<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-27040
META-SOFTWARE, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 94-2654873
(State or other jurisdiction of (Employer Identification No.)
incorporation or organization)
1300 White Oaks Road, Campbell, California 95008-6758
(Address of principal executive offices)
(408) 369-5400
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required 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 issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
There were 10,161,059 shares of the issuer's Common Stock outstanding as of
June 30, 1996.
Transitional small business disclosure format:
(check one): YES [ ] NO [X]
<PAGE>
META-SOFTWARE, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Income
Three and six months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 7-9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
META-SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents........................ $ 3,891 $25,720
Short term investments........................... 20,497 -
Accounts receivable, net......................... 5,590 4,981
Deferred income taxes............................ 1,103 1,103
Prepaid income taxes............................. 2,934 -
Prepaid expenses and other assets................ 554 328
------- -------
Total current assets.......................... 34,569 32,132
Property and equipment, net....................... 2,351 1,679
Other assets...................................... 193 84
Deferred income taxes............................. 1,200 1,200
------- -------
$38,313 $35,095
======= =======
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable................................. $ 258 $ 152
Accrued liabilities.............................. 2,648 3,764
Current portion technology acquisition payable... 586 876
Deferred revenue................................. 4,110 3,598
Shareholder distributions payable................ - 1,800
------- -------
Total current liabilities..................... 7,602 10,190
Other non-current liabilities..................... 191 156
Long-term portion technology acquisition payable.. 903 1,424
Commitments and contingencies
Shareholders equity:
Common stock, no par value; 50,000 shares
authorized, 10,164 and 9,800 shares issued and
outstanding, respectively........................ 25,832 22,200
Unrealized gain (loss) on investments............ (22) -
Retained earnings................................ 3,807 1,125
------- -------
29,617 23,325
------- -------
$38,313 $35,095
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
3
<PAGE>
META-SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
-------- ------- ----------------
<S> <C> <C> <C> <C>
Net Revenue:
Product license..................... $ 4,926 $4,510 $ 9,970 $ 7,413
Maintenance and service............. 2,670 1,870 4,919 3,448
------- ------ ------- -------
Net revenue...................... 7,596 6,380 14,889 10,861
Cost of revenue:
Product license.................... 239 255 590 434
Maintenance and service............ 542 462 1,113 906
------- ------ ------- -------
Total cost of revenue............ 781 717 1,703 1,340
------- ------ ------- -------
Gross margin..................... 6,815 5,663 13,186 9,521
Operating expenses:
Research and development............ 1,362 1,530 2,887 2,798
Sales and marketing................. 2,633 2,314 5,110 3,708
General and administrative.......... 773 568 1,395 1,041
------- ------ ------- -------
Total operating expenses......... 4,768 4,412 9,392 7,547
------- ------ ------- -------
Operating income..................... 2,047 1,251 3,794 1,974
Other income, net.................... 220 54 366 109
------- ------ ------- -------
Income before taxes.................. 2,267 1,305 4,160 2,083
Income taxes......................... 817 95 1,478 186
------- ------ ------- -------
Net income........................... $ 1,450 $1,210 $ 2,682 $ 1,897
======= ====== ======= =======
Net income per share................. $ 0.14 $ 0.25
======= =======
Shares used in computation of
net income per share................ 10,654 10,622
======= =======
Pro forma net income and per share
data (unaudited):
Income before taxes, as reported.... $1,305 $ 2,083
Pro forma income taxes.............. 470 750
------ -------
Pro forma net income................ $ 835 $ 1,333
====== =======
Pro forma net income per share...... $ 0.09 $ 0.14
====== =======
Shares used in computation of pro
forma net income per share......... 9,792 9,792
====== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
META-SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
-------- ------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................... $ 2,682 $ 1,897
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization................................................ 386 367
Stock compensation expense................................................... 32 -
Compensation expense (benefit) attributable to stock appreciation rights..... (43) 435
Provision for doubtful accounts.............................................. 16 38
Deferred rent................................................................ 78 -
Changes in operating assets and liabilities:
Accounts receivable......................................................... (625) (282)
Prepaid expenses and other assets........................................... (335) 81
Prepaid income taxes........................................................ (734) -
Accounts payable............................................................ 106 44
Accrued liabilities......................................................... (535) 30
Technology acquisition payable.............................................. (811) -
Deferred revenue............................................................ 469 545
-------- -------
Net cash provided by (used in) operating activities.......................... 686 3,155
Cash flows used in investing activities:
Purchase of property and equipment............................................ (1,058) (559)
Purchase of short term investments............................................ (35,895) -
Proceeds from sale of short term investments.................................. 15,376 -
-------- -------
Net cash used in investing activities........................................ (21,577) (559)
Cash flows provided by (used in) financing activities:
Distribution to shareholders.................................................. (1,754) (827)
Proceeds from stock options exercised......................................... 816 -
-------- -------
Net cash provided by (used in) financing activities.......................... (938) (827)
Net increase (decrease) in cash and cash equivalents........................... (21,829) 1,769
Cash and cash equivalents at beginning of period............................... 25,720 3,811
-------- -------
Cash and cash equivalents at end of period..................................... $ 3,891 $ 5,580
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Income taxes................................................................. $ 2,545 $ 227
======== =======
Interest..................................................................... $ 68 $ -
======== =======
Noncash financing activities:
Vested stock appreciation rights liability converted to capital
upon exercise of stock options.............................................. $ 538 $ -
======== =======
Income tax benefit from exercise of non qualified stock options.............. $ 2,200 $ -
======== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
META-SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in conformity with generally accepted accounting principles consistent with
those applied in, and should be read in conjunction with, the audited financial
statements for the year ended December 31, 1995 contained in the Company's
Annual Report on Form 10-KSB. In the opinion of management, the accompanying
consolidated balance sheets, consolidated statements of income, and consolidated
statements of cash flows include all material adjustments necessary for their
fair presentation. The interim results presented are not necessarily indicative
of results for the full year. Certain reclassifications have been made for
consistent presentation.
2. PRO FORMA INFORMATION
Prior to the Company's initial public offering, the Company was treated as an S
corporation for federal and state income tax purposes. Accordingly, income taxes
on corporate earnings were paid by the shareholders. The S corporation status
was terminated October 31, 1995, just prior to the initial public offering, and
the Company is now treated as a C corporation. Income taxes on corporate
earnings are now paid by the Company. The unaudited pro forma amounts included
in the accompanying statement of income for the three month and six month
periods ended June 30, 1995 reflect an unaudited pro forma adjustment for income
taxes as if the Company had been a C corporation, fully subject to federal and
state income taxes.
3. PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed using pro forma net income (as
described in note 2) and is based on the weighted average number of shares of
common stock outstanding and common equivalent shares from the stock options
outstanding (using the treasury stock method). In accordance with certain
Securities and Exchange Commission Staff Accounting Bulletins, such computations
include all common and common equivalent shares issued within 12 months of the
initial public offering date as if they were outstanding for all periods
presented using the treasury stock method and the anticipated initial public
offering price. In addition, the pro forma calculation includes 882,000 shares
deemed to be outstanding representing the number of shares at the anticipated
initial public offering price sufficient to fund the final S corporation
distribution.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Except for historical information contained herein, the following is a forward-
looking statement that is subject to certain risks and uncertainties. These
risks and uncertainties include the Company's reliance on HSPICE for a
substantial portion of its revenue, its dependence on new products for revenue
growth, challenges associated with bringing such new products to market, and
substantial competition in the Electronic Design Automation industry, as well as
other risks and uncertainties described herein, in the Company's Annual Report
on Form 10-KSB, and in "Risk Factors" in the Company's Prospectus dated November
7, 1995.
RESULTS OF OPERATIONS
Net revenue for the quarter ended June 30, 1996 was $7.6 million which
represented a $1.2 million, or 19% increase over the second quarter of 1995.
Product license revenues increased $416,000, or 9%. Maintenance and service
revenues increased $800,000, or 43%, which was attributed to an increase in the
installed base of the Company's customers, and an increase in demand for lab
services. For the six months ended June 30, 1996, net revenue increased by $4.0
million, or 37%, to $14.9 million from $10.9 million for the first six months
of 1995. Product license revenue, primarily for the HSPICE product, increased
$2.6 million, or 34% in the first six months of 1996 over the first six months
of 1995. Maintenance and service revenue increased $1.5 million or 43%, which
was also attributed to an increase in the installed base of the Company's
customers, and an increase in demand for lab services.
Gross margin for the quarter ended June 30, 1996 increased $1.2 million, or 20%,
to $6.8 million from $5.7 million in the second quarter of 1995. The growth in
the gross margin was a direct result of the quarterly revenue growth. Gross
margin as a percentage of net revenue was 89.7% in the second quarter of 1996,
as compared to 88.8% in the second quarter of 1995. The growth in the gross
margin percentage was attributable to lower media and supply costs. As a result
of revenue growth, the gross margin increased $3.7 million, or 38%, to $13.2
million from $9.5 million in the first six months of 1995. As a percentage of
net revenue, the gross margin was 88.6%, up from 87.7% for the first six months
of 1995. The gross margin percentage growth was a function of service costs
which, as a percentage of revenue, were lower in the first six months of 1996
compared to the first six months of 1995. Service costs are principally
comprised of labor cost related to headcount which has been controlled in the
first half of 1996.
7
<PAGE>
Operating expenses were $4.8 million for the second quarter of 1996, which
represented an increase of 8% over operating expenses of $4.4 million for the
second quarter of 1995. Increased salary expense in the sales and marketing and
general and administrative divisions related to higher headcount were primarily
responsible for the expense growth over the same quarter last year. These
increases were partially offset by the compensation expense related to the 1992
Stock Option Plan in the second quarter of 1995, which was not incurred in 1996.
Operating expenses for the first six months of 1996 increased by $1.8 million,
or 24%, to $9.4 million from $7.5 million in the first six months of 1995.
Increased headcount in the sales and marketing and general and administrative
divisions, as well as higher administrative costs associated with being a public
company, accounted for the increase in expenses in the first half of 1996 over
the first half of 1995. The rate of increase in operating expenses from the
second quarter of 1995 to the second quarter of 1996 and from the first six
months of 1995 to the first six months of 1996 is less than the rate of revenue
growth, indicating improved operating efficiencies and expense control.
Operating income in the second quarter of 1996 grew to $2.0 million from $1.3
million in the second quarter of 1995, or by 64%. As a percentage of revenue,
operating income increased to 27% from 20% in the second quarter of 1995. For
the six months ended June 30, 1996, operating income was $3.8 million or 25% of
net revenue, as compared to $2.0 million or 18% for the same period last year.
Both the growth in operating income and the increase in operating income as a
percentage of revenue was attributable to revenue growth and control of
operating expenses.
Other income, net, which includes interest income and interest expense, grew to
$220,000 in the second quarter of 1996 from $54,000 in the second quarter of
1995, or by 307%. For the six months ended June 30, 1996, other income, net,
grew to $366,000 from $109,000 for the same period in 1995, or by 236%. Both the
quarter-to-quarter and first six months-to-first six months other income growth
resulted from investment income attributable to the higher cash balances
associated with the proceeds received from the Company's initial public offering
of Common Stock in November 1995.
Income taxes are not comparable between the second quarter of 1996 and the
second quarter of 1995, or the first six months of 1996 and the first six months
of 1995. In the first six months of 1995, the Company was a Subchapter S
Corporation and during the first six months of 1996 the Company was a C
Corporation. Income taxes for the first six months of 1995 were 8.9% of income
before taxes, which represented state and foreign taxes, the federal tax
liability being borne by the shareholders. Income taxes for the first six months
of 1996 were 35.5% of income before taxes, reflecting the fully taxed status of
a C Corporation.
8
<PAGE>
Net income increased 74% to $1.5 million in the second quarter of 1996 from pro
forma net income of $835,000 in the second quarter in 1995, which was calculated
to reflect the Company's conversion from a Subchapter S Corporation to a C
Corporation. Net income for the first six months of 1996 grew by $1.3 million,
or 101%, to $2.7 million, from pro forma net income of $1.3 million for the
first six months of 1995, which was calculated to reflect the Company's
conversion from a Subchapter S Corporation to a C Corporation. The pro forma tax
rate for both the first quarter of 1995 and the first six months of 1995 was
36.0%, as compared to a tax rate of 36.0% for the second quarter of 1996 and
35.5% for the first six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception in 1980 through its initial public offering of Common Stock in
November 1995, the Company financed its activities through internally generated
cash flow. In November 1995, the Company completed its initial public offering
of 2,300,000 shares of Common Stock. The cash proceeds from the initial public
offering, net of expenses, were approximately $24.7 million. At December 31,
1995, the Company had $25.7 million in cash and cash equivalents. Cash and cash
equivalents decreased to $3.9 million at June 30, 1996 primarily from the
purchase of $20.5 million in short term investments and the final distribution
of $1.8 million to Subchapter S Corporation shareholders. In total, cash and
cash equivalents and short term investments decreased by $1.3 million from
December 31, 1995 to $24.4 million at June 30, 1996. Net cash used in operations
for the first six months of 1996 was $216,000. Cash used in investing
activities, other than that invested in short term investments, was related to
the purchase of leasehold improvements, fixed assets, primarily computers,
software and office furnishings. Cash used in financing activities related to
the final $1.8 million distribution to shareholders, partially offset by the
proceeds from the exercise of stock options by employees.
The Company had a line of credit secured by eligible accounts receivable which
expired on June 30, 1996 and will not be renewed. There were no borrowings
against the line of credit during its effective period.
It is the Company's opinion that existing cash and the cash generated by
operations will satisfy the Company's working capital requirements through 1996.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1993, the Company filed a complaint in Santa Clara Superior Court
against Silvaco Data Systems, Inc. and related parties (collectively, Silvaco)
seeking monetary damages and injunctive relief. The Company's complaint alleged,
among other things, that Silvaco breached its representative agreement with the
Company by withholding customer payments for products and services that had been
delivered, and by failing to pay royalties on software that Silvaco sold to
others. In addition, the complaint alleged that Silvaco defrauded the Company.
The Company was awarded $529,828 under Santa Clara County Superior Court's
judicial arbitration program in August 1995. Both parties have rejected the
award and requested a trial do novo on the issues involved. In August 1995,
Silvaco filed a cross-complaint against the Company alleging, among other
things, that the Company owes Silvaco royalties and license fees pursuant to a
DLL 2000 product development and marketing program, and unpaid commissions
related to Silvaco's sale of the Company's products and services under the
distributorship agreement. The Company duly filed an answer to the cross-
complaint denying the allegations contained therein. In July 1996, Silvaco filed
a first amended cross-complaint, adding Shawn Hailey, the President, CEO, and
major shareholder of the Company, as a personal defendant, and further alleging
defamation, interference with economic advantage, unfair competition, and abuse
of process by acts or statements made by the Company or its agents.. The Company
has duly filed an answer to the first amended cross-complaint denying the
allegations contained therein.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Meta-Software, Inc. was held at the
principal offices of the Company at 1300 White Oaks Road, Campbell, California
95008-6758, U.S.A. on May 23, 1996.
Out of 9,842,626 shares of Common Stock entitled to vote at such meeting,
there were present in person or by proxy 5,962,012 shares.
The vote for nominated directors, to serve for the ensuing year, and until
their successors are elected, was as follows:
<TABLE>
<CAPTION>
NOMINEE IN FAVOR WITHHELD
------- -------- --------
<S> <C> <C>
Shawn M. Hailey 5,958,082 3,930
Kim L. Hailey 5,958,082 3,930
Joshua Pickus 5,958,082 3,930
A. E. Ross 5,958,082 3,930
</TABLE>
The results of voting on the following item was a set forth below:
(a) Ratification of the appointment of KPMG Peat Marwick LLP as the Company's
independent auditors for the year ending December 31, 1996:
IN FAVOR AGAINST ABSTAINED
-------- ------- ---------
5,950,932 530 500
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBERS DESCRIPTION
--------------- -----------
a. 11 Computation of Net Income
Per Share and Pro Forma Net
Income Per Share
27 Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the period
covered by this Report on Form 10-QSB.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
META-SOFTWARE, INC.
DATED: AUGUST 7, 1996 BY: /S/ SHAWN M. HAILEY
--------------------------------
SHAWN M. HAILEY, CHIEF EXECUTIVE
OFFICER (PRINCIPAL EXECUTIVE
OFFICER)
DATED: AUGUST 7, 1996 BY: /S/ WILLIAM C. SMITH
---------------------------------
WILLIAM C. SMITH, CHIEF FINANCIAL
OFFICER (PRINCIPAL FINANCIAL &
ACCOUNTING OFFICER)
12
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NUMBER DESCRIPTION
- - - ------ -----------
11 Computation of Net Income
Per Share and Pro Forma Net
Income Per Share
27 Financial Data Schedule
13
<PAGE>
Exhibit 11
META-SOFTWARE, INC.
COMPUTATION OF NET INCOME PER SHARE
AND
PRO FORMA NET INCOME PER SHARE
(unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income and pro forma net
income......................... $ 1,451 $ 835 $ 2,683 $ 1,333
======== ======== ======== =======
Weighted average number of
shares of common stock
outstanding.................... 10,008 7,500 9,910 7,500
Number of common stock
equivalents as a result of
stock options outstanding
using the treasury stock
method......................... 646 841 712 841
Number of common stock
options granted in accordance
with SAB No. 83................ - 569 - 569
Number of shares deemed
outstanding to fund
shareholder distribution....... - 882 - 882
-------- -------- -------- -------
Total................... 10,654 9,792 10,622 9,792
======== ======== ======== =======
Net income and pro forma net
income per share............... $ 0.14 $ 0.09 $ 0.25 $ 0.14
======== ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND THE CONSOLIDATED STATEMENT OF
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 FILED AS PART OF THIS FORM 10-QSB
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL
STATEMENTS ON THIS FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-START> JAN-01-1996
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,891
<SECURITIES> 20,497
<RECEIVABLES> 5,912
<ALLOWANCES> 322
<INVENTORY> 0
<CURRENT-ASSETS> 34,569
<PP&E> 5,407
<DEPRECIATION> 3,056
<TOTAL-ASSETS> 38,313
<CURRENT-LIABILITIES> 7,601
<BONDS> 0
0
0
<COMMON> 25,832
<OTHER-SE> 3,786
<TOTAL-LIABILITY-AND-EQUITY> 38,313
<SALES> 9,970
<TOTAL-REVENUES> 14,889
<CGS> 590
<TOTAL-COSTS> 1,703
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 16
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 4,160
<INCOME-TAX> 1,478
<INCOME-CONTINUING> 2,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,682
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
