SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 19981999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______ to __________
Commission file number 0-22292
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INPUT SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 77-0104275
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
1299 Parkmoor Avenue, San Jose, CA 95126
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (408) 325-3800
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value Preferred Share Purchase Rights
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
[Cover page 1 of 2 pages]
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [__]
The aggregate market value of voting stock held by non-affiliates
of the Registrant as of February 28, 1999,29, 2000, was to the best of the
Company's knowledge approximately $14,800,000$36,345,000 million (based upon the
February 28, 199929, 2000 closing price for shares of the Registrant's Common
Stock as reported by the Nasdaq National Market). Shares of Common
Stock held by each officer, director and holder of 5% or more of the
outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
On February 28, 1999,29, 2000, approximately 4,691,0004,159,000 shares of the
Registrant's Common Stock, $0.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Proxy Statement for the 19992000 Annual
Meeting of Stockholders to be held on May 27, 199931, 2000 are incorporated by
reference into Part III.
[Cover page 2 of 2 pages]
PART I
This Annual Report on Form 10-K may contain forward-looking statements
that involve risks and uncertainties. The Company's actual results may
differ materially from the results discussed in any such forward-looking
statements. Factors that might cause such a difference include, but are
not limited to, those discussed below under the caption "Risk Factors"
as well as the following: the emergence of the document management and
image processing markets, potential fluctuations in quarterly results,
competition, new products and technological change, general economic
conditions and dependence on capital spending of customers, a lengthy
sales cycle and dependence on system sales, reliance upon third-party
resellers, and dependence upon key personnel.
Item 1. Business
Input Software, Inc. ("Input Software"or the "Company") develops,
markets, and services information capture software. The Company elected
in 1998and e-commerce software to
focus solely on its emerging presence as a software supplier.
As a result it announced the sale of its display products division in
April, 1998 and completed such sale to the management team in September,
1998. As part of the strategic change the name of the Company was
changed from Cornerstone Imaging, Inc. to Input Software, Inc.Global 1000 companies. The Company's information capture software helps automateproduct,
InputAccel, automates the conversion of paper and manage the
input of external informationfax documents into
an organization's internal computing
systems. Information capture software is an important first step in
creating productive enterprise-wide information flow. Functioning as a
middleware layer between external information sourceselectronic format, thus allowing for paperless business-to-business and
an
enterprise's IT infrastructure, Input Software's products help customers
achieve the next level of efficiency by turning unstructured, external
information into intellectual capital.business-to-customer transactions. Customers use information capture software in two ways--InputAccel to convert
transaction applications where documents, such as order forms, claims forms, or loan
applications, are the basis of a business transaction;into appropriate electronic format; and content loading applications whereto upload external
documents are captured and
uploaded to webWeb sites, CDs, or application servers for subsequent
search and retrieval.
Growth driversThe Company recently announced DynamicInput, an XML-based software
product designed to replace today's static Web forms with personalized,
intelligent interactions. DynamicInput is designed to help simplify
complex e-commerce customer interaction, which will help reduce online
transaction abandon rates and increase e-sales for these applications include increasing
Internet usage, widespread useit's customers.
Additionally, DynamicInput will help reduce deployment times for e-
commerce businesses.
Additionally, the Company sells software tools, which allow
hardware and software developers to save both time and money by offering
stable, supported libraries of digital technologysoftware code to drive certain computer
peripherals rather than having to develop such software themselves.
Technology and enterprise
applications, increased demands for informationProducts
InputAccel has, in all forms, and
continued increasing paper usage.recent years, been the Company's main software
product. InputAccelr , which began shipping in November 1995 is the
Company's flagship product line. With InputAccel, the Companyand has established itself asbecome an
open systems information capture "platform"
provider. As a result,platform. With InputAccel, enterprises
of various sizes and volume requirements can now standardize on a single
enterprise information capture solution, yet customize the system to
meet the needs of either a transaction or content loading operation at
any level of input volume. Input Software has attractedpartners with such established
providers as Adobe, Documentum, IBM, and Eastman Software as partnersTower Systems to provide
complete solutions for internal and external information processing to
global 1000 companies and government agencies.
The Company's second product line is software tools, which allow
hardware and software developers to save both time and money by offering
stable, supported libraries of software code to drive certain computer
peripherals rather than having to develop such software themselves.
Most of these tools are based on the Company's Image & Scanner Interface
Specification ("ISISr"), an industry standard interface for scanners.
ISIS also provides a key component for InputAccel.
Technology and Products
InputAccel is the Company's flagship software product.
InputAccel is an open, high-throughput, standard integration
platform and set of software modules that automate the conversion and
indexing of paper documents into electronically stored images.electronic e-business format.
InputAccel's NT-based integration platform with the ISIS interface, is a foundation linking
various technologies into an upgradeable system that provides system
management, control, and reporting functions. The integration platform
is an open NT-based server platform thatfunctions and can incorporate/utilize
various software modules from Input Software, as well as products from
third-
parties,third-parties, including application vendors, scanner manufacturers, and
other providers.
DynamicInput is an XML-based software product designed to
replace today's static Web forms with personalized, intelligent
interactions and is compatible with standard Web browsers and, with a
unique architecture for seperating business-rules from presentation,
allows for rapid deployment and upgrades. DynamicInput is expected to be
an important component within an overall e-commerce solution and first
beta shipments are expected in April, 2000.
Sales and Marketing
The Company's sales and marketing activities include participation
in industry trade shows and seminars and advertising in trade
publications.
InputAccel software is typically used in connection with a complex
enterprise system that includes important elements supplied by other
vendors. As a result, purchasers of such systems often rely on system
integrators and VARs to oversee the acquisition and installation of key
hardware and software components of the overall system. Accordingly, a
significant portion of the Company's display and InputAccel sales to end-users are made through
system integrators and value-added resellers. The Company anticipates
that the selling and marketing efforts for DynamicInput will be largely
complimentary with InputAccel. Software tools are generally sold or
licensed to such hardware and software suppliers as Fujitsu, Kodak,Canon,
Caere, and Filenet.
In 1998,1999, international sales, principally in Europe, represented
approximately 26%27% of the Company's revenues and the Company expects that
international sales will continue to account for a significant portion
of its revenues in future. The Company intends to continue to expand
its operations outside of the United States and enter additional
international markets, which will require significant management
attention and financial resources. International sales are subject to
inherent risks, including unexpected changes in regulatory requirements,
tariffs and other barriers, fluctuating exchange rates, difficulties in
staffing and managing foreign operations and the possibility of greater
difficulty in accounts receivable collection. To date, the Company has
largely avoided the risk of fluctuating exchange rates associated with
international sales by generally selling its products in United States
currency, but there can be no assurance that the Company will be able to
continue to do so in the future. There can be no
assurance that these or other factors will not have a material adverse
effect on the Company's future international sales and, consequently, on
the Company's business, operating results and financial condition.
Research and Development
The Company believes that its future success will depend in
large part on its ability to enhance its current product line, develop
new products, maintain technological competitiveness and satisfy an
evolving range of customer requirements. The Company's research and
development group is responsible for exploring new directions and
applications of core technologies, incorporating new technologies into
products and maintaining strong research relationships outside the
Company. The Company seeks to leverage its direct investment in
research and development by supporting efforts by independent software
vendors to develop products complementary to its products. During 1999, 1998, 1997, and 19961997
research and development expenses were approximately $5.6 million, $4.2
million $4.0 million and $3.4$4.0 million, respectively. The Company intends to continue
to make substantial investments in product and technology research and
development, particularly for DynamicInput in the near term, and to
continue to participate actively in the development of industry
standards.
Patents and Other Proprietary Rights
The Company does not currently have any patents and relies
on a combination of trade secret, copyright, and trademark laws,
nondisclosure and other contractual agreements and technical measures to
protect its proprietary rights in its products. There can be no
assurance that it will develop proprietary products or technologies that
are patentable, that any issued patent will provide it with any
competitive advantages or will not be challenged by third-parties, or
that the patents of others will not have an adverse effect on the
Company's ability to do business. Furthermore, there can be no
assurance that others will not independently develop similar products,
duplicate the Company's products or, if patents are issued to the
Company, design around the patents issued to the Company. There can be
no assurance that the steps taken by the Company will prevent
misappropriation of its technology, and such protections may not
preclude competitors from developing products with features similar to
the Company's products. In addition, effective copyright and trade
secret protection may be unavailable or limited in certain foreign
countries. The Company believes that its products and trademarks do not
infringe upon the proprietary rights of third-parties. There can be no
assurance, however, that third-parties will not assert infringement
claims against the Company in the future or that such claims will not
require the Company to enter into royalty arrangements or result in
costly litigation. Because the industry is characterized by rapid
technological change, the Company believes that factors such as the
technological and creative skills of its personnel, new product
developments, frequent product enhancements, name recognition and
reliable product maintenance are more important to establishing and
maintaining a technology leadership position than the various legal
protections of its technology.
Technical Support and Professional Services
An important element in the Company's strategy is to provide
comprehensive support of its products. The Company believes that
responsive technical support is essential for customer requirements and
provides extensive support for its products by telephone, fax and
electronic medium. Additionally, the Company provides professional
consulting services to those customers who require outside assistance
to more efficiently implement their systems.
Competition
The market for the Company's products is highly competitive.
The Company believes the principal competitive factors are product
features, support, price, and reputation. In addition support of the
Company's integration platformproduct architecture by independent software vendors and ease
of product implementation are important competitive factors for
InputAccel.InputAccel and DynamicInput. The Company believes that it currently
competes favorably with respect to these factors.
The Company has a number of current and potential
competitors many of which have significantly greater financial,
technical, marketing and other resources than does the Company. The
Company expects additional competition from other established and
emerging companies if the market continues to develop and expand.
Increased competition could result in additional price reductions,
reduced margins and loss of market share, which could materially
adversely affect the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, operating results and
financial condition.
Employees
As of December 31, 1998,1999, the Company had 123146 employees. The
Company employs 2621 people in finance and administrative functions, 6480 in
marketing, sales, services, and support and 3345 in engineering and
product development. In addition, the Company hires temporary employees
on an as-needed basis to meet production requirements. None of the
employees are represented by a labor union or is subject to a collective
bargaining agreement. The Company believes that its employee relations
are good.
Executive Officers
The executive officers of the Company are as follows:
Name Age Position
Thomas T. van Overbeek 4950 Chairman of the Board of Directors
Kimra Hawley 4243 President, Chief Executive Officer
and Director
Matt Albanese 4041 Vice President-Implementation and
ConsultingPresident-Professional Services
Cynthia Anderson 3435 Vice President-Operations
Joe Falk 4950 Vice President-Sales
John Finegan 4950 Chief Financial Officer, Secretary,
and Director
Stephen Francis 3738 Vice President-General Manager of Pixel
DivisionPresident-Business Development
Michael Parker 4041 Vice President-Engineering
Johannes Schmidt 3536 Chief Technical Officer and Director
John Stetak 4041 Vice President-Marketing
Thomas T. van Overbeek joined the Company in 1988 as President and
Director. He was appointed Chief Executive Officer in July 1990 and
became Chairman of the Board of Input Software in September 1998 upon
completion of the sale of the Company's display products division. Mr.
Van Overbeek is currently CEO of Wavtrace, Inc. in Bellevue, Washington.
Kimra Hawley joined the Company in 1992 as Product Marketing
Director, was promoted to Vice President in November 1994 and Senior
Vice President and General Manager for the Software Division in November
1996. She became President and CEO and was elected a Director of Input
Software, Inc. in April 1998. Prior to joining the Company, Ms. Hawley
was a principal in MarketBound Associates, a marketing consulting firm.
Ms. Hawley holds a BS in Psychology from Pittsburg State University.
Matt Albanese joined the Company as Director of Engineering for
the Software Division in 1995 and was promoted to Vice President,
Implementation and ConsultingProfessional Services in December 1997. Prior to joining the Company,
Mr. Albanese was the Director of Engineering for Plexus Software, a
Division of Banctec. Mr. Albanese holds a BS in Computer Science from
San Jose National University.
Cynthia Anderson joined the Company as Director of Quality in 1992
and became Vice President of Quality and Information Systems for the
Display Division in 1997. In 1998, she was appointed Vice President of
Operations. Prior to joining the Company, Ms Anderson held quality and
engineering positions at Tandem Computers. Ms. Anderson holds a BS
degree in Electrical Engineering from Michigan Technical University and
an MS in Engineering Management from Santa Clara University.
Joe Falk joined the Company in May 1997 as Vice President of Sales
for the Software Division, and became Vice President of Sales in April
1998. Prior to joining the Company, Mr. Falk was Vice President of
Sales of Constellar Software Corporation and prior to that, Director of
Worldwide Sales at Vantageware Software. Mr. Falk holds a BS in
Marketing from California State University at Northridge.
John Finegan joined the Company in 1989 as Vice President-Finance,
was elected Chief Financial Officer in 1990, Secretary in 1993, and
Director in 1997. Prior to joining the Company he was Vice President
of Finance for the Paradise Systems Division of Western Digital
Corporation. Mr. Finegan holds an MBA from the University of
Massachusetts and a BS in Engineering from Tufts University.
Stephen Francis joined the Company in 1994 as Vice President when
the company he co-founded, Pixel Translations, was acquired. Mr. Francis
became Vice President, andBusiness Development in 1999 after serving as
General Manager of the Pixel Translations Division in Aprilsince 1997. Prior
to joining Pixel Translations, Mr. Francis held engineering and
marketing management roles at Calera Recognition Systems, now part of
Caere Corporation. Mr. Francis holds a BS in Electrical
Engineering/Computers from Stanford University.
Michael Parker joined the Company in October 1998 as Vice
President of Engineering. Prior to joining Input Software, Mr. Parker
held the positions at Adobe Systems of Director of Engineering from
October 1997 to October 1998 and Engineering Manager from June 1993 to
October 1997. Mr. Parker holds a BS in Electrical Engineering from the
University of Pennsylvania.
Johannes Schmidt joined the Company as Vice President of Software
Engineering in 1994 when the company he founded, Pixel Translations, was
acquired by the Company. He was appointed Chief Technology Officer in
1996 and Director in November 1998. Previously, Mr. Schmidt held
senior engineering positions at Calera Recognition Systems, which is now
part of Caere Corporation. Mr. Schmidt holds a BS in Engineering and
Applied Science from the California Institute of Technology.
John Stetak joined the Company as Vice President of Marketing in
May 1998. From 1992 to 1998 he served as Director of Marketing for the
Data Management Market Group of Autodesk. Previously Mr. Stetak was
Manager of Product Marketing for EDS.
RISK FACTORS
In addition to the other information in this Report, the following
risk factors should be considered carefully in evaluating the Company
and its business.
Limited Software Operating History; History of Losses; Future Operating Results Uncertain
The Company has operated its Software Division since June 1994.
Accordingly, the Company's prospects must be considered in light of the
risks and difficulties frequently encountered by companies in the early
stage of development, particularly companies in new and rapidly evolving
markets. To address these risks, the Company must, among other things,
respond to competitive developments, continue to attract, retain and
motivate qualified personnel and continue to improve its products.
For the past several years, the Company has been investing in its
software business and as a result on a stand-alone basis, the Software Division
has not achieved operating profitability and has incurred operating losses in each
quarter from inception through the quarter ending June 30, 1997. As of
December 31, 1998,1999, the Company's software operations had cumulative pre-taxpre-
tax operating losses of approximately $2.7$3.5 million. The Company's operating losses have
been due in part to the commitment of significant resources to the Company's
research and development and sales and marketing departments. The
Company expects to continue to devote substantial resources to these
areas and as a result will need to achieve significant quarterly
revenues to achieve profitability. In particular, the Company intends
to continue to hire additional sales and research and development
personnel in 19992000 and beyond, which the Company believes is required if
the Company is to achieve significant revenue growth in the future.
Although the Company's software related revenues generally have increased in recent
periods, there can be no assurance that the Company's revenuesthis will growcontinue in future
periods, that theyrevenues will grow at past rates or that the Company will
remain profitablereturn to profitability on a quarterly or annual basis in the future.
Operating Results Subject to Significant Fluctuations; Seasonality
The Company's quarterly revenues, expenses and operating results have
varied significantly in the past and are likely to vary significantly in
the future due to a variety of factors, such as demand for the Company's
products, the size and timing of significant orders, the number, timing
and significance of product enhancements and new product announcements
by the Company and its competitors, changes in pricing policies by the
Company or its competitors, customer order deferrals in anticipation of
enhancements or new products offered by the Company or its competitors,
the ability of the Company to develop, introduce and market new and
enhanced versions of its products on a timely basis, changes in the
Company's level of operating expenses, budgeting cycles of its
customers, product life cycles, software defects and other product
quality problems, the Company's ability to attract and retain qualified
personnel, changes in the Company's sales incentive plans, changes in
the mix of domestic and international revenues, the level of
international expansion, foreign currency exchange rate fluctuations,
performance of indirect channel partners, changes in the mix of indirect
channels through which the Company's products are offered, the impact of
acquisitions of competitors and indirect channel partners, the Company's
ability to control costs and general domestic and international economic
and political conditions. The Company operates with virtually no order
backlog because its software products are shipped shortly after orders
are received, which makes product revenues in any quarter substantially
dependent on orders booked and shipped throughout that quarter. In
addition, the Company achieves a significant portion of revenues from
indirect sales channels over which the Company has little control.
Moreover, the Company's expense levels are based to a significant extent
on the Company's expectations of future revenues and therefore are
relatively fixed in the short term. If revenue levels are below
expectations, operating results are likely to be adversely and
disproportionately affected because only a small portion of the
Company's expenses vary with its revenues.
The Company's business has experienced and is expected to continue to
experience seasonality, largely due to customer buying patterns. In
most of the recent years, the Company has had relatively stronger demand
for its products during the quarter ending December 31 and demand has
been relatively weaker in the quarter ending March 31. This relative
strong fourth quarter demand was adversely affected in 1999 due to Year
2000 concerns of potential customers in the Company's target markets.
The Company believes that, adjusting for such Year 2000 aberrations,
this pattern will continue. Based upon all of the factors described
above, the Company believes that its quarterly revenues, expenses and
operating results are likely to vary significantly in the future, that
period-to-period comparisons of its operating results are not
necessarily meaningful and that, in any event, such comparisons should
not be relied upon as indications of future performance. The Company
has limited ability to forecast future revenues, and it is likely that
in some future quarter the Company's operating results will be below the
expectations of public securities analysts and investors. In the event
that operating results are below expectations, or in the event that
adverse conditions prevail or are perceived to prevail generally or with
respect to the Company's business, the price of the Company's Common
Stock would likely be materially adversely affected.
Significant Competition
The market for the Company's products is intensely competitive and
subject to rapid change. In addition, because there are relatively low
barriers to entry in the software market, the Company may encounter
additional competition from other established and emerging companies.
Many of the Company's competitors have longer operating histories,
significantly greater financial, technical, marketing and other
resources than the Company, significantly greater name recognition and a
large installed base of customers. As a result, the Company's
competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of competitive
products, than can the Company. There is also a substantial risk that
announcements of competing products by large competitors could result in
the cancellation of customer orders in anticipation of the introduction
of such new products. In addition, 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 customer needs and which may limit the Company's
ability to sell its products through particular reseller partners.
Accordingly, new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. The
Company also expects that competition will increase as a result of
software industry consolidation. Increased competition is likely to
result in price reductions, fewer customer orders, reduced margins and
loss of market share, any of which could materially adversely affect the
Company. There can be no assurance that the Company will be able to
compete successfully against current and future competitors or that the
competitive pressures faced by the Company will not materially adversely
affect its business, operating results and financial condition.
Product Concentration
The Company currently expects the sale and license of its InputAccel
products and software tools to account for substantially all of the
Company's revenues for 2000, with revenues from DynamicInput expected to
start contributing in the foreseeable future.second half of 2000. The Company's future
operating results are, therefore, heavily dependent upon continued
market acceptance of its InputAccelthese products and enhancements to these
products.such.
Consequently, a decline in the demand for, or market acceptance of, the
Company's InputAccel or DynamicInput products as a result of
competition, technological change or other factors, would have a
material adverse effect on the Company's business, operating results and
financial condition.
Dependence on Continued Growth of the Market for Data Capture and
Document Managemente-Commerce Applications
Although demand for documentdata capture software for document management
applicationsand e-commerce has grown in recent
years, this market is still emerging and there can be no assurance that
it will continue to grow or that organizations will continue to adopt
the Company's products. The Company has spent, and intends to continue
to spend, considerable resources educating potential customers about the
Company's software products and the document processinge-commerce market generally.
However, there can be no assurance that such expenditures will enable
the Company's products to achieve any additional degree of market
acceptance. The rate at which organizations have adopted the Company's
products has varied significantly and the Company expects to continue to
experience such variations in the future. There can be no assurance
that the markets for the Company's products will continue to develop or
that the Company's products will be accepted within such markets. If
the markets for the Company's products fail to develop, or develop more
slowly than the Company currently anticipates, the Company's business,
operating results and financial condition would be materially adversely
affected.
Rapid Technological Change and New Products
The market for the Company's products is characterized by rapid
technological change, frequent new product introductions and
enhancements, uncertain product life cycles, changes in customer demands
and evolving industry standards. The introduction of products embodying
new technologies, such as DynamicInput, and the emergence of new
industry standards can render existing products obsolete and
unmarketable. The Company's future success will depend upon its ability
to continue to enhance its current products and to develop and introduce
new products on a timely basis that keep pace with technological
developments and satisfy increasingly sophisticated customer
requirements. As a result of the complexities inherent in document
image processing software, new products and product enhancements can
require long development and testing periods. As a result, significant
delays in the general availability of such new releases or significant
problems in the installation or implementation of such new releases
could have a material adverse effect on the Company's business,
operating results and financial condition. The Company has experienced
delays in the past in the release of new products and new product
enhancements. There can be no assurance that the Company will be
successful in developing and marketing, on a timely and cost effective
basis, new products or new product enhancements that respond to
technological change, evolving industry standards or customer
requirements, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction or
marketing of these products or that the Company's new products and
product enhancements will achieve market acceptance.
Risk of Software Defects
Software products as complex as those offered by the Company may contain
errors or defects, particularly when first introduced or when new
versions or enhancements are released. The Company has in the past
discovered software errors in certain of its new products after their
introduction. There can be no assurance that, despite testing by the
Company, defects and errors will not be found in current versions, new
versions or enhancements of its products after commencement of
commercial shipments, resulting in loss of revenues or delay in market
acceptance, which could have a material adverse effect on the Company's
business, operating results and financial condition.
Year 2000 Readiness Disclosure
The following information constitutes a "Year 2000 Readiness Disclosure"
for purposes of the Year 2000 Information and Readiness Disclosure Act.
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates. As a result,
in less than one year, computer systems and/or software used by many
companies in a very wide variety of applications will experience
operating difficulties unless they are modified or upgraded to
adequately process information involving, related to or dependent upon
the century change. Significant uncertainty exists concerning the scope
and magnitude of problems associated with the century change.
The Company recognizes the need to ensure its operations will not be
adversely impacted by the Year 2000 problem. The Company's Year 2000
compliance effort has been led since mid-1998 by a committee headed by
its Vice Presidents of Operations and Product Strategy. The effort has
been focused on compliance of the Company's products and the Company's
critical business systems. Non-critical business systems will be
addressed if and when necessary, as the Company currently anticipates
minimal impact to operations and ready availability of replacement goods
or services in this category.
As more fully discussed below, the Company's products make only limited
use of date algorithms and generally are user configurable and/or
dependent on third-party products for date information. As a result, it
is impossible to make definitive statements concerning the compliance of
any particular system, but the Company believes that when properly
installed, its products can be configured in a compliant manner.
As a software developer, the Company is dependent on relatively few
critical suppliers. These tend to be infrastructure vendors rather than
component vendors, most notably including building utilities,
telecommunications and internet service as well as third-party software
suppliers whose products are used for product development, internal
business processes and operating platforms for the Company's products.
Generally these suppliers are well established enterprises which have
provided assurances that they are or will be Year 2000 compliant
sufficiently before January 1 to avoid business disruptions, and the
Company anticipates no significant disruptions from these suppliers.
The Company's flagship product, InputAccel, is a modular, configurable,
enterprise software application that operates on a Microsoft Windows
platform and can export information to one or more third-party software
applications. The product's current revision (2.X) has been subjected
to code inspection testing for Year 2000 compliance by the Company, and
the Company offers no-charge test systems to licensed end-users so that
they may perform compliance testing in their own environments. The
Company warrants to new end-users that the product is capable of
compliant installation and that the Company will take prompt action to
address any Year 2000 defects that may be encountered. However, due to
the product's configurable nature and its interdependence with third-
party products, its warranty is of limited scope in order to avoid
liability for externally introduced Year 2000 problems. At the current
time, the Company has identified an anomaly in third-party code which is
incorporated in InputAccel that may create ambiguities under certain
circumstances in the interpretation of two-digit years. The Company is
taking immediate remedial measures to eliminate the effect of this code
and plans to replace the third-party product before January 1, 2000.
Revisions prior to 2.0 have not been tested for Year 2000 compliance,
and users of earlier versions of InputAccel may encounter Year 2000
defects.
Released versions of PixToolsr development toolkit products and the
PixViewTM image utility application do not represent, store or process
dates, and the Company believes that the Year 2000 compliance issue is
inapplicable to these products alone. It should be noted however, that
the toolkit algorithms are intended to be combined with other program
elements in the course of development, and toolkit users must exercise
care not to introduce Year 2000 problems with those program elements.
The Company's internal information technology systems are comprised of
certain hardware, including computers and telecommunications equipment;
software applications, including sales management, accounting,
electronic mail, word processing, spreadsheets and the Windows operating
system as well as software development platforms. Nearly all of the
above hardware and software applications are commercially available
products from major suppliers. Many of these products have been subject
to upgrade or replacement concurrent with the Company's recent
relocation or as a result of scheduled maintenance, for which there have
been no extraordinary costs.
Critical externally supplied products and services include electricity,
telecommunications, internet service, payroll and shipping. Such
products and services are generally supplied by major providers which
currently represent that they will have no significant Year 2000
problems. In the event any such third-parties cannot provide the
Company with products, services or systems that meet the Year 2000
requirements on a timely basis, or in the event Year 2000 issues prevent
such third-parties from timely delivery of products or services required
by the Company, the Company's results of operations could be materially
adversely affected.
The InputAccel customer base is comprised primarily of large public
and private enterprises which have devoted, or will devote in 1999,
significant efforts to Year 2000 compliance issues. While InputAccel
may enhance the overall efficiency of such a customer's operations, it
is nevertheless not likely to be a material factor in any customer's
Year 2000 compliance effort. To the extent that such customers' MIS
departments are occupied with Year 2000 issues, they may defer
enterprise software acquisitions that are not critical to the Year 2000
effort, such as InputAccel. Such acquisition deferrals could have a
material adverse effect on the Company's business, operating results,
and financial condition.
The Company is dependent on Microsoft products which serve as the
operating system for its products and as the development platform for
those same products. In addition, the Company uses Windows-based
computers and a number of Microsoft applications in the regular conduct
of its business. While the Company regards the possibility of a
significant Year 2000 problem in Microsoft's products to be remote, if
such a problem were to occur in any of the Microsoft products used by
the Company, it could impact the Company's operations or development
efforts negatively.
To date, the Company has made no extraordinary expenditures in its
effort to achieve Year 2000 compliance other than the labor costs
associated with compliance analysis. Replacement products have been
secured, where necessary, in conjunction with scheduled and budgeted
maintenance. The Company does not anticipate that any significant
future expenditures will be required to achieve compliance, and it
believes that any such expenditures will have no material bearing on the
Company's financial performance. Accordingly, the Company has not
adopted any formal contingency plan in the event its Year 2000 project
is not completed in a timely manner.
The Company believes that, as a comparatively small and centralized
business operation, its Year 2000 risks are identifiable, and it
believes that it is already substantially prepared for the Year 2000.
Nevertheless there can be no assurance that all risks have been
identified and will be cured or that no business disruptions will occur
due to Year 2000 problems within the Company or from outside the
Company. The above discussion of compliance efforts, risks and costs
contain forward-looking statements based on the Company's current best
estimates, which estimates are based on currently available information.
Such information may be subject to change, in which case compliance
efforts, risks and costs could vary materially from current estimates
which could have a material adverse affect on the Company's business,
operating results and financial condition.
Risks Associated with International Sales and Operations
The Company anticipates that for the foreseeable future a significant
portion of its revenues will be derived from sources outside North
America and the Company intends to continue to expand its sales and
support operations internationally. In order to successfully expand
international sales, the Company mustmay establish additional foreign
operations, expand its international sales channel management and
support organizations, hire additional personnel, customize its products
for local markets, recruit additional international resellers and
increase the productivity of existing international resellers. To the
extent that the Company is unable to do sothese things in a timely and
cost-
effectivecost-effective manner, the Company's sales growth internationally, if
any, will be limited, and the Company's business, operating results and
financial condition could be materially adversely affected. Even if the
Company is able to successfully expand its international operations
there can be no assurance that the Company will be able to maintain or
increase international market demand for its products.
The Company's international operations are generally subject to a number
of risks, including costs of customizing products for foreign countries,
protectionist laws and business practices favoring local competition,
dependence on local vendors, compliance with multiple, conflicting and
changing government laws and regulations, longer sales cycles, greater
difficulty or delay in accounts receivable collection, import and export
restrictions and tariffs, difficulties in staffing and managing foreign
operations, foreign currency exchange rate fluctuations, multiple and
conflicting tax laws and regulations and political and economic
instability. To date, a majority of the Company's revenues and costs
have been denominated in U.S. dollars. However, the Company believes
that in the future, an increasing portion of the Company's revenues and
costs will be denominated in foreign currencies. Although the Company
may from time to time undertake foreign exchange hedging transactions to
reduce its foreign currency transaction exposure, the Company does not
currently attempt to eliminate all foreign currency transaction
exposure.
Dependence on Key Personnel
The Company's success depends to a significant extent upon the efforts
of its key management, sales and marketing, technical support and
research and development personnel, none of whom are bound by an
employment contract. The loss of key management or technical personnel
could adversely affect the Company. The Company believes that its
future success will depend in large part upon its continuing ability to
attract and retain highly skilled managerial, sales and marketing,
technical support and research and development personnel. Like other
software companies, the Company faces intense competition for such
personnel, and the Company has at times experienced and continues to
experience difficulty in recruiting qualified personnel. There can be
no assurance that the Company will be successful in attracting,
assimilating and retaining additional qualified personnel in the future.
The loss of the services of one or more of the Company's key
individuals, or the failure to attract and retain additional qualified
personnel, could have a material adverse effect on the Company's
business, operating results and financial condition.
Limited Protection of Proprietary Technology; Risks of Infringement; Use
of Licensed Technology
The Company relies primarily on a combination of copyright, trademark
and trade secret laws, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company licenses its
software products primarily under license agreements. There can be no
assurance that others will not develop technologies that are similar or
superior to the Company's technology or design around the copyrights and
trade secrets owned by the Company. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that
the Company regards as proprietary. Policing unauthorized use of the
Company's products is difficult, and although the Company is unable to
determine the extent to which piracy of its software products exists,
software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the U.S.
The Company is not aware that it is infringing any proprietary rights
of third-parties. There can be no assurance, however, that third-parties
will not claim infringement by the Company of their intellectual
property rights. The Company expects that software product developers
increasingly will be subject to infringement claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in different industry segments overlaps. Any
such claims, with or without merit, could be time consuming to defend,
result in costly litigation, divert management's attention and
resources, cause product shipment delays or require the Company to enter
into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company
to either license the infringed or similar technology or develop
alternative technology on a timely basis, the Company's business,
operating results and financial condition could be materially adversely
affected.
The Company relies upon certain software that it licenses from third-
parties, including software that is integrated with the Company's
internally developed software and used in its products to perform key
functions. There can be no assurance that these third-party software
licenses will continue to be available to the Company on commercially
reasonable terms, if at all. The loss of or inability to maintain any
such software licenses could result in shipment delays or reductions
until equivalent software could be developed, identified, licensed and
integrated such delays would materially adversely affect the Company's
business, operating results and financial condition.
Product Liability
Although the Company's license agreements with its customers typically
contain provisions designed to limit the Company's exposure to potential
product liability claims, it is possible that such limitation of
liability provisions may not be effective as a result of existing or
future laws or unfavorable judicial decisions. The Company has not
experienced any material product liability claims to date; however, the
sale and support of the Company's products may entail the risks of such
claims, which may be substantial in light of the use of the Company's
products in business-critical applications.
Item 2. Properties
The Company's principal administrative, sales, marketing and
research and development facility is located in a building of
approximately 46,000 square feet in San Jose, California. This facility
is leased through February 2004. All Company functions except certain
sales activities are performed at this facility. Input Software's
European sales activities are conducted from leased facilities near
Munich, Germany and London, England. Certain other sales activities are
conducted from rented offices in various states in the U.S. The Company
believes that its facilities are adequate for its current needs.
Item 3. Legal Proceedings
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters
The following table sets forth selected unaudited financial information
for the Company for the eight quarters in the period ended December 31,
1998. This information has been prepared on the same basis as the
audited financial statements and, in the opinionPrice range of management, contains
all adjustments necessary for a fair presentation thereof.
INPUT SOFTWARE, INC.
CONSOLIDATED FINANCIAL INFORMATION
(unaudited - in thousands, except per share data)common stock
Quarter Ended
------------------------------------------
19981999 March 31, June 30, Sept. 30, Dec. 31,
- ---------------------------------------- --------- --------- --------- ---------
Net revenues from continuing operations $3,387 $4,160 $4,599 $5,263
Gross profit 2,962 3,769 4,198 4,732
Operating income (loss) (93) 164 356 405
Net income from continuing operations 35 219 354 431
Net income (loss) from
discontinued operations (2,645) -- -- 1,294
Basic and Diluted EPS:
For continuring operations 0.01 0.04 0.07 0.09
For discontinued operations (0.42) -- -- 0.26
--------- --------- --------- ---------
Net income (loss) (0.41) 0.04 0.07 0.35Stock prices:
High 7.50 6.25 5.88 19.50
Low 4.88 5.00 3.75 3.56
1998
- ----------------------------------------
Stock prices:
High 6.63 7.38 8.38 8.13
Low 4.50 5.13 5.50 5.13
1997
- ----------------------------------------
Net revenues from continuing operations $2,519 $2,970 $3,158 $3,593
Gross profit 2,348 2,790 2,918 3,303
Operating income (loss) (423) (86) 144 274
Net income (loss) from continuing
operations (156) 86 168 296
Net income (loss) from
discontinued operations 1,211 (217) (161) (146)
Basic and Diluted EPS:
For continuring operations (0.02) 0.01 0.02 0.04
For discontinued operations 0.16 (0.03) (0.02) (0.02)
--------- --------- --------- ---------
Net income (loss) 0.14 (0.02) -- 0.02
Stock prices:
High 9.88 9.25 8.00 7.00
Low 7.00 6.50 5.00 4.50
Common stock market price
The Company's common stock is traded on The Nasdaq National Market under
the symbol INPT. The Company's common stock began trading in September
1993. There were approximately 156138 stockholders of record and
2,300approximately 2,400 beneficial shareholders of record at February 28, 1999.29,
2000.
To date, the Company has not declared or paid any cash dividends on its
common stock. The Company does not anticipate paying dividends on its
common stock in the foreseeable future and, under the current bank
agreement, any such payment would require prior bank approval.future.
Item 6. Selected Consolidated Financial Data.
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements.
Year Ended December 31,
-------------------------------------------------
1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
Consolidated Statements of
Operations Data:
- ----------------------------
Net revenues $22,178 $17,409 $12,240 $7,090 $3,384
$1,173
Gross profit 18,964 15,661 11,359 6,768 3,315
1,132
Operating income (loss) (848) 832 (91) (2,304) (1,037)
(131)
Net income (loss) (141) 1,039 394 (1,449) (460) 248
Diluted income (loss)
per share ($0.03) $0.18 $0.05 ($0.19) ($0.06) $0.03
For discontinued operations:
Net income (loss) ($1,351) $687 $286 $6,618
$4,568
Diluted income (loss) per share ($0.24) $0.10 $0.04 $0.87
$0.63
Net income (loss) ($141) ($312) $1,081 ($1,163) $6,158
$4,816
Diluted income (loss) per share ($0.03) ($0.06) $0.15 ($0.15) $0.81 $0.66
Shares used in per share
calculations 4,370 5,657 7,285 7,548 7,586 7,316
Consolidated Balance
Sheets Data:
- ----------------------------
Working capital $13,863 $19,030 $16,981 $22,241 $15,515
$16,880
Total assets 23,178 26,877 37,693 41,074 39,929
30,131
Stockholders' equity 17,378 21,357 33,923 39,018 39,331 29,697
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following table sets forth, for the periods indicated, certain
financial data from the Company's consolidated statements of operations
as a percentage of revenues.
Year Ended December 31,
--------------------------------
1999 1998 1997 1996
---------- ---------- ----------
Net revenues 100.0% 100.0% 100.0%
Cost of revenues 10.0% 7.2% 4.5%
---------- ---------- ----------
Net revenues from continuing operations
License 80.5% 88.6% 92.0%
Service 19.5% 11.4% 8.0%
---------- ---------- ----------
Total revenues 100.0% 100.0% 100.0%
Cost of revenues
License 2.8% 2.8% 2.2%
Service 11.7% 7.2% 5.0%
---------- ---------- ----------
Cost of revenues 14.5% 10.0% 7.2%
Gross profit 85.5% 90.0% 92.8% 95.5%
---------- ---------- ----------
Research and development 25.2% 24.2% 32.7% 48.2%
Sales and marketing 50.4% 45.2% 43.1% 58.0%
General and administrative 13.7% 15.8% 17.7% 21.8%
---------- ---------- ----------
Operating income (loss) -3.8% 4.8% -0.7% -32.5%
Interest and other income 2.8% 3.9% 5.6% 3.6%
---------- ---------- ----------
Income (loss) before provision for income taxes -1.0% 8.7% 4.9% -28.9%
Provision (benefit) for income taxes -0.4% 2.7% 1.7% -8.5%
---------- ---------- ----------
Net income (loss) from continuing operations -0.6% 6.0% 3.2% -20.4%
========== ========== ==========
Revenues
The Company's license revenues increased by 42%16% in 19981999 to $17.4$17.9 million
from $12.2$15.4 million in 19971998 and increased by 73%37% in 19971998 from $7.1$11.2
million in 1996.1997. As a percent of total revenue, licenses accounted for
80.5%, 88.6% and 92.0% of 1999, 1998 and 1997 respectively. The
increaseincreases in license revenue isare due primarily to increased revenues
from the InputAccel product line.
The Company's service revenues, which include software maintenance and
professional consulting, increased by 118% in 1999 to $4.3 million from
$2.0 million in 1998 and increased by 102% in 1998 from $980,000 in
1997. This represents 19.5%, 11.4% and 8.0% of 1999, 1998 and 1997
total revenues respectively. The increase in service revenues in both
absolute and percentage terms was attributable to a larger installed
base of customers purchasing ongoing software maintenance; and increases
in the Company's training and professional consulting offerings.
Gross Profit
Gross profit increased by 38%21% to $19.0 million in 1999 from $15.7
million in 1998 and increased 38% in 1998 from $11.4 million in 1997 while increasing 68% in 1997 from $6.8 million in 1996.1997.
Gross profit margin decreased to 86% in 1999 from 90% in 1998 from 93% in 1997.1998. The
decrease in gross margin percent is largely due to the increased
percentage of revenues derived from software maintenance and
professional services, which have lower margins than revenues from
product licensing. The Company expects revenues from maintenance and
services to continue to increase as a percentage of overall revenues.
Sales and Marketing
Sales and marketing expenses increased by 49% in 1998 to $7.9 million
from $5.3 million in 1997 and by 28% in 1997 from $4.1 million in 1996.
Sales and marketing expenses decreased as a percentage of revenue from
58% in 1996, to 43% in 1997 and increased to 45% in 1998.
The Company expects that sales and marketing expenses will increase in
the future, in absolute terms, as the Company continues to expand sales
and marketing programs.
Research and Development
Research and development expenses increased by 33% in 1999 to $5.6
million from $4.2 million in 1998 and by 5% in 1998 to $4.2
million from $4.0 million in
1997 and increased by 18%1997. The increase in 1997 from $3.4
million in 1996.1999 is largely due to investments made for the
DynamicInput product line. Research and development expenses have decreasedincreased
as a percentage of revenue to 25% in 1999, from 48%24% in 1996 to1998, which
decreased from 33% in 1997 and to 24% in
1998.1997.
Current staffing levels exceed those of prior periods. The Company
believes that continued investment in research and development is
critical to its future growth and will continue to commit substantial
resources, to this area. As a result, research and development expenses
are likely to increase during 19992000 and beyond.
Sales and Marketing
Sales and marketing expenses increased by 42% in 1999 to $11.2 million
from $7.9 million in 1998 and by 49% in 1998 from $5.3 million in 1997.
Sales and marketing expenses increased as a percentage of revenue to 50%
in 1999, from 45% in 1998 and increased from 43% in 1997, respectively.
The Company expects that sales and marketing expenses will continue to
increase in the future as the Company continues to expand sales and
marketing programs, especially for those related to DynamicInput.
General and Administrative
General and administrative expenses increased by 11% in 1999 to $3.0
million from $2.8 million in 1998 and by 27% in 1998 to $2.8
million from $2.2 million
in 1997 and by 40% in 1997 from $1.5 million
in 1996.1997. General and administrative expenses have decreased as a
percentage of revenue to 14% in 1999, from 22%16% in 1996 to1998 and from 18% in
1997, and to 16% in
1998.respectively. The decreases, as a percent to sales, are primarily
attributable to increased efficiencies resulting from higher revenue
levels. Certain general & administrative expenses
have, to date, been absorbed by the recently sold display division.
Accordingly, theThe Company expects general and administrative expenses to
continue to increase in succeedingabsolute dollars in future periods.
Divestiture
The sale of the display division resulted in a net loss of $1.4 million,
or 24 cents per share, in 1998. This charge includes a loss from
display division operations in the first quarter of 1998, net of tax
benefit, of $361,000, and an estimated loss of $990,000, net of tax
benefit, on the sale of the net assets of the display division. As a
result of the sale, the Company owns a minority interest in Cornerstone
Peripherals Technology, Inc., which is reflected as an `other asset' on
the December 31, 19981999 balance sheet.
Interest and Other Income
Interest and other income decreased in 1999 to $631,000 from $675,000 in
1998 to $675,000and decreased in 1998 from $688,000 in 1997 and increased in 1997 from $254,000 in 1996.1997.
Provision (benefit) for Income Taxes
The provision (benefit) for income taxes as a percentage of pretax
income (loss) was 31%(35)%, 31% and 34% for 1999, 1998 and (29)% for 1998, 1997, and 1996,
respectively.
Liquidity and Capital Resources
At December 31, 1999, the Company had cash and cash equivalents of $9.2
million, a decrease of $5.2 million from December 31, 1998. At December
31, 1998, the Company had cash and cash equivalents of $14.4
million,$14.4million, an
increase of $2.2 million from December 31, 1997.
At December 31, 1999, the working capital totaled $13.9 million, a
decrease of $5.1 million from December 31, 1998. At December 31, 1998,
the working capital totaled $19.0 million, an increase of $2.0 million
from December 31, 1997.
Net cash used in operating activities was $413,000 in 1999 compared to
net cash provided by operating activities of $15.2 million 1998. The
cash provided in 1998 was resulting from the sale of the Company's
display division. Net cash provided by operating activities was $15.2
million in 1998 compared to $253,000 in 1997. The increase in net cash
provided by operating activities from 1997 to 1998 was due primarily to
conversion to cash of various assets from the discontinued display
operation.
Net cash used for investing activities, exclusively additions to
property and equipment, was $827, 000 in 1999 compared to $821,000 in
1998 compared toand $230,000 in 1997.
OnThrough February 14, 1997,11, 1999, the Company's Board of Directors authorized
the use of up to $5$25 million to repurchase the Company's common stock. This
amount was increased to $15 million on Sept 17, 1997, further increased
to $20 million on August 12, 1998, and further increased to $25 million
on February 11, 1999.
The repurchased stock is expected to be held by the Company and may be
used to meet the Company's obligations under its stock plans and for
other corporate purposes. Purchases will be made
from time-to-time on the open market or in privately negotiated
transactions. The timing and volume of purchases will be dependent upon
market conditions and other factors. The Company intends to use cash on
hand to fund its purchases. Since inception of the plan in 1997 to
December 31, 1998, 2.91999, 3.8 million shares have been repurchased for a total
of $19.1$23.6 million. 19981999 repurchases totaled $12.6$4.5 million. The Company
used cash on hand to fund its purchases.
The Company believes that its cash and cash equivalents, together with
cash flows from operations will be sufficient to meet the Company's
liquidity and capital requirements for the next 12 months. The Company
may, however, seek additional equity or debt financing to fund further
expansion. The timing and amount of such capital requirements cannot be
precisely determined at this time and will depend on a number of
factors, including demand for the Company's products, product mix and
competitive factors. Accordingly, the Company may require additional
funds to support its working capital requirements or for other purposes
and may seek to raise such additional funds through public or private
equity or other sources. There can be no assurance that additional
financing will be available at all or that it, if available, will be
obtainable on terms favorable to the Company and would not be dilutive.
Quarterly Operating Results (Unaudited)
The following table sets forth selected unaudited financial information
for the Company for the eight quarters in the period ended December 31,
1999. This information has been prepared on the same basis as the
audited financial statements and, in the opinion of management, contains
all adjustments necessary for a fair presentation thereof.
INPUT SOFTWARE, INC.
CONSOLIDATED FINANCIAL INFORMATION
(unaudited - in thousands, except per share data)
Quarter Ended
------------------------------------------
1999 March 31, June 30, Sept. 30, Dec. 31,
- ---------------------------------------- --------- --------- --------- ---------
Net revenues $5,260 $5,856 $5,461 $5,601
Gross profit 4,546 5,006 4,692 4,720
Operating income (loss) 14 157 (133) (886)
Net income 127 185 42 (495)
Basic and Diluted EPS: 0.03 0.04 0.01 (0.12)
1998
- ----------------------------------------
Net revenues from continuing operations $3,387 $4,160 $4,599 $5,263
Gross profit 2,962 3,769 4,198 4,732
Operating income (loss) (93) 164 356 405
Net income (loss) from continuing
operations 35 219 354 431
Net income (loss) from
discontinued operations (2,645) -- -- 1,294
Basic and Diluted EPS:
For continuring operations 0.01 0.04 0.07 0.09
For discontinued operations (0.42) -- -- 0.26
--------- --------- --------- ---------
Net income (loss) (0.41) 0.04 0.07 0.35
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the Company and
auditor's report are included in Item 8 and appear following Item 14:
Report of Independent Accountants
Consolidated Balance Sheets - At December 31, 19981999 and
19971998
Consolidated Statements of Operations - Years Ended December
31, 1999, 1998, 1997, and 19961997
Consolidated Statements of Stockholders' Equity - Years
Ended December 31, 1999, 1998, 1997, and 19961997
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999, 1998, 1997, and 19961997
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Diclosure.
Not applicable.
PART III
Item 10. Directors and Officers of the Registrant.
The information required by this item relating to the
Company's directors and nominees and disclosure relating to compliance
with Section 16(a) of the Securities Exchange Act of 1934 is included
under the captions "Election of Directors" and "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Company's Proxy
Statement for the 19982000 Annual Meeting of Stockholders and is
incorporated herein by reference. The information required by this item
relating to the Company's executive officers and key employees is
included under the caption "Executive Officers and Key Employees" in
Part I of this Form 10-K Annual Report.
Item 11. Executive Compensation.
The information required by this item is included under the
caption "Executive Compensation and Related Information" in the
Company's Proxy Statement for the 19992000 Annual Meeting of Stockholders
and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this item is included under the
caption "Ownership of Securities" in the Company's Proxy Statement for
the 19992000 Annual Meeting of Stockholders and is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this item is included under the
caption "Certain Transactions" in the Company's Proxy Statement for the
19992000 Annual Meeting of Stockholders and is incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statements, Schedules, and Reports on Form
8-K10-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
1. Financial Statements
Report of PricewaterhouseCoopers LLP
Independent Accountants
Consolidated Balance Sheets as of December 31,
19981999 and 19971998
Consolidated Statements of Operations for each of the
three years in the period ended December 31, 19981999
Consolidated Statements of Stockholders' Equity for
each of the three years in the period ended
December 31, 19981999
Consolidated Statements of Cash Flows for each of
the three years in the period ended December 31, 19981999
Notes to Consolidated Financial Statements
-2. Financial Data Schedule. Form 10-K
Report of PricewaterhouseCoopers LLP
Independent Accountants
2. Financial Data Schedule. Form 10-K
Schedule II -- Valuation and Qualifying Accounts
Schedules, other than those listed above, have been omitted since
they are either not required, are not applicable, or the required
information is shown in the financial statements and related notes.
3. (a) See Exhibit List below
(b) No reports on Form 8-K were filed during the last
quarter of the fiscal year covered by this Form
10-K Annual Report.
Exhibit List
Number Description
- --------- ---------------------------------------------------------
2.1++ Agreement and Plan of Reorganization April 15, 1994 among the
Company, Pixel Translations, Inc., and Cornerstone Acquisition
Corporation.
3.1+ Amended and Restated Certificate of Incorporation of the
Company.
3.2+++ Bylaws of the Company
4.1+ Reference is made to Exhibits 3.1 and 3.2
4.2+ Form of Investor Rights Agreement dated August 27, 1993 by and
among the Company and the investors identified herein.
4.3 xx Rights Agreement dated September 9, 1997
10.1+ Form of Indemnity Agreement entered into between the Company
and its directors and officer.
10.2+ Form of the Company's 1993 Stock Option/Stock Issuance Plan.
10.3+ 1989 Employee Stock Option Plan.
10.4+ Key Employee Stock Purchase Plan.
10.5+ Form of Employee Stock Purchase Plan.
10.6+ Real Estate Lease between the Company and First Interstate Bank
of California, as Corporate Trustee for Northern California
Retail Clerks Union and Food Employers Joint Pension Trust
Fund; Bank of America N.T. & S.A., as Corporate Trustee for
Southern California United Food and Commercial Worker Unions
and Food Employers Joint Pension Trust Fund; and Imperial Trust
Company as Corporate Co-Trustee for California Butchers Pension
Trust Fund, dated as of June 1, 1989.
10.7+* License Agreement between the Company and Cadtrak Corporation,
dated December 15, 1992.
10.8+* Distribution Agreement between the Company and Micro D., Inc.,
dated as of July 11, 1988.
10.9+* Distributor Agreement between the Company and Law Cypress
Distributing Company, dated as of May 2, 1990.
10.10+* OEM Sales Agreement between the Company and NEC Technologies,
Inc., dated as of December 11, 1992.
10.11+* Systems Integrator Purchase Agreement between the Company and
PRC, Inc., dated as of September 10, 1991.
10.12+* Systems Integrator Purchase Agreement between the Company and
DST Systems, Inc., dated as of June 14, 1990.
10.13+* Display Technologies, Inc. Pricing Terms and Conditions.
10.14 Intentionally left blank.
10.15+ Loan and Security Agreement, between the Company and Plaza Bank
of Commerce dated as of August 7, 1992.
10.16+ Loan and Security Agreement between the Company and Comerica
Bank-California, dated as of August 1, 1993.
10.17+ Loan and Security Agreement, between the Company and LB Credit
Corporation, dated as of October 21, 1992, as amended.
10.18* Product Support and Marketing Agreement between the Company and
IBM, dated as of February 16, 1994.
21.1+ Subsidiaries of the Company.
23.1 Consent of PricewaterhouseCoopers, LLP
24.1 Power of Attorney (see page 24)22).
27 Financial Data Schedule
+ Incorporated by reference to an exhibit to the Company's
Registration Statement of Form S-1 (Registration No. 33-
66142), as amended.
++ Incorporated by reference to an exhibit to the Company's 8-K
filed on July 6, 1994.
+++ Incorporated by reference to an exhibit to the Company's 8-K
filed on September 24, 1997.
xx Incorporated by reference to an exhibit to the Company's
Registration Statement on Form 8-A filed on September 10,
1997.
* Confidential Treatment has been granted for the deleted
portions of this document.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 on March 29, 1999.14, 2000.
INPUT SOFTWARE, INC.
By: /s/ Kimra Hawley
Kimra Hawley
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints jointly and severally,
Thomas T. van Overbeek and John Finegan and each one of them, his
attorneys-in-fact, each with the power of substitution, for him in any
and all capacities, to sign any and all amendments (including post-
effective amendments) to this Report on Form 10-K, and to file the same,
with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-
fact and agents, and each of them, full power and authority to do and
perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
- -------------------------- ----------------------------------- -------------
/s/ Kimra Hawley President, Chief Executive March 30, 199914, 2000
- -------------------------- Officer and Director
Kimra Hawley (Principal Executive Officer)
/s/ John Finegan Chief Financial Officer, March 30, 199914, 2000
- -------------------------- Secretary and Director
John Finegan (Principal Financial and Accounting
John Finegan
Officer)
/s/ Thomas T. van Overbeek Chairman of the Board March 30, 199914, 2000
- -------------------------- of Directors
Thomas T. van Overbeek
/s/ Johannes Schmidt Director March 30, 199914, 2000
- --------------------------
Johannes Schmidt
/s/ James E. Crawford III Director March 30, 199914, 2000
- --------------------------
James E. Crawford III
/s/ Daniel D. Tompkins Director March 30, 199914, 2000
- --------------------------
Daniel D. Tompkins
/s/ Bruce Silver Director March 30, 199914, 2000
- --------------------------
Bruce Silver
Report of Independent Accountants
To the Board of Directors and Stockholders
of Input Software, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and
cash flows present fairly, in all material respects, the financial
position of Input Software, Inc. and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits
of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
INPUT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
December 31,
----------------------
1999 1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $9,193 $14,447 $12,284
Accounts receivable, net of allowance for doubtful
accounts of $209 in 1999 and $559 in 1998 and $409 in 19975,300 4,490 2,946
Prepaid expenses and other current assets 1,262 934 942
Deferred income taxes 3,908 4,679 4,579
---------- ----------
Total current assets 19,663 24,550 20,751
Property and equipment, net 1,479 1,208 1,056
Deferred income taxes and other assets 2,036 943 424
Net assets related to the discontinued Display Division 176
15,462
---------- ----------
$23,178 $26,877 $37,693
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $514 $652 $463
Accrued compensation and related liabilities 1,217 969 463
Deferred revenue 1,997 1,694 654
Other accrued liabilities 2,072 2,205 2,190
---------- ----------
Total current liabilities 5,800 5,520 3,770
---------- ----------
Common stock, $0.01 par value; authorized: 25,000
shares; issued and outstanding: 4,8084,076 shares
and 66604808 shares at December 31, 1999 and
1998, and
1997, respectively 41 48
67
Additional paid-inPaid-in capital 8,681 12,512 24,747
Retained earnings 8,656 8,797 9,109
---------- ----------
Stockholders' equity 17,378 21,357 33,923
---------- ----------
$23,178 $26,877 $37,693
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
INPUT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year Ended December 31,
--------------------------------
1999 1998 1997 1996
---------- ---------- ----------
Net revenues $17,409 $12,240 $7,090from continuing operations
License $17,858 $15,425 $11,260
Service 4,320 1,984 980
---------- ---------- ----------
Total revenues 22,178 17,409 12,240
Cost of revenues
1,748 881 322License 616 490 267
Service 2,598 1,258 614
---------- ---------- ----------
Cost of revenues 3,214 1,748 881
Gross profit 18,964 15,661 11,359 6,768
---------- ---------- ----------
Research and development 5,586 4,212 4,016 3,413
Sales and marketing 7863 5270 411111,182 7,863 5,270
General and administrative 3,044 2,754 2,164 1,548
---------- ---------- ----------
Operating income (loss) (848) 832 (91) (2,304)
Interest and other income 631 675 688 254
---------- ---------- ----------
Income (loss) before provision for income taxes (217) 1,507 597 (2,050)
Provision (benefit) for income taxes (76) 468 203 (601)
---------- ---------- ----------
Net income (loss) from continuing operations ($141) $1,039 $394 ($1,449)
Discontinued operations:
Net income (loss) from operations of
Discontinued Display Division ($361) $687 $286(361) 687
Estimated net loss on the sale of Display Division ($990) $0 $0(990)
---------- ---------- ----------
Net income (loss) form discontinued operations ($1,351) $687 $286(1,351) 687
Net income (loss) ($141) ($312) $1,081 ($1,163)
========== ========== ==========
Basic and diluted EPS:
For continuing operations ($0.03) $0.18 $0.05 ($0.19)
For discontinued Display Division ($0.24) $0.10
$0.04
Net income (loss) ($0.03) ($0.06) $0.15 ($0.15)
========== ========== ==========
Shares used in Basic EPS calculation 4,370 5,657 7,248 7,548
Shares used in Diluted EPS calculation 4,370 5,731 7,285 7,598
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
INPUT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Unrealized
Loss on Total
Common Stock Additional Marketable Stock-
------------------ Paid-in Securities, Retained holders'
Shares Amount Capital Net Earnings Equity
--------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1995 7,333 73 30,097 (30) 9,191 39,331
Common stock issued under:
Stock option plan 127 2 171 -- -- 173
Employee Stock Purchase Plan 98 1 600 -- -- 601
Unrealized holding gain
on marketable securities, net -- -- -- 30 -- 30
Tax benefit from disqualifying
dispositions of common stock -- -- 46 -- -- 46
Net loss -- -- -- -- (1,163) (1,163)
--------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1996 7,558 76 30,914 -- 8,028 39,018$76 $30,914 $0 $8,028 $39,018
Common stock issued under:
Stock option plan 53 -- 116 -- -- 116
Employee Stock Purchase Plan 91 1 447 -- -- 448
Common stock repurchased (1,007) (10) (6,447) (6,457)
Common stock received for Pegasus (35) -- (332) -- -- (332)
Tax benefit from disqualifying
dispositions of common stock -- -- 49 -- -- 49
Net income -- -- -- -- 1,081 1,081
--------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1997 6,660 $67 $24,747 $ --$0 $9,109 $33,923
Common stock issued under:
Stock option plan 2 -- 12 -- -- 12
Employee Stock Purchase Plan 78 1 357 -- -- 358
Common stock repurchased (1,932) (20) (12,604) (12,624)
Net loss -- -- -- -- (312) (312)
--------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1998 $4,8084,808 $48 $12,512 $0 $8,797 $21,357
Common stock issued under:
Stock option plan 16 116 116
Employee Stock Purchase Plan 70 1 339 340
Common stock repurchased (818) (8) (4,462) (4,470)
Tax benefit from disqualifying
dispositions of common stock 87 87
Stock-based compensation 89 89
Net loss (141) (141)
--------- -------- ------------ ----------- ---------- ----------
Balances, December 31, 1999 4,076 $41 $8,681 $0 $8,656 $17,378
========= ======== ============ =========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
INPUT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
--------------------------------
1999 1998 1997 1996
---------- ---------- ----------
Cash flows from operating activities:
Net income (loss) ($141) ($312) $1,081 ($1,163)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Provision for doubtful accounts (350) 207 249
Stock compensation charge 89
Depreciation and amortization 556 669 383
259
Discontinued operations 176 15,286 (988) 7,366
Deferred income taxes (275) (28) (353) (389)
(Increase) decrease in assets and
liabilities:
Accounts receivable (1,544) (1,318) (1,013)(460) (1,751) (1,567)
Other assets (375) (583) (315)
1,581
Accounts payable (138) 189 160 161
Accrued compensation and related
liabilities 248 506 171
218Deferred revenue 303 1,040 221
Accrued liabilities and deferred
revenue 1,055 1,432 1,319(46) 15 1,211
---------- ---------- ----------
Net cash (used) provided by
(used
in) operating activities (413) 15,238 253 8,339
---------- ---------- ----------
Cash flows from investing activities:
Purchase of marketable securities -- -- (4,595)
Maturities of marketable securities -- -- 10,365
Property and equipment additions (827) (821) (230) (1,068)
---------- ---------- ----------
Net cash provided by (used in)used in investing activities (827) (821) (230) 4,702
---------- ---------- ----------
Cash flows from financing activities:
Common stock received from Pegasus sale -- (332) --
Repurchase of common stock (4,470) (12,624) (6,457) --
Net proceeds from issuance of common stock 456 370 564 774
---------- ---------- ----------
Net cash provided by (used
in)used in financing activities (4,014) (12,254) (6,225) 774
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents (5,254) 2,163 (6,202)
13,815---------- ---------- ----------
Cash and cash equivalents at beginning of yearperio 14,447 12,284 18,486 4,671
---------- ---------- ----------
Cash and cash equivalents at end of yearperiod $9,193 $14,447 $12,284 $18,486
========== ========== ==========
Supplemental cash flow disclosures:
Cash (received) paid during the year for taxes ($997) $1,203 $287364 (997) 1,203
Tax benefit from disqualifying dispositions -- $49 $46
Unrealized holding gain (loss) on marketable
securities, net $ -- $ -- $3087 49
The accompanying notes are an integral part of these
consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business of the Company:
Input Software, Inc. and subsidiaries (the "Company")
develops, markets, and services information capture software that helps automate and
manage the input of external information into an organization's
internal computing systems. On September 8, 1998 the Company sold
its display division to its management (see noteNote 3). Accordingly,
the operating results and net assets of the display division have
been segregated from continuing operations in prior periods and
reported as separate line items on the statements of operations
and balance sheets.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Input Software
GmbH and Input Software (UK) Ltd, and Cornerstone Technology International, Inc.Ltd. All significant intercompany
accounts and transactions have been eliminated.
Restatement and Reclassifications:
The financial statements for 1997 and 1998 have been
restated for the effects of the discontinued operations of the
display division (see noteNote 3). Certain
reclassifications have been made to prior years financial statements to
conform with the 1998 presentation.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amount of
assets and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results
could differ from those estimates.
Certain Risks and Concentrations:
The Company's products are concentrated in the data capture
and document management industry which is highly competitive and
rapidly changing. Significant technological changes in the
industry, including changes in computing platforms, changes in
customer requirements, the infringement of proprietary patent, or
the emergence of a major direct competitor could affect operating
results adversely. In addition, a significant portion of the
Company's revenue derives from international sales. Fluctuations
of the U.S. dollar against foreign currencies or local economic
conditions could adversely affect operating results.
Property and Equipment:
Property and equipment are stated at cost and depreciated on
a straight-line basis over estimated useful lives of three years.
Leasehold improvements are recorded at cost and depreciated on a
straight-line basis over the lesser of their useful lives or the
related lease term.
Revenue Recognition:Recognition
Revenue is generated from four primary sources: licensing of
product, royalties, software maintenance, and professional
services. Product licensing and royalty revenue is recognized
upon shipment if a signed agreement exists, the fee is fixed and
determinable, collection of invoice amounts are probable, and
product returns are reasonably estimable. Maintenance revenue for
ongoing customer support and product updates is recognized ratably
over the period of the maintenance contract. Payments for such
are generally made in advance and are non-
refundable.non-refundable.
Professional service revenue is recognized as services are
provided. For contracts with multiple obligations (e.g.
deliverable and undeliverable products, maintenance and other
services), the Company allocates revenue to each component of the
contract based on objective evidence of its fair value, which is
specific to the Company, or for products not being sold
separately, the price established by management.
Advertising:
The Company expenses the costs of advertising as the
expenses are incurred. The costs of advertising consist primarily
of magazine advertisements, brochures, other direct production
costs. Costs associated with trade shows are charged to expense
upon completion of the trade show. The advertising and related
promotional expense for the years ended December 31, 1999, 1998,
and 1997 was $1.0 million, $722,000 and 1996 was $722,000, $634,000
and $479,000 respectively.
Income Taxes:
Income taxes are accounted for under the liability method.
Under this method, deferred tax assets and liabilities are
determined based on differences between financial reporting and
tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
Computation of Net Income (Loss) Per Common Share:
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 128, Earning Per Share (SFAS 128), which
requires the presentation of basic and diluted EPS.
Basic EPS is computed by dividing income available to common
stockholders by the weighted average number of common shares
outstanding for that period. Diluted EPS is computed giving
effect to all dilutive potential common shares that were
outstanding during the period. Dilutive potential common shares
consist of incremental common shares issuable upon exercise of
stock options, warrants and convertible securities for all
periods.
In accordance with the disclosure requirements of SFAS 128,
a reconciliation of the numerator and denominator of basic and
diluted EPS is provided as follows:follows (in thousands):
Year Ended December 31,
--------------------------------
1999 1998 1997 1996
---------- ---------- ----------
Net income (loss) ($141) ($312) $1,081 ($1,163)
(numerator)
Shares used in basic EPS calculations
(denominator) 4,370 5,657 7,248 7,548
Dilutive effect of stock options -- 37 --
Shares used in diluted EPS calculations 4,370 5,657 7,285 7,548
Basic EPS ($0.03) ($0.06) $0.15 ($0.15)
Diluted EPS ($0.06) $0.150.03) ($0.15)0.06) $0.15
Options outstanding at December 31, 1999, 1998, and 1997 not
included in computation of diluted EPS because the exercise price
was greater than the average market price or because the Company
incurred a net loss:
1999 1998 1997
---------- ---------- ----------
number of options shares (0000) 2,660 1,876 1,858
price range $1.39-$15.7$1.39-$15.7$.40-$16.2
Concentration of Credit Risk:
The Company sells its products primarily in North America
and Europe. The Company performs ongoing credit evaluations of
its customers and generally does not require collateral. The
Company maintains reserves for potential credit losses which have
been within management's expectations. Substantially all cash and
cash equivalents are held by one bank.
Concentration of Credit Risk:bank
In accordance with Statement of Financial Accounting
Standard No. 52, "Foreign Currency Translation", the assets and
liabilities denominated in foreign currency are translated into
U.S. dollars at the current rate of exchange existing at period
end. Gains and losses resulting from foreign exchange
transactions are included in results of operations.
Comprehensive Income
The Company has adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", effective January 1, 1998. This statement requires the
disclosure of comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income
is the change in equity from transactions and other events and
circumstances other than those resulting from investments by
owners and distributions to owners. There are no significant
components of comprehensive income excluded from net income;
therefor, no separate statement of comprehensive income has been
presented.
Cash Flows:and Cash Equivalents:
The Company considers all highly liquid investments with an
original maturity from date of purchase of three monthsone year or less to be
cash equivalents.
Recent Pronouncement:Pronouncements
In December 1998, AcSEC released Statement of Position 98-9
("SOP 98-9"), "Modification of SOP 97-2, `Software Revenue
Recognition,' with Respect to Certain Transactions." SOP 98-9
amends SOP 97-2 to require that an entity recognize revenue for
multiple element arrangements by means of the "residual method"
when (1) there is vendor-specific objective evidence ("VSOE") of
the fair values of all the undelivered elements that are not
accounted for by means of long-term contract accounting, (2) VSOE
of fair value does not exist for one or more of the delivered
elements, and (3) all revenue recognition criteria of SOP 97-2
(other than the requirement for VSOE of the fair value of each
undelivered element) are satisfied
The provisions of SOP 98-9 that extend the deferral of
certain paragraphs of SOP 97-2 became effective December 15, 1998.
These paragraphs of SOP 97-2 and SOP 98-9 were effective for
transactions that were entered into in fiscal years beginning
after March 15, 1999. Retroactive application is prohibited. We
have evaluated the requirements of SOP 98-9 and do not believe it
will have a material impact on our current revenue recognition
policies.
As of January 1, 19981999 the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income"("SFAS 130"). This statement establishes requirements for
disclosure of comprehensive income and its components; however, the
adoption of SFAS 130 had no impact on the Company's net income (loss) or
stockholders' equity.
As of January 1, 1998 the Company has adopted the provisions of
Statement of Position 97-2, ("SOP 97-2"), "Software Revenue Recognition,
as amended by SOP 98-4 "Deferral of Effective Date of Certain Provisions
of SOP 97-2". This statement establishes requirements for revenue
recognition for software companies. Under SOP 97-2, the Company
recognizes product revenues and license fees upon shipment if a signed
contract exists, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably
estimable. In addition, for contracts with multiple obligations (e.g.
deliverable and undeliverable products, service, and maintenance),
revenue must be allocated to each component of the contract based on
evidence of its fair value. Revenue allocated to undelivered products is
recognized when the criteria for product and license revenue set forth
above are met. Revenue allocated to maintenance fees for ongoing
customer support and updates is recognized ratably over the period of
the maintenance contract. Payments for maintenance fees are generally
made in advance and are non-refundable. Revenue related to other
services is recognized as the related services are performed. Royalty
revenues that are contingent upon sale to an end-user by OEMs are
recognized upon receipt of a report of sale by the Company for the OEM.
In April 1998, the American Institute of Certified Public
Accountants issued Statement of Position98-1 ("SOP 98-1"), "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use".Use." This Statement of Position (SOP)statement
provides guidance on accounting for the costs of computer software
developed or obtained for internal use. The
SOPuse and applies to all
nongovernmental entities and is effective for
financial statements for fiscal years beginning after December 15, 1998.entities. The Company does not expect that the adoption of this statement will
have aSOP 98-1 had no material
impact.impact on the Company's financial statements.
In June of 1998, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Standards No. 133 (SFAS 133)("SFAS
133"), Accounting"Accounting for Derivative Instruments and Hedging
Activities.Activities," which is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at
fair value. In July of 1999, the FASB issued Statement of
Financial Standards No. 137 ("SFAS 137"), "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," which defers the
effective date to all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company has not yet evaluated the
effects of this change on its operations. The Company will adopt
SFAS 133 as required for its first quarterly filing of the fiscal
year 2001.
In December, 1999 the SEC issued Staff Accounting Bulletin
No. 101 ("SAB 101), "Revenue Recognition in Financial Statements."
SAB 101 provides guidance for revenue recognition under certain
circumstances. We are currently evaluating the impact of SAB 101
on the financial statements and related disclosures which will be
effective for the year ended December 31, 2000.
3. Discontinued Operations
On September 8, 1998 the Company sold its display division
to its current management team. The business now operates as a
private company named Cornerstone Peripherals Technology, Inc.
("CPT") Under the terms of the sale the Company sold certain
assets and transferred certain liabilities associated with the
display division. The Company retained certain assets, primarily
accounts receivable and some inventory, which were substantially
converted to cash by December 31, 1998. The Company holds a
minority equity interest in CPT. Accordingly, the operating
results and net assets of the display division have been
segregated from continuing operations and reported separately on
the financial statements (see noteNote 6).
4. Balance Sheet Components (in thousands):
Property and equipment: 1999 1998 1997
--------- ---------
Office equipment and machinery $2,224 $1,832
$1,541
Software 480 188 70
Leasehold improvements 520 444 1,710
--------- ---------
3,224 2,464 3,321
Less accumulated depreciation
and amortization (1,745) (1,256) (2,265)
--------- ---------
$1,479 $1,208 $1,056
========= =========
Depreciation expense was approximately $556,000, $669,000, and
$383,000 in 1999, 1998, and $259,000 in 1998, 1997 and 1996 respectively
5. Commitments and Contingency:Commitments:
Commitments
The Company has entered into various operating leases for their
facilities and sales offices. Future rental commitments under these
operating leases are as follows (in thousands):
Year ended December 31,
1999 $1,103
2000 988$1,113
2001 1,0281,153
2002 1,0691,194
2003 1,1121,237
2004 317
Subsequent years 192524
---------
Total $5,492$5,538
=========
Rent expense was approximately $1.2 million, $409,000, and
$204,000 in 1999, 1998, and $209,000 in
1998, 1997, and 1996, respectively.
6. Financial Information for the Display Division
Operating results of the discontinued display division are as follows:
Year Ended December 31,
-------------------------------
1998 1997
1996
--------- --------- ---------
Revenue $16,510 $79,614
$89,757
Net income (loss) (361) 687 286
Assets and liabilities:
1998 1997
--------- ---------
Accounts receivable -- $12,941
Inventory -- $10,933
Equipment -- $1,460
Other Assets $1,138 $195
--------- ---------
Total assets $1,138 $25,529
Accounts payable -- $6,146
Accrued Warranty -- $1,931
Deferred revenue -- $360
Accrued Liabilities $962 $1,630
--------- ---------
Total liabilities $962 $10,067
Net Assets $176 $15,462
========= =========
7. Stockholders' Equity:
Preferred Stock: The Board of Directors is authorized to
determine the price, rights, preferences, privileges and
restrictions (including voting rights) of preferred stock without
any further vote or action by the stockholders. The Board is also
authorized to increase or decrease the number of shares of any
series. At December 31, 1998,1999, there were 2,000,000 shares of $.01
par value preferred stock authorized. No preferred shares were
issued and outstanding at December 31, 1999, 1998, 1997, or 1996.1997.
Employee-Stock Purchase Plan: The Board of Directors has
reserved 330,000200,000 shares of common stock for issuance under the
1993 Employee Stock Purchase Plan, 130,000 shares under the 1997
Employee Stock Purchase Plan, and 100,000150,000 shares for issuance under the 1998
Employee Stock Purchase Plan .Plan. Employees may elect to have the
Company withhold up to 10% of their compensation for the purchase
of the Company's common stock. The amounts withheld are used to
purchase the Company's common stock at a price equal to 85% of the
fair market value of the stock on the first day of a two-year
offering or the last day of a six-month purchase period, whichever
is lower. The number of shares employees may purchase is subject
to certain limitations.
Stock-Option Plan: The Company has established the 1993
Stock Option/Stock Issuance Plan and the 1999 Stock Plan. As
amended, the 1993 Plan authorizes the issuance of up to 2,674,8522,974,852
shares of common stock over the term of the Plan, pursuant to the
grant of incentive stock and non-qualified stock options and the
direct issuance of shares to eligible employees, independent
consultants and non-employee directors. UnderThe 1999 Plan authorizes
the issuance of up to 300,000 shares of common stock over the term
of the Plan, pursuant to the grant of non-qualified stock options
and the direct issuance of shares to eligible employees,
independent consultants and non-employee directors. Additionally,
the Company has issued an option for 47,750 shares to a consulting
firm with which it has an ongoing business relationship.
Under these Plans, the exercise price per share is
determined by the Compensation Committee. The exercise price of
an incentive option cannot be less than 100% of the fair market
value of the common stock on the grant date and the exercise price
of a non-qualified option cannot be less than 85% of such fair
market value. Options generally vest over four years and are
exercisable for a term of ten years.
In May 1996,Aggregate activity under the Company's Board of Directors approved the grant of new options in
cancellation of previously granted options with exercise prices greater
than the current fair value of the Company's common stock. The newly
granted options are exercisable at the fair value of the Company's
common stock at the date of the grant and will vest over periods up to
four years based in part on the original vesting commencement date.
Activity during the years ended December 31, 1998, 1997, and
1996plans is as follows (in thousands
except the per share amounts):
Options Outstanding
-------------------------------------------
Shares Weighted-
Available Number average
for of Exercise
Grant Shares Price Per Share Amount Price
-------- ------- ---------------- --------- --------
Balance, December 31, 1995 24 1,278 $0.40 - $25.25 16,591 12.99
Plan Amendment 500
Options granted (1,396) 1,396 $5.50 - $18.00 12,300 8.81
Options canceled 978 (978) $1.60 - $25.20 (14,476) 14.80
Options exercised (127) $0.40 - $8.63 (173) 1.37
Options expired 174 (174) $1.60 - $20.25 (2,642) 15.14
-------- ------- ---------
Balance, December 31, 1996 280 1,395 $0.40 - $18.50 11,600 8.32$11,600 $8.32
Plan Amendment 400
Options granted (1,068) 1,068 $4.63 - $9.25 7,325 6.86$6.86
Options canceled 427 (427) $5.60 - $15.25 (3,554) 8.31$8.31
Options exercised (53) $0.40 - $8.63 (115) 2.18$2.18
Options expired 88 (88) $3.00 - $15.25 (759) 8.66$8.66
-------- ------- ---------
Balance, December 31, 1997 127 1,895 $0.40 - $16.25 $14,497 7.65$7.65
Plan Amendment 200
Options granted (523) 523 $4.69 - $7.75 3,471 6.64$6.64
Options canceled 540 (540) $1.60 - $15.25 (4,096) 7.59$7.59
Options exercised (2) $1.39 - $5.94 (12) 5.42$5.42
-------- ------- ---------
Balance, December 31, 1998 344 1,876 $1.39 - $15.75 $13,860 7.39$7.39
Plan Amendment 648
Options granted (982) 982 $3.69 - $15.38 5,134 $5.23
Options canceled 124 (182) $4.00 - $9.50 (1,437) $7.47
Options exercised (16) $5.60 - $8.63 (116) $7.30
-------- ------- ---------
Balance, December 31, 1999 134 2,660 $1.39 - $15.75 $17,441 $6.58
======== ======= =========
During 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation (SFAS
No. 123). This standard, which establishes a fair value-based
method for stock-based compensation plans, also permits an
election to continue following the requirements of APB Opinion No.
25, Accounting for Stock Issued to Employees, with disclosures of
pro-forma net income and earnings per share under the new method.
The Company continues to follow the requirements of APB Opinion
No. 25, with disclosure of pro-
formapro-forma information concerning its
stock option and employee stock purchase plans in accordance with
SFAS No. 123 .
The following table summarizes information about the Company'swith respect to
stock options outstanding at December 31, 1998:1999:
Options Oustanding Options Exercisable
---------------------------------- -----------------------
Weighted
Number Average Weighted Number Weighted
Outstanding Remaining Average Exercisable Average
Range of as of Contractual Exercise as of Exercise
Exercise Prices 12/31/9899 Life (Years) Price 12/31/9899 Price
- ---------------- ----------- ----------- ---------- ------------ ----------
(000s) (000s)
$1.39 - $5.00 309 8.8 $4.97 108 $4.91558 8.1 $4.68 220 $4.93
$5.06 - $6.00 171 8.5 5.66 34 5.65
$6.13 - $7.00 176 9.4 6.59 9 6.80
$7.06 - $8.00 474 8.8 7.55 94 7.84
$8.25 - $9.50 711 7.5 8.61 449 8.61
$13.50$6.19 849 9.1 5.52 61 5.63
$6.25 - $15.75 35 5.5 14.14 27 14.111,253 7.2 8.14 823 8.50
----------- ------------
1,876 8.3 $7.39 721 $8.012,660 8.0 $6.58 1,104 $7.63
=========== ============
Fair value of each option grant is estimated on the date of
the grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1999, 1998, and 1997:
1999 1998 1997 and 1996:
1998 1997 1996
--------- --------- ---------
Risk-free interest rates 5.50% 5.17% 6.12% 6.15%
Expected life 3.5 years 3.5 years 3.8 years
3.6 years
Volatility 66%50% 66% 66%
Dividend yield -- -- --
The weighted average fair value of those options granted in 1999, 1998,
1997 1996 was $2.79, $3.36 $3.53 and $2.80,$3.53, respectively. The Company has also estimated
the fair value for the purchase rights issued under the Company's Employee Sto
Plan,Stock
Purchase plan, under the Black-Scholes valustion model using the following
assumptions 1997,for 1999, 1998, and 1996:1997:
1999 1998 1997 1996
--------- --------- ---------
Risk-free interest rates 5.50% 5.17% 5.32% 5.46%
Expected life 0.50 years 0.50 years 0.50 years
Volatility 66%50% 66% 66%
Dividend yield -- -- --
The weighted average fair value of those purchase rights
granted in 1999, 1998 and 1997 was $2.61, $2.51 and 1996 was $2.51, $6.11, and $2.58, respectively.
The following pro forma income information has been prepared
following the provisions of SFAS No. 123 (in thousands except per
share data):
1999 1998 1997 1996
--------- --------- ---------
Net income (loss)- proforma ($1,443) ($1,864) ($1,238) ($4,036)
Basic EPS - proforma ($0.33) ($0.33) ($0.17) ($0.53)
Diluted EPS - proforma ($0.33) ($0.33) ($0.17) ($0.53)
The above pro forma effects on income may not be
representative of the effects on net income for future years as option
grants typically vest over several years and additional options are
generally granted each year.
8. Significant Customers and Export Revenues:
The Company has adopted SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information, " effective for fiscal years
beginning after December 15, 1997. SFAS No. 131 supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise", SFAS No.
131 changes current practice under SFAS No. 14 by establishing a new
framework on which to base segment reporting and introduces requirements
for interim reporting of segment information.
The Company has determined that it has a single reportable segment
consisting of the development, marketing and servicing of information
capture software. Management uses one measurement of profitability and
does not disaggregate its business for internal reporting. Operations
outside the United States primarily consist of sales offices in United
Kingdom and Germany, responsible for the sales activities to foreign
customers, invoiced by the Company's headquarters in the United
States. The foreign subsidiaries do not carry any significant
long-live assets, and income and assets of the Company's foreign
subsidiaries were not significant. Revenue from external customers by
geographic area for each of the three fiscal periods:periods is presented in
the following table:
1999 1998 1997 1996
--------- --------- ---------
US $16,189 $12,866 $9,768 $6,077
% of total 74% 80% 86%73.0% 74.0% 80.0%
International 5,989 4,543 2,472 1,013
% of total 26% 20% 14%27.0% 26.0% 20.0%
For the years ended December 31 1999, 1998, 1997, and 19961997 no customer
accounted for more than 10% of the Company's revenues.
9. Divestitures:
On February 4, 1997, the Company entered into an agreement to sell its
ownership interest in the Pegasus product line. Under the terms of the
agreement the Company received 35,000 shares of the Input Software's
common stock and a note receivable totaling approximately $200,000. The
impact of this transaction on the financial position of the Company was
not significant.
10. Income9.Income Taxes:
Income tax expense(benefit) consists of (in thousands):
1999 1998 1997 1996
--------- --------- ---------
Current:
Federal -- $444 ($247)
State and local 2 2 414
--
Foreign --128 47 152
--------- --------- ---------
$130 $2 $905 ($95)
--------- --------- ---------
Deferred:
Federal ($161) $160 ($193) ($185)
State and local (45) 58 (143) (204)
--------- --------- ---------
($206) $218 ($336) ($389)
--------- --------- ---------
Total:
Federal ($161) $160 $251 ($432)
State and local (43) 60 271
(204)
Foreign --128 47 152
--------- --------- ---------
($76) $220 $569 ($484)
========= ========= =========
The Company's effective tax rate differs from the statutory
federal income tax rate as shown in the following schedule:
1999 1998 1997 1996
--------- --------- ---------
Statutory federal income tax rate -34.0% 34.0% 34.0%
-34.0%
State taxes 5.8% 5.7% 5.8%
-6.1%
Foreign taxes -- -- 9.2%in excess of US rate 19.9%
Research and development credits -41.5% -3.7% -- --
Foreign sales corporation -- -- --
Tax exempt interest -- -1.0%
-2.2%
Change in valuation allowance -- -- --Non-deductible expenses 17.8%
Other, net -3.2% -4.9% -4.2% 3.7%
--------- --------- ---------
-35.2% 31.1% 34.6% -29.4%
========= ========= =========
The components of the deferred tax asset (in thousands):
1999 1998 1997
--------- ---------
Deferred tax assets:
Provision for doubtful accounts $87 $223 $362
Inventory reserves -- 1,144
State taxes -- 104
Accrued liabilities 471 483 1,354
Depreciation and basis differences 949
950
Net operating loss carryforwards 3,369 2,344 --
Research & development tax
credit carryforwards 1,440 770 1,073
--------- ---------
Total deferred tax asset $5,367 $4,769
$4,987========= =========
Deferred tax liabilities:
Depreciation and basis differences (41)
Net deferred tax asset $5,326 $4,769
========= =========
At December 31, 1998,1999, the Company had $653,521$9.9 million and $2.2
million of federal and California net operating loss carryfowards.
These carryforwards expire beginning 2018 and 2003 for federal and
California tax purposes, respectively. In addition, the Company
had $945,000 of research and development tax credits available to
offset future U.S. federal income tax. These carryforwards expire
in 2013.2004. For California franchise tax purposes, the Company has
research and development credit carryforwards of $750,000.
10. Special Incentive Bonus Plan
On October 8, 1999, the Company adopted (and further amended
on December 29, 1999 and February 1, 2000) a Special Incentive
Bonus Plan that, upon a specified increase to the Company's per
share stock price, would result in bonus payments of $2.6 million,
consisting of a combination of cash and stock.
During February 2000 the Company satisfied the requirements for
$384,232.payment of bonuses pursuant to the plan.
11. Employee Benefit Plan
The Company provides a 401(K) Plan to its employees
providing tax deferred salary deductions for eligible employees.
Participants may make voluntary contributions between 1% and 20%
of their compensation subject to certain annual maximums. The
Company matches 50% of employee contributions with a maximum of
$1,000$2,000 per employee. The Plan provides for additional Company
contributions at its discretion. Total contributions made by the
Company were $212,000, $157,000, and $168,000 during 1999, 1998,
and $156,000
during 1998, 1997, and 1996, respectively.
12. Stock Repurchases
Since February 1997 through February, 1999,2000, the Company's
Board of Directors has authorized the use of up to $25 million to
repurchase the Company's common stock. Through December 31, 19981999
the Company has repurchased 2.93.8 million shares for a total of
$19.1$23.6 million. The repurchased stock is expected to be held by
the Company as treasury stock to be used to meet the Company's
obligations under its stock plans and for other corporate
purposes. Purchases have been and willmay continue to be made from
time-to-time on the open market or in privately negotiated
transactions. The timing and volume of purchases will be
dependent upon market conditions and other factors. The Company
intends
to usehas used cash on hand to fund its purchases.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Input Software, Inc.
In our opinion,:
Our audits of the consolidated financial statements listed in the
index appearing under Item 14 (a)(1) present fairly, in all material
respects, the financial position of Input Software Inc. and its
subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. In addition,referred to in our opinion,report
dated January 31, 2000, appearing herein this Annual Report on
Form 10-K also included an audit of the financial statement
schedule listed in the index appearing under Item 14 (a) Item14(a)(2) presentof this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
These financial statements and financial statement
schedules are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits. We conducted our
audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, Calfornia
February 11, 1999California
January 31, 2000
INPUT SOFTWARE, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance at Charged to Balance
beginning costs and at end
Description of year expenses Write-Offs of year
- ---------------------------- ---------- ---------- ---------- ----------
Year ended December 31, 1999
Allowance for bad debt $559 ($350) $0 $209
Year ended December 31, 1998
Allowance for bad debt $409 $207 ($57) $559
Year ended December 31, 1997
Allowance for bad debt $175 $249 ($15) $409
Year ended December 31, 1996
Allowance for bad debt $50 $135 ($10) $175