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 March 31, 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
incorporation or organization) Identification No.)
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 April 24, 1996
Common Stock 14,646,592
<PAGE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
QUARTERLY REPORT FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements:
Balance Sheets - March 31, 1996 (unaudited) and
December 31, 1995 3
Statements of Operations (unaudited) - Three Months Ended
March 31, 1996 and 1995 4
Statements of Cash Flows (unaudited) - Three Months Ended
March 31, 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 6 - Exhibits and Reports on Form 8-K 9
Signatures 10
<PAGE>
<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
BALANCE SHEETS
(in thousands, except share and per share amounts)
<CAPTION>
March 31, December 31,
1996 1995
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 290 $ 92
Accounts receivable, net
of allowance of $227 in
1996 and $225 in 1995 1,640 2,853
Other current assets 293 257
--------- ---------
Total current assets 2,223 3,202
Equipment, furniture and fixtures,
net of accumulated depreciation of
$1,614 in 1996 and $1,553 in 1995 259 278
Deferred software costs, net 2,438 2,595
Costs in excess of net assets of
business acquired, net 5,713 5,903
Other assets 854 851
--------- ---------
Total assets $ 11,487 $ 12,829
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - current portion $ 427 $ 1,319
Accounts payable 552 531
Accrued expenses 356 420
Deferred revenue 1,878 2,228
Other current liabilities 56 85
--------- ---------
Total current liabilities 3,269 4,583
Note payable 150 ---
Shareholders' equity:
Common stock, par value $.01,
authorized 48,000,000 shares,
issued and outstanding 14,640,217
in 1996 and 14,527,876 in 1995 146 145
Additional paid-in capital 44,429 44,275
Accumulated deficit (36,507) (36,174)
--------- ---------
Total shareholders' equity 8,068 8,246
--------- ---------
Total liabilities and
shareholders' equity $ 11,487 $ 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
Ended March 31,
--------------------
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Revenues: $ 2,484 $ 2,989
-------- --------
Costs and expenses:
Costs of software 74 177
Selling and marketing 1,549 1,486
Development 633 633
General and administrative 561 659
-------- --------
Total costs and expenses 2,817 2,955
-------- --------
Net income (loss) $ (333) $ 34
========= ========
Loss per common share $ (.02) $ --
========= ========
Weighted average number of common
shares outstanding 14,532 15,173
========= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
TANGRAM ENTERPRISE SOLUTIONS, INC.
STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Three Months
Ended March 31,
--------------------
1996 1995
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (333) $ 34
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 484 633
Cash provided (used) by changes in
working capital items:
Accounts receivable 1,027 675
Other current assets (65) (65)
Other assets (3) (393)
Accounts payable 25 106
Accrued expenses and other
current liabilities (26) 75
Deferred revenue (349) (361)
-------- --------
Net cash provided by operating
activities 760 704
-------- --------
Cash flows from investing activities:
Deferred software costs (245) (479)
Sale of LAN division (213) ---
Expenditures for equipment,
furniture and fixtures (47) (39)
-------- --------
Net cash used in investing activities (505) (518)
-------- --------
Cash flows from financing activities:
Net repayments on notes payable (60) (42)
Other, net 3 (7)
-------- --------
Net cash used in financing activities (57) (49)
-------- --------
Net increase (decrease) in cash 198 137
Cash, beginning of year 92 614
-------- --------
Cash, end of year $ 290 $ 751
======== ========
<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. 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
enterprise network software. AM:PM (registered trademark), the Company's
leading product, provides distributed resource management across
heterogeneous networks, accomplishing such tasks as software and data
distribution, data collection, asset management and remote resource
management. AM:PM is available for MVS, UNIX, NetWare, Windows NT, Windows
95, DOS and Macintosh platforms.
The Company recently announced its new Asset Insight (trademark)
product, the first business management tool for information technology
executives. Tangram will focus sales efforts for Asset Insight through
indirect channels using major resellers. Initially, Tangram will offer Asset
Insight through CompuCom Systems, Inc. CompuCom is 50% owned by Safeguard
Scientifics, Inc. and Tangram is 72% owned by Safeguard. Asset Insight is
currently undergoing beta testing and will be available for general delivery
later in the second quarter.
RESULTS OF OPERATIONS
Total revenues declined for the first quarter of 1996 due to delays in
closing AM:PM and associated consulting services contracts which resulted
from the reallocation of resources to fill the additional demands of
preparing for the introduction and release of the Asset Insight product. In
addition, some customers have deferred orders for AM:PM until the Asset
Insight product is available. Lower sales of the gateway product line
resulting from the overall decline in the gateway market also contributed to
the decrease in revenues in this quarter.
Selling and marketing expenses for 1996 increased to 62% of revenue
compared to 50% for the same period in 1995. The increase reflects the
additional staff and expenditures incurred to support the Company's new Asset
Insight product including the initiation of a channel marketing program and
strategic partnership efforts. The Company expects the percentage of selling
and marketing expenses to decline as a percentage of revenue as the new
product revenues increase.
The Company's development activities are currently focused primarily on
the Asset Insight product. In addition, the Company continues to enhance
existing technologies in its distributed resource management product line
with elimination of development expenses on non-strategic products.
<PAGE>
<TABLE>
Development activity is summarized in the table below:
<CAPTION>
Three Months
Ended March 31,
--------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Development expenditures $ 638 $ 767
Capitalized development costs (245) (479)
Amortization 240 345
-------- --------
Development Expenses $ 633 $ 633
======== ========
</TABLE>
General and administrative expenses for 1996 decreased 11% from the same
period in 1995. The decline reflects the Company's continuing efforts to
leverage existing infrastructure while investing in selling and marketing
expenses.
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 historically has been adequate to fund
the Company's development and finance activities. However, the Company
believes that its existing cash resources, together with cash provided by
operations, will not be adequate to meet its cash requirements through 1996
due to the additional expenditures required for the introduction and
launching of the Asset Insight product. Safeguard Scientifics, Inc. has
committed to provide the Company with a $1 million line of credit to fund
cash requirements which the Company believes will be adequate to meet its
1996 cash requirements.
<PAGE>
PART II - OTHER INFORMATION
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 March 31, 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 May 14, 1996 /s/ W. C. Jesse
W. C. Jesse
President and Chief Executive Officer
Date May 14, 1996 /s/ Nancy M. Dunn
Nancy M. Dunn
Vice President of Finance and
Chief Administrative Officer
<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 MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 290
<SECURITIES> 0
<RECEIVABLES> 1,867
<ALLOWANCES> 227
<INVENTORY> 86
<CURRENT-ASSETS> 2,223
<PP&E> 1,873
<DEPRECIATION> 1,614
<TOTAL-ASSETS> 11,487
<CURRENT-LIABILITIES> 3,269
<BONDS> 0
0
0
<COMMON> 146
<OTHER-SE> 7,922
<TOTAL-LIABILITY-AND-EQUITY> 11,487
<SALES> 2,484
<TOTAL-REVENUES> 2,484
<CGS> 74
<TOTAL-COSTS> 2,793
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (333)
<INCOME-TAX> 0
<INCOME-CONTINUING> (333)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (333)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
