EMBARCADERO TECHNOLOGIES INC - 10-Q Quarterly Report

UNITED STATES
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 September 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 000-30293

EMBARCADERO TECHNOLOGIES, INC. (Exact Name of Registrant as Specified in Its Charter)

Delaware (State or other jurisdiction of incorporation or organization)		68-0310015 (I.R.S. Employer Identification No.)

425 MARKET STREET, SUITE 425 SAN FRANCISCO, CA 94105 (415) 834-3131 (Address of principal executive offices)

Indicate by check mark whether the registrant (1) 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 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

The number of shares outstanding of the Registrant’s Common Stock as of September 30, 2002 was 27,223,721.

EMBARCADERO TECHNOLOGIES, INC.

INDEX

		Page

PART I. FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS

	Condensed Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001	3

	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2002 and 2001	4

	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001	5

	Notes to Condensed Consolidated Financial Statements	6

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27

ITEM 4.	CONTROLS AND PROCEDURES	27

PART II. OTHER INFORMATION

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K	28

SIGNATURES		29

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EMBARCADERO TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)

										September 30, 2002			December 31, 2001

ASSETS
Current Assets:
						Cash and cash equivalents				$	20,271		$	23,371
						Short-term investments					23,244			16,532
						Trade accounts receivable, net					6,438			6,221
					Prepaid expenses and other current assets						1,951			1,711

									Total current assets		51,904			47,835
Property and equipment, net											4,000			3,766
Goodwill and other intangible assets, net											17,317			19,334
Deferred income taxes											4,914			4,914
Other assets											257			313

									Total assets	$	78,392		$	76,162

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
					Accounts payable and accrued liabilities					$	2,906		$	5,264
					Deferred revenue						10,369			9,099
				Deferred income taxes							2,317			2,317

								Total current liabilities			15,592			16,680

Stockholders’ Equity:
			Common stock								27			27
		Treasury stock									(1,926	)		(1,781	)
	Additional paid-in capital										74,734			74,220
	Accumulated other comprehensive income										169			116
	Deferred stock-based compensation										(847	)		(2,531	)
	Accumulated deficit										(9,357	)		(10,569	)

							Total stockholders’ equity				62,800			59,482

							Total liabilities and stockholders’ equity			$	78,392		$	76,162

The accompanying notes are an integral part of these condensed consolidated financial statements.

EMBARCADERO TECHNOLOGIES, INC.

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

										Three Months Ended September 30,						Nine Months Ended September 30,

										2002			2001			2002			2001

Revenues:
				License						$	6,648		$	6,123		$	20,260		$	25,064
			Maintenance								5,403			4,950			16,212			14,299

									Total revenues		12,051			11,073			36,472			39,363
Cost of revenues:
License:
			License, other								125			165			409			579
		Amortization of acquired technology									455			202			1,129			606

								Total license			580			367			1,538			1,185
Maintenance:
		Maintenance, other									534			517			1,682			1,675
	Non-cash stock-based compensation										—			3			2			10

						Total maintenance					534			520			1,684			1,685

					Total cost of revenues						1,114			887			3,222			2,870

Gross profit											10,937			10,186			33,250			36,493
Operating expenses:
Research and development:
	Research and development, other										3,519			3,915			10,788			10,811
	Purchased research and development										—			—			1,100			—
	Non-cash stock-based compensation										6			29			27			110

					Total research and development						3,525			3,944			11,915			10,921

Sales and marketing:
	Sales and marketing, other										4,744			5,022			13,780			15,146
	Non-cash stock-based compensation										171			352			629			1,259

						Total sales and marketing					4,915			5,374			14,409			16,405

General and administrative:
	General and administrative, other										1,099			945			3,093			2,918
	Non-cash stock-based compensation										271			600			1,026			2,156

							Total general and administrative				1,370			1,545			4,119			5,074

Amortization of goodwill and other intangible assets											385			1,405			1,155			4,215
Lease related impairment loss											—			1,490			—			1,490

							Total operating expenses				10,195			13,758			31,598			38,105

Income (loss) from operations											742			(3,572	)		1,652			(1,612	)
Interest income											143			271			499			977
Other expenses											—			—			—			(167	)
Expenses related to proposed public offering											—			—			—			(350	)

Income (loss) before benefit from (provision for) income taxes and share in loss of joint venture											885			(3,301	)		2,151			(1,152	)
Benefit from (provision for) income taxes											(204	)		887			(516	)		(947	)

Income (loss) before share in loss of joint venture											681			(2,414	)		1,635			(2,099	)
Share in loss of joint venture, net											—			—			(423	)		—

Net income (loss)										$	681		$	(2,414	)	$	1,212		$	(2,099	)

Net income (loss) per share:
Basic										$	0.03		$	(0.09	)	$	0.04		$	(0.08	)

Diluted										$	0.02		$	(0.09	)	$	0.04		$	(0.08	)

Weighted average shares used in per share calculation:
Basic											27,225			27,130			27,197			27,078

Diluted											28,879			27,130			29,184			27,078

The accompanying notes are an integral part of these condensed consolidated financial statements.

EMBARCADERO TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)

		Nine Months Ended September 30,

		2002		2001

Cash Flows from Operating Activities:
Net income (loss)		$	1,212	$	(2,099	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization		1,553		1,281
	Provision for doubtful accounts		343		15
	Amortization of developed technology		135		29

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