SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________________
to ___________________________________________
Commission File Number: 0-26507
SHOWCASE CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1628214
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4115 Highway 52 North, Suite 300
Rochester, Minnesota 55901-0144
(Address of principal executive offices) (Zip Code)
(507) 288-5922
(Registrants's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 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_X NO
___--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
10,345,50510,464,593 Common Shares as of November 9, 1999.January 31, 2000.
Table of Contents
SHOWCASE CORPORATION AND SUBSIDIARIES
Report on Form 10-Q
for period ended
September 30,December 31, 1999
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations for the three and
sixnine months ended September 30,December 31, 1999 and 1998 ..................................... 2
Consolidated Balance Sheets as of September 30,December 31, 1999
and March 31, 1999 ......................................................................................... 3
Consolidated Statements of Cash Flows for the sixnine
months ended September 30,December 31, 1999 and 1998 ....................................................... 4
Notes to Consolidated Financial Statements ...................................... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................................................. 7
Item 3. Quantitative and Qualitative Disclosure About
Market Risks ...... 13............................................. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................... 13......................................... 12
Item 2. Changes in Securities and Use of Proceeds ........................................ 13
Item 3. Defaults upon Senior Securities ................................. 14........................... 13
Item 4. Submission of Matters to a Vote of Security Holders ............. 14....... 13
Item 5. Other Information ............................................... 14......................................... 13
Item 6. Exhibits and Reports on Form 8-K ................................ 14
-1-.......................... 13
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended SixNine Months Ended
September 30, September 30,
--------------------December 31, December 31,
------------------- --------------------
1999 1998 1999 1998
-------- -------- -------- --------------- ------ ------ ------
Revenues:
License fees ...................................................... $ 4,0274,990 $ 5,019 $ 10,092 $ 9,2435,834 $15,082 $15,077
Maintenance and support .......... 3,301 2,365 6,507 4,526...................... 3,456 2,776 9,963 7,302
Professional service fees ........ 1,178 1,037 2,412 1,950
-------- -------- -------- --------.................... 1,201 933 3,613 2,883
------- ------- ------- -------
Total revenues .............. 8,506 8,421 19,011 15,719
-------- -------- -------- --------............................. 9,647 9,543 28,658 25,262
------- ------- ------- -------
Cost of revenues:
License fees ..................... 766 1,000 1,835 1,818................................. 985 1,077 2,820 2,894
Maintenance and support .......... 753 605 1,577 1,169...................... 855 658 2,432 1,828
Professional service fees ........ 1,112 577 2,144 1,189
-------- -------- -------- --------.................... 1,199 805 3,342 1,995
------- ------- ------- -------
Total cost of revenues ...... 2,631 2,182 5,556 4,176
-------- -------- -------- --------..................... 3,039 2,540 8,594 6,717
------- ------- ------- -------
Gross margin .............................. 5,875 6,239 13,455 11,543
-------- -------- -------- --------................................... 6,608 7,003 20,064 18,545
------- ------- ------- -------
Operating expenses:
Sales and marketing .............. 5,234 4,378 10,508 8,765.......................... 5,691 4,958 16,199 13,723
Product development .............. 1,247 1,219 2,410 2,199.......................... 1,457 1,038 3,866 3,236
General and administrative ....... 1,136 748 2,077 1,484
-------- -------- -------- --------................... 1,160 855 3,238 2,339
------- ------- ------- -------
Total operating expenses .... 7,617 6,345 14,995 12,448
-------- -------- -------- --------................... 8,308 6,851 23,303 19,298
------- ------- ------- -------
Operating income (loss) ................... (1,742) (106) (1,540) (905)
-------- -------- -------- --------........................ (1,700) 152 (3,239) (753)
------- ------- ------- -------
Other income (expense), net:
Interest expenses ............................................ (4) (49) (10) (102)(37) (15) (139)
Interest income .................. 366 74 470 133.............................. 396 57 867 186
Other income (expense), net ...... -- -- 1 --
-------- -------- -------- --------.................. 3 3 3 7
------- ------- ------- -------
Total other income (expense),
net ....................... 362 25 461 31
-------- -------- -------- --------....................................... 395 23 855 54
------- ------- ------- -------
Net income (loss) before income
taxes ................................ (1,380) (81) (1,079) (874)......................................... (1,305) 175 (2,384) (699)
Income taxes .............................. 185 45 300 85
-------- -------- -------- --------................................... 200 50 500 135
------- ------- ------- -------
Net income (loss) ....................................................... $(1,525) $ (1,565)125 $(2,884) $ (126) $ (1,379) $ (959)
-------- -------- -------- --------(834)
------- ------- ------- -------
Other comprehensive income (loss):
Foreign currency translation
adjustment ............................. (6) (19) 28 (3).................................. 26 (12) 54 (15)
Unrealized holding gain (loss)
on securities .......................... 40 -- 72............................... 206 (147) 279 (123)
-------- -------- -------- --------------- ------- ------- -------
Comprehensive income (loss) ................................... $(1,273) $ (1,531)(34) $(2,551) $ (145) $ (1,279) $ (1,085)
======== ======== ======== ========(972)
======= ======= ======= =======
Net income (loss) per share:
Basic .................................................................... $ (0.15) $ (0.03)0.03 $ (0.35) $ (0.19)
$ (0.22)
======== ======== ======== =============== ======= ======= =======
Diluted ................................................................ $ (0.15) $ (0.03)0.02 $ (0.35) $ (0.19)
$ (0.22)
======== ======== ======== =============== ======= ======= =======
Weighted average shares outstanding
used in
computing basic net income
(loss) per share ................ 10,139 4,409 7,341 4,301.............................. 10,368 4,348 8,354 4,345
Weighted average shares outstanding
used in computing diluted net
income (loss) per share ................ 10,139 4,409 7,341 4,301....................... 10,368 6,906 8,354 4,346
See accompanying notes to consolidated financial statements
-2-
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share and per share amounts)
September 30,December 31, March 31,
1999 1999
------------- ------------------- ---------
Assets
Current Assets:
Cash .................................................................................................................... $ 5,1384,042 $ 8,900
Marketable securities ........................................ 25,640.......................................... 26,198 139
Accounts receivable, net ..................................... 6,910....................................... 8,773 7,070
Prepaid expenses and other current assets .................... 1,177...................... 746 1,059
Income taxes receivable ............................................... 238........................................ 321 --
Deferred income taxes .................................................................................. 220 550
-------- --------------- -------
Total current assets ................................. 39,323....................................... 40,300 17,718
-------- --------------- -------
Property and equipment, net ........................................... 2,141...................................... 2,259 2,092
Goodwill, net of accumulated amortization ............................. 86........................ 71 116
-------- --------------- -------
Total assets ......................................... $ 41,550 $ 19,926
======== ========............................................... $42,630 $19,926
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable ............................................................................................ $ 1,024824 $ 1,373
Accrued liabilities .......................................... 4,393............................................ 4,598 4,121
Current portion of long-term debt ............................ 5.............................. 4 5
Current portion of obligations under capital leases .......... 114............ 107 127
Income taxes payable ......................................... --........................................... 47 295
Deferred revenue ............................................. 10,493 11,646
-------- --------............................................... 11,629 10,800
------- -------
Total current liabilities ............................ 16,029 17,567
-------- --------.................................. 17,209 16,721
------- -------
Deferred revenue, less current portion ........................... 852 846
Long-term debt, less current portion ............................................................... -- 2
Capital lease obligations, less current portion ....................... 25.................. -- 85
-------- --------------- -------
Total liabilities .................................... 16,054.......................................... 18,061 17,654
-------- --------------- -------
Stockholders' equity:
Series A convertible preferred stock; $.01 par
value; 473,757 shares authorized, issued, and
outstanding, total liquidation preference of $2,400 ................................ -- 5
Series B convertible preferred stock; $.01 par value;
1,777,500 shares authorized, 875,000 issued and
outstanding, total liquidation preference of $3,500 ................................ -- 9
Common stock, $.01 par value, 50,000,000 and 10,000,000
shares authorized, 10,332,34510,449,188 and 4,502,867 shares
issued and outstanding ............................................ 103........................................ 104 45
Additional paid-in capital ................................... 31,073..................................... 31,388 6,452
Accumulated other comprehensive income:
Cumulative translation adjustment ................... 75............................ 101 47
Unrealized holding gain (loss) on securities ........ (109)................. 98 (181)
Deferred compensation ........................................ (484).......................................... (455) (322)
Accumulated deficit .......................................... (5,162)............................................ (6,667) (3,783)
-------- --------------- -------
Total stockholders' equity ........................... 25,496................................. 24,569 2,272
-------- --------------- -------
Total liabilities and stockholders' equity ........... $ 41,550 $ 19,926
======== ========equity.................. $42,630 $19,926
======= =======
See accompanying notes to consolidated financial statements
-3-
SHOWCASE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
SixNine Months Ended
September 30,
--------------------December 31,
----------------------
1999 1998
-------- ---------------
Cash flows from operating activities:
Net loss ............................................................................................................. $ (1,379)(2,884) $ (959)(834)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization ............................. 375 415................................ 533 655
Provision for returns and doubtful
accounts, net of returns and writeoffs ...........................................writeoffs....................... (90) 45
Deferred income taxes ............................................................................. 330 --
Deferred compensation amortization and expense related to
cashless exercise of warrants ........................... 129 --............................... 158 22
Loss on the disposal of property and equipment ............ 3............... 6 --
Changes in operating assets and liabilities, net of
effect of foreign exchange rate changes:
Accounts receivable ................................... 250 (241)........................................ (1,613) (2,186)
Prepaid expenses ...................................... (118) (36)........................................... 313 175
Income taxes receivable ............................... (238) (90).................................... (321) 251
Accounts payable ...................................... (349) (391)........................................... (550) (75)
Accrued liabilities ................................... 271 865........................................ 476 1,302
Deferred revenue ...................................... (1,153) 1,182........................................... 836 3,112
Income taxes payable .................................. (294) 85....................................... (247) 130
-------- ---------------
Net cash provided by (used in) operating activities (2,263) 875...... (3,053) 2,597
-------- ---------------
Cash flows from investing activities:
Purchase of property and equipment ............................ (370) (175)............................. (608) (259)
Purchase of marketable securities ............................. (63,621).............................. (95,037) --
Sale and maturity of marketable securities .................... 38,192..................... 69,257 --
Proceeds from affiliates ............................................................................. -- 12
-------- ---------------
Net cash used in investing activities ............. (25,799) (163).................... (26,388) (247)
-------- ---------------
Cash flows from financing activities:
Proceeds from exercise of stock options ....................... 26 96........................ 342 111
Proceeds from initial public offering, net of expenses ................. 24,350 --
Payments on long-term debt .................................... -- (188)..................................... (3) (281)
Payments of capitalized lease obligations ..................... (76) (80)...................... (106) (120)
-------- ---------------
Net cash provided by (used in) financing activities 24,300 (172)...... 24,583 (290)
-------- ---------------
Net increase (decrease) in cash ................................... (3,762) 540.................................. (4,858) 2,060
Cash, beginning of period ................................................................................. 8,900 5,404
-------- ---------------
Cash, end of period ............................................................................................. $ 5,1384,042 $ 5,9447,464
======== ===============
Supplemental disclosure of cash flow information:
Cash paid during the sixnine months for interest .................. $ 1015 $ 102139
======== ===============
Cash paid during the sixnine months for income taxes .............. $ 642739 $ 93142
======== =======
Cash received during the nine months from income tax refunds ... $ -- $ 389
======== =======
See accompanying notes to consolidated financial statements.
-4-
SHOWCASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Basis of Presentation
The unaudited interim consolidated financial statements include the
accounts of ShowCase Corporation and its wholly owned subsidiaries
(collectively, the "Company") and have been prepared by the Company in
accordance with generally accepted accounting principles, pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included
in the financial statements have been omitted or condensed pursuant to such
rules and regulations. The information furnished reflects, in the opinion
of the management of the Company, all adjustments, consisting primarily of
recurring accruals, considered necessary for a fair presentation of the
financial position and the results of operations.
The Company adopted the provisions of Statement of Position ("SOP") No.
98-1, Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use; SOP No. 98-5, Reporting on the Costs of Start-Up
Activities,Activities; and SOP No. 98-9, Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions, effective April 1, 1999.
The adoption of these pronouncements did not have a material effect on the
Company's operating results.
Certain amounts presented in prior periods have been reclassified to
conform to current period presentation.
(2) Net Income (Loss) per Share
Basic income (loss) per share represents net income (loss) divided by the
weighted average number of shares of common sharesstock outstanding during the
period. Diluted income (loss) per share represents net income (loss)
divided by the sum of the weighted average number of shares of common sharesstock
outstanding plus shares derived from other potentially dilutive securities.
For the Company, potentially dilutive securities include "in-the-money"
fixed stock options and warrants and the amount of weighted average shares
of common sharesstock which would be added by the conversion of outstanding
convertible preferred stock. The number of shares added for stock options
and warrants is determined by the treasury stock method, which assumes
exercise of these options and warrants and the use of any proceeds from
such exercise to repurchase a portion of these shares at the average market
price for the period. When the results of operations are a loss, other
potentially dilutive securities are not included in the calculation of loss
per share.
For the three months ended December 31, 1999 and six month periodsthe nine months ended
September 30,December 31, 1999 and 1998, basic loss per share is the same as diluted
loss per share because the effect of the inclusion of other potentially
dilutive securities in the calculation of diluted loss per share was
antidilutive.
The number of option shares excluded from the calculation of potentially
dilutive securities either because the exercise price exceeded the average
market price or because their inclusion in a calculation of net loss per
share would have been antidilutive was 1,148,689 and 648,896985,538 for the three months ended
September 30,December 31, 1999 and 1998, respectively,1,040,424 and 1,125,701 and 700,498564,055 for the sixnine months ended
September 30,December 31, 1999 and 1998, respectively. The effect of conversion of the
Company's convertible preferred stock was also excluded from the
calculation of net loss per diluted share because the resulting impact
would also have been antidilutive for the three and sixnine months ended September 30,December 31,
1998.
-5-
SHOWCASE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements - (Continued)
(3) Deferred Compensation
During the three months ended June 30, 1999, the Company granted to
employees options to purchase 81,000 shares of common stock. The Company
recorded deferred compensation of approximately $153,000, representing the
difference between the deemed value of the common stock for accounting
purposes and the option exercise price of such options on the date of
grant. The Company accounts for these stock options in accordance with APB
Opinion No. 25, Accounting for Stock Issued to Employees, and will
recognize the deferred compensation cost over the five year vesting period
of options granted. No stock options were granted during the three months
ended September 30,December 31, 1999 for which the exercise price was less than the
deemed value of the common stock for accounting purposes on the date of
grant.
(4) Cashless Exercise of Warrants
During the three months ended September 30, 1999, a warrant holder
exercised a warrant to purchase shares of the Company's common stock
pursuant to a cashless exercise provision. The Company recognized an
expense of approximately $79,000 and issued an aggregate of 8,182 shares of
its common stock during the three months ended September 30, 1999 as a
result of this exercise.
(5) Initial Public Offering and Conversion of Preferred Stock
On June 29, 1999, the Company's registration statement for its initial
public offering of 3,000,000 shares of common stock at $9.00 per share was
declared effective by the Securities and Exchange Commission. The closing
of the sale of such shares occurred on July 6, 1999 at which time the
3,000,000 shares of common sharesstock were issued and proceeds, net of the
underwriting discount, of $25,110,000 were received.
On July 6, 1999, the outstanding shares of the Company's Series A and
Series B convertible preferred stock were converted into 1,895,028 and
864,198 shares of common stock, respectively.
-6-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
All statements, trend analysis and other information contained in the
following discussion relative to markets for our products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended.amended (the "Exchange Act"). These forward-looking statements are
subject to business and economic risks and uncertainties, including but not
limited to those described in Exhibit 99.1 to our Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999, as well as those discussed in our
Registration Statement on Form S-1 (File No. 333-77223) (the "Registration
Statement"). Our actual results of operations may differ materially from those
contained in the forward-looking statements. All forward-looking statements
included in this report are based on information available to us on the date of
this report, and we assume no obligation to update these forward-looking
statements, or to update the reasons why actual results could differ from those
projected in these forward-looking statements.
Overview
We are the leading provider of fully integrated, end-to-end, business
intelligence solutions for IBM AS/400 customers. Our ShowCase STRATEGY(R)
product suite and related services are designed to enable organizations to
rapidly implement business intelligence solutions that create increased value
from their operational and customer data. The sophisticated data warehousing and
management capabilities of our product suite provides our clients with highly
scalable and tightly integrated solutions. Our products enable enterprise-wide
distribution of information and allow end-user access and analysis through
familiar applications and Internet browsers. We have eightnine years of experience
delivering business intelligence solutions. Our ShowCase STRATEGY product suite,
introduced in 1996, supports ad hoc information access, enterprise reporting and
analytics.
We were incorporated in 1988, and in 1991, introduced the first
Windows-based query tool for the IBM AS/400, ShowCase VISTA. During the next
four years, we continued to broaden our family of data access products, expand
our comprehensive service and support programs, grow our telesales and indirect
sales channels and invest in marketing and administrative functions. To support
the introduction of the ShowCase STRATEGY product suite in 1996, we created a
direct field sales force and increased our global distribution presence. Our
revenues increased to $8.5$9.6 and $19.0$28.7 million for the three and sixnine months ended
September 30,December 31, 1999, respectively, from $8.4$9.5 and $15.7$25.3 million for the three and
sixnine months ended September 30,December 31, 1998, respectively. Although our revenues have
increased significantly in recent periods, this growth may not continue. We
intend to continue to invest significant resources in the development of our
product suite, sales and marketing and general and administrative functions.
Our revenues come from three principal sources: license fees, maintenance
and support and professional service fees. We adopted the provisions of
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition, as amended
by SOP No. 98-4, Deferral of the Effective Date of Certain Provisions of SOP No.
97-2, effective April 1, 1998, and SOP No. 98-9, Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions, effective
April 1, 1999. Under SOP No. 97-2, we recognize license revenue when the
software product has been delivered, if a signed contract exists, the fee is
fixed and determinable, collection of resulting receivables is probable and
product returns are reasonably estimable. License fee revenues that are
contingent upon sale to an end user by distributors and other distribution
partners are recognized upon receipt of a report of delivery to the end user.
Maintenance and support feesrevenues committed as part of new product license sales
and maintenance resulting from renewed -7-
maintenance contracts are deferred and
recognized ratably over the contract period. Professional service fee revenue is
recognized when services are performed.
-7-
We sell our products through a direct sales force and through indirect
distribution channels. Direct sales are made by our telesales organization and
direct field sales force in North American and by wholly-owned subsidiaries in
Germany, France, the United Kingdom and Belgium, including its branch office in
the Netherlands. Our distribution partners include IBM, software application
vendors, resellers and distributors located in the United States, Italy,
Switzerland, Mexico, Japan, Australia, Singapore, Hong Kong, Thailand and South
Korea. Sales through indirect channels accountsaccounted for 22.2%30.4% and 31.1%21.0% of license
fee revenues for the three months ended September 30,December 31, 1999 and 1998,
respectively, and 19.6%23.2% and 26.5%20.3% for the sixnine months ended September 30,December 31, 1999
and 1998, respectively.
Revenues from clients outside North America represented 45.9%43.0% and 35.7%32.3% of
total revenue for the three months ended September 30,December 31, 1999 and 1998,
respectively, and 37.8%39.5% and 40.7%37.6% for the sixnine months ended September 30,December 31, 1999
and 1998, respectively. A majority of these sales was derived from European
sales. We intend to continue to expand our international operations and have
committed, and will continue to commit, significant management time and
financial resources to developing direct and indirect international sales
channels.
Results of Operations
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated.
Three Months Ended Six Months Ended
September 30, September 30
--------------- ---------------
1999 1998 1999 1998
----- ----- ----- -----
As a Percentage of Total Revenues:
Revenues:
License fees .................... 47.3% 59.6% 53.1% 58.8%
Maintenance and support ......... 38.8 28.1 34.2 28.8
Professional service fees ....... 13.8 12.3 12.7 12.4
----- ----- ----- -----
Total revenues .............. 100.0 100.0 100.0 100.0
Cost of revenues:
License fees .................... 9.0 11.9 9.7 11.6
Maintenance and support ......... 8.9 7.2 8.3 7.4
Professional service fees ....... 13.1 6.9 11.3 7.6
----- ----- ----- -----
Total cost of revenues ...... 30.9 25.9 29.2 26.6
----- ----- ----- -----
Gross margin ........................ 69.1 74.1 70.8 73.4
Operating expenses:
Sales and marketing ............. 61.5 52.0 55.3 55.8
Product development ............. 14.7 14.5 12.7 14.0
General and administrative ...... 13.4 8.9 10.9 9.4
----- ----- ----- -----
Total operating expenses .... 89.5 75.3 78.9 79.2
----- ----- ----- -----
Operating income (loss) ............. (20.5) (1.3) (8.1) (5.8)
Other income (expense), net ......... 4.3 0.3 2.4 0.2
----- ----- ----- -----
Net income (loss) before income taxes (16.2) (1.0) (5.7) (5.6)
Income taxes ........................ 2.2 0.5 1.6 0.5
----- ----- ----- -----
Net income (loss) ................... (18.4)% (1.5)% (7.3)% (6.1)
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
------- ------- ------- -------
As a Percentage of Total Revenues:
Revenues:
License fees .................................... 51.7% 61.1% 52.6% 59.7%
Maintenance and support ......................... 35.8 29.1 34.8 28.9
Professional service fees ....................... 12.4 9.8 12.6 11.4
----- ----- ----- -----
Total revenues ................................ 100.0 100.0 100.0 100.0
Cost of revenues:
License fees .................................... 10.2 11.3 9.8 11.5
Maintenance and support ......................... 8.9 6.9 8.5 7.2
Professional service fees ....................... 12.4 8.4 11.7 7.9
----- ----- ----- -----
Total cost of revenues ........................ 31.5 26.6 30.0 26.6
----- ----- ----- -----
Gross margin ...................................... 68.5 73.4 70.0 73.4
Operating expenses:
Sales and marketing ............................. 59.0 52.0 56.5 54.3
Product development ............................. 15.1 10.9 13.5 12.8
General and administrative ...................... 12.0 9.0 11.3 9.3
----- ----- ----- -----
Total operating expenses ...................... 86.1 71.8 81.3 76.4
----- ----- ----- -----
Operating income (loss) ........................... (17.6) 1.6 (11.3) (3.0)
Other income (expense), net ....................... 4.1 0.2 3.0 0.2
----- ----- ----- -----
Net income (loss) before income taxes ............. (13.5) 1.8 (8.3) (2.8)
Income taxes ...................................... 2.1 0.5 1.7 0.5
----- ----- ----- -----
Net income (loss) ................................. (15.6)% 1.3% (10.1)% (3.3)%
===== ===== ===== =====
-8-
Revenues
Total revenues. Total revenues increased to $8.5$9.6 million for the three
months ended September 30,December 31, 1999 from $8.4$9.5 million for the three months ended
September 30,December 31, 1998, representing an increase of 1.0%1.1%. For the sixnine months ended
September 30,December 31, 1999, total revenues increased to $19.0$28.7 million from $15.7$25.3 million
for the sixnine months ended September 30,December 31, 1998, an increase of 20.9%13.4%.
License fees. License fee revenues decreased to $4.0 million for the
three months ended September 30, 1999 from $5.0 million for the three
months ended September 30,December 31, 1999 from $5.8 million for the three months ended
December 31, 1998, representing a decrease of 19.8%14.5%. This decrease was primarily
attributable to lower license fee revenues from Asia, low volume from our IBM
distribution channel and the deferral of purchase decisions by potential clients
because of year 2000 concerns. ForLicense fee revenues were $15.1 million for each
of the sixnine months ended September 30,December 31, 1999 license fee revenues increased to $10.1 million from $9.2 million for the
six months ended September 30, 1998, an increase of 9.2%. This increase in
license fee revenues was largely attributable to an increase in the number of
licenses sold by our expanded direct field sales force during the three months
ended June 30, 1999.and 1998. License fee revenues as a
percentage of total revenues were 47.3%51.7% and 59.6%61.1% for the three months ended
September 30,December 31, 1999 and 1998, respectively, and 53.1%52.6% and 58.8%59.7% for the sixnine
months ended September 30,December 31, 1999 and 1998, respectively. Licensing fees forLicense fee revenues from
our Essbase/400 product represented 38.6%48.0% and 37.0%40.6% of our total license fee
revenues for the three months ended September 30,December 31, 1999 and 1998, respectively,
and 41.6%43.7% and 38.7%39.4% for the sixnine months ended September 30,December 31, 1999 and 1998,
respectively.
Maintenance and support. Maintenance and support revenues increased to $3.3$3.5
million for the three months ended September 30,December 31, 1999 from $2.4$2.8 million for the
three months ended September 30,December 31, 1998, representing an increase of 39.6%24.5%. For the
sixnine months ended September 30,December 31, 1999, maintenance and support revenues increased
to $6.5$10.0 million from $4.5$7.3 million for the sixnine months ended September
30,December 31, 1998,
an increase of 43.8%36.4%. Maintenance and support revenues as a percentage of total
revenues were 38.8%35.8% and 28.1%29.1% for the three months ended September 30,December 31, 1999 and
1998, respectively, and 34.2%34.8% and 28.8%28.9% for the sixnine months ended September 30,December 31,
1999 and 1998, respectively. These increases in maintenance and support revenues
were largely a result of the renewal of maintenance and support contracts, as
well as new maintenance and support contracts associated with new product
licenses.
Professional service fees. Professional service fee revenues increased to
$1.2 million for the three months ended September 30,December 31, 1999 from $1.0$0.9 million for
the three months ended September 30,December 31, 1998, representing an increase of 13.6%28.7%. For
the sixnine months ended September 30,December 31, 1999, professional service fee revenues
increased to $2.4$3.6 million from $2.0$2.9 million for the sixnine months ended September 30,December
31, 1998, an increase of 23.7%25.3%. Professional service fee revenues as a
percentage of total revenues were 13.8%12.4% and 12.3%9.8% for the three months ended
September 30,December 31, 1999 and 1998, respectively, and 12.7%12.6% and 12.4%11.4% for the sixnine
months ended September 30, 1999.December 31, 1999 and 1998, respectively. These increases in
professional service fee revenues were largely a result of revenues associated
with the sale of new product licenses.
Costs of Revenues
Cost of license fees. Cost of license fees consists primarily of the costs
of product manuals, media, packaging, shipping and royalties paid to third
parties. Cost of license fees decreased to $0.8 million for the three months
ended September 30, 1999 from $1.0 million for the three months
ended September
30,December 31, 1999 from $1.1 million for the three months ended December
31, 1998, representing 19.0%19.7% and 19.9%18.5% of license fee revenues for these
periods, respectively. This decreaseCost of license fees decreased to $2.8 million for the
nine months ended December 31, 1999 from $2.9 million for the nine months ended
December 31, 1998, representing 18.7% and 19.2% of license fee revenues for
these periods, respectively. These decreases in cost of license fees in dollar
amount waswere primarily attributable to lower license fee revenues. Cost of license fees
was $1.8 million for each of the six months ended September 30, 1999 and 1998,
representing 18.2% and
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19.7% of license fee revenues for these periods, respectively. We anticipate
that cost of license fees will increase in dollar amount in future periods
-9-
as license fee revenues increase. Cost of license fees as a percentage of
total
license feesfee revenues may increase if we enter into additional royalty
arrangements or if sales of Essbase/400 or other products which carry a royalty
obligation increase as a percentage of license fee revenues.
Cost of maintenance and support. Cost of maintenance and support consists
primarily of personnel costs associated with providing maintenance and support
services and payments to third parties to provide maintenance and support,
particularly with respect to Essbase/400. Cost of maintenance and support
increased to $0.8$0.9 million for the three months ended September 30,December 31, 1999 from $0.6$0.7
million for the three months ended September 30,December 31, 1998, representing 22.8%24.7% and
25.6%23.7% of maintenance and support revenues for these periods, respectively. Cost
of maintenance and support increased to $1.6$2.4 million for the sixnine months ended
September 30,December 31, 1999 from $1.2$1.8 million for the sixnine months ended September 30,December 31, 1998,
representing 24.2%24.4% and 25.8%25.0% of maintenance and support revenues for these
periods, respectively. These increases in the cost of maintenance and support in
dollar amount were primarily due to the hiring of additional personnel. We
anticipate that cost of maintenance and support will increase in dollar amount
in future periods as maintenance and support revenues increase.
Cost of professional service fees. Cost of professional service fees
consists primarily of the costs of providing training and consulting services.
Cost of professional service fees increased to $1.1$1.2 million for the three months
ended September 30,December 31, 1999 from $0.6$0.8 million for the three months ended September
30,December
31, 1998, representing 94.3%99.8% and 55.6%86.3% of professional service fee revenues for
these periods, respectively. Cost of professional service fees increased to $2.1$3.3
million for the sixnine months ended September 30,December 31, 1999 from $1.2$2.0 million for the
sixnine months ended September 30,December 31, 1998, representing 88.9%92.5% and 61.0%69.2% of
professional service fee revenues for these periods, respectively. These
increases in cost of professional service fees were primarily due to the
expansion of our professional services staff. Cost of professional service fees
as a percentage of professional service fee revenues increased as a result of
reduced utilization of our staff due to year 2000 concerns of potential clients.
We anticipate that cost of professional service fees will increase in dollar
amount in future periods as professional service fee revenues increase.
Operating Expenses
Sales and marketing. Sales and marketing expenses consist primarily of
salaries, benefits, bonuses, commissions and travel and promotional expenses.
Sales and marketing expenses increased to $5.2$5.7 million for the three months
ended September 30,December 31, 1999 from $4.4$5.0 million for the three months ended September
30,December
31, 1998, representing 61.5%59.0% and 52.0% of total revenues for these periods,
respectively. Sales and marketing expenses increased as a percentage of total
revenues primarily due to slower revenue growth during the three months ended
September 30, 1999. Sales and marketing expenses increased to $10.5$16.2 million for the
sixnine months ended September 30,December 31, 1999 from $8.8$13.7 million for the sixnine months ended
September 30,December 31, 1998, representing 55.3%56.5% and 55.8%54.3% of total revenues for these
periods, respectively. These increases in sales and marketing expenses in dollar
amount reflect the hiring of additional sales and marketing personnel and
expanded promotional activities. Sales and marketing expenses increased as a
percentage of total revenues primarily due to slower revenue growth during the
three and nine months ended December 31, 1999. We anticipate that sales and
marketing expenses will increase in dollar amount in future periods.
Product development. Product development expenses consist primarily of
development personnel compensation and related costs associated with the
development of new products, the enhancement of existing products, quality
assurance and testing. Product development expenses were $1.2increased to $1.5 million
for each
of the three months ended September 30,December 31, 1999 andfrom $1.0 million for the threes
months ended December 31, 1998, representing 14.7%15.1% and 14.5%10.9% of total revenues
for
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these periods, respectively. Product development expenses increased to $2.4$3.9
million for the sixnine months ended September 30,December 31, 1999 from $2.2$3.2 million for the
six-10-
nine months ended September 30, 1999,December 31, 1998, representing 12.7%13.5% and 14.0%12.8% of total
revenues for these periods, respectively. These increases in dollar amount were
due to expenses associated with the development of new products and the hiring
of additional personnel. Product development expenses decreased as a percentage
of total revenues for the six months ended September 30, 1999 primarily due to
faster revenue growth during the three months ended June 30, 1999. We anticipate that we will continue to devote
substantial resources to product development efforts and that product
development expenses will increase in dollar amount in future periods. To date,
all product development costs have been expensed as incurred.
General and administrative. General and administrative expenses consist
primarily of salaries of executive, financial, human resources and information
services personnel as well as outside professional fees. General and
administrative expenses increased to $1.1$1.2 million for the three months ended
September 30,December 31, 1999 from $0.7$0.9 million for the three months ended September 30,December 31,
1998, representing 13.4%12.0% and 8.9%9.0% of total revenues for these periods,
respectively. General and administrative expenses increased to $2.1$3.2 million for
the sixnine months ended September 30,December 31, 1999 from $1.5$2.3 million for the sixnine months
ended September 30,December 31, 1998, representing 10.9%11.3% and 9.4%9.3% of total revenues for these
periods, respectively. These increases in dollar amount were primarily due to
increased staffing and related expenses necessary to manage and support the
expansion of operations. General and administrative expenses increased as a
percentage of total revenues primarily due to slower revenue growth during the
three and nine months ended September 30,December 31, 1999. We anticipate that general and
administrative expenses will increase in dollar amount in the future as a result
of increased personnel and infrastructure costs necessary to support the
expansion of operations.
Other Income
Other income for the periods ended September 30,December 31, 1999 and 1998 consisted
primarily of interest income and interest expense. Other income increased to
$0.4 million for the three months ended September 30,December 31, 1999 from $25,000$23,000 for the
three months ended September 30,December 31, 1998. Other income increased to $0.5$0.9 million for
the sixnine months ended September 30,December 31, 1999 from $0.1$54,000 for the sixnine months ended
September 30,December 31, 1998. These increases were primarily due to interest on the
investment of the proceeds of our initial public offering of common stock which
closed on July 6, 1999.
Provision for Income Taxes
Income taxes increased to $0.2 million for the three months ended September 30,December
31, 1999 from $45,000$50,000 for the three months ended September 30,December 31, 1998. For the sixnine
months ended September 30,December 31, 1999, income taxes increased to $0.3$0.5 million from
$85,000$135,000 for the sixnine months ended September 30, 1999.December 31, 1998. These increases were
primarily due to a reduction in the deferred tax asset as a result of the larger
loss from operations.
Liquidity and Capital Resources
Historically, we have funded operations primarily through cash provided by
operations, the sale of equity securities and bank borrowings. Operating
activities used cash of $2.3$3.1 million for the sixnine months ended September 30,December 31, 1999
and provided cash of $0.9$2.6 million for the sixnine months ended September 30,December 31, 1998.
This decrease in cash from operating activities was due primarily to increased
accounts receivable, decreased deferred revenueaccounts payable and a net loss of $1.4$2.9 million
partially offset by a decreasean increase in accounts receivable.deferred revenue.
Investing activities used cash of $25.8$26.4 million and $0.2 million for the
sixnine months ended -11-
September 30,December 31, 1999 and 1998, respectively. The principal use of
cash in investing activities for the sixnine months ended September 30,December 31, 1999 was the
investment of the proceeds from our initial public offering and capital
expenditures related to the acquisition of computer equipment and furniture
required to support the expansion of our operations. The principal use of cash
in investing activities for the sixnine months ended September 30,December 31, 1998 was capital
expenditures related to the acquisition of computer equipment and furniture
required to support the expansion of our operations.
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Financing activities provided cash of $24.3$24.6 million and used cash of $0.2$0.3
million in the sixnine months ended September 30,December 31, 1999 and 1998, respectively. For
the sixnine months ended September 30,December 31, 1999, cash provided by financing activities
consisted primarily of proceeds from our initial public offering. For the sixnine
months ended September 30,December 31, 1998, cash used by financing activities consisted
primarily of long-term debt repayment, payments under capitalized lease
obligations and the receipt of proceeds from the exercise of stock options.
Our sources of liquidity at September 30,December 31, 1999 consisted principally of cash
and marketable securities of $30.8$30.2 million. We believe that cash generated from
operations, existing cash and marketable securities will be sufficient to fund
operations for at least the next twelve months.
Year 2000
Many currently installed computerPrior to January 2000, we evaluated our business and operational systems and software products store
dates using two digits ofto
ensure readiness for the calendar year. These date code fields will need to
accept four-digit entries to distinguish 21st century dates from 20th century
dates. This problem could result in system failures or miscalculations causing
disruptions of business operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in other similar
business activities.year 2000. As a result, many companies' computer systemswe believe that all mission
critical software and software
will needhardware was assessed, and if necessary, remedied to be
upgraded or replaced in order to comply with Year 2000
requirements. The potential global impact ofready for the Year 2000 problem is not known.
If Year 2000 problems are not corrected in a timely manner, they could affect us
and the U.S. and world economies generally.
Even though our current products are Year 2000 compliant, we have lost,
and may, in the future, lose potential sales because companies are diverting
resources to assess and fix their internal systems that may not be Year 2000
compliant.
We have surveyed and assessed our infrastructure that supports our
information technology and communication systems.year 2000. All mission critical computer
hardware, databases, operating systems, network equipment and communication
equipment have been assessed and identified as Year 2000 compliant. Personal
computers and workstations have been inventoried and evaluated and all non-Year
2000 compliant hardware and software has
been or is being replaced. Our Yearcontinued to function beyond January 1, 2000 compliance program for all of our significant internal systems will be
completed at a cost of approximately $65,000.
We surveyed our key suppliers to assesswithout interruption. As the potential impact on our
operations if these suppliers are not successful in converting their systems in
a timely manner. Responses received to date indicate that our suppliers are
aware ofyear
2000 progresses, however, we may experience problems associated with the Yearyear
2000 issues and are implementing necessary changes. Suppliers that have not respondedyet been discovered. We are continuing to monitor both our
surveys are being evaluated in greater detail,internal systems and contingency plans are being developed as appropriate. It is impossibletransactions with customers and suppliers for any
indications of year 2000 related problems. As of February 10, 2000, we had
incurred external costs of approximately $65,000 related to fully assessyear 2000 readiness,
including testing, analysis and purchase of hardware and software upgrades. We
believe this to be the potential consequences in the event interruptions from
suppliers occur or in the eventoverall cost of our year 2000 readiness project, however,
there can be no assurance that there are disruptions in infrastructure
areas as utilities, communications, transportation, banking or government.
Based on our Year 2000 compliance program, we believe wefinal costs will not experience any material
-12-
disruptions as a result of Year 2000 problems in internal processes, information
processing, interfaces with major clients or with processing orders and billing.
However, if suppliers or other third-party providers, such as those providing
electricity, water or telephone services, experience difficulties in providing
products or services to us because of their Year 2000 problems, we believe that
the most reasonably likely worst case scenario would be that our ability to
timely ship our products to our clients would be disrupted. This could result in
the loss of current or potential clients which could seriously harm our business
and results of operations. Assuming no major disruption in service from
suppliers or other third-parties, we believe that we will be able to manage our
total Year 2000 transition without any substantial harm to our business and
operating results.exceed this level.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 established methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. SFAS No. 133 will be
effective for us in April 2001. We are currently reviewing the potential impact
of this accounting standard.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
There have been no material changes in our market risk during the three and
sixnine months ended September 30,December 31, 1999 from that set forth on page 25 of the
Registration Statement under the heading "Quantitative and Qualitative
Disclosure About Market Risks."
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings.
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Item 2. Changes in Securities and Use of Proceeds
We issued and sold during the quarter ended September 30, 1999 an
aggregate of 8,182 shares of our common stock to Comdisco, Inc. upon exercise of
an outstanding warrant. The warrant was exercised pursuant to a cashless
exercise provision and, as such, we received no proceeds from the exercise of
the warrant. The issuance of our common stock upon exercise of the warrant was
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act.
Our registration statement, filed on Form S-1 under the Securities Act
(File No. 333-77223), for ourthe initial public offering of our common stock became
effective June 29, 1999. The closing ofWe have invested the sale of shares pursuant to the offering occurred on
July 6, 1999, at which time we issued 3,000,000 shares of our common stock for
an aggregate offering price of $27.0 million. Upon the closing of the offering,
all outstanding shares of our Series A and Series B convertible preferred stock
were automatically converted into 2,759,226 shares of our common stock.
Following the closing, we filed Amended and Restated Articles of Incorporation
with the Secretary of State of the State of Minnesota which eliminated the
previously authorized convertible preferred stock and increased the authorized
number of shares of capital stock to 50,000,000.
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We received net proceeds from the initial public offering of
approximately $24.4 million. These proceeds are currently investedmillion in marketable securities pending the use of such
proceeds.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.On December 31, 1999, we entered into a licensing agreement with IntraNet
Solutions(R), Inc. pursuant to which we have the exclusive right to sell
IntraNet Solutions' Xpedio product line on the AS/400 platform and non-exclusive
rights to sell the Xpedio product line on the NT and UNIX platforms. This
licensing agreement enables us to extend our product line into the enterprise
information portal market by integrating the Xpedio product line with our
ShowCase STRATEGY product suite.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.1 -- License and Distribution Agreement, dated as of
December 31, 1999, by and between ShowCase Corporation
and IntraNet Solutions Inc.*
27.1 -- Financial Data Schedule
(b) Reports on Form 8-K:
The Company did not file any Current Report on Form 8-K during the
quarter ended September 30,December 31, 1999.
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* Confidential information has been omitted from such Exhibit and filed
separately with the Commission pursuant to a confidential treatment
request under Rule 24b-2 of the Exchange Act.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SHOWCASE CORPORATION
Date: November 10, 1999February 11, 2000 By: /s/ Craig W. Allen
----------------------------------------------------------------------
Craig W. Allen
Chief Financial Officer
(Duly authorized officer and principal
financial and accounting officer)
EXHIBIT INDEX
Page
----
10.1 License and Distribution Agreement, dated as of December 31, 1999,
by and between ShowCase Corporation and IntraNet Solutions Inc.*
27.1 Financial Data Schedule
- -----------
* Confidential information has been omitted from such Exhibit and filed
separately with the Commission pursuant to a confidential treatment
request under Rule 24b-2 of the Exchange Act.