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 June 30, 1996
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 Identifition 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 August 8, 1996
Common Stock 14,696,417
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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, 1996 (unaudited) and December 31, 1995 3
Statements of Operations (unaudited) - Three and Six Months
Ended June 30, 1996 and 1995 4
Statements of Cash Flows (unaudited) - Six Months Ended
June 30, 1996 and 1995 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,
1996 1995
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 194 $ 92
Accounts receivable, net of allowance of
$240 in 1996 and $225 in 1995 3,142 2,853
Other current assets 310 257
-------- --------
Total current assets 3,646 3,202
Equipment, furniture and fixtures,
net of accumulated depreciation of
$1,677 in 1996 and $1,553 in 1995 400 278
Deferred software costs, net 2,622 2,595
Costs in excess of net assets of business
acquired, net 5,524 5,903
Other assets 857 851
--------- ---------
Total assets $13,049 $12,829
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable - current portion $ 348 $ 1,319
Accounts payable 553 531
Accrued expenses 908 420
Deferred revenue 2,004 2,228
Other current liabilities 31 85
--------- ---------
Total current liabilities 3,844 4,583
Note payable to related party 450 ---
Note payable 150 ---
Shareholders' equity:
Common stock,par value $.01, authorized
48,000,000 shares,issued and outstanding
14,696,417 in 1996 and 14,527,876 in 1995 147 145
Additional paid-in capital 44,486 44,275
Accumulated deficit (36,028) (36,174)
-------- --------
Total shareholders' equity 8,605 8,246
-------- --------
Total liabilities and
Shareholders' Equity $13,049 $12,829
======== ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<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,
-------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues: $3,470 $3,426 $5,954 $6,415
------- ------- ------- -------
Cost and expenses:
Costs of software 91 171 165 348
Selling and
marketing 1,668 1,874 3,217 3,360
Development 563 683 1,196 1,316
General and
administrative 669 604 1,230 1,238
Other (income)
expenses, net -- 41 -- 66
--------- -------- ------- -------
Total costs and
expenses 2,991 3,373 5,808 6,328
--------- -------- ------- -------
Net income $ 479 $ 53 $ 146 $87
========= ======== ======== =======
Income per
common share $ .03 $ --- $ .01 $ ---
========= ======== ======== =======
Weighted average number
of common shares
outstanding 17,362 15,539 16,996 15,284
======== ======== ======== =======
<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,
-------------------------
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 146 $ 87
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,036 1,184
Cash provided (used) by changes in
working capital items:
Accounts receivable (475) (83)
Other current assets (82) (326)
Other assets (6) (392)
Accounts payable 3 562
Accrued expenses and
other current liabilities 526 (37)
Deferred revenue (224) (472)
------- ------
Net cash provided by operating activities 924 523
------- ------
Cash flows from investing activities:
Deferred software costs (730) (797)
Sale of LAN division (213) ---
Expenditures for equipment,
furniture and fixtures (250) (119)
Net cash used in investing activities (1,193) (916)
Cash flows from financing activities:
Net borrowing on note payable
to related party 450 ---
Net repayments on notes payable (139) (84)
Other, net 60 ---
------- ------
Net cash provided by (used in)
financing activities 371 (84)
------- ------
Net increase (decrease) in cash 102 (477)
Cash, beginning of year 92 614
------- ------
Cash, end of year $ 194 137
======= ======
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
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 1995 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. NOTE PAYABLE TO RELATED PARTY
In order to provide a source of funds to assist the launching of the new
Asset Insight product, Safeguard Scientifics, Inc. ("Safeguard"), a 71%
shareholder of the Company, has agreed to provide a $1 million line of
credit to the Company at prime rate plus 1%. There was $450,000
outstanding under the note at June 30, 1996. Amounts outstanding are due
thirteen months after the date of demand.
Note 3. SALE OF LAN DIVISION
In March, 1996, the Company sold the assets and liabilities of the LAN
division, acquired from Knozall Systems, Inc. in 1994, to its former owner,
an officer and director of the Company. In exchange for the cancellation
of $850,000 of the $1 million note issued in connection with the
acquisition of Knozall, the Company transferred all of the net assets of
the LAN division, made a cash payment of $213,000 at the date of sale and
issued a $300,000 note due in 24 equal installments. The buyer elected to
convert the remaining $150,000 of the $1 million note into shares of
Tangram common stock. In addition, the Company retained rights to certain
technology developed in the LAN division since August 1, 1994
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
Tangram Enterprise Solutions, Inc. (the Company) develops and markets
software for asset tracking and electronic software distribution solutions,
including Asset Insight and AM:PM. Asset Insight, a major new business
management solution for information technology(IT) executives, provides
decision support, identification of hardware and software assets currently
installed throughout the enterprise, and information on historical trends
as well as projections of future changes to the asset base. The Company
made the first sale of its new Asset Insight product late in June, 1996.
With Asset Insight, Tangram has also launched a new indirect channel
program. Initially, Tangram is offering Asset Insight through CompuCom
Systems, Inc. while forming relationships with additional resellers.
Safeguard owns 50% 0f CompuCom 71% of Tangram.
AM:PM provides distributed resource management across heterogeneous networks.
Available for MVS, UNIX, NetWare, Windows NT, Windows 95, DOS and Macintosh
platforms, AM:PM accomplishes such tasks as software and data distribution,
data collection, asset management and remote resource management.
RESULTS OF OPERATIONS
Revenues for the quarter ended June 30, 1996 were comparable to the
same period in 1995. However, the three months ended June 30, 1996
includes $834,000 from sale of the new Asset Insight product offset by
decreases in the sale of all other products.
Selling and marketing expenses for the quarter ended June 30, 1996
decreased 11% from the same period in 1995 due to elimination of the
expenses related to the LAN division which was sold in March, 1996. As a
result, selling and marketing expenses as a percentage of sales decreased
to 48.1% from 54.7% in the second quarter of 1995.
The Company is continuing to focus development activities primarily on the
Asset Insight product. In addition, the Company continues to enhance
existing technologies in its distributed resource management product line.
<PAGE>
<TABLE>
Development activity is summarized in the table below:
<CAPTION>
(in thousands)
Three Months Six Months
Ended June 30,. Ended June 30,
----------------- ---------------
1996 1995 1996 1995
------- ------- ------ -----
<S> <C> <C> <C> <C>
Development expenditures $ 748 $ 736 $1,386 $1,503
Capitalized development costs (485) (318) (730) (797)
Amortization 300 265 540 610
------- ------- ------ ------
Total development expenses $ 563 $ 683 $ 1,196 $ 1,316
======= ======= ======= =======
</TABLE>
General and administrative expenses for 1996 increased 11% over the same
period in 1995. The increase reflects higher professional fees.
At December 31, 1995 the Company had net operating loss carryforwards of
approximately $25.9 million. The net operating loss carryforwards expire
in various amounts from 1998 through 2010.
LIQUIDITY
Cash generated from operations has been adequate to fund the Company's
development and finance activities. In the past, the Company has generated
cash from operating activities despite its net losses due to the
significant levels of depreciation and amortization. Cash requirements
have increased in 1996 due to the additional expenditures required for the
introduction and launching of the Asset Insight product. As stated in Note
2 above, Safeguard Scientifics, Inc. has agreed to assist the Company's
launching of the Asset Insight product by providing a $1 million line of
credit to fund cash requirements of which $450,000 is outstanding at June
30, 1996. The Company believes these this line of credit along with cash
from operations will be adequate to meet its 1996 cash requirements.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 30, 1996. At
the meeting, the shareholders voted in favor of electing as directors the
seven nominees named in the Proxy Statement dated May 2, 1996. The number
of votes cast for, against or withheld were as follows:
I. Election of Directors:
W. Christopher Jesse 14,160,941 8,405
Steven F. Kuekes 14,160,941 8,405
John F. Owens 14,161,007 8,339
Charles A. Root 14,161,007 8,339
Carl G. Sempier 14,160,623 8,723
Harry Wallaesa 14,160,510 8,836
Carl Wilson 14,160,841 8,505
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, 1996.
<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 13, 1996 /s/ W. C. Jesse_______________
W. C. Jesse
President.and
Chief Executive Officer
Date August 13, 1996 /s/ Nancy M. Dunn____________
Nancy M. Dunn
Vice President of Finance and
Chief Administrative Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Tangram Enterprise Solutions, Inc., for the Quarter
ended June 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 195
<SECURITIES> 0
<RECEIVABLES> 3,612
<ALLOWANCES> 240
<INVENTORY> 71
<CURRENT-ASSETS> 3,876
<PP&E> 2,077
<DEPRECIATION> 1,677
<TOTAL-ASSETS> 13,279
<CURRENT-LIABILITIES> 4,074
<BONDS> 0
0
0
<COMMON> 147
<OTHER-SE> 8,458
<TOTAL-LIABILITY-AND-EQUITY> 13,279
<SALES> 5,954
<TOTAL-REVENUES> 5,954
<CGS> 92
<TOTAL-COSTS> 5,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36
<INCOME-PRETAX> 146
<INCOME-TAX> 0
<INCOME-CONTINUING> 146
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
