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 MARCH 31, 1996.
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 March 31, 1996 there were 12,553,596 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 -
March 31, 1996 and September 30, 1995 3
Consolidated Statements of Operations -
Three and six months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows -
Six months ended March 31, 1996 and 1995 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.
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Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
2
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PART I. FINANCIAL INFORMATION
SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED BALANCE SHEETS
(000's omitted, except share data; unaudited)
<TABLE>
<S> <C> <C>
ASSETS Mar. 31, 1996 Sept. 30, 1995
------------- --------------
Current assets:
Cash & short term investments, including
restricted cash of $4,300 at March 31,
1996 and $4,550 at September 30, 1995 $ 19,111 $ 28,431
Accounts receivable, net of allowance for
doubtful accounts and returns and
exchanges of $2,966 and $3,929, respectively 6,400 5,887
Inventories 1,093 1,174
Prepaid expenses and other current assets 1,140 1,172
--------- -------
Total current assets 27,744 36,664
Property and equipment, net 1,332 1,879
Other assets 1,011 1,349
--------- --------
Total assets $ 30,087 $ 39,892
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 4,790 $ 6,439
Income taxes payable 3,055 3,074
Other accrued liabilities 10,026 15,227
--------- -------
Total current liabilities 17,871 24,740
Acquisition related liabilities 1,514 1,449
--------- -------
Total liabilities 19,385 26,189
--------- -------
Stockholders' equity:
Common stock
Authorized: 30,000,000 shares, $0.001 par value
Issued and outstanding: 12,553,596 and
12,528,425 shares, respectively 13 13
Capital in excess of par value 20,025 19,954
Accumulated deficit (9,311) (6,029)
Net unrealized loss on securities (25) (235)
--------- --------
Total stockholders' equity 10,702 13,703
--------- -------
Total liabilities and stockholders' equity $ 30,087 $ 39,892
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statement
3
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SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's omitted, except per share data; unaudited)
<TABLE>
Three months ended Six months ended
<S> <C> <C> <C> <C>
Mar. 31, 1996 Mar. 31, 1995 Mar. 31, 1996 Mar. 31, 1995
------------ ------------ ------------- -------------
Net revenues $ 4,712 $ 9,019 $ 9,723 $ 21,406
Cost of revenues 916 2,174 2,041 4,441
-------- ------- -------- --------
Gross profit 3,796 6,845 7,682 16,965
-------- -------- -------- --------
Operating expenses:
Marketing and sales 3,276 5,241 6,719 11,455
Research and development 1,483 2,843 2,981 5,654
General and administrative 908 1,604 2,343 2,639
Restructuring & lease
obligation (650) - (650) -
In-process research &
development - 4,756 - 4,756
-------- -------- -------- --------
Total operating expenses 5,017 14,444 11,393 24,504
-------- -------- -------- --------
Loss from operations (1,221) (7,599) (3,711) (7,539)
Other income and expenses 177 900 457 1,209
-------- -------- -------- ---------
Loss before income taxes (1,044) (6,699) (3,254) (6,330)
Income tax
provision (benefit) - (1,755) 28 (1,755)
-------- -------- -------- --------
Net loss $ (1,044) $ (4,944) $ (3,282) $ (4,575)
======== ======== ======== ========
Net loss per
common share $ (0.08) $ (0.40) $ (0.26) $ (0.37)
======== ======== ======== ========
Shares used in computing
net loss per share 12,554 12,479 12,541 12,460
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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SOFTWARE PUBLISHING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted, unaudited)
<TABLE>
Six months ended
<S> <C> <C>
Mar. 31, 1996 Mar. 31, 1995
-------------- -------------
Cash flow from operating activities:
Net loss ($ 3,282) ($ 4,575)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 591 1,379
Provision for bad debts and returns and exchanges (893) (3,080)
Provision for restructuring reserve (650) -
In-process research and development - 4,756
Net change in operating assets and liabilities:
Accounts receivable 379 2,174
Other current assets 113 (349)
Trade accounts payable and other accrued liabilities (2,420) (1,759)
Income taxes receivable and payable (20) 1,019
Accrued restructuring and lease obligations (3,305) (1,322)
-------- --------
Net cash used by operating activities (9,487) (1,757)
-------- --------
Cash provided (used) by investing activities:
Disposition (acquisition) of property and equipment (416) (1,164)
Increase in other non-current assets 303 (284)
Decrease (increase) in short term investments 3,138 15,617
-------- --------
Net cash provided by investing activities 3,025 14,169
-------- --------
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 (6,392) 12,547
--------- --------
Cash and cash equivalents:
Beginning balance 15,496 18,320
-------- --------
Ending balance $ 9,104 $ 30,867
======== ========
Supplemental disclosure:
Income tax paid during the period, net of refunds $ 0 $ (2,799)
======== ========
The accompanying notes are an integral part of these financial statements
</TABLE>
5
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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 six
month period ended March 31, 1996 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.
Cash and short term investments comprised (in thousands):
<TABLE>
<S> <C> <C>
Mar. 31, 1996 Sept. 30, 1995
----------- --------------
Cash and cash equivalents $ 9,104 $ 15,496
Short term investments 10,007 12,935
-------- --------
Total cash and short term investments $ 19,111 $ 28,431
======== ========
</TABLE>
As part of the terms of the purchase agreement for Digital Paper, Inc., the
Company has $4.3 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 $1.0 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
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<TABLE>
4. Other accrued liabilities consisted of (in thousands):
<S> <C> <C>
Mar. 31, 1996 Sept. 30, 1995
----------- -------------
Current portion of lease obligations $ 1,189 $ 2,831
Rebates and channel marketing programs 1,284 1,907
Accrued compensation and benefits 1,430 1,379
Restructuring accruals 2,426 5,405
Acquisition related payable 1,650 1,579
Other accrued liabilities 2,047 2,126
-------- --------
$ 10,026 $ 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
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SOFTWARE PUBLISHING CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In addition to historical information contained herein, this Management's
Discussion and Analysis of Financial Condition and Results of Operations
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Act of 1934. The
forward-looking statements contained herein are subject to certain factors that
could cause actual results to differ materially from those reflected in the
forward-looking statements. Such factors include, but are not limited to,
those discussed below and elsewhere in this Report on Form 10-Q.
Results of Operations
North America and international net revenues for the three months and six
months ended March 31, 1996 and 1995 and the related changes in percentages of
net revenues were as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
(dollars in millions)
Three months Percent Six months Percent
ended Mar. 31, Change ended Mar. 31, Change
------------- ------- ------------- -------
1996 1995 1996 1995
---- ---- ---- ----
North America $ 3.3 $ 5.9 (44)% $ 6.6 $ 13.6 (51)%
International 1.4 3.1 (55)% 3.1 7.8 (60)%
----- ----- ---- --- ----- ---
Total net revenues $ 4.7 $ 9.0 (48)% $ 9.7 $ 21.4 (55)%
===== ====== ==== ===== ====== ====
</TABLE>
Net revenues in the second quarter of fiscal 1996 decreased an aggregate of
48% compared to the second quarter of fiscal 1995 and net revenues for the six
months ended March 31, 1996 declined an aggregate of 55% compared to the same
period of fiscal 1995. The 48% decline in net revenues in the second quarter
of fiscal 1996 as compared to the same quarter of fiscal 1995 was due to
significantly decreased sales of Harvard Graphics, version 3.0 and Harvard
Graphics DOS, partially offset by sales of ASAP, which was first released in
the fourth quarter of fiscal 1995. The decrease of 55% in net revenues for the
first six months of fiscal 1996 as compared to the same period of fiscal 1995
resulted primarily from steep reductions in revenues for Harvard Graphics,
version 3.0, and DOS products, partially offset by sales of ASAP and Harvard
Graphics, version 4.0, which products were first released in the fourth quarter
of fiscal 1995.
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 55% in the second quarter of
fiscal 1996 as compared to the second quarter of fiscal 1995.
Net revenues in the three and six month periods ended March 31, 1996 included
revenues from these stand alone 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. Net revenues from these products accounted for an aggregate of
approximately 39% of the net revenues in the second fiscal quarter of 1996,
compared to 15% of net revenues in the first quarter of fiscal 1996. This
percentage increase was due primarily to increased sales of ASAP.
8
<PAGE>
The Harvard series of presentation graphics products represented 65% and 79% of
total net revenues in the three and six month periods ended March 31 1996,
respectively, compared with 89% and 95% in the same three and six month periods
of fiscal 1995. Net revenues from sales of all products on the Windows
platform accounted for 84% and 87% of total net revenues in the three and six
months ended March 31, 1996, respectively, compared to 80% and 84% in the same
periods of fiscal 1995. Net revenues from the ASAP product line represented
22% and 7% of total net revenues in the three and six month periods ended March
31, 1996, respectively.
Cost of revenues was 19% and 21% of net revenues in the three and six month
periods ended March 31, 1996 compared to 22% and 21% of net revenues in the
same periods of fiscal 1995. Cost of revenues in the three month period ended
March 31, 1996 decreased as a percentage of revenues compared to the same
period of fiscal 1995, primarily because of lower direct material costs
resulting from changes in product mix. Overhead costs have remained relatively
constant as a percentage of revenues over these same periods but have decreased
in absolute dollars due to reduced compensation costs from prior restructuring
activities. The Company continues to experience a positive impact of lower
overhead and employee-related costs resulting from reorganizations and
reductions 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 has experienced this
competitive pricing pressure in respect to all of it current product offerings.
The Company believes that its net revenues and results of operations 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 net
revenues in each quarter results from shipments during the last month of that
quarter, and for that reason among others, 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 all-inclusive prices. 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 net 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
9
<PAGE>
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 development and introduction of its Intelligent
Formatting product portfolio, which was acquired as a result of the acquisition
of Digital Paper, Inc., is a key component of the Company's turnaround
strategy. In February 1996, the Company introduced ASAP WordPowerTM, version
1.95, which enables users to create traditional presentations and reports as
well as complex slides at the click of the mouse. ASAP WordPower is a 32-bit
application that utilizes the power of and performance of Windows 95 and
Windows NT platforms. 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 in a timely manner, or
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 second quarter and first six months of fiscal 1996
compared to the same periods of fiscal 1995. Operating expenses in the second
quarter of fiscal 1996 included a reversal of a $0.7 million restructuring
charge related to lease obligations. Operating expenses in the second quarter
of fiscal 1995 included a $4.8 million charge for in-process research and
development related to the purchase of Digital Paper, Inc., and in addition,
for the six month period ended March 31, 1995, operating expenses included the
reversal of a prior period charge of $0.9 million related to the reversal of
certain legal accruals in fiscal 1995. Excluding the above mentioned non-
recurring charges, operating expenses decreased in the second quarter of fiscal
1996 by approximately $4.0 million, or 42%, as compared to the second quarter
of fiscal 1995, and decreased by $8.6 million, or 42%, in the six month period
ended March 31, 1996 as compared to the corresponding period in 1995. These
decreases are principally attributable to reductions in facilities and employee
related expenses, as well as overall improved operating expense management
after the restructuring which began in fiscal 1995.
Marketing and sales expenses were $3.3 million, or 70%, of net revenues in the
second quarter of fiscal 1996, as compared to $5.2 million, or 58%, of net
revenues in the second quarter of fiscal 1995, and $6.7 million, or 69%, of net
revenues in the first six months of fiscal 1996, as compared to $11.5 million,
or 54% of net revenues, for the first six months of fiscal 1995. The decrease
in absolute dollars in the second 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 32%, of net revenues in
the second quarter of fiscal 1996, as compared to $2.8 million, or 32%, of net
revenues, in the second quarter of fiscal 1995 and $3.0 million, or 31%, of net
revenues in the first six months of fiscal 1996 as compared to $5.7 million, or
26% of net revenues, in the corresponding period of fiscal 1995. The decreases
in absolute dollars in the second quarter as well as the first six months of
fiscal 1996, compared to the corresponding periods of fiscal 1995, were
principally the result of reduced employee and facilities related expenses
resulting from the restructuring and reduction in work force. The Company
10
<PAGE>
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 evaluate externally
developed technology for possible acquisition, 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 $0.9 million, or 19% of net revenues,
in the second quarter of fiscal 1996 as compared to $1.6 million, or 18% of net
revenues, in the second quarter of fiscal 1995. With the exclusion of a non-
recurring reversal charge of $0.9 million for certain legal accruals in fiscal
1995, expenses were $2.3 million, or 24% of net revenues, in the first six
months of fiscal 1996 as compared to $3.5 million, or 17% of net revenues, for
the same period in fiscal 1995. The decrease in absolute dollars in the second
quarter as well as the first six months of fiscal 1996, compared to the same
periods of fiscal 1995, was principally the result of reduced employee and
facilities related expenses resulting from restructuring and reduction in work
force and the Company's move to new facilities in San Jose, California.
Other income and expense in the second quarter of fiscal 1996 was $0.2 million
as compared to $0.9 million in the second quarter of fiscal 1995 and $0.5
million in the first six months of fiscal 1996 as compared to $1.2 million in
the first six months of fiscal 1995. The decline in absolute dollars of other
income and expenses for both the three and six months periods ended March 31,
1996 was due primarily to reduced interest income due to decreased investment
funds.
Liquidity and Capital Resources
For the second quarter of fiscal 1996, cash and short term investments
decreased $4.0 million to $19.1 million. This decrease resulted primarily from
cash used by operating activities of $3.5 million and $0.4 million for the
purchase of property and equipment. For the three month period ended March 31,
1996, working capital decreased $1.0 million from $10.9 million to $9.9
million. This decrease in working capital resulted primarily from a decrease
in cash and short term investments of $4.0 million offset by a decreases in
accounts payable of $0.5 million and other accrued liabilities of $2.1 million.
Management believes that its 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, providing that the Company can attain its revenue and cash
collection goals.
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 of Notes to Consolidated Financial Statements)
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 March 31, 1996, had foreign exchange contracts outstanding to
sell the equivalent of $550,000 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 6. Exhibits & Reports on Form 8-K
(a) Exhibits.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal quarter
ended March 31, 1996.
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: May 15, 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> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 9104
<SECURITIES> 10007
<RECEIVABLES> 9366
<ALLOWANCES> 2966
<INVENTORY> 1140
<CURRENT-ASSETS> 27744
<PP&E> 1332
<DEPRECIATION> 0
<TOTAL-ASSETS> 30087
<CURRENT-LIABILITIES> 20561
<BONDS> 0
<COMMON> 13
0
0
<OTHER-SE> 10689
<TOTAL-LIABILITY-AND-EQUITY> 30087
<SALES> 4712
<TOTAL-REVENUES> 4712
<CGS> 916
<TOTAL-COSTS> 916
<OTHER-EXPENSES> 1483
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1044)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1104)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
