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Heartsoft, Inc.
Financial Statements on Form 10Q
for the fiscal quarter ending December 31, 1995
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDING DECEMBER 31, 1995 COMMISSION FILE NUMBER 33-23138-D
HEARTSOFT, INC.
3101 Hemlock Circle, Broken Arrow, Oklahoma 74012
Phone 918/251-1066 Fax 918/251-4018
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
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As of December 31, 1995, there were 4,893,570 shares of Heartsoft, Inc.
Common Stock, $0.0005 par value outstanding.
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PART I. FINANCIAL INFORMATION
BALANCE SHEET
<TABLE>
<CAPTION>
December 31, 1995 September 30, 1995
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<S> <C> <C>
ASSETS
Cash and Equivalents $ 339,557 $ 228,505
Allowance for Return 102,000 (12,000)
Other Receivables 600 600
Inventory 10,707 15,851
Prepaid Advertising 32,715 42,456
Deposits 3,361 3,361
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Total Current Assets 488,940 278,773
Fixed Assets 65,041 61,511
Developed Software (See Note 2) 570,752 542,744
Other Intangible Assets 4,613 4,613
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Total Other Assets 640,406 608,868
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Total Assets $1,129,346 $ 887,641
=============== ===============
LIABILITIES
Accounts Payable - Trade 71,766 40,986
Short Term Liabilities 13,496 47,465
Taxes Payable 37,079 17,788
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Total Current Liabilities 122,341 106,239
Long Term Liabilities 260,056 175,111
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Total Liabilities $ 382,397 $ 281,350
STOCKHOLDERS EQUITY
Retained Earnings (1,183,116) (1,183,116)
Common Stock 308,458 308,458
Paid-In Capital 1,319,719 1,328,916
Net Profit / (Loss) 301,891 152,033
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Total Stockholders Equity $746,949 $606,291
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Total Liabilities And
Stockholders Equity $1,129,346 $ 887,641
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</TABLE>
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Part I. FINANCIAL INFORMATION
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
REVENUE
Gross Sales $415,537 $105,244 $967,329 $359,991
---------- ---------- ---------- ----------
Sales Returns (30,710) (1,053) (92,197) (5,702)
Sales Discounts (88) (275) (1,159) (13,608)
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Net Sales 384,738 103,916 873,983 340,681
Total Cost of Goods 28,769 9,971 78,959 30,579
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GROSS MARGIN 355,970 93,945 759,024 310,102
EXPENSES
Payroll Expense 73,120 50,716 190,455 141,850
Administrative Expense 128,895 40,913 302,678 113,959
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Operating Expense 202,015 91,629 493,133 255,809
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Net Operating Income 153,955 2,316 301,891 54,293
========== ========== ========== ==========
Net Income After Taxes (2) $153,955 $2,316 $301,891 $54,293
EARNINGS (LOSS) PER SHARE* 0.03 0.00 0.06 0.01
</TABLE>
*Primary weighted average common shares outstanding during the period.
1994 - 3,826,215 and 1995 - 4,893,570
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Part I. FINANCIAL INFORMATION
STATEMENT OF CASH FLOWS
3 Months ended December 31, 1994, 1995
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
Cash Flow from operating activities
Net Income (Loss) $153,955 $2,316
Change in Current Assets
Net Receivables (213,333) 2,223
Inventory 5,145 3,712
Prepaid Expenses 18,462 0
Change in Current Liabilities
Accounts Payable 21,062 (3,460)
Loan Payable - Stillwater (35,608) 9,500
Other Current Liabilities 19,290 0
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Total Cash from operating activities (31,027) 14,291
Cash Flow from investing activities
Developed Software (27,611) (5,201)
Property, Plant & Equipment (2,151) (198)
Depreciation on Prop, Plant & Equip. 0 1,533
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Total Cash Flow from investing activities (29,762) (3,866)
Cash Flow from financing activities
Long-Term Debt 85,445 (2,550)
Paid-In Capital (9,200) 0
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Total Cash from financing activities 76,245 (2,550)
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Net Increase (Decrease) in Cash $15,456 $7,875
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Beginning Cash Balance $4,989 $16,072
Net Increase (Decrease) in Cash $15,456 $7,875
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Ending Cash Balance $20,445 $23,946
=========== ==========
</TABLE>
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HEARTSOFT, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(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
Intangible assets consist of the following items:
Developed Computer Software Programs $570,752
The developed computer software was obtained in a tax-free transfer of assets
and liabilities from a merger with Davenport, Co. during 1989. Management
feels that based upon the developments expenses incurred by many of the
Company's competitors to design and develop similar products, that the
existing software has a value in excess of $1,000,000. However, the Company
uses advanced development techniques which have significantly reduced its
development costs relative to such Competitors.
During 1994 and 1995, the Company completed the conversion of its educational
software titles to MS-DOS SVGA and Macintosh computer platforms. At this
time, Management has capitalized the cost of its R & D, but may choose to
begin expensing those costs as increased profitability will impact the amount
of anticipated income tax to be paid over the next 24 months.
In the audit that will occur for the fiscal year ending March 30, 1996
management believes an adjustment will be made to reflect an amortization
schedule for capitalized developed software. This adjustment will lower earnings
for the current fiscal year and possibly lower earnings for the fiscal year
ending March 30, 1995. As with all non-cash items, this amortization will not
affect cash flow.
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HEARTSOFT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 1995
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 4,893,570 shares issued and outstanding. Over the
past ninety days, the Company's stock has traded in the $.25 to $1.12 range.
The mission of Heartsoft, Inc. is to create for its shareholders through the
development, acquisition, and distribution of advanced multimedia
technologies for education in schools and homes.
To date, Heartsoft has designed and published more than 30 educational
software titles. The 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.
In the last six months, Heartsoft has opened an 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 share holders and
managements 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. The Company reached positive cash flow during the last
quarter of fiscal 1993 and has maintained a strong rate of growth to date.
Net Revenues
Net Sales of the Company's educational computer software for the 3 months
ending December 31, 1995, were $384,738 compared to $103,916 for the same
period one year ago.
The increase in revenues can be attributed the Company's direct sales
strategy and licensed, third-party software sales. During this quarter, the
Company executed an 80,000 piece mailing to schools which resulted in a
favorable response. This rate of growth is expected to continue as the
Company expands its direct mail activity as well as the sale of third-party
technology products.
Cost of Goods Sold
The Company includes in cost of goods sold all costs associated with the
acquisition of components, assembly of finished products and shipping. The
gross margin of 92.5% for the three-months ended December 31, 1995, improved
from the 90.5% for the period one year ago. The higher gross margin can be
attributed to sales of higher ticket items for which Cost of Goods Sold is
lower.
Operating Expenses
General operating expenses increased across the board from $91,629 for the
three months ended December 31, 1994, to $202,015 for the same period ending
December 31, 1995.
As a percentage of net sales, operating expenses decreased from 88.2% one
year ago to 52.5% for the quarter ending December 31,1995. While the increase
in operating costs in support of a large increase in sales was expected, the
Company was able to lower the percentage of net sales consumed by operating
costs through higher operating efficiency.
Income Tax Provisions
The Company paid no state or federal income tax for the 3 months ending
December 31, 1995. Management has retained a tax loss carry forward of
$1,183,116 in the form of retained earnings which shall continued to be
applied to net profits through fiscal 1995 and 1996.
Net Income
Net income increased to $153,955 for the 3 months ending December 31, 1995
from $2,316 for the same period one year ago. Net income for the period grew
as a result of higher operating efficiency and the sale of higher ticket
items.
Liquidity and Capital Resources
As of December 31 1995, the Company's principle sources of liquidity included
cash and accounts receivables of $339,557 as well as a revolving line of
credit with a current limit of $100,000. 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.
Since reaching positive cash flow in the last quarter of 1993, the Company
has used cash from operations and its line of credit to fund growth in
working capital, to acquire equipment and to fund new product development.
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Part II. OTHER INFORMATION
Item 1: LEGAL PROCEEDINGS
Not Applicable.
Item 2: CHANGES IN SECURITIES
Not Applicable.
Item 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
Item 5: OTHER INFORMATION
Not Applicable.
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits - None
B. Reports on Form 8K - None
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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)
/s/ Benjamin P. Shell
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Chairman, Heartsoft, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 140,357
<SECURITIES> 0
<RECEIVABLES> 199,200
<ALLOWANCES> 102,000
<INVENTORY> 10,707
<CURRENT-ASSETS> 488,940
<PP&E> 65,041
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,129,346
<CURRENT-LIABILITIES> 122,341
<BONDS> 0
0
0
<COMMON> 308,458
<OTHER-SE> 438,491
<TOTAL-LIABILITY-AND-EQUITY> 1,129,346
<SALES> 384,738
<TOTAL-REVENUES> 384,738
<CGS> 28,769
<TOTAL-COSTS> 28,769
<OTHER-EXPENSES> 202,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 153,955
<INCOME-TAX> 0
<INCOME-CONTINUING> 153,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 153,955
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
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