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 February 29, 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 April 12, 1996
------------------------ -----------------------------
Common Shares, par value 8,603,455 shares
$.04 per share
<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>
February 29 May 31,
1996 1995
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 143,763 $ 157,621
Certificates of deposit 775,000
Accounts receivable, net 179,386 71,454
Inventory 12,499 17,114
Prepaid expenses 47,297 8,280
------------------- -----------------
Total Current Assets 382,945 1,029,469
PROPERTY AND EQUIPMENT:
Leasehold improvements - 33,205
Furniture, fixtures, and equipment 475,639 449,494
------------------- -----------------
475,639 482,699
Less: Accumulated depreciation 304,459 271,684
------------------- -----------------
171,180 211,015
OTHER ASSETS
Customer list (net of allowance) 48,007 60,004
Deferred software development costs, net 842,641 513,382
Security deposits 6,551 32,055
Other 33,559 56,877
------------------- -----------------
930,758 662,318
=================== =================
TOTAL ASSETS $1,484,883 $ 1,902,802
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 279,661 $ 396,802
Notes payable - 775,000
Accrued expenses 360,942 252,828
Deferred income 236,360 174,341
------------------- -----------------
Total Current Liabilities 876,963 1,598,971
TOTAL LIABILITIES 876,963 1,598,971
STOCKHOLDERS' EQUITY:
Common Stock, $0.04 par value, authorized 15,000,000 shares,
outstanding 8,603,455 at February 29, 1996, and 4,721,790
at May 31, 1995 345,286 190,019
Additional paid-in capital 12,367,742 11,447,237
Accumulated deficit (12,016,076) (11,244,393)
------------------- -----------------
696,952 392,863
Less: 28,684 treasury stock, at cost (89,032) (89,032)
------------------- -----------------
607,920 303,831
=================== =================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,484,883 $ 1,902,802
=================== =================
</TABLE>
See Notes to Unaudited Financial Statements.
1
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENT OF OPERATIONS
-----------------------
(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For The Nine Months Ended
February 29 February 28 February 29 February 28
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES
Product $ (48,770) $ 48,458 $ 102,778 $ 261,337
Services 44,489 57,548 135,652 197,361
---------- ---------- ----------- -----------
(4,281) 106,006 238,430 458,698
---------- ---------- ----------- -----------
COSTS AND EXPENSES
Cost of sales 38,798 164,661 165,587 444,249
Selling expenses 120,729 179,880 382,229 650,701
General and administrative 105,509 217,346 460,584 685,994
Interest expense - 12,593 744 29,764
---------- ---------- ----------- -----------
265,036 574,480 1,009,144 1,810,708
---------- ---------- ----------- -----------
Operating loss (269,317) (468,474) (770,714) (1,352,010)
---------- ---------- ----------- -----------
OTHER INCOME 1,375 4,738 1,433 29,518
---------- ---------- ----------- -----------
LOSS BEFORE INCOME TAXES (267,942) (463,736) (769,281) (1,322,492)
---------- ---------- ----------- -----------
INCOME TAXES - - 2,400 -
---------- ---------- ----------- -----------
NET LOSS $(267,942) $(463,736) $(771,681) $ (1,322,492)
========== ========== =========== ===========
LOSS PER SHARE
Net loss per common share $ (0.03) $ (0.11) $ (0.13) $ (0.31)
========= ========== =========== ===========
Weighted average shares outstanding 8,125,179 4,290,553 6,023,819 4,247,298
========= ========== =========== ===========
</TABLE>
2
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
February 29, 1996 February 28, 1995
------------------------ ---------------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net loss $ (771,681) $ (1,322,492)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 77,975 65,954
Amortization of deferred software costs 72,619 287,723
Increase in reserve for bad debts 10,000 4,992
(Increase) in accounts receivable (117,932) (29,028)
Decrease in inventories 4,615 19,698
(Increase) decrease in prepaid expenses (39,017) 5,867
(Increase) decrease in other assets 23,318 28,226
Deferred software expenditures (401,878) (603,418)
Decrease in security deposits 25,504 1,813
Increase (decrease) in accounts payable (117,141) 127,969
Increase (decrease) in accrued expenses 108,114 (33,604)
Increase in deferred income 62,019 67,536
------------------- ---------------------
Cash used in operating activities (1,063,485) (1,378,764)
CASH FLOW FROM INVESTING ACTIVITIES
Retirement of certificate of deposit 775,000 775,000
Disposal of property and equipment 21,052
Additions to property and equipment (26,145) (67,702)
------------------- ---------------------
Cash provided (used) in investing activities 748,855 728,350
CASH FLOW FROM FINANCING ACTIVITIES
Net proceeds from private placement 1,075,772 128,862
Net proceeds from exercise of common stock warrants 735,588
Net proceeeds from exercise of stock options 9,200
Note payable reduction (775,000) (775,000)
Payment of capital lease obligations and other - (33,534)
------------------- ---------------------
Cash (used) provided by financing activities 300,772 65,116
Increase (Decrease) in cash (13,858) (585,298)
Cash balance - beginning 157,621 1,068,235
------------------- ---------------------
Cash balance - ending $ 143,763 $ 482,937
------------------- ---------------------
</TABLE>
See Notes to Unaudited Financial Statements.
3
<PAGE>
GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
February 29, 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 February 29, 1996 and the results of its operations and cash
flow statements for the three and nine months ended February 29, 1996 and
February 28, 1995.
The unaudited financial statements and notes thereto in this report
should 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,
1995 (the "1995 Annual Report") which was previously filed.
Accounts receivable As of February 29, 1996, the reserve for bad debts
-------------------
amounted to $21,683.
Deferred software development costs The Company is engaged in extensive
-----------------------------------
research and development activities in the area of computer software. In
accordance with generally accepted accounting principles, all costs incurred
prior to determination of technological feasibility have been 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. For the three months ended
February 29, 1996 and February 28, 1995, the Company capitalized $166,762 and
$244,788, respectively, of deferred software development costs. Amortization
charged to operations amounted to $24,206 and $104,396 for the three months
ended February 29, 1996 and February 28, 1995, respectively. For the nine months
ended February 29, 1996, the Company capitalized $401,878 of deferred software
development costs compared to $603,418 for the same period in 1995. Amortization
charged to operations amounted to $72,619 for the nine months ended February 29,
1996 and $287,723 for the comparable period in 1995.
Revenue recognition The Company recognizes revenue at the time products
-------------------
are shipped provided that no significant support 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.
Service revenues are comprised primarily of revenues derived from maintenance
agreements. Maintenance revenue is amortized over the maintenance period which
is usually 12 months. The Company recognizes
4
<PAGE>
revenue from a "site license" upon the completion and acceptance of programs by
the customer. Cost of sales expenses are predominantly associated with product
sales and are nominal with respect to services.
Deferred Income The Company defers maintenance income billings and
---------------
recognizes them over the contract lives which are usually twelve months.
Billings amounted to $30,204 and $46,043 for the three months ended February 29,
1996 and February 28, 1995, respectively. For the nine months ended February 29,
1996 the billings were $132,665 compared to $182,746 for the same period in
1995.
Statements of Cash Flows For the purposes of disclosure in the
------------------------
statements of cash flows, management treats liquid investment with maturities of
three months or less to be cash equivalents. There was no interest paid during
the three months ended February 29, 1996 compared to $12,594 for the same period
in 1995. For the nine months ended February 29, 1996 and February 28, 1995
interest paid amounted to $744 and $29,794 respectively.
Earnings per share Earnings per Common Share is computed by dividing
------------------
the income or loss by the weighted average number of Common Shares outstanding
during the period. For the three and nine month periods ended February 29, 1996
and February 28, 1995, common stock options and warrants were anti-dilutive and
not included in the weighted average of Common Shares used in determining per
share amounts.
Contingencies See Part II Item 1 regarding litigation and Part II Item
-------------
5 regarding a disputed claim for expenses in connection with a private placement
of the Company's Common Shares.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
For the Three and Nine Months Ended February 29, 1996 Versus 1995
For the three months ended February 29, 1996, credits of $63,440 for
some returned product (for the prior version of GT Purchase PRO) exceeded
product and service sales during such period, resulting in a negative sales
amount of ($4,281) compared to $106,006 for the three months ended February 28,
1995. Product revenues for the three months ended February 29, 1996 were a
negative ($48,770) compared to $48,458 for the three months ended February 28,
1995, a decline of $97,228. Service revenues were $44,489 in the three months
ended February 29, 1996 compared to $57,548 for the three months ended February
28, 1995, a decrease of $13,059 or 22.7%.
As indicated in Item 6 (Management's Discussion and Analysis or Plan Of
Operations) in the Company's Annual Report filed on Form 10-KSB for the period
ended May 31, 1995, the Company had experienced problems in developing the GT
Purchase PRO product. Because of "bugs" encountered in one of the RAD tools used
to develop GT Purchase PRO, the Company had been unable to bring a completely
acceptable product to market. As a result, sales of the Company's products and
services have been declining.
The Company used an outside development firm to complete development on
the product line. On February 14, 1996, the Company announced that its new
product line, GT Purchase PRO 5.0 was ready for the marketplace and began
marketing the new system.
The cost of sales for the three months ended February 29, 1996
decreased from $164,661 for the same period in 1995 to $38,798, a decrease of
$125,883 or 76.4%. For the nine months ended February 29, 1996 cost of sales was
$165,587 compared to $444,249 in the same period of 1995. The decrease in cost
of sales was due primarily to the reduction in the amortization of software
development costs. The reduction in amortization is due to the fact that costs
associated with the old version of GT Purchase PRO were written off in fiscal
1995, and there has been no amortization of the costs associated with the GT
Purchase PRO 5.0 product. Amortization of the development costs on the new
product will begin in the quarter ending May 31, 1996. At February 29, 1996, the
Company had recorded approximately $830,000 of net costs associated with the
ongoing development of GT Purchase PRO. If revenues do not increase to
sufficient levels, these amounts would have to be written down to their
realizable values which could result in a material charge against earnings.
Selling expenses for the three months ended February 29, 1996 were
$120,729 compared with $179,880 for the comparable prior year period, a decrease
of $59,151 or 32.9%. For the nine months ended February 29, 1996,
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<PAGE>
selling expenses were $382,229 compared to $650,701 for the comparable period
last year, a decrease of 41.3%. The lower costs for the 1995 three month and
nine month periods were primarily due to decreased personnel and advertising
costs.
General and administrative ("G&A") expenses for the three months ended
February 29, 1996 were $105,509 compared with $217,346 for the prior year, a
decrease of $111,836 or 51.5%. Lower accounting & legal fees, rent expense, and
shareholder relations expense were the primary reasons for the decrease. For the
nine months ended February 29, 1996, G&A expenses were $460,584 compared with
$685,994 for the same period in 1995, a decrease of $225,410 or 32.9%. The
decrease is the result of generally lower expenses, including accounting & legal
fees, rent expense, and personnel costs, partly offset by the cost of relocating
the Company's offices.
Interest expense for the nine months ended February 29, 1996 was $744
compared with $29,764 for the prior year, a decrease of $29,020 or 97.5%. This
decrease was the result of the liquidation of the Company's debt during the
first quarter of fiscal 1996.
For the three months ended February 29, 1996, the Company reported a
net loss of $ 267,942 (or $.03 per share) as compared to a net loss of $463,736
(or $.11 per share) for the comparable period in 1995. For the nine months ended
February 29, 1996, the Company reported a net loss of $771,681 (or $.13 per
share) as compared to a net loss of $1,322,492 (or $.31 per share) for the
comparable period in the prior year. This loss was caused by continued low sales
volume (see comments above) but was reduced when compared to the prior year
principally by decreased personnel costs, amortization of software development
costs, and advertising costs.
Liquidity and Capital Resources
On October 27, 1995 and December 5, 1995 the Company sold a total of
1,410,000 shares in a private placement to an accredited investor at $.40 per
share and received gross proceeds of $564,000.
On December 13, 1995 the Company initiated another private placement
offering ("Offering") to accredited investors for a minimum of 2,000,000 shares
and a maximum of 4,166,667 shares at $.30 per share. On December 28, 1995 the
Company sold 2,001,666 shares and received gross proceeds of $600,500. The
Offering was extended from December 31, 1995 to January 30, 1996 and the Company
sold another 469,999 shares for gross proceeds of $141,000. In total, 2,471,665
shares were sold in the Offering for gross proceeds of $741,500. The two
"Offerings" resulted in a total of 3,881,665 shares sold for gross proceeds of
$1,305,500.
7
<PAGE>
Net proceeds from the Offerings, after commissions and other applicable
costs, were $1,075,772 and were utilized principally to fund the losses the
Company has incurred, for development costs of the GT Purchase PRO system, and
to reduce liabilities.
Working capital increased by $75,484 for the nine months ending
February 29, 1996. At February 29, 1996, there was a working capital deficit of
$494,018 compared with a working capital deficit of $569,502 at May 31, 1995.
Working capital increased in the nine month period because of net proceeds of
$1,075,772 received from the Offerings. Partly offsetting this was the loss for
the period and continued product development expenditures. As a result, cash
decreased from $157,621 at May 31, 1995 to $143,763 at February 29, 1996. The
$775,000 received from retirement of a certificate of deposit was used to redeem
a $775,000 bank note.
The Company spent $26,145 on capital expenditures for the nine months
ended February 29, 1996 and $67,702 for the same period in 1995.
Prior to the Offerings the Company had effectively run out of cash on
several occasions. The Company's lack of liquidity and capital resources has
forced it to cease paying its employees a number of times. The Company currently
has a cash balance of approximately $40,000 which is not sufficient to bring the
new GT Purchase PRO system to market.
The Company's continued existence is based on its ability to bring the
new system to market. To do this the Company has to raise additional capital. In
the past the Company has been able to raise capital through private placements
of its common shares. Current shares outstanding (8,603,455) along with shares
reserved for outstanding warrants and options account for a large portion of the
Company's 15,000,000 authorized shares, and limit the number of shares that can
be offered to raise additional capital.
However, the Company believes it has sufficient shares to raise
approximately $1,000,000 net of expenses. If this can be done, the Company will
use the funds to market the GT Purchase PRO 5.0 system, to reduce current
liabilities, and to increase working capital. If the Company is unable to raise
additional capital, it may be forced to cease operations and liquidate.
8
<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 damages for breach of contract, alleged copyright
infringement, misrepresentation and violation of the Massachusetts Consumer
Protection Act. Additionally, Parera seeks injunctive relief prohibiting the
Company from marketing its GT Purchase PRO version 5.0 software, declaring
Parera as the owner of the software and freezing the Company's assets. The
Company disputes Parera's claims and plans to vigorously defend this matter. The
Company has recently filed answers to the Parera claim along with counterclaims
against Parera.
The Company believes that all of the claims alleged by Parera in its
complaint are either without merit or subject to counterclaims that the Company
has against Parera. The Company intends to vigorously defend the lawsuit and
expects to prevail or obtain a favorable settlement. However, there can be no
assurance that the lawsuit will be resolved in the Company's favor. Although the
Company believes the foregoing action will ultimately be resolved in its favor,
it is too early to determine with any accuracy what the actual outcome may be.
Should Parera be successful in obtaining judgment in its favor,
including any substantial monetary damages or a temporary or permanent
injunction with regard to the Company's products, the Company could be forced to
discontinue operations and seek liquidation. In addition, the Company has very
limited financial resources with which to respond and defend the above action.
On April 12, 1996 a hearing on the Parera's request for a preliminary
injunction was held in the United States District Court for the District of
Massachusetts. As the Company believed, the Judge denied the request for the
preliminary injunction.
Item 5. Other Information
In connection with the October private placement the accredited
investor, T.I.S. Acquisition and Management Group, Inc. (T.I.S. Acquisition),
has made a claim for certain legal and other expenses under the terms of a Stock
Purchase Agreement entered into by the Company and T.I.S. Acquisition. They are
claiming approximately $138,000 in expenses in connection with acquiring
1,410,000 shares for $564,000. The Company has denied the claims and does not
believe it is responsible for these expenses, therefore it has made no provision
for them in the Financial Statements.
9
<PAGE>
Signatures;
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREENTREE SOFTWARE, INC.
By:/s/ Arnold Muhlbach
-----------------------
Arnold Muhlbach
Chief Financial Officer
April 15, 1996
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
On August 24, 1995, November 13, 1995, and January 2, 1996 the Company
filed reports on form 8-K which are hereby included by reference.
11
