x

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

For the Quarterly Period Ended March 31, 2003

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 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)

Yes   x

No   o

Yes   o

No   x

Page

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Consolidated Balance Sheets as of March 31, 2003 (unaudited) and December 31, 2002

1

Consolidated Statements of Operations for the Three Months Ended March 31, 2003 (unaudited) and 2002 (unaudited)

2

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 (unaudited) and 2002 (unaudited)

3

Notes to Consolidated Financial Statements (unaudited)

4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 2.

Changes in Securities and Use of Proceeds

33

Item 6.

Exhibits and Reports on Form 8-K

34

March 31,
2003

December 31,
2002

(unaudited)

Assets

Current assets:

Cash and cash equivalents

$

21,929

$

15,036

Restricted cash

6,193

6,173

Short-term investments

41

44

Accounts receivable, net

24,038

28,195

Prepaid expenses and other current assets

4,911

5,032

Deferred tax assets, net

269

495

Total current assets

57,381

54,975

Property and equipment, net

17,313

18,471

Goodwill and intangible assets, net

659

789

Capitalized software development costs, net

3,952

4,414

Deposits and other assets

1,147

1,224

Total assets

$

80,452

$

79,873

Liabilities and Stockholders’ Equity (Deficit)

Current liabilities:

Accounts payable and accrued expenses

$

14,150

$

15,267

Accrued compensation and employee benefits

8,413

11,352

Accrued interest

1,304

244

Accrued restructuring costs

4,033

5,222

Deferred revenue and advance payments

26,433

23,961

Notes payable

4,824

4,698

Net liabilities of discontinued operations

1,080

1,151

Total current liabilities

60,237

61,895

Deferred revenue and advance payments

1,783

1,381

Other long-term liabilities

2,153

2,402

Accrued restructuring costs

3,547

3,663

Notes payable

44,612

45,041

Total liabilities

112,332

114,382

Stockholders’ Equity (Deficit):

Preferred stock undesignated, par value $0.001 per share, 4,971 shares authorized, no shares issued or outstanding

—  

—  

Class A common stock, par value $0.001 per share, 330,000 shares authorized, 9,233 and 9,157 shares issued and outstanding, respectively

9

9

Class B common stock, par value $0.001 per share, 165,000 shares authorized, 4,616 and 4,619 shares issued and outstanding, respectively

5

5

Additional paid-in capital

306,722

305,334

Deferred compensation

(4

)

(17

)

Accumulated other comprehensive income

2,733

2,170

Accumulated deficit

(341,345

)

(342,010

)

Total stockholders’ equity (deficit)

(31,880

)

(34,509

)

Total liabilities and stockholders’ equity (deficit)

$

80,452

$

79,873

Three Months Ended
March 31,

2003

2002

Revenues:

Product licenses

$

16,529

$

14,498

Product support and other services

20,906

21,161

Total revenues

37,435

35,659

Cost of revenues:

Product licenses

790

521

Product support and other services

5,958

6,640

Total cost of revenues

6,748

7,161

Gross profit

30,687

28,498

Operating expenses:

Sales and marketing

12,683

12,470

Research and development

6,933

5,351

General and administrative

7,184

6,762

Restructuring and impairment charges

—  

1,232

Amortization of intangible assets

130

965

Total operating expenses

26,930

26,780

Income from operations

3,757

1,718

Financing and other (expense) income:

Interest income

90

230

Interest expense, including discount amortization expense on notes payable of $973 and $0, respectively

(2,298

)

(1,619

)

Loss on investments

—  

(289

)

Reduction in estimated cost of litigation settlement

—  

3,460

Gain on early extinguishment of notes payable

18

—  

Other expense, net

(38

)

(116

)

Total financing and other (expense) income

(2,228

)

1,666

Income before income taxes

1,529

3,384

Provision for income taxes

864

399

Net income

665

2,985

Dividends on and accretion of convertible preferred stock

—  

(2,557

)

Net income attributable to common stockholders

$

665

$

428

Basic earnings per share

$

0.05

$

0.05

Diluted earnings (loss) per share

$

0.05

$

(0.84

)

Basic weighted average shares outstanding

13,788

9,338

Diluted weighted average shares outstanding

14,056

11,882

Three Months Ended
March 31,

2003

2002

Operating activities:

Net income from continuing operations

$

665

$

2,985

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Depreciation and amortization

2,477

3,493

Bad debt recovery

(144

)

(461

)

Net realized loss on sale and write-down of short-term investments

—  

289

Decrease in estimated cost of litigation settlement

—  

(3,460

)

Non-cash charges and fees on Credit Facility

—  

172

Discount amortization expense on notes payable

973

—  

Other, net

(30

)

411

Changes in operating assets and liabilities:

Accounts receivable

4,560

90