SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 September 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 (IRS 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 X No
Number of shares outstanding as of November 10, 1995
Common Stock 14,527,876
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TANGRAM ENTERPRISE SOLUTIONS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Balance Sheets - September 30, 1995 (unaudited)
and December 31,1994 3
Statements of Operations - Three and Nine Months Ended
September 30, 1995 and 1994 (unaudited) 4
Statements of Cash Flows - Nine Months Ended
September 30, 1995 and 1994 (unaudited) 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 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>
September 30, December 31,
1995 1994
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 117 $ 614
Accounts rec, net of allowance of
$256 in 1995 and $262 in 1994 3,174 3,350
Other current assets 381 212
Deferred tax assets, net 884 884
-------- --------
Total current assets 4,556 5,060
Equip, furn and fixtures, net of accumulated
dep of $4,863 in 1995 and $4,563 in 1994 344 500
Deferred software costs, net 2,580 2,370
Costs in excess of net assets of business
acquired, net 6,092 6,661
Other assets 849 457
-------- --------
Total assets $ 14,421 $ 15,048
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to shareholder $ 303 $ 606
Note payable - current portion 1,347 972
Accounts payable 714 491
Accrued expenses 493 460
Deferred revenue 1,921 2,448
Other current liabilities 91 108
-------- --------
Total current liabilities 4,869 5,085
Note payable _ 500
Capital lease obligations 13 95
Shareholders' Equity:
Common stock, par value $.01,authorized
48,000,000 shares, issued and outstanding
14,526,626 in 1995 and 14,332,217 in 1994 145 143
Additional paid-in capital 44,273 44,214
Accumulated deficit (34,879) (34,989)
-------- --------
Total shareholders' equity 9,539 9,368
-------- --------
Total liabilities and shareholders' equity $ 14,421 $ 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 Nine Months
Ended September 30, Ended September 30,
1995 1994 1995 1994
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 3,495 $ 3,418 $ 9,910 $ 9,619
Costs and expenses:
Costs of software 129 323 477 758
Selling and marketing 1,896 1,550 5,256 4,231
Development 773 1,014 2,089 2,409
General and admin 667 845 1,905 2,194
Purchased R & D _ 1,253 _ 1,253
Other expenses 7 (404) 73 (399)
------- ------- ------- -------
Total costs and exp 3,472 4,581 9,800 10,446
------- ------- ------- -------
Net income $ 23 $ (1,163) $ 110 $ (827)
======= ======= ======= =======
Inc per common share $ _ $ (.08) $ _ $ (.06)
======= ======= ======= =======
Weighted average number
of common shares
outstanding 16,093 14,237 15,475 14,237
======= ====== ======= =======
<FN>
See accompanying notes to financial statements.
</TABLE>
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<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Nine Months
Ended September 30,
1995 1994
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income $ 110 $ (827)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,709 1,957
Purchased research and development - 1,253
Cash provided (used) by changes in
working capital items:
Accounts receivable 176 165
Other current assets (169) 198
Other assets (392) (428)
Accounts payable 223 (69)
Accrued expenses and other
current liabilities 16 2
Deferred revenue (527) 8
-------- --------
Net cash provided by operating activities 1,146 2,259
-------- --------
Cash flows from investing activities:
Deferred software costs (1,045) (990)
Acquisition of Knozall Systems _ (500)
Expenditures for equip,furn and fixtures (149) (58)
-------- --------
Net cash used in investing activities (1,194) (1,548)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) on
notes payable (428) 570
Redemption of Series E Preferred
stock _ (1,213)
Repayment of capital lease obligations (82) (61)
Proceeds from exercise of emp stock
options 61 77
-------- --------
Net cash used in financing activities (449) (627)
-------- --------
Net increase (decrease) in cash (497) 84
Cash, beginning of year 614 752
-------- --------
Cash, end of year $ 117 $ 836
======== ========
<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. Notes Payable
Notes payable 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 September 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. The final payment is due
December 15, 1995.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
RESULTS OF OPERATIONS
Revenues
Total revenues for the three and nine months ended September 30, 1995,
increased slightly compared with the same periods in 1994. Revenues from
the Consulting Services Group and AM:PM (registered trademark) product line
including maintenance continue to increase offsetting the continuing decrease
in the Open Advantage (registered trademark) line. Arbiter (registered
trademark) revenues remained flat for the quarter. LAN revenue for the three
months increased slightly.
Selling and Marketing
Selling and marketing expenses for the three months and nine months
ended September 30, 1995, increased 22% and 24% over the same periods 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 and
the Company's new Consulting Services Group which assists customers in the
implementation of AM:PM. This increased spending, which continues through
the fourth quarter, is being incurred to enhance the future revenue growth
of the Company.
Development Expenses
<TABLE>
The Company's development activities continue to focus on enhancing
existing technologies in its enterprise network software product line with
elimination of development expenses on non-strategic products. Development
activity is summarized in the table below:
<CAPTION>
Nine Months Ended
September 30,
1995 1994
(in thousands)
<S> <C> <C>
Development expenditures $ 2,299 $ 2,525
Capitalized development costs (1,045) (990)
Amortization 835 874
---------- ----------
Development Expenses $ 2,089 $ 2,409
</TABLE>
General and Administrative
General and administrative expenses decreased from 25% of sales in the
third quarter 1994 to 19% of sales in the third quarter of 1995. The
decline primarily reflects the elimination of professional fees associated
with the acquisition of Knozall in 1994.
<PAGE>
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 for the nine
months ended September 30, 1995 and 1994, and the provision for income
taxes for 1995 is expected to be minimal.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the cash generated from operations has been adequate to
fund day to day operations, development and finance activities. The
Company believes that the funds required for the retirement of debt in July
1996, or if funds are required for technology purchases or acquisitions,
that such funds will be available using debt, equity or other sources.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
27 Financial Data Schedule
(b) Reports on Form 8-K - The following reports on Form 8-K were filed by
the Registrant during the quarter ended September 30, 1995.
(i) August 29, 1995, the Registrant filed on Form 8-K disclosing
under Items 4 and 7 the dismissal of its independent accountant.
(ii) September 20, 1995, the Registrant filed on Form 8-K disclosing
under Item 4 the engagement of a new independent accountant.
<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: November 14, 1995 /s/ W. C. Jesse
W. C. Jesse
President and Chief Executive Officer
Date: November 14, 1995 /s/ Nancy M. Dunn
Nancy M. Dunn
Vice President of Finance and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
The following is a list of exhibits required by Item 601 of Regulation
S-K to be filed as part of this Report.
Exhibit No. Description Page
27 Financial Data Schedule 12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 117
<SECURITIES> 0
<RECEIVABLES> 3174
<ALLOWANCES> 256
<INVENTORY> 0
<CURRENT-ASSETS> 381
<PP&E> 344
<DEPRECIATION> 4863
<TOTAL-ASSETS> 14421
<CURRENT-LIABILITIES> 4869
<BONDS> 0
<COMMON> 145
0
0
<OTHER-SE> 9394
<TOTAL-LIABILITY-AND-EQUITY> 14421
<SALES> 9910
<TOTAL-REVENUES> 9910
<CGS> 477
<TOTAL-COSTS> 477
<OTHER-EXPENSES> 9323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 110
<INCOME-TAX> 0
<INCOME-CONTINUING> 110
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 110
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
