<PAGE>
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 three months ended July 31, 1996 Commission File Number 0-24418
SYSTEMSOFT CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-3121799
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2 VISION DRIVE
NATICK, MASSACHUSETTS 01760
(Address of principal executive offices) (Zip Code)
508-651-0088
(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
------ ---
Registrant had 22,465,554 shares of Common Stock, $.01 par value, outstanding at
September 6, 1996.
<PAGE>
SYSTEMSOFT CORPORATION
FORM 10-Q
For the Three Months Ended July 31, 1996
TABLE OF CONTENTS
Page Number
-----------
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
a) Consolidated Balance Sheets as of July 31, 1996
(Unaudited) and January 31, 1996 3
b) Consolidated Statements of Operations for the three and
six months ended July 31, 1996 and 1995 (Unaudited) 4
c) Consolidated Statements of Cash Flows for the six
months ended July 31, 1996 and 1995 (Unaudited) 5
d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
2
<PAGE>
SYSTEMSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
1996 1996
---------- -----------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalent $5,517,058 $7,406,039
Marketable securities 5,806,651 3,960,490
Accounts receivable, less allowance for doubtful
accounts of $648,085 and $491,037 as of
July 31, 1996 and January 31, 1996, respectively 10,418,671 7,561,096
Receivable from related party 886,568 692,722
Prepaid and other current assets 1,852,520 868,929
Deferred income taxes 1,512,756 1,512,756
------------- -------------
Total current assets 25,994,224 22,002,032
Property and equipment, net 3,718,699 2,830,529
Purchased software costs, net 2,297,005 556,058
Software development costs, net 2,401,680 1,563,303
------------- -------------
Total assets $34,411,608 $26,951,922
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,598,529 $680,493
Accrued expenses 538,115 402,066
Income taxes payable 1,190,640 524,258
Accrued commissions 571,632 497,354
Accrued compensation and benefits 698,038 582,845
------------- -------------
Total current liabilities 4,596,954 2,687,016
Deferred income taxes 674,390 674,390
Commitments
Minority interest in subsidiary 50,000 50,000
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
none issued and outstanding - -
Common stock, $.01 par value; 90,000,000 and 30,000,000
shares authorized; 22,045,915 and 21,106,038 shares issued
as of July 31, 1996 and January 31, 1996, respectively 220,458 211,060
Additional paid-in capital 27,641,392 24,867,556
Less treasury stock, at cost, 159,246 shares (427,187) (427,187)
Accumulated earnings (deficit) 1,655,601 (1,110,913)
------------- -------------
Total stockholders' equity 29,090,264 23,540,516
------------- -------------
Total liabilities and stockholders' equity $34,411,608 $26,951,922
============== ==============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
-3-
<PAGE>
SYSTEMSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license fees $5,454,198 $4,283,984 $10,809,355 $8,162,676
Engineering services 3,155,034 691,665 5,390,074 1,571,667
Related party 681,667 908,111 1,140,000 1,313,111
Other - 13,998 1,500 30,913
------------- ------------- -------------- -------------
Total revenues 9,290,899 5,897,758 17,340,929 11,078,367
------------- ------------- -------------- -------------
Cost of revenues:
Software license fees 577,180 192,535 980,453 390,818
Engineering services 951,333 560,033 1,703,589 958,818
Related party 207,648 487,176 422,579 796,625
Other - 11,150 - 35,230
------------- ------------- -------------- -------------
Total cost of revenues 1,736,161 1,250,894 3,106,621 2,181,491
------------- ------------- -------------- -------------
Gross profit 7,554,738 4,646,864 14,234,308 8,896,876
Operating expenses:
Research and development 1,933,156 1,241,433 3,619,272 2,334,902
Sales and marketing 2,669,506 1,562,949 5,084,324 3,300,734
General and administrative 744,939 655,438 1,434,013 1,191,756
------------- ------------- -------------- -------------
Total operating expenses 5,347,601 3,459,820 10,137,609 6,827,392
------------- ------------- -------------- -------------
Income from operations 2,207,137 1,187,044 4,096,699 2,069,484
Interest income 105,879 163,279 204,137 312,439
Interest expense (104) (413) (260) (588)
Foreign exchange loss (22,795) (16,624) (44,406) (12,736)
------------- ------------- -------------- -------------
Income before provision for income taxes 2,290,117 1,333,286 4,256,170 2,368,599
Provision for income taxes 801,541 465,767 1,489,659 855,568
------------- ------------- -------------- -------------
Net income 1,488,576 867,519 2,766,511 1,513,031
============= ============= ============== =============
Net income per common share $0.06 $0.04 $0.11 $0.07
============= ============= ============== =============
Weighted average number of common and
common equivalent shares outstanding 25,035,457 22,894,386 24,097,968 22,572,166
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
4
<PAGE>
SYSTEMSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
----------------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $2,766,511 $ 1,513,031
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 1,276,727 675,655
Provision for doubtful accounts 225,547 133,172
Tax benefit of disqualifying dispositions of
stock options 679,850 836,647
Changes in operating assets and liabilities:
Accounts receivable (4,455,601) (1,347,480)
Receivable from related party (669,800) (83,111)
Prepaid and other current assets (983,591) (573,966)
Accounts payable 918,036 271,006
Accrued expenses 668,673 3,282
Income taxes payable 666,382 14,419
Accrued commissions 591,642 (105,670)
Accrued compensation and benefits 115,196 (287,107)
Deferred revenue from related party (205,000)
------------- --------------
Net cash provided by operating activities 1,799,572 844,878
------------- --------------
Cash flows from investing activities:
Purchase of marketable securities, net (1,846,161) (54,894)
Purchase of property and equipment (1,434,153) (1,322,365)
Purchased software costs (1,308,642) -
Software development costs (1,202,982) (273,455)
------------- --------------
Net cash used in investing activities (5,791,938) (1,650,714)
------------- --------------
Cash flows from financing activities:
Proceeds from exercise of stock options 2,103,385 639,851
------------- --------------
Net cash provided by financing activities 2,103,385 639,851
------------- --------------
Net decrease in cash and cash equivalents (1,888,981) (165,985)
Cash and cash equivalents at beginning of period 7,406,039 7,806,387
------------- --------------
Cash and cash equivalents at end of period $5,517,058 $7,640,402
============= ==============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
SYSTEMSOFT CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the
Company, its wholly-owned subsidiaries and its majority-owned subsidiary. All
intercompany transactions and accounts have been eliminated.
Unaudited Consolidated Financial Statements
The accompanying consolidated financial statements of the Company as
of July 31, 1996 and for the three and six months ended July 31, 1996 and 1995
are unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are necessary
for a fair presentation thereof. These financial statements should be read in
conjunction with the Company's financial statements and notes thereto contained
in the Company's Form 10-K, SEC File No. 0-24418, filed on April 30, 1996. The
results of operations for the three and six month periods ended July 31, 1996
and 1995 are not necessarily indicative of the results that may be expected for
the full year or for any future period. In June 1995, the Company completed a
merger with Ventura Micro, Inc. ("VMI") which was accounted for as a pooling of
interests. The consolidated statements of operations for the six months ended
July 31, 1995, the consolidated statements of cash flows for the six months
ended July 31, 1995 and all related footnotes presented herein include the
accounts of the Company and VMI restated for the periods prior to the merger.
Net Income Per Common Share
Net income per common share is computed based upon the weighted
average number of common and common equivalent shares outstanding during each
period using the treasury stock method. Common equivalent shares are included in
the calculations where the effect on their inclusion would be dilutive.
Previously reported per share amounts have been restated for the effect of the
VMI merger, which was accounted for as a pooling of interest and for the 2:1
stock split in the form of a stock dividend issued on July 17, 1996 (see note
5).
2. Income Taxes
The components of the provision for income taxes include federal and
state income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax basis of assets and
liabilities. The major difference between the actual provision for income taxes
and the statutory federal income tax rates for the three and six months ended
July 31, 1996 and 1995 are the utilization of certain tax credits.
6
<PAGE>
3. Stock dividend
The Company issued a 2:1 stock split in the form of a stock dividend on
July 17, 1996. All amounts and per share data has been retroactively adjusted
for the earliest period presented.
4. Increase to authorized capital
At a special meeting of stockholders held on July 30, 1996, a majority
of the stockholders of the Company voted to increase the number of authorized
shares of Common Stock by 60,000,000 from 30,000,000 to 90,000,000 shares.
7
<PAGE>
SYSTEMSOFT CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and six months ended July 31, 1996 and
1995. The Company designs, develops, markets, licenses and supports to the
personal computer industry connectivity and other system-level software designed
to be the communication path between the personal computer hardware and its
operating system software. The principal markets for the Company's products are
U.S. and Asia Pacific based manufacturers of personal computers and related
devices. In June 1995, the Company completed a merger with VMI which was
accounted for as a pooling of interests. The management's discussion and
analysis of financial condition and results of operations presented herein
includes the accounts of the Company and VMI restated for the periods prior to
the merger.
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenues (except cost of revenues items,
which are set forth as a percentage of the corresponding revenue items):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license fees 58.7% 72.7% 62.3% 73.6%
Engineering services 34.0 11.7 31.1 14.2
Related party 7.3 15.4 6.6 11.9
Other 0.0 0.2 0.0 0.3
--------------------------- -------------------------
Total revenues 100.0 100.0 100.0 100.0
--------------------------- -------------------------
Cost of revenues:
Software license fees 10.6 4.5 9.1 4.8
Engineering services 30.2 81.0 31.6 61.0
Related party 30.5 53.6 37.1 60.7
Other 0.0 79.7 0.0 114.0
--------------------------- -------------------------
Total cost of revenues 18.7 21.2 17.9 19.7
--------------------------- -------------------------
Gross margin 81.3 78.8 82.1 80.3
Operating expenses:
Research and development 20.8 21.0 20.9 21.1
Sales and marketing 28.8 26.6 29.3 29.8
General and administrative 8.0 11.1 8.2 10.7
--------------------------- -------------------------
Total operating expenses 57.6 58.7 58.4 61.6
--------------------------- -------------------------
Income from operations 23.7 20.1 23.7 18.7
Interest income 1.1 2.8 1.2 2.8
Interest expense 0.0 0.0 0.0 0.0
Foreign exchange loss -0.2 -0.3 -0.3 -0.1
--------------------------- -------------------------
Income before provision for income taxes 24.6 22.6 24.6 21.4
Provision for income taxes 8.6 7.9 8.6 7.7
--------------------------- -------------------------
Net income 16.0% 14.7% 16.0% 13.7%
=========================== =========================
</TABLE>
8
<PAGE>
Comparison of Three Months Ended July 31, 1996 and 1995
Revenues. Revenues were $9,291,000 and $5,898,000 in the three months
ended July 31, 1996 and 1995, respectively, an increase of approximately 58%.
Software license fees increased to $5,454,000 from $4,284,000, or approximately
27%. This increase was primarily due to software license fees on the Company's
new call avoidance products as well as growth in the software license fees for
BIOS and power management products. Certain contracts include fixed royalty
fees for various time periods in lieu of royalties on a per unit basis.
Although such contracts provide for fixed payments to be made at specified time
periods, the timing or amount of such payments may be renegotiated as a matter
of business practice. Revenues attributable to such fees, which are included in
software license fees, were $250,000 and $279,000 in the three months ended July
31, 1996 and 1995, respectively. Included in the fixed royalties recognized in
the three months ended July 31, 1996 were $52,000 which resulted from
renegotiated contract terms. Such revenue would have otherwise been recorded in
the quarter ended October 31, 1996. Engineering services increased to
$3,155,000 from $692,000, or approximately 356% due primarily to engineering
services related to a significant contract with a customer to develop call-
avoidance software products, as well as growth in the mobile computing market
engineering services. Related party revenues decreased to $682,000 from
$908,000, or approximately 25%. Revenues generated under the Development and
License Agreement, as amended, with Intel Corporation (The "Intel Agreement")
were $375,000 and $800,000 in the three months ended July 31, 1996 and 1995,
respectively.
Cost of Revenues. Cost of revenues was $1,736,000 and $1,251,000 in
the three months ended July 31, 1996 and 1995, respectively. Cost of revenues
consists primarily of amortization of software development costs and purchased
software, royalties and other engineering and sales and marketing costs under
the Intel Agreement, in addition to engineering costs associated with
engineering services revenues. Cost of revenues as a percentage of revenues
decreased to 19% from 21% in the three months ended July 31, 1996 and 1995,
respectively. Cost of software license fees as a percentage of software license
fees revenues increased to 11% from 5% in the three months ended July 31, 1996
and 1995, respectively primarily due to increases in royalties and amortization
of purchased software and software development costs. The increase in
amortization expense in both absolute dollars and percentage of revenues was due
to increases in purchased software and software development costs and the
commencement of amortization with new product releases. Cost of engineering
services decreased as a percentage of engineering service revenues to 30% from
81% in the three months ended July 31, 1996 and 1995, respectively primarily due
to increased efficiency in providing engineering services and substantial
relative growth of revenues. Cost of related party revenues as a percentage of
related party revenues decreased to 30% from 54%, due to a decrease in the lower
margin services provided under the original Intel Agreement as well as certain
personnel costs being included in Research and Development under the amended
Intel Agreement.
Research and Development. Research and development expenses,
consisting primarily of payroll and related expenses, were $1,933,000 and
$1,241,000, net of capitalized development costs of $652,000 and $166,000, in
the three months ended July 31, 1996 and 1995, respectively, an increase of
approximately 56%. The increase in expenses resulted primarily from staff
additions to support the Company's new product development effort. Research and
development
9
<PAGE>
expenses as a percentage of revenues remained unchanged. Included in Research
and Development are costs associated with certain work done under the Intel
Agreement.
Sales and Marketing. Sales and marketing expenses, consisting
primarily of payroll and related expenses, costs of marketing programs and
events, sales commissions to internal sales personnel and independent
manufacturers' representatives and travel costs, were $2,670,000 and $1,563,000
in the three months ended July 31, 1996 and 1995, respectively, an increase of
approximately 71%. The percentage increase was primarily due to staff
additions, increased costs of marketing programs and events, additional travel
costs and sales commissions resulting from the increased level of revenue.
Sales and marketing expenses as a percentage of revenues increased to 29% from
27% for the reasons discussed above.
General and Administrative. General and administrative expenses,
consisting primarily of payroll and related expenses, provision for doubtful
accounts and professional fees, were $745,000 and $655,000 in the three months
ended July 31, 1996 and 1995, respectively, an increase of approximately 14%.
The increase was primarily due to staff additions. General and administrative
expenses as a percentage of revenues decreased to 8% from 11% due to the
substantial relative growth in revenues.
Provision for Income Taxes. Provision for income taxes was $802,000
and $466,000 in the three months ended July 31, 1996 and 1995, respectively. In
the three months ended July 31, 1996 and 1995, the Company was able to reduce
its federal tax liability through the utilization of certain tax credits.
Comparison of Six Months Ended July 31, 1996 and 1995
Revenues. Revenues were $17,341,000 and $11,078,000 in the six months
ended July 31, 1996 and 1995, respectively, an increase of approximately 57%.
Software license fees increased to $10,809,000 from $8,163,000 or approximately
32%. This increase was primarily due to software license fees on the Company's
new call avoidance products as well as growth in the software license fees for
BIOS and power management products. Certain contracts include fixed royalty
fees for various time periods in lieu of royalties on a per unit basis.
Although such contracts provide for fixed payments to be made at specified time
periods, the timing or amount of such payments may be renegotiated as a matter
of business practice. Revenues attributable to such fees, which are included in
software license fees, were $1,050,000 and $1,747,000 in the six months ended
July 31, 1996 and 1995, respectively. The fixed royalties recognized in the six
months ended July 31, 1996 included $652,000 which resulted from renegotiated
contract terms. Such revenue would have otherwise been recorded in the
subsequent three fiscal quarters. Engineering services increased to $5,390,000
from $1,572,000 or approximately 243% due to engineering services related to a
significant contract with a customer to develop call-avoidance software
products, as well as growth in the mobile computing market engineering
services. Related party revenues decreased to $1,140,000 from $1,313,000 or
approximately 13%. Revenues generated under the Intel Agreement were $750,000
and $1,205,000 in the six months ended July 31, 1996 and 1995, respectively.
10
<PAGE>
Cost of Revenues. Cost of revenues was $3,107,000 and $2,181,000 in
the six months ended July 31, 1996 and 1995, respectively. Cost of revenues
consists primarily of amortization of software development costs and purchased
software, royalties and other engineering and sales and marketing costs under
the Intel Agreement, in addition to engineering costs associated with
engineering services revenues. Cost of revenues as a percentage of revenues
decreased to 18% from 20% in the six months ended July 31, 1996 and 1995,
respectively. Cost of software license fees as a percentage of software license
fees revenues increased to 9% from 5% primarily due to increases in royalties
and amortization of purchased software and software development costs. The
increase in amortization expense in both absolute dollars and percentage of
revenues was due to increases in purchased software and software development
costs and the commencement of amortization with new product releases. Cost of
engineering services decreased as a percentage of engineering service revenues
to 32% from 61%, primarily due to increased efficiency in providing engineering
services and substantial relative growth of revenues. Cost of related party
revenues as a percentage of related party revenues decreased to 37% from 61%,
due to a decrease in the lower margin services provided under the original Intel
Agreement as well as certain personnel costs being included in Research and
Development under the Intel Agreement.
Research and Development. Research and development expenses,
consisting primarily of payroll and related expenses, were $3,619,000 and
$2,335,000, net of capitalized development costs of $1,203,000 and $331,000, in
the six months ended July 31, 1996 and 1995, respectively, an increase of
approximately 55%. The increase in expenses resulted primarily from staff
additions to support the Company's new product development effort. Research and
development expenses as a percentage of revenues remained unchanged. Included
in Research and Development are costs associated with certain work done under
the Intel Agreement.
Sales and Marketing. Sales and marketing expenses, consisting
primarily of payroll and related expenses, costs of marketing programs and
events, sales commissions to internal sales personnel and independent
manufacturers' representatives and travel costs, were $5,084,000 and $3,301,000
in the six months ended July 31, 1996 and 1995, respectively, an increase of
approximately 54%. The percentage increase was primarily due to staff
additions, increased costs of marketing programs and events, additional travel
costs and sales commissions resulting from the increased level of revenue.
Sales and marketing expenses as a percentage of revenues decreased to 29% from
30% due to the substantial relative growth in revenues.
General and Administrative. General and administrative expenses,
consisting primarily of payroll and related expenses, provision for doubtful
accounts and professional fees, were $1,434,000 and $1,192,000 in the six months
ended July 31, 1996 and 1995, respectively, an increase of approximately 20%.
The increase was primarily due to staff additions. General and administrative
expenses as a percentage of revenues decreased to 8% from 11% due to the
substantial relative growth in revenues.
Provision for Income Taxes. Provision for income taxes was $1,490,000 and
$856,000 in the six months ended July 31, 1996 and 1995, respectively. In the
six months ended July 31, 1996 and 1995, the Company was able to reduce its
federal tax liability through the utilization of certain tax credits.
11
<PAGE>
Liquidity and Capital Resources
During the six months ended July 31, 1996, the Company funded its
operations primarily through its operating profits. As of July 31, 1996, the
Company had cash and cash equivalents and marketable securities of $11,324,000
and working capital of $21,397,000. The Company's operating activities provided
cash of $1,800,000 for the six months ended July 31, 1996. The Company's
investing activities used cash of $5,792,000 in the six months ended July 31,
1996. The principal uses of cash have been the purchase of marketable
securities of $1,846,000, the purchase of property and equipment of $1,434,000
and purchased software of $1,309,000. During the six months ended July 31,
1996, the Company's financing activities have provided cash of $2,103,000, due
to the exercise of stock options. The Company believes that its current cash
balances and cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements through the next twelve months. To
date, inflation has not had a material impact on the Company's financial
results.
Certain Factors That May Affect Future Results
Information provided by the Company or statements made by its
employees may contain "forward-looking" information which involves risk and
uncertainties. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts (including, but not limited to, statements concerning
sufficiency of funds for the Company's working capital) are "forward-looking
statements." The Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to, the factors discussed below as well
as the accuracy of the Company's internal estimates of revenue and operating
expense levels. Each of these factors, and others, are discussed from time to
time in the Company's Securities and Exchange Commission filings.
The Company's future results are subject to substantial risks and
uncertainties. Revenue growth rates experienced by the Company to date may not
be indicative of future growth rates and there can be no assurance that the
Company will remain profitable in the future. The market for the Company's
system-level and call-avoidance software is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's future success will depend upon its ability to enhance its current
software and to develop and introduce new software which keeps pace with
technological developments and evolving industry standards as well as to respond
to changes in customer requirements. The Company may confront new competitors
as it introduces new products and expands into new markets. Certain current and
potential competitors of the Company are more established, benefit from greater
market recognition and have substantially greater financial, development and
marketing resources than the Company. Competitive pressures or other factors,
including entry into new markets, may result in unit royalty erosion that could
have a material adverse effect on the Company's results of operations. The
Company believes that its success to date has been largely dependent on the
adoption of its software by key participants in the PC industry, the loss of
which could adversely affect the Company's product development efforts. In
addition, the inability of the Company to replace revenues provided by a key
customer could have a material-adverse effect on
12
<PAGE>
the Company's business and financial condition. The Company's success to date
has depended to a significant extent upon a number of key management and
technical employees. The loss of services of one or more of these key employees
could have a material adverse effect on the Company's business and financial
condition.
The Company believes that future results of operations may fluctuate
significantly based upon numerous factors including the timing of new product
introductions, product mix, activities of competitors and the ability of the
Company to penetrate new markets. The volume and timing of new contracts could
have a significant impact on operating results for a particular quarter and may
result in unanticipated quarterly earnings shortfalls or losses. In such an
event, the price of the Company's Common Stock would likely be materially
adversely affected.
13
<PAGE>
Part II. OTHER INFORMATION
Item 4. - Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of stockholders held June 19, 1996,
the Company's stockholders took the following actions:
(1) The Company's stockholders reelected Robert F. Angelo, Robert N.
Goldman, W. Frank King, Ph.D. and David J. McNeff as directors of the Company to
serve until the next annual meeting of stockholders and until their successors
shall have been duly elected and qualified or until their earlier resignation or
removal. Election of the directors was determined by a plurality of the votes
cast at the 1996 annual meeting. With respect to such matter, the votes were
cast as follows: 6,926,744, 6,926,744, 6,926,744 and 6,926,044 shares voted for
the reelection of directors respectively, 215,200, 215,200, 215,200 and 215,900
shares abstained from voting on the reelection of directors respectively and
1,300, 1,300, 1,300 and 1,300 shares respectively were broker non-votes. No
other persons were nominated, or received votes, for election as directors of
the Company at the 1996 annual meeting of stockholders.
(2) The Company's stockholders approved and adopted an amendment to
the Company's 1994 Omnibus Stock Plan (the "1994 Plan") to increase by 1,250,000
shares the number of shares available for issuance under the 1994 Plan from
750,000 to 2,000,000. With respect to such matter, the votes were cast as
follows: 4,100,132 shares voted for the proposal, 1,460,547 shares voted
against the proposal, 64,980 shares abstained from voting on the proposal and
1,517,585 shares were broker non-votes.
(3) The Company's stockholders approved and adopted an amendment to
the Company's 1994 Employee Stock Purchase Plan (the "1994 ESPP") to increase by
250,000 shares the number of shares available for issuance under the 1994 ESPP
from 100,000 to 350,000. With respect to such matter, the votes were cast as
follows: 5,716,242 shares voted for the proposal, 94,403 shares voted against
the proposal, 69,945 shares abstained from voting on the proposal and 1,262,654
shares were broker non-votes.
At the Company's special meeting of stockholders held on July 30,
1996, the Company's stockholders voted on an amendment to the Company's Second
Restated Certificate of Incorporation increasing from 30,000,000 to 90,000,000
the number of authorized shares of Common Stock, $.01 par value per share, of
the Company. Approval of the proposal was determined by a majority vote of the
shares outstanding as of record date for the special meeting of stockholders.
With respect to such matter, the votes were cast as follows: 7,322,268 shares
voted for the proposal, 1,528,169 shares voted against the proposal, 206,117
shares abstained from voting on the proposal and 110 shares were delivered not
voted.
14
<PAGE>
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits.
--------
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Second Restated Certificate of
Incorporation of SystemSoft
Corporation
3.2 Certificate of Amendment of Second
Restated Certificate of Incorporation of
SystemSoft Corporation
(b) Reports on Form 8-K. A Current Report on Form 8-K dated July 17,
-------------------
1996 was filed during the quarter. The Current Report on Form 8-K was filed
pursuant to Item 5 of Form 8-K announcing the effectuation of a two-for-one
stock split on the Company's Common Stock in the form of a 100% stock dividend
payable on July 17, 1996 to stockholders of record on July 3, 1996.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Second Restated Certificate of
Incorporation of SystemSoft
Corporation
3.2 Certificate of Amendment of Second
Restated Certificate of Incorporation of
SystemSoft Corporation
15
<PAGE>
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.
SYSTEMSOFT CORPORATION
September 16, 1996 By: /s/ Robert F. Angelo
-------------------------
Robert F. Angelo
President, Chief Executive
Officer and Chairman of
the Board
September 16, 1996 By: /s/ David P. Sommers
-------------------------
David P. Sommers
Vice President, Finance and
Chief Financial Officer
16
<PAGE>
Exhibit 3.1
Second Restated Certificate of Incorporation
of
SystemSoft Corporation
Pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware
The undersigned Robert F. Angelo, President of SystemSoft Corporation, a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation") originally incorporated under the name
SystemSoft Acquisition Corporation, the Certificate of Incorporation of which
was filed in the Office of the Secretary of State of Delaware on May 15, 1991,
does hereby certify that (a) this Second Restated Certificate of Incorporation
was duly adopted in accordance with Sections 242 and 245 of the General
Corporation Law of the State of Delaware; and (b) the stockholders of the
Corporation duly approved this Second Restated Certificate of Incorporation by
written consent in accordance with Section 228 of the General Corporation Law of
the State of Delaware and written notice of such consent has been given to all
stockholders who have not consented in writing to this Second Restated
Certificate of Incorporation.
1. The name of this Corporation is SystemSoft Corporation.
2. The registered office of this Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. The purpose of this Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
4. [Deliberately Omitted.]
5. The total number of shares of stock that the Corporation shall have
authority to issues is 30,000,000 shares of Common Stock, $.01 par value per
share, and 1,000,000 shares of Preferred Stock, $.01 par value per share. The
Preferred Stock may be divided into, and may be issued from time to time in, one
or more series. Subject to the limitations prescribed by law and the provisions
of this Second Restated Certificate of Incorporation, the Board of Directors of
the Corporation is authorized from time to time to establish and designate any
such series of Preferred Stock, to fix and determine the variations in the
relative rights and preferences as between and among such series and any other
classes of capital stock of the Corporation and any
<PAGE>
series thereof, and to fix or alter the number of shares comprising any such
series and the designations thereof. The authority of the Board of Directors
from time to time with respect to each series shall include, but not be limited
to, determination of the following:
(a) The designation of the series;
(b) The number of shares of the series and (except where
otherwise provided in the creation of the series) any subsequent increase
or decrease therein;
(c) The dividends, if any, for shares of the series and the
rates, conditions, times, and relative preferences thereof;
(d) The redemption rights, if any, and price or prices for shares
of the series;
(e) The terms and amount of any sinking fund provided for the
purchase or redemption of shares of the series;
(f) The relative rights of shares of the series in the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation;
(g) Whether the shares of the series shall be convertible into
shares of any other class or series of shares of the Corporation, and, if
so, the specification of such other class or series, the conversion price
or prices or rate or rates, any adjustments thereof, the date or dates as
of which such shares shall be convertible and all other terms and
conditions upon which such conversion may be made;
(h) The voting rights, if any, of the holders of such series; and
(i) Such other designations, powers, preferences and relative,
participating, optional or other special rights, and qualifications,
limitations or restrictions thereof.
6. Except as provided to the contrary in the provisions establishing
a class or series of stock, the amount of the authorized stock of this
Corporation of any class or classes may be increased or decreased by the
affirmative vote of the holders of a majority of the stock of this Corporation
entitled to vote.
7. The election of directors need not be by written ballot unless
the by-laws shall so require.
8. In furtherance and not in limitation of the power conferred upon
the Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal from time to time by-laws of this Corporation,
subject to the right of the stockholders entitled to vote with respect thereto
to alter and repeal by-laws made by the Board of Directors.
<PAGE>
9. No director of this Corporation shall be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability, (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this paragraph 9 to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended
from time to time. Any repeal or modification of this paragraph 9 shall not
increase the personal liability of any director of this Corporation for any act
or occurrence taking place prior to such repeal or modification, or otherwise
adversely affect any right or protection of a director of the Corporation
existing hereunder prior to the time of such repeal or modification.
10. The Corporation shall, to the fullest extent permitted from time
to time under the General Corporation Law of the State of Delaware, indemnify
each of its directors and officers against all expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement in respect of any action,
suit or proceeding in which such director or officer may be involved or with
which he may be threatened, while in office or thereafter, by reason of his or
her actions or omissions in connection with services rendered directly or
indirectly to the Corporation during his or her term of office, such
indemnification to include prompt payment of expenses in advance of the final
disposition of any such action, suit or proceeding. Such indemnification shall
not be exclusive of other indemnification rights arising under any by-law,
agreement, vote of directors or stockholders or otherwise and shall inure to the
benefit of the heirs and legal representatives of such person. Any person
seeking indemnification under this paragraph 10 shall be deemed to have met the
standard of conduct required for such indemnification unless the contrary shall
be established. Any repeal or modification of the foregoing provisions of this
paragraph 10 shall not adversely affect any right or protection of a director of
officer of this Corporation with respect to any acts of omissions of such
director or officer occurring prior to such repeal or modification.
11. The books of this Corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or in the by-laws of this Corporation.
12. Subject to the rights of the holders of any and all series of
Preferred Stock:
(a) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of the stockholders of the Corporation and may not be
effected by any consent in writing of such stockholders; and
<PAGE>
(b) special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, if any, the President of the
Corporation or by the Secretary within ten (10) days after receipt of the
written request of a majority of the Board of Directors.
13. Subject to the rights, if any, of the holders of any class or series
of Preferred Stock to elect additional directors under specified circumstances,
the number of directors of the Corporation shall be fixed and may be increased
or decreased from time to time by the Board of Directors of the Corporation, but
in no case shall the number be less than three nor more than fifteen.
Subject to the rights, if any, of the holders of any and all series of
Preferred Stock to elect additional directors pursuant to the terms and
conditions of such Preferred Stock, newly created directorships resulting from
any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, disqualification, removal or other
cause shall be filled solely by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors, or by a sole remaining director.
Subject to the rights, if any, of the holders of any and all series of
Preferred Stock to elect additional directors pursuant to the terms and
conditions of such Preferred Stock, any director may be removed from office by
the stockholders only for cause and only in the following manner. At any annual
meeting or special meeting of the stockholders of the Corporation, the notice of
which shall state that the removal of a director or directors is among the
purposes of the meeting, affirmative vote of the holders of at least a majority
of the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of the directors, voting together as a single class,
may remove such director or directors for cause.
<PAGE>
14. Any amendment, repeal or other alteration of this Second Restated
Certificate of Incorporation shall, unless proposed and declared advisable by
the Board of Directors, require the affirmative vote of at least two-thirds of
the outstanding shares of capital stock of the Corporation entitled to vote in
the election of directors. Subject to the foregoing, the Corporation reserves
the right to amend, alter, change or repeal any provision contained in this
Second Restated Certificate of Incorporation, in the manner now or thereafter
prescribed by statute and this Second Restated Certificate of Incorporation, and
all rights conferred upon a stockholder, director or officer herein are granted
subject to this reservation.
Effective as of August 11, 1994.
/s/ Robert F. Angelo
--------------------------------------
Robert F. Angelo
President
Attest: /s/ Paul J. Pedevillano
---------------------------------------
Paul J. Pedevillano
Secretary
<PAGE>
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
SECOND RESTATED CERTIFICATE OF INCORPORATION
OF
SYSTEMSOFT CORPORATION
SystemSoft Corporation, a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows, pursuant to Section 242 of the
General Corporation Law of Delaware:
FIRST: That the Board of Directors of said Corporation, at a meeting
held on June 19, 1996, duly adopted resolutions in accordance with Section 242
of the General Corporation Law of the State of Delaware, (i) proposing amendment
to the Second Restated Certificate of Incorporation of the Corporation, (ii)
declaring such amendment to be advisable and in the best interests of the
Corporation, and (iii) directing that such amendment be submitted to the
stockholders of the Corporation for approval thereby. The resolutions setting
forth the amendment and directing that such amendment be submitted to the
stockholders are as follows:
RESOLVED: That a Special Meeting of the Stockholders of the Corporation be
scheduled to be held on July 30, 1996 (the "Special Meeting") at
3:30 p.m., local time, at Testa, Hurwitz & Thibeault, LLP, 125
High Street, Boston, MA.
RESOLVED: That the close of business on June 24, 1996, is hereby fixed as
the record date for the determination of holders of the Common
Stock of this Corporation entitled to vote at the Special Meeting
and at any adjournment thereof.
RESOLVED: That the authorized capital stock of the Corporation be increased
from 30,000,000 shares of its Common Stock, $.01 par value per
share, to 90,000,000 of such shares and that such increase be
submitted and recommended to the shareholders of the Corporation
for approval at the Special Meeting; that in order to effect said
increase the proper officers of this Corporation are hereby
authorized and directed to prepare, execute
<PAGE>
and file with the Secretary of State of the State of Delaware,
appropriate Amendment to the Second Restated Certificate of
Incorporation of the Corporation; and that the Board of Directors
is hereby authorized to issue all or any part of the authorized
but unissued capital stock of this Corporation at such times, to
such persons, upon such terms, and for such consideration as the
Board may in its discretion determine.
RESOLVED: That each or both of Robert F. Angelo and Steven A. Berns be
designed to serve as proxies, with full power of substitution, at
the Special Meeting and at any adjournments thereof.
SECOND: This Certificate of Amendment of Second Restated Certificate
of Incorporation was duly adopted at the Special Meeting of Stockholders of the
Corporation held July 30, 1996, in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
THIRD: That in accordance with the aforementioned resolution, the
Second Restated Certificate of Incorporation of this Corporation is hereby
amended by deleting the first sentence of Article FIFTH thereof in its entirety
and replacing it with a new sentence so that, as amended, the first sentence of
Article FIFTH shall read as follows:
The total number of shares of all classes of capital stock which the
Corporation shall have authority to issue shall be Ninety-One Million
(91,000,000) shares, consisting of 90,000,000 shares of Common Stock
with a par value of $.01 per share (the "Common Stock") and 1,000,000
shares of Preferred Stock with a par value of $.01 per share (the
"Preferred Stock").
FOURTH: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
<PAGE>
IN WITNESS WHEREOF, SystemSoft Corporation, has caused this certificate to
be signed by David P. Sommers, its Vice-President, Finance and Chief Financial
Officer, and attested by Steven A. Berns, its Secretary, as of this 30th day of
July, 1996.
SYSTEMSOFT CORPORATION
By: /s/ David P. Sommers
----------------------------------
David P. Sommers,
Vice-President, Finance and
Chief Financial Officer
ATTEST:
By: /s/ Steven A. Berns
--------------------------------
Steven A. Berns,
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10Q FOR
QUARTER ENDED 7-31-96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1996
<PERIOD-START> MAY-01-1996 MAY-01-1995
<PERIOD-END> JUL-31-1996 JUL-31-1995
<CASH> 5,517,058 7,406,039
<SECURITIES> 5,806,651 3,960,490
<RECEIVABLES> 11,305,239 8,052,133
<ALLOWANCES> 648,085 491,037
<INVENTORY> 0 0
<CURRENT-ASSETS> 25,994,224 22,002,032
<PP&E> 6,091,264 4,291,032
<DEPRECIATION> 2,372,565 1,460,503
<TOTAL-ASSETS> 34,411,608 26,951,922
<CURRENT-LIABILITIES> 4,596,954 2,687,016
<BONDS> 0 0
0 0
0 0
<COMMON> 220,458 211,060<F1>
<OTHER-SE> 28,869,806 23,329,456<F1>
<TOTAL-LIABILITY-AND-EQUITY> 34,411,608 0
<SALES> 5,454,198 4,283,984
<TOTAL-REVENUES> 9,290,899 5,897,758
<CGS> 577,180 192,535
<TOTAL-COSTS> 1,736,161 1,250,894
<OTHER-EXPENSES> 5,347,601 3,459,820
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 104 413
<INCOME-PRETAX> 2,290,117 1,333,286
<INCOME-TAX> 801,541 465,767
<INCOME-CONTINUING> 1,488,576 867,519
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,488,576 867,519
<EPS-PRIMARY> .06<F1> .04<F1>
<EPS-DILUTED> .06<F1> .04<F1>
<FN>
<F1> THE COMPANY ISSUED A 2:1 STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND ON
JULY 17, 1996. ALL AMOUNTS HAVE BEEN RETROACTIVELY ADJUSTED FOR THE EARLIEST
PERIOD PRESENTED.
</FN>
</TABLE>
