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 March 31, 2004
| ¨ | 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 0-21958
QRS Corporation
(Exact name of registrant as specified in its charter)
| Delaware | 68-0102251 | |
| (State of incorporation) | (I.R.S. Employer Identification No.) |
1400 Marina Way South, Richmond, CA 94804
(Address of principal executive offices, including zip code)
(510) 215-5000
(Registrant’s phone 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 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 Act). Yes x No ¨
As of May 3, 2004, 15,939,155 shares of the issuer’s common stock, par value $.001 per share, were outstanding.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains statements which constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to a number of risks and uncertainties. All statements that are not historical facts are forward-looking statements, including statements regarding our business strategy, future operations, future financial position, estimated revenues or earnings (losses), projected costs, prospects, plans and objectives. These statements appear in a number of places and can be identified by the use of forward-looking terminology such as “believes,” “expects,” “may,” “estimates,” “will,” “should,” “plans” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy.
Actual results may vary materially from those in the forward-looking statements as a result of various factors which are identified in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this document. These factors include: general economic and business conditions; specific conditions in the retail industry; competition; changes in senior management; rapid technological change in our industry; dependence upon key customers and their trading partners; ability to introduce and market acceptance of new products and services; the ability to successfully integrate and manage acquired businesses and technologies; customers’ willingness to purchase products or services offered through or in conjunction with third parties; dependence upon IBM for electronic commerce service; dependence on third parties for licenses to technology that is integrated into certain products and services offered by us; and the ability to protect our proprietary technology and information. No assurance can be given that these are all of the factors that could cause actual results to vary materially from the forward-looking statements. All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We assume no obligation to update any forward-looking statements.
FORM 10-Q
TABLE OF CONTENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2004 AND DECEMBER 31, 2003
(In thousands, except share and per share amounts)
(Unaudited)
| March 31, 2004 |
December 31, 2003 |
|||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 30,238 | $ | 31,419 | ||||
| Marketable securities available-for-sale |
2,445 | 5,203 | ||||||
| Accounts receivable—net of allowance for doubtful accounts of $811 at March 31, 2004 and $698 at December 31, 2003 |
15,794 | 15,426 | ||||||
| Prepaid expenses and other |
2,373 | 2,730 | ||||||
| Total current assets |
50,850 | 54,778 | ||||||
| Property and equipment: |
||||||||
| Furniture and fixtures |
2,118 | 2,109 | ||||||
| Equipment |
16,965 | 16,489 | ||||||
| Leasehold improvements |
2,273 | 2,128 | ||||||
| 21,356 | 20,726 | |||||||
| Less accumulated depreciation and amortization |
(14,267 | ) | (13,045 | ) | ||||
| Total property and equipment |
7,089 | 7,681 | ||||||
| Restricted cash |
3,560 | — | ||||||
| Marketable securities available-for-sale |
1,289 | 1,500 | ||||||
| Capitalized service and product development costs—net of accumulated amortization of $8,977 at March 31, 2004 and $8,407 at December 31, 2003 |
7,227 | 6,206 | ||||||
| Goodwill |
830 | 830 | ||||||
| Intangible assets—net of accumulated amortization of $6,576 at March 31, 2004 and $6,483 at December 31, 2003 |
411 | 504 | ||||||
| Other assets |
1,727 | 1,280 | ||||||
| Total assets |
$ | 72,983 | $ | 72,779 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 8,281 | $ | 6,586 | ||||
| Accrued compensation |
3,240 | 4,424 | ||||||
| Accrued vacation |
2,275 | 2,155 | ||||||
| Deferred acquisition payment |
1,900 | 2,500 | ||||||
| Deferred revenue |
2,559 | 2,733 | ||||||
| Sublease loss accruals related to business restructuring |
3,001 | 3,142 | ||||||
| Other accrued liabilities |
2,650 | 2,562 | ||||||
| Current portion of note payable |
— | 284 | ||||||
| Total current liabilities |
23,906 | 24,386 | ||||||
| Sublease loss accruals related to business restructuring |
7,535 | 7,884 | ||||||
| Deferred rent and other |
1,434 | 2,036 | ||||||
| Total liabilities |
32,875 | 34,306 | ||||||
| Commitments and contingencies (Note 7) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock: $.001 par value; 10,000,000 shares authorized; none issued and outstanding |
— | — | ||||||
| Common stock: $.001 par value; 60,000,000 shares authorized; 16,161,994 shares issued and 15,928,263 shares outstanding at March 31, 2004 and 16,154,468 shares issued and 15,920,737 shares outstanding at December 31, 2003 |
255,298 | 254,973 | ||||||
| Deferred compensation |
(2,285 | ) | (2,225 | ) | ||||
| Treasury stock: 233,731 shares at March 31, 2004 and December 31, 2003 |
(5,557 | ) | (5,557 | ) | ||||
| Accumulated other comprehensive earnings (loss): |
||||||||
| Unrealized gain on marketable securities available-for-sale |
62 | 10 | ||||||
| Cumulative translation adjustments |
(214 | ) | (193 | ) | ||||
| Accumulated deficit |
(207,196 | ) | (208,535 | ) | ||||
| Total stockholders’ equity |
40,108 | 38,473 | ||||||
| Total liabilities and stockholders’ equity |
$ | 72,983 | $ | 72,779 | ||||
See Notes to Condensed Consolidated Financial Statements
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Revenue: |
||||||||
| Software applications |
$ | 8,202 | $ | 8,141 | ||||
| Trading community management |
16,132 | 16,666 | ||||||
| Global services |
6,172 | 5,996 | ||||||
| Total revenue |
30,506 | 30,803 | ||||||
| Cost of revenue: |
||||||||
| Software applications |
2,089 | 2,287 | ||||||
| Trading community management |
7,970 | 8,057 | ||||||
| Global services |
5,395 | 5,311 | ||||||
| Total cost of revenue |
15,454 | 15,655 | ||||||
| Gross profit |
15,052 | 15,148 | ||||||
| Operating expenses: |
||||||||
| Sales and marketing |
6,272 | 5,787 | ||||||
| Service and product development |
3,175 | 2,997 | ||||||
| General and administrative |
4,818 | 4,772 | ||||||
| Settlement of deferred acquisition payment |
(600 | ) | — | |||||
| Amortization of other intangible assets |
93 | 849 | ||||||
| Total operating expenses |
13,758 | 14,405 | ||||||
| Operating income |
1,294 | 743 | ||||||
| Interest income |
78 | 117 | ||||||
| Interest expense |
(13 | ) | (40 | ) | ||||
| Income from operations before income taxes |
1,359 | 820 | ||||||
| Income tax expense |
20 | — | ||||||
| Net income |
$ | 1,339 | $ | 820 | ||||
| Other comprehensive income (loss) – |
||||||||
| Unrealized gain on marketable securities available-for-sale, net of tax |
52 | 4 | ||||||
| Change in cumulative translation adjustments |
(21 | ) | (34 | ) | ||||
| Total comprehensive income |
$ | 1,370 | $ | 790 | ||||
| Basic net income per share |
$ | 0.08 | $ | 0.05 | ||||
| Shares used to compute basic net income per share |
15,927 | 15,801 | ||||||
| Diluted net income per share |
$ | 0.08 | $ | 0.05 | ||||
| Shares used to compute diluted net income per share |
16,566 | 15,826 | ||||||
See Notes to Condensed Consolidated Financial Statements.
2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(In thousands)
(Unaudited)
| Three Months Ended March 31, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | 1,339 | $ | 820 | ||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization of property and equipment |
1,222 | 1,128 | ||||||
| Amortization of capitalized service and product development costs |
570 | 258 | ||||||
| Amortization of software licenses and other |
— | 419 | ||||||
| Amortization of other intangible assets |
93 | 849 | ||||||
| Stock-based compensation |
259 | 28 | ||||||
| Provision for allowance for doubtful accounts |
196 | — | ||||||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
(564 | ) | 27 | |||||
| Prepaid expenses and other |
357 | (698 | ) | |||||
| Other assets |
71 | — | ||||||
| Accounts payable |
1,695 | (1,978 | ) | |||||
| Accrued compensation |
(1,184 | ) | (2,443 | ) | ||||
| Accrued vacation |
120 | 296 | ||||||
| Deferred acquisition payment |
(600 | ) | — | |||||
| Deferred revenue |
(174 | ) | 206 | |||||
| Sublease loss accruals related to business restructuring |
(490 | ) | (712 | ) | ||||
| Other accrued liabilities |
100 | (294 | ) | |||||
| Deferred rent and other |
(572 | ) | 126 | |||||
| Net cash provided by (used in) operating activities |
2,438 | (1,968 | ) | |||||
| Cash flows from investing activities: |
||||||||
| Restricted cash |
(3,560 | ) | — | |||||
| Sales and maturities of marketable securities available-for-sale |
3,021 | 2,512 | ||||||