-----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, TEywmLlBQJW5jf3UOAHpXGN62l/ckNzHjST56Tm3IyTZbYLC0nq9GKmh9ekPCLWB edPhtd0WcA2QCppCLGxCIg== 0000897069-97-000155.txt : 19970329 0000897069-97-000155.hdr.sgml : 19970329 ACCESSION NUMBER: 0000897069-97-000155 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: EFFECTIVE MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000853372 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 391292200 STATE OF INCORPORATION: WI FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-23438 FILM NUMBER: 97567497 BUSINESS ADDRESS: STREET 1: 12000 WEST PARK PL CITY: MILWAUKEE STATE: WI ZIP: 53224 BUSINESS PHONE: 4143599800 10-Q 1 EFFECTIVE MANAGEMENT SYSTEMS, INC. FORM 10-Q U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED February 28, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission file number 0-23438 Effective Management Systems, Inc. (Exact name of registrant as specified in its charter) Wisconsin 39-1292200 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 West Park Place Milwaukee, WI 53224 (Address of principal executive offices) 414-359-9800 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the registrant's classes of common stock as of the latest practicable date. Class Outstanding as of February 28, 1997 Common Stock, $.01 par value 4,024,892 EFFECTIVE MANAGEMENT SYSTEMS, INC. Form 10-Q February 28, 1997 INDEX PART 1 - FINANCIAL INFORMATION PAGE Item 1 Financial Statements Consolidated Balance Sheets at February 28, 1997 and November 30, 1996 3 Consolidated Statements of Income - Three Months Ended February 28, 1997 and February 29, 1996 5 Consolidated Statements of Cash Flows - Three 6 Months Ended February 28, 1997 and February 29, 1996 Notes to Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 13 SIGNATURES 14 PART I Financial Information Item 1 Financial Statements EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited except for November 30, 1996 amounts) ASSETS 28-Feb 30-Nov 1997 1996 CURRENT ASSETS Cash $129 $866 Investments in available-for-sale securities 255 505 Accounts Receivable: Trade, less allowance for doubtful accounts 10,183 11,146 Related Parties 776 693 Inventories 409 391 Refundable Income Taxes 804 159 Deferred Income Taxes 175 175 Prepaid Expenses and Other Current Assets 362 288 ------- ------- TOTAL CURRENT ASSETS 13,093 14,223 LONG TERM ASSETS Computer Software, net 6,075 5,781 Investments in and Advances to Unconsolidated Joint Ventures 199 199 Equipment and Leasehold Improvements, net 4,134 3,961 Intangible Assets, net 2,632 2,690 Other Assets 594 592 ------- ------- TOTAL LONG TERM ASSETS 13,634 13,223 ------- ------- TOTAL ASSETS $26,727 $27,446 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited except for November 30, 1996 amounts) LIABILITIES AND STOCKHOLDERS' EQUITY 28-Feb 30-Nov 1997 1996 CURRENT LIABILITIES Accounts Payable $1,856 $2,026 Accrued Liabilities 1,288 2,846 Deferred Revenues 5,004 4,605 Customer Deposits 105 109 Current portion of Long-term Obligations 527 127 ------- ------ TOTAL CURRENT LIABILITIES 8,780 9,713 LONG TERM LIABILITIES Deferred Revenue and Other Long-term Liabilities 464 453 Long-term Obligations 3,139 2,123 Deferred Income Taxes 560 560 ------- ------- TOTAL LONG TERM LIABILITIES 4,163 3,136 Commitments and Contingencies - - STOCKHOLDERS' EQUITY Preferred Stock, $.01 par value; authorized 3,000,000 shares; none issued or outstanding - - Common Stock, $.01 par value; authorized 20,000,000 shares; issued 4,027,517 and 4,011,018 shares; outstanding 4,024,892 and 4,008,393 shares 41 41 Common Stock Warrants 4 4 Additional Paid- in Capital 11,207 11,137 Retained Earnings 2,537 3,420 Cost of Common Stock in Treasury (2,625 shares) (5) (5) ------- ------- TOTAL STOCKHOLDERS' EQUITY 13,784 14,597 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $26,727 $27,446 ======= ======= The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share data) (unaudited) THREE MONTHS ENDED 28-Feb 29-Feb 1997 1996 NET REVENUES: Software license fees $4,211 $3,675 Services 4,246 3,617 Hardware 1,018 2,351 ------ ------ Total net revenues $9,475 $9,643 COST OF PRODUCTS AND SERVICES Software license fees 1,177 862 Services 3,701 2,736 Hardware 882 1,813 ------ ------ Total cost of products and services $5,760 $5,411 Selling and marketing expenses 3,381 3,097 General and administrative expenses 1,065 833 Product development expenses 704 477 ------ ------ Total costs and operating expenses $10,910 $9,818 ------ ------ LOSS FROM OPERATIONS $(1,435) $(175) Other (Income)/ Expense Equity (earnings)/loss of unconsolidated joint ventures 2 (3) Interest (income) (15) (22) Interest expense 75 14 ------ ------ 62 (11) ------ ------ LOSS BEFORE INCOME TAXES $(1,497) $(164) Income Tax Benefit (614) (73) ------ ------ NET LOSS $(883) $(91) ====== ====== Loss per share ($0.22) ($0.02) Weighted average common and equivalent shares outstanding 4,025 3,932 The accompanying notes are an integral part of these consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) THREE MONTHS ENDED 28-Feb 29-Feb 1997 1996 OPERATING ACTIVITIES Net Loss ($883) ($91) Adjustments to reconcile net income(loss) to net cash provided(used) by operating activities: Depreciation and amortization 281 275 Amortization of capitalized computer software development costs 644 475 Equity in earnings of joint ventures - (3) Goodwill Amortization 58 67 Changes in operating assets and liabilities: Accounts Receivable 917 (286) Inventories and other current assets (774) (109) Accounts payable and other liabilities (922) (665) ------ ------ Total adjustments 204 (246) Net cash used in operating activities (679) (337) INVESTING ACTIVITIES Additions to equipment and leasehold improvements (454) (318) Proceeds from sale (purchase) of securities 250 263 Software development costs capitalized (938) (770) Other (2) (23) ------ ------ Net cash used in investing activities (1,144) (848) FINANCING ACTIVITIES Proceeds(payments) on long-term debt and other notes payable 1,016 1,124 Additional paid in capital 70 17 ------- ------- Net cash provided(used) by financing activities 1,086 1,141 ------- ------- Net decrease in cash ($737) ($44) Cash-beginning of period 866 335 Cash-end of period 129 291 ======= ======= The accompanying notes are an integral part of these condensed consolidated financial statements. EFFECTIVE MANAGEMENT SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS February 28, 1997 (Unaudited) (In Thousands) Note 1 - Basis of Presentation The accompanying consolidated interim financial statements included herein have been prepared by Effective Management Systems, Inc. (the "Company"), without an audit, in accordance with generally accepted accounting principles for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the opinion of management, the information furnished for the three- month periods ended February 28, 1997 and February 29, 1996 includes all adjustments, consisting solely of normal recurring accruals, necessary for a fair presentation of the financial position and results of operations for the interim periods. The results of operations for the three months ended February 28, 1997 are not necessarily indicative of the results of operations to be expected for the entire fiscal year ending November 30, 1997. It is suggested that the interim financial statements be read in conjunction with the audited consolidated financial statements for the year ended November 30, 1996 included in the Company's Form 10-KSB filed with the Securities and Exchange Commission. Note 2 - Additional Financial Disclosure Equipment and leasehold improvements consisted of the following: 2-28-1997 11-30-1996 Gross $8,629 $8,169 Less: Accumulated Depreciation < 4,495> < 4,208> ------- ------- Net $4,134 $3,961 Allowance for doubtful accounts consisted of the following: 2-28-1997 11-30-1996 Balance $ 392 $ 346 Provision for doubtful accounts consisted of the following: 2-28-1997 11-30-1996 Balance $ 51 $ 113 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company recorded a small decrease in revenues (1.7%) and a net loss of $882,000 for the first quarter of 1997 compared with a net loss of $91,000 for the first quarter of 1996. Revenues were significantly under budgeted levels reflecting both a delay in the finalization of a large contract and a decrease in the anticipated level of new account sales. The increased net loss resulted mainly from the expense of building the infrastructure necessary to support higher levels of revenues which did not materialize. These expenses related to strategic investments in product development and field service infrastructure. Management believes these strategic investments have the potential to positively enhance future revenues and profitability. Results of Operations Total Revenues Net revenues decreased to $9,475,000 for the three months ended February 28, 1997, which was a decrease of 1.7% from the $9,643,000 for the same quarter in the previous year. The decline in revenues was attributable to a delay in the finalization of a large contract, a decrease in the level of new account sales and a decrease in hardware revenues. The mix of revenues comparing software, services, and hardware revenues as a percentage of total revenues improved to 44.4%, 44.8%, and 10.8%, respectively, in the first quarter of 1997 as compared with 38.1%, 37.5%, and 24.4%, respectively, in the first quarter of 1996. International revenues represented less than 10% of total revenues for all periods presented. The Company's operating revenues can vary substantially from quarter to quarter based on the size and timing of customer orders and market acceptance of new products. The Company has historically operated with little backlog because software orders are generally shipped as orders are received. As a result, product revenue in any quarter is substantially dependent on orders booked and shipped during that quarter. Software License Fees Software license fees are customer charges for the right to use the Company's software products. Software license fees increased 14.6% to $4,211,000 in the first quarter of 1997 from $3,675,000 in the first quarter of 1996. The increase in software license fees was attributable to increased levels of sales activity. Between February 29, 1996 and February 28, 1997, the Company added 14 sales and marketing personnel through new hiring. The Company also continued its strategic plan to undertake efforts to incorporate new technologies into its products and to integrate certain products into its product lines from its acquisition of Intercim Corporation in fiscal 1995. These activities are intended to be completed at various times in the future, and management believes that the successful completion of these efforts will ultimately provide the Company with significant competitive differentiation and advantage. Service Revenues The Company offers a number of optional services to its customers including such services as a telephone support program, systems integration, custom software development, implementation consulting, and formal classroom and on-site training. Service revenues increased 17.4% to $4,246,000 for the three months ended February 28, 1997 from $3,617,000 for the same period of the prior year. The increase in service revenues was mainly the result of new customers, as well as requirements of the established customer base. Hardware Revenues Hardware revenues decreased 56.7% to $1,018,000 in the first quarter of 1997 compared with $2,351,000 for the corresponding period of 1996. The decrease was due to increased sales of software on platforms for which the Company does not supply hardware and a higher percentage of sales to established customers for which hardware was sold in a prior period. Hardware revenues are generally impacted by three major influences. First, and most significant, management has decided to focus its efforts on sales of higher margin software and services. The Company offers its software on a "software only basis" (no hardware) for those customers who already have hardware or who may wish to purchase it from other vendors. Second, as the volume of business grows, hardware revenues can increase correspondingly. Finally, hardware revenues are related to the number of hardware manufacturers represented at any one time by the Company. These three factors in combination can work to increase or decrease hardware revenues in any given period. To date, however, they have generally resulted in a long-term decline in hardware sales as a percentage of total revenue. Cost of Software License Fees The cost of software license fees as a percentage of related revenue was 28.0% for the first quarter of 1997, an increase from 23.5% for the corresponding period of 1996. Cost of software license fees is composed of both amortization of past investment in software development and the costs associated with third party software revenues. Software amortization is related to past investment in software development and does not vary consistently with variations in software revenues. Software amortization accounted for an increase of 2.3% in the cost of software license fees as a percent of software license fee revenues for the periods shown. The cost of software license fees is also dependent on the level of revenues from third party-supplied software and the associated costs. In the first quarter of 1997, the costs associated with third party- supplied software increased by 29.5% over the first quarter of 1996. Cost of Services The cost of services as a percentage of related revenue increased to 87.2% for the three months ended February 28, 1997 as compared with 75.6% for the same quarter in the previous year. The increase was mainly due to reduced growth in new account business, the startup and training costs associated with newly hired personnel, and additional costs related to the building of a service infrastructure ($105,000 year to date or 2.5% of service revenues) for both ongoing business growth and the establishment of new third party selling relationships. The Company hired a net of 30 new service personnel between February 29, 1996 and February 28,1997. The service infrastructure costs include investments to strengthen the support of national and international third party suppliers of service in conjunction with the continued expansion of distribution channels. Cost of Hardware The cost of hardware as a percentage of related revenue increased from 77.1% in the first quarter of 1996 to 86.6% in the first quarter of 1997. The cost of hardware as a percentage of related revenue varies with the size of the system, the manufacturer of the equipment, and the competitive pressure of the customer sale. Additionally, the cost of hardware as a percentage of hardware revenues can vary due to the amount of lower margin sales (cost plus 11%) to joint ventures, which were $189,000 and $370,000 in the first quarter of 1997 and 1996, respectively. Selling and Marketing Expenses Selling and marketing expenses increased $284,000 or 9.2% from $3,097,000 in the first quarter of 1996 to $3,381,000 in the first quarter of 1997. Between February 29, 1996 and February 28,1997, the Company added a net of 14 sales and marketing personnel through new hiring. The increases in sales and marketing expenses corresponded to growth in software license fees. General and Administrative Expenses General and administrative expenses increased $227,000 or 27.9%, from $833,000 in the first quarter of 1996 to $1,065,000 in first quarter of 1997. The increase was mainly due to rising expenses for both telephone ($106,000) and compensation ($44,000). As a percentage of total revenues, general and administrative expenses were 11.2% and 8.6% in the first quarter of 1997 and 1996, respectively. The Company also provides office space, accounting and administrative services, computer processing time, and other miscellaneous services to EMS Solutions, Inc., an affiliated entity. The amounts received by the Company for these items were $46,000 in the first quarter of 1997, as compared with $82,000 in the first quarter of 1996. Amounts received from EMS Solutions, Inc. are recorded as a reduction of general and administrative expenses. Product Development Expense Product development expense increased 47.6% from $477,000 in the first quarter of 1996 to $704,000 in the first quarter of 1997. The Company capitalizes costs in accordance with Statement of Financial Accounting Standard (SFAS) No. 86. The Company capitalized $938,000 in the first quarter of 1997 compared to $770,000 in the first quarter of 1996. As a percent of software license fees, the total amount invested in software development was 39.0% and 33.9% in the first quarter of 1997 and 1996, respectively. This increase was focused mainly on the incorporation of various new technologies into the Company's software products. Management expects to continue the level of investment in product development at or slightly above the levels recorded in the first quarter of 1997. Other Income\Expense-Net Other income\expense-net was $11,000 of income for the first quarter of 1996 compared to $62,000 of expense for the first quarter of 1997. This decrease was mainly the result of a reduction in interest income and an increase in interest expense as a result of increased borrowings under the Company's bank line of credit. Income Tax The effective income tax rate provided a benefit of 41.0% for the first quarter of 1997 compared to a benefit of 44.5% for the first quarter of 1996. The change in the effective rate was mainly the result of investments in tax-exempt securities. Liquidity and Capital Resources At February 28, 1997, the Company had cash and marketable securities aggregating $384,000, including $255,000 of available-for-sale securities. During the first quarter of 1997, the Company's operating activities used $679,000 of cash compared to $337,000 of cash for the same period of the prior year. Investing activities used cash of $1,144,000 in the first quarter of 1997 compared to $848,000 of cash in the first quarter of 1996. The principal uses of the cash in the first quarter of 1997 included $938,000 for capitalized product development and $454,000 for purchases of equipment and furniture. The principal uses of the cash in the first quarter of 1996 included $770,000 for capitalized product development and $318,000 for purchases of equipment and furniture. Management expects a decrease in the current level of capital expenditures in conjunction with the anticipated lower level of new employee hires. Financing activities provided $1,086,000 of cash in the first quarter of 1997 compared with $1,141,000 in the first quarter of 1996. The cash provided in 1997 reflected borrowings under the Company's bank line of credit. As of February 28, 1997, the Company had $2,100,000 available under its $5,000,000 line of credit which is based on the level of the eligible accounts receivable. The Company believes its cash flows from operations, funds available under its line of credit, funds available from investment securities and, if needed, other capital financing will be adequate to finance capital expenditures and working capital requirements for at least the next twelve months. Part II - Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (27.0) Financial Data Schedule [EDGAR version only] (b) Reports on Form 8-K None SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. EFFECTIVE MANAGEMENT SYSTEMS, INC. /S/ MICHAEL D. DUNHAM March 26, 1997 Michael D. Dunham President (principal executive officer) /S/ JEFFREY J. FOSSUM Jeffrey J. Fossum Chief Financial Officer and Assistant Treasurer (principal financial and accounting officer) INDEX TO EXHIBITS Exhibit No. Exhibit Description 27. Financial Data Schedule [EDGAR version only] EX-27 2
5 1,000 3-MOS NOV-30-1997 DEC-01-1996 FEB-28-1997 129 255 11,351 392 409 13,093 8,629 4,495 26,727 8,780 0 0 0 41 13,743 26,727 1,018 9,475 882 10,028 62 51 60 (1497) (614) (883) 0 0 0 (883) (.22) 0 Not required to be calculated in accordance with generally accepted accounting principles.
-----END PRIVACY-ENHANCED MESSAGE-----