INDUS INTERNATIONAL INC - 10-Q Quarterly Report

INDUS INTERNATIONAL, INC.
(Exact name of Registrant issuer as specified in its charter)

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

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes No _X_

As of November 5, 2003, the Registrant had outstanding 51,913,437 shares of Common Stock, $.001 par value per share.


	Part I: Financial Information		Page

Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets — September 30, 2003 and March 31, 2003			3
	Condensed Consolidated Statements of Operations — three and six months ended September 30, 2003 and 2002			4
	Condensed Consolidated Statements of Cash Flows — six months ended September 30, 2003 and 2002			5
	Notes to Condensed Consolidated Financial Statements			6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3.	Quantitative and Qualitative Disclosures about Market Risk			27
Item 4.	Controls and Procedures			27
		Part II: Other Information
Item 1.	Legal Proceedings			28
Item 2.	Changes in Securities and Use of Proceeds			28
Item 3.	Defaults upon Senior Securities			28
Item 4.	Submission of Matters to a Vote of Security Holders			28
Item 5.	Other Information			28
Item 6.	Exhibits and Reports on Form 8-K			28
	Signature			30


			September 30, 2003			March 31, 2003

ASSETS			(Unaudited)
Current assets:
	Cash and cash equivalents		$	28,117		$	32,667
	Marketable securities			—			757
	Restricted cash, current			437			2,834
	Billed accounts receivable, net of allowance for doubtful accounts of $2,166 at September 30, 2003 and $4,375 at March 31, 2003			19,728			26,301
	Unbilled accounts receivable			7,892			12,841
	Income tax receivable			540			5,226
	Other current assets			4,008			8,634

		Total current assets		60,722			89,260
Property and equipment, net				35,368			38,088
Acquired intangible assets				12,137			13,258
Restricted cash, non-current				5,492			2,601
Investments and other assets				4,048			1,303
		Total assets	$	117,767		$	144,510

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Note payable		$	767		$	24,516
	Accounts payable			5,104			5,102
	Income tax payable			5,104			5,038
	Other accrued liabilities			18,138			20,568
	Current portion of obligations under capital leases			176			274
	Deferred revenue			35,340			50,604

		Total current liabilities		64,629			106,102
Note payable				10,679			—
Obligations under capital leases and other liabilities				8,540			9,974
Stockholders’ equity:
	Common stock			52			42
	Additional paid-in capital			149,254			135,279
	Treasury stock			(4,681	)		(4,681	)
	Deferred compensation			(60	)		(79	)
	Accumulated deficit			(111,430	)		(101,943	)
	Accumulated other comprehensive loss			784			(184	)

		Total stockholders’ equity		33,919			28,434
		Total liabilities and stockholders’ equity	$	117,767		$	144,510

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)


			Three Months Ended						Six Months Ended
			September 30,						September 30,

			2003			2002			2003			2002

Revenues:
	Software license fees		$	5,263		$	3,057		$	14,079		$	7,367
	Services:
		Support, Outsourcing and Hosting		14,037			8,505			29,061			18,362
		Consulting, Training and other		14,705			14,895			29,091			31,760

	Total services			28,742			23,400			58,152			50,122

Total revenues				34,005			26,457			72,231			57,489

Cost of revenues:
	Software license fees			149			446			378			2,309
	Services:
		Support, Outsourcing and Hosting		4,996			2,913			10,654			5,862
		Consulting, Training and other		10,341			10,510			22,546			22,173

	Total services			15,337			13,423			33,200			28,035

Total cost of revenues				15,486			13,869			33,578			30,344

Gross margin				18,519			12,588			38,653			27,145

Operating expenses:
	Research and development			8,769			10,607			19,314			22,879
	Sales and marketing			8,835			7,256			17,194			14,774
	General and administrative			5,075			2,767			10,525			9,076
	Restructuring expenses			11			—			23			4,029

		Total operating expenses		22,690			20,630			47,056			50,758

Loss from operations				(4,171	)		(8,042	)		(8,403	)		(23,613	)
Interest and other income (expense)				(10	)		31			(491	)		833

Loss before income taxes				(4,181	)		(8,011	)		(8,894	)		(22,780	)
Provision (benefit) for income taxes				382			(4,728	)		593			(4,428	)

Net loss			$	(4,563	)	$	(3,283	)	$	(9,487	)	$	(18,352	)

Net loss per share:
Basic			$	(0.09	)	$	(0.09	)	$	(0.21	)	$	(0.52	)

Diluted			$	(0.09	)	$	(0.09	)	$	(0.21	)	$	(0.52	)

Shares used in computing per share data
Basic				48,922			35,175			45,519			35,303
Diluted				48,922			35,175			45,519			35,303


				Six Months Ended
				September 30,

				2003			2002

Cash flows from operating activities:
Net loss				$	(9,487	)	$	(18,352	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Depreciation and amortization			5,562			4,331
		Changes in operating assets and liabilities:
			Billed accounts receivable		6,942			3,609
			Unbilled accounts receivable		4,999			5,879
			Other current assets		649			2,523
			Other accrued liabilities		(4,022	)		1,205
			Deferred revenue		(15,616	)		(7,800	)
			Other operating assets and liabilities		2,207			(2,696	)

Net cash used in operating activities					(8,766	)		(11,301	)

Cash flows from investing activities:
	Purchase of marketable securities				(1,949	)		(32,467	)
	Sale of marketable securities				2,706			32,743
	Increase in restricted cash				(343	)		(4,903	)
	Acquisition of business				(6,832	)		—
	Acquisition of property and equipment				(1,829	)		(1,457	)

Net cash used in investing activities					(8,247	)		(6,084	)

Cash flows from financing activities:
	Proceeds from issuance of note payable				11,466			—
	Payments of capital leases				(133	)		(106	)
	Proceeds from issuance of common stock				268			649
	Purchase of treasury stock				—			(2,500	)

Net cash (used in) provided by financing activities					11,581			(1,957	)

Effect of exchange rate differences on cash					882			1,242
Net decrease in cash and cash equivalents					(4,550	)		(18,100	)
Cash and cash equivalents at beginning of period					32,667			61,062

Cash and cash equivalents at end of period				$	28,117		$	42,962

Supplemental noncash financing activities:
	Capital leases addition			$	—		$	557

	Conversion of convertible notes into common stock			$	13,716		$	—

The accompanying unaudited condensed consolidated financial information has been prepared by management in accordance with accounting principles generally accepted in the United States for interim financial information and pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission’s (“SEC”) rules and regulations. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the Company’s financial position at September 30, 2003 and results of operations and cash flows for all periods presented have been made. The condensed, consolidated balance sheet at March 31, 2003 has been derived from the audited consolidated financial statements at that date. Certain prior period amounts have been reclassified to conform to current period classifications.

These condensed, consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the three-month period ended March 31, 2003 that are included in the Company’s 2003 Transition Report on Form 10-K as filed with the SEC. This report was filed as a result of the change in the Company’s fiscal year end from December 31 to March 31. The consolidated results of operations for the three and six months ended September 30, 2003 are not necessarily indicative of the results to be expected for any subsequent quarter or period, or for the entire fiscal year ending March 31, 2004.

As permitted under SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, the Company accounts for stock based compensation in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and accordingly recognizes no compensation expense for the stock option grants as long as the exercise price is equal to or more than the fair value of the shares at the date of grant.

For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. The Company’s pro forma net loss including pro forma compensation expense, net of tax for the three and six months ended September 30, 2003 and 2002, respectively, is as follows (in thousands except per share amounts):


	Three Months Ended						Six Months Ended
	September 30,						September 30,

	2003			2002			2003			2002

Net loss as reported	$	(4,563	)	$	(3,283	)	$	(9,487	)	$	(18,352	)
Add: Total stock-based compensation expense determined under the intrinsic value method		12			24			19			48
Deduct: Total stock-based compensation expense determined under fair-value based method for all awards		(1,182	)		(1,752	)		(1,496	)		(3,836	)

Pro forma net loss	$	(5,733	)	$	(5,011	)	$	(10,964	)	$	(22,140	)

Loss per share:
Basic:
As reported	$	(0.09	)	$	(0.09	)	$	(0.21	)	$	(0.52	)

Pro forma	$	(0.12	)	$	(0.14	)


Delaware (State or other jurisdiction of incorporation or organization)		94-3273443 (I.R.S. Employer Identification No.)

3301 Windy Ridge Parkway, Atlanta, Georgia (Address of principal executive offices)		30339 (Zip code)


PART I: FINANCIAL INFORMATION
	ITEM 1. FINANCIAL STATEMENTS
		CONDENSED CONSOLIDATED BALANCE SHEETS
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
	ITEM 4. CONTROLS AND PROCEDURES
PART II: OTHER INFORMATION
	ITEM 1. LEGAL PROCEEDINGS
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	ITEM 5. OTHER INFORMATION
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE
Exhibit Index
EX-10.1 PROMISSORY NOTE 9/4/03
EX-10.2 LOAN AGREEMENT
EX-10.3 RECOURSE CARVE-OUT GUARANTY
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO
EX-32.2 SECTION 906 CERTIFICATION OF THE CFO

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


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