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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 February 28, 1997
[ ] 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.
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(Name of Small Business Issuer as Specified in Its Charter)
New York 13-2897997
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(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
7901 Flying Cloud Drive
Suite 150
Eden Prairie, MN 55344
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(Address of Principal Executive Offices)
(617) 941-1500
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(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 14, 1997
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Common Shares, par value 9,663,662 shares
$.04 per share
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<PAGE>
GREENTREE SOFTWARE, INC.
INDEX
<TABLE>
<CAPTION>
Item Page
Number Number
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of February 28, 1997 and May 31, 1996.......................... 3
Statements of Operations for the three months ended February
28, 1997 and February 29, 1996 and for the nine months
ended February 28, 1997 and February 29, 1996 ................................... 4
Statements of Cash Flows for the nine months ended
February 28, 1997 and February 29, 1996.......................................... 5
Notes to the Financial Statements................................................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation............................................................. 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................... 13
Item 6. Exhibits and Reports on Form 8-K..................................................... 13
Signatures .....................................................................................14
</TABLE>
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Company for which report is filed: Greentree Software, Inc. (the "Company")
GREENTREE SOFTWARE, INC.
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
February 28, May 31,
1997 1996
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(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 37,904 $ 249,525
Accounts receivable, net 195,330 112,749
Inventory - 4,854
Prepaid expenses and other current assets 43,720 17,153
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Total Current Assets 276,954 384,281
PROPERTY AND EQUIPMENT, NET 88,424 120,000
OTHER ASSETS
Customer list (net of amortization) 33,344 45,341
Deferred software development costs, net 595,210 768,516
Prepaid placement costs, net 84,598
Other 9,905 15,493
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Total Other Assets 723,057 829,350
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TOTAL ASSETS $1,088,435 $1,333,631
=================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 420,905 $ 447,791
Accrued expenses 191,402 430,296
Deferred income 71,888 151,452
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Total Current Liabilities 684,195 1,029,539
CONVERTIBLE NOTES: 1,069,000 --
------------------- -----------------
TOTAL LIABILITIES 1,753,195 1,029,539
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STOCKHOLDERS' EQUITY:
Common Stock, $0.04 par value, authorized 15,000,000 shares,
outstanding 9,663,662 at February 28, 1997 and 9,503,662 at May
31, 1996 386,546 380,146
Additional paid-in capital 12,860,828 12,833,851
Accumulated deficit (13,823,102) (12,820,873)
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(575,728) 393,124
Less: 28,580 treasury stock, at cost (89,032) (89,032)
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Total Stockholders Equity (664,760) 304,092
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,088,435 $1,333,631
=================== =================
The accompanying notes are an integral part of the Unaudited Financial
Statements.
</TABLE>
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GREENTREE SOFTWARE, INC.
STATEMENTS OF OPERATIONS
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(Unaudited)
<TABLE>
<CAPTION>
For The Three Months Ended For the Nine Months Ended
------------------------------------ --------------------------------------
February 28 February 29 February 28 February 29
1997 1996 1997 1996
----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
NET SALES
Product $ 328,077 $ (48,770) $ 404,420 $ 102,778
Services 57,405 44,489 151,802 135,652
----------- ----------- ----------- ----------
Total Net Sales 385,482 (4,281) 556,222 238,430
----------- ----------- ----------- ----------
COSTS AND EXPENSES
Cost of sales 126,532 38,798 349,464 165,587
Selling expenses 161,848 120,729 363,899 382,229
General and administrative 226,817 105,509 849,666 460,584
Interest expense 711 -- 711 744
---------- ---------- ----------- ----------
Total Costs and Expenses 515,908 265,036 1,563,740 1,009,144
---------- ---------- ----------- ----------
Operating loss (130,426) (269,317) (1,007,518) (770,714)
---------- ---------- ----------- ----------
OTHER INCOME 103 1,375 5,290 1,433
---------- ---------- ----------- ----------
LOSS BEFORE INCOME TAXES (130,323) (267,942) (1,002,228) (769,281)
---------- ---------- ----------- ----------
INCOME TAXES -- -- -- 2,400
---------- ---------- ----------- ----------
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NET LOSS $(130,323) $(267,942) $(1,002,228) $(771,681)
=========== =========== ============= ==========
LOSS PER SHARE
Net loss per common share $ (0.01) $ (0.03) $ (0.10) $ (0.13)
=========== =========== =========== ==========
Weighted average shares outstanding 9,663,662 8,125,179 9,556,996 6,023,819
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Statements.
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GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
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(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
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February 28, February 29,
1997 1996
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<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss $ (1,002,228) $ (771,681)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 76,330 77,975
Amortization of deferred software costs 341,466 72,619
(Increase) in prepaid placement costs (107,927) -
(Increase) in accounts receivable (82,581) (107,932)
Decrease in inventories 4,854 4,615
(Increase) in prepaid expenses (26,567) (39,017)
Decrease in other assets 5,588 48,822
Deferred software expenditures (168,160) (401,878)
(Decrease) in accounts payable (26,886) (117,141)
Increase (decrease) in accrued expenses (242,317) 108,114
Increase (decrease) in deferred income (79,564) 62,019
----------------- ------------------
Cash Used in Operating Activities (1,307,992) (1,063,485)
CASH FLOW FROM INVESTING ACTIVITIES:
Retirement of certificate of deposit - 775,000
Additions to property and equipment (12,629) (26,145)
----------------- ------------------
Cash Provided (Used) in Investing Activities (12,629) 748,855
CASH FLOW FROM FINANCING ACTIVITIES:
Net proceeds from private placement 1,069,000 1,075,772
Proceeds from issuance of stock 40,000
Note payable reduction - (775,000)
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Cash (Used) Provided by Financing Activities 1,109,000 300,772
Increase (decrease) in Cash (211,621) (13,858)
Cash balance - beginning 249,525 157,621
----------------- ------------------
Cash balance - ending $ 37,904 $ 143,763
================= ==================
</TABLE>
The accompanying notes are an integral part of the Unaudited Financial
Statements.
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GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
February 28, 1997
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1. General Information:
The Financial Statements included herein have been prepared by the
Company without audit except the May 31, 1996 balance sheet, which was audited.
The Statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission and reflect all adjustments, consisting of
only normal recurring accruals which are, in the opinion of management,
necessary for a fair statement of the results of operations for the periods
shown. These statements do not include all information required by Generally
Accepted Accounting Principles to be included in a full set of Financial
Statements. These Financial Statements should be read in conjunction with the
Financial Statements and notes thereto included in the Company's latest report
on Form 10-KSB, dated May 31, 1996.
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 $1,002,228 for the nine
month period ended February 28, 1997, and $1,576,480 for the year ended May 31,
1996. Additionally, at February 28, 1997, the Company has a working capital
deficit of $407,241 and an accumulated deficit of $13,823,102. Information
available at April 15, 1997 indicates that losses are continuing.
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 it 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 in 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.
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.
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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 obligation remains 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 three quarters 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 $74,429 at February 28, 1997, and $26,700 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
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established, development costs 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 certain new products, and that an estimated product useful life of
one year is reasonable for amortization purposes for certain improvements to
existing products.
(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.
(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 nine
month period ended February 28, 1997, 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.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Except for the historical information contained herein, this Quarterly
Report on Form 10-QSB may contain forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including but not limited to (i) sales backlogs, the
potential for future orders and the existence of expressions of interest in the
GT Purchase PRO product and (ii) the approval by the shareholders of the Company
of an amendment to the Company's Certificate of Incorporation effecting a
reverse stock split of the Company's issued and outstanding common shares and
changing the per share par value permitting the mandatory conversion of certain
convertible promissory notes. Investors are cautioned that forward-looking
statements are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or suggested in the
forward-looking statements due to certain risks and uncertainties, including but
not limited to, the following risks and uncertainties: (i) the Company's history
of losses and accumulated deficit, inconsistent revenues and the uncertainty of
future profitability; (ii) the Company's capital requirements and the
uncertainty of additional funding; (iii) the need for shareholder approval to
convert certain convertible promissory notes; (iv) the uncertainty of market
acceptance of GT Purchase PRO software; (v) new management and the need to
recruit sales, service and implementation personnel to decrease dependence on
third party developers and implementation; (vi) the intense competition in the
software field; and (vii) the dependence on one product and rapid technological
change in the industry. Additional information concerning certain risks and
uncertainties that would cause actual results to differ materially from those
projected or suggested in the forward-looking statements is contained in the
Company's filings with the Commission, including those risks and uncertainties
discussed under the caption "Risk Factors" in the Company's Annual Report on
Form 10-KSB for the year ended May 31, 1996. The forward-looking statements
contained herein represent the Company's judgment as of the date of this
Quarterly Report on Form 10-QSB, and the Company cautions readers not to place
undue reliance on such statements.
Results of Operations
For the Three and Nine Months Ended February 28, 1997 and February 29, 1996
Total sales for the three months ended February 28, 1997 were $385,482
compared to negative sales of ($4,281) for the three months ended February 29,
1996. 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 the negative sales
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amount of ($4,281). Product sales for the three months ended February 28, 1997
were $328,077 compared to negative sales of ($48,770) for the three months
ended February 29, 1996. This increase reflects sales of the GT Purchase PRO
product. Sales backlog at the end of February 28, 1997 was $284,000. This
compares with virtually no backlog at the beginning of the fiscal year. Service
sales were $57,405 for the three months ended February 28, 1997, compared to
$44,489 for the three months the previous year reflecting an increase of 29.0%.
The increase in service revenues was attributable to the maintenance revenues
resulting from the higher sales of the GT Purchase PRO product.
Sales for the nine months ended February 28, 1997, increased to
$556,222 compared to $238,430 for the nine months ended February 29, 1996, or an
increase of $317,792 or 133.3%. This increase reflects the increased sales which
took place in the third quarter of fiscal 1997.
The cost of sales for the three months ended February 28, 1997 was
$126,532 compared to $38,798 for the three months ended February 29, 1996, an
increase of $87,734 or 226.1%. For the nine months ended February 28, 1997, cost
of sales was $349,464 compared to $165,587 for the nine months ended February
29, 1996, an increase of $183,877 or 111.0%. 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 months ended February 28, 1997 was
$161,848 compared to $120,729 for the three months ended February 29, 1996, an
increase of $41,119 or 34.1%. This increase was primarily due to increased
personnel and marketing expenses as sales and marketing activity increased in
the three months ended February 28, 1997. For the nine months ended February 28,
1997, selling expense was $363,899 compared to $382,229 for the nine month ended
February 29, 1996, a decrease of $18,330 or 4.8%. The levels of selling expense
for the nine months ended February 28, 1997 declined, as compared to the nine
months ended February 29, 1996, due to higher levels of personnel, advertising
and marketing expenses in the first part of fiscal 1996.
General and administrative expense for the three months ended February
28, 1997 were $226,817 compared to $105,509 for the three months ended February
29, 1996, an increase of $121,308 or 115.0%. For the nine months ended February
28, 1997 general and administrative expense was $849,666 compared to $460,584,
an increase of $389,082 or 84.5%. This increase was primarily due to increased
professional fees, including costs of litigation which have been settled and
compensation expense due primarily to increased staffing.
For the three months ended February 28, 1997, the Company reported a
net loss of $130,323 (or $.01 per share) as compared to a net loss of $267,942
(or $.03 per share) for the prior year. For the nine months ended February 28,
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1997, the Company reported a net loss of $1,002,228 (or $.10 per share) as
compared to a net loss of $771,681 (or $.13 per share) for the prior year. This
loss was caused by the continuation of low sales volumes and the increase of
personnel, development, advertising and marketing expense. The per share loss
for the three month period ended February 28, 1997 grew by a proportionally
smaller amount than the total net loss, and the per share loss for the nine
month period ended February 28, 1997, and actually decreased while the total net
loss increased, due to the increase in the number of issued and outstanding
shares.
Liquidity and Capital Resources
The Company had a working capital deficit of $407,241 at February 28,
1997 as compared to a deficit of $645,258 at May 31, 1996, an increase in
working capital of $238,017. The primary reason for the increase was the
placement of convertible notes during the nine month period ended February 28,
1997. This was offset by the loss for the nine month period, continued product
development expenditures, and payments against accounts payable and accrued
expenses. As a result, cash decreased from $249,525 at May 31, 1996, to $37,904
at February 28, 1997.
In October 1996, the Company began a private offering of its common
shares and convertible debt (the "October 1996 Offering") which raised a total
of $790,000 in gross proceeds for the company. On October 25, 1996, the Company
issued a convertible note in the original amount of $750,000 to an accredited
investor on the terms set forth in the private placement (the "October 25, 1996
Convertible Note"), and on December 11, 1996, the Company issued 160,000 shares
of common shares to two accredited investors, at a price per share of $0.25,
resulting in gross proceeds to the Company of $40,000. In February 1997, the
Company began a private offering of convertible debt (the "February 1997
Offering") and issued convertible notes in the original amount of $319,000 to
several other accredited investors. In addition, the Company has issued $605,000
of additional convertible notes from March 1, 1997 through April 14, 1997 as
part of the February 1997 Offering.
The terms of the October 1996 Offering were as follows: the convertible
debt was issued at face value, has a two year term, accrues interest beginning
six months after issuance, and will convert to common shares at a conversion
price of one share for each $0.25 of outstanding principal and accrued interest
upon the filing of an amendment to the Company's Certificate of Incorporation
effecting a reverse stock split of the Company's issued and outstanding common
shares. As additional consideration for the private offering, the Company issued
common shares purchase warrants exercisable for one common share for every two
common shares or conversion shares purchased, at an exercise price to be
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determined based on a formula. There can be no assurance that the shareholders
of the Company will approve the amendment to the Company's Certificate of
Incorporation that is required for the mandatory conversion of the convertible
notes issued in the private placement.
The terms of the February 1997 Offering are as follows: the convertible
debt was issued at face value, has a two year term, accrues interest beginning
six months after issuance, and will convert to common shares at a conversion
price of one share for each $0.50 of outstanding principal and accrued interest
upon the filing of an amendment to the Company's Certificate of Incorporation
effecting a reverse stock split of the Company's issued and outstanding common
shares. The securities offered and sold by the Company in the February 1997
Offering have not been registered under the Securities Act of 1933, as amended,
or any applicable state securities laws and may not be offered or sold in the
United States absent registration or an applicable exemption from registration.
In addition, there can be no assurance that the shareholders of the Company will
approve the amendment to the Company's Certificate of Incorporation that is
required for the mandatory conversion of the convertible notes issued in the
private placement.
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PART II. OTHER INFORMATION
Item 2. Changes in Securities
On December 11, 1996, the Company issued 160,000 shares of common
shares to two accredited investors, at a price per share of $.25, resulting in
gross proceeds to the Company of $40,000. The issuance and sale of such common
shares were made in reliance on Rule 506 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and Section 4(2) of
the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current Report on Form 8-K, dated February 25, 1997.
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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: April 14, 1997 By: /s/ Joseph D. Mooney
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Name: Joseph D. Mooney
Title: Chief Executive Officer
