-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQCWWZ25Ycl+Odp/mlrVPxxWiC1eGlC9jXnTS3rNkYbFnvhSp+0LEmKMP5GrRDZF /dLCJeSz5O1YHEymnDrr5w== 0000950135-98-000992.txt : 19980218 0000950135-98-000992.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950135-98-000992 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFINIUM SOFTWARE INC CENTRAL INDEX KEY: 0001002044 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 042734036 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27030 FILM NUMBER: 98539609 BUSINESS ADDRESS: STREET 1: 25 COMMUNICATIONS WAY STREET 2: DRAWER 6000 CITY: HYANNIS STATE: MA ZIP: 02601 BUSINESS PHONE: 5087782000 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE 2000 INC /MA/ DATE OF NAME CHANGE: 19960322 FORMER COMPANY: FORMER CONFORMED NAME: SOFTWARE 2000 INC /MA/ DATE OF NAME CHANGE: 19951012 10-Q 1 INFINIUM SOFTWARE, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 December 31, 1997 [ ] 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 December 31, 1997 was 12,244,125. 2 INFINIUM SOFTWARE, INC. INDEX PART I - FINANCIAL INFORMATION
Page ITEM 1. Financial Statements Condensed Consolidated Balance Sheet at September 30, 1997 and December 31, 1997.................................................... 3 Condensed Consolidated Statement of Income for the three months ended December 31, 1996 and 1997.................................... 4 Condensed Consolidated Statement of Cash Flows for the three months ended December 31, 1996 and 1997.................................... 5 Notes to Condensed Consolidated Financial Statements ................. 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 8 PART II -- OTHER INFORMATION ITEMS 1. - 5. Not applicable ITEM 6. Exhibits and Reports on Form 8-K...................................... 15 SIGNATURES............................................................................... 16 EXHIBIT INDEX............................................................................ 17 EXHIBITS................................................................................. 18
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INFINIUM SOFTWARE, INC. CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPTEMBER 30, DECEMBER 31, 1997 1997 ---- ---- (UNAUDITED) ASSETS Current assets: Cash, cash equivalents and marketable securities ............................. $ 48,319 $ 48,195 Accounts receivable, less allowance for doubtful accounts of $1,569 and $1,399 at September 30, 1997 and December 31, 1997, respectively ............................................................... 18,930 18,882 Deferred income taxes ........................................................ 1,167 1,161 Prepaid expenses and other current assets .................................... 4,946 5,041 -------- -------- Total current assets ................................................. 73,362 73,279 Property and equipment, net .................................................... 6,901 6,836 Capitalized software development costs, net .................................... 6,767 7,018 Goodwill and other intangible assets, net ...................................... 1,835 1,707 Deferred income taxes .......................................................... 471 456 Other assets ................................................................... 1,971 2,209 -------- -------- Total assets ......................................................... $ 91,307 $ 91,505 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ............................................................. $ 5,221 $ 4,612 Accrued expenses ............................................................. 9,763 7,659 Income taxes payable ......................................................... 2,394 2,167 Deferred revenue ............................................................. 31,990 33,419 -------- -------- Total current liabilities ............................................ 49,368 47,857 -------- -------- Common stock, $.01 par value; authorized 40,000 shares, issued and outstanding 12,162 and 12,244 shares at September 30, 1997 and December 31, 1997, respectively ............................................................... 122 122 Additional paid-in capital ................................................... 33,325 34,017 Retained earnings ............................................................ 8,502 9,555 Cumulative translation adjustment ............................................ (10) (46) -------- -------- Total stockholders' equity ........................................... 41,939 43,648 -------- -------- Total liabilities and stockholders' equity ........................... $ 91,307 $ 91,505 ======== ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 3 4 INFINIUM SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ---- ---- Revenue: Software license fees .................... $ 5,334 $ 7,718 Service revenue .......................... 12,946 16,516 ------- ------- Total revenue ...................... 18,280 24,234 ------- ------- Operating costs and expenses: Cost of software license fees ............ 1,026 1,549 Cost of services ......................... 4,722 6,916 Research and development ................. 3,635 4,026 Sales and marketing ...................... 6,288 8,255 General and administrative ............... 1,703 2,336 ------- ------- Total operating costs and expenses.. 17,374 23,082 ------- ------- Income from operations ..................... 906 1,152 Other income, net .......................... 526 397 ------- ------- Income before provision for income taxes ... 1,432 1,549 Provision for income taxes ................. 501 496 ------- ------- Net income ................................. $ 931 $ 1,053 ======= ======= Basic earnings per share ................... $ 0.08 $ 0.09 ======= ======= Diluted earnings per share ................. $ 0.08 $ 0.08 ======= =======
The accompanying notes are an integral part of the condensed consolidated financial statements. 4 5 INFINIUM SOFTWARE, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ---- ---- Cash flows from operating activities: Net income ................................................. $ 931 $ 1,053 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................ 1,364 1,672 Allowance for doubtful accounts .......................... 137 380 Deferred income taxes .................................... (33) 21 Changes in operating assets and liabilities: Accounts receivable ...................................... (3,718) (332) Prepaid expenses and other current assets ................ (235) (95) Other assets ............................................. (55) (238) Accounts payable ......................................... (758) (609) Accrued expenses ......................................... (677) (2,104) Income taxes payable ..................................... 494 (217) Deferred revenue ......................................... 1,711 1,429 -------- -------- Net cash provided by operating activities .............. (839) 960 -------- -------- Cash flows from investing activities: Purchase of property and equipment ......................... (410) (704) Capitalization of software development costs ............... (900) (1,036) -------- -------- Net cash used for investing activities ................... (1,310) (1,740) -------- -------- Cash flows from financing activities: Proceeds from exercise of stock options and employee stock purchase plan ............................................ 7 692 -------- -------- Net cash provided by financing activities .............. 7 692 -------- -------- Effect of foreign exchange rate changes on cash .............. 21 (36) -------- -------- Net decrease in cash, cash equivalents and marketable securities ................................................. (2,121) (124) Cash, cash equivalents and marketable securities, beginning of period ..................................................... 43,337 48,319 -------- -------- Cash, cash equivalents and marketable securities, end of period ..................................................... $41,216 $ 48,195 ======= ========
The accompanying notes are an integral part of the condensed consolidated financial statements. 5 6 INFINIUM SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED) 1. BASIS OF PRESENTATION The information at December 31, 1996 and 1997 and for the three-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 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, 1997. 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-month period ended December 31, 1997 are not necessarily indicative of operating results for the full fiscal year. 2. NET INCOME PER SHARE In February, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share." This Statement, which the Company adopted with this quarter ended December 31, 1997, establishes and simplifies standards for computing and presenting earnings per share. SFAS 128 requires restatement of all previously reported earnings per share data that are presented. Basic earnings per share is determined by dividing net income applicable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is determined by dividing net income applicable to common stockholders by the weighted average number of common shares and common share equivalents outstanding during the period. Common share equivalents are included in the earnings per share calculation when dilutive. Common share equivalents consisting of common stock issuable upon exercise of outstanding common stock options are computed using the treasury stock method. The computation of basic and diluted earnings per share for the three months ended December 31, 1996 and 1997 is as follows:
THREE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, 1996 DECEMBER 31, 1997 PER PER INCOME SHARES SHARE INCOME SHARES SHARE ------ ------ ----- ------ ------ ----- BASIC EARNINGS PER SHARE Income available to common stockholders $ 931 11,115 $0.08 $ 1,053 12,210 $ 0.09 ===== ===== ======= ====== EFFECT OF DILUTIVE SECURITIES Stock options 657 1,545 ------ ------ DILUTED EARNINGS PER SHARE Income available to common stockholders $ 931 11,772 $0.08 $ 1,053 13,755 $ 0.08 ===== ====== ===== ======= ====== ======
6 7 INFINIUM SOFTWARE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA) 3. OTHER INCOME, NET Other income, net consists of the following:
THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1996 1997 ---- ---- Interest income................. $ 548 $ 503 Foreign exchange loss........... (22) (106) ----- ------ $ 526 $ 397 ===== ======
7 8 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 and involve a number of risks and uncertainties, as more fully described under "Factors Affecting Future Performance." Actual results may differ materially from those described in the forward-looking statements. RESULTS OF OPERATIONS Founded in 1981, Infinium Software develops, markets and supports enterprise-level business software applications for mid-sized organizations (typically companies with revenues of $50 million to $1 billion). The Company has two primary product lines. One product line, designed for AS/400 computers, automates the financial management, human resource management and materials management functions of organizations in a broad range of industries worldwide. The Company also offers a specialized AS/400 manufacturing system designed to manage process manufacturing operations. The Company's second product line, released during fiscal 1997, is designed for use by customers using Microsoft Windows NT servers. It is designed to automate the financial management operations of mid-sized organizations. Additional NT applications are under development and expected to be available during fiscal 1998. In January 1997, the Company acquired all of the outstanding capital stock of Time (Open Systems) Ltd. ("Time"), a UK-based privately held software concern which developed and marketed a suite of client/server financial application software products. Since the acquisition of Time, the Company continues to invest in the development of these software products for the Microsoft NT server platform. Following the introduction of the beta versions of these products in North America and international markets, the Company released for general availability Infinium Financials for Microsoft Windows NT servers in September 1997. These products, along with the Microsoft NT server-based Human Resources Management product currently under development by the Company, form the basis for the Company's expansion into the market for business applications designed for Windows NT servers. The Company's revenue is derived from two sources: software license fees and service revenue. Software license fees includes revenue from noncancelable software license agreements entered into between the Company and its customers with respect to both the Company's products and third party products distributed by the Company. Software license fee revenue is recognized upon shipment of the software and when all significant contractual obligations have been satisfied. The Company's service revenue is comprised of software maintenance fees and fees for consulting services. Maintenance fees are billed separately and are recognized ratably over the period of the maintenance agreement, which is typically one year. Consulting service revenue, which is not essential to the functionality of the software products, is recognized as the services are performed. Prior to the introduction of the Microsoft NT Server-based applications, all software applications were developed, marketed and operated predominately on the IBM AS/400 hardware platform. Accordingly, substantially all revenue recognized and associated costs to date was attributed with AS/400 platform transactions. 8 9 The following table sets forth for the periods indicated the Company's condensed consolidated statement of income data expressed as a percentage of total revenue and the percentage of dollar increase period over period for the three months ended December 31, 1996 and 1997.
THREE MONTHS ENDED DECEMBER 31, % OF TOTAL % OF $ REVENUE INCREASE 1996 1997 96 TO 97 ---- ---- -------- Revenue: Software license fees .................. 29% 32% 45% Service revenue ........................ 71 68 28 --- --- Total revenue ....................... 100 100 33 --- --- Operating costs and expenses: Cost of software license fees .......... 6 6 51 Cost of services ....................... 26 29 46 Research and development ............... 20 17 11 Sales and marketing .................... 34 34 31 General and administrative ............. 9 10 37 --- --- Total operating costs and expenses.. 95 96 33 --- --- Income from operations ................... 5 4 27 Other income, net ........................ 3 2 (25) --- --- Income before provision for income taxes.. 8 6 8 Provision for income taxes ............... 3 2 (1) --- --- Net income ............................... 5% 4% 13% === ===
In addition to traditional AS/400 expenditures, included in fiscal 1998 operating costs and expenses above are those expenditures incurred by the Company with respect to the development efforts of the Microsoft NT server products, as well as expenditures attributed to the hiring and training of personnel to market and service this new product offering. QUARTER ENDED DECEMBER 31, 1997 COMPARED TO QUARTER ENDED DECEMBER 31, 1996 REVENUE. Total revenue increased 33%, from $18.3 million for the quarter ended December 31, 1996 to $24.2 million for the quarter ended December 31, 1997. The increase was due to a greater market acceptance of the company's products resulting in increased software license fees. In addition, with each license agreement entered into, generally consulting services and maintenance are contracted resulting in an increase in service revenue as the contracted services are delivered. Revenue in North America (United States and Canada) increased 35%, from $16.6 million for the quarter ended December 31, 1996 to $22.3 million for the quarter ended December 31, 1997. This is representative of 91% of total revenue for the first quarter of fiscal year 1997 compared to 92% for the first quarter of fiscal year 1998. EMEA (Europe, Middle East and Africa) revenue grew 25%, from $1.4 million for the quarter ended December 31, 1996 to $1.7 million for the quarter ended December 31, 1997 predominately due to greater market penetration. Other international regions, including Asia-Pacific and Latin America, contributed 2% of total revenue for the first quarter of fiscal year 1997 compared to 1% for the first quarter of fiscal year 1998. Software license fee revenue increased 45%, from $5.3 million for the quarter ended December 31, 1996 to $7.7 million for the quarter ended December 31, 1997. The growth was due primarily to continued acceptance of the Company's Infinium client/server products. For the first quarter of fiscal year 1998, software license fee revenue derived from Windows NT products was $0.5 million. All other software license fee revenue was derived from IBM AS/400 hardware platform transactions. 9 10 Service revenue increased 28%, from $12.9 million for the quarter ended December 31, 1996 to $16.5 million for the quarter ended December 31, 1997. The increase was primarily attributable to an increase in the installed base of customers resulting in an increase in both maintenance and consulting services revenue. Also attributing to the increase in consulting services revenue was an increase in larger consulting service engagements, as well as increased service offerings including greater project management and custom programming demand. The table below summarizes the composition and growth in the Company's service revenue.
THREE MONTHS ENDED DECEMBER 31, (IN THOUSANDS) % INCREASE 1996 1997 96 TO 97 ---- ---- -------- Maintenance fee revenue $ 8,154 $ 8,936 10% Consulting services revenue 4,792 7,580 58 ------- ------- Total service revenue $12,946 $16,516 28% ======= =======
COST OF SOFTWARE LICENSE FEES. Cost of software license fees consists primarily of royalties on the sales of third party products, amortization expense related to capitalized software development costs and the cost of product media, manuals and shipping. Cost of software license fees increased 51%, from $1.0 million for the quarter ended December 31, 1996 to $1.5 million for the quarter ended December 31, 1997. Cost of software license fees as a percentage of software license fee revenue increased from 19% for the quarter ended December 31, 1996 to 20% for the quarter ended December 31, 1997. The increase in the dollar amount and as a percentage of software license fees is attributed to an increase in royalties on third party product software sales and, to a lesser extent, an increase of amortization of capitalized software development costs. COST OF SERVICES. Cost of services consists of costs to provide product and technical support, consulting services and training services to licensees of Infinium Software products. Cost of services increased 46%, from $4.7 million for the quarter ended December 31, 1996 to $6.9 million for the quarter ended December 31, 1997. Cost of services as a percentage of service revenue increased from 37% for the quarter ended December 31, 1996 to 42% for the quarter ended December 31, 1997. The increase in the cost of services as a percentage of service revenue is attributed to the relative increase in the amount of consulting services versus maintenance at a lower gross margin. The increase in dollar amount of such costs resulted primarily from increased staffing in the consulting and support organizations in response to increased demand for consulting services, a continued growth in the customer base and an increase in payments to third party contractors. RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of engineering personnel and third party contractor costs reduced by capitalized software development costs and, when applicable, research funding. Research and development expenses increased 11% from $3.6 million for the quarter ended December 31, 1996 to $4.0 million for the quarter ended December 31, 1997. The increase in research and development expenses was due primarily to NT platform development initiatives during the period. In addition to traditional AS/400 platform development efforts, the Company continues to invest in the development of its Human Resources Management product line designed exclusively for the Microsoft NT server market. The Company also continues to invest in the enhancement of its Microsoft NT server financial management applications. In addition to $0.1 million of research funding, the Company capitalized $0.9 million of software development costs for the quarter ended December 31, 1996 compared to $1.0 million for the quarter ended December 31, 1997. There was no research funding offset during the quarter ended December 31, 1997. 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 increased 31% from $6.3 million for the quarter ended December 31, 1996 to $8.3 million for the quarter ended December 31, 1997. The increase was attributable to increased staffing in the 10 11 direct sales force and additional marketing activities in connection with the launch of the NT products, as well as an increase in commission expense associated with higher revenue. Sales and marketing expense as a percentage of total revenue was 34% for both the first quarter of fiscal year 1997 as well as the first quarter of fiscal year 1998. GENERAL AND ADMINISTRATIVE. General and administrative expenses consist primarily of salaries of executive, administrative, financial and legal personnel, as well as provisions for doubtful accounts, insurance, investor relations and outside professional fees. General and administrative expenses increased 37% from $1.7 million for the quarter ended December 31, 1996 to $2.3 million for the quarter ended December 31, 1997. General and administrative expenses as a percentage of total revenue increased from 9% for the first quarter of fiscal year 1997 to 10% for the first quarter of fiscal year 1998. The increase in dollar amount and as a percent of revenue related primarily to incremental costs associated with the Time acquisition. PROVISION FOR INCOME TAXES. The provision for federal, state and foreign income taxes was $0.5 million on an effective income tax rate of 35% for the quarter ended December 31, 1996 compared to $0.5 million on an effective income tax rate of 32% for the quarter ended December 31, 1997. The decrease in the effective income tax rate for the first quarter of fiscal year 1996 to the first quarter of fiscal year 1997 is primarily due to the implementation of income tax reduction strategies. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, the Company had cash, cash equivalents and marketable securities of $48.2 million. During the first quarter of fiscal year 1998, the Company used a net $0.1 million of cash, cash equivalents and marketable securities of which $1.6 million was generated from operating and financing activities while $1.7 million was used to fund software development and to purchase computers and equipment. The Company's accounts receivable balance, net of the allowance for doubtful accounts, was $18.9 million at December 31, 1997 compared to $18.9 million at September 30, 1997. Days sales outstanding ("DSO") was 70 days at December 31, 1997 compared to 64 days at September 30, 1997. 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 next. The increase in DSO was primarily attributed to the increase in accounts receivable from software license and service transactions occurring near the end of the quarter in which initial cash receipts were received after the balance sheet date. Deferred revenue increased to $33.4 million at December 31, 1997 from $32.0 million at September 30, 1997. The increase in deferred revenue was primarily due to an increase in deferred maintenance revenue and consulting services revenue as a result of continued growth in the customer base and to an increased demand for consulting services. On February 9, 1998, the Company announced that it would be initiating a stock repurchase program of up to $6.0 million of common stock effective immediately. The Company expects to use the repurchased stock 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. The Company is currently contemplating expanding its offering of complimentary products and technology via third party software relationships and/or acquisition. Consummation of such agreements may result in the use of cash, cash equivalents and marketable securities for prepaid royalties, development 11 12 funding, and acquisition. In addition, although there are no current agreements or negotiations with respect to additional material acquisitions of complementary businesses, such transactions could, if they were to occur, require additional sources of financing. 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 fiscal 1998. While operating activities may provide cash in certain periods, to the extent the Company experiences growth in the future, 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. FACTORS AFFECTING FUTURE PERFORMANCE The Company's quarterly revenue and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Such fluctuations may result in volatility in the price of the Company's common stock. Quarterly revenue and operating results may fluctuate as a result of a variety of factors, including the Company's lengthy sales cycle, the proportion of revenue attributable to license fees versus service revenue, changes in the level of operating expenses, demand for the Company's products, the introduction of new products and product enhancements by the Company or its competitors, changes in customer budgets, competitive conditions in the industry and general economic conditions. Further, the purchase of the Company's products often involves a significant commitment of capital by its customers with the attendant delays frequently associated with large capital expenditures and authorization procedures within an organization. For these and other reasons, the sales cycles for the Company's products are typically lengthy and subject to a number of significant risks over which the Company has little or no control. The Company historically has operated with little software license backlog because its software products are generally shipped as orders are received. The Company has often recognized a substantial portion of its revenue in the last month of the quarter and often in the last week of that month. As a result, license fees in any quarter are substantially dependent on orders booked and shipped in the last month or last week of that quarter. Accordingly, a small variation in the timing of recognition of revenue for specific transactions is likely to adversely and disproportionately affect the Company's operating results for a quarter because the Company establishes its expenditure levels on the basis of its expected future revenue and only a small portion of the Company's expenses vary with its revenue. Accordingly, the Company believes that period to period comparisons of results of operations are not necessarily meaningful and should not be relied upon as indicative of future performance. Although the Company has been profitable in recent quarterly periods, there can be no assurance that the Company will remain profitable on a quarterly basis, if at all. The Company's business has experienced and is expected to continue to experience significant seasonality. In recent years, the Company has had greater demand for its products in its fourth fiscal quarter and has experienced lower revenue in its succeeding first and second fiscal quarters. The fluctuations are caused primarily by customer purchasing patterns and the Company's sales recognition programs which reward and recognize sales personnel on the basis of achievement of annual performance quotas. Due to the foregoing factors and the factors set forth under "Results of Operations" above, it is likely that in some future quarter the Company's operating results will be below the expectations of the Company and public market analysts and investors. In such event, the price of the Company's common stock would likely be materially adversely affected. The business applications software market is characterized by rapid technological change, frequent new product introductions, evolving industry standards and changes in customer demands. The introduction of products embodying new technologies and the emergence of new industry standards can render existing products obsolete and unmarketable. The Company's future success will depend in part on its ability to enhance products and services and to develop and introduce new products and services to meet changing customer requirements. There can be no assurance that the Company will be successful in developing and marketing product enhancements or new products that respond to technological change or evolving 12 13 industry standards, that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products and enhancements, or that any new products and product enhancements it may introduce will achieve market acceptance. In addition, there can be no assurance that the Company will not encounter product development delays in the future or that, despite testing by the Company, errors will not be found in new products or product enhancements after commencement of commercial shipments, resulting in loss of market share, delay in market acceptance, or warranty claims which could have a material adverse effect upon the Company's business, operating results and financial condition. As the Company's primary current source of revenue comes from customers using IBM mid-range computers, future revenue from licenses of present products and sales of services and recurring maintenance revenue are therefore dependent on continued widespread use of the AS/400 and the continued support of such computers by IBM. In addition, because the Company's current AS/400 product line requires the use of IBM's OS/400 operating system, the Company may be required to adapt its products to any changes made in such operating system in the future. The Company's inability to adapt to future changes in the OS/400 operating system, or delays in doing so, could have a material adverse effect on the Company's business, operating results and financial condition. Although the Company has recently introduced and is continuing to develop software applications to operate on the Microsoft Windows NT operating system, as well as to operate over the Internet and within corporate intranets, there can be no assurance that the Company will be successful in marketing and developing these new products. The Company's development and implementation of versions of its business software applications to run on Microsoft Windows NT servers involve more intense competition from a larger number of competitors. There can be no assurance that the Company will be successful in developing additional products for NT and marketing these products or will be able to compete successfully against current or future competitors. The business applications software market is highly competitive and rapidly changing. A number of companies offer products similar to the Company's products and target the same customers as the Company. The Company believes its ability to compete depends upon many factors within and outside its control, including the timely development and introduction of new products and product enhancements, product functionality, performance, price, reliability, customer service and support, sales and marketing efforts and product distribution. The Company believes that competition in its industry is undergoing rapid change and that the barriers to competition between market segments that have previously existed are decreasing. Due to the relatively low barriers to entry in the software market, the Company expects additional competition from other established and emerging companies as the client/server business applications software market continues to develop and expand. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on the Company's business, operating results and financial condition. There can be no assurance that the Company will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on the Company's business, operating results and financial condition. Revenue from customers outside North America represented 8.7%, 10.6% and 11.4% of the Company's total revenue in fiscal 1995, 1996 and 1997, respectively. The Company believes that its revenue and future operating results will depend, in part, on its ability to increase sales in international markets. There can be no assurance that the Company will be able to maintain or increase its current level of international revenue. An important part of the Company's strategy is to expand its indirect distribution channels in international markets. There can be no assurance that the Company will be able to attract and retain international distributors and resellers that will be able to market the Company's products effectively and will be qualified to provide timely and cost-effective customer support and service. The inability to attract and retain important resellers could materially and adversely affect the Company's business, operating results and financial condition. Other risks inherent in the Company's international business activities generally include unexpected changes in regulatory requirements, tariffs and other trade barriers, costs and 13 14 difficulties of localizing products for foreign countries, lack of acceptance of localized products in foreign countries, longer accounts receivable payments cycles, difficulties in managing international operations, potentially adverse tax consequences including restrictions on the repatriation of earnings, the burdens of complying with a wide variety of foreign laws and economic instability. There can be no assurance that such factors would not have a material adverse effect on the Company's future international revenue and, consequently, on the Company's business, operating results and financial condition. 14 15 PART II - OTHER INFORMATION Items 1 - 5. Not applicable Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit 27 Financial Data Schedule. (b) Reports on Form 8-K None 15 16 SIGNATURES 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: February 13, 1998 INFINIUM SOFTWARE, INC. by: /s/ DANIEL J. KOSSMANN -------------------------- Daniel J. Kossmann Chief Financial Officer 16 17 INFINIUM SOFTWARE, INC. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE ------ ----------- ---- 27 Financial Data Schedule 18
17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 5,292 42,903 20,281 1,399 0 73,279 18,266 11,430 91,505 47,857 0 0 0 122 43,526 91,505 7,718 24,234 1,549 8,465 14,237 380 0 1,549 496 1,053 0 0 0 1,503 0.09 0.08
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