FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
(Mark One)
X Quarterly report pursuant to section 13 or 15(d) of the Securities
- ----
Exchange Act of 1934
For the quarterly period ended DECEMBER 31, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
- ----
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number: 0-14025
SOFTWARE PUBLISHING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-2707010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
111 N. Market
San Jose, California 95113
(Address of principal executive offices, including zip code)
(408) 537-3000
(Registrant's telephone number, including area code)
____________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
Yes X No
--- ---
As of January 31, 1996 there were 12,563,596 shares of the Registrant's
Common Stock outstanding.
<PAGE>
SOFTWARE PUBLISHING CORPORATION
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
-------
Consolidated Balance Sheets -
December 31, 1995 and September 30, 1995 3
Consolidated Statements of Operations -
Three months ended December 31, 1995 and 1994 4
Consolidated Statements of Cash Flows -
Three months ended December 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Page No.
-------
Item 4. Submission of Matters to a Vote of Stockholders 12
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
<PAGE>
PART I. FINANCIAL INFORMATION
SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's omitted, except share data; unaudited)
<TABLE>
<S> <C> <C>
ASSETS Dec. 31, 1995 Sept. 30, 1995
------------- -----------
Current assets:
Cash & short term investments, including
restricted cash of $4,550 at December 31
and September 30, 1995 $ 23,077 $ 28,431
Accounts receivable, net of allowance for
doubtful accounts and returns and
exchanges of $3,074 and $3,929 6,130 5,887
Inventories 1,066 1,174
Prepaid expenses and other current assets 1,271 1,172
--------- -------
Total current assets 31,544 36,664
Property and equipment, net 987 1,879
Other assets 1,279 1,349
--------- --------
Total assets $ 33,810 $ 39,892
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 5,334 $ 6,439
Income taxes payable 3,094 3,074
Other accrued liabilities 12,133 15,227
--------- -------
Total current liabilities 20,561 24,740
Acquisition related liabilities 1,481 1,449
--------- -------
Total liabilities 22,042 26,189
--------- -------
Stockholders' equity:
Common stock
Authorized: 30,000,000 shares, $0.001 par value
Issued and outstanding: 12,545,687 and
12,528,425 shares, respectively 13 13
Capital in excess of par value 20,025 19,954
Accumulated deficit (8,267) (6,029)
Net unrealized loss on securities (3) (235)
--------- --------
Total stockholders' equity 11,768 13,703
--------- -------
Total liabilities and stockholders' equity $ 33,810 $ 39,892
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except per share data; unaudited)
<TABLE>
Three months ended
Dec. 31, 1995 Dec. 31, 1994
------------- ----------
<S> <C> <C>
Net revenues $ 5,011 $ 12,387
Cost of revenues 1,125 2,267
------- --------
Gross profit 3,886 10,120
------- --------
Operating expenses:
Marketing and sales 3,443 6,214
Research and development 1,498 2,811
General and administrative 1,435 1,035
------- ------
Total operating expenses 6,376 10,060
------- -------
Income (loss) from operations (2,490) 60
Other income and expenses 280 309
-------- -------
Income (loss) before income taxes (2,210) 369
Income tax provision (benefit) 28 --
------- -------
Net income (loss) available to common stockholders $ (2,238) $ 369
======== ========
Net income (loss) per common share $ (0.18) $ 0.03
======== =======
Shares used in computing net income (loss) per share 12,529 12,441
======== =======
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted, unaudited)
</TABLE>
<TABLE>
Three months ended
Dec. 31, 1995 Dec. 31, 1994
-------------- ------------
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) ($ 2,238) $ 369
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 409 680
Provision for bad debts and returns and exchanges (858) (1,534)
Net change in operating assets and liabilities:
Accounts receivable 615 2,236
Other current assets (38) 143
Trade accounts payable and other accrued liabilities (1,789) (3,948)
Income taxes receivable and payable 20 63
Accrued restructuring and lease obligations (2,033) (868)
-------- ------
Net cash used by operating activities (5,912) (2,859)
-------- ------
Cash provided (used) by investing activities:
Disposition (acquisition) of property and equipment 254 (922)
Increase in other non-current assets -- (11)
Decrease (increase) in short term investments (251) 11,287
-------- ------
Net cash provided by investing activities 3 10,354
-------- ------
Cash provided by financing activities:
Issuance of capital stock 70 135
-------- ------
Net cash provided by financing activities 70 135
-------- ------
Net increase (decrease) in cash and cash equivalents (5,839) 7,630
-------- ------
Cash and cash equivalents:
Beginning balance 15,496 18,320
------- ------
Ending balance $ 9,657 $ 25,950
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
SOFTWARE PUBLISHING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring adjustments, which in the
opinion of management are necessary to fairly state the Company's and its
subsidiaries' consolidated financial position, the results of their
operations, and their cash flows for the periods presented. This Quarterly
Report on Form 10-Q should be read in conjunction with the Company's
audited financial statements for the year ended September 30, 1995 included
in the 1995 Annual Report to Stockholders. The consolidated results of
operations for the three month period ended December 31, 1995 are not
necessarily indicative of results to be expected for the entire fiscal year
ending September 30, 1996.
2. Investment Securities
In accordance with the provisions of FAS 115, the Company has classified
its investments in debt and equity securities as "available-for-sale."
Such investments are now recorded at fair value, with unrealized gains and
losses reported as a separate component of shareholders' equity. Interest
income is still recorded using an effective interest rate, with the
associated discount or premium amortized to interest income. The cost of
securities sold is based on the specific identification method.
<TABLE>
Cash and short term investments comprised (in thousands):
<S> <C> <C>
Dec. 31, 1995 Sept. 30, 1995
----------- --------------
Cash and cash equivalents $ 9,657 $ 15,496
Short term investments 13,420 12,935
-------- --------
Total cash and short term investments $ 23,077 $ 28,431
======== ========
</TABLE>
As part of the terms of the purchase agreement for Digital Paper, Inc., the
Company has $4.6 million in escrow as security for future payments to
the former shareholders. Of the total amount, $3.3 million will be paid
out in cash and stock over a two year period beginning in April 1996 and
payment of the remaining $1.3 million is conditional upon the achievement
of certain unit and revenue goals and technical milestones.
3. Inventories are primarily finished goods and are stated at the lower
of first-in, first-out cost or market.
6
<PAGE>
<TABLE>
4. Other accrued liabilities consisted of (in thousands):
<S> <C> <C>
Dec. 31,1995 Sept. 30, 1995
----------- -------------
Current portion of lease obligations $ 2,006 $ 2,831
Rebates and channel marketing programs 1,437 1,907
Accrued compensation and benefits 1,236 1,379
Restructuring accruals 3,077 5,405
Acquisition related payable 1,612 1,579
Other accrued liabilities 2,765 2,126
-------- --------
$ 12,133 $ 15,227
======== ========
</TABLE>
5. Net income per common share has been computed using the weighted
average number of common and common equivalent shares (when dilutive)
outstanding during each period. The difference between primary and fully
diluted net income per common share is not significant.
7
<PAGE>
SOFTWARE PUBLISHING CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains forward-looking statements within the meaning of
Section 27A of Securities Act of 1933 and Section 21E of the Securities Act
of 1934. Actual results could differ materially from those projected in
the forward-looking statements as a result of the risk factors set forth
below and elsewhere in this report.
Results of Operations
North America and international net revenues for the three months ended
December 31, 1995 and 1994 and the three months ended September 30, 1995
and the percentage change of net revenues were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
(dollars in millions)
Three months Percent Three months Percent
ended Dec. 31, Change ended Sept. 30, Change
------------- ------- -------------- -------
1995 1994 1995
---- ---- ----
North America $ 3.3 $ 7.7 (57)% $ 3.3 0%
International 1.7 4.7 (64)% 2.3 (26)%
----- ----- ---- --- ---
Total net revenues $ 5.0 $ 12.4 (60)% $ 5.6 (10)%
===== ====== ==== ===== ====
</TABLE>
Net revenues in the first quarter of fiscal 1996 decreased an aggregate of
10% compared to the prior quarter and significantly declined an aggregate
of 60% compared to the first quarter of fiscal 1995. The 10% decline in
net revenues in the first quarter of fiscal 1996 as compared to the prior
fiscal quarter was due to reduced sales of ASAP offset by increased sales
of Harvard Graphics, version 3.0. The decrease of 60% in net revenues in
the first quarter of fiscal 1996 as compared to the first quarter of fiscal
1995 resulted primarily from steep reductions in revenues for the Harvard
Graphics line of products.
Also contributing to these declines were the continuing effects of intense
competition worldwide, particularly in the Windows market, and a soft
economy in Europe. International net revenues declined 26% in the first
quarter of fiscal 1996 as compared to the fourth quarter of fiscal 1995,
and declined 64% as compared to the first quarter of fiscal 1995.
Net revenues in the first quarter of fiscal 1996 included revenues from
three new products (ASAP, OnFile, and Harvard Montage) and three upgraded
products (Harvard Graphics version 4.0, Harvard ChartXL version 2.0, and
Harvard Spotlight version 2.0), all of which were released in fiscal 1995.
These products accounted for an aggregate of approximately 15% of the net
revenues in the first fiscal quarter of 1996, compared to 59% of net
revenues in the previous quarter. This decrease was principally due to
management of channel inventory levels for ASAP, in anticipation of the
release of next version of the product, which was first introduced in
September 1995.
The Harvard series of presentation graphics products represented 94% of
total net revenues in the first quarter of fiscal 1996, compared with 61%
in the fourth quarter of fiscal 1995 and 92% in the first quarter of fiscal
1995. Net revenues from sales of all products on the Windows platform
accounted for 89% of total net revenues in the first quarter of fiscal 1996
compared to 99% in the fourth quarter of fiscal 1995 and 85% in the first
quarter of fiscal 1995.
8
<PAGE>
Cost of revenues was $1.1 million or 22% of net revenues in the first
quarter of fiscal 1996 as compared to $1.7 million or 30% of net revenues
in the fourth quarter of fiscal 1995, and $2.3 million or 18% of net
revenues in the first quarter of fiscal 1995. Cost of revenues in the
first quarter of fiscal 1996 in absolute dollars decreased as compared to
the fourth quarter of fiscal 1995 primarily because of decreases in
inventory write downs, reduced royalty expenses and lower manufacturing
overhead expenses due to reductions in compensation costs. As compared to
the first quarter of fiscal 1995, cost of revenues in the first quarter of
fiscal 1996 decreased in absolute dollars primarily because of reduced
direct material costs due to decreased sales volumes, but increased as a
percentage of sales due to relatively smaller declines in indirect overhead
and other costs of sales. The Company has experienced a positive impact of
lower overhead and employee-related costs resulting from the reorganization
and reduction in work force, but these savings have been more than offset
by the unfavorable impact of reduced revenues.
The Company's gross margins and operating income may be affected in
particular periods by the timing of product introductions and other
promotional pricing and rebate offers, as well as return privileges and
marketing promotions in connection with new product introductions and
upgrades. These promotions may reduce average selling prices and gross
margins. Gross margins have been, and will continue to be, adversely
affected by competitive pricing pressure throughout the industry as a
whole, including competitive upgrade pricing and alternative licensing
arrangements.
The Company believes that its revenues and results of operations for the
current quarter have been and will continue to be adversely affected by
increased price competition, offerings of product suites by competitors,
and slower than expected sales of Windows 95-related products. A
substantial portion of the Company's revenues in each quarter generally
results from shipments during the last month of that quarter, and
principally for that reason, the Company's revenues are subject to
significant quarterly fluctuations. In addition, the Company establishes
its targeted expenditure levels based on expected revenues. If anticipated
orders and shipments in any quarter do not occur when expected, expenditure
levels could be disproportionately high and the Company's operating results
for that quarter could be adversely affected. In addition, the Company's
operating results could be materially and adversely affected by other
factors such as delays in new product introductions, the mix of product
sales or distribution channel sales, and customer choices regarding
operating systems.
The Company expects increased competition, including price competition, in
the future. Some of the Company's competitors have introduced suites of
products which include products that directly compete with the Company's
products and are sold at an all-inclusive price. The Company believes
these offerings of product suites have adversely affected the Company's net
revenues, and will continue to adversely affect the sales of the Company's
products in the future. The Company does not currently offer a suite of
products, but offers products that complement competitive suite products.
In order for the Company to increase its revenues, it must introduce new
marketing strategies and continue to develop and introduce new technologies
and products through strategic alliances, acquisitions or internal
development. Any delay in these planned strategies, difficulties
encountered in introducing new products or marketing programs, or failure
of the Company's products to compete successfully with products offered by
other vendors could materially and adversely affect net revenues and
profitability.
The Company believes that the growth of its Intelligent Formatting product
9
<PAGE>
portfolio, which was acquired as a result of the acquisition of Digital
Paper, Inc., is a key component of its strategy. In January 1996, the
Company introduced ASAP WebShow, which enables Netscape Navigator 2.0 users
to view, download and print graphically rich reports and presentations from
the World Wide Web. The introduction of ASAP WebShow was a first step for
the Company in moving beyond its traditional presentation graphics products
by offering a line of products that enable a user to communicate
graphically on the Internet. The Company expects to introduce other new
products based on the Intelligent Formatting technology during fiscal 1996.
There can be no assurance that the Company will succeed in its efforts to
introduce these new products, and once introduced, that they will be
accepted in the market place.
Total operating expenses, excluding non-recurring charges, were lower in
absolute dollars in the first quarter of fiscal 1996 compared to the both
the fourth quarter of fiscal 1995, and to the first fiscal quarter of 1995.
Operating expenses in the first quarter of fiscal 1995 included a reversal
of a $0.9 million charge from the resolution of an operational legal
dispute. Operating expenses in the fourth quarter of fiscal 1995 included
a $5.9 million charge for restructuring. Operating expenses decreased in
the first quarter of fiscal 1996 by $3.5 million or 36% as compared to the
fourth quarter of fiscal 1995, and by $4.6 million or 42% as compared to
the first quarter of fiscal 1995. These decreases are principally
attributable to reductions in facilities related expenses, as well as
overall improved operating expense management after the restructuring.
Although there can be no assurance that it will succeed in its reduction
efforts, the Company expects to continue to reduce its overall cost
structure beginning in the second fiscal quarter of 1996 as a result of its
facilities relocation and the completion of restructuring.
Marketing and sales expenses were $3.4 million or 69% of net revenues in
the first fiscal quarter of 1996 as compared to $5.0 million or 89% of net
revenues in the fourth quarter of fiscal 1995 and $6.2 million or 50% of
net revenues in the first quarter of fiscal 1995. The decrease in absolute
dollars in the first quarter of fiscal 1996 was the result of reduced
employee related expenses because of the restructuring and related
reduction in work force, which included the closure of several sales
offices.
Research and development expenses were $1.5 million or 30% of net revenues
in the first quarter of fiscal 1996 as compared to $3.5 million or 63% of
net revenues in the fourth fiscal quarter of 1995 and $2.8 million or 23%
of net revenues in the first quarter of fiscal 1995. The decrease in
absolute dollars in the first quarter of fiscal 1996 was principally the
result of reduced employee and facilities related expenses resulting from
the restructuring and reduction in work force. The Company believes that
it is necessary to continue to invest in research and development to remain
competitive. However, as a result of the restructuring actions taken by
the Company in the fourth quarter of fiscal 1995, research and development
expenses are expected to be lower in absolute dollars in fiscal 1996 than
in fiscal 1995. In future periods, the Company intends to continue to
acquire externally developed technology, explore strategic alliances and
other methods of acquiring technology, and continue to invest in internal
development projects. Because of the inherent uncertainties associated
with software development projects, there can be no assurance that the
Company's research and development efforts will result in successful
product introductions or increased revenues.
General and administrative expenses were $1.4 million or 29% of net
revenues in the first quarter of fiscal 1996 as compared to $1.4 million or
26% of net revenues in the fourth quarter of fiscal 1995 and $1.0 million
or 8% of net revenues in the first quarter of fiscal 1995. General and
10
<PAGE>
administrative expenses were flat in the first quarter of fiscal 1996
compared to the previous quarter and decreased $0.5 million in absolute
dollars compared to the first quarter of fiscal 1995 after the exclusion of
the reversal of certain legal fee accruals of $0.9 million resulting from
the resolution of an operational legal dispute.
Other income and expense in the first quarter of fiscal 1996 was $0.3
million as compared to $0.4 million in the fourth quarter of fiscal 1995
and $0.3 million in the first quarter of fiscal 1995. Other income and
expenses were relatively flat quarter to quarter as the effect of lower
interest income, decreased investment funds, offset by lower currency
exchange losses.
Liquidity and Capital Resources
For the first three months of fiscal 1996, cash and short term investments
decreased $5.4 million to $23.1 million. This decrease resulted primarily
from cash used by operating activities of $5.9 million, offset in part by
cash provided by the sale of property and equipment, and the issuance of
common stock. For the three month period ended December 31, 1995, working
capital decreased $1.0 million from $11.9 million to $10.9 million. This
decrease in working capital resulted primarily from a decrease in cash and
short term investments of $5.4 million partially offset by a decrease in
current liabilities of $4.2 million. Management believes the existing cash
and short term investments, cash generated from operations and the
Company's potential borrowing ability will be sufficient to meet its
currently anticipated liquidity and capital expenditure requirements.
The Company's principal future capital commitments consist primarily of
payment obligations related to the purchase Digital Paper, Inc. and real
estate lease commitments. (See Note 2)
In fiscal 1995, the Company invoiced approximately 27% of its total sales
in foreign currencies, and expects this practice to continue at
approximately the same rate in fiscal 1996. The Company's exposure for
foreign currency exchange gains and losses is partially mitigated as the
Company incurs operating expenses in most of the currencies in which it
invoices customers. The Company has hedged certain specific contractual
obligations denominated in foreign currency and on December 31, 1995, had
foreign exchange contracts outstanding to sell the equivalent of $600,000
in Japanese currency. The Company's foreign exchange gains and losses will
fluctuate from period to period depending on the movement in exchange
rates.
11
<PAGE>
SOFTWARE PUBLISHING CORPORATION
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders
The Company's Annual Meeting of Stockholders was held on January 23, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A. At the
meeting, the following proposals were adopted by the margins indicated:
(a) Election of the Board of Directors to hold office until the
next annual meeting of stockholders or until their successors are elected
and qualified.
<TABLE>
Number of shares
For Withheld
-------- --------
<S> <C> <C>
Fred M. Gibbons 11,076,038 474,025
Irfan Salim 11,075,926 474,137
Mark A. Bertelsen 11,074,637 475,426
Miriam K. Frazer 11,066,409 483,654
Michael M. Gilbert 11,081,166 468,897
Bernee Strom 11,077,889 472,177
</TABLE>
(b) Ratification of the appointment of KPMG Peat Marwick, LLP as
independent accountants for the fiscal year ended September 30, 1996.
For 11,446,252
Against 63,416
Abstain 40,395
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
12
<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.
Date: February 14, 1996 SOFTWARE PUBLISHING CORPORATION
(Registrant)
/s/ MIRIAM K. FRAZER
----------------------
Miriam K. Frazer,
Vice President Finance,
Chief Financial Officer
(Principal Financial and
Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
IN THOUSANDS (EXCEPT EPS)
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 9657
<SECURITIES> 13420
<RECEIVABLES> 9204
<ALLOWANCES> 3074
<INVENTORY> 1066
<CURRENT-ASSETS> 31544
<PP&E> 987
<DEPRECIATION> 0
<TOTAL-ASSETS> 33810
<CURRENT-LIABILITIES> 20561
<BONDS> 0
<COMMON> 13
0
0
<OTHER-SE> 11755
<TOTAL-LIABILITY-AND-EQUITY> 33810
<SALES> 5011
<TOTAL-REVENUES> 5011
<CGS> 1125
<TOTAL-COSTS> 1125
<OTHER-EXPENSES> 1498
<LOSS-PROVISION> 350
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2210)
<INCOME-TAX> (28)
<INCOME-CONTINUING> (2238)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2238)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
