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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
AMENDMENT NO. 2 TO
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDING JUNE 30 ,1996 COMMISSION FILE NUMBER 33-23138-D
HEARTSOFT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 87-0456766
- ------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
3101 Hemlock Circle, Broken Arrow, Oklahoma 74012
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(Address of principal executive offices) (Zip Code)
918/251-1066
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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
requirement for the past 90 days. YES X NO
As of June 30, 1996, there were 5,089,608 shares of Heartsoft,
Inc. Common Stock, $0.0005 par value outstanding.
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HEARTSOFT, INC. - QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
Item 1: Balance Sheet as of June 30, 1996 3
Statement of Income Three Months ending
June 30, 1996 4
Statement of Cash Flow - Three Months
Ending June 30, 1996 5
Notes to Financial Statements 6
Management's Discussion, Analysis of
Financial Condition, and Results of
Operations 7
PART II.OTHER INFORMATION
Item 1: Legal Proceedings 9
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PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BALANCE SHEET
June 30, 1996 March 31, 1996
ASSETS
Cash $552,533 $19,922
Accounts Receivable-trade 222,613 165,013
Inventory 12,874 11,216
Prepaid Expenses and Deposits 118,205 50,495
Receivables- related parties 57,490 51,013
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Total Current Assets $963,715 297,659
Fixed Assets-Net 111,718 100,478
Developed Software (See Note 2) 569,052 536,140
Deferred income tax benefit 138,926 145,901
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Total Other Assets $819,696 782,519
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Total Assets $1,783,411 $1,080,178
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LIABILITIES
Accounts Payable - Trade $84,726 122,851
Notes Payable-current portion 106,270 261,801
Capital lease obligations-
current portion 34,768 22,662
Taxes Payable 66,928 53,901
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Total Current Liabilities $292,692 461,215
Long Term Liabilities 37,068 38,404
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Total Liabilities $329,760 $499,619
STOCKHOLDERS EQUITY
Retained Earnings (941,633) (884,467)
Common Stock 2,512 2,513
Preferred Stock 6,550 1,550
Paid-In Capital 2,346,699 1,460,963
Net Profit / (Loss) 39,523 --
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Total Stockholders Equity $1,453,651 $580,559
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Total Liabilities And
Stockholders Equity $1,783,411 $1,080,178
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PART I. FINANCIAL INFORMATION
STATEMENT OF INCOME
Three months ended
June 30,
(Note 3)
1996 1995
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REVENUE
Gross Sales $459,166 $277,313
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Sales Returns (1,380) (12,284)
Sales Discounts (270) (737)
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Net Sales 457,516 264,292
Total Cost of Good 215,372 49,237
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GROSS MARGIN 242,144 215,055
EXPENSES
Payroll Expense 83,069 54,497
Administrative Expense 112,607 63,246
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Operating Expense 195,676 117,743
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Net Operating Income $46,468 $96,672
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Less: Income Taxes (See Note 4) 6,975 0
Net Income After Taxes $39,523 $96,672
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Preferred Dividends $2,836 $0
Net Income Available to Common
Shareholders $36,687 $96,672
=============================
EARNINGS (LOSS) PER SHARE* 0.01 0.02
*Primary weighted average common shares outstanding during the period.
1995 =4,259,740 and 1996 = 5,089,608
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PART I. FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
3 Months ended June 30,
1996 1995
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Cash Flow from operating activities
Net Income (Loss) $39,523 $96,672
Change in Current Assets
Net Receivable s (121,245) (97,602)
Inventory (1,659) (7,750)
Prepaid Expenses (67,710) 37,283
Change in Current Liabilities
Accounts Payable (20,408) 18,096
Loan Payable (6,968) 6,000
Other Current Liabilities 13,026 3,515
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Total Cash Flow from
operating activities (165,441) 56,215
Cash Flow from investing activities
Developed Software (59,187) (15,543)
Property, Plant & Equipment (14,238) (18,726)
Depreciation on Disposed Prop,
Plant & Equip. 30,000 511
Intangible Assets 6,250 (632)
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Total Cash Flow from
investing activities (37,175) (34,390)
Cash Flow from financing activities
Long-Term Debt (155,509) (35,941)
Paid-In Capital 890,735 5,950
Retained Earnings (10,742)
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Total Cash Flow from
financing activities 735,226 (40,734)
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Net Increase (Decrease) in Cash $532,610 $ (18,909)
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Beginning Cash Balance $19,923 $32,813
Net Increase (Decrease) in Cash $532,610 $ (18,909)
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Ending Cash Balance $552,533 $13,904
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HEARTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
Note 1. BASIS OF PRESENTATION.
The accompanying financial statements have been prepared by the Company
without audit. In the opinion of management, all adjustments (consisting
of only normal recurring accruals) considered necessary for a fair
presentation have been included.
Note 2. DEVELOPED SOFTWARE
Capitalization of software development costs begins when the project reaches
technological feasibility and includes the costs incurred until the project
is ready for release. Software development costs are amortized on the
straight-line method over a maximum of seven years or the expected life of
the product, whichever is less. As of March 31, 1996, this policy
represents a change in the Company's accounting treatment for amortization
of its development costs.
Note 3. FY 1995 PRESENTATION BASIS
THE JUNE 30, 1995 COLUMN HAS BEEN ADJUSTED TO SHOW THE EFFECT OF
MOVING THE AMORTIZATION OF SOFTWARE FROM ADMINISTRATIVE EXPENSE,
TO COST OF GOODS SOLD. THIS MOVE WAS DONE TO ALLOW UNIFORM
PRESENTATION AND COMPARISON FROM YEAR-TO-YEAR PERIODS.
Note 4. DEFERRED INCOME TAX
The Company reports the deferred tax benefit in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes". Income tax expense reflects federal and state income
taxes on current earnings. No actual current income taxes were paid
due to the application of the tax loss carryforward. Therefore,
tax expense for both years is deferred to a future date.
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ITEM 2
HEARTSOFT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1996
OVERVIEW
Heartsoft, Inc. is a publicly held Delaware Corporation, incorporated
January 15, 1988, and traded OTC (Symbol: HTSF). Presently, 30 million
shares of stock are authorized, with 5,089,608 shares issued and
outstanding. Over the past ninety days, the Company's stock has traded
in the $1.69 to $3.37 range.
The mission of Heartsoft, Inc. is to create value for its shareholders
through the development, acquisition, and distribution of advanced
multimedia technologies for education in schools and homes.
To date, Heartsoft's Core Products Division has designed and published
more than 30 educational software titles. These proprietary titles range
in price from $34.95 to $995 depending on the configuration. These titles
are targeted to both public and private U.S. Schools with children in
Pre-Kindergarten through the 8th grades. The Company has licensed other
products which are targeted at children in grades 4 through 12.
Effective April 1, 1996 Heartsoft began recognizing revenues from its
Advanced Technology Division office in Dallas, Texas to distribute
leading-edge technology products to schools. Based on the performance of
this office, the Company may use it as a prototype for offices to be opened
in other major markets across the country in the next few years.
Since the company's initial formation in 1989, the shareholders and
management of Heartsoft, Inc. have contributed over $1.3 million in
capital and assets to the Company. The continued financial strategy of
Heartsoft emphasizes reinvestment of income for continued growth during
the next few years of operations.
RESULTS OF OPERATIONS
NET REVENUES
Net Sales of the Company's educational computer software for the 3 months
ending June 30, 1996, were $457,516 compared to $264,292 for the same
period one year ago, an increase of 73%. The increase in revenues can be
attributed to the Company's expanded presence and the opening of the Dallas
Heartsoft Advanced Technologies Division. Sales returns declined as a
percentage of sales, as the Company moved away from a marketing policy that
encouraged preview sales, which traditionally have a higher return rate.
COST OF GOODS SOLD
The Company includes in cost of goods sold all costs associated with the
acquisition of components, assembly of finished products, shipping and
amortization. Included in that total is the Advanced Technology Division's
cost of licensed products, which varies by vendor and product line. Total
gross margin increased to $242,144, a 12.6% increase. The gross margin of
52.9% for the three months ended 6/30/96 was a decline from 81.4%
in the year earlier period. The decrease was attributable to the inclusion
of the different cost structure associated with the Advanced Technology
Division product line. THE TULSA CORE PRODUCT'S DIVISION CONTINUED TO
OPERATE AT ROUGHLY THE SAME EFFICIENCY LEVEL AS PRIOR PERIODS.
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OPERATING EXPENSES
General operating expenses increased across the board from
$117,743 for the three months ended June 30, 1995 to $195,676
for period ending June 30, 1996. As a percentage of net sales,
operating expenses decreased from 44.6% one year ago to 42.8% for
the quarter ending June 30, 1996.
NET INCOME
Net income decreased to $39,523 for the 3 months ending June 30,
1996 from $96,672 for the same period one year ago. The net
income fell due to the higher operating expenses, as the Company
continued to add additional sales and development capacity.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principle sources of
liquidity included cash and accounts receivable of $775,000 as
well as a revolving line of credit with a current limit of
$250,000. Management believes that its existing sources of
liquidity and anticipated funds from operations will satisfy the
working capital and capital expenditures requirements for the
foreseeable future.
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PART II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Both the Company and Benjamin Shell, the Company's Chairman of
the Board, are named as defendants in a lawsuit filed on May 17,
1996, in Superior Court of Murray County, Georgia, by Raymond
Long, a former stockholder of the Company. The suit sets forth
various claims against Mr. Shell and the Company, essentially
alleging fraud in connection with Mr. Long's investment in the
Company in 1991 and 1992. Although it is difficult to ascertain
from the complaint the specific facts giving rise to the
allegations or the aggregate amount of damages sought, the suit
alleges actual damages in excess of $2,000,000, punitive damages,
as well as treble damages under various theories of recovery.
While the lawsuit has only recently been filed, both the Company
and Mr. Shell have retained Georgia counsel, and have filed both
an answer to the allegations in the complaint, asserting numerous
defenses, as well as a Motion to Dismiss the case, for lack of
jurisdiction. The hearing on the Motion to Dismiss was held on
August 21, 1996, and at that time the Court took the Motion under
advisement, until November 1, 1996. Both Mr. Shell and the
Company believe they have meritorious defenses to the suit, and
both plan to vigorously defend the allegations contained herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HEARTSOFT, INC.
(Registrant)
November 19, 1996 /s/ Benjamin P. Shell
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Date Benjamin P. Shell, Chairman
November 19, 1996 /s/ Bryan J. Reusser
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Date Bryan J. Reusser, Director of
Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
QUARTERLY FINANCIAL STATEMENTS OF HEARTSOFT, INC., AS OF JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
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6,550
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