-----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, AY6C67ueMQZsru4yEaPwaHcUSgIQH0MM1RGHtDyFTkBhRGx/2FGfeZqCpOvzjVPM ZTRuycHVENhLcV6npkoQJw== 0000802242-96-000003.txt : 19960724 0000802242-96-000003.hdr.sgml : 19960724 ACCESSION NUMBER: 0000802242-96-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERLINQ SOFTWARE CORP CENTRAL INDEX KEY: 0000802242 STANDARD INDUSTRIAL CLASSIFICATION: 7372 IRS NUMBER: 911187540 STATE OF INCORPORATION: WA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-21402 FILM NUMBER: 96566658 BUSINESS ADDRESS: STREET 1: 11255 KIRKLAND WAY CITY: KIRKLAND STATE: WA ZIP: 98033 BUSINESS PHONE: 2068271112 MAIL ADDRESS: STREET 1: 11255 KIRKLAND WAY CITY: KIRKLAND STATE: WA ZIP: 98033 10-Q 1 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, 1996 / / 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 0-21402 INTERLINQ SOFTWARE CORPORATION (Exact name of registrant as specified in its charter) Washington 91-1187540 ----------- ----------- (State of jurisdiction of (I.R.S.Employer incorporation or organization) Identification Number) 11255 Kirkland Way 98033 ------------------ ------- Kirkland, Washington (Zip Code) --------------------- (Address of principal executive offices) (206) 827-1112 -------------- (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 report), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ Indicate the number of shares outstanding of each of the issuer's classes of common stock. OUTSTANDING AT CLASS MAY 13, 1996 ------- ------------- Common Stock 5,920,850 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INTERLINQ SOFTWARE CORPORATION BALANCE SHEETS (DOLLARS IN THOUSANDS)
ASSETS MARCH 31, JUNE 30, 1996 1995 ------------ ------------ (UNAUDITED) Current assets: Cash and cash equivalents $8,257 $12,903 Short-term investments, at cost 5,818 1,471 Accounts receivable, net 1,504 1,075 Current portion of contracts receivable, ne 99 151 Income taxes refundable --- 987 Inventory 41 33 Prepaid expenses 317 282 Deferred income taxes 190 172 ------------ ------------ Total current assets 16,226 17,074 ------------ ------------ Property and equipment, at cost 4,928 4,620 Less accumulated depreciation and amortization 2,998 2,255 ------------ ------------ Net property and equipment 1,930 2,365 ------------ ------------ Contracts receivable, excluding current portion 18 28 Capitalized software costs, net 3,747 2,134 Other assets 8 8 ------------ ------------ $21,929 $21,609 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS) MARCH 31, JUNE 30, 1996 1995 ------------ ----------- (UNAUDITED) Current liabilities: Accounts payable $ 278 $ 123 Accrued compensation and benefits 368 391 Other accrued liabilities 272 280 Customer deposits 357 107 Income taxes payable 11 --- Deferred software support fees 2,846 2,535 ------------ ----------- Total current liabilities 4,132 3,436 ------------ ----------- Noncurrent liabilities: Deferred rent 418 446 Deferred software support fees 11 19 Deferred income taxes 264 370 ------------ ----------- Total noncurrent liabilities 693 835 ------------ ----------- Shareholders' equity: Common stock 59 60 Additional paid-in capital 12,873 13,168 Retained earnings 4,172 4,110 ------------ ----------- Total shareholders' equity 17,104 17,338 ------------ ----------- $21,929 $21,609 ============ ===========
INTERLINQ SOFTWARE CORPORATION STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MARCH 31, MARCH 31, 1996 1995 1996 1995 ------- ------- ------- ------- Net revenues: Software license fees $1,671 $780 $4,396 $3,058 Software support fees 1,426 1,345 4,220 4,137 Other 24 303 792 915 ------- ------- ------- ------- Total net revenues 3,345 2,428 9,408 8,110 ------- ------- ------- ------- Cost of revenues: Software license fees 390 376 1,142 1,052 Software support fees 383 431 1,281 1,343 Other 121 154 441 485 ------- ------- ------- ------- Total cost of revenues 894 961 2,864 2,880 ------- ------- ------- ------- Gross profit 2,451 1,467 6,544 5,230 ------- ------- ------- ------- Operating expenses: Product development 464 230 1,544 707 Sales and marketing 1,099 996 3,174 3,113 General and administrative 708 850 2,327 2,641 Other general expenses - nonrecurring 0 561 0 561 ------- ------- ------- ------- Total operating expenses 2,271 2,637 7,045 7,022 ------- ------- ------- ------- Operating income(loss) 180 (1,170) (501) (1,792) Net interest and other income 191 185 600 462 ------- ------- ------- ------- Income (loss) before income taxes 371 (985) 99 (1,330) Income taxes 129 (338) 37 (544) ------- ------- ------- ------- Net income (loss) $ 242 ($ 647) $ 62 ($ 786) ======= ======= ======= ======= Net income (loss) per common and common equivalent share $.04 ($.10) $.01 ($.12) ======= ======= ======= ======= Weighted average number of common and common equivalent shares outstanding 6,123 6,197 6,155 6,296 ======= ======= ======= =======
INTERLINQ SOFTWARE CORPORATION STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED ----------------------- MARCH 31, MARCH 31, 1996 1995 --------- --------- Cash flows from operating activities: Net income (loss) $ 62 ($ 786) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 760 894 Amortization of capitalized software costs 983 904 Amortization of LoanStar intangible --- 228 Write-off of Loanstar intangible --- 331 Gain on disposition of equipment (1) (1) Decrease (increase) in accounts receivable (429) 955 Decrease in contracts receivable 62 332 Decrease (increase) in inventory and prepaid expenses (43) 121 Increase (decrease) in deferred income taxes (124) 178 Increase in accounts payable 155 11 Decrease in accrued compensation and benefits,other accrued liabilities and deferred rent (59) (183) Increase in customer deposits 250 41 Decrease (increase) in income taxes refundable and payable 998 (169) Increase (decrease) in deferred software support fees 303 (415) Other --- 28 --------- --------- Net cash provided by operating activities 2,917 2,469 --------- --------- Cash flows from investing activities: Purchases of property and equipment (328) (304) Capitalized software costs (2,596) (1,395) Net sale (purchase) of short-term investments (4,347) 4,605 Proceeds from sale of property and equipment 5 5 --------- --------- Net cash provided by (used in) investing activities (7,266) 2,911 --------- --------- Cash flows from financing activities: Proceeds from issuance of common stock 16 41 Repurchase of common stock (313) (647) --------- --------- Net cash used in financing activities (297) (606) --------- --------- Net increase (decrease) in cash and cash equivalents (4,646) 4,774 Cash and cash equivalents at beginning of period 12,903 6,938 --------- --------- Cash and cash equivalents at end of period $8,257 $11,712 ========= =========
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Beginning with the fourth quarter of fiscal year 1995 and continuing into the second quarter of fiscal year 1996, long-term mortgage lending rates experienced their first significant decline since their increase early in calendar year 1994. However, during the most recent quarter ended March 31, 1996, long-term mortgage lending rates increased approximately one percentage point, demonstrating a lending environment that continues to experience a high degree of volatility. However, even after this recent increase in lending rates, the overall lending conditions are considered favorable compared to most historical measures. With this overall favorable lending environment, the Company believes that mortgage lending activity has increased, driven by an increase in financing of homes sales and refinancing of existing mortgages. If lending conditions and activity continue to be favorable, the Company believes mortgage lenders will be more inclined to improve their loan management systems and capacity, through the purchase of the Company's products and services. NET REVENUES Three months ended March 31, (In thousands) 1996 1995 Change - - ----------------- -------- -------- ------- Software license fees $1,671 $780 114% Software support fees 1,426 1,345 6% Other 248 303 (18%) - - ----------------- -------- -------- ------- Total net revenues $3,345 $2,428 38% -------- -------- ------- Net revenues consist of software license fees, software support fees and other revenues, which include training fees, custom document fees, interest income on contracts receivable and other miscellaneous sales, net of discounts and sales returns. Software license fees increased by 114% for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. This period-to-period increase was primarily attributable to a combination of the recovery in mortgage lending activity discussed above, which increased software license fees of existing products, and software license fees for three new products - MortgageWare Entre (formerly Loan Officer Plus for Windows), and interfaces to Freddie Mac's and Fannie Mae's automated underwriting systems. Software support fees increased by 6% for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. This period-to-period increase was primarily attributable to the low rate of attrition in the Company's existing customer base, combined with a modest increase in new customers. Due in part to changes, from time to time, in government regulations applicable to documentation required for residential mortgage lending, the vast majority of the Company's customers purchase annual software support agreements. However, because software support fees are recognized ratably over the term of the annual support agreement, whereas software license fees are recognized on product shipment, the percentage change in software support fees compared to software license fees is not directly proportional. For the balance of fiscal year 1996 and beyond, should the Company continue to experience an increase in software license fees, software support fees are likely to experience an increase as well. Training fees, custom document fees and other miscellaneous sales decreased by 18% for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. This period-to-period decrease was attributable primarily to a decrease in document fees. During the quarter ended December 31, 1995, the Company announced a marketing agreement with VMP Electronic Laser Forms to market their comprehensive library of mortgage lending documents to MortgageWare customers. The transition from the Company offering their own lending documents, to offering this comprehensive library, has been slower than anticipated. However, the Company expects revenue from this agreement to be greater in the quarter ended June 30, 1996 and going forward, than it was in the quarter ended March 31, 1996. While lending rates have remained in a generally favorable range, as discussed above, there can be no assurance that mortgage lending rates will not increase beyond a perceived favorable range or experience a high amount of volatility. Such increases or volatility could have a material adverse effect on the Company's revenues, profitability, and financial condition. Even if lending rates remain at their current level, if a change in perception dictates rates as being too high, homeowners and potential homeowners may delay decisions that would otherwise result in mortgage lending transactions. Such delays may have an adverse effect upon the Company's customers, and upon the Company and its operations. COST OF REVENUES Three months ended March 31, (In thousands) 1996 1995 Change - - ---------------------- -------- -------- -------- Software license fees $390 $376 4% Percentage of software license fees 23% 48% - - ---------------------- -------- -------- -------- Software support fees 383 431 (11%) Percentage of software support fees 27% 32% - - ---------------------- -------- -------- -------- Other 121 154 (21%) Percentage of other 49% 51% - - ---------------------- -------- -------- -------- Total cost of revenues $894 $961 (7%) Percentage of net revenues 27% 40% - - ---------------------- -------- -------- -------- Cost of software license fees includes the purchase and duplication of disks, product documentation, and amortization of capitalized software development costs. As a percentage of software license fees, cost of software license fees decreased from 48% to 23% for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. This decrease was primarily attributable to software license fees increasing more than the cost of software license fees, which include the relatively fixed component of amortization of capitalized software. The dollar amount of cost of software license fees increased 4% from $376,000 to $390,000 for the quarter ended March 31, 1996 compared to the same period in the previous year. This increase was primarily attributable to an increase in amortization of capitalized software development costs associated with the Secondary Marketing product and MortgageWare Entre (formerly Loan Officer Plus for Windows). These increases were partially offset by a decrease in amortization of capitalized software development costs associated with the MortgageWare for DOS product. Amortization of software development costs increased to $354,000 in the quarter ended March 31, 1996 compared to $348,000 for the same quarter in the previous year. The Company expects the dollar amount of its amortization of capitalized software development costs to hold steady or increase slightly for the remainder of fiscal year 1996. Cost of software support fees includes salaries and other costs related to providing telephone support, and the purchase, duplication and shipping of disks associated with software updates. As a percentage of software support fees, cost of software support fees decreased from 32% to 27% for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1994. This decrease was primarily attributable to the ongoing benefit of a reduced staffing level in conjunction with an expense reduction program implemented during the quarter ended December 31, 1995. The Company expects cost of software support fees to remain flat or increase slightly as a percentage of software support fees for the remainder of fiscal year 1996. Cost of other revenue includes the purchase and duplication of disks associated with custom documents, the salaries and reimbursable expenses for the customer service department employees who provide training services and the net cost of the Company's annual MortgageWare software users' group meeting. As a percentage of other revenue, cost of other revenue decreased from 51% to 49% for the quarter ended March 31, 1996 compared to the same period the previous year. This decrease was primarily attributable to the ongoing benefit of a reduced staffing level in conjunction with an expense reduction program implemented during the quarter ended December 31, 1995. OPERATING EXPENSES Three months ended March 31, (In thousands) 1996 1995 Change - - ----------------------- -------- -------- -------- Product development $464 $230 102% Percentage of net revenues 14% 9% - - ----------------------- -------- -------- -------- Sales & marketing 1,099 996 10% Percentage of net revenues 33% 41% - - ----------------------- -------- -------- -------- General & administrative 708 850 (17%) Percentage of net revenues 21% 35% - - ----------------------- -------- -------- -------- Other general expense - nonrecurring 0 561 (100%) Percentage of net revenues 0% 23% - - ----------------------- -------- -------- -------- Total operating expenses $2,271 $2,637 (14%) Percentage of net revenues 68% 109% - - ----------------------- -------- -------- -------- Product development expenses include salaries for software developers and analysts, facilities costs, and expenses associated with computer equipment used in software development. Product development expenses increased substantially by 102%, from $230,000 to $464,000, for the quarter ended March 31, 1996 compared to the quarter ended March 31, 1995. Product development expenses as a percentage of net revenues, increased from 9% to 14% for the quarter ended March 31, 1996 compared to the same period in 1995. This increase in product development expenditures is primarily due to a combination of increased costs associated with the development of new software products, MortgageWare Entre and loan servicing, and the maturity of MortgageWare for DOS requiring a greater percentage of development expenditures for maintenance, instead of enhancement. The Company capitalized $194,000 and $457,000 of development expenditures for the quarters ended March 31, 1996 and 1995 respectively. Sales and marketing expenses include salaries, sales commissions, as well as travel and facility costs for the Company's sales and marketing personnel. Sales and marketing expenses also include programs, such as advertising and trade shows. As a percentage of net revenues, sales and marketing expenses decreased from 41% to 33% for the quarter ended March 31, 1996 compared to the same period in the previous year. This decrease is primarily attributable to revenue increasing faster than sales and marketing expenses, which was somewhat offset by increased sales commission expense due to increased commissionable sales. General and administrative expenses include costs related to the finance, purchasing, order fulfillment, administrative and facility costs, and the amortization of certain LoanStar System assets. As a percentage of net revenues, general and administrative expenses decreased from 35% to 21% for the quarter ended March 31, 1996 compared to the same period the previous year. This decrease is primarily attributable to a combination of the elimination of the ongoing amortization of certain LoanStar System assets subsequent to their write-off during the quarter ended March 31, 1995, a lower bad debt provision and reduced professional services expense. The Company expects general and administrative costs to hold steady or decrease slightly for the remainder of fiscal year 1996. Other general expenses - nonrecurring, which occurred during the quarter ended March 31, 1995, consists of the write-off of the remaining net book value of the acquired assets of Loanstar Systems, Inc. ($331,000) and costs associated with departed executives ($230,000). There were no such expenses during the quarter, nor nine months ended March 31, 1996. NET INTEREST AND OTHER INCOME Three months ended March 31, (In thousands) 1996 1995 Increase - - -------------------------- -------- -------- -------- Net interest and other income (expense) $191 $185 3% Percentage of net revenues 6% 8% - - -------------------------- -------- -------- -------- Interest income was $194,000 and $189,000 for the quarters ended March 31, 1996 and 1995 respectively. This increase in interest income was attributable to higher rates earned on the investment portfolio. As of March 31, 1996, the Company had no interest-bearing debt outstanding, and anticipates no new debt financing in the foreseeable future. Accordingly, the Company expects net interest and other income for the foreseeable future to reflect net interest income. INCOME TAXES Three months ended March 31, (In thousands) 1996 1995 Decrease - - ---------------------------- -------- -------- -------- Income taxes $129 ($338) n/m Effective tax rate 35% (34%) The provision for income taxes includes federal and state income taxes currently payable or receivable, and deferred taxes arising from temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. The Company's effective income tax rate for the quarter ended March 31, 1996 reflects a shift to profitable operations from operations at a loss for the quarter ended March 31,1995. LIQUIDITY AND CAPITAL RESOURCES Working capital, which consists principally of cash, cash equivalents and short-term investments was $14,075,000 as of March 31, 1996, compared to $14,374,000 at June 30, 1995. Cash and cash equivalents decreased by $4,646,000 for the nine months ended March 31, 1996. Additions to cash and cash equivalents included $2,917,000 provided by operating activities. Principal uses of cash and cash equivalents included the purchase of $4,347,000 in short-term investments and $2,596,000 of capitalized software costs. Although the Company at March 31, 1996 has no material commitment for additional capital expenditures, it expects to spend approximately $500,000 for the fiscal year ending June 30, 1996, primarily for computer software and equipment. Long-term cash requirements, other than normal operating expenses, are anticipated for development of new software products and enhancement of existing products, financing anticipated growth, the possible acquisition of other software products, technologies and businesses and, the possible repurchase of the Company's common stock. The Company believes that its existing cash, cash equivalents, short-term investments, and cash generated by operations will be sufficient to satisfy its currently anticipated cash requirements for the balance of fiscal 1996 and the foreseeable future. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 2. CHANGES IN SECURITIES None. Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS None. Item 5. OTHER INFORMATION None. Item 6. EXHIBITS AND REPORTS ON FORM 8-K None. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INTERLINQ SOFTWARE CORPORATION ------------------------------- (Registrant) Date: May 12, 1996 By: /s/ Stephen A. Yount -------------- ---------------------- Stephen A. Yount Vice President, Finance Chief Financial Officer EXHIBIT INDEX Exhibit Method of Filing - - ------- ---------------- 27. Financial Data Schedules Filed herewith electronically EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON PAGES 2, 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS JUN-30-1996 JUL-01-1995 MAR-31-1996 8,257 5,818 1,504 0 41 16,226 4,928 2,998 21,929 4,132 0 0 0 59 17,045 21,929 4,396 9,408 1,142 2,864 7,045 0 0 99 37 62 0 0 0 62 0 .01
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