<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
......................................
FORM 10Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996 Commission file number 0-15389
GROUP 1 SOFTWARE, INC.
Incorporated in Delaware IRS EI No. 52-1483562
4200 Parliament Place, Suite 600, Lanham, MD 20706-1844
Telephone Number: (301) 731-2300
Indicate by check mark whether the registrant (1) has filed 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
---------------------------- ------------------------
Shares Outstanding Effective
Class August 26, 1996
- ---------------------------- ----------------------------
Common Stock, $.01 par value 4,293,697
<PAGE> 2
Group 1 Software, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 544 $ 1,716
Marketable securities 2,000 1,979
Trade and installment accounts receivable,
less allowance of $2,740 and $2,409 24,210 24,304
Deferred income taxes 2,009 1,931
Prepaid expense and other assets 3,026 2,658
------- -------
Total current assets 31,789 32,588
Installment accounts receivable, long-term 4,915 5,985
Property and equipment, net 2,990 3,030
Computer software, net 23,786 22,242
Other assets 1,961 2,006
------- -------
Total assets $ 65,441 $ 65,851
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short term borrowings $ 3,419 $ - - -
Accounts payable 2,518 2,359
Current portion of long-term debt 536 565
Accrued expenses 5,337 7,044
Accrued compensation 1,724 3,386
Current deferred revenues 12,648 12,650
Due to parent company 1,687 1,160
------- -------
Total current liabilities 27,869 27,164
Long-term debt, net of current portion 110 320
Deferred revenues 3,154 4,363
Deferred income taxes, net 4,104 3,583
------- -------
Total liabilities 35,237 35,430
------- -------
Commitments and contingent liabilities
Stockholders' equity:
Common Stock, $0.01 par value, 10,000 shares
authorized 4,294 and 4,293 issued and outstanding
Preferred stock, $0.01 par value, 1,000 shares
authorized - none issued and outstanding - - - - - -
Capital contributed in excess of par value 5,189 5,189
Retained earnings 24,956 25,125
Unrealized loss on investments, net (22) (2)
Cumulative foreign currency translation 38 66
------- -------
Total stockholders' equity 30,204 30,421
------- -------
Total liabilities and stockholders' equity $ 65,441 $ 65,851
======= =======
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
Group 1 Software, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
For the Three-Month
Period Ended June 30,
---------------------
1996 1995
(FY97) (FY96)
------ ------
<S> <C> <C>
Revenue:
Software licenses and related revenue $ 5,410 $ 4,717
Maintenance and other revenue 5,311 4,668
----- -----
Total revenue 10,721 9,385
----- -----
Costs and expenses:
Software license expense 1,859 1,779
Maintenance and service expense 2,718 1,927
Research, development and indirect support 710 460
Selling and marketing 4,308 3,034
General and administrative 928 1,164
Provision for doubtful accounts 380 236
----- -----
Total costs and expenses 10,903 8,600
----- -----
Operating earnings (loss) (182) 785
Non-operating income(expense), net (8) 80
----- -----
Earnings (loss) before provision for
income taxes (190) 865
Provision for (benefit of) income taxes (21) 326
----- -----
Net earnings (loss) $ (169) $ 539
===== =====
Earnings (loss) per share of common stock $ (0.04) $ 0.12
===== =====
Weighted average number of common and
common equivalent shares outstanding 4,293 4,316
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
Group 1 Software, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Unaudited
<TABLE>
<CAPTION>
For the Three-Month
Period Ended June 30,
---------------------
1996 1995
(FY97) (FY96)
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net Earnings (loss) $ (169) $ 539
Adjustments to reconcile earnings (loss) from operations to net cash from operating
activities:
Amortization expense 1,361 1,192
Depreciation expense 229 199
Provision for doubtful accounts receivable 380 236
Deferred income taxes 443 192
Change in assets and liabilities:
Decrease in accounts receivable 784 1,266
(Increase) decrease in prepaid expenses and other current assets (368) 15
Decrease in other assets 45 19
Increase (decrease) in accounts payable 159 (791)
Decrease in accrued expenses (3,369) (2,006)
Increase (decrease) due to parent company 527 (565)
Increase (decrease) in deferred revenues (1,211) 125
------ ------
Net cash provided by (used in) operating activities (1,189) 418
------ ------
Cash flows from investing activities:
Purchase and development of computer software (2,900) (1,705)
Purchase of equipment and improvements (194) (279)
Purchase of marketable securities (3,984) (1,032)
Sale of marketable securities 3,943 1,419
------ ------
Net cash used by investing activities (3,135) (1,597)
------ ------
Cash flows from financing activities:
Proceeds from short-term borrowings 5,101 956
Reduction of short-term borrowings (1,682) (956)
Reduction of long-term debt (239) (200)
------ ------
Net cash provided (used by) financing activities 3,180 (200)
------ ------
Net decrease in cash and cash equivalents (1,144) (1,376)
Loss on currency translation (28) (3)
Cash and cash equivalents at beginning of period 1,716 1,619
------ ------
Cash and cash equivalents at end of period $ 544 $ 240
====== ======
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
Group 1 Software, Inc.
Notes to Consolidated Financial Statements
1. The financial statements for the three months ended June 30, 1996 and
1995, are unaudited. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Limited footnote
information is presented, in accordance with quarterly reporting requirements.
The results of operations for the three months ended June 30, 1996, are not
necessarily indicative of the results for the year ending March 31, 1997. The
information contained in the audited financial statements and the notes thereto
for the year ended March 31, 1996, should be referred to in connection with the
unaudited interim financial information.
2. Research and development expense, before the capitalization of
computer software development costs, amounted to approximately $3,392,000 and
$2,115,000 for the three months ended June 30, 1996 and 1995, respectively.
3. Earnings per share of common stock in the accompanying financial
statements have been computed using the weighted average number of common and
common equivalent shares outstanding. Common equivalent shares result from the
dilutive effect of stock options, calculated under the treasury stock method.
4. Certain amounts have been reclassified to conform with the current
period presentation.
5
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
For the quarter ended June 30, 1996 the Company's revenues of $10,721,000
increased 14% from the $9,385,000 reported for the comparable period the prior
year. Net loss for the quarter ended June 30, 1996, was $169,000 or $0.04 loss
per share compared with net earnings of $539,000 or $0.12 earnings per share in
fiscal 1995. The decline in profitability was attributed to extraordinary
costs of distribution and service of the Company's software associated with
implementation of the United States Postal Service's new mail classification
regulations, effective July 1, 1996, in addition to sales and marketing
expenditures resulting from the launch of the recently acquired WorldTrak
software into the market for Customer Information Management Systems. Group
1's international activities also contributed to the profit decline, as
significant orders expected in both Latin America and Europe did not close
during the period.
Software license fees and related revenues of $5,410,000 represented an
increase of 14% over the prior year. As a percent of total revenue, software
license and related revenue was 50% for both fiscal first quarter periods.
License fees from Customer Management Systems Software increased $16,000 over
the prior year due to WorldTrak revenues; Database Marketing System's license
fees decreased $9,000 due to lower demographic and modeling systems, offset
partially by revenue for DataDesigns Systems for which there was no comparable
revenue in the prior first quarter. Licensing of Electronic Document Systems
in the quarter increased $98,000 versus the prior year, with U.S. revenues
offsetting lower sales in Europe. Mailing Efficiency Software revenues
increased $587,000 over the same period the prior year due to continued growth
of the Open Systems product suite; PC revenue was approximately the same as the
prior year.
Maintenance and other revenue in the first quarter was $5,311,000, an increase
of 14% over the prior year. Maintenance and other revenue accounted for 50% of
total revenue for both fiscal first quarters. While recognized maintenance
fees increased $390,000 or 10% over the prior year's first quarter, consulting,
professional and educational service revenues increased $253,000 or 29% versus
the same period the prior year. The Company expects maintenance renewal
revenue to grow at a lower percentage than in prior years due to the high rate
of conversion to Open System products, which conversion typically includes
multi-year maintenance agreements. It is also anticipated that the other
service revenues will continue to increase as a percentage of the Company's
revenue, resulting from the growth of DOC1, WorldTrak and database marketing
systems revenues.
During the quarter, total operating costs of $10,903,000 amounted to 102% of
revenue compared with $8,600,000 or 92% of revenue during the same period the
prior year. Of the increase in cost, approximately $750,000 was related to
DataDesigns, WorldTrak and Latin American operations for which there was no
prior year comparison.
Software license expense increased to $1,859,000 for the three months ended
June 30, 1996, from $1,779,000 in the comparable period in last fiscal year,
6
<PAGE> 7
representing 34% and 38% of software license and related revenues,
respectively. The lower percentage of license revenue reflects license support
costs growing at a lower rate than sales when compared with the prior year.
Maintenance and service expense increased to $2,718,000 in the current period
from $1,927,000 in the comparable period in 1995, representing 51% and 41% of
maintenance and service revenue, respectively. The increase in expenses and
percent of maintenance and service revenue reflects larger professional service
and educational service costs of $359,000, higher freight and product
distribution cost of $246,000 and increased technical support staffing of
$50,000. The Company continued to incur higher distribution costs and
technical support expenses, related to its mail classification software, during
the second fiscal quarter in excess of its actual expenditures for the same
period the prior year. Amortization also increased by $130,000 as compared
with the same period the prior year. Certain of these costs were related to
the new DataDesigns and WorldTrak product lines for which there were no
comparable prior year expenditures.
Research, development and indirect support expenses totaled $710,000 in the
first fiscal quarter of 1997 and $460,000 in the same quarter the prior year,
representing 7% and 5% of total revenue, respectively. The increase in the
current quarter as compared with the prior year's first quarter was due to
increased support requirements for the Company's expanded computer platforms
and internal network systems, as well as expenses for DataDesigns and WorldTrak
for which there were no comparable prior year amounts.
Selling and marketing expenses totaled $4,308,000 or 40% of revenue in the
first quarter of fiscal 1997 and $3,034,000 or 32% in the prior year. The
current year expenses include $478,000 for DataDesigns, WorldTrak and Latin
America, for which there was no comparable prior year amount. Additionally, the
current year expenses reflect higher sales compensation expense associated with
the increased revenue, as well as increased staffing and marketing for the
DOC1, NADIS and Open System products.
General and administrative expenses of $928,000 or 9% of total revenue
decreased from $1,164,000 or 12% for the three months ended June 30, 1996 and
1995, respectively. The decrease is primarily due to lower compensation,
property taxes and rent expense.
The provision for doubtful accounts of $380,000 increased from $236,000 for the
same quarter the prior year. The current year provision is based upon the
larger accounts receivable balances at June 30, 1996 as compared with the same
period the prior year.
Net non-operating expense was $8,000 for the period ended June 30, 1996 as
compared with net non-operating income of $80,000 for the same period the prior
year. This decrease reflects lower interest income of $59,000 and higher
interest expense of $36,000, offset by other income of $7,000.
The Company's effective tax rate for the period ended June 30, 1996 was an 11%
benefit as compared with a 38% provision for the same period the prior year.
The current year's rate is the net effect of a 38% domestic tax rate on
domestic taxable net income, offset by a 25% foreign tax rate on the respective
foreign taxable net loss.
7
<PAGE> 8
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $3,919,000 at June 30, 1996, as
compared with $5,392,000 at March 31, 1996. The decrease in working capital is
due primarily to a decrease in cash and an increase in short-term borrowings as
compared with the March 31, 1996 balances. The current ratio was 1.1 to 1 at
June 30, 1996, compared with 1.2 to 1 at March 31, 1996.
The Company provides for its cash requirements through cash funds
generated from operations. Additionally, the Company maintains an
uncollateralized $5,000,000 line of credit arrangement with Signet Bank
(Maryland), a major Mid-Atlantic regional bank, with interest at the bank's
prime rate. At June 30, 1996, borrowings outstanding under this line of credit
were $3,419,000; at March 31, 1996, there were no short-term borrowings under
this facility.
Net loss of $169,000 offset by non-cash expenses of $2,413,000
provided a total of $2,244,000 cash from operating activities. Additionally,
the decrease in accounts receivable provided cash of $784,000. Cash was
decreased by a reduction in accrued expenses of $3,369,000; all other working
capital items decreased cash $848,000. Cash flows from investing activities
were primarily expenditures for investment in purchased and developed software
and capital equipment of $3,094,000. Short-term borrowings provided cash of
$3,419,000; long-term debt was reduced by $239,000.
The Company's practice of accepting license agreements under
installment payment arrangements substantially increases its working capital
requirements. Generally, these arrangements are for a period of one to five
years after a minimum down payment of 10% of the principal amount of the
contract. Interest currently ranges from 10% to 12%. Installment receivables
included in accounts receivable were $12,003,000 and $11,769,000 at June
30,1996, and March 31, 1996, respectively. The installment receivable balance,
in addition to the Company's policy of offering competitive trade terms of
payment, make it difficult to portray accurately a relationship between the
outstanding accounts receivable balance and the current period revenues.
The Company continually evaluates the credit and market risks
associated with outstanding receivables. In the course of this review, the
Company considers many factors specific to the individual client as well as the
concentration of receivables within industry groups. The Company's installment
receivables are predominately with clients (service bureaus) who provide
computer services to the direct marketing industry. Many of these clients have
limited capital and insufficient assets to secure their liability with the
Company. The service bureaus are highly dependent on the Company's software
and services to offer their customers the economic benefits of postal discounts
and mailing efficiency. To qualify for the U. S. Postal Service and Canada
Post Corporation postal discounts, service bureaus require continuous
regulatory product updates from the Company. The service bureau industry is
also highly competitive and subject to general economic cycles as they impact
advertising and direct marketing expenditures. The Company is aware of no
current market risk associated with the installment receivables. These clients
represent approximately $9,331,000, or 76% of the installment receivables at
June 30, 1996.
8
<PAGE> 9
As of June 30, 1996, the Company's capital resource commitments
consisted primarily of non-cancelable operating lease commitments for office
space and equipment. The Company believes that its current debt services,
minimum lease obligations and other short-term liquidity needs can be met from
cash flows from operations. The Company believes that its long-term liquidity
needs are minimal and no large capital expenditures are anticipated except for
continuing investment in capitalized software development costs which the
Company believes can be funded from operations. Historically, the Company has
been able to negotiate capital leases for its acquisition of equipment.
9
<PAGE> 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11
No filings on Form 8-K have been made during the quarter
10
<PAGE> 11
PART IV
Listing of Exhibits
*11.0 Computation of earnings per share.
-----------------------------------------
*Filed herewith
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Group 1 Software, Inc.
Date: August 29, 1996
/s/ Charles A. Crew
Charles A. Crew
Vice President
Chief Financial Officer
12
<PAGE> 13
Index of Exhibits
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
11.0 Computation of earnings per share. 14
</TABLE>
13
<PAGE> 1
EXHIBIT 11
GROUP 1 SOFTWARE, INC.
Computation of Earnings (Loss) Per Share
(in thousands, except per share data)
Unaudited
<TABLE>
<CAPTION>
For the Three Month
For the Three-Month
Period ended June 30,
---------------------
1996 1995(2)
(FY97) (FY96)
------ ------
<S> <C> <C> <C>
Net earnings (loss) $ (169) $ 539
Primary earnings (loss) (A) $ (169) 539
===== =====
Fully diluted earnings (B) $ (169) $ 539
===== =====
Weighted average shares outstanding 4,293 4,293
Dilutive common stock equivalents for
primary earnings (loss) per share ---(1) 23
----- -----
Weighted average shares and common
equivalent shares outstanding for
primary earnings (loss) per share (C) 4,293 4,316
===== =====
Additional equivalent shares
assuming full dilution --- 15
----- -----
Weighted average shares and common
equivalent shares for fully diluted
earnings (loss) per share (D) 4,293 4,331
===== =====
Earnings (loss) per share
Primary (A)/(C) $ (0.04) $ 0.12
===== =====
Fully Diluted (B)/(D) $ (0.04) $ 0.12
===== =====
</TABLE>
(1) Common stock equivalents not presented in computation of loss per
share in the period ending June 30, 1996, due to anti-dilutive effect.
(2) Not presented on the Consolidated Statements of Earnings because fully
diluted earnings per share had a differential less than 3% of primary
earnings per share.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 544,000
<SECURITIES> 2,000,000
<RECEIVABLES> 31,865,000
<ALLOWANCES> 2,740,000
<INVENTORY> 0
<CURRENT-ASSETS> 31,789,000
<PP&E> 7,131,000
<DEPRECIATION> 4,141,000
<TOTAL-ASSETS> 65,441,000
<CURRENT-LIABILITIES> 27,870,000
<BONDS> 0
0
0
<COMMON> 43,000
<OTHER-SE> 30,161,000
<TOTAL-LIABILITY-AND-EQUITY> 65,441,000
<SALES> 10,721,000
<TOTAL-REVENUES> 10,721,000
<CGS> 5,287,000
<TOTAL-COSTS> 4,308,000
<OTHER-EXPENSES> 928,000
<LOSS-PROVISION> 380,000
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 190,000
<INCOME-TAX> (21,000)
<INCOME-CONTINUING> (169,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (169,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
