<PAGE>
- --------------------------------------------------------------------------------
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 November 30,1997
/ / 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.
(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)
7901 FLYING CLOUD DRIVE
SUITE 150
EDEN PRAIRIE, MN 55344
----------------------------------------
(Address of Principal Executive Offices)
(612) 941-1500
--------------
(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 December 31, 1997
- --------------------------------- --------------------------------
COMMON SHARES, PAR VALUE 3,132,118 SHARES
$0.01 PER SHARE
- --------------------------------------------------------------------------------
<PAGE>
GREENTREE SOFTWARE, INC.
INDEX
ITEM PAGE
NUMBER NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of November 30, 1997 and May 31, 1997.. 3
Statements of Operations for the three months ended
November 30, 1997 and 1996 and for the six months ended
November 30, 1997 and 1996.............................. 4
Statements of Cash Flows for the six months ended
November 30, 1997 and November 30, 1996................. 5
Notes to the Financial Statements....................... 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation...................... 9-11
PART II. OTHER INFORMATION
Item 2. Changes in Securities...................................... 12
Item 6. Exhibits and Reports on Form 8-K........................... 13
Signatures ........................................................ 14
2
<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
November 30, 1997 May 31, 1997
----------------- ------------
(Unaudited)
Assets
Current Assets:
Cash and cash equivalents $ 29,196 $ 245,649
Accounts receivable, net 76,937 164,556
Prepaid expenses and other current assets 3,791 30,204
------------- ------------
Total Current Assets 109,924 440,409
------------- ------------
Property and equipment 52,084 54,554
------------- ------------
Other Assets:
Customer list 21,347 29,345
Capitalized software development costs 351,145 526,372
Security deposits 9,124 9,124
Other 0 76,261
------------- ------------
Total Other Assets 381,616 641,102
------------- ------------
Total Assets $ 543,624 $ 1,136,065
------------- ------------
------------- ------------
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities:
Accounts payable $ 459,928 $ 348,148
Convertible notes payable 0 2,049,566
Accrued expenses 199,133 146,214
Deferred revenues 176,651 77,868
------------- ------------
Total Current Liabilities 835,712 2,621,796
------------- ------------
Commitments and Contingencies
Stockholders' Equity (deficit):
Common stock, $0.01 par value, authorized
15,000,000 shares issued and outstanding,
2,966,644 and 1,610,610 shares, respectively 29,666 16,106
Additional paid-in capital 15,452,308 13,231,268
Accumulated deficit (15,685,030) (14,644,073)
------------- ------------
(203,056) (1,396,699)
Less treasury stock (4,780 shares) at cost (89,032) (89,032)
------------- ------------
Total Stockholders' Equity (deficit) (292,088) (1,485,731)
------------- ------------
Total Liabilities and Stockholders'
Equity (Deficit) $ 543,624 $ 1,136,065
------------- ------------
------------- ------------
See accompanying notes to financial statements
3
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
-------------------------- ------------------------
November 30, November 30, November 30, November 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Revenues:
Product $ 8,350 $ (1,300) $ 97,125 $ 75,825
Services 55,359 55,970 91,627 94,915
------------- ------------ ----------- -----------
Total Net Revenues 63,709 54,670 188,752 170,740
------------- ------------ ----------- -----------
Costs and Expenses:
Cost of revenues 130,200 160,266 257,406 269,057
Selling expenses 119,286 164,083 273,572 233,470
General and administrative 309,010 374,885 692,155 540,118
------------- ------------ ----------- -----------
Total Costs and Expenses 558,496 699,234 1,223,133 1,042,645
------------- ------------ ----------- -----------
Operating Loss (494,787) (644,564) (1,034,381) (871,905)
Interest Expense, net (2,166) 0 (6,576) 0
------------- ------------ ----------- -----------
Loss Before Income Taxes (496,953) (644,564) (1,040,957) (871,905)
Income Taxes 0 0 0 0
------------- ------------ ----------- -----------
Net Loss $(496,953) $(644,564) $(1,040,957) $ (871,905)
--------- --------- ----------- -----------
--------- --------- ----------- -----------
Net loss per common share (Basic) $ (0.18) $ (0.41) $ (0.44) $ (0.55)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average shares outstanding 2,732,300 1,583,943 2,382,171 1,583,943
--------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
GREENTREE SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED
------------------------
November 30, November 30,
1997 1996
---- ----
Cash Flow From Operating Activities:
Net loss $(1,040,957) $(871,905)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 18,408 29,096
Amortization of deferred software costs 250,589 221,937
Decrease (increase) in accounts receivable 87,619 54,670
Decrease (increase) in inventories -- (904)
Decrease (increase) in prepaid expenses 26,413 (17,786)
Decrease in other assets 4,753 13,586
Increase in accounts payable 111,780 (68,542)
Increase (decrease) in accrued expenses 65,086 (79,845)
Increase (decrease) in deferred revenue 98,783 (38,436)
----------- -----------
Cash Used in Operating Activities (377,526) (758,129)
----------- -----------
Cash Flow From Investing Activities:
Additions to property and equipment (7,940) (9,920)
Additions to capitalized software
Development costs (75,362) (129,484)
----------- -----------
Cash (Used) in Investing Activities (83,302) (139,404)
----------- -----------
Cash Flow From Financing Activities:
Net proceeds from private placement 274,375 706,912
Payment on note payable (30,000) --
----------- -----------
Cash Provided by Financing Activities 244,375 706,912
----------- -----------
(Decrease) in Cash (216,453) (190,621)
Cash balance - beginning 245,649 249,525
----------- -----------
Cash balance - ending $ 29,196 $ 58,904
----------- -----------
----------- -----------
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 4,797 $ --
Cash paid for income taxes $ -- $ --
----------- -----------
----------- -----------
See accompanying notes to financial statements
5
<PAGE>
GREENTREE SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
NOTE 1. GENERAL INFORMATION:
The Financial Statements included herein have been prepared by the Company
without audit except the May 31, 1997 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, 1997.
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 $1,040,957 for the six month
period ended November 30, 1997, and $1,823,200 for the year ended May 31, 1997.
Additionally, at November 30, 1997, the Company had a working capital deficit of
$725,788 and a stockholders' deficit of $292,088.
The Company's continued existence is dependent upon its ability to raise
capital and subsequently market its Windows-based purchasing applications--GT
Purchase PRO. 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, the Company, however, provides no assurances that significant
revenues will be generated. The above matters raise substantial doubt about the
Company's ability to continue as a going concern.
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.
6
<PAGE>
NOTE 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 delivered, provided that no significant Company obligation remains
outstanding and collection of the resulting receivable is deemed probable by
management. Insignificant obligations remaining at the time of shipment are
accrued. For those 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.
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 $38,355 at November 30, 1997, and $57,100 at May 31, 1997.
(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 are capitalized and amortized over the shorter of
an economic life of one to three years or the proportion of current period
product revenues to total expected product revenues.
(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.
Depreciation was approximately $10,400 and $29,100 for the six months ended
November 30, 1997 and 1996, respectively.
7
<PAGE>
(f) Customer List
During the year ended May 31, 1994, the Company acquired the customer list
of one of its resellers for $80,000. This reseller subsequently became employed
as the president of the Company. These costs are being amortized using the
straight-line method over five years. Amortization expense related to this
intangible asset was approximately $8,000 for both the six months ended November
30, 1997 and 1996.
(g) 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, 1997, was a money market
account totaling approximately $200,000.
(h) Income Taxes
The Company accounts for income taxes in accordance with the provisions of
the Financial Accounting Standards Board Statement of Financial Accounting
Standard No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109 requires
that deferred income taxes reflect the tax consequences on future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts.
(i) 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 year. For the six month period
ended November 30, 1997,and 1996, common stock options and warrants were anti-
dilutive and were not included in the weighted average of common shares used in
determining per share amounts.
(j) Recently Issued Accounting Standards
In March 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective for
financial statements issued for periods ending after December 15, 1997. Under
SFAS No. 128 the presentation of primary earnings per share is replaced with a
presentation of basic earnings per share.
SFAS No. 128 requires dual presentation of basic and diluted earnings per share
for entities with complex capital structures. Basic earnings per share includes
no dilution and is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. Management believes the adoption of SFAS No. 128
will not have a material effect on the financial statements.
8
<PAGE>
(k) Reclassification and Stock Split
Certain prior year balances have been reclassified to conform with current
year presentation. There was no impact on the prior year's net loss or total
stockholders' equity from the reclassification.
The Company effected a one-for-six reverse stock split effective July 22,
1997. All shares and per share amounts contained in the financial statements
and notes thereto reflect the retroactive application of such reverse stock
split for all periods presented.
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 the potential for future
orders and the existence of expressions of interest in the GT Purchase PRO
product. 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 uncertainty of market acceptance of GT Purchase PRO software; (iv) new
management and the need to recruit sales, service and implementation personnel;
(v) the intense competition in the software field; and (vi) 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, 1997. 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.
9
<PAGE>
RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
Total revenues for the three months ended November 30, 1997 were $63,709
compared to revenue of $54,670 for the three months ended November 30, 1996.
Product revenues for the three months ended November 30, 1997, were $8,350
compared to revenues of $(1,300) for the three months ended November 30, 1996.
Certain product sales from prior periods were reversed during the three months
ended November 30, 1996, resulting in a reported negative product sales figure.
Service revenues were $55,359 for the three months ended November 30, 1997,
compared to $55,970 for the three months ended November 30, 1996.
Total revenues for the six months ended November 30, 1997 were $188,752
compared to revenue of $170,740 for the six months ended November 30, 1996.
Product revenues for the six months ended November 30, 1997, were $97,125
compared to revenues of $75,825 for the six months ended November 30, 1996.
Service revenues were $91,627 for the six months ended November 30, 1997,
compared to $94,915 for the six months ended November 30, 1996.
The cost of revenues for the three months ended November 30, 1997 was
$130,200 compared to $160,266 for the three months ended November 30, 1996, a
decrease of $30,066 or 18.8%. This decrease resulted from lower software
amortization costs for the quarter.
The cost of revenues for the six months ended November 30, 1997 was
$257,406 compared to $269,057 for the six months ended November 30, 1996.
Selling expense for the three months ended November 30, 1997 was
$119,286 compared to $164,083 for the three months ended November 30, 1996, a
decrease of $44,797 or 27.3%. This decrease was the result of lower travel
expenses, outside consulting fees and lower trade show and promotion costs
which were offset in part by higher personnel costs.
Selling expense for the six months ended November 30, 1997 was $273,572
compared to $233,470 for the six months ended November 30, 1996, an increase of
$40,102 or 17.2%. This increase was primarily due to increased personnel and
marketing expenses as sales and marketing activity increased in the six month
period ended November 30, 1997 compared to the prior year.
General and administrative expense for the three months ended November 30,
1997 was $309,010 compared to $374,885 for the three months ended November 30,
1996, a decrease of $65,875 or 17.6%. This decrease was primarily due to lower
professional, legal and accounting fees
General and administrative expense for the six months ended November 30,
1997 was $692,155 compared to $540,118 for the six months ended November 30,
1996, an increase of $152,037 or 28.1%. This increase was primarily due to
increased compensation expense due to increased staffing for administrative
management.
10
<PAGE>
For the three months ended November 30, 1997, the Company reported a net
loss of $496,953 (or $.18 per share) as compared to a net loss of $644,564 (or
$.41 per share) for the prior year. This loss was caused by the continuation of
low revenues which were not sufficient to cover operating costs. The loss for
the three months ended November 30, 1997 was lower than the loss for the same
period ended November 30, 1996 primarily due to lower software amortization
costs and the lower costs as discussed above in the selling and general and
administrative areas.
For the six months ended November 30, 1997, the Company reported a net
loss of $1,040,957 (or $.44 per share) as compared to a net loss of $871,905
(or $.55 per share) for the prior year. This loss was caused by the
continuation of low revenues which were not sufficient to cover operating
costs. The loss for the six months ended November 30, 1997 was greater than
the loss for the same period ended November 30, 1996 primarily due to the
increase of personnel, development, advertising and marketing expense to
support future potential revenue growth. The per share loss for the six month
period ended November 30, 1997 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 $725,788 at November 30, 1997
as compared to a deficit of $2,181,387 at May 31, 1997, a decrease in the
working capital deficit of $1,455,599. The primary reason for the decrease was
the conversion of convertible notes payable during the three month period ended
August 31, 1997 and the sale through a private placement during the quarter of
401,841 shares of the Company's Common Shares which raised $274,375. This was
offset by the loss for the six month period and continued product development
expenditures. As a result, cash decreased from $245,649 at May 31, 1997, to
$29,196 at November 30, 1997.
Beginning in October 1997, the Company began a private placement of its
Common Shares and as of December 31, 1997, had sold 567,315 shares of Common
Shares and raised $385,389 in gross proceeds. On December 19, 1997, the
Company issued a convertible note in the original principal amount of $50,000
to an accredited investor. This convertible debt was issued at face value,
has a ninety day term, is convertible into Common Shares at holder's option
at the lesser of $.6875 per share or 70% of the average bid price of the
Common Shares for the five days proceeding the conversion. If holder does
not convert, holder will be issued 10,000 Common Shares in lieu of interest.
The Company currently anticipates that it will require additional and
ongoing funding to continue operating until such time that the Company is
able to generate product sales sufficient to offset its working capital
deficit and ongoing operating expenses. There can be no assurance that the
Company will be successful in securing outside funding or, if available, upon
what terms.
11
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Securities
From October 1997 to December 1997, the Company issued 567,316 shares of
Common Shares in a private placement to accredited investors, at a price per
share of approximately $.70, and resulting in aggregate gross proceeds to the
Company of $385,389. The issuance and sale of the Common Shares in this
offering were made in reliance on Rule 506 of Regulation D promulgated under
the Securities Act of 1933, as amended, and Section 4(2) of the Securities
Act.
On December 19, 1997, the Company issued a convertible note in the
original principal amount of $50,000 to an accredited investor. This
convertible note was issued at face value, has a ninety day term, and is
convertible into Common Shares at the holder's option at the lesser of $.6876
per share of 70% of the average bid price of the Common Shares for the five
days preceding the conversion. If the holder elects not to convert the
convertible note, the Company will issue 10,000 shares of Common Shares in
lieu of interest. The issuance and sale of the convertible note was made in
reliance on Section 4(2) of the Securities Act.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
13
<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: January 14, 1998 By:
--------------------------------------
Name: Joseph D. Mooney
Title: Chairman of the Board of Directors
and Chief Executive Officer
By:
--------------------------------------
Name: Philip D. Wolf
Title: Treasurer and Chief Financial
Officer
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1997
<PERIOD-END> NOV-30-1997
<CASH> 29,196
<SECURITIES> 0
<RECEIVABLES> 76,937
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 109,924
<PP&E> 52,084
<DEPRECIATION> 0
<TOTAL-ASSETS> 543,624
<CURRENT-LIABILITIES> 835,712
<BONDS> 0
0
0
<COMMON> 29,666
<OTHER-SE> (321,754)
<TOTAL-LIABILITY-AND-EQUITY> 543,624
<SALES> 188,752
<TOTAL-REVENUES> 188,752
<CGS> 257,406
<TOTAL-COSTS> 257,406
<OTHER-EXPENSES> 965,727
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,576
<INCOME-PRETAX> (1,040,957)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,040,957)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,040,957)
<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
