q for the quarter ended June 30,
2000).
27.1 Financial Data Schedule
(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: November 13, 2000 By: /s/ Katherine K. Clark
----------------------
Katherine K. Clark
President and Chief Executive Officer (Duly
Authorized Officer)
Date: November 13, 2000 By: /s/ Frederick S. Rolandi, III
-----------------------------
Frederick S. Rolandi, III
Vice President and Chief Financial Officer
(Chief Accounting Officer)
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