SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
__________________
XX Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the quarterly period ended
June 30, 1995, or
Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, For the transition period from
___________ to ___________
Commission File Number 1-10139
_____________________________
THE SOFTWARE DEVELOPER'S COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2911320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
90 INDUSTRIAL PARK ROAD
HINGHAM, MASSACHUSETTS 02043
(Address of principal executive offices) (Zip Code)
(617) 740-0101
(Registrant's Telephone Number)
Securities registered pursuant to Section 12(g) of the Act: NONE
_________________________
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 other 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 XX Yes No
As of July 21, 1995 there were 7,442,998 shares of Common Stock outstanding.
<PAGE>
FORM 10-Q
QUARTERLY REPORT
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TABLE OF CONTENTS
Facing Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet . . . . . . . . . . . . . . . 3
Consolidated Statement of Operations . . . . . . . . . . 5
Consolidated Statement of Cash Flows . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 13
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . 13
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . 13
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Exhibit 11 - Computation of earnings per share . . . . . . . . . . . . 15
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PART I. - FINANCIAL INFORMATION
THE SOFTWARE DEVELOPER'S COMPANY, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
June 30,
1995 March 31,
(unaudited) 1995
Current assets:
Cash $ 647,421 $ 334,747
Accounts receivable - trade, net of
allowance for doubtful accounts of
$437,838 and $347,432 at June 30, 1995
and March 31, 1995, respectively 5,018,712 4,413,884
Accounts receivable - product, net of
allowance for doubtful accounts of
$46,544 and $60,745 at June 30, 1995
and March 31, 1995, respectively 80,716 99,977
Inventory 1,820,595 1,695,993
Other current assets 370,929 339,418
TOTAL CURRENT ASSETS 7,938,373 6,884,019
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 449,771 502,873
INTANGIBLE ASSETS, NET,
INCLUDING GOODWILL OF $695,513 934,013 967,262
OTHER ASSETS 78,210 88,421
TOTAL ASSETS $9,400,367 $8,442,575
The accompanying notes are an integral part of the financial statements.
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THE SOFTWARE DEVELOPER'S COMPANY, INC.
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30,
1995 March 31,
(unaudited) 1995
Current liabilities:
Accounts payable - trade $4,041,665 $4,063,696
Line of credit 1,423,470 1,423,470
Other accrued expenses 1,315,914 511,767
Accrued payroll 168,395 163,281
Customer advances 142,181 124,689
Current portion of capitalized lease
obligation 19,424 27,011
TOTAL CURRENT LIABILITIES 7,111,049 6,313,914
LONG-TERM DEBT-RELATED PARTY 300,000 300,000
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, authorized
5,000,000 shares:
Series C, voting, non-cumulative,
760,968 issued and outstanding
at June 30, 1995 (905,968 issued and
outstanding at March 31, 1995) 7,610 9,060
Common stock, voting, $.01 par value,
authorized 25,000,000 shares;
7,468,099 issued and 7,442,998
outstanding at June 30, 1995 (7,321,599
issued and 7,296,498 outstanding at
March 31, 1995) 74,682 73,217
Additional paid-in capital 9,951,051 9,949,566
Cumulative translation adjustment 26,262 22,242
Cumulative deficit (7,986,630) (8,141,767)
2,072,975 1,912,318
Less treasury stock, at cost,
25,101 shares (83,657) (83,657)
TOTAL STOCKHOLDERS' EQUITY 1,989,318 1,828,661
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $9,400,367 $8,442,575
The accompanying notes are an integral part of the financial statements.
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THE SOFTWARE DEVELOPER'S COMPANY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the three months ended
June 30,
1995 1994
Net revenues:
Product sales $11,869,598 $6,969,061
Marketing services 1,336,891 915,160
13,206,489 7,884,221
Costs and expenses:
Costs of products sold 9,829,100 5,482,577
Cost of marketing services 870,309 564,977
Selling, general and
administrative expenses 2,311,661 1,760,394
13,011,070 7,807,948
NET INCOME BEFORE INTEREST 195,419 76,273
Net other expense, primarily third
party interest 31,282 41,977
Interest expense, related party 9,000 9,000
NET INCOME $ 155,137 $ 25,296
Net income per share $0.02 $0.00
Weighted average shares outstanding 8,673,000 8,199,000
The accompanying notes are an integral part of the financial statements.
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THE SOFTWARE DEVELOPER'S COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
For the three months ended
June 30,
1995 1994
OPERATING ACTIVITIES
Net income $155,137 $ 25,296
Adjustments to reconcile net income
to net cash provided by operating
activities:
Sale of advertising for product (369,213) (266,508)
Depreciation and amortization 130,870 106,118
Provision for doubtful accounts
receivable 198,961 88,276
Provision for losses on inventory 83,401 ---
Changes in operating assets and liabilities:
Accounts receivable (730,589) 272,243
Inventory 107,271 544,707
Other current assets (31,511) 51,762
Other assets 10,211 23,103
Accounts payable (22,031) (424,232)
Accrued payroll 5,114 (17,577)
Other accrued expenses 804,147 (128,009)
Customer advances 17,492 (200,656)
Total adjustments 204,123 49,227
Net cash provided by continuing
operating activities 359,260 74,523
Net cash used for discontinued
operating activities --- (13,544)
Net cash provided by operating
activities 359,260 60,979
The accompanying notes are an integral part of the financial statements.
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THE SOFTWARE DEVELOPER'S COMPANY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS (Cont.)
(Unaudited)
For the three months ended
June 30,
1995 1994
INVESTING ACTIVITIES
Purchase of equipment $(44,519) $(27,049)
Net cash used for investing activities (44,519) (27,049)
FINANCING ACTIVITIES
Principal payments under capital
lease obligations (7,587) (6,813)
Issuance of common stock 1,500 ---
Net cash used for financing activities (6,087) (6,813)
Effect of exchange rate changes on cash 4,020 (7,910)
Net increase in cash 312,674 19,207
Cash at beginning of period 334,747 550,560
Cash at end of period $647,421 $569,767
Supplemental disclosures of cash flow
information:
Interest paid $ 37,080 $ 50,977
Supplemental schedule of noncash investing
and financing activities:
Collection of products in satisfaction
of accounts receivable - product $315,274 $355,634
The accompanying notes are an integral part of the financial statements.
<PAGE>
THE SOFTWARE DEVELOPER'S COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - The unaudited financial information furnished herein reflects
all adjustments which are of a normal recurring nature, which in the opinion
of management are necessary to fairly state the Company's financial position,
cash flows and the results of its operations for the periods presented.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. This information should be read in
conjunction with the Company's audited financial statements for the fiscal
year ended March 31, 1995, included in Form 10-K filed on July 14, 1995.
Note 2 - The results of operations for the three-month period ended June
30, 1995 are not necessarily indicative of the results to be expected for the
entire year ending March 31, 1996.
Note 3 - Minority interest represents the minority shareholders'
proportionate share of their equity of Personal Computing Tools, Inc. (PCT).
At June 30, 1995, the Company owned 94% of the capital stock of PCT.
Note 4 - Net income per share is based upon the weighted average number
of common shares outstanding including the dilutive effects of options and
warrants.
Note 5 - The Company provides for income taxes during interim reporting
periods based on reported earnings before income taxes using an estimate of
the annual effective tax rate. Deferred income taxes reflect the impact of
temporary differences between the amount of assets and liabilities recognized
for tax purposes. These deferred taxes are measured by applying currently
enacted tax laws.
Note 6 - Effective April 1, 1993, the Company changed its method of
accounting for incomes taxes from the deferred method to the liability method
required by FASB Statement No. 109 "Accounting for Income Taxes". The effect
of the adoption of this statement had no impact on the operating results,
components of income tax expense or financial position of the Company.
The principal components of the Company's deferred tax assets and
liabilities as of April 1, 1995 consisted of the following (in thousands):
Deferred tax assets:
Expenses not currently deductible $ 462
Operating loss carry forwards 3,004
3,466
Deferred tax liabilities ---
3,466
Valuation allowance (3,466)
Net ---
There was no change to the valuation allowance during the quarter ended
June 30, 1995.
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THE SOFTWARE DEVELOPER'S COMPANY, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are generated by marketing and distributing
specialty PC-based software and hardware to technical and professional PC
users through its catalog operations: The Programmer's SuperShop (TPS),
Personal Computing Tools SuperShop (PCT), and New Media SuperShop (NMS). In
addition, SDC Communications (SDCC) provides marketing services to third-party
manufacturers, developers and publishers of the products the Company
distributes.
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated financial statements and notes thereto:
% to Net Revenue % Change
For the three months ended June 30, 1995 1994 95 v. 94
Net Revenues:
Product sales (TPS, PCT, NMS) 90% 88% 70%
Marketing services (SDCC) 10% 12% 46%
100% 100% 68%
Gross Margins:
Product sales (TPS, PCT, NMS) 17% 21% 37%
Marketing services (SDCC) 35% 38% 33%
19% 23% 36%
Selling, general and administrative
expenses 18% 22% 31%
Net income 1% * 513%
* Less than 1%
Revenues: Total net revenues for the first quarter ended June 30, 1995
increased $5,322,000, or 68%, to $13,206,000 from $7,884,000 the first quarter
ended June 30, 1994.
Net product sales increased $4,901,000, or 70%, in the first quarter of
fiscal 1996 to $11,870,000 from $6,969,000 in the same period last year. This
increase in product revenue was primarily due the growth of the Company's
corporate sales group whose outbound selling effort has successfully
established major account relationships. The growth in product sales was
accelerated by an improving software development tools market and the
expansion of the Company's corporate sales group.
Marketing services revenues increased by $422,000, or 46%, to
$1,337,000 for the quarter ended June 30, 1995 from $915,000 in the same
period last year. This increase was mainly attributable to newly developed
quarterly marketing programs designed for low-cost promotion of manufacturers'
products.
Gross Margin: Total gross margin increased $670,000, or 36%, to $2,507,000 in
the first quarter of fiscal 1996 from $1,837,000 in the first quarter of
fiscal 1995.
<PAGE>
Gross margin from product sales increased $554,000, or 37%, to
$2,040,000 in the quarter ended June 30, 1995 from $1,486,000 in the quarter
ended June 30, 1994. The increase in product gross margin was generated by
the growth in sales volume generated by the corporate sales group. As a
percent of sales, however, gross margin from product sales decreased to 17%
from 21% as a result of competitive pricing pressures that exist in the
software distribution market and volume discounts offered to corporate
customers.
Gross margin from marketing services income increased $117,000, or 33%,
to $467,000 in the first quarter of fiscal 1996 from $350,000 in the first
quarter of fiscal 1995. This increase in gross margin is attributable to
newly developed quarterly marketing programs designed to promote software
manufacturers' products. These programs tend to yield higher gross margins
than sales generated from the Company's catalogs.
Selling, General and Administrative Expenses: Selling, General and
Administrative (SG&A) expenses increased 31% to $2,312,000 in the quarter
ended June 30, 1995 from $1,760,000 in the quarter ended June 30, 1994. The
increase was mainly attributable to planned headcount additions in the
corporate sales group, which produced increased revenue for the quarter. SG&A
as a percent of revenue declined to 18% from 22% reflecting the ability to
leverage existing operations to grow revenue.
Interest Expense: Net interest expenses decreased in the quarter ended June
30, 1995 to $40,000 from $51,000 in the same period last year. This decline
is mainly attributable to lower interest rates offered to the Company on its
line of credit.
The Company's quarterly operating results have varied and may continue
to vary significantly depending on factors such as the timing of significant
product marketing programs, the timing of new product introductions, and the
mix of service and product sales. Substantially all of the Company's product
revenue in a quarter is derived from orders received in that quarter.
Accordingly, delays in orders are likely to result in the associated revenue
not being realized by the Company in the period. Moreover, the Company's
expense levels are based in part on expectations of future revenue levels, and
a shortfall in expected revenue could therefore result in a disproportionate
decrease in the Company's net income.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands, except ratios)
June 30, March 31,
Financial Condition as of 1995 1995
Cash and cash equivalents $647 $335
Working capital 827 570
Current ratio 1.12 1.09
Cash Flow Activity Summary for June 30, June 30,
the Three Months Ended 1995 1994
Net cash provided by continuing
operating activities $359 $ 75
Net cash used for discontinued
operating activities --- (14)
Net cash used for investing activities (45) (27)
Net cash used for financing activities (6) (7)
<PAGE>
The Company's net cash balance increased $312,000 to $647,000 at June
30, 1995 from $335,000 at March 31, 1995. Cash generated by operating
activities of $359,000 was achieved during the quarter, primarily from net
income. Other accrued expenses increased $804,000 to $1,316,000 at June 30,
1995 from $512,000 at March 31, 1995. This increase mainly represents
accruals made by the Company for inventory received and expenses incurred but
not invoiced at June 30, 1995.
Accounts receivable-trade increased 14% to $5,019,000 at June 30, 1995
from $4,414,000 at March 31, 1995. This increase resulted from the Company's
revenue growth. The Company continues to maintain an expanded collections
program to yield favorable collection results.
Working capital increased $257,000 to $827,000 at June 30, 1995 from
$570,000 at March 31, 1995.
The Company has a $2,000,000 secured bank line of credit under which
borrowings bear interest at the bank's prime rate plus 1%. The line is
subject to renewal on January 5, 1996. Available borrowings under the line
are based on 80% of eligible accounts receivable. Covenants under the line of
credit require the Company to maintain certain net worth and financial ratios.
The Company is currently in default of certain financial covenants and has
received a written waiver for the period June 30, 1995 with the condition that
the maximum borrowings under the credit facility be limited to the current
outstanding balance until such time as a new credit restructuring is agreed
upon. The Company and the bank are currently in the process of renegotiating
the line of credit and the covenants governing the agreement which have caused
past defaults.
The Company anticipates that its existing cash resources, cash flow
from operations and the continued availability of its bank line of credit will
be sufficient to fund its operations through March 31, 1996, provided it meets
its operating plan and remains in compliance with its credit agreement. The
Company's ability to finance its operations will be dependent on its ability
to renegotiate its bank line of credit for a continued availability of
borrowing thereunder. There can be no assurance that the Company will be
successful in renegotiating its line of credit or that the bank will permit
continued borrowings under its line of credit. If the Company is unsuccessful
in renegotiating its line of credit with the bank, it will need to seek
alternative financing for working capital. Future capital requirements will
depend on many factors, including cash flow from continuing operations,
competition from larger catalog distributors and market developments, and the
Company's ability to distribute products and marketing services successfully.
To the extent cash flow from operations is insufficient to fund the Company's
activities, it may be necessary to raise additional funds through equity or
debt financing. The Company is exploring additional sources of capital;
however, there are currently no firm commitments at this time. Additional
debt financings will result in higher interest charges. Additional equity
financings will result in dilution of stockholders' interests. The Company's
ability to generate cash from operations depends upon, among other things,
revenue growth, improvements in operating productivity, its credit and payment
terms with vendors and collections of accounts receivable. The Company's
ability to borrow under this facility is dependent upon satisfying certain
financial covenants, among other things, and there can be no assurances that
the Company will remain in compliance. If such sources of cash prove
insufficient, the Company will be required to make changes in its operations
or to seek additional debt or equity financing. There can be no assurances
that cash generated from operations and borrowings under its credit facility
will be sufficient to meet its operating requirements, or if required, that
additional debt or equity financing will be available on terms acceptable to
the Company. The Company currently anticipates that its available cash,
expected cash flows from operations, and its borrowing capacity will be
sufficient to fund operations through fiscal year 1996.
<PAGE>
In June 1995, the Company became aware of information indicating that
cash and other accrued expenses had been reported improperly in fiscal 1994
and fiscal 1995. As a result of this information, the Company restated its
financial statements for the year ended March 31, 1994. Although the results
of the quarter ended June 30, 1994 were not effected, the Company expects to
amend its previously filed Form 10-Q reports for the quarters ended September
30, 1994 and December 31, 1995. The Company is in the process of calculating
the effect on each of these filings and will amend the respective quarters
subsequently.
<PAGE>
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any material legal proceedings.
Item 2. Changes in Securities
There have been no changes in securities during the quarter ended June
30, 1995.
Item 3. Defaults Upon Senior Securities
At June 30, 1995, the Company was in default of certain financial
covenants relating to its line of credit and a note payable to a related
party. The Company has obtained a written waiver for the period June 30, 1995
with the condition that the maximum borrowings under the credit facility be
limited to the current outstanding balance until such time as a new credit
restructuring is agreed upon. There can be no assurance that the Company will
be successful in renegotiating its line of credit.
Item 4. Submission of Matters to a Vote of Security Holders
No matter has been submitted to a vote of security holders, whether
through the solicitation of proxies or otherwise, during the quarter ended
June 30, 1995.
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1995.
<PAGE>
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.
THE SOFTWARE DEVELOPER'S
COMPANY, INC.
Date: August 11, 1995 By:/s/ Barry N. Bycoff
Barry N. Bycoff
President and Chief Executive
Officer (Principal Executive
Officer)
Date: August 11, 1995 By:/s/ James O'Connor, Jr.
James O'Connor, Jr.
Acting Financial and Chief
Accounting Officer
<PAGE>
EXHIBIT 11
THE SOFTWARE DEVELOPER'S COMPANY, INC.
COMPUTATION OF EARNINGS PER SHARE
Three months ended June 30,
(In thousands, except per share data)
1995 1994
Weighted average shares outstanding 8,284 8,198
Net effect of dilutive stock
options - based on the treasury
stock method using the average
market price 389 1
Total 8,673 8,199
NET INCOME $ 155 $ 25
Net income for EPS computation $ 155 $ 25
Per share amount:
NET INCOME PER SHARE $0.02 $0.00
