-----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, P9R5E6NVY9HEjehQ/BSla3FBrZ69XymXfCuNXvtDTmsMhpa6n/dRtX6T0DiXYUWb pE/KayB1Q/bluRWqNK9JMg== 0000929624-97-001395.txt : 19971117 0000929624-97-001395.hdr.sgml : 19971117 ACCESSION NUMBER: 0000929624-97-001395 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOPUS TECHNOLOGY INC CENTRAL INDEX KEY: 0000894705 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943134998 STATE OF INCORPORATION: CA FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26948 FILM NUMBER: 97717773 BUSINESS ADDRESS: STREET 1: 1900 POWELL ST SUITE 700 CITY: EMERYVILLE STATE: CA ZIP: 94608 BUSINESS PHONE: 5104280500 MAIL ADDRESS: STREET 1: 1900 POWELL STREET CITY: EMERYVILLE STATE: CA ZIP: 94608 10-Q 1 FORM 10-Q ================================================================================ 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 Quarter Ended September 30, 1997 OR [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number 0-26948 ---------------- SCOPUS TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) California 94-3134998 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 1900 Powell St., 7th Floor Emeryville, CA 94608 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES & ZIP CODE) Registrant's telephone number: (510)-597-5800 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 --- --- There were 20,463,150 shares of the registrant's $.001 par value Common Stock outstanding as of September 30, 1997. ================================================================================ SCOPUS TECHNOLOGY, INC. TABLE OF CONTENTS
PAGE ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets........................ 3 Condensed Consolidated Statements of Operations.............. 4 Condensed Consolidated Statements of Cash Flows.............. 5 Notes to Condensed Consolidated Financial Statements......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 7 PART II. OTHER INFORMATION Item 6. List of Exhibits and Reports on Form 8-K..................... 17 Signatures............................................................... 18 Index to Exhibits........................................................ 19
Page 2 SCOPUS TECHNOLOGY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED) MARCH 31, SEPTEMBER 30, 1997 1997 (IN THOUSANDS) --------- ------------- Assets Current assets: Cash and cash equivalents............................. $ 54,824 $ 47,379 Investments........................................... 24,417 28,384 Accounts receivable, net.............................. 17,712 20,982 Prepaid expenses and other............................ 2,686 3,804 -------- -------- Total current assets................................ 99,639 100,549 Property and equipment, net............................. 7,038 9,782 Other assets............................................ 1,852 3,237 -------- -------- Total assets........................................ $108,529 $113,568 ======== ======== Liabilities and Shareholders' Equity Current liabilities: Accounts payable...................................... $ 2,234 $ 2,195 Accrued liabilities................................... 7,177 6,430 Income taxes payable.................................. 1,938 1,582 Deferred revenue...................................... 4,856 4,509 -------- -------- Total current liabilities........................... 16,205 14,716 Shareholders' equity: Common stock and paid-in capital...................... 80,134 83,079 Retained earnings..................................... 12,190 15,773 -------- -------- Total shareholders' equity.......................... 92,324 98,852 -------- -------- Total liabilities and shareholders' equity.......... $108,529 $113,568 ======== ========
See accompanying notes Page 3 SCOPUS TECHNOLOGY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ------------------- ----------------- 1996 1997 1996 1997 --------- --------- -------- -------- Revenues: Licenses................................... $ 10,043 $ 13,027 $ 17,424 $ 28,033 Services and maintenance................... 3,458 7,008 6,380 13,609 --------- --------- -------- -------- Total revenues........................... 13,501 20,035 23,804 41,642 --------- --------- -------- -------- Cost of revenues: Licenses................................... 244 639 839 1,054 Services and maintenance................... 2,217 4,457 4,178 8,617 --------- --------- -------- -------- Total cost of revenues................... 2,461 5,096 5,017 9,671 --------- --------- -------- -------- Gross margin................................. 11,040 14,939 18,787 31,971 Operating expenses: Sales and marketing........................ 5,642 9,607 9,703 19,178 Research and development................... 2,080 2,730 3,860 5,244 General and administrative................. 1,200 1,708 2,050 3,366 --------- --------- -------- -------- Total operating expenses................. 8,922 14,045 15,613 27,788 --------- --------- -------- -------- Income from operations....................... 2,118 894 3,174 4,183 Other income, net............................ 265 740 576 1,505 --------- --------- -------- -------- Income before income taxes................... 2,383 1,634 3,750 5,688 Provision for income taxes................... 882 605 1,401 2,105 --------- --------- -------- -------- Net income................................... $ 1,501 $ 1,029 $ 2,349 $ 3,583 ========= ========= ======== ======== Net income per share......................... $ 0.08 $ 0.05 $ 0.12 $ 0.17 ========= ========= ======== ======== Shares used in per share computations........ 19,160 21,635 19,136 21,699 ========= ========= ======== ========
See accompanying notes Page 4 SCOPUS TECHNOLOGY, INC CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) SIX MONTHS ENDED SEPTEMBER 30, ------------------ 1996 1997 (In thousands) -------- -------- Cash flows from operating activities: Net income................................................ $ 2,349 $ 3,583 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization............................ 830 1,753 Noncash charges (credits), net........................... 429 (8) Changes in assets and liabilities: Increase in accounts receivable......................... (3,923) (3,270) Increase in prepaid expenses and other.................. (1,419) (2,503) Increase (decrease) in accounts payable................. 1,218 (39) Increase (decrease) in accrued liabilities.............. 1,057 (747) Increase in income taxes payable........................ 99 1,004 Increase (decrease) in deferred revenue................. 393 (347) -------- -------- Net cash provided by (used in) operating activities........ 1,033 (574) -------- -------- Cash flows from investing activities: Purchase of investments................................... (8,138) (7,913) Proceeds from sale/maturity of investments................ 4,894 3,946 Purchase of property and equipment........................ (2,869) (4,465) Proceeds from disposal of property and equipment.......... 45 9 -------- -------- Net cash used in investing activities...................... (6,068) (8,423) -------- -------- Cash flows from financing activities: Proceeds from exercise of common stock options............ 225 948 Proceeds from issuance of stock under Employee Stock Purchase Plan............................................ 429 604 -------- -------- Net cash provided by financing activities.................. 654 1,552 -------- -------- Net decrease in cash and cash equivalents.................. (4,381) (7,445) Cash and cash equivalents at beginning of period........... 21,792 54,824 -------- -------- Cash and cash equivalents at end of period................. $ 17,411 $ 47,379 ======== ========
See accompanying notes Page 5 SCOPUS TECHNOLOGY, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows. The results of operations for the three and six months ended September 30, 1997 are not necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally contained in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in Scopus Technology, Inc.'s Report on Form 10-K for the year ended March 31, 1997. NOTE 2. INCOME TAXES As a result of employee stock option exercises during the six months ended September 30, 1997, the Company recognized tax benefits of $179,000 and $1,360,000, respectively, for the three and six months ended September 30, 1997. This benefit was credited directly to shareholders' equity and, accordingly, was not reflected in the income tax provision. NOTE 3. STOCK SPLIT All share and per share data in this Form 10-Q have been adjusted to give effect to the three-for-two stock split distributed on February 19, 1997 to holders of record on February 7, 1997. NOTE 4. SUBSEQUENT EVENTS On October 22, 1997, the Company entered into a definitive agreement to acquire Clear With Computers, Inc. of Mankato, Minnesota ("CWC"), a leading provider of interactive selling systems. In connection with the transaction, the Company will issue approximately 5,700,000 shares of common stock in exchange for the outstanding stock and options of CWC. Based upon the closing price of the Company's common stock on October 22, 1997, the total value of the transaction is approximately $90 million. The transaction is subject to approval by the shareholders of each company, regulatory approvals and other customary closing conditions. The transaction is expected to be accounted for as a purchase, and is expected to result in a substantial one-time write off of in-process research upon consummation of the transaction. In October 1997, the Company completed a voluntary stock option repricing program in which approximately 1,600,000 stock options, originally issued with exercise prices ranging from $14.31 to $34.50 per share, were reissued with an exercise price of $14.00 per share. These options are generally exercisable over four years and the Company has maintained the vesting schedule from the original grants. NOTE 5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1997, Statement of Financial Accounting Standards No. 129, "Disclosure of Information about Capital Structure" was issued and is effective for the Company's year ending March 31, 1998. In June 1997, Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and Statement of Financial Accounting Standards No. 131, "Disclosures About Segments of An Enterprise and Related Information" were issued and are effective for the year ending March 31, 1999. The Company has not determined the impact of the implementation of these pronouncements. Page 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This report contains forward-looking statements that involve risks and uncertainties. The statements contained in this report that are not purely historical are forward looking statements within in the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation statements regarding the Company's expectations, beliefs, intentions or strategies regarding the future. All forward looking statements included in this report are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. The Company's actual results could differ materially from those anticipated in these forward looking statements as a result of certain factors, including those set forth below, under "Overview", "Factors that May Affect Our Business" and elsewhere in this report. OVERVIEW The Company's quarterly operating results have varied substantially in the past and are likely to vary substantially from quarter to quarter in the future due to a variety of factors. In particular, the Company's period-to- period operating results are significantly dependent upon the timing of the closing of large license agreements. In this regard, the purchase of the Company's products can require a significant capital investment from a potential customer which the customer generally views as a discretionary cost that can be deferred or canceled due to budgetary or other business reasons. Estimating future revenues is also difficult because the Company ships its products soon after an order is received and as such does not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, the Company has generally recorded a significant portion of its total quarterly revenues in the third month of a quarter, with a concentration of these revenues in the last half of that third month. This concentration of revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. The Company expects these revenue patterns to continue for the foreseeable future. In addition, quarterly license revenues are also dependent on the timing of revenue recognition, which can be affected by many factors, including the timing of customer installations and the fulfillment of acceptance criteria. In this regard the Company has from time to time experienced delays in recognizing revenues with respect to certain orders. Despite the uncertainties in its revenue patterns, the Company's operating expenses are based upon anticipated revenue levels and such expenses are incurred on an approximately ratable basis throughout the quarter. As a result, if expected revenues are deferred or otherwise not realized in a quarter for any reason, the Company's business, operating results and financial condition would be materially adversely affected. In recent periods, the Company has sought to increase the use of third party consultants and system integrators to provide implementation, customization and consulting services directly to the Company's customers. The Company's increasing reliance on such third party consultants and systems integrators poses several risks that could have a material adverse effect on the Company's business, operating results and financial condition. For example, there can be no assurance that these third party providers, who have direct obligations to the Company's customers, will be able to continue to provide a level of quality of service required to meet the needs of such customers. If the Company is unable to develop further and to maintain effective, long-term relationships with these third parties, or if these third parties fail to meet the needs of the Company's customers in a timely fashion, the Company's business, operating results and financial condition will be materially adversely affected. Page 7 RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain condensed consolidated statement of operations data expressed as a percentage of total revenues:
(UNAUDITED) (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- ------------------ 1996 1997 1996 1997 --------- --------- -------- -------- Revenues: Licenses............................ 74.4% 65.0% 73.2% 67.3% Services and maintenance............ 25.6 35.0 26.8 32.7 --------- --------- -------- -------- Total revenues.................... 100.0 100.0 100.0 100.0 --------- --------- -------- -------- Cost of revenues: Licenses............................ 1.8 3.2 3.5 2.5 Services and maintenance............ 16.4 22.2 17.6 20.7 --------- --------- -------- -------- Total cost of revenues............ 18.2 25.4 21.1 23.2 --------- --------- -------- -------- Gross margin.......................... 81.8 74.6 78.9 76.8 Operating expenses: Sales and marketing................. 41.8 48.0 40.8 46.1 Research and development............ 15.4 13.6 16.2 12.6 General and administrative.......... 8.9 8.5 8.6 8.0 --------- --------- -------- -------- Total operating expenses.......... 66.1 70.1 65.6 66.7 --------- --------- -------- -------- Income from operations................ 15.7 4.5 13.3 10.1 Other income, net..................... 2.0 3.7 2.4 3.6 --------- --------- -------- -------- Income before income taxes............ 17.7 8.2 15.7 13.7 Provision for income taxes............ 6.5 3.0 5.9 5.1 --------- --------- -------- -------- Net income............................ 11.2 5.2 9.8 8.6 ========= ========= ======== ========
Revenues The Company recognizes revenue in accordance with the provisions of Statement of Position 91-1 "Software Revenue Recognition." The Company generates revenue primarily from licensing the rights to use its software products to end users and to a lesser extent from sublicense fees from resellers. The Company also generates revenues from consulting, training and maintenance services performed for customers who license its products. Revenues from perpetual software license agreements are recognized as revenue upon receipt of an executed license agreement, (or an unconditional purchase order under an existing license agreement), and shipment of the software, if there are no significant post-delivery obligations and collection of the receivables is probable. Revenues from maintenance services are recognized ratably over the term of the maintenance periods which are typically one year. If maintenance services are included free of charge or discounted in a license agreement, such amounts are unbundled from the license fee at their fair market value based upon the value established by independent sales of such maintenance services to customers. Consulting and training revenues are generally recognized as the services are performed. Consulting services are typically performed under separate service agreements and are usually performed on a time and materials basis. Such services primarily consist of implementation services related to the installation of the Company's products and do not include significant customization to or development of the underlying software code. Page 8 Licenses. License revenues increased 30% from $10.0 million for the three months ended September 30, 1996 to $13.0 million for the three months ended September 30, 1997, representing 74% and 65% of total revenues in the respective periods. License revenues also increased 61% from $17.4 million for the six months ended September 30, 1996 to $28.0 million for the six months ended September 30, 1997, representing 73% and 67% of total revenues in the respective periods. The increase in license revenues in absolute dollars was primarily due to increasing market awareness and acceptance of the Company's product offerings, continuing enhancement and increasing breadth of the Company's product offerings, expansion of the Company's sales and marketing organization and sales to new industry segments. The reduced rate of growth of license revenues for the three months ended September 30, 1997 over the prior year period, as compared to the corresponding rate of growth for the first quarter of the year, was primarily due a shift in the mix of license transactions towards larger transactions and a corresponding lengthening of the sales cycle with respect to these larger transactions as well as services and maintenance revenues growing faster than license revenues. Services and Maintenance. Services and maintenance revenues increased 103% from $3.5 million for the three months ended September 30, 1996 to $7.0 million for the three months ended September 30, 1997, representing 26% and 35% of total revenues in the respective periods. Services and maintenance revenues also increased 113% from $6.4 million for the six months ended September 30, 1996 to $13.6 million for the six months ended September 30, 1997, representing 27% and 33% of total revenues in the respective periods. The increase in services and maintenance revenues were primarily the result of increased demand for consulting and systems implementation services from customers purchasing the Company's products for large scale enterprise-wide implementations, and increases in maintenance revenues from a larger installed product base. The increase in services and maintenance revenues as a percentage of total revenues was primarily due to services and maintenance revenues growing faster than license revenues, due to the shift in the mix of license transactions towards larger transactions as discussed above. Cost of Revenues Licenses. Cost of licenses consist primarily of royalty payments to third party software vendors and costs of product media, duplication and packaging. Cost of licenses increased from $244,000 for the three months ended September 30, 1996 to $639,000 for the three months ended September 30, 1997, representing 2% and 5% of license revenues respectively. Cost of licenses increased from $839,000 for the six months ended September 30, 1996 to $1.0 million for the six months ended September 30, 1997, representing 5% and 4% of license revenues in the respective periods. The increase in cost of licenses in absolute dollars for the three months ended September 30, 1997 and as a percentage of license revenues is primarily a result of a higher level of sales of third party software incorporated in the solutions sold by the Company. The increase in cost of licenses in absolute dollars for the six months ended September 30, 1997 is primarily a result of higher royalty fees paid to third party software vendors because of a higher level of sales of third party software as compared to the similar period in the prior year. Although the Company does not expect revenues and costs from the distribution of third party software vendors to be significant in future periods, period to period fluctuations in the level of such revenues may occur and the Company's gross margins and results of operations could be materially adversely affected. Services and Maintenance. Cost of services and maintenance increased from $2.2 million and $4.2 million for the three month and six month periods ended September 30, 1996 to $4.5 million and $8.6 million for the comparable periods in 1997. Cost of services and maintenance revenues as a percentage of services and maintenance revenues were 64% and 65% for the three month and six month periods ended September 30, 1996 compared to 64% and 63% for the comparable periods in the current fiscal year. This marginal decrease as a percentage of services and maintenance revenues reflects improvements in productivity and efficiencies in both the professional service and technical support organizations. Page 9 Operating expenses Sales and Marketing. Sales and marketing expenses increased from $5.6 million and $9.7 million for the three and six month periods ended September 30, 1996 to $9.6 million and $19.2 million for the comparable periods in 1997. Sales and marketing expenses represented 42% and 41% of total revenues for the three month and six month periods ended September 30, 1996 and 48% and 46% for the comparable periods in the current fiscal year, respectively. These increases were primarily the result of costs associated with the expansion of the Company's sales and marketing organization, both domestically and internationally, and the additional investments being made as the Company implements its vertical market strategy. In addition, marketing expenses in the six months ended September 30, 1997 included increased expenditures related to the Company's product launch of Scopus Series 5, the enterprise client/server application suite based on a fifth generation open, highly scalable distributed component architecture. Research and Development. Research and development expenses increased from $2.1 million and $3.9 million for the three and six month periods ended September 30, 1996 to $2.7 million and $5.2 million for the comparable periods in 1997. Research and development expenses represented 15% and 16% of total revenues for the three and six month periods ended September 30, 1996 and 14% and 13% for the comparable periods in 1997, respectively. The increased investment in research and development expenses in absolute dollars primarily reflects increased expenses related to salaries and other expenses for the addition of software engineers and reflects the Company's continued investment in enhancing existing products and developing new product offerings. The Company expects to continue to undertake significant investment in research and development, but these expenses may vary as a percentage of total revenues. General and Administrative. General and administrative expenses increased from $1.2 million and $2.1 million for the three and six month periods ended September 30, 1996 to $1.7 million and $3.4 million for the comparable periods in 1997. General and administrative expenses as a percentage of total revenues were 9% for both the three and six month periods ended September 30, 1996 and 9% and 8% for the three and six month periods in the current fiscal year. The increase in general and administrative expenses in absolute dollars reflects the Company's continued investment in the enhancement of infrastructure to support its growth. LIQUIDITY AND CAPITAL RESOURCES The Company utilized cash of $574,000 from operating activities during the six months ended September 30, 1997, primarily a result of the increases in net income, depreciation and income taxes payable being more than offset by the increases in accounts receivable, prepaid expenses and the decreases in accounts payable and accrued liabilities. The levels of accounts receivable at each quarter end is impacted by the concentration of revenues in the final weeks of each quarter and may be negatively affected by expanded international revenues in relation to total revenues as licenses to international customers often have longer payment terms. During the six months ended September 30, 1997, the Company invested $7.9 million in short term investments and invested $4.5 million in property and equipment, which related primarily to computer hardware and software to support the growing organization. In August 1997, the Company entered into a five year lease for a new office facility in Emeryville, California. Payments under this lease are anticipated to commence in November 1997 and will be approximately $1.3 million per annum. Cash provided by financing activities for the six months ended September 30, 1997, totaled $1.6 million, and consisted primarily of proceeds from the exercise of stock options and from the issuance of stock under the Employee Share Purchase Program. The Company believes that cash flows from operations and existing cash and cash equivalents and short-term investments will be sufficient to meet its needs for at least the next twelve months. Page 10 FACTORS THAT MAY AFFECT OUR BUSINESS Variability of Operating Results; Uncertainty of Future Operating Results. The Company was incorporated in 1991 and introduced its first product in 1992. Although the Company has been profitable each fiscal year since inception, there can be no assurance that the Company will be able to sustain profitability on a quarterly or annual basis in the future. In addition, the Company's revenues and operating results have varied substantially in the past and are likely to vary substantially in the future due to a variety of factors, including (i) the timing and size of the Company's individual license transactions, and, in particular, the fact that the Company's revenues in any quarter can be largely dependent on a limited number of large licenses, (ii) the fact that a significant portion of the Company's revenues in any given quarter are recognized in the last month, weeks or even days of the quarter, (iii) the relatively long sales cycle for the Company's software products, which is typically six to nine months, (iv) the relative proportion of total revenues derived from license revenues and services and maintenance revenues, (v) the timing of the introduction of new products or product enhancements by the Company and its competitors, (vi) the extent of customization required by any individual license transaction, which can result in deferral of significant revenues until completion or acceptance of certain customized portions of the software, (vii) changes in customers budgets, (viii) seasonality of technology purchases by customers and general economic conditions, (ix) the mix of revenues among various distribution channels and between domestic and international customers, (x) the relative proportion of implementation services performed by the Company for which the Company engages independent contractors, which are typically more costly than internal personnel and (xi) the relative proportion of license revenues derived from third party products distributed by the Company in conjunction with its products. Therefore, the Company believes that period to period comparisons of its revenues and operating results are not necessarily meaningful and that such comparison cannot be relied upon as indicators of future performance. Estimating future revenues is difficult because the Company ships its products soon after an order is received and as such does not have a significant backlog. Thus, quarterly license revenues are heavily dependent upon orders received and shipped within the same quarter. Moreover, the Company has generally recorded a significant portion of its total quarterly revenues in the third month of the quarter, with a concentration of these revenues in the last half of that third month. This concentration of revenues is influenced by customer tendencies to make significant capital expenditures at the end of a fiscal quarter. The Company expects these revenue patterns to continue for the foreseeable future. In addition, quarterly license revenues are dependent on the timing of revenue recognition, which can be affected by many factors, including the timing of customer installations, a shift in the mix of license transactions towards larger transactions and a lengthening of the sales cycle with respect to these larger transactions, completion of customization activity and the fulfillment of acceptance criteria. The Company has from time to time experienced delays in recognizing revenues with respect to certain orders. Despite the uncertainties in its revenue patterns, the Company's operating expenses are based upon anticipated revenue levels and such expenses are incurred on an approximately ratable basis throughout the quarter. As a result, if expected revenues are deferred or otherwise not realized in a quarter for any reason, the Company's business, operating results and financial condition would be materially adversely affected. The Company intends to continue to increase its research and development expenditures in order to pursue its strategy of developing applications tailored to the requirements of specific additional vertical markets, and to continue to increase sales and marketing expenditures significantly as the Company expands its domestic and international sales and marketing staff and develops indirect sales and distribution channels. In addition, general and administrative expenses have increased as the Company invests in the infrastructure needed to support its growing operations. Accordingly, to the extent that such expenses precede or are not subsequently followed by increased revenues, the Company's business, operating results and financial condition will be materially adversely affected. Due to all of the foregoing factors, it is likely that in some future quarter the Company's total revenues or operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely decline, perhaps substantially. Page 11 Intense Competition. The customer information management software market is relatively new, intensely competitive, highly fragmented, subject to rapid change, and highly sensitive to new product introductions and marketing efforts by industry participants. The Company competes with a variety of other companies depending on the target market for their products. These competitors include (i) a select number of companies, such as Clarify Inc. and The Vantive Corporation, targeting the enterprise-wide customer information market; (ii) a substantial number of small private companies and certain public companies, such as Remedy Corporation, Siebel Systems, Inc., Aurum Software, Inc. and Software Artistry, Inc., which offer products targeted at one or more specific markets, including the customer support market, the help desk market, the quality assurance market and the sales and marketing automation market; (iii) professional services organizations, such as Anderson Consulting, that design and develop customer systems; (iv) large information technology providers such as International Business Machines Corporation ("IBM") and Computer Associates International, Inc.; and (v) the internal information technology departments of potential customers, which develop proprietary customer information management applications. Among the Company's potential competitors are also a number of large hardware and software companies that may develop or acquire products that compete with the Company's products. In this regard, SAP AG and Oracle Corporation have each introduced a customer support module as part of their application suites. The Company believes that many existing competitors and new market entrants will attempt to develop fully integrated customer information management systems that will compete with the Company's products. Current and potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products to address the needs of the Company's prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition is likely to result in price reductions, reduced operating margins and loss of market share, any one of which could materially adversely affect the Company's business, results of operations or financial condition. Many of the Company's current and potential competitors have significantly greater financial, technical, marketing and other resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and to changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than can the Company. 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 materially adversely affect the Company's business operating results and financial condition. Dependence on Implementation Relationships. The Company historically relied on internal resources and subcontracted consultants on an as-needed basis to provide consulting and implementation services for the Company's products. In recent periods, the Company has sought to increase the use of third party consultants and system integrators to provide implementation, customization and consulting services directly to the Company's customers. The Company's increasing reliance on such third party consultants and systems integrators poses several risks that could have a material adverse effect on the Company's business, operating results or financial condition. For example, there can be no assurance that these third party providers, who will have direct obligations to the Company's customers, will be able to provide a level of quality of service required to meet the needs of such customers. If the Company is unable to develop further and to maintain effective, long term relationships with these third parties, or if these third parties fail to meet the needs of the Company's customers in a timely fashion, the Company's business, operating results and financial condition will be materially and adversely affected. Further, there can be no assurance that these third party providers, many of whom have significantly greater financial, technical, personnel and marketing resources than the Company, will not market software products that compete with the Company's products, or will not otherwise reduce or discontinue their relationship with or support of the Company and its products. Finally, many of these current and potential third party providers have existing relationships or may undertake relationships with the Company's direct competitors. The inability to recruit, or the loss of, important third party systems integrators or professional consulting firms would have a material adverse effect on the Company's business, operating results and financial condition. Page 12 Rapid Technological Change; Dependence on Product Development. The market for the Company's products is characterized by rapid technological advances, evolving industry standards in computer hardware and software technology, changes in customer requirements and frequent new product introductions and enhancements. The Company is currently investing significant resources in product development and expects to continue to do so in the future. The Company's future success will depend on its ability to continue to enhance its current product line and to continue to develop and introduce new products that keep pace with competitive product introductions and technological developments, satisfy diverse and evolving customer requirements and otherwise achieve market acceptance. There can be no assurance that the Company will be successful in continuing to develop and market on a timely and cost effective basis fully functional product enhancements or new products that respond to technological advances by others, or that these products will achieve market acceptance. In addition, the Company has in the past experienced delays in the development, introduction and marketing of new enhanced products, and there can be no assurance that the Company will not experience similar delays in the future. Any failure by the Company to anticipate or respond adequately to changes in technology and customer preferences, or any significant delays in product development or introduction, would have a material adverse effect on the Company's business, operating results and financial condition. Due to the complexity and sophistication of the Company's software products, the Company's products from time to time contain defects or "bugs" which can be difficult to correct. Furthermore, as the Company continues to develop and enhance its products, there can be no assurance that the Company will be able to identify and correct defects in such a manner as will permit the timely introduction of such products. Moreover, despite extensive testing, the Company has from time to time discovered defects only after its products have been used by many customers. There can be no assurance that software defects will not cause delays in product introductions and shipments, result in increased costs, require design modifications, or impair customer satisfaction with the Company's products. Any such event could materially adversely affect the Company's business, operating results and financial condition. Expansion of Distribution Channels. The Company has historically sold its products through its direct sales force and a limited number of distributors. The Company's ability to achieve significant revenue growth in the future will depend in large part on its success in recruiting and training sufficient sales personnel and establishing relationships with distributors, resellers and systems integrators. The Company is currently investing, and plans to continue to invest, significant resources to expand its domestic and international direct sales force and develop distribution relationships with certain third party distributors, resellers and systems integrators. The Company's existing distribution relationships are generally non-exclusive and can be terminated by either party without cause. The Company's distributors also sell or can potentially sell products offered by the Company's competitors. There can be no assurance that the Company will be able to retain or attract a sufficient number of its existing or future third party distribution partners or that such partners will recommend, or continue to recommend, the Company's products. The inability to establish or maintain successful relationships with distributors, resellers or systems integrators could have a material adverse effect on the Company's business, operating results or financial condition. In addition, there can be no assurance that the Company will be able to successfully expand its direct sales force or other distribution channels. Any failure by the company to expand its direct sales force or other distribution channels would materially adversely affect the Company's business, operating results and financial condition. Expansion of International Operations; Foreign Currency Fluctuations. An important element of the Company's strategy is to expand its international operations. The Company has established subsidiaries in the United Kingdom, Canada and France and is currently investing significant resources in its international operations, including the development of certain third party distributor relationships and the hiring of additional sales representatives. However, international sales to date have been limited and there can be no assurance that the Company will be successful in expanding its international revenue base. If the Company is able to achieve a material increase in international revenues, the Company's business, operating results or financial condition could be materially adversely affected by risks inherent in conducting business internationally, such as changes in currency exchange rates, longer payment cycles, difficulties in staffing and managing international operations, Page 13 problems in collecting accounts receivable, seasonal reductions in business activity during the summer months in Europe and certain other parts of the world, increases in tariffs, duties, price controls or other restrictions on foreign currencies and trade barriers imposed by foreign nationalities. In this regard, to the extent the Company's international operations expand, the Company expects that an increasing portion of its international license revenues will be denominated in foreign currencies. In addition, the Company has only limited experience in developing localized versions of its products and marketing and distributing its products internationally. There can be no assurance that the Company will be able to successfully localize, market, sell and deliver its products internationally. The inability of the Company to successfully expand its international operations in a timely manner could materially adversely affect the Company's business, operating results or financial condition. Management of Growth. The Company's business has grown rapidly. The growth of the Company's business and expansion of its customer base has placed and is expected to continue to place a significant strain on the Company's management and operations. The Company's future operating results will depend on its ability to continue to broaden the Company's senior management group. From time to time, sales personnel, engineers and other employees have left the Company for various reasons, and the Company's future success will depend on its ability to attract, hire and retain skilled employees and to hire replacements for employees that leave the Company. The Company's expansion has also resulted in substantial growth in the number of its employees and the burden placed upon its operating and financial systems, resulting in increased responsibility for both existing and new management personnel. The Company has recently experienced some turnover of sales personnel and understands that it is important to focus its efforts on continuing to maintain and build a quality sales organization. In addition, the Company's ability to effectively manage and support its growth will be substantially dependent on its ability to continue to build upon its financial and management controls, reporting systems and procedures on a timely basis and to expand and maintain highly trained internal and third party resources to provide product customization, implementation, training and other support services. The Company also expects to increase its customer support operations to the extent the installed base of the Company's products continues to grow. Accordingly, the Company's future operating results will depend on the ability of its management and other key employees to continue to implement and improve its systems for operations, financial control and information management, to recruit, train and manage its employee base, in particular, its direct sales force and customer support organization, and to work effectively with third party consulting and implementation service providers. There can be no assurance that the Company will be able to manage or continue to manage its recent or any future growth successfully, and any inability to do so would have a material adverse effect on the Company's business, operating results and financial condition. There also can be no assurance that the Company will be able to sustain the rates of revenue growth that it has experienced in the past. Developing Markets; Product Concentration. The Company's future financial performance will depend in large part on the growth in demand for individual customer information management applications as well as the number of organizations adopting comprehensive customer information systems for their client/server computing environments. The markets for these applications are relatively new and developing. If the demand for customer information management applications develops more slowly than the Company currently anticipates, it would have a material adverse effect on the demand for the Company's applications and on its business, operating results and financial condition. The Company currently markets five application products, together with related application service modules and a customization tool, which are licensed for use in conjunction with the Company's applications. Although the Company's application service modules and customization tool are offered separately from the Company's applications, the Company believes it is unlikely that any significant revenues could be derived from such modules and such tool unless the customer is using at least one of the Company's applications. Accordingly, in the event the Company's applications are not accepted by the marketplace, the Company's business, operating results and financial condition would be materially adversely affected. Intellectual Property Rights. The Company's success is dependent on its ability to protect its proprietary technology. The Company licenses its products in object code form only, although it has source code escrow Page 14 arrangements with certain customers. The Company relies on a combination of copyright, trademark and trade secret laws, as well as confidentiality agreements and licensing arrangements, to establish and protect its proprietary rights. The Company does not have any patents or patent applications pending, and existing copyright, trademark and trade secret laws afford only limited protection. In addition, the laws of certain countries do not protect the Company's proprietary rights as do the laws of the United States. Accordingly there can be no assurance that the Company will be able to protect its proprietary rights against unauthorized third party copying or use, which could materially adversely affect the Company's business, operating results or financial condition. Despite the Company's efforts to protect its proprietary rights, attempts may be made to copy or reverse engineer aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Moreover, there can be no assurance that others will not develop products that infringe the Company's proprietary rights, or that are similar or superior to those developed by the Company. Policing the unauthorized use of the Company's products is difficult. Litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets or to determine the validity and scope of the proprietary right of others. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results or financial condition. As is common in the software industry, the Company from time to time receives notices from third parties claiming infringement by the Company's products of third party proprietary rights. While the Company is not currently subject to any such claim, the Company expects its software products will increasingly be subject to such claims as the number of products and competitors in the Company's industry segments grows and the functionality of product overlaps. Any such claim, with or without merit, could result in significant litigation costs and require the Company to enter into royalty and licensing agreements, which could have a material adverse effect on the Company's business, operating results or financial condition. Such royalty and licensing agreements, if required, may not be available on terms acceptable by the Company or at all. The Company also relies on certain technology which it licenses from third parties, including software which is integrated with internally developed software and used in the Company's products to perform key functions. There can be no assurance that these third party technology licenses will continue to be available to the Company on commercially reasonable terms. The loss of, or inability of the Company to maintain, any of these technology licenses could result in delays or reductions in product shipments until equivalent technology could be identified, licensed and integrated. Any such delays or reductions in product shipments would materially adversely affect the Company's business, operating results and financial condition. Dependence on Key Personnel. The Company's success depends to a significant extent upon a limited number of members of senior management and other key employees, including Ori Sasson, the Company's Chairman, President and Chief Executive Officer. The Company does not maintain key man life insurance on any such persons. The loss of the service of one or more key managers or other employees could have a material adverse effect upon the Company's business, operating results or financial condition. In addition, the Company believes that its future success will depend in large part upon its ability to attract and retain additional highly skilled technical, management, sales and marketing personnel. Competition for such personnel in the computer software industry is intense. There can be no assurance the Company will be successful in attracting and retaining such personnel, and, the failure to do so, could have a material adverse effect on the Company's business, operating results or financial condition. Product Liability. Although the Company has not experienced any product liability claims to date, the sale and support of products by the Company and the incorporation of products from other companies may entail the risk of product liability claims. The Company's license agreements with its customers typically contain provisions intended to limit the Company's exposure to such claims, but such provisions may not be effective in limiting the Company's exposure. A successful product liability action brought against the Company could have a material adverse effect upon the Company's business, operating results or financial condition. Page 15 Volatility of Share Price. The market price for the Company's Common Stock has been and is expected to continue to be significantly affected by factors such as the announcement of new products or product enhancements by the Company or its competitors, technological innovations by the Company or its competitors, quarterly variations in the Company's results of operations or the results of operations of the Company's competitors, changes in earnings estimates or recommendations by securities analysts and general market conditions. In particular, the stock prices for many companies in the technology and emerging growth sector have experienced wide fluctuations which have often been unrelated to the operating performance of such companies. Such fluctuations may adversely affect the market price of the Company's Common Stock. Page 16 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K LIST OF EXHIBITS 11.1 Statement of Computation of Net Income per Share 27 Financial Data Schedule REPORTS ON FORM 8-K: None Page 17 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. SCOPUS TECHNOLOGY, INC. ------------------------------------- (Registrant) Dated: November 14, 1997 /s/ Ori Sasson ------------------------------------- Ori Sasson Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer) /s/ Michele L. Axelson ------------------------------------- Michele L. Axelson Chief Financial Officer (Principal Financial and Accounting Officer) Page 18 EX-11.1 2 STATEMENT OF COMPUTATION OF NET INCOME PER SHARE EXHIBIT 11.1 SCOPUS TECHNOLOGY, INC. STATEMENTS OF COMPUTATION OF NET INCOME PER SHARE
THREE MONTHS ENDED SIX MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ----------------- 1996 1997 1996 1997 (IN THOUSANDS, EXPECT PER SHARE DATA --------- --------- -------- -------- (UNAUDITED) Primary Weighted average number of common shares outstanding.................... 17,814 20,436 17,559 20,368 Shares issuable pursuant to options granted underemployee stock option plan, less assumed repurchased at the average fair market value during the period (1)............................ 1,346 1,199 1,577 1,331 Number of shares for computation of net income per share...................... 19,160 21,635 19,136 21,699 ========= ========= ======== ======== Net income............................. $ 1,501 $ 1,029 $ 2,349 $ 3,583 ========= ========= ======== ======== Net income per share................... $ 0.08 $ 0.05 $ 0.12 $ 0.17 ========= ========= ======== ========
- -------- (1) There is no difference between primary and fully diluted net income per share. Page 20 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ACCOMPANYING CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1998 SEP-30-1997 47,379 28,384 22,221 1,239 0 100,549 15,120 5,338 113,568 14,716 0 0 0 83,079 15,773 113,568 28,033 41,642 1,054 9,671 27,788 0 0 5,688 2,105 3,583 0 0 0 3,583 0.17 0.17
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