XXXXXXXXXX-AB 1999-10-01 XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX Verisign (Demo only) http://www.verisign.com/ 1999 Financial Statement Xxxxxxxxx Xxxxxxxxxxxxxxxx, CPA Financial,Great Plains, Current Financial Statement Financial statement for Great Plains as of May 31, 1999, and for the Year then ended. XXXXXXXXXXXXXXXX NA 1999-10-01 Financial statement XML 1.0 XXXXXXXXXX-AB NA English NA NA Public Domain 1999-10-01 Charles Hoffman Document created John Doe, CPA New York Great Plains Software, Inc. 1701 38TH ST S W Fargo ND 58103 1701 38TH ST S W Fargo ND 58103 701-281-0550 http://www.greatplains.com Great Plains Software, Inc. provides fully integrated front office/back office business management software solutions for the midmarket. These include financial, distribution, enterprise reporting, project accounting, electronic business, human resources and payroll, manufacturing, service management, sales and marketing, and customer service and support applications. Our solutions are sold and implemented by a worldwide network of independent partner organizations that share our commitment to lasting customer relationships. High-tech High-tech SIC 7372 SERVICES-PREPACKAGED SOFTWARE 450374871 NASDAQ GPSI GREAT PLAINS SOFTWARE INC 0000758540 MN 1934 0001047469-99-031017 10-K 10 19990531 19990811 0531 Tami L. Reller Douglas J. Burgum PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP Minneapolis Minnesota REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Great Plains Software, Inc. June 25, 1999 Unqualified US GAAP In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Great Plains Software, Inc. and its subsidiaries at May 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended May 31, 1999, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Cash and cash equivalents 26983 18197 Investments 96700 48721 Accounts receivable, net 12593 8790 Inventories 746 542 Prepaid expenses and other assets 6340 2914 Deferred income tax assets 5542 4630 Total current assets 148904 83794 Property and equipment, net 19126 8501 Goodwill and other intangibles, net 3838 4946 Deferred income tax assets 3091 3318 Other assets 5293 2286 Total assets 180252 102845 Accounts payable 8392 4135 Accrued expenses 11590 6941 Income tax payable 0 3257 Salaries and wages payable 1031 836 Commissions payable 2053 2668 Deferred revenues 23884 15133 Total current liabilities 46950 32970 Deferred income tax liabilities 109 204 Total liabilities 47059 33174 Total liabilities 47059 33174 Common stock, par value $.01 per share: 100,000,000 shares authorized, 15,362,820 shares and 13,720,920 shares issued and outstanding, respectively 154 137 Additional paid-in capital 118683 67801 Accumulated other comprehensive loss -162 0 Retained earnings 14518 1733 Total stockholders' equity 133193 69671 Total liabilities and stockholders' equity 180252 102845 License 79685 52949 35919 Service 55222 32710 21201 Total revenues 134907 85659 57120 License 19355 11220 6362 Service 18350 11118 8260 Total cost of revenues 37705 22338 14622 Gross profit 97202 63321 42498 Sales and marketing 47982 31636 21935 Research and development 20427 12586 9678 General and administrative 11080 7587 5592 Acquired in-process research and development 0 7136 0 Total operating expenses 79489 58945 37205 Operating income 17713 4376 5293 Interest expense -3 -2 -98 Other income, net 3595 3276 656 Income before income taxes 21305 7650 5851 Income tax provision 8520 3203 2207 Net income 12785 4447 3644 Basic 0.90 0.33 -1.78 Diluted 0.86 0.32 0.36 Basic 14231102 13381414 7629460 Diluted 14872579 14089092 10003349 Balance May 31, 1996 225000 199 7359765 74 1273 -6358 0 -4812 0 Exercise of stock options 0 0 732447 7 1544 0 0 1551 0 Net repurchases of common stock 0 0 -11877 0 -54 0 0 -54 0 Increase of carrying value of mandatorily redeemable preferred stock 0 0 0 0 -17196 0 0 -17196 0 Tax benefit from stockholder transaction 0 0 0 0 590 0 0 590 0 Net income 0 0 0 0 0 3644 0 3644 3644 Balance May 31, 1997 225000 199 8080335 81 -13843 -2714 0 -16277 3644 Sale of common stock, net 0 0 3450000 34 50209 0 0 50243 0 Exercise of stock options 0 0 286708 3 1900 0 0 1903 0 Conversion of preferred stock to common stock -225000 -199 1847627 18 28878 0 0 28697 0 Tax benefit from stockholder transactions 0 0 0 0 586 0 0 586 0 Stock issued for business combination 0 0 56250 1 71 0 0 72 0 Net income 0 0 0 0 0 4447 0 4447 4447 Balance May 31, 1998 0 0 13720920 137 67801 1733 0 69671 4447 Sale of common stock, net 0 0 1318325 13 47165 0 0 47178 0 Exercise of stock options 0 0 218534 3 2804 0 0 2807 0 Tax benefit from stockholder transactions 0 0 0 0 978 0 0 978 0 Stock issued for business combination 0 0 105041 1 -65 0 0 -64 0 Translation adjustment 0 0 0 0 0 0 -81 -81 -81 Unrealized loss on investments 0 0 0 0 0 0 -81 -81 -81 Net income 0 0 0 0 0 12785 0 12785 12785 Balance May 31, 1999 0 0 15362820 154 118683 14518 -162 133193 12623 Net income 12785 4447 3644 Depreciation and amortization 5147 2863 2155 Acquired in-process research and development 0 7136 0 Deferred income tax expense -780 -5211 2207 Accounts receivable -3803 -2603 -256 Inventories -204 25 -113 Prepaid expenses and other assets -2512 -1601 -557 Accounts payable and accrued expenses 8906 4391 -141 Income taxes payable -3257 3843 0 Salaries, wages and commissions payable -420 391 1933 Deferred revenue 8751 3947 1430 Net cash provided by operating activities 24613 17628 10302 Purchases of property and equipment -14744 -5265 -2778 Purchases of businesses 0 -11870 0 Purchase of investments -384089 -714104 -4892 Proceeds from investments 336028 669525 750 Purchase of other assets -3007 -2036 -188 Net cash used by investment activities -65812 -63750 -7108 Principal payments on notes payable and long-term debt 0 0 -599 Exercise of stock options 2807 1903 1551 Principal payments on capital lease obligations 0 0 -247 Repurchases of common stock 0 0 -54 Proceeds from issuance of common stock, net 47178 50315 0 Net cash provided by financing activities 49985 52218 651 Net cash provided by financing activities 49985 52218 651 Increase in cash and cash equivalents 8786 6096 3845 Cash and cash equivalents at beginning of period 18197 12101 8256 Cash and cash equivalents at end of period 26983 18197 12101 Interest paid 3 2 68 Income taxes paid 11475 4005 83 Noncash tax benefit from stockholder transactions 978 586 590 Great Plains Software, Inc. (NASDAQ: GPSI) provides fully integrated front office/back office business management solutions for the midmarket. These include financial, distribution, enterprise reporting, project accounting, electronic business, human resources and payroll, manufacturing, service management, sales and marketing, and customer service and support applications. Our solutions are sold and implemented by a unique worldwide network of independent partner organizations that share the Company's commitment to lasting customer relationships. The consolidated financial statements include the accounts of the Company and its subsidiaries in Canada, the United Kingdom, Scandinavia, South Africa, Singapore, Australia and the Philippines. All significant intercompany accounts and transactions have been eliminated in consolidation. Essentially all assets and liabilities are translated to U.S. dollars at year-end exchange rates, while elements of the income statement are translated at average exchange rates in effect during the year. The functional currency of the subsidiaries is the local currency. Therefore, all translation gains and losses resulting from fluctuations in currency exchange rates of these subsidiaries are recorded as a component of accumulated other comprehensive loss in equity. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's financial instruments consist of cash, investments, short-term receivables and payables for which their current carrying amounts approximate fair market value. Financial instruments that potentially subject the Company to credit risk consist primarily of cash, cash equivalents, investments and accounts receivable. The Company grants credit to customers in the ordinary course of business. No single customer or region represents a significant concentration of credit risk. The Company invests its cash with high quality financial institutions. Cash and cash equivalents consist of cash and highly liquid investments with original maturities of three months or less and which are readily convertible to cash. Investments in debt securities that are not cash equivalents have been designated as available for sale. Those securities, which consist of various high rated governmental securities and corporate commercial paper, are reported at fair value, with net unrealized gains and losses included in stockholders' equity. The unrealized loss, net of income tax, was $81,000 at May 31, 1999. The maturities of the of the debt securities range from 1999 to 2000. Inventories consisting of media, training materials and packaging supplies are stated at lower of cost or market, with cost determined on a first-in, first-out ("FIFO") basis. Income taxes are accounted for under the liability method in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Property and equipment are stated at cost. Major improvements are capitalized while maintenance and repairs are expensed currently. Depreciation is computed using the straight-line method based on estimated useful lives of three to five years for computer equipment and five to ten years for furniture, fixtures and equipment. Leasehold improvements are amortized over the lesser of the terms of the related leases or estimated useful life. Purchased computer software, which is used internally, is amortized over a period of three to five years using the straight-line method. Amortization expense is included with depreciation expense in the consolidated statement of cash flows. Amortization of intangible assets and goodwill is recorded on a straight line basis over their estimated useful lives ranging from four to seven years. The recoverability of unamortized intangible assets and goodwill is assessed on an ongoing basis by comparing anticipated undiscounted cash flows to net book value. Software license revenues are recognized upon shipment less a reserve for estimated future returns. Revenues from support and maintenance service contracts are recorded as deferred revenues when billed and recognized ratably over the contract period. Other service revenues such as training and consulting services are recognized as the services are performed. The Company, in its discretion, may allow customers to return products for a short period of time following the sale. The Company provides an allowance for these anticipated returns based upon its historical experience of returns for similar products. These amounts are recorded as an offset to license revenues. Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition," is effective in fiscal 1999 and was adopted by the Company on June 1, 1998. The adoption of SOP 97-2 did not have a material effect on the timing of the Company's revenue recognition or cause changes to its revenue recognition policies. The Company accrues, at the time of sale, an estimated liability for qualified advertising expenses incurred by partner organizations for which the Company has agreed to reimburse such parties as part of a cooperative advertising program. Other advertising costs are expensed as incurred. Advertising expense was approximately $7,638,000, $3,731,000, and $1,990,000 for the years ended May 31, 1999, 1998 and 1997, respectively. Expenditures for software development costs and research are expensed as incurred. Such costs are required to be expensed until the point that technological feasibility is established. The period between achieving technological feasibility and the general availability of such software has been short. Consequently, costs otherwise capitalizable after technological feasibility is achieved are generally expensed because they are insignificant. In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per Share." SFAS No. 128 requires dual presentation of basic and diluted earnings per share for entities with complex capital structures. Basic earnings per share includes no dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform with the provisions of SFAS No. 128. The following table sets forth the computation of basic and diluted net income per share (dollars in thousands, except share and per share amounts): Net income 12785 4447 3644 Increase to carrying value of mandatorily redeemable preferred stock 0 0 -17196 Net income available to common stockholders 12785 4447 -13552 Weighted average common shares 14231102 13381414 7629460 Basic net income per share 0.90 0.33 -1.78 Net income available to common stockholders 12785 4447 3644 Weighted average number of common shares 14231102 13381414 7629460 Weighted average of assumed conversion of mandatorily redeemable preferred stock 0 0 1847627 Effect of dilutive stock options 641477 707678 526262 14872579 14089092 10003349 Diluted net income per share 0.86 0.32 0.36 On June 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting of Comprehensive Income." Comprehensive income for the Company includes net income, the effects of currency translation which are charged or credited to the cumulative translation adjustment account within stockholder's equity, and the unrealized gain/loss on investments available for sale which is recorded within stockholders' equity. Comprehensive income for all periods presented is included in the Consolidated Statement of Stockholders' Equity. In June 1998, the Financial Accounting Standards Board issued Statement No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging Activities." This standard establishes accounting and reporting standards for derivative instruments and hedging activities. The Company must adopt this standard no later than June 1, 2001. Management believes the adoption of SFAS No. 133 will not have a material effect on the Company's financial statements. On April 30, 1999, the Company received all of the outstanding capital stock of Match Data Systems, Inc., a software provider of project accounting solutions, in a transaction that was accounted for as a pooling of interests. To affect the business combination, the Company issued a combination of 159,618 shares and options of the Company's common stock. Financial data for the periods prior to the closing of this transaction has not been restated because neither the net assets nor operating results were material to the Company's consolidated financial statements. The Company's consolidated financial statements include the results of Match Data Systems, Inc. since May 1, 1999. On April 20, 1998, the Company acquired certain assets and assumed certain liabilities of ICONtrol, Inc., a software provider of manufacturing and human resource solutions. The purchase price was paid in cash and totaled $7,536,000. The acquisition was accounted for as a purchase and accordingly, the net assets acquired were recorded at their estimated fair values at the effective date of the acquisition. The allocation included $5,456,000 to in-process research and development, $1,935,000 to intangible assets and $145,000 to the fair value of net tangible assets. The $5,456,000 related to acquired in-process research and development, as determined by an independent third party appraisal, was charged against income in fiscal 1998 as the underlying research and development projects had not yet reached technological feasibility. The Company's consolidated financial statements include the results of ICONtrol since date of acquisition. The following table presents the consolidated results of operations on an unaudited pro forma basis as if the acquisition of ICONtrol had taken place at the beginning of each year (dollars in thousands): Net revenues 88060 59405 Net income 7367 138 Pro forma net income per share (diluted) 0.53 0.01 Reported net income per share before acquisition related charges 0.63 0.36 The one time charge for acquired in-process research and development is not reflected in the pro forma results presented above. The unaudited pro forma results of operations are for comparative purposes only and do not necessarily reflect the results that would have occurred had the acquisition occurred at the beginning of the periods presented or the results which may occur in the future. On May 1, 1998, the Company acquired certain assets and assumed certain liabilities of Telenor Financial Systems, a software provider of sophisticated multinational consolidations and budgeting solutions. The purchase price was paid in cash and totaled $4,406,000. The acquisition was accounted for as a purchase and accordingly, the net assets acquired were recorded at their estimated fair values at the effective date of the acquisition. The allocation included $1,680,000 to in-process research and development, $990,000 to intangible assets, $1,681,000 to goodwill and $55,000 to the fair value of net tangible assets. The $1,680,000 related to acquired in-process research and development, as determined by an independent third party appraisal, was charged against income in fiscal 1998 as the underlying research and development projects had not yet reached technological feasibility. The Company's consolidated financial statements include the results of Telenor Financial Systems from May 1, 1998. The results of operations prior to May 1, 1998, were not material to the consolidated financial statements; accordingly, pro forma financial disclosures are not presented. The application of purchase accounting to the acquisitions described above was based on independent third-party appraisals using valuation techniques commonly applied to attribute fair value to acquired assets. The appraisals incorporated management's best estimates for future revenue and profitability from products in the process of development at the time of acquisition. As is the case with all projections of future events, actual results could differ. Additionally, the SEC has challenged valuations incorporating in-process research and development. If the assumptions or valuation methods used were changed, the Company's financial statements would be affected because allocations to in-process research and development, which have been expensed, would be reallocated to intangible assets which require amortization against income in future periods. In September 1997, the Company received all of the outstanding capital stock of its Singapore distributor in a transaction that was accounted for as a pooling of interests. To effect the business combination, the Company issued 56,250 shares of the Company's common stock. Financial data for the periods prior to the closing of this transaction have not been restated because neither the net assets nor operating results were material to the Company's consolidated financial statements. The Company's consolidated financial statements include the results of the Singapore distributor since September 1, 1997. Accounts receivable, net of allowances, consist of the following (dollars in thousands): Gross accounts receivable 18280 13472 Less allowance for returns and doubtful accounts -5687 -4682 12593 8790 Property and equipment consists of the following (dollars in thousands): Furniture and fixtures 7239 2416 Computers and equipment 23520 15685 Leasehold improvements 943 369 Purchased software for internal use 2632 1675 34334 20145 Less accumulated depreciation and amortization -15208 -11644 19126 8501 Depreciation expense for the years ended May 31, 1999, 1998, 1997, was $4,069,000, $2,676,000, and $2,038,000, respectively. Goodwill and other intangibles consist of the following (dollars in thousands): Goodwill 2308 2354 Other intangibles 2925 2925 5233 5279 Less accumulated amortization -1395 -333 3838 4946 Amortization expense for the years ended May 31, 1999, 1998 and 1997 was $1,078,000, $187,000, and $117,000, respectively. Accrued expenses consist of the following (dollars in thousands): Accrued vacation payable 2473 1882 Coop advertising accrual 2074 1390 Other 7043 3669 11590 6941 Other income, net consists of the following (dollars in thousands): Interest income 3998 3508 540 Other -403 -232 116 3595 3276 656 The Company has a $10,000,000 revolving line of credit facility with a bank that provides for interest at prime. Substantially all of the Company's assets are pledged as collateral on the line of credit, which expires in November 1999, and is subject to certain covenants, all of which had been complied with at May 31, 1999. There were no amounts outstanding at May 31, 1999 or 1998. Rental expense incurred for operating leases of office facilities and office equipment was approximately $1,706,000 in 1999, $1,054,000 in 1998 and $866,000 in 1997. Future minimum rental payments as of May 31, 1999, for noncancelable operating leases with initial or remaining terms in excess of one year are payable as follows: fiscal 2000 - $3,413,000, fiscal 2001 - $3,154,000, fiscal 2002 - $2,889,000 and fiscal 2003 - $2,454,000 and fiscal 2004 - $2,303,000. The Company is, from time to time, a party to litigation arising in the normal course of business. Management believes that none of this litigation will have a material adverse effect on the financial position or results of operations or cash flows of the Company. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (dollars in thousands): Tax depreciation in excess of financial reporting 109 204 Total deferred tax liabilities 109 204 Accounts receivable allowances 2086 1925 Deferred revenue 592 507 Accruals and other 2864 2198 Total current deferred income tax assets 5542 4630 Net operating loss of foreign subsidiaries 664 606 Acquired-in-process research and development 2427 2712 Total long-term deferred income tax assets 3091 3318 Total net deferred income taxes 8524 7744 The provision for income taxes is summarized as follows (dollars in thousands): Federal 8244 6954 1502 State 1056 1460 38 Net operating loss carryforward 0 0 -950 9300 8414 590 Federal -683 -4560 1471 State -97 -651 146 -780 -5211 1617 8520 3203 2207 The differences between the expected tax provision based on the federal income tax statutory rate and the actual provision for the years presented are summarized as follows (dollars in thousands): Expected tax provision at statutory rate 7457 2678 1981 State income taxes, net of federal tax effect 633 575 175 Other 430 -50 51 Total 8520 3203 2207 On May 31, 1999, 1,709,727 shares of common stock had been reserved for issuance or grant under the Company's stock option plans. The options are granted to employees at 100% of the fair market value on the date of grant. The fair market value, rate of exercisability and expiration dates of the options granted are determined by the Board of Directors at the time of grant. Options generally vest ratably over five years from date of grant and expire ten years after grant. Options issued prior to fiscal 1998 vest ratably over five years from date of grant and expire six years after grant. The following summary of outstanding options and shares reserved under the Plan is as follows: Outstanding at May 31, 1996 1329647 1.96 6.41 1997 - 2002 3.27 Granted 361000 6.41 7.71 6.65 Exercised -732447 1.96 6.41 2.12 Canceled/expired -88667 4.16 6.41 5.36 Outstanding at May 31, 1997 869533 2.42 7.71 1998 - 2003 5.43 Granted 370110 16.00 37.25 19.46 Exercised -200641 2.42 6.41 4.06 Canceled/expired -42087 3.41 37.25 6.58 Outstanding at May 31, 1998 996915 2.42 37.25 1999 - 2008 10.85 Granted 453061 29.50 48.25 36.31 Exercised -152522 2.42 28.25 6.28 Canceled/expired -24672 6.41 48.25 25.06 Outstanding at May 31, 1999 1272782 3.41 48.25 2000 - 2009 19.46 As of May 31, 1999 there were currently exercisable options outstanding covering 352,478 shares, exercisable at prices ranging from $3.41 to $41.94 per share. In fiscal 1997, the Company adopted Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation." As permitted by SFAS No. 123, the Company has elected to continue following the guidance of APB 25 for measurement and recognition of stock-based transactions with employees and adopt the disclosure only provisions of SFAS No. 123. As a result, no compensation expense has been recognized for the awards made in the form of stock options. If the Company had elected to recognize compensation costs for stock-based compensation plans based on the fair value at the grant dates for awards under those plans consistent with the method prescribed by SFAS No. 123, net income and earnings per share would have been changed to the pro forma amounts shown as follows (dollars in thousands, except per share amounts): Net income: As reported 12785 4447 3644 Pro forma 10597 2826 3508 As reported 0.86 0.32 0.36 Pro forma 0.71 0.20 0.35 The fair value of the stock options used to compute pro forma net income and earnings per share disclosures is the present value at grant date using the Black-Scholes option pricing model with the following weighted average assumptions: Black-Scholes option pricing model Expected dividend level 0 0 0 Expected stock price volatility 62.6 58.8 53.8 Risk free interest rates 5.1 6.0 6.5 Expected life of options 5-10 years 5-10 years 6 years The following table summarizes the status of the Company's stock options outstanding as of May 31, 1999: $3.41 to $4.16 71860 1.4 years 4.12 46121 4.10 $5.20 to $7.71 463130 2.7 years 6.42 187927 6.55 $16.00 to $23.88 311658 6.6 years 18.24 77686 17.56 $26.38 to $39.25 386400 9.1 years 34.85 28744 27.70 $41.94 to $48.25 39734 6.4 years 43.16 12000 41.94 1272782 352478 The Company maintains a defined contribution 401(k) Profit Sharing Plan covering substantially all employees. The Company currently matches 25% of each participant's contribution up to 8% of their annual salary, and can make discretionary profit sharing contributions to the plan. The Company's contribution to this plan for the years ended May 31, 1999, 1998, and 1997, was approximately $578,000, $389,000, and $310,000, respectively. The Board of Directors met on February 20, 1997, and took the following actions in connection with the initial public offering of shares of the Company's common stock: (a) authorized a four-for-three stock split of the issued and outstanding common stock of the Company, the form of a stock dividend, to be effective immediately prior to the public offering (all references to common stock amounts, shares, per share data and preferred stock conversion rights included in the financial statements and these notes have been adjusted to give retroactive effect to the stock split); (b) authorized an increase in capital stock to 100,000,000 shares of $0.01 par value common stock and 30,000,000 shares of $0.01 par value preferred stock to be both contingent and effective upon stockholder approval and the first closing of the initial public offering of common stock; (c) waived, subject to the closing of an initial public offering, the Company's contractual rights to repurchase shares of common stock from employees of the Company; and (d) authorized certain incentive stock plans contingent and effective upon stockholder approval and consummation of the initial public offering. These incentive plans include (i) the 1997 Employee Stock Purchase Plan providing for the purchase of common stock at a discounted price, (ii) the 1997 Stock Incentive Plan providing for the grant of stock-based compensation to eligible persons and (iii) the Outside Directors' Stock Option Plan providing for the grant of nonqualified stock options to nonemployee directors of the Company. In June 1994, the Company sold 225,000 shares of $.01 par value Series A Convertible Preferred Stock (the "Series A Preferred Stock") at $1.00 per share to an officer/director who may convert these shares into 54,000 shares of common stock at any time after June 15, 1997, at a rate of .24 shares of common stock for each share of Series A Preferred Stock. The Series A Preferred Stock were converted to shares of common stock upon completion of the Initial Public Offering on June 19, 1997. Also in June 1994, the Company entered into an agreement for the sale of Series B Mandatorily Redeemable Convertible Preferred Stock (the "Series B Preferred Stock") and issued a total of 1,345,220 shares at an average price of $6.17. Holders of the Series B Preferred Stock converted their shares into 1,793,627 shares of common stock upon completion of the Initial Public Offering on June 19, 1997. Prior to the conversion to common stock, the Company carried this Series B Preferred Stock at fair value which management considered to equal $21.33 per share at May 31, 1997. The increase in carrying value of Series B Preferred Stock is reflected as a reduction to Additional Paid-in Capital. Effective June 1, 1998, the Company adopted the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and Related Information." SFAS No. 131 superseded FASB Statement No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for disclosures about operating segments, products and services, geographic areas and major customers. Management has determined that the Company operates in one industry segment, providing business management software solutions to midmarket businesses. Substantially all of the Company's revenues are derived from the licensing of software products and providing related consulting, support and training services. The following table presents a revenue and long-lived asset summary by geographic region (dollars in thousands): Revenues from external customers 119496 9651 3388 2372 0 134907 Intergeographic sales 5256 1526 0 0 -6782 0 Total sales 124752 11177 3388 2372 -6782 134907 Long-lived assets 17286 1166 530 144 0 19126 Revenues from external customers 77441 4552 2096 1570 0 85659 Intergeographic sales 4779 0 0 0 -4779 0 Total sales 82220 4552 2096 1570 -4779 85659 Long-lived assets 7958 194 207 142 0 8501 Revenues from external customers 53477 2195 645 803 0 57120 Intergeographic sales 956 0 0 0 -956 0 Total sales 54433 2195 645 803 -956 57120 Long-lived assets 5676 145 0 0 0 5821 Sales between geographic regions are made at prices which would approximate transfers to unaffiliated distributors. Revenues are allocated to geographic regions based on the location in which the sale originated. No single customer represents over 10% of the Company's consolidated sales. Fiscal 1999 27129 31807 35844 40127 134907 Fiscal 1998 16774 20045 22607 26232 85659 Fiscal 1999 19557 23002 25546 29097 97202 Fiscal 1998 12588 14880 16618 19233 63321 Fiscal 1999 2184 2860 3362 4379 12785 Fiscal 1998 1533 2139 2377 -1603 4447 Fiscal 1999 0.16 0.21 0.24 0.29 0.90 Fiscal 1998 0.12 0.16 0.17 -0.12 0.33 Fiscal 1999 0.15 0.20 0.23 0.28 0.86 Fiscal 1998 0.11 0.15 0.17 -0.12 0.32 Quarterly and annual earnings per share are calculated independently based on the weighted-average number of shares outstanding during the period. License 79685 52949 35919 27078 25050 Service 55222 32710 21201 15193 12847 Total revenues 134907 85659 57120 42271 37897 License 19355 11220 6362 4913 4439 Service 18350 11118 8260 5980 5622 Total cost of revenues 37705 22338 14622 10893 10061 Gross profit 97202 63321 42498 31,378 27836 Sales and marketing 47982 31636 21935 14477 14013 Research and development 20427 12586 9678 8876 9308 General and administrative 11080 7587 5592 4763 3886 Acquired in-process research and development 0 7136 0 0 0 Total operating expenses 79489 58945 37205 28116 27207 Operating income 17713 4376 5293 3262 629 Other income (expense), net 3592 3274 558 100 -260 Income before income taxes 21305 7650 5851 3362 369 Income tax provision (benefit) 8520 3203 2207 -4099 45 Income before cumulative effect of change in accounting principle 12785 4447 3644 7461 324 Cumulative effect of a change in accounting principle 0 0 0 0 -200 Net income 12785 4447 3644 7461 124 Basic 0.90 0.33 -1.78 0.58 0.00 Diluted 0.86 0.32 0.36 0.76 0.01 Basic 14231102 13381414 7629460 7352820 7158950 Diluted 14872579 14089092 10003349 9764924 9164980 Cash, cash equivalents and investments 123683 66918 16243 8256 2892 Total assets 180252 102845 33214 24361 15327 Working capital 101954 50824 6658 1012 -4992 Deferred revenues 23884 15133 10448 9018 8027 Long-term debt and capital lease obligations, less current portion 0 0 0 20 750 Mandatory redeemable convertible preferred stock 0 0 28698 11502 8300 Total stockholders' equity (deficit) 133193 69671 -16277 -4812 -9066