1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from _______to______
Commission File Number 0-27030
INFINIUM SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2734036
------------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
25 Communications Way, Hyannis, MA 02601
(Address of principal executive offices, including Zip Code)
(508) 778-2000
(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 12 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 outstanding of the registrant's Common Stock on May 10,
2001, was 13,365,101.
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INFINIUM SOFTWARE, INC.
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheet at March 31, 2001 (unaudited) and
September 30, 2000...................................................... 3
Consolidated Statement of Operations for the three and six month
periods ended March 31, 2001 (unaudited) and 2000 (unaudited)........... 4
Consolidated Statement of Cash Flows for the six month periods ended
March 31, 2001 (unaudited) and 2000 (unaudited)......................... 5
Notes to Consolidated Financial Statements.............................. 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................... 10
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.................. 16
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings........................................................... 17
ITEM 2. Changes in Securities....................................................... 17
ITEM 3. Defaults Upon Senior Securities............................................. 17
ITEM 4. Submission of Matters to a Vote of Security Holders......................... 17
ITEM 5. Other Information........................................................... 17
ITEM 6. Exhibits and Reports on Form 8-K............................................ 17
SIGNATURES ............................................................................ 18
EXHIBITS ............................................................................ 19
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFINIUM SOFTWARE, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
MARCH 31, SEPTEMBER, 30
2001 2000
---------- -------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 17,941 $ 17,665
Marketable securities at fair market value .............................. 1,466 3,073
Accounts receivable, less allowance for doubtful accounts of $1,881
and $3,455 at March 31, 2001 and September 30, 2000,
respectively .......................................................... 7,526 16,218
Prepaid expenses and other current assets ............................... 2,156 4,465
-------- --------
Total current assets ............................................ 29,089 41,421
Property and equipment, net ............................................... 15,008 16,574
Capitalized software development costs, net ............................... 5,741 5,569
Goodwill and other intangible assets, net ................................. 4,594 5,327
Other assets .............................................................. 2,358 2,358
-------- --------
Total assets .................................................... $ 56,790 $ 71,249
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................................ $ 5,497 $ 6,836
Accrued expenses ........................................................ 11,844 14,293
Income taxes payable .................................................... 1,414 441
Lease obligation, short-term portion .................................... 94 71
Deferred revenue ........................................................ 28,583 35,273
-------- --------
Total current liabilities ....................................... 47,432 56,914
-------- --------
Lease obligation, long-term portion ....................................... 451 291
Deferred revenue .......................................................... 1,417 1,381
Other long-term liabilities ............................................... -- 1,000
-------- --------
Total liabilities ............................................... 49,300 59,586
-------- --------
Common stock, $0.01 par value; authorized 40,000 shares, issued 13,365 and
12,927 shares at March 31, 2001 and September 30, 2000, respectively ..... 134 129
Additional paid-in capital ............................................... 39,246 38,327
Accumulated deficit ...................................................... (30,875) (26,876)
Deferred stock based compensation ........................................ (815) --
Accumulated other comprehensive income (loss) ............................ (200) 293
Less: treasury stock at cost, 43 shares at
September 30, 2000 .................................................... -- (210)
-------- --------
Total stockholders' equity ...................................... 7,490 11,663
-------- --------
Total liabilities and stockholders' equity ...................... $ 56,790 $ 71,249
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
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INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
-------- -------- -------- --------
Revenue:
Software license fees .................... $ 3,010 $ 4,552 $ 6,777 $ 8,310
Services revenue ......................... 16,510 18,034 35,147 37,797
-------- -------- -------- --------
Total revenue .................... 19,520 22,586 41,924 46,107
-------- -------- -------- --------
Operating costs and expenses:
Cost of software license fees ............ 1,231 1,574 2,647 3,135
Cost of services ......................... 6,808 9,123 13,923 17,854
Research and development ................. 3,948 4,629 7,866 9,646
Sales and marketing ...................... 7,632 9,236 16,184 17,553
General and administrative ............... 2,921 3,125 5,459 5,831
-------- -------- -------- --------
Total operating costs and expenses 22,540 27,687 46,079 54,019
-------- -------- -------- --------
Loss from operations ....................... (3,020) (5,101) (4,155) (7,912)
Other income, net .......................... 80 374 310 778
-------- -------- -------- --------
Loss before benefit from
income taxes ......................... (2,940) (4,727) (3,845) (7,134)
Benefit from income taxes .................. -- (1,534) -- (2,425)
-------- -------- -------- --------
Net loss ................................... $ (2,940) $ (3,193) $ (3,845) $ (4,709)
======== ======== ======== ========
Basic and diluted loss per share ........... $ (0.23) $ (0.25) $ (0.30) $ ( 0.38)
======== ======== ======== ========
Weighted average number of common shares
outstanding-basic and diluted ....... 12,926 12,709 12,905 12,476
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements
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INFINIUM SOFTWARE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
MARCH 31,
2001 2000
-------- --------
Cash flows from operating activities:
Net loss .............................................................. $ (3,845) $ (4,709)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization ...................................... 4,622 3,923
Allowance for doubtful accounts .................................... (1,574) (1,285)
Other operating activities ......................................... 188 --
Changes in operating assets and liabilities, net of effects from the
acquisitions of businesses:
Accounts receivable ............................................ 10,156 2,958
Prepaid expenses and other current assets ...................... 2,285 (1,764)
Other assets ................................................... -- 142
Accounts payable ............................................... (1,309) (2,523)
Accrued expenses and other long-term liabilities ............... (3,185) (3,638)
Income taxes payable ........................................... 982 (687)
Deferred revenue ............................................... (6,534) (2,574)
-------- --------
Net cash provided by (used in) operating activities .......... 1,786 (10,157)
-------- --------
Cash flows from investing activities:
Purchase of marketable securities ..................................... (2,280) (3,651)
Sale of marketable securities ......................................... 3,275 17,882
Purchase of property and equipment .................................... (760) (1,769)
Capitalized software .................................................. (1,744) (1,289)
Acquisitions of businesses, net of cash acquired ...................... -- (4,575)
-------- --------
Net cash provided by (used in) investing activities ........... (1,509) 6,598
-------- --------
Cash flows from financing activities:
Payments on capitalized lease obligations (44)
Proceeds from exercise of stock options and employee stock
purchase plan ....................................................... (26) 2,028
-------- --------
Net cash provided by financing activities .................... (70) 2,028
-------- --------
Effect of foreign exchange rate changes on cash ......................... 69 (44)
-------- --------
Net increase (decrease) in cash and cash equivalents .................... 276 (1,575)
-------- --------
Cash and cash equivalents, beginning of period .......................... 17,665 23,099
-------- --------
Cash and cash equivalents, end of period ................................ $ 17,941 $ 21,524
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The information at March 31, 2001 and 2000 and for the three and six
month periods then ended is unaudited, but includes all adjustments (consisting
only of normal recurring entries) which the Company's management believes to be
necessary for the fair presentation of the financial position, results of
operations, and changes in cash flows for the periods presented. The
accompanying interim consolidated financial statements should be read in
conjunction with the financial statements and related notes included in the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
2000. Certain information and notes normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. Interim results of operations for the three and six month
periods ended March 31, 2001 are not necessarily indicative of operating results
for the full fiscal year.
2. STOCK REPURCHASE PROGRAM
In February 1998, the Company announced that it would be initiating a
stock repurchase program of up to $6,000 of common stock to use to meet
requirements of its employee stock option and stock purchase plans. No minimum
number or value of shares to be repurchased has been fixed nor has a time limit
as to the duration of the program been established.
On October 29, 1999, the Company's Board of Directors approved a new
stock repurchase program authorizing the Company to repurchase an additional
$10,000 of common stock to use to meet requirements of its employee stock option
and stock purchase plan. No minimum number or value of shares to be repurchased
has been fixed for the new program nor has a time limit as to the duration of
the program been established.
No shares were repurchased by the Company during the three and six
month periods ended March 31, 2001 under either of the repurchase plans. The
Company reissued 366,000 shares which had been purchased under the February 1998
Plan during the fiscal year ended September 30, 2000 and 43,000 shares during
the three month period ended March 31, 2001.
3. COMPREHENSIVE LOSS
The table below sets forth comprehensive income and loss as defined by
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, for the three and six month periods ended March 31, 2001 and 2000:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2001 2000 2001 2000
-------- -------- -------- --------
Net loss ..................................... $ (2,940) $ (3,193) $ (3,845) $ (4,709)
Other comprehensive income (loss):
Foreign currency translation adjustments ... 24 (49) 28 (67)
Unrealized gain (loss) on investments, net
of related tax effect: ..................... 15 453 (521) 495
-------- -------- -------- --------
Comprehensive loss ...................... $ (2,901) $ (2,789) $ (4,338) $ (4,281)
======== ======== ======== ========
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INFINIUM SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
4. NET LOSS PER COMMON SHARE
The Company computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share." The following table reconciles the numerator and denominator of the
basic and diluted earnings per share computations shown in the Consolidated
Statement of Operations.
As per generally accepted accounting principles, the computation of net loss
per share is based on the weighted average basic shares outstanding. The
computation of basic and diluted earnings per share for the three and six month
periods ended March 31, 2001 and 2000 is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------- ---------------------------
2001 2000 2001 2000
---------- ---------- ---------- ----------
(in thousands)
BASIC AND DILUTED EPS:
Numerator:
Net loss: .............................. $ (2,940) $ (3,193) $ (3,845) $ (4,709)
========== ========== ========== ==========
Denominator:
Common shares outstanding-basic
12,926 12,709 12,905 12,476
Dilutive options: ...................... -- -- -- --
---------- ---------- ---------- ----------
Common shares outstanding .............. 12,926 12,709 12,905 12,476
========== ========== ========== ==========
Basis and diluted EPS ................. $ (0.23) $ (0.25) $ (0.30) $ (0.38)
========== ========== ========== ==========
The difference between basic shares outstanding and dilutive shares
outstanding is the assumed conversion of common stock equivalents (stock
options) in the amounts of 14,000 for the three months ended March 31, 2000.
There were no dilutive options for the three months ended March 31, 2001.
Options to purchase 0 and 14,000 shares of common stock outstanding for the
three month period ended March 31, 2001 and 2000 respectively, and 32,000 and
160,000 shares for the six months ended March 31, 2001 and 2000 respectively,
were excluded from the calculation of diluted net loss per share as the effect
of their inclusion would have been anti-dilutive.
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INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
5. SEGMENT INFORMATION AND GEOGRAPHIC AREAS
The following table presents a summary of operating information for the
three and six month periods ended March 31, 2001 and 2000:
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Revenue:
North American operations:
Infinium $ 15,018 $ 19,188 $ 33,820 $ 39,870
Cort payroll unit 1,712 1,157 3,092 2,223
ASP 608 -- 1,014 --
-------- -------- -------- --------
Total North American operations 17,338 20,345 37,926 42,093
International operations 2,182 2,241 3,998 4,014
-------- -------- -------- --------
Total $ 19,520 $ 22,586 $ 41,924 $ 46,107
======== ======== ======== ========
Operating loss:
North American operations:
Infinium $ (1,057) $ (2,914) $ 747 $ (4,278)
Cort payroll unit (162) (513) (338) (975)
ASP (1,436) -- (3,362) --
-------- -------- -------- --------
Total North American operations (2,655) (3,427) (2,953) (5,253)
International operations (365) (1,674) (1,202) (2,659)
-------- -------- -------- --------
Total $ (3,020) $ (5,101) $ (4,155) $ (7,912)
======== ======== ======== ========
The following table summarizes identifiable assets by business segment as of
March 31, 2001 and September 30, 2000:
MARCH 31, SEPTEMBER 30,
2001 2000
-------- --------
Identifiable assets:
North American operations:
Infinium $ 43,521 $ 57,519
Cort payroll unit 2,453 1,902
ASP 6,800 7,211
-------- --------
Total North American operations 52,774 66,632
International operations 4,016 4,617
-------- --------
Consolidated $ 56,790 $ 71,249
======== ========
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INFINIUM SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which is effective in the
fourth quarter of fiscal year 2001 for the Company. SAB 101 clarifies the
Securities and Exchange Commission's view regarding recognition of revenue. The
Company is currently evaluating the effects of this change but anticipates that
the adoption of SAB 101 will not have a material effect on the Company's
financial position or results of operations.
In September 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -
a replacement of FASB Statement No. 125". SFAS No. 140 revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
No. 125's provisions without reconsideration. This statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. This Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitized
transactions and collateral for fiscal years ending after December 15, 2000. The
Company does not expect the adoption of SFAS No. 140 to have a material impact
on its financial position or results of operations.
7. EXECUTIVE COMPENSATION
On October 4, 2000 the Company issued 200,000 options to purchase the
Company's stock to an executive of the Company at a price of $2.25 per share.
The difference between the market value and the exercise price of the options is
recorded as deferred stock compensation in the stockholders equity section of
the balance sheet and is amortized over the vesting period of two years. For the
three and six month periods ended March 31, 2001, the Company recorded $8 and
$24, respectively, of expense associated with this transaction.
8. ISSUANCE OF RESTRICTED STOCK
On January 10, 2001, the Company instituted a Stock Option Exchange
Program (the Program). Under the provisions of the program, employees were
allowed to exchange any of their stock options for shares of restricted stock on
January 31, 2001, in general, at a rate of three options for each share of
restricted stock. At January 31, 2001, the company issued approximately 179,000
shares and cancelled approximately 537,000 options. At the close of business on
January 31, 2001 the share price of the Company's stock was $2.13 per share. On
February 9, 2001, additional restricted stock grants of 225,000 shares were
awarded to executive management and an additional 16,000 and 10,000 restricted
stock grants were awarded to other employees on January 22, 2001 and March 12,
2001, respectively. The cost of the Program was $382 thousand, and the costs of
the additional restricted stock grants was $436 thousand for the awards to
executive management and $42 thousand for the awards to other employees. The
combined cost of these events approximates $860, which will be amortized over
the vesting period of the restricted stock grants, which range from 21 to 24
months. During the quarter ended March 31, 2001, the Company recognized $35
thousand in expense for the Program, $36 thousand in expense for the grants to
executive management, and $3 thousand for the grants to other employees.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
All statements contained herein that are not historical facts,
including but not limited to, statements regarding anticipated future revenue
and expense levels and capital requirements, the Company's future product
development and marketing plans, the Company's ability to generate cash from
operations, and the Company's ability to attract and retain employees, are based
on current expectations. These statements are forward looking in nature, involve
a number of risks and uncertainties, as more fully described under "Factors
Affecting Future Performance" and are made pursuant to the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
described in the forward-looking statements.
OVERVIEW
Infinium Software, Inc. ("Infinium", "the Company") develops, markets
and supports enterprise-level business software applications and provides
software application services. Infinium offers Web and server-based financial,
human resources, supply management, process manufacturing, business analytics
and customer relationship management solutions, services, support and deployment
options to its customers.
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RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 2001 COMPARED TO QUARTER ENDED MARCH 31, 2000
The following table sets forth the Company's consolidated statement of
operations data expressed as a percentage of total revenue and the percentage of
dollar increase or decrease from period to period for the three months ended
March 31, 2001 and 2000:
THREE MONTHS ENDED MARCH 31,
-------------------------------------
% OF TOTAL % OF $
REVENUE INCREASE (DECREASE)
2001 2000 2000 TO 2001
---- ---- -------------------
Revenue:
Software license fees ........... 15% 20% (34)%
Services revenue ................ 85 80 (8)
---- ----
Total revenue ................ 100 100 (14)
---- ----
Operating costs and expenses:
Cost of software license fees ... 6 7 (22)
Cost of services ................ 35 40 (25)
Research and development ........ 20 21 (15)
Sales and marketing ............. 39 41 (17)
General and administrative ...... 15 14 (7)
---- ----
Total operating costs and
expenses .................... 115 123 (19)
---- ----
Loss from operations .............. (15) (23) (41)
Other income, net ................. 1 2 (79)
---- ----
Loss before benefit from
Income taxes .................... (15) (21) (38)
Benefit from income
Taxes ........................... (--) (7) (100)
---- ----
Net loss .......................... (15) (14) (8)%
==== ====
REVENUE. Total revenue declined $3.1 million, or 14%, from $22.6
million for the quarter ended March 31, 2000 to $19.5 million for the quarter
ended March 31, 2001. Software license fees decreased from $4.6 million for the
quarter ended March 31, 2000 to 3.0 million for the quarter ended March 31,
2001. This decrease reflects a slowdown in the demand for back-office
applications. Service revenue, comprised of maintenance fee revenue, consulting
services revenue and revenue derived from ASP-related services, declined 8%,
from $18.0 million for the quarter ended March 31, 2000 to $16.5 million for the
quarter ended March 31, 2001. This decrease was due primarily to a decrease in
demand for the Company's consulting service offerings due to lower software
license fees. The components of service revenue are as follows:
THREE MONTHS ENDED MARCH 31,
----------------------------------------
(in thousands,
except % data) % DECREASE
2001 2000 2000 TO 2001
-------- -------- ------------
Maintenance fee revenue ...... $ 10,411 $ 10,887 (4) %
Consulting services revenue .. 5,491 7,147 (23)
ASP revenue .................. 608 -- --
-------- --------
Total services revenue ..... $ 16,510 $ 18,034 (8)%
======== ========
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COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties on the sale of third party products, amortization expense
related to capitalized software and the cost of product media, manuals and
shipping. Cost of software license fees decreased 22%, from $1.6 million for the
quarter ended March 31, 2000 to $1.2 million for the quarter ended March 31,
2001. This decrease in dollar amount is mainly due to a $87 thousand decrease in
third party royalties and a $165 thousand reduction in shipping and reproduction
costs combined with a $91 thousand decrease in capitalized software
amortization. Cost of software license fees as a percentage of software license
fee revenue increased from 35% for the quarter ended March 31, 2000 to 41% for
the quarter ended March 31, 2000.
COST OF SERVICES. Cost of services consists of costs to provide product
and technical support, consulting services and training services to licensees of
the Company's software products and costs related to the ASP line of business.
Cost of services decreased 25%, from $9.1 million, for the quarter ended March
31, 2000 to $6.8 million for the quarter ended March 31, 2001. The decrease in
the dollar amount is due to a $612 thousand decrease in third party consulting
expenses and additional cost savings as a result of lower support levels due to
the termination of support for discontinued products. Cost of services as a
percentage of service revenue was 51% and 41% for the quarters ended March 31,
2000 and 2001, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel, related facilities overhead, computer and
communications overhead, and third party contractor costs. Research and
development costs are reduced by capitalized software development costs and,
when applicable, research funding. Research and development expenses decreased
15% from $4.6 million for the quarter ended March 31, 2000 to $3.9 million for
the quarter ended March 31, 2001. Research and development expense as a
percentage of total revenue was 20% for the quarter ended March 31, 2000 and 20%
for the quarter ended March 31, 2001. This decrease is due to personnel
reductions and general company wide cost rollback measures, partially offset by
a $220 thousand increase in capitalized software development costs.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities and computers
and communications costs for direct sales offices. Sales and marketing expenses
decreased 17% from $9.2 million for the quarter ended March 31, 2000 to $7.6
million for the quarter ended March 31, 2001. The decrease in sales and
marketing expense is due to lower commission expense due to lower sales volume
and lower marketing and sales costs due to a company wide emphasis on expense
reduction. Sales and marketing expense as a percentage of total revenue was 41%
and 39% for the second quarters of fiscal year 2000, and fiscal year 2001,
respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel as well as
provisions for doubtful accounts, insurance, investor relations and professional
service fees. General and administrative expenses decreased 7% from $3.1 million
for the quarter ended March 31, 2000 to $2.9 million for the quarter ended March
31, 2001. General and administrative expense as a percentage of total revenue
was 14% and 15% for the second quarters of fiscal year 2000 and fiscal year
2001, respectively. The decrease in dollar amount was primarily due to cost
savings associated with the Company's reduction in workforce which occurred in
the fourth quarter of fiscal year 2000.
BENEFIT FROM INCOME TAXES. The provision for federal, state, and
foreign income tax for the quarter ended March 31, 2000 resulted in a tax
benefit of $1.5 million, representing an effective income tax benefit of 32% for
the quarter. During the fourth quarter of fiscal 2000, the Company established a
full valuation allowance for its deferred tax assets. This allowance was
established in accordance with Statement of Financial Accounting Standards No.
109 (SFAS 109), Accounting for Income Taxes, and accordingly, no tax benefits
were recognized in the Company's results for the second quarter of fiscal year
2001. The Company will continue to assess the valuation of the deferred tax
asset each quarter.
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SIX MONTHS ENDED MARCH 31, 2001 COMPARED TO SIX MONTHS ENDED MARCH 31, 2000
The following table sets forth the Company's consolidated statement of
operations data expressed as a percentage of total revenue and the percentage of
dollar increase or decrease from period to period for the six months ended March
31, 2001 and 2000:
SIX MONTHS ENDED MARCH 31,
% OF TOTAL % OF $
REVENUE INCREASE (DECREASE)
2001 2000 2000 TO 2001
---- ---- ------------------
Revenue:
Software license fees .................. 16% 18% (18)%
Services revenue ....................... 84 82 (7)
---- ----
Total revenue ....................... 100 100 (9)
---- ----
Operating costs and expenses:
Cost of software license fees .......... 6 7 (16)
Cost of services ....................... 33 39 (22)
Research and development ............... 19 21 (18)
Sales and marketing .................... 39 38 (8)
General and administrative ............. 13 12 (6)
---- ----
Total operating costs and expenses .. 110 117 (15)
---- ----
Loss from operations ..................... (10) (17) (47)
Other income, net ........................ 1 2 (60)
---- ----
Loss before benefit from
Income taxes ........................... (9) (15) (46)
Benefit from income
Taxes .................................. (--) (5) (100)
---- ----
Net loss ................................. (9) (10) (18)%
==== ====
REVENUE. Total revenue declined $4.2 million, or 9%, from $46.1 million for
the six months ended March 31, 2000 to $41.9 million for the six months ended
March 31, 2001. Software license fees declined $1.5 million from $8.3 million
for the six months ended March 31, 2000 to $6.8 million for the six months ended
March 31, 2001. The Company believes that this decrease reflects a slowdown in
the demand for back-office applications due to external economic conditions.
Service revenue, comprised of maintenance fee revenue, consulting services
revenue and revenue derived from ASP-related services, declined 7%, from $37.8
million for the six months ended March 31, 2000 to $35.1 million for the six
months ended March 31, 2001. This decrease was due primarily to a decrease in
demand for the Company's consulting service offerings due to lower software
license fees. In addition, $473 thousand of services revenue related to
discontinued products was recorded in the six months ended March 31, 2000. The
components of service revenue are as follows:
SIX MONTHS ENDED MARCH 31,
----------------------------------
(in thousands,
except % data) % DECREASE
2001 2000 2000 TO 2001
-------- -------- ------------
Maintenance fee revenue $ 21,156 $ 21,763 (3)%
Consulting services revenue 12,977 16,034 (19)
ASP revenue 1,014 -- --
-------- --------
Total services revenue $ 35,147 $ 37,797 (7)%
======== ========
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COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists
primarily of royalties on the sale of third party products, amortization expense
related to capitalized software and the cost of product media, manuals and
shipping. Cost of software license fees decreased 16%, from $3.1 million for the
six months ended March 31, 2000 to $2.6 million for the six months ended March
31, 2001. The decrease in dollar amount is mainly due to a $68 thousand decrease
in third party royalties and a $362 thousand reduction in shipping and
reproduction costs combined with a $58 thousand decrease in capitalized software
amortization. Cost of software license fees as a percentage of software license
fee revenue increased from 38% for the six months ended March 31, 2000 to 39%
for the six months ended March 31, 2001.
COST OF SERVICES. Cost of services consists of costs to provide product
and technical support, consulting services and training services to licensees of
the Company's software products and costs related to the ASP line of business.
Cost of services decreased 22%, from $17.9 million, for the six months ended
March 31, 2000 to $13.9 million for the six months ended March 31, 2001. The
decrease in the dollar amount is due to lower third party consulting expenses of
$1.5 million combined with additional cost savings as a result of lower support
levels due to the termination of support for discontinued products. Cost of
services as a percentage of service revenue was 47% and 40% for the six months
ended March 31, 2000 and 2001, respectively.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of engineering personnel, related facilities overhead, computer and
communications overhead, and third party contractor costs. Research and
development costs are reduced by capitalized software development costs and,
when applicable, research funding. Research and development expenses decreased
18% from $9.6 million for the six months ended March 31, 2000 to $7.9 million
for the six months ended March 31, 2001. Research and development expense as a
percentage of total revenue was 21% for the six months ended March 31, 2000 and
19% for the six months ended March 31, 2001. The decrease in dollar amount is
due to a $456 thousand increase in capitalized software combined with a
reduction in personnel costs related to the Infinium Financials for Windows NT
and Infinium Human Resources for Windows NT products and the fact that the
Company is using fewer third party development contractors than in the previous
year.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, travel, promotional expenses, facilities and computers
and communications costs for direct sales offices. Sales and marketing expenses
decreased 8% from $17.6 million for the six months ended March 31, 2000 to $16.2
million for the six months ended March 31, 2001. The decrease in sales and
marketing expense is due mainly to lower sales costs that occurred due to the
reduction in software sales that has occurred in fiscal year 2001. Also
contributing to the decrease is lower marketing costs as a result of Company
wide emphasis on cost reduction in fiscal year 2001. Sales and marketing expense
as a percentage of total revenue was 38% and 39% for the first six months of
fiscal year 2000, and fiscal year 2001, respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries of executive and administrative personnel as well as
provisions for doubtful accounts, insurance, investor relations and outside
professional fees. General and administrative expenses decreased 5% from $5.8
million for the six months ended March 31, 2000 to $5.5 million for the six
months ended March 31, 2001. General and administrative expense as a percentage
of total revenue was 13% for the first six months of fiscal year 2000 and fiscal
year 2001. The decrease in dollar amount was primarily due to cost savings
associated with the Company's reduction in workforce which occurred in the
fourth quarter of fiscal year 2000.
BENEFIT FROM INCOME TAXES. The provision for federal, state, and
foreign income tax for the six months ended March 31, 2000 resulted in a tax
benefit of $2.4 million, representing an effective income tax rate of 34% for
the six months ended March 31, 2000. During the fourth quarter of fiscal 2000,
the Company established a full valuation allowance for its deferred tax assets.
This allowance was established in accordance with Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income
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Taxes, and accordingly, no tax benefits were recognized in the Company's results
for the six months ended March 31, 2001. The Company will continue to assess the
valuation of the deferred tax asset each quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2001, the Company had cash, cash equivalents and
marketable securities of $19.4 million resulting from a decrease of cash, cash
equivalents and marketable securities of $1.3 million during the first six
months of fiscal year 2001. Operating activities provided $1.7 million, $1.7
million was used to fund capitalized software and $0.8 million was used for
purchases of property, computers and equipment.
In July, 2000, the Company entered into an agreement with a major
financial institution for a $3.0 million line of credit. At this time, no
borrowings are outstanding against this line of credit. This agreement is
subject to renewal on July 31, 2001.
Days sales outstanding ("DSO") decreased to 34 days at March 31, 2001
compared to 58 days at September 30, 2000. The Company calculates DSO by
dividing the ending accounts receivable balance, net of allowance for doubtful
accounts, by the annualized revenue for the quarter, multiplied by 360. The
Company believes that this method of deriving DSO is indicative of actual
results due to the cyclical nature of software license and service transactions,
which are often consummated nearer the end of the quarter, as well as the
fluctuation of transactions from one quarter to the next. The decrease in DSO is
primarily due to increased collection efforts during the six months ended March
31, 2001.
Deferred revenue decreased $6.7 million, from $36.7 million at
September 30, 2000 to $30.0 million at March 31, 2001. The decrease in deferred
revenue primarily resulted from a decrease in the deferred consulting services
component of revenue due to lower customer bookings during the first six months
of fiscal 2001.
The Company believes that cash, cash equivalents and marketable
securities on hand and cash flows from operations will be sufficient to fund its
operations at least through the second quarter of fiscal 2002. While operating
activities may provide cash in certain periods, to the extent the Company
experiences growth in the future, or in the event the Company uses cash in
excess of cash generated by operations, the Company anticipates that its
operating and investing activities may use cash, and consequently, such growth
may require the Company to obtain additional sources of financing.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 (SAB 101), Revenue Recognition in Financial
Statements, as amended by SAB 101A and SAB 101B, which is effective in the
fourth quarter of fiscal year 2001. SAB 101 clarifies the Securities and
Exchange Commission's view regarding recognition of revenue. The Company is
currently evaluating the effects of this change but anticipates that the
adoption of SAB 101 will not have a material effect on the Company's financial
position or results of operations.
In September 2000, the FASB issued SFAS No. 140 "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities - a replacement
of FASB Statement No. 125". SFAS No. 140 revises the standards for accounting
for securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. This statement is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. This Statement is effective for recognition and
reclassification of collateral and for disclosures relating to securitized
transactions and collateral for fiscal years ending after December 15, 2000. The
Company does not expect the adoption of SFAS No. 140 to have a material impact
on its financial position or results of operations.
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FACTORS AFFECTING FUTURE PERFORMANCE
The factors affecting the Company's future performance have not changed
significantly from those enumerated in the Company's Annual Report on Form 10-K
for the year ended September 30, 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk involves
forward-looking statements. Actual results could differ materially from those
discussed in the forward-looking statements. The Company is exposed to market
risk related to changes in interest rates and foreign currency exchange rates.
The Company does not use derivative financial instruments for speculative or
trading purposes.
INTEREST RATE RISK
The Company is exposed to market risk from changes in interest rates
primarily through its investing and borrowing activities. In addition, the
Company's ability to finance future acquisition transactions may be impacted if
the Company is unable to obtain appropriate financing at acceptable rates. The
Company's investing strategy to manage interest rate exposure is to invest in
short-term, highly liquid investments. The Company maintains a portfolio of
highly liquid cash equivalents and short-term investments (primarily in high
grade municipal notes). At March 31, 2001, the fair value of the Company's
short-term investments approximated market value.
FOREIGN CURRENCY RISK
The Company faces exposure to movements in foreign currency exchange
rates. These exposures may change over time as business practices evolve and
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company does not use derivative
financial instruments to hedge foreign currency exposures or for trading.
Historically, the Company's primary exposures have been related to the
operations of its foreign subsidiaries. In the six month period ended March 31,
2001, the net impact of foreign currency changes was not material.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Stockholders was held on
Friday, February 9, 2001. At the meeting, the stockholders elected the
following Class II directors to the Board of Directors:
Name For Against
---- --- -------
Robert A. Pemberton 10,185,209 101,909
Robert P. Schechter 12,205,814 81,304
The terms of Manuel Correia and Fred L. Luconi as Class I directors and
Roland D. Pampel and Michael Cusumano as Class III directors continued
after the meeting.
Following the Annual Meeting of the Stockholders, the Board of
Directors of the Company approved a vote to enlarge the size of the
Board and fix it at seven members. Additionally, the Board of Directors
voted to elect James E. McGowan a Class II Director, to serve for a
three-year term.
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.13 Executive compensation and stock option agreement for Chief
Executive Officer
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2001.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
Infinium Software, Inc. has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Dated: May, 11, 2001
INFINIUM SOFTWARE, INC.
by:
/s/ William B. Gerraughty Jr.
-----------------------------
William B. Gerraughty Jr.
Chief Financial Officer
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