- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 August 31, 1996
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
-------- --------
Commission File Number 0-11791
GREENTREE SOFTWARE, INC.
(Name of Small Business Issuer as Specified in Its Charter)
New York 13-2897997
- ---------------------------------- -----------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
2801 Fruitville Rd.
Suite 180
Sarasota, FL 34237
---------------------------------------
(Address of Principal Executive Offices)
(941) 954-2210
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 |_|
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at October 11, 1996
- ------------------------------------ --------------------------------
Common Shares, par value 9,503,662 shares
$.04 per share
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BOS-BUS:320010.1
<PAGE>
PART I.FINANCIAL INFORMATION
Item 1.Financial Statements
Company for which report is filed: Greentree Software, Inc. (the "Company")
GREENTREE SOFTWARE, INC.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
August 31, May 31,
1996 1996
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 235 $249,525
Accounts receivable, net 158,780 112,749
Inventory 5,758 4,854
Prepaid expenses and other current assets 56,831 17,153
----------- -----------
Total Current Assets 221,603 384,281
PROPERTY AND EQUIPMENT, NET 105,451 120,000
OTHER ASSETS
Customer list (net of allowance) 41,342 45,361
Deferred software development costs, net 738,409 768,516
Security deposits 5,152 5,111
4,547 10,382
----------- -----------
Other 789,450 829,350
=========== ===========
TOTAL ASSETS $1,116,504 $1,333,631
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
CURRENT LIABILITIES:
Accounts payable $ $
508,736 447,791
Accrued expenses 394,978 430,296
Deferred income 134,462 151,452
----------- -----------
Total Current Liabilities 1,043,176 1,029,539
TOTAL LIABILITIES 1,043,176 1,029,539
STOCKHOLDERS' EQUITY:
Common Stock, $0.04 par value, authorized
15,000,000 shares, outstanding 9,503,662 at
August 31, 1996 and at May 31, 1996 380,146 380,146
Additional paid-in capital 12,830,427 12,833,851
Accumulated deficit (13,048,214) (12,820,873)
------------ -----------
162,359 393,124
Less: 28,580 treasury stock, at cost (89,032) (89,032)
----------- ----------
Total Stockholders Equity 73,328 104,092
=========== ===========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,116,504 $1,333,631
=========== ===========
</TABLE>
See Notes to Unaudited Financial Statements.
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended
August 31, August 31,
1996 1995
<S> <C> <C>
NET SALES
Product $ 77,125 $ 64,523
Services 38,945 44,248
---------- ----------
116,070 108,771
COSTS AND EXPENSES
Cost of sales 108,791 86,838
Selling expenses 69,387 164,702
General and administrative 169,830 143,138
Interest expense - 744
--------------- -------
348,008 395,422
Operating loss (227,340) (286,651)
----------- -----------
OTHER INCOME 4,598 46
------------ ---------
LOSS BEFORE INCOME TAXES (227,340) (286,605)
----------- ----------
INCOME TAXES - 2,400
------------------------
NET LOSS $(227,340) $(289,005)
LOSS PER SHARE
Net loss per common share $ (0.02) $ (0.06)
=========== ===========
Weighted average shares outstanding 9,503,662 4,721,790
</TABLE>
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
August 31, 1996 August 31, 1995
---------------- -------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $(227,340) $(289,005)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 16,424 19,168
(Increase) in accounts receivable (46,031) (6,310)
Decrease in inventories 904 3,899
(Increase) decrease in prepaid expenses (39,678) (7,475)
(Increase) decrease in other assets 5,835 (19,795)
(Increase) decrease in deferred 30,107 (21,292)
software development costs, net
Decrease in security deposits 41 --
Increase (decrease) in accounts payable 60,945 (34,967)
Increase (decrease) in accrued expenses (30,318) 228,854
Increase in deferred income (16,990) (4,774)
------------- --------------
Cash used in operating activities (245,866) (125,087)
CASH FLOW FROM INVESTING ACTIVITIES
Retirement of certificate of deposit -- 775,000
------------- --------------
Cash provided (used) in investing activities -- (775,000)
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from private placement (3,424) --
Note payable reduction -- (775,000)
------------- --------------
Cash (used) provided by financing activities (3,424) (775,000)
Increase (Decrease) in cash (249,290) (125,097)
Cash balance - beginning 249,525 157,621
------------- --------------
Cash balance - ending $ 235 $ 32,524
------------- --------------
See Notes to Unaudited Financial Statements.
</TABLE>
<PAGE>
GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
August 31, 1996
(Unaudited)
1. BASIS OF PRESENTATION In the opinion of the Company's management, the
unaudited financial statements include all adjustments (consisting only of
normal adjustments) necessary for a fair presentation of the financial position
of the Company at August 31, 1996 and the results of its operations and cash
flow statements for the three months ended August 31, 1996 and August 31, 1995.
It is suggested that the unaudited financial statements and notes thereto
in this Report be read in conjunction with the financial statements and notes
thereto in the Company's Annual Report on Form 10-KSB for the fiscal year ended
May 31, 1996 (the "1996 Annual Report") which was previously filed.
The accompanying financial statements of the Company have been presented
on the basis that the Company is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company reported a net loss of $227,346 for the three month
period ended August 31, 1996 and $1,576,480 for the year ended May 31, 1996.
Additionally, at August 31, 1996, the Company has a working capital deficit of
$821,573 and an accumulated deficit of $13,048,214. Information available at
October 15, 1996 indicates that losses are continuing. At October 15, 1996, the
Company had expended substantially all of its cash and cash equivalent balances.
The Company's continued existence is dependent upon its ability to raise
capital and subsequently market its Windows(R)-based purchasing applications--GT
Purchase PRO. Management believes that is will be successful in raising
additional capital through the placement of the Company's equity and debt
securities as discussed in Note 10 of the financial statements contained in the
1996 Annual Report. Historically, the Company has been successful raising funds
from outside sources through private placement or other means. While the Company
believes that its most recent version of GT Purchase PRO has demand in the
marketplace, a successful equity placement will be dependent upon each potential
investor's evaluation of the prospects for generating revenues from this
product. The Company, however, provides no assurances that significant revenues
will be generated.
As discussed in Note 5 of the financial statements contained in the 1996
Annual Report, the Company is currently party to two lawsuits, one of which
involves its rights to continue to sell GT Purchase PRO. The ultimate outcome of
such litigation is currently uncertain.
The Company is considered a Small Business (SB) filer pursuant to
Securities and Exchange Commission (SEC) regulations. As such, the accompanying
financial statements, are not intended to, nor do they, include all disclosures
required by the SEC's Regulation S-X.
2
<PAGE>
2. Summary of Significant Accounting Practices
(a) Accounting Estimates
Management is required to make estimates and assumptions during the
preparation of financial statements in conformity with generally accepted
accounting principles. These estimates and assumptions affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements. They also affect the
reported amounts of net income (loss) during the period. Actual results could
differ materially from these estimates and assumptions.
(b) Revenue Recognition
The Company generally recognizes product revenue at the time products are
shipped provided that no significant Company obligations remain outstanding and
collection of the resulting receivable is deemed probable by management.
Insignificant support obligations remaining at the time of shipment are accrued.
In fiscal 1996 and the first quarter of fiscal 1997, the Company did not obtain
signed license agreements on certain product shipments, including all shipments
of its most recent version of GT Purchase PRO. For these shipments where a
license agreement does not exist and the probability of collection and the
existence of remaining obligations could not be determined the sale has not been
recorded and revenue has not been recognized in the accompanying financial
statements.
Service revenues are comprised primarily of revenues derived from
maintenance agreements. Maintenance fees are recorded as deferred revenue and
recognized over the maintenance period which is usually 12 months. Also included
in deferred revenue are deferred product revenues which, based on their terms,
will be recognized as revenue when the various terms are met.
(c) Accounts receivable
Accounts receivable is presented net of allowance for uncollectible
accounts of $26,700 at August 31, 1996 and at May 31, 1996.
(d) Software Development Costs
The Company is engaged in research and development activities in the area
of computer software. In accordance with generally accepted accounting
principles, costs incurred prior to determination of technological feasibility
are considered research and development and treated as a period cost and,
accordingly, charged to operations. Once technological feasibility has been
established, development costs, including improvements to existing products and
certain new products, are capitalized and amortized over the estimated economic
lives of the respective products. The Company has determined that an estimated
product useful life of three years is reasonable for amortization purposes.
3
<PAGE>
(e) Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is charged to operations over the estimated lives of the related
assets, generally five to seven years, using the straight-line method.
Maintenance and repairs are charged to expense as incurred. Improvements and
betterments that extend the useful life of the assets are capitalized.
(f) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of 90 days or less to be cash equivalents for financial statement
purposes. Included in cash equivalents at May 31, 1996 was a certificate of
deposit totaling approximately $100,000. As discussed in Note 1, as of October
15, 1996, the Company had expended substantially all of its cash and cash
equivalent balances.
(g) Loss Per Common Share
Net loss per common share is computed by dividing net loss by the weighted
average number of shares outstanding during the period. For the three month
period ended August 31, 1996 and the year ended May 31, 1996, common shares
options and warrants were anti-dilutive and were not included in the weighted
average of common shares used in determining per share amounts.
4
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
For the Three Months Ended August 31, 1996 Versus 1995
Total sales for the three months ended August 31, 1996 were $116,070
compared to $108,771 for the three months ended August 31, 1995, reflecting an
increase of $7,299 of 6.7%. Product revenues for the three months ended August
31, 1996 were $77,125 compared to $64,523 for the three months ended August 31,
1995, an increase of $12,872 or 20%. Maintenance revenues were $31,871 for the
three months ended August 31, 1996 compared to $42,248 for the three months
ended August 31, 1995, a decrease of $10,377 or 24.6%. Training and other
revenues were $7,074 for the three months ended August 31, 1996 compared to
$2,000 for the three months ended August 31, 1995, an increase of 253.7%.
Initial sales of the new version of the Company's GT Purchase PRO product are
responsible for the increases in total revenues and product sales.
The Company is in the initial stages of selling and marketing the new
version of GT Purchase PRO. While there have been expressions of interest in the
product by a number of potential customers, there can be no assurance that any
of these prospective customers will buy the product. GT Purchase PRO, by the
nature of the product, the integral role it plays in the purchasing process of
large corporate organizations, and the sales price of the product, has a long
selling cycle; there can be no assurance that the Company will be able to
sustain its operations for a sufficient period of time to close the sales,
install the product, and receive full payment from those prospective customers
who do express a willingness to place an order for the product. Finally, a
number of large corporations that have expressed an interest in the product have
also expressed concern about the Company's financial viability, and may
therefore decide to not place an order for the product.
The cost of sales for the three months ended August 31, 1996 were $108,791
compared to $86,838 for the three months ended August 31, 1995, an increase of
$21,953 or 25.3%. This increase was primarily due to additional development and
installation expense associated with the release of the new version of GT
Purchase PRO.
Selling expense for the three month period ended August 31, 1996 was
$69,387 compared to $164,702 for the three month period ended August 31, 1995, a
decrease of $95,315 or 57.9%. This decrease was primarily due to decreased
personnel, advertising and marketing expenses; it is not anticipated that these
reductions will be maintained as marketing and sales activity increases during
fiscal 1997.
General and administrative expense for the three month period ended August
31, 1996 compared to $143,138, an increase of $26,692 or 18.6%. This increase
was primarily due to increased professional fees and compensation expense.
5
<PAGE>
For the three month period ended August 31, 1996, the Company reported a
net loss of $227,340 (or $.02 per share) as compared to a net loss of $289,005
(or $.06 per share) for the three month period ended August 31, 1995. This loss
was caused by the continuation of low sales volumes, but was reduced due to the
lower level of personnel, advertising and marketing expenses required to support
the lower sales volume. The reduction in loss per share is largely the result of
the increase in the number of issued and outstanding shares.
Liquidity and Capital Resources
The Company has a working capital deficit of $821,573 at August 31, 1996
as compared to a working capital deficit of $645,258 at May 31, 1996, a decrease
in working capital of $176,315. The primary cause for the decrease in working
capital was the loss for the quarter. Cash at August 31, 1996 was $235 compared
to $249,525 at May 31, 1996, a decrease of $249,290. As of October 15, 1996, the
Company has expended substantially all of its cash resources. Accounts
receivable were $158,780 at August 31, 1996 as compared to $112,749 at May 31,
1996, an increase of $46,031 or 40.8%. The primary cause for this increase was
the increase in the product sales and the terms of the sales for the GT Purchase
PRO product.
The Company is currently engaged in an effort to raise up to $1.25 million
through a private offering of its common shares and convertible debt. The per
share price of its common shares is expected to be $.25. The convertible debt
will be issued at face value, have a two year term, accrue interest beginning
six months after issuance, and will convert to common shares at a conversion
price of one share for each $.25 of outstanding principal and accrued interest
upon the filing of an amendment to the Company's Certificate of Incorporation
increasing the number of authorized common shares. As additional consideration
for the private offering, the Company will issue common shares purchase warrants
exercisable for one common share for every two common shares or conversion
shares purchased, at an exercise price to be determined based on a formula. The
proceeds of this private offering will be used to pay outstanding accounts
payable, amounts owed to current and former employees and consultants and to
faciliate marketing and sales efforts and customer support functions. There can
be no assurance that the Company will be able to raise such additional funding,
or that, if obtained, the funding will be sufficient to support the Company's
operations until such time as the Company's operations may be sustained from
operating cash flow. There also is no assurance that the Company's projections
as to an increase in sales and attaining profitability, as well as producing a
positive operating cash flow, will be realized.
6
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On February 12, 1996 the Company was sued by Parera Information Services,
Inc. in the United States District Court for the District of Massachusetts.
Parera and the Company were parties to a software development agreement. The
complaint seeks unspecified money damages for alleged breach of contract,
copyright infringement, misrepresentation and violation of the Massachusetts
Consumer Protection Act. The Court has denied all of Parera's requests for a
preliminary injunction, and the matter is now scheduled for trial to commence on
November 4, 1996.
The Company is unable to predict the likelihood of an unfavorable outcome
in this matter although there are strong defenses to the claims and the Court
has twice determined that Parera has not established a likelihood of success on
the merits in denying Parera's motions for preliminary injunction.
On August 22, 1996, the Company was sued by a former employee in the
United States District Court for the Southern District of New York. The Company
was served with process on August 26, 1996. The complaint alleges that the
Company owes the employee back wages and further alleges that the Company
wrongfully rescinded stock options for approximately 37,500 shares of the
Company's stock. The Company has denied all claims and filed a counter-claim
against the former employee.
Item 5. Other Information
The Company currently intends to conduct a private placement of its
debt and equity securities. See Management's Discussion and Analysis or Plan
of Operation--Liquidity and Capital Resources.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
7
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENTREE SOFTWARE, INC.
Date: October 15, 1996 By: /s/ Jeffrey B. Pinkerton
---------------------------------
Name: Jeffrey B. Pinkerton
Title: President and Chief Financial
Officer
8
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> AUG-31-1996
<CASH> 235
<SECURITIES> 0
<RECEIVABLES> 158,780
<ALLOWANCES> 0
<INVENTORY> 5758
<CURRENT-ASSETS> 221,603
<PP&E> 105,452
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,116,504
<CURRENT-LIABILITIES> 1,043,176
<BONDS> 0
0
0
<COMMON> 380,146
<OTHER-SE> 12,830,427
<TOTAL-LIABILITY-AND-EQUITY> 1,116,504
<SALES> 116,070
<TOTAL-REVENUES> 116,070
<CGS> 108,791
<TOTAL-COSTS> 178,178
<OTHER-EXPENSES> 169,830
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227,340
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 6
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,340
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
