MICROSTRATEGY INC - 10-Q Quarterly Report

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2002

o	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 000-24435

MICROSTRATEGY INCORPORATED
(Exact name of registrant as specified in its charter)

Delaware

(State of incorporation)

1861 International Drive, McLean, VA

(Address of Principal Executive Offices)

22102

(Zip Code)

51-0323571

(I.R.S. Employer Identification Number)

Registrant’s telephone number, including area code: (703) 848-8600

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 o

The number of shares of the registrant’s class A common stock and class B common stock outstanding on August 12, 2002 was 7,250,863 and 4,643,134, respectively.

MICROSTRATEGY INCORPORATED

FORM 10-Q

TABLE OF CONTENTS

		Page

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2002 (unaudited) and December 31, 2001	1

	Consolidated Statements of Operations For the Three Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)	3

	Consolidated Statements of Operations For the Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)	4

	Consolidated Statements of Cash Flows For the Six Months Ended June 30, 2002 (unaudited) and 2001 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	48

Item 2.	Changes in Securities and Use of Proceeds	49

Item 5.	Other Information	51

Item 6.	Exhibits and Reports on Form 8-K	53

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)

					June 30,		December 31,
					2002		2001

					(unaudited)
Assets
	Current assets:
		Cash and cash equivalents			$	36,951	$	38,409
		Restricted cash				251		439
		Short-term investments				90		904
		Accounts receivable, net				22,761		22,281
		Prepaid expenses and other current assets				3,100		5,902

				Total current assets		63,153		67,935

			Property and equipment, net			22,291		26,506
			Goodwill and intangible assets, net			3,575		5,402
			Deposits and other assets			6,091		3,789

				Total assets	$	95,110	$	103,632


Liabilities and Stockholders’ Equity (Deficit)
	Current liabilities:
		Accounts payable and accrued expenses			$	15,896	$	18,935
		Accrued compensation and employee benefits				8,916		13,654
		Accrued interest and preferred dividends				9,538		7,351
		Accrued restructuring costs				6,661		7,422
		Deferred revenue and advance payments				22,630		20,987
		Contingency from terminated contract				—		17,074
		Working capital line of credit				—		1,212
		Net liabilities of discontinued operations				2,503		4,479

				Total current liabilities		66,144		91,114

	Deferred revenue and advance payments					2,660		5,431
	Accrued litigation settlement					54,450		68,637
	Other long-term liabilities					2,690		3,536
	Accrued restructuring costs					4,361		4,271
	Long term debt					551		—

			Total liabilities			130,856		172,989

	Commitments and contingencies
	Series A redeemable convertible preferred stock, par value $0.001 per share, 18 shares authorized, 0 and 1 shares issued and outstanding, respectively					—		6,385
	Series B redeemable convertible preferred stock, par value $0.001 per share, 3 shares authorized, 3 and 3 shares issued and outstanding, respectively					32,502		32,343
	Series C redeemable convertible preferred stock, par value $0.001 per share, 3 shares authorized, 3 and 3 shares issued and outstanding, respectively					26,322		25,937

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
(Continued)

			June 30,			December 31,
			2002			2001

			(unaudited)

Series D convertible preferred stock, par value $0.001 per share, 2 shares authorized, 1 and 1 shares issued and outstanding, respectively				4,459			3,985

Stockholders’ Equity (Deficit):
	Preferred stock undesignated, par value $0.001 per share, 4,973 shares authorized, no shares issued or outstanding			—			—
	Class A common stock, par value $0.001 per share, 330,000 shares authorized, 5,523 and 4,369 shares issued and outstanding, respectively			6			4
	Class B common stock, par value $0.001 per share, 165,000 shares authorized, 4,643 and 4,823 shares issued and outstanding, respectively			5			5
	Additional paid-in capital			248,360			239,663
	Deferred compensation			(51	)		(99	)
	Accumulated other comprehensive income			2,281			2,547
	Accumulated deficit			(349,630	)		(380,127	)

		Total stockholders’ equity (deficit)		(99,029	)		(138,007	)

		Total liabilities, convertible preferred stock and stockholders’ equity (deficit)	$	95,110		$	103,632

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

			Three Months Ended June 30,

			2002			2001

Revenues:
	Product licenses		$	15,032		$	20,278
	Product support and other services			21,798			27,282

		Total revenues		36,830			47,560

Cost of revenues:
	Product licenses			572			820
	Product support and other services			6,486			10,938

		Total cost of revenues		7,058			11,758

Gross profit				29,772			35,802

Operating expenses:
	Sales and marketing			11,411			20,403
	Research and development			6,850			7,843
	General and administrative			6,812			10,659
	Restructuring and impairment charges			1,162			23,422
	Amortization of goodwill and intangible assets			862			4,249

		Total operating expenses		27,097			66,576

Income (loss) from operations				2,675			(30,774	)
Financing and other income (expense):
	Interest income			179			499
	Interest expense			(1,659	)		(1,487	)
	Loss on investments			(205	)		(233	)
	Reduction in estimated cost of litigation settlement			7,936			24,941
	Gain on contract termination			16,837			—
	Other income (expense), net			2,169			(419	)

		Total financing and other income (expense)		25,257			23,301

Income (loss) from continuing operations before income taxes				27,932			(7,473	)
	Provision for income taxes			420			48

Net income (loss) from continuing operations				27,512			(7,521	)

Discontinued operations:
	Loss from discontinued operations			—			(25,777	)

Net income (loss)				27,512			(33,298	)

	Dividends on and accretion of series A, B, C, and D convertible preferred stock			(2,566	)		(2,364	)
	Net gain on refinancing of series A redeemable convertible preferred stock			—			29,370

Net income (loss) attributable to common stockholders			$	24,946		$	(6,292	)

Basic earnings (loss) per share:
	Continuing operations		$	2.43		$	2.34
	Discontinued operations		$	—		$	(3.10	)

	Net income (loss) attributable to common stockholders		$	2.43		$	(0.76	)

	Weighted average shares outstanding used in computing basic earnings (loss) per share			10,440			8,325

Diluted earnings (loss) per share:
	Continuing operations		$	2.41		$	2.34
	Discontinued operations		$	—		$	(3.10	)

	Net income (loss) attributable to common stockholders		$	2.41		$	(0.76	)

	Weighted average shares outstanding used in computing diluted earnings (loss) per share			10,498			8,325

The accompanying notes are an integral part of these Consolidated Financial Statements.

MICROSTRATEGY INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

				Six Months Ended June 30,

				2002			2001

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