<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-020992
MATHSOFT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2842217
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
101 MAIN STREET
CAMBRIDGE, MASSACHUSETTS 02142-1521
(Address, including zip code, of registrant's principal executive offices)
(617) 577-1017
(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 AT LEAST THE PAST 90 DAYS.
YES X NO
---
AS OF APRIL 28, 1997 THERE WERE 9,005,664 SHARES OF COMMON STOCK, $.01 PAR VALUE
PER SHARE, OUTSTANDING.
<PAGE> 2
MATHSOFT, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
- Consolidated Condensed Balance Sheets as of
March 31, 1997 and June 30, 1996 3-4
- Consolidated Condensed Statements of Operations for the Three
and Nine Month Periods Ended March 31, 1997 and 1996 5
- Consolidated Condensed Statements of Cash Flows for the
Nine Month Periods Ended March 31, 1997 and 1996 6-7
- Notes to Consolidated Condensed Financial Statements 8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Cautionary Statements 15-18
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
<PAGE> 3
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
---------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,252,794 $ 4,954,416
Accounts receivable and other receivables, less
reserves of approximately $1,106,000 at
March 31, 1997 and $776,000 at June 30, 1996 3,388,409 3,881,568
Inventories 433,552 547,892
Prepaid expenses 434,429 381,638
---------- -----------
Total current assets 7,509,184 9,765,514
---------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment and software 4,257,642 4,052,662
Property and equipment under capital lease 436,337 0
Furniture and fixtures 981,745 968,644
Leasehold improvements 626,890 621,354
---------- -----------
6,302,614 5,642,660
Less - Accumulated depreciation and amortization 4,678,347 4,044,072
---------- -----------
1,624,267 1,598,588
OTHER ASSETS:
Purchased technology, net of accumulated amortization
of approximately $2,667,000 at March 31, 1997 and
$2,505,000 at June 30, 1996 341,441 504,006
Other assets 73,568 31,044
---------- -----------
415,009 535,050
---------- -----------
$9,548,460 $11,899,152
========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
3
<PAGE> 4
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 207,939 $ 16,753
Accounts payable 2,219,413 1,699,414
Accrued expenses and other current liabilities 2,099,914 2,255,214
Accrued restructuring, current portion 10,975 13,316
Deferred revenue 1,297,488 1,092,541
------------ ------------
Total current liabilities 5,835,729 5,077,238
------------ ------------
ACCRUED RESTRUCTURING, LESS CURRENT PORTION 16,248 24,152
------------ ------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 190,710 2,694
------------ ------------
ACCRUED RENT, LESS CURRENT PORTION 23,594 36,372
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized - 1,000,000 shares
Issued and outstanding-none - -
Common stock, $.01 par value-
Authorized - 20,000,000 shares
Issued and outstanding - 9,005,664 shares
at March 31, 1997 and 8,579,262 shares at
June 30, 1996 90,057 85,793
Additional paid-in capital 29,150,762 28,158,558
Accumulated deficit (25,688,026) (21,474,509)
Cumulative translation adjustment (70,614) (11,146)
------------ ------------
Total stockholders' equity 3,482,179 6,758,696
------------ ------------
$ 9,548,460 $ 11,899,152
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
4
<PAGE> 5
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Software licenses $ 3,243,661 $4,465,985 $11,509,342 $13,735,917
Services and other 597,906 683,190 1,810,419 1,989,459
----------- ---------- ----------- -----------
Total revenues 3,841,567 5,149,175 13,319,761 15,725,376
----------- ---------- ----------- -----------
COST OF REVENUES:
Software licenses 807,738 793,289 2,386,563 2,238,776
Services and other 191,632 242,719 595,623 707,101
----------- ---------- ----------- -----------
Total cost of revenues 999,370 1,036,008 2,982,186 2,945,877
----------- ---------- ----------- -----------
Gross profit 2,842,197 4,113,167 10,337,575 12,779,499
----------- ---------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 2,592,123 2,388,362 7,599,768 7,258,467
Research and development 1,435,638 1,029,269 3,813,406 2,732,872
General and administrative 775,690 692,544 2,016,376 1,867,218
----------- ---------- ----------- -----------
Total operating expenses 4,803,451 4,110,175 13,429,550 11,858,557
----------- ---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (1,961,254) 2,992 (3,091,975) 920,942
INTEREST INCOME, NET 44,598 57,422 124,321 137,399
----------- ---------- ----------- -----------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES (1,916,656) 60,414 (2,967,654) 1,058,341
PROVISION FOR INCOME TAXES 12,658 11,084 28,240 32,554
----------- ---------- ----------- -----------
NET INCOME (LOSS) $(1,929,314) $ 49,330 $(2,995,894) $ 1,025,787
=========== ========== =========== ===========
NET INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT SHARE $ (0.21) $ 0.01 $ (0.34) $ 0.11
=========== ========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 8,977,144 9,638,673 8,786,450 9,431,629
=========== ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated condensed financial statements.
5
<PAGE> 6
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(2,995,894) $ 1,025,787
Adjustments to reconcile net income (loss) to net
cash used in operating activities -
Depreciation and amortization 798,158 780,920
Changes in assets & liabilities-
Accounts receivable and other receivables 493,159 (2,109,882)
Inventories 121,180 (230,598)
Prepaid expenses (52,791) (116,480)
Accounts payable 512,490 1,501,536
Accrued expenses and other current liabilities (788,220) (1,210,497)
Deferred revenue 204,947 (134,620)
----------- -----------
Net cash used in operating activities (1,706,971) (493,834)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments 0 448,618
Purchases of property and equipment (641,551) (834,913)
Increase in deposits and other assets (41,992) (22,621)
Cash acquired from the TriMetrix, Inc. acquisition 0 27,849
Cash acquired from the AcroScience Corp. acquisition 9,691 0
----------- -----------
Net cash used in investing activities (673,852) (381,067)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (16,000) 0
Payments on long-term debt 0 (73,188)
Payments on capital lease obligations (63,389) (65,240)
Proceeds from capital lease obligations 442,590 0
Proceeds from exercise of stock options & warrants 375,468 261,588
Net proceeds from sale of common stock 0 2,940,463
----------- -----------
Net cash provided by financing activities 738,669 3,063,623
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (59,468) (37,191)
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (1,701,622) 2,151,531
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,954,416 3,486,329
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,252,794 $ 5,637,860
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
6
<PAGE> 7
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
1997 1996
------- -------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 3,636 $ 6,275
======= =======
Income taxes $35,770 $32,554
======= =======
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
In November 1995, the Company acquired 100% of the outstanding stock of
TriMetrix, Inc. in exchange for 219,997 shares of common stock of the
Company. This acquisition was accounted for as a pooling of interests.
In November 1996, the Company acquired 100% of the outstanding stock of
AcroScience Corporation in exchange for 250,000 shares of common stock of
the Company. This acquisition was accounted for as a pooling of interests.
The accompanying notes are an integral part of these
consolidated condensed financial statements.
7
<PAGE> 8
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by MathSoft, Inc. ("MathSoft" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended June 30, 1996.
The accompanying consolidated condensed financial statements reflect all
adjustments (consisting solely of normal, recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of results for the
interim periods presented. The results of operations for the three and nine
month periods ended March 31, 1997 are not necessarily indicative of the results
to be expected for the full fiscal year.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
Materials and supplies $ 75,632 $162,627
Finished goods 357,920 385,265
-------- --------
$433,552 $547,892
======== ========
</TABLE>
3. SALE OF STOCK
On July 27, 1995, the Company completed a private placement of 750,000 shares of
common stock. The Company received net proceeds of approximately $2.94 million.
4. ACQUISITION OF ACROSCIENCE CORPORATION
On November 26, 1996, the Company acquired all of the outstanding capital stock
of AcroScience Corporation, a Boulder, Colorado developer of visual modeling and
programming tools, in a business combination accounted for as a pooling of
interests. As a result of the transaction, AcroScience Corporation became a
wholly-owned subsidiary of the Company. As part of the business combination,
former stockholders of AcroScience Corporation received a total of 250,000
shares of the Company's common stock in exchange for all outstanding shares of
AcroScience Corporation.
8
<PAGE> 9
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. ACQUISITION OF ACROSCIENCE CORPORATION (CONTINUED)
For financial reporting purposes, the periods preceding the acquisition have not
been restated, as the acquisition of AcroScience Corporation was not material to
the consolidated financial statements.
5. NEW ACCOUNTING STANDARD
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. When adopted, the statement will
require restatement of prior years' earnings per share. The company will adopt
this statement for its fiscal year ending June 30, 1997 and does not believe
that the effect of the adoption of this standard would be materially different
from the amounts presented in the accompanying statements of income.
9
<PAGE> 10
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Month Period Ended March 31, 1996 Compared with the Three Month Period
Ended March 31, 1997.
RESULTS OF OPERATIONS
Total revenues decreased 25.4% from $5,149,000 in the third quarter of fiscal
1996 to $3,842,000 in the third quarter of fiscal 1997. The decrease in total
revenues was primarily attributable to a worldwide decrease in both new license
revenue and upgrade revenue generated by the Company's core product, Mathcad for
Windows. The decrease in total revenues was partially offset by revenue
generated by the release of Mathcad 6.0 for Macintosh in November 1996 and
revenue generated by the StudyWorks! product line released in June 1996. Mathcad
6.0 for Windows, released in July 1995, generated upgrade revenue of $950,000 in
the third quarter of fiscal 1996 compared to upgrade revenue of $200,000 in the
third quarter of fiscal 1997, a decrease as a percentage of total revenues
from 18.5% to 5.2%, respectively, as the Mathcad 6.0 for Windows upgrade cycle
draws to a close. Worldwide Mathcad for Windows non-upgrade product line sales
decreased 37.5% from $1,724,000 in the third quarter of fiscal 1996 to
$1,077,000 in the third quarter of fiscal 1997 and decreased as a percentage of
total revenues from 33.5% in the third quarter of fiscal 1996 to 28.0% in the
third quarter of fiscal 1997. The decrease in worldwide Mathcad for Windows
non-upgrade product line sales was primarily attributable to anticipation in the
Company's sales distribution channel of the next major release of the Company's
flagship Mathcad product and decreasing sell-through of the older Mathcad 6.0
for Windows release.
Worldwide S-PLUS product line and services revenue decreased 5.0% from
$1,613,000 in the third quarter of fiscal 1996 to $1,532,000 in the third
quarter of fiscal 1997, and increased as a percentage of total revenues from
31.3% in the third quarter of fiscal 1996 to 39.9% in the third quarter of
fiscal 1997. Total international revenues attributable to sales of all Company
and third party product lines decreased 27.2% from $1,986,000 in the third
quarter of fiscal 1996 to $1,446,000 in the third quarter of fiscal 1997, and
decreased as a percentage of total revenues from 38.6% in the third quarter of
fiscal 1996 to 37.6% in the third quarter of fiscal 1997.
Total cost of revenues decreased 3.6% from $1,036,000 in the third quarter of
fiscal 1996 to $999,000 in the third quarter of fiscal 1997, and increased as a
percentage of total revenues from 20.1% to 26.0%, respectively. The increase in
total cost of revenues as a percentage of total revenues was primarily
attributable to a reduction of inventory reserves in the third quarter of fiscal
1996 based on an evaluation of actual inventory exposure and reserve
requirements. In contrast, the Company increased inventory reserves in the third
quarter of fiscal 1997 to adequately cover inventory exposure in the sales
distribution channel. In addition, fixed costs such as amortization
10
<PAGE> 11
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
of purchased technology and royalties were allocated over a lower revenue base
in the third quarter of fiscal 1997.
Sales and marketing expenses increased 8.5% from $2,388,000 in the third quarter
of fiscal 1996 to $2,592,000 in the third quarter of fiscal 1997, and increased
as a percentage of total revenues from 46.4% to 67.5%, respectively. The
increase in overall sales and marketing expenses was primarily attributable to
additional headcount and related costs in the domestic sales and marketing
functions for the S-PLUS product line. International sales and marketing
expenses decreased from $609,000 in the third quarter of fiscal 1996 to $593,000
in the third quarter of fiscal 1997.
Research and development expenses increased 39.6% from $1,029,000 in the third
quarter of fiscal 1996 to $1,436,000 in the third quarter of fiscal 1997, and
increased as a percentage of total revenues from 20.0% to 37.4%, respectively.
The increase in research and development expenses was due primarily to increased
personnel and consulting costs associated with the continued development of the
S-PLUS product line.
General and administrative expenses increased 12.0% from $693,000 in the third
quarter of fiscal 1996 to $776,000 in the third quarter of fiscal 1997, and
increased as a percentage of total revenues from 13.5% to 20.2%, respectively.
The increase in overall general and administrative expenses was primarily
attributable to fluctuations in international exchange rate transactions. The
Company recorded exchange rate losses of $49,000 in the third quarter of fiscal
1996 compared to exchange rate losses of $106,000 in the third quarter of fiscal
1997.
Nine Month Period Ended March 31, 1996 Compared with the Nine Month Period Ended
March 31, 1997.
RESULTS OF OPERATIONS
Total revenues decreased 15.3% from $15,725,000 for the nine month period ended
March 31, 1996 to $13,320,000 for the comparable period in fiscal 1997. The
decrease in total revenues was primarily attributable to a worldwide decrease in
both new license revenue and upgrade revenue generated by the Company's core
product, Mathcad for Windows, and to a lesser extent, a decrease in sales
of Electronic Books, which work with Mathcad. The decrease in total revenues was
partially offset by revenue generated by the release of Mathcad 6.0 for
Macintosh in November 1996, revenue
11
<PAGE> 12
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
generated by the StudyWorks! product line released in June 1996 and revenue
generated from the Axum product line acquired in the second quarter of fiscal
1996. Mathcad 6.0 for Windows, released in July 1995, generated upgrade revenue
of $3,945,000 for the nine month period ended March 31, 1996 compared to upgrade
revenue of $870,000 for the comparable period in fiscal 1997, a decrease as a
percentage of total revenues from 25.1% to 6.5%, respectively, as the Mathcad
6.0 for Windows upgrade cycle draws to a close. Worldwide Mathcad for Windows
non-upgrade product line sales decreased 6.4% from $5,466,000 for the nine month
period ended March 31, 1996 to $5,114,000 for the comparable period in fiscal
1997 and increased as a percentage of total revenues from 34.8% to 38.4%,
respectively. The decrease in worldwide Mathcad for Windows non-upgrade product
line sales was primarily attributable to decreasing sell-through of the older
Mathcad 6.0 for Windows release.
Worldwide S-PLUS product line and services revenue decreased 2.5% from
$4,409,000 for the nine month period ended March 31, 1996 to $4,297,000 for the
comparable period in fiscal 1997, and increased as a percentage of total
revenues from 28.0% to 32.3%, respectively. Total international revenues
attributable to sales of all Company and third party product lines decreased
8.4% from $5,055,000 for the nine month period ended March 31, 1996 to
$4,628,000 for the comparable period in fiscal 1997, and increased as a
percentage of total revenues from 32.1% to 34.7%, respectively.
Total cost of revenues increased 1.2% from $2,946,000 for the nine month period
ended March 31, 1996 to $2,982,000 for the comparable period in fiscal 1997, and
increased as a percentage of total revenues from 18.7% to 22.4%, respectively.
The increase in total cost of revenues as a percentage of total revenues was
primarily attributable to a reduction of inventory reserves for the nine month
period ended March 31, 1996 based on an evaluation of actual inventory exposure
and reserve requirements. A similar reduction was not required for the
comparable period in fiscal 1997. In addition, fixed costs such as amortization
of purchased technology and royalties were allocated over a lower revenue base
for the nine month period ended March 31, 1997.
12
<PAGE> 13
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Sales and marketing expenses increased 4.7% from $7,258,000 for the nine month
period ended March 31, 1996 to $7,600,000 for the comparable period in fiscal
1997, and increased as a percentage of total revenues from 46.2% to 57.1%,
respectively. The increase in overall sales and marketing expenses was primarily
attributable to expenses incurred related to the launch of both the StudyWorks!
product line and Mathcad 6.0 for Macintosh in addition to additional headcount
and related costs in the domestic sales and marketing functions for the S-PLUS
product line. International sales and marketing expenses increased from
$1,720,000 for the nine month period ended March 31, 1996 to $1,791,000 for the
comparable period in fiscal 1997.
Research and development expenses increased 39.5% from $2,733,000 for the nine
month period ended March 31, 1996 to $3,813,000 for the comparable period in
fiscal 1997, and increased as a percentage of total revenues from 17.4% to
28.6%, respectively. The increase in research and development expenses was due
primarily to increased personnel and consulting costs associated with the
continued development of the S-PLUS product line, as well as the addition of
personnel from the both the TriMetrix, Inc. and AcroScience Corporation
acquisitions.
General and administrative expenses increased 8.0% from $1,867,000 for the nine
month period ended March 31, 1996 to $2,016,000 for the comparable period in
fiscal 1997, and increased as a percentage of total revenues from 11.9% to
15.1%, respectively. The increase in overall general and administrative expenses
was primarily attributable to fluctuations in international exchange rate
transactions. The Company recorded exchange rate losses of $14,000 for the nine
month period ended March 31, 1996 compared to exchange rate losses of $159,000
for the comparable period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, totaling $3,253,000 at March 31, 1997, decreased
$1,701,000 during the nine month period ended March 31, 1997 from $4,954,000 at
June 30, 1996. The negative cash flow resulted primarily from cash used in
operating activities of approximately $1,707,000 and purchases of property and
equipment of approximately $642,000, offset by proceeds received from the
exercise of stock options of approximately $375,000 and proceeds from capital
lease equipment financing of approximately $443,000.
13
<PAGE> 14
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's financial reserves are represented by cash and cash equivalents as
of March 31, 1997. The Company has a line of credit agreement with a commercial
bank. Borrowings under the line are limited to the lesser of 65% of eligible
domestic accounts receivable or $1,000,000. Borrowings are secured by a first
security interest on substantially all of the Company's assets and bear interest
at the bank's prime rate plus 1/2%. The line of credit contains certain
restrictive covenants, including minimum amounts of profitability, equity,
leverage and liquidity, all as defined in the agreement, and expires on December
1,1997. As of March 31, 1997, the Company was in default on various financial
covenants. The Company is currently in the process of renegotiating these
covenants. There were no amounts outstanding under the line as of March 31,
1997.
The Company believes its financial reserves and cash flows from future
operations will be sufficient to meet its liquidity requirements for at least
the next twelve months. The foregoing statement is forward-looking and involves
risks and uncertainties, many of which are outside the Company's control. The
Company's actual experience may differ materially from that discussed above.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Cautionary Statements" as well as future events that have
the effect of reducing the Company's available cash balances, such as
unanticipated operating losses or capital expenditures or cash expenditures
related to possible future acquisitions. The Company may be presented from time
to time with acquisition opportunities which require additional external
financing, and the Company may from time to time seek to obtain additional funds
from public or private issuances of equity or debt securities. There can be no
assurance that any such financing will be available at all or on terms
acceptable to the Company.
14
<PAGE> 15
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
In addition to the other information in this report, the following cautionary
statements should be considered carefully in evaluating the Company and its
business. Information provided by the Company from time to time may contain
certain "forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) in
releases made by the Securities and Exchange Commission (the "SEC"). These
cautionary statements are being made pursuant to the provisions of the Act and
with the intention of obtaining the benefits of the "safe harbor" provisions of
the Act.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the introduction and market acceptance of new products and new versions
of existing products, the ability to reduce expenses, and the activities of
competitors. Because a high percentage of the Company's expenses are relatively
fixed in the near term, minor variations in the timing of orders and shipments
can cause significant variations in quarterly operating results. The Company
operates with little or no backlog and has no long-term contracts, and
substantially all of its product revenues in each quarter result from software
licenses issued in that quarter, and the Company's ability to accurately
forecast future revenues and income for any period is necessarily limited. Any
forward-looking information provided from time to time by the Company represents
only management's then current estimate of future results or trends, and actual
results may differ materially from those contained in the Company's estimates.
POTENTIAL VOLATILITY OF STOCK PRICE. There has been significant volatility in
the market price of securities of technology companies. The Company believes
factors such as announcements of new products by the Company or its competitors,
quarterly fluctuations in the Company's financial results or other software
companies' financial results, shortfalls in the Company's actual financial
results compared to results previously forecasted by stock market analysts, and
general conditions in the software industry and conditions in the financial
markets could cause the market price of the Common Stock to fluctuate
substantially. These market fluctuations may adversely affect the price of the
Company's Common Stock.
RISKS ASSOCIATED WITH ACQUISITIONS. The Company has made a number of
acquisitions and will continue to review future acquisition opportunities. No
assurances can be given that acquisition candidates will continue to be
available on terms and conditions acceptable to the Company. Acquisitions
involve numerous risks, including, among other things, possible dilution to
existing shareholders, difficulties and expenses incurred in connection with the
acquisitions and the subsequent assimilation of the operations and services or
products of the acquired companies, the difficulty of operating new (albeit
related) businesses, the diversion of management's attention from other business
concerns and the potential loss of key employees of the acquired company. In the
event that the operations of an acquired business do not live up to
expectations, the Company may be required to restructure the acquired business
or
15
<PAGE> 16
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
RISKS ASSOCIATED WITH ACQUISITIONS (CONTINUED).
write-off the value of some or all of the assets of the acquired business. There
can be no assurance that any acquisition will be successfully integrated into
the Company's operations.
RISKS ASSOCIATED WITH DIVESTITURES. The Company's product offerings presently
may be divided between two principal product families - those related to its
Mathcad line addressing the calculation needs of the technical, professional and
education markets, and its S-PLUS offerings, marketed primarily to professionals
needing statistical analysis tools.
In setting strategic goals to maximize shareholder value, the Company from time
to time considers the options of divesting itself of one product family or the
other, or product lines within a given family, to concentrate its focus on the
business opportunity associated with the remaining product family or product
lines.
At the present time, the Company is not party to any agreement relating to the
sale of either of its product families or product lines within such families,
but it may elect to pursue such options at any time. If the company were to
consummate such a sale, there can be no assurance that it would receive returns
from such sale that investors in the Company would consider attractive.
RISKS ASSOCIATED WITH DISTRIBUTION CHANNELS. The Company markets and distributes
its S-PLUS products in the U.S. through the Company's telesales force and
internationally through third party resellers and distributors. Mathcad products
are currently marketed and distributed in the U.S. through third party resellers
and distributors, telesales and direct mail (for upgrades to the Company's
installed base). Internationally, the Company's Mathcad products are marketed
and distributed through third party resellers and distributors. There can be no
assurance that the Company will be able to retain its current resellers and
distributors, or expand its distribution channels by entering into arrangements
with new resellers and distributors in the Company's current markets or in new
markets.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Sales outside North America
accounted for approximately 36.1% of the Company's total revenues in fiscal
1995, approximately 32.5% of the Company's total revenues in fiscal 1996 and
approximately 34.0% for the nine months ended March 31, 1997, and may continue
to represent a significant portion of the Company's product revenues. Any
decrease in sales outside North America may have a materially adverse effect on
the Company's operating results. The Company's international business and
financial performance may be affected by fluctuations in exchange rates and by
trade regulations.
16
<PAGE> 17
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
RELIANCE ON THIRD PARTY LICENSORS. Maple V, a software product licensed as a
part of the most recent version of Mathcad, contains certain copyrighted texts
licensed from third party publishers incorporated in the Company's Electronic
Books, and the S programming language, the language on which all of the StatSci
division's products are based, are currently licensed from a single source or
limited source suppliers. If such licenses are discontinued, there can be no
assurance that the Company will be able to independently develop substitutes or
be able to obtain alternative sources or, if able to be developed or obtained as
needed in the future, that such efforts would not result in delays or reductions
in product shipments or cost increases that could have a material adverse effect
on the Company's consolidated business operations.
RAPID TECHNOLOGICAL CHANGE; COMPETITION. The technical calculation software
market is subject to rapid and substantial technological change, similar to that
affecting the software industry generally. The Company, to remain successful,
must be responsive to new developments in hardware and chip technology,
operating systems, programming technology and multimedia capabilities. In
addition, the Company competes against numerous other companies, some of which
have significant name recognition, as well as substantially greater capital
resources, marketing experience, research and development staffs and production
facilities than the Company. The Company's financial results may be negatively
impacted by the failure of new or existing products to be favorably received by
retailers and consumers due to price, availability, features, other product
choices or the necessity of promotions to increase sales of the Company's
products.
UNCERTAINTIES REGARDING PROTECTION OF PROPRIETARY TECHNOLOGY; UNCERTAINTIES
REGARDING PATENTS. The Company believes that while the mathematical calculations
performed by the Company's software are not proprietary, the speed and quality
of displaying the computation and the ease of use are unique to MathSoft's
products. The Company's success will depend, in part, on its ability to
aggressively protect the proprietary aspects of its products. The Company seeks
to protect these proprietary aspects of its products principally through a
combination of patents, contract provisions and copyright, trademark and trade
secret laws. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology. Although the Company believes that its products and technology
do not infringe any existing proprietary rights of others, the use of patents to
protect software has increased and there may be pending or issued patents of
which the Company is not aware that the Company may need to license or challenge
at significant expense. There can be no assurance that any such license would be
available on acceptable terms, if at all, or that the Company would prevail in
any such challenge.
17
<PAGE> 18
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
RELIANCE ON ATTRACTING AND RETAINING KEY EMPLOYEES. The Company's continued
success will depend in large part on its ability to attract and retain
highly-qualified technical, managerial, sales and marketing and other personnel.
Competition for such personnel is intense. None of the senior management of the
Company is subject to an employment contract, although the Company does have
non-competition agreements with its key management and technical personnel.
There can be no assurance that the Company will be able to continue to attract
or retain such personnel.
18
<PAGE> 19
MATHSOFT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a current Report on Form 8-K dated
April 2, 1997 updating expected third quarter results.
The Company filed a current Report on Form 8-K dated
April 3, 1997 updating expected fourth quarter results.
The Company filed a current Report on Form 8-K dated
April 24, 1997 reporting third quarter results.
19
<PAGE> 20
MATHSOFT, INC. AND SUBSIDIARIES
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.
MATHSOFT, INC.
Dated: May 15, 1997 By /s/ Charles J. Digate
-------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 15, 1997 By /s/ Robert P. Orlando
-------------------------
Robert P. Orlando
Vice President Finance and Administration,
Chief Financial Officer, Treasurer, and Clerk
(Principal Financial and Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27.1 Financial Data Schedule.
21
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,252,794
<SECURITIES> 0
<RECEIVABLES> 3,388,409
<ALLOWANCES> 0
<INVENTORY> 433,552
<CURRENT-ASSETS> 7,509,184
<PP&E> 6,302,614
<DEPRECIATION> 4,678,347
<TOTAL-ASSETS> 9,548,460
<CURRENT-LIABILITIES> 5,835,729
<BONDS> 0
0
0
<COMMON> 90,057
<OTHER-SE> 3,392,122
<TOTAL-LIABILITY-AND-EQUITY> 9,548,460
<SALES> 11,509,342
<TOTAL-REVENUES> 13,319,761
<CGS> 2,386,563
<TOTAL-COSTS> 2,982,186
<OTHER-EXPENSES> 13,429,550
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,636
<INCOME-PRETAX> (2,967,654)
<INCOME-TAX> 28,240
<INCOME-CONTINUING> (2,995,894)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,995,894)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
