SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
Commission File Number 0-15454
TANGRAM ENTERPRISE SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2214726
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5511 Capital Center Drive, Suite 400
Raleigh, NC 27606
(Address of principal executive offices)
(919) 851-6000
(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 No
Number of shares outstanding as of August 9, 1995
Common Stock 14,525,442
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TANGRAM ENTERPRISE SOLUTIONS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Balance Sheets - June 30, 1995 and December 31, 1994 3
Statements of Operations - Three and Six Months Ended
June 30, 1995 and 1994 4
Statements of Cash Flows - Six Months Ended
June 30, 1995 and 1994 5
Notes to the Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to Vote of Security Holders 9
Item 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
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<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<CAPTION>
June 30, December 31,
1995 1994
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 137 $ 614
Accounts rec, net of allowance
of $249 in 1995 and $262 in 1994 3,433 3,350
Other current assets 538 212
Deferred tax assets, net 884 884
-------- --------
Total current assets 4,992 5,060
Equip, furn and fixtures, net of accumulated
dep of $4,758 in 1995 and $4,563 in 1994 424 500
Deferred software costs, net 2,557 2,370
Costs in excess of net assets of business
acquired net 6,282 6,661
Other assets 849 457
-------- --------
Total assets $ 15,104 $ 15,048
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to shareholder $ 606 $ 606
Note payable - current portion 888 972
Accounts payable 1,053 491
Accrued expenses 440 460
Deferred revenue 1,976 2,448
Other current liabilities 91 108
-------- --------
Total current liabilities 5,054 5,085
Note payable 500 500
Capital lease obligations 50 95
Shareholders' Equity:
Common stock, par value $.01, authorized
48,000,000 shares, issued and outstanding
14,470,794 in 1995 and 14,332,217 in 1994 45 143
Additional paid-in capital 44,257 44,214
Accumulated deficit (34,902) (34,989)
--------- ---------
Total shareholders' equity 9,500 9,368
--------- ---------
Total liabilities and shareholders' equity $ 15,104 $ 15,048
======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues: $ 3,426 $ 3,160 $ 6,415 $ 6,201
Costs and expenses:
Costs of software 171 238 348 435
Selling and marketing 1,874 1,413 3,360 2,681
Development 683 685 1,316 1,395
General and admin 604 708 1,238 1,349
Other expenses 41 _ 66 5
-------- -------- -------- --------
Total costs and exp 3,373 3,044 6,328 5,865
-------- -------- -------- --------
Net income $ 53 $ 116 $ 87 $ 336
======== ======== ======== ========
Inc per common share $ _ $ _ $ _ $ .01
======== ======== ======== ========
Weighted average number
of common shares
outstanding 15,539 24,619 15,284 24,565
======== ======== ======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Six Months
Ended June 30,
1995 1994
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 87 $ 336
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,184 1,216
Cash provided (used) by changes in
working capital items:
Accounts receivable (83) 118
Other current assets (326) 101
Other assets (392) (34)
Accounts payable 562 215
Accrued expenses and other
current liabilities (37) (172)
Deferred revenue (472) (72)
------ ------
Net cash provided by operating activities 523 1,708
------ ------
Cash flows from investing activities:
Deferred software costs (797) (733)
Expenditures for equip, furn and fixtures (119) (26)
------ ------
Net cash used in investing activities (916) (759)
------ ------
Cash flows from financing activities:
Net repayments on notes payable (84) _
Redemption of Series E Preferred stock _ (1,038)
Repayment of capital lease obligations (45) (41)
Proceeds from exercise of emp stock options 45 77
------ ------
Net cash used in financing activities (84) (1,002)
------ ------
Net increase (decrease) in cash (477) (53)
Cash, beginning of year 614 752
------ ------
Cash, end of year $ 137 $ 699
======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
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TANGRAM ENTERPRISE SOLUTIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS
Note 1. Basis of presentation
The accompanying unaudited interim financial statements were
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The Summary of
Accounting Policies and Notes to Financial Statements included in the
1994 Form 10-K should be read in conjunction with the accompanying
statements. These statements include all adjustments (consisting only
of normal recurring accruals) which the Company believes are necessary
for a fair presentation of the statements. The interim operating
results are not necessarily indicative of the results for a full year.
Note 2. Long term debt
Long term debt includes a $1,000,000 note due July 1996 issued in
connection with the Knozall acquisition. The holder had the option to
call for payment of $500,000 in July 1995. The holder has elected to
receive the entire $1,000,000 in July 1996.
Note 3. Related party transactions
In January 1995, the Company made non-recourse, non-interest
bearing loans to certain officers of the Company totaling $392,000,
which are payable on the fifth anniversary or at termination of
employment. Total loans outstanding to officers at June 30, 1995, are
$784,000.
In December 1994, the Company issued a promissory note for
$606,100 to Safeguard Scientifics, Inc. (Safeguard),which owns 72% of
the Company, as part of the Preferred Stock Purchase Agreement for
redemption of the Series D Preferred Stock held by Safeguard. The
first payment on the note was made July 13, 1995, in the amount of
$303,050.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Revenues
Total revenues for the quarter ended June 30, 1995, increased 8%
compared with the same period in 1994. The increase reflects the
continuing growth of renewal and maintenance revenues and the
introduction of LAN product sales from the August 1994 Knozall
acquisition. The increase was partially offset by the continuing
decline in gateway product revenues of 45%.
Selling and Marketing
Selling and marketing expenses for 1995 increased 33% over the
same period in 1994. The increase reflects the marketing campaign begun
in the first quarter of 1995 to promote the new Unix, LAN and MVS
versions of AM:PM (registered trademark) and the Company's new
Consulting Services Group which assists customers in the implementation
of AM:PM. In addition, staff was increased to support the expected
increase in implementation services. This campaign continues through
the fourth quarter and is expected to enhance the future success and
profitability of the Company.
Partially offsetting the increase above, the Company is focusing
on reducing the selling and marketing expenses for the LAN division.
The reduction should bring the division's expenses into line with the
lower than anticipated revenues presently being generated.
Development Expenses
<TABLE>
The Company's development activities continue to focus on enhancing
existing technologies in its distributed resource management product
line with elimination of development expenses on non-strategic products.
Development activity is summarized in the table below:
<CAPTION>
Six Months Ended
June 30,
1995 1994
(in thousands)
<S> <C> <C>
Development expenditures $ 1,503 $ 1,588
Capitalized development costs (797) (733)
Amortization 610 540
-------- -------
Development Expenses $ 1,316 $ 1,395
</TABLE>
<PAGE>
General and Administrative
General and administrative expenses decreased from 22% of sales
in the first quarter 1994 to 21% of sales in the first quarter 1995
to 19% of sales in the second quarter of 1995. The decline reflects
the lower required investment in infrastructure as sales levels have
increased.
Income Taxes
At December 31, 1994 and 1993, the Company had net operating loss
carryforwards of approximately $25.4 and $29 million, respectively.
Therefore, no provision for income tax expense was required in either
of the quarterly periods, and the provision for income taxes for 1995
is expected to be minimal.
LIQUIDITY AND CAPITAL RESOURCES
Cash generated from operations has been adequate to fund the
Company's development and finance activities. The Company believes
that its existing cash resources together with cash provided by
operations will be adequate to meet its cash requirements in the
foreseeable future. Should the business grow more rapidly than
anticipated, or if funds are required for technology purchases or
acquisitions, the Company believes these funds will be available using
debt, equity or other sources.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
<TABLE>
The Company held its Annual Meeting of Stockholders on May 25, 1995.
At the meeting, the shareholders voted in favor of electing as directors
the six nominees named in the Proxy Statement dated April 17, 1995.
The number of votes cast for, against or withheld were as follows:
I. Election of Directors:
<CAPTION>
For Withheld
<S> <C> <C>
W. Christopher Jesse 13,416,258 10,063
Steven F. Kuekes 13,416,224 10,097
Donald R. Lundell 13,416,049 10,272
John F. Owens 13,416,113 10,208
Charles A. Root 13,416,012 10,309
Carl G. Sempier 13,414,525 11,796
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during
the quarter ended June 30, 1995
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Tangram Enterprise Solutions, Inc.
(Registrant)
Date August 10, 1995 /s/ W. C. Jesse
W. C. Jesse
President and Chief Executive Officer
Date August 10, 1995 /s/ Nancy M. Dunn
Nancy M. Dunn
Vice President of Finance and
Chief Financial Officer