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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended JUNE 30, 1997
Commission file number 0-020992
MATHSOFT, INC.
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2842217
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(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification)
101 MAIN STREET, CAMBRIDGE, MASSACHUSETTS 02142
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (617) 577-1017
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
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(Title of class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.____
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $20,493,478 as of September 3, 1997 (computed
by reference to the closing price of such stock on the Nasdaq Small Cap
Market). The number of shares of common stock, $.01 par value, outstanding as
of September 3, 1997 was 9,019,745.
DOCUMENTS INCORPORATED BY REFERENCE
Specified portions of the 1997 Annual Report to Stockholders for the
fiscal year ended June 30, 1997 are incorporated by reference into Parts II and
IV hereof.
The information required in response to Part III hereof is incorporated
by reference to the specified portions of the registrant's Proxy Statement for
the 1997 Annual Meeting of Stockholders to be held on December 12, 1997.
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ITEM 1. BUSINESS.
General
MathSoft, Inc. ("MathSoft" or the "Company") develops, markets and
supports software productivity tools for the technical calculation and
data analysis markets comprised of professionals, researchers, students
and educators.
Mathcad(R), the Company's principal technical calculation product, was
first released in fiscal 1987 and can be used by desktop and laptop
computer users to perform calculations from the simple to the elaborate,
and then document the results. Mathcad offers technical professionals,
educators, and students an interactive, intuitive, easy-to-modify
alternative to their traditional calculation methods such as pencil and
paper, scratchpads and calculators.
The market for technical calculation software includes technical
professionals, such as electrical, mechanical and civil engineers,
scientists, mathematicians, researchers, technicians and analysts, as
well as educators and students who regularly are required to perform
technical calculations. These users often refer to a wide range of
published materials containing formulas or data which can be used in
solving technical problems.
In 1992, the Company expanded its technical calculation software product
line by introducing Electronic Books as add-on products to Mathcad. These
books deliver extensive off-the-shelf technical information, such as
formulas and data, which is critical to technical problem solving.
Through the use of MathSoft's proprietary "live document interface(TM)"
these books provide the Mathcad user with on-screen access to interactive
technical information. This enables a Mathcad user to either perform
calculations in the book itself or transfer formulas, data and results to
Mathcad for instant calculation and analysis. The Company is delivering
electronic versions of industry-leading reference works from nationally
and internationally recognized publishers, in addition to internally
authored works. In addition, the Company licenses its Mathcad and
Electronic Book authoring technology to third party publishers for use in
creating interactive Electronic Books which are marketed and distributed
by such third party publishers as stand-alone products.
In May 1993, the Company opened an International office located in the
United Kingdom to broaden distribution of its products. In fiscal 1997,
international sales of all technical calculation and data analysis
software products and services represented 34.0% of total revenues.
In June 1993, the Company introduced a new product line through its
wholly-owned subsidiary, Statistical Sciences, Inc., now referred to as
MathSoft's Data Analysis Products Division ("DAPD"). DAPD develops and
markets advanced data analysis software products and services based on
"S", a computer language designed for statistics applications. DAPD's
principal product is S-PLUS(R), an interactive computing environment
which provides both a full-featured graphical data analysis system and an
object-oriented language. The Company acquired this business on June 30,
1993, through the acquisition of substantially all of the assets and
business of Statistical Sciences, Inc., a Washington corporation. In
fiscal 1997, worldwide sales of data analysis products and services
represented 30.9% of total revenues.
The market for data analysis software consists principally of
professional and academic scientists, engineers, statisticians and
business analysts. Data analysis products are used in such fields as
biomedical technology, quantitative financial analysis and risk
assessment, environmental science and engineering, industrial and market
research, and process control.
In November 1995, the Company acquired 100% of the outstanding stock of
TriMetrix(R), Inc. ("TriMetrix"), a Washington corporation, in a business
combination accounted for as a pooling of interests. As a result of the
business combination, TriMetrix became a wholly owned subsidiary of the
Company. MathSoft complemented its technical calculation product line
with the addition of Axum(R), a Windows-based technical charting and data
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analysis product acquired with TriMetrix, which transforms, manipulates
and sorts data sets to perform both simple and advanced analysis. Axum
has been redesigned to link seamlessly with Mathcad and is the
technological foundation for the most recent release of S-PLUS, S-PLUS
4.0, announced in June 1997.
In June 1996, the Company released StudyWorks!(TM) for Math and
StudyWorks!(TM) for Science targeted specifically toward high school and
non-engineering college students and educators. Both StudyWorks products
offer an interactive learning environment and assist students in both
mastering math and science concepts and creating professional looking
homework and lab reports in addition to allowing both educators and
students the ability to collaborate on projects. In September 1996, the
Company announced the release of StudyWorks!(TM) Schools, an
instructional edition of the StudyWorks for Math and StudyWorks for
Science software, which offers teachers a tools-based, interactive
teaching and learning environment.
In November 1996, the Company acquired 100% of the outstanding stock of
acroScience Corporation ("acroScience"), a Washington corporation, in a
business combination accounted for as a pooling of interests. As a result
of the business combination, acroScience became a wholly owned subsidiary
of the Company. MathSoft integrated visual modeling and programming
technology acquired with acroScience into its technical calculation
product line's latest release of Mathcad, Mathcad 7 for Windows, released
in June 1997.
In April 1997, the Company expanded its data analysis product line by
introducing MathSoft StatServer(TM), a warehouse-independent platform for
distributing statistical analysis and graphics to business professionals
and analysts over company Intranets. StatServer uses the S-PLUS
technology to create deployable intelligent analytics for an organization
and integrates with existing data storage and desktop applications.
The Company's goals are to continue to meet the expanding calculation and
data analysis needs of technical professionals, to provide students and
educators with software tools that can be used for learning and for
solving real-world problems and to develop new products for the growing
needs of businesses. The Company will continue to broaden the appeal for
all of its products to existing and new markets through technological
innovation, in such areas as ease-of-use, mathematical power, graphics
and deployability, and to continue to expand its distribution as new
products for new markets are introduced.
The Company was incorporated in Massachusetts in October, 1984 under the
name Engineering Specific Products Corp. and changed its name to
MathSoft, Inc. in January 1986. The Company's principal executive offices
are located at 101 Main Street, Cambridge, Massachusetts 02142, and its
telephone number is (617) 577-1017.
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Products
Technical Calculation Software Products
MathSoft publishes a range of technical calculation and software products
which allow users to perform calculations and create publication-quality
documents on personal computers. Its principal product in this category,
Mathcad, is to technical professionals what spreadsheets have proven to
be for business professionals. Mathcad can be used by desktop computer
users to perform technical calculations, from the simple to the
elaborate. An innovative feature of Mathcad is its ability to allow the
user to electronically access and manipulate formulas and data available
in the Company's Electronic Books and Function Packs. Electronic Books
provide on-screen libraries of industry-leading reference works, user
guides, solution templates, and educational materials while Function
Packs provide additional functionality for advanced users. StudyWorks,
the most recent addition to the Mathcad product line, was designed as an
integrated learning tool combining math, text, graphs and graphics for
the high school and college market. StudyWorks helps students master math
and science concepts, get better grades and create professional-looking
homework and lab reports.
Mathcad
Mathcad's broad appeal lies in its use of MathSoft's proprietary "live
document interface" technology. This permits users to calculate on a
computer in much the same way that they would on a scratchpad where
equations can be written anywhere, using real math notation, and erased,
changed and moved. A scratchpad can show a variety of expressions such as
formulas, words, graphs, data, equations and pictures. Mathcad works in a
similar free-form manner by literally turning a computer screen into a
live worksheet and therefore provides a very intuitive interface to
perform a wide range of numeric or symbolic calculations, but Mathcad has
one distinct advantage over a real scratchpad -- it calculates.
When using Mathcad, the computer screen initially appears blank like a
scratchpad. Using the keyboard and the mouse, the user begins by placing
the cursor anywhere on the screen and starts typing. To create a formula,
the user types keystrokes (+, /, *, etc.) or uses a mouse to click on a
symbol palette. As the user types, Mathcad automatically formats the
formulas in standard mathematical notation and instantly calculates the
results. To create a graph, the user selects the graph symbol from the
palette and defines the parameters of the graph. As with an electronic
spreadsheet, Mathcad instantly updates results as changes to variables or
formulas are made. Text may be added anywhere. Multi-page presentation
quality documents can be printed, complete with text, graphics, tables
and equations. It's free-form interactive environment makes Mathcad ideal
for formulating ideas, setting up problems and evolving solutions and
sharing both the process and the results through printed documents,
e-mail, and the World Wide Web.
Mathcad is used as a calculator for simple formulas, as a more elaborate
solver for equations formally linked within a "live document", as a
technical report generator, as a live charting facility, and as a
mathematical teaching environment. Mathcad also provides an interface to
on-line technical reference works. Mathcad performs numeric and symbolic
calculations in the real and complex domain, solves systems of linear and
non-linear equations, and performs iterative calculations.
Electronic Books
An extension of the Mathcad product line, Electronic Books deliver
information and solutions in an interactive form to Mathcad users.
Electronic Books provide the user with on-screen libraries of technical
data combined with Mathcad's capacity to utilize and manipulate the raw
data through its "live document interface". This enables the user to
search the book for material, use hyperlinks to jump to related sections
within the work, and calculate problems and manipulate data using
formulas and data contained in the work. A key feature of MathSoft's
Electronic Books is that the material is live and interactive, enabling a
Mathcad user to apply the formulas or data
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from the book either by performing calculations in the book itself or by
transferring the formulas or data, or results, to Mathcad for calculation
and analysis. Without the Electronic Book, the user must manually key in
entire formulas from published sources before using the software to solve
equations. The book may contain reference information (e.g., the
properties of various materials and standard formulas), solutions for
standard engineering problems, tutorials on selected topics, or
educational courseware. Additionally, Mathcad's "live document interface"
supports the inclusion of sound and video components.
In addition to internally authored works, the Company delivers electronic
versions of industry-leading reference works from nationally and
internationally recognized publishers. The agreements by which the
Company licenses content for Electronic Books from publishers typically
provide for a non-exclusive license at an agreed upon royalty rate, and
continue for a term of five to seven years unless extended by mutual
agreement.
The Company also licenses its Mathcad and Electronic Book authoring
technology to third party publishers for use in creating interactive
Electronic Books which are marketed and distributed by such third party
publishers as stand-alone products. Users are not required to use Mathcad
to access these interactive Electronic Books.
Function Packs
Function Packs provide additional functionality to Mathcad in the areas
of signal processing, data analysis, statistics and graphics. Once
installed, the functions are seamlessly integrated with the Mathcad
function set allowing the user to see results immediately and explore the
effects of changing parameters in mathematical routines.
Axum
In November 1995, the Company acquired 100% of the outstanding stock of
TriMetrix, Inc., a software company located in Seattle, Washington and
the developer of Axum software. Axum is a Windows-based advanced
technical graphing and data analysis software which offers scientists and
engineers in the technical professional market, including Mathcad users,
the advanced charting tools needed for creating compelling, highly visual
presentations and publication-quality documents. Users can transform,
manipulate and sort data sets to perform both simple and advanced
analysis. Axum has also been redesigned to link seamlessly with Mathcad.
StudyWorks
StudyWorks!(TM) for Math and StudyWorks!(TM) for Science, productivity
software for high school and college students and their teachers, was
designed as a rich learning environment that helps students understand
math and science problems, complete and check a variety of solutions, and
print out great looking lab reports and homework papers. It also contains
a section to help users prepare for the SAT II tests. Each product is a
three-in-one combination of an application, rich interactive content and
a unique two-way internet access. StudyWorks is based on a powerful
graphical calculation and document preparation tool and includes rich
multimedia encyclopedias of math and science formulas and key concepts in
algebra, geometry, earth science, chemistry, pre-calculus, physics,
calculus and statistics. Users also receive built-in links to the
Company's StudyWorks home page which allows high school students, college
students and teachers to participate in virtual study groups and
discussion forums, pick up Homework Hints and link to related sites on
the World Wide Web.
StudyWorks!(TM) for Schools, released in September 1996, was designed as
the instructional edition complement to the Company's StudyWorks for Math
and StudyWorks for Science software products. StudyWorks for Schools
allows teachers to integrate software and distance learning approaches
into their current math and science curriculum and provide students with
an "active-learning", content-rich learning tool. StudyWorks for Schools
integrates seamlessly with existing curricula, works with graphing
calculators, includes a content-rich math and science reference library,
and comes with a Teachers Resource Guide featuring sample lesson plans,
classroom presentations, lab and homework exercises and tips for
maximizing the use of the technology. It also connects
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teachers and students to each other via the Web-based Collaboratory(TM)
for a variety of distance learning applications, including virtual study
groups, on-line tutoring, and the dissemination of class or lab notes,
problem sets, exams and solutions.
Data Analysis Software Products
S-PLUS
On June 30, 1993, the Company acquired substantially all of the assets of
Statistical Sciences, Inc., a software company located in Seattle,
Washington. The Company's principal product in this category, S-PLUS, is
an advanced, exploratory data analysis and statistical data mining
solution for technical and business professionals who need sophisticated
analysis and visualization capabilities. Based on the object-oriented "S"
programming language licensed from Lucent Technologies Inc., S-PLUS
enables users to perform exploratory data analysis, graphics, statistics,
visualization and mathematical computing in the Windows and UNIX
environments. The primary advantage of S-PLUS lies within the "S"
Language. The "S" language is the only modern object-oriented language
created specifically for data visualization and exploration, statistical
modeling and programming with data. This interactive language environment
gives users immediate feedback at every stage of their analysis.
Modules
To complement S-PLUS, the Company offers add-on modules that work with
S-PLUS and provide additional "S" language functions for specialized data
analysis purposes.
StatServer
In April 1997, the Company expanded its data analysis product line by
introducing MathSoft StatServer(TM). StatServer enables corporations to
leverage existing client/server and Internet/Intranet technologies and
deploy statistical expertise throughout an organization. StatServer is
data warehouse-independent and integrates seamlessly with all standard
database and data warehouse formats. The robust database support provides
the tools for advanced analysis and data visualization of the most
popular relational databases. With StatServer, basic statistical models
and data visualization capabilities are built and stored in a central
server for access by non-technical users, who can apply these analytical
techniques from a single and familiar client to understand or interpret
key data sets. Using StatServer, professionals in diverse fields such as
finance, biomedicine and manufacturing can use familiar tools such as
Excel, Netscape or Powerbuilder to access corporate data resources and
perform data analysis without becoming experts in statistics or users of
statistical tools. StatServer moves beyond the capabilities of report
writers, spreadsheet applications and stand-alone data analysis software,
representing a significant advancement in decision support and data
mining technology.
Marketing and Sales
Technical Calculation Software Products
The Company's market for technical calculation software products consists
of two significant groups of end users: technical professionals and
educators and students. End users within the technical professionals
group span numerous fields and include electrical, mechanical and civil
engineers, scientists, mathematicians, researchers, technicians and
analysts. The education market consists of secondary, undergraduate and
graduate educators and students in many technical disciplines. The
Company's products are currently used as tools for diverse purposes from
back-of-the envelope calculations to bridge design and genetic
engineering.
MathSoft reaches domestic customers of Mathcad primarily through a
network of educational and commercial third party resellers and
distributors. To complement this network, the Company has a domestic
telesales organization focused on sales to the registered installed base
as well as lead generation, prospect qualification and
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sales of site license agreements and network licenses. In addition,
Mathcad upgrades are primarily marketed to the Company's registered
installed base via direct mail. In fiscal 1997, domestic sales through
distributor and reseller channels accounted for 57.9% of total domestic
sales of technical calculation software products, with the balance of
such sales through either installed base direct mail or the Company's
telesales operations.
Internationally, all technical calculation software products are marketed
primarily through a network of resellers and distributors. Mathcad
upgrades are marketed through distributors as well as to the registered
installed base via direct mail. In fiscal 1997, international sales
through resellers and distributors accounted for 99.3% of total
international sales of technical calculation software products.
Data Analysis Software Products
The Company's market for data analysis products consists principally of
professional and academic scientists, engineers and statisticians. The
product is used in such fields as biomedical technology, quantitative
financial analysis and risk assessment, environmental science and
engineering, industrial and market research, and process control.
The Company reaches domestic customers of its data analysis products both
through its domestic telesales organization and a new outside sales team.
Leads are generated from advertising, vertical market list rentals and
tradeshows, which are then pursued by the telesales organization.
Internationally, the Company reaches customers of its data analysis
products entirely through a network of resellers and distributors.
Customer Technical Support
Technical Calculation Software Products
MathSoft subcontracts customer technical support to its domestic
customers by phone, fax and mail through a third party vendor located in
Greely, Colorado. A technical support staff of engineers located in
Cambridge is available to support the vendor in Colorado as well as to
resolve the most difficult technical support issues. The Company provides
this support free of charge to individual end-users. For corporate and
academic network users, the Company provides this support free of charge
for 30 days beginning with the first customer placed technical support
request. Subsequent to this free support period, the Company offers a
Premium Support Plan. The Company currently provides technical support
for its StudyWorks products free of charge and additionally supports this
product via the Company's home page on the World Wide Web.
International customers who purchase product from distributors receive
first line technical support from their respective local distributor. A
technical support staff of engineers, located in the Company's United
Kingdom sales and marketing office, is available to support the
distributors.
Data Analysis Software Products
Technical support for the S-PLUS product line is provided to domestic
customers by a staff of engineers located in Seattle. Support is only
available to customers who purchase an annual maintenance and technical
support plan.
International customers who purchase products from distributors receive
first line technical support from their respective local distributor. A
technical support staff of engineers, located in the Company's United
Kingdom sales and marketing office, is available to support the
distributors.
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Manufacturing and Distribution
The Company utilizes several third party vendors to manufacture and
distribute its products. This permits the Company to manage peak volumes
customary in the software industry and to avoid having to maintain high
fixed costs while experiencing daily fluctuations in order and customer
contacts.
The Company's practice is to ship its products promptly upon receipt of
orders from its customers and, as a result, product backlog is not
significant.
Technical Calculation Software Products
The Company subcontracts with a single independent third party vendor,
located in Plymouth, Massachusetts, to manufacture all of its technical
calculation software products and fulfill all of its domestic orders.
With the exception of Mathcad upgrade orders generated by direct mail,
the Company processes all domestic orders from its leased facilities
located in Cambridge, Massachusetts. MathSoft subcontracts the processing
of all Mathcad upgrade direct mail orders with an independent service
company located in Chicago, Illinois.
All international orders are processed by a third party vendor located in
the United Kingdom that also provides warehousing and fulfillment
services.
Data Analysis Software Products
The Company subcontracts with a third party vendor, located in Monroe,
Washington, to manufacture all of its S-PLUS product line products. The
Company warehouses inventory and processes and fulfills domestic orders
internally out of its Seattle office. All international orders are
processed and fulfilled by third party vendors located in the United
Kingdom that also provide warehousing and fulfillment services.
Product Development
MathSoft's research and development organization, divided between the
Company's Cambridge, Massachusetts and Seattle, Washington locations, is
responsible for software development, product documentation, and quality
assurance. Its priorities are to continue technical innovation for power
and performance and to respond to market feedback by continuing to design
products for ease-of-use.
MathSoft's development team consists of experts in software engineering,
quality assurance, mathematics, statistics, engineering and
documentation. In software engineering, MathSoft's professional staff has
expertise in computer graphics, compiler design, user interface design
and advanced Windows and Internet technologies.
During the fiscal years ended June 30, 1997, 1996 and 1995, research and
development costs charged to operations were $5,143,000, $3,659,000, and
$3,059,000, respectively. The Company does not capitalize internal
software development costs.
Competition
The markets for technical calculation and data analysis software products
are highly competitive. In the technical calculation software market,
MathSoft considers its principal competition to include technical
calculation software from companies providing specialized tools, such as
The MathWorks, Waterloo Maple Software and Wolfram Research. In the data
analysis market, the Company considers its principal competition to
include statistical software products from such companies as SAS, SPSS
and Visual Numerics. In both markets, the Company faces competition from
companies providing competing software solutions, such as spreadsheets.
The Company may also face new competition from potential entrants into
the technical calculation and data analysis software markets and more
focused competition from companies in related markets, such as providers
of spreadsheet programs, which could add to or improve the technical
calculation and data analysis functionality of their existing products.
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Some of these companies may have significant name recognition, as well as
substantially greater capital resources, marketing experience, research
and development staffs and production facilities than the Company.
Although the Company believes it has a technological advantage over
existing competitors in the technical calculation and the data analysis
software markets, maintaining that advantage will require continued
investment by the Company in research and development. There can be no
assurance that the Company will have sufficient resources to make such
investment or that the Company will be able to make the technological
advances necessary to maintain such competitive advantage.
Intellectual Property Rights and Licenses
MathSoft's software is proprietary and the Company attempts to protect it
with copyrights, trade secret laws and internal nondisclosure safeguards,
as well as restrictions on copying, disclosure and transferability that
are incorporated into its software license agreements. Generally, the
Company's products are not physically copy-protected. In order to retain
exclusive ownership rights to all software developed by MathSoft, the
Company licenses all software and provides it in executable code only,
with contractual restrictions on copying, disclosure and transferability.
As is customary in the industry, MathSoft licenses its products to end
users by use of a `shrink-wrap' license. The source code for all of the
Company's products is protected as a trade secret and as unpublished
copyrighted work. In addition, the Company has entered into nondisclosure
and inventions agreements with each of its key employees. The Company has
been granted two patents and is aggressively pursuing patent protection.
However, in those areas where the Company has no patent protection,
judicial enforcement of copyright laws may be uncertain.
Prior to fiscal 1994, the Company licensed, on a worldwide basis, MAPLE V
Symbolic Algebra Software jointly from the University of Waterloo,
Waterloo Maple Software, Inc. and two authors in exchange for ongoing
royalty payments. In fiscal 1994, the Company was granted a non-exclusive
worldwide perpetual license for this technology for inclusion in Mathcad
and other products in exchange for a fixed royalty payment.
The Company is the exclusive, worldwide licensee (subject to certain
prior license grants) until February 18, 2002 of Lucent Technologies Inc.
for the "S" programming language. Under the license, the Company has the
exclusive right to use, sublicense and support the "S" programming
language from Lucent Technologies in exchange for royalties. Any
modifications, enhancements, adaptations or derivations of the "S"
programming language are the property of the Company. After February 18,
2002, the Company, at its election, may extend this exclusive license for
five year terms in perpetuity, provided that the Company continues to
comply with its obligations under the license. Although termination of
this license could have a material adverse effect on the Company's
operations as Lucent Technologies is the sole licensor of the "S"
programming language, the Company is not presently aware of any
circumstances which would prevent it from fulfilling its obligations
under the license.
Due to the rapid pace of technological change in the software industry,
the Company believes that patent, trade secret and copyright protection
are less significant to its competitive position than factors such as the
knowledge, ability and experience of the Company's personnel, new product
development, frequent product enhancements, name recognition, and ongoing
reliable product maintenance and support.
The Company believes that its products and other proprietary rights do
not infringe the proprietary rights of third parties. There can be no
assurance, however, that third parties will not assert infringement
claims in the future.
Employees
As of June 30, 1997, the Company employed approximately 160 regular
full-time and part-time employees, of which 15 were outside the United
States. As necessary, the Company supplements its regular employees with
temporary and contract personnel. As of June 30, 1997, the Company
employed 8 temporary and contract personnel, of which 1 was outside the
United States. None of the Company's regular employees are represented by
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a labor union or are subject to a collective bargaining agreement. The
Company has never experienced a work stoppage and believes that its
employee relations are good.
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-best 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 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 data 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,
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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 and outside sales 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% of the Company's total revenues in
fiscal 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.
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 StatSci'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 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, Internet
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 protect the proprietary aspects of its
products. The Company seeks to protect these proprietary aspects of its
products principally through a combination of contract provisions and
copyright, patent, 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
11
<PAGE> 12
assurance that any such license would be available on acceptable terms,
if at all, or that the Company would prevail in any such challenge.
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.
ITEM 2. PROPERTIES.
The Company leases 34,562 square feet of office space at 101 Main Street,
Cambridge, Massachusetts of which 23,350 square feet is occupied by the
Company and 11,212 square feet is sublet to a third party. The terms of
both the lease and sublease for office space are scheduled to terminate
in October, 1999. A third party vendor provides warehousing services to
meet the Company's needs. The Company also leases 13,848 square feet of
office space and subleases 4,423 square feet of office space at 1700
Westlake Avenue North, Seattle, Washington. This lease expires in
September, 1999 and the sublease expires in March, 2000. In connection
with the acquisition of acroScience, the Company assumed a lease on 1,740
square feet of office space in Boulder, Colorado which is scheduled to
terminate in January 2000. The Company currently sublets this space to a
third party, the term of which is scheduled to terminate in May 1998. The
Company also leases 2,931 square feet of office space in the United
Kingdom. The term of the lease for this office space is scheduled to
expire in March, 2000.
The Company believes that its facilities are adequate for its needs. The
Company does not consider the specific location of its offices to be
material to its business.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings which could have a
material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information set forth under the caption "Market Price of Common
Stock" appearing in the Company's 1997 Annual Report to Stockholders,
which appears as Exhibit 13.01, is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information set forth under the caption "Five Year Summary of
Selected Consolidated Financial Data" appearing in the Company's 1997
Annual Report to Stockholders, which appears as Exhibit 13.01, is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing in
the Company's 1997 Annual Report to Stockholders, which appears as
Exhibit 13.01, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements for the Company appearing in the
Company's 1997 Annual Report to Stockholders, which appears as
Exhibit 13.01, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
13
<PAGE> 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information set forth under the captions "Occupations of Directors
and Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" appearing in the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information set forth under the caption "Compensation and Other
Information Concerning Directors and Officers" appearing in the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information set forth under the caption "Management and Principal
Holders of Voting Securities" appearing in the Company's Proxy Statement
for the 1997 Annual Meeting of Stockholders is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information set forth under the caption "Certain Relationships and
Related Transactions" appearing in the Company's Proxy Statement for the
1997 Annual Meeting of Stockholders is incorporated herein by reference.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and Independent Auditors Report are
incorporated in Item 8 of this report by reference to the
Company's 1997 Annual Report to Stockholders.
Report of Independent Public Accountants.
Consolidated Balance Sheets as of June 30, 1997 and 1996.
Consolidated Statements of Operations for the Years Ended June 30,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the Years
Ended June 30, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the Years Ended June 30,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
2. FINANCIAL STATEMENT SCHEDULES. The following financial
statement schedule is filed as part of this report and should be
read in conjunction with the consolidated financial statements of
the Company.
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or
the required information is shown in the consolidated financial
statements or notes thereto.
3. EXHIBITS.
2.1 Asset Purchase Agreement, dated as of June 30, 1993 among
the Registrant, Statistical Sciences, Inc., a Washington
corporation, and the Stockholders listed on Schedule I
thereto (filed as Exhibit 2.1 to the Registrant's Current
Report on Form 8-K dated June 30, 1993 and incorporated
herein by reference).
3.1 Third Restated Articles of Organization of the Company
(filed as Exhibit 3.2 to Registration Statement number
33-55658 on Form S-1 and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 3.2 to Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, file number 0-020992, and
incorporated herein by reference).
4.1 Specimen certificate representing the Common Stock (filed
as Exhibit 4.1 to Registration Statement number 33-55658 on
Form S-1 and incorporated herein by reference).
4.2 Please refer to Article VI of Exhibit 3.1.
10.1 Amended and Restated 1992 Stock Plan (filed as Exhibit 10.1
to Registration Statement number 33-55658 on Form S-1 and
incorporated herein by reference).
10.2 1987 Combination Stock Plan, as amended (filed as Exhibit
10.2 to Registration Statement number 33-55658 on Form S-1
and incorporated herein by reference).
10.3 Form of Key Officer Stock Option Agreement (filed as
Exhibit 10.3 to Registration Statement number 33-55658 on
Form S-1 and incorporated herein by reference).
15
<PAGE> 16
10.4 1992 Employee Stock Purchase Plan (filed as Exhibit 10.4 to
Registration Statement number 33-55658 on Form S-1 and
incorporated herein by reference).
10.5 1992 Non-Employee Director Stock Option Plan (filed as
Exhibit 10.5 to Registration Statement number 33-55658 on
Form S-1 and incorporated herein by reference).
10.6 Lease dated August 12, 1988, as amended to date, between
Registrant and Jonathan G. Davis, Trustee of the
Broadway/Hampshire Development Trust (filed as Exhibit 10.6
to Registration Statement number 33-55658 on Form S-1 and
incorporated herein by reference).
10.7 Third Party Software Distribution Agreement, dated January
30, 1989, as amended, between the Company, University of
Waterloo, Waterloo Maple Software, Inc. et al. (filed as
Exhibit 10.7 to Registration Statement number 33-55658 on
Form S-1 and incorporated herein by reference).
10.8 Commitment Letter, dated August 28, 1992, between the
Company and Silicon Valley Bank (filed as Exhibit 10.8 to
Registration Statement number 33-55658 on Form S-1 and
incorporated herein by reference).
10.9 Third Schedule to the Series C Preferred Stock Purchase
Agreement, dated as of June 29, 1989, among the Company and
the Investors named in the First Schedule Annexed Thereto,
regarding certain registration rights and related matters
(filed as Exhibit 10.9 to Registration Statement number
33-55658 on Form S-1 and incorporated herein by reference).
10.10 Distribution Agreement, dated as of June 18, 1987, between
the Company and Micro D, Inc., a predecessor to Ingram
Micro, Inc. (filed as Exhibit 10.10 to Registration
Statement number 33-55658 on Form S-1 and incorporated
herein by reference).
10.11 Lease Between Riverfront Office Park Joint Venture and
MathSoft, Inc., dated as of August 17, 1993 (filed as
Exhibit 10.11 to Annual Report on Form 10-K for the fiscal
year ended June 30, 1993, file number 0-020992, and
incorporated herein by reference).
10.12 Lease Agreement with the Bartell Drug Co. (Landlord), dated
as of June 22, 1990, together with Addendum Nos. A, B, C &
D of even date and as amended by Addendum No. E dated
December 9, 1992 (filed as Exhibit 10.12 to Annual Report
on Form 10-K for the fiscal year ended June 30, 1993, file
number 0-020992, and incorporated herein by reference).
10.13 Software License Agreement with American Telephone &
Telegraph Company, effective as of April 1, 1991, as
amended February 18, 1993 (filed as Exhibit 10.13 to Annual
Report on Form 10-K for the fiscal year ended June 30,
1993, file number 0-020992, and incorporated herein by
reference).*
10.14 Distributor Agreement with Mathematical Systems Institute,
Inc., dated August 24, 1990 (filed as Exhibit 10.14 to
Annual Report of Form 10-K for the fiscal year ended June
30, 1993, file number 0-020992, and incorporated herein by
reference).
10.15 Distributorship Agreement dated as of March 1, 1994 between
the Company and 766884 Ontario Inc., carrying on business
as Waterloo Maple Software (filed as Exhibit 10.15 to
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994, file number 0-020992, and incorporated
herein by reference).*
10.16 Perpetual Technology License dated as of March 1, 1994, as
amended by Addendum No. 1 thereto dated as of March 25,
1994, between the Company and 766884 Ontario Inc., carrying
on business as Waterloo Maple Software (filed as Exhibit
10.16 to Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1994, file number 0-020992, and
incorporated herein by reference).*
10.17 Line of Credit Agreement, dated January 11, 1996, between
the Company and Fleet Bank of Massachusetts (filed as
Exhibit 10.1 to Quarterly Report on Form 10-Q for the
fiscal quarter ended March 31, 1996, file number 0-020992,
and incorporated herein by reference).
10.18 Consulting Agreement dated March 26, 1996 between the
Company and Allen M. Razdow (filed as Exhibit 10.18 to
Annual Report on Form 10-K for the fiscal year ended June
30, 1996, file number 0-020992, and incorporated herein by
reference).
16
<PAGE> 17
10.19 Software License Agreement, dated February 18, 1996,
between the Company and Lucent Technologies Inc. (filed as
Exhibit 10.1 to Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1996, file number
0-020992, and incorporated herein by reference).*
10.20 Amendment to Software License Agreement, dated September 25,
1997, between the Company and Lucent Technologies Inc.+
11.1 Statement Regarding Computation of Per Share Earnings.
13.01 1997 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
* Confidential treatment as to portions of the filed exhibit was
previously granted.
+ Confidential treatment requested as to certain portions.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated April 24,
1997 reporting fiscal 1997 third quarter results.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
September 29, 1997 By: /S/ CHARLES J. DIGATE
------------------------------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
September 29, 1997 /S/ RICHARD A. D'AMORE
------------------------------------------
Richard A. D'Amore
Director
September 29, 1997 /S/ CHARLES H. FEDERMAN
-----------------------------------------
Charles H. Federman
Director
September 29, 1997 /S/ ROBERT P. ORLANDO
------------------------------------------
Robert P. Orlando
Vice President Finance and Administration,
Chief Financial Officer, Treasurer
and Clerk
September 29, 1997 /S/ JUNE L. ROKOFF
------------------------------------------
June L. Rokoff
Director
September 29, 1997 /S/ STEVEN R. VANA-PAXHIA
---------------------------------------
Steven R. Vana-Paxhia
Director
18
<PAGE> 19
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
2.1 Asset Purchase Agreement, dated as of June 30, 1993
among the Registrant, Statistical Sciences, Inc., a
Washington corporation, and the Stockholders listed on
Schedule I thereto (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated June 30,
1993 and incorporated herein by reference).
3.1 Third Restated Articles of Organization of the Company
(filed as Exhibit 3.2 to Registration Statement number
33-55658 on Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated By-laws of the Company (filed as
Exhibit 3.2 to Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, file number 0-020992, and
incorporated herein by reference).
4.1 Specimen certificate representing the Common Stock
(filed as Exhibit 4.1 to Registration Statement number
33-55658 on Form S-1 and incorporated herein by
reference).
4.2 Please refer to Article VI of Exhibit 3.1.
10.1 Amended and Restated 1992 Stock Plan (filed as Exhibit
10.1 to Registration Statement number 33-55658 on Form
S-1 and incorporated herein by reference).
10.2 1987 Combination Stock Plan, as amended (filed as
Exhibit 10.2 to Registration Statement number 33-55658
on Form S-1 and incorporated herein by reference).
10.3 Form of Key Officer Stock Option Agreement (filed as
Exhibit 10.3 to Registration Statement number 33-55658
on Form S-1 and incorporated herein by reference).
10.4 1992 Employee Stock Purchase Plan (filed as Exhibit 10.4
to Registration Statement number 33-55658 on Form S-1
and incorporated herein by reference).
10.5 1992 Non-Employee Director Stock Option Plan (filed as
Exhibit 10.5 to Registration Statement number 33-55658
on Form S-1 and incorporated herein by reference).
10.6 Lease dated August 12, 1988, as amended to date, between
Registrant and Jonathan G. Davis, Trustee of the
Broadway/Hampshire Development Trust (filed as Exhibit
10.6 to Registration Statement number 33-55658 on Form
S-1 and incorporated herein by reference).
10.7 Third Party Software Distribution Agreement, dated
January 30, 1989, as amended, between the Company,
University of Waterloo, Waterloo Maple Software, Inc. et
al. (filed as Exhibit 10.7 to Registration Statement
number 33-55658 on Form S-1 and incorporated herein by
reference).
10.8 Commitment Letter, dated August 28, 1992, between the
Company and Silicon Valley Bank (filed as Exhibit 10.8
to Registration Statement number 33-55658 on Form S-1
and incorporated herein by reference).
10.9 Third Schedule to the Series C Preferred Stock Purchase
Agreement, dated as of June 29, 1989, among the Company
and the Investors named in the First Schedule Annexed
Thereto, regarding certain registration rights and
related matters (filed as Exhibit 10.9 to Registration
Statement number 33-55658 on Form S-1 and incorporated
herein by reference).
10.10 Distribution Agreement, dated as of June 18, 1987,
between the Company and Micro D, Inc., a predecessor to
Ingram Micro, Inc. (filed as Exhibit 10.10 to
Registration Statement number 33-55658 on Form S-1 and
incorporated herein by reference).
19
<PAGE> 20
EXHIBIT NO. DESCRIPTION
10.11 Lease Between Riverfront Office Park Joint Venture and
MathSoft, Inc., dated as of August 17, 1993 (filed as
Exhibit 10.11 to Annual Report on Form 10-K for the
fiscal year ended June 30, 1993, file number 0-020992,
and incorporated herein by reference).
10.12 Lease Agreement with the Bartell Drug Co. (Landlord),
dated as of June 22, 1990, together with Addendum Nos.
A, B, C & D of even date and as amended by Addendum No.
E dated December 9, 1992 (filed as Exhibit 10.12 to
Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, file number 0-020992, and incorporated
herein by reference).
10.13 Software License Agreement with American Telephone &
Telegraph Company, effective as of April 1, 1991, as
amended February 18, 1993 (filed as Exhibit 10.13 to
Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, file number 0-020992, and incorporated
herein by reference).*
10.14 Distributor Agreement with Mathematical Systems
Institute, Inc., dated August 24, 1990 (filed as Exhibit
10.14 to Annual Report on Form 10-K for the fiscal year
ended June 30, 1993, file number 0-020992, and
incorporated herein by reference).
10.15 Distributorship Agreement dated as of March 1, 1994
between the Company and 766884 Ontario Inc., carrying on
business as Waterloo Maple Software (filed as Exhibit
10.15 to Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1994, file number 0-020992, and
incorporated herein by reference).*
10.16 Perpetual Technology License dated as of March 1, 1994,
as amended by Addendum No. 1 thereto dated as of March
25, 1994, between the Company and 766884 Ontario Inc.,
carrying on business as Waterloo Maple Software (filed
as Exhibit 10.16 to Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1994, file number
0-020992, and incorporated herein by reference).*
10.17 Line of Credit Agreement, dated January 11, 1996,
between the Company and Fleet Bank of Massachusetts
(filed as Exhibit 10.1 to Quarterly Report on Form 10-Q
for the fiscal quarter ended March 31, 1996, file number
0-020992, and incorporated herein by reference).
10.18 Consulting Agreement dated March 26, 1996 between the
Company and Allen M. Razdow (filed as Exhibit 10.18 to
Annual Report on Form 10-K for the fiscal year ended
June 30, 1996, file number 0-020992, and incorporated
herein by reference).
10.19 Software License Agreement, dated February 18, 1996,
between the Company and Lucent Technologies Inc. (filed
as Exhibit 10.1 to Quarterly Report on Form 10-Q for the
fiscal quarter ended December 31, 1996, file number
0-020992, and incorporated herein by reference).*
10.20 Amendment to Software License Agreement, dated September 25, 1997,
between the Company and Lucent Technologies Inc.+
11.1 Statement Regarding Computation of Per Share Earnings.
13.01 1997 Annual Report to Stockholders.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
* Confidential treatment as to portions of the filed exhibit was previously
granted.
+ Confidential treatment requested as to certain portions.
20
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MathSoft, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in MathSoft, Inc. and subsidiaries' annual report
to stockholders incorporated by reference in this Form 10-K, and have issued our
report thereon dated August 1, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14(a)(2) of the index is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 1, 1997
<PAGE> 22
SCHEDULE II
MATHSOFT, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, CHARGED TO DEDUCTION BALANCE,
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES PERIOD
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30 1995:
Allowance for doubtful accounts $ 892,781 $ 108,206 $490,665 $ 510,322
Allowance for sales returns 300,106 519,091 282,555 536,642
---------- ---------- -------- ----------
Total reserve for accounts receivable $1,192,887 $ 627,297 $773,220 $1,046,964
========== ========== ======== ==========
YEAR ENDED JUNE 30, 1996:
Allowance for doubtful accounts $ 510,322 $ 73,573 $207,161 $ 376,734
Allowance for sales returns 536,642 348,549 486,247 398,944
---------- ---------- -------- ----------
Total reserve for accounts receivable $1,046,964 $ 422,122 $693,408 $ 775,678
========== ========== ======== ==========
YEAR ENDED JUNE 30, 1997:
Allowance for doubtful accounts $ 376,734 $ 83,297 $ 49,206 $ 410,825
Allowance for sales returns 398,944 1,306,858 396,771 1,309,031
---------- ---------- -------- ----------
Total reserve for accounts receivable $ 775,678 $1,390,155 $445,977 $1,719,856
========== ========== ======== ==========
</TABLE>
<PAGE> 1
EXHIBIT 10.20
[ ] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Commission pursuant to Rule 24b-2
AMENDMENT
THIS AMENDMENT is between the following Parties: LUCENT TECHNOLOGIES INC., a
Delaware corporation ("LUCENT"), having an office at 600 Mountain Avenue, Murray
Hill, New Jersey 07974, and STATISTICAL SCIENCES, INC., a Massachusetts
corporation ("LICENSEE"). Having an office at 1700 Westlake Avenue North, Suite
500, Seattle, Washington 98107. This Amendment is effective upon the date the
last of the Parties executes this Amendment.
WHEREAS the Parties entered into a Software License Agreement ("Agreement")
relating to LUCENT's S Software, and
WHEREAS the Parties wish to amend the Agreement.
THEREFORE, the Parties agree as follows:
1. The following new provisions are added:
3.02(i) LUCENT agrees that LICENSEE may furnish CUSTOMER
SOFTWARE to a customer for operation in a time-sharing or service
bureau environment provided that such customer agrees to the
provisions of Section 3.01(a)(i)(2-8).
7.13 LUCENT Purchases
LUCENT may, at its discretion and from time to time, desire to
acquire CUSTOMER SOFTWARE. LICENSEE agrees that LUCENT may
acquire CUSTOMER SOFTWARE from LICENSEE at a price structure that
is at least as favorable as the price structure LICENSEE offers
to any of its other customers, including the United States
government, for such CUSTOMER SOFTWARE.
2. Appendix A (Definitions) is modified to add the following definition:
TYPE means a product, comprising CUSTOMER SOFTWARE, which is furnished by
LICENSEE and which is identified by a name, symbol and/or other device so
as to distinguish the product from other products furnished by LICENSEE.
3. The provisions of Section 4.02 are deleted in their entirety and are
replaced with the following provisions:
- ----------
*Terms in capital letters shall have the meanings specified in the Definitions
Appendix of the Agreement or as defined in this Amendment.
<PAGE> 2
Confidential Treatment Requested
-2-
The Parties agree that if LICENSEE fails to fulfill its obligations under
Section 4.01 that: (i) the agreement by LUCENT in Sections 2.01(a) and
3.01(c) not to grant licenses and rights to third parties, with respect to
the NEW SOFTWARE PRODUCT portion of SOFTWARE PRODUCT, is, at the sole
discretion of LUCENT, revocable any time on or after [
], but that all other rights, licenses and obligations
shall continue, and (ii) the yearly fee due pursuant to Section 5.01 and
specified in APPENDIX C - YEARLY FEE SCHEDULE (as amended below), shall be
changed to [
] for the year [ ] and each year thereafter, and the sublicensing
fee due pursuant to Section 5.02 and specified in APPENDIX D - SUBLICENSING
FEE SCHEDULE, shall be reduced to [ ] for the years [ ] and
thereafter.
4. The provisions of Section 5.05(a) are amended as of the effective date of
this Amendment as follows:
Within ninety (90) days after the end of each semiannual period ending on
June 30th or December 31st, commencing with the semiannual period ending
December 31, 1997, LICENSEE shall furnish to LUCENT a statement, in form
acceptable to LUCENT and certified by an authorized representative of
LICENSEE, identifying SUBLICENSING REVENUE and remitting fees due pursuant
to Section 5.02.
LICENSEE agrees to identify for each TYPE the SUBLICENSING REVENUE due to
LUCENT and to identify whether such SUBLICENSING REVENUE is reported
pursuant to Section (a), (b) or (c) of the definition of SUBLICENSING
REVENUE.
LICENSEE further agrees that such statement will include, for each TYPE:
(i) the number of copies and price of each TYPE that were furnished by
LICENSEE, its SUBSIDIARIES and DISTRIBUTORS to customers, (ii) the [ ] of
MAINTENANCE AGREEMENTS for each TYPE during such semiannual period.
In the case where a MAINTENANCE AGREEMENT covers more than one TYPE, the
[ ] of such a MAINTENANCE AGREEMENT shall be prorated among
the TYPES covered based upon the [ ] of the TYPES covered.
5. The provisions of Section 6.01 are deleted and replaced with the following
provisions:
(a) Unless otherwise terminated, this Agreement shall be in effect for a
term commencing on February 18, 1996 and continuing for a six (6) year
period thereafter.
<PAGE> 3
Confidential Treatment Required
-3-
(b) If this Agreement is not otherwise terminated, at the end of such six
(6) year period, this Agreement will be automatically extended for an
additional five (5) year period unless LICENSEE notifies LUCENT more than
thirty (30) days prior to the expiration of such six (6) year period that
LICENSEE does not wish to extend this Agreement.
(c) Thereafter, this Agreement will be automatically extended for
subsequent five (5) year periods unless this Agreement is otherwise
terminated or unless LICENSEE notifies LUCENT more than thirty (30) days
prior to the expiration of this Agreement that LICENSEE does not wish to
extend this Agreement.
6. The provisions of Appendix C (Yearly Fee Schedule) of the Agreement are
deleted and replaced with the following provisions:
PAYMENT DUE DATE YEARLY FEE
[
]
<PAGE> 4
Confidential Treatment Required
-4-
7. The provisions of Appendix D (Sublicensing Fee Schedule) of the Agreement
are deleted and replaced with the following provisions:
YEAR (BEGINNING FEBRUARY 18) FEES
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
[ ] [ ] of SUBLICENSING REVENUE
IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
LUCENT TECHNOLOGIES INC.
By: /s/ M.R. Greene
---------------------------------------
M.R. Greene
Vice President - Intellectual Property
Date: 9/17/97
-------------------------------------
STATISTICAL SCIENCES, INC.
By: /s/ Charles J. Digate
---------------------------------------
Title: President and CEO
------------------------------------
Date: 9/25/97
-------------------------------------
THIS AMENDMENT DOES NOT BIND OR OBLIGATE EITHER PARTY IN
ANY MANNER UNLESS DULLY EXECUTED BY AUTHORIZED
REPRESENTATIVES OF BOTH PARTIES
<PAGE> 1
EXHIBIT 11.1
MATHSOFT, INC. AND SUBSIDIARIES
SUPPLEMENTAL CALCULATION OF SHARES USED IN
DETERMINING NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
1997 1996 1995
<S> <C> <C> <C>
WEIGHTED AVERAGE COMMON STOCK OUTSTANDING 8,841,170 8,247,036 7,169,593
WEIGHTED AVERAGE COMMON STOCK EQUIVALENTS -- 1,294,544 --
--------- --------- ---------
WEIGHTED NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 8,841,170 9,541,580 7,169,593
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 13.01
MARKET PRICE OF COMMON STOCK
The Common Stock (Nasdaq: MATH) began trading publicly in the over-the-counter
market through the Nasdaq National Market on February 3, 1993. Prior to that
date, there was no public market for the Common Stock. On July 15, 1997, the
Company transferred the listing of its Common Stock to the Nasdaq Small Cap
Market. The following table presents quarterly information on the price range of
the Common Stock. This information indicates the high and low bid prices for the
Common Stock as reported by the Nasdaq National Market for the periods
indicated. These prices do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1996:
First Quarter 6 7/8 4 5/8
Second Quarter 6 7/8 4 7/8
Third Quarter 6 7/8 4 7/8
Fourth Quarter 8 7/8 5 1/4
FISCAL 1997:
First Quarter 7 5/8 4 7/8
Second Quarter 5 3/8 3 1/4
Third Quarter 5 1/8 2 3/4
Fourth Quarter 3 5/8 2 3/16
</TABLE>
As of September 3, 1997, the approximate number of stockholders of record of
Common Stock was approximately 214.
The Company has never paid any cash dividends on its Common Stock and does not
anticipate paying any cash dividends in the foreseeable future. The Company
currently intends to retain future earnings to fund the development and growth
of its business.
<PAGE> 2
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in thousands, except per share data) 1997 1996 1995 1994 1993(4)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total revenues $17,678 $20,767 $15,883 $26,610 $25,649
Gross profit 13,732 16,766 11,819 20,113 20,933
Income (loss) from operations (1) (2) (3) (4,394) 933 (3,635) (7,296) (6,330)
Net income (loss) (4,300) 1,076 (3,553) (7,146) (6,260)
Net income (loss) per common and common
equivalent share in 1997, 1996, 1995 and 1994;
proforma net loss per common and common
equivalent share in 1993 (0.49) 0.11 (0.50) (1.02) (1.10)
Working capital 457 4,688 617 1,618 10,190
Total assets 8,786 11,899 8,103 13,378 20,162
Long-term obligations, less current portion 183 3 13 79 183
Redeemable convertible preferred stock -- -- -- -- --
Stockholders equity 2,168 6,759 2,624 5,800 12,611
</TABLE>
(1) 1995 amount includes a write-down of intangible assets of $1.662 million.
See Note 1(xx) of Notes to Consolidated Financial Statements.
(2) 1994 amount includes a restructuring charge of $2.38 million. See Note 2 of
Notes to Consolidated Financial Statements.
(3) 1993 amount reflects a charge to operations of $6.57 million for purchased
research and development related to the StatSci acquisition. See note 4
below.
(4) On June 30, 1993, the Company acquired substantially all of the assets and
business of a software company, Statistical Sciences, Inc., a Washington
corporation located in Seattle, Washington. The Company currently carries
on this business through its wholly-owned subsidiary, Statistical Sciences,
Inc., a Massachusetts corporation. The acquisition was accounted for as a
purchase. The selected consolidated financial data disclosed herein include
the effects of this purchase.
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
As an aid to understanding the Company's operating results, the table below
indicates the percentage relationships of income and expense items included in
the Consolidated Statements of Operations for the three years ended June 30,
1997 and the percentage changes in those items for the two years ended June 30,
1997.
<TABLE>
<CAPTION>
Percentage of Total Revenues Percentage Change
----------------------------------------------------------------
1997 1996 1995 1997-96 1996-95
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses 85.9% 87.4% 86.6% -16.4% 32.0%
Services and other 14.1% 12.6% 13.4% -4.3% 22.5%
----------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0% -14.9% 30.7%
Cost of Revenues:
Software licenses 17.7% 14.7% 20.7% 2.0% -6.8%
Services and other 4.6% 4.5% 4.9% -12.4% 20.7%
----------------------------------------------------------------
Total cost of revenues 22.3% 19.3% 25.6% -1.4% -1.6%
Gross profit 77.7% 80.7% 74.4% -18.1% 41.9%
Operating Expenses:
Sales and marketing 58.0% 46.8% 54.8% 5.5% 11.7%
Research and development 29.1% 17.6% 19.3% 40.5% 19.6%
General and administrative 15.5% 11.8% 12.8% 11.3% 20.9%
Write-down of intangible assets 0.0% 0.0% 10.5% * *
----------------------------------------------------------------
Total operating expenses 102.5% 76.2% 97.3% 14.5% 2.5%
Loss from operations -24.9% 4.5% -22.9% -570.9% -125.7%
Interest income (expense), net 0.8% 0.9% 0.5% -27.7% 134.1%
----------------------------------------------------------------
Loss before provision
for income taxes -24.1% 5.4% -22.4% -478.2% -131.7%
Provision for income taxes 0.3% 0.2% 0.0% -9.7% *
----------------------------------------------------------------
Net loss -24.4% 5.2% -22.5% -499.7% -130.3%
================================================================
</TABLE>
* Not meaningful.
Fiscal 1997 Compared to Fiscal 1996
Total revenues decreased 14.9% from $20,767,000 in fiscal 1996 to
$17,678,000 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, and a decrease in S-PLUS product line and services
revenue. The decrease in total revenues was partially offset by revenue
generated by the release of Mathcad 6.0 for Macintosh in November 1996,
revenue 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.
<PAGE> 4
Mathcad for Windows generated upgrade revenue of $4,287,000 in fiscal 1996
compared to upgrade revenue of $1,388,000 in fiscal 1997, a decrease as a
percentage of total revenues from 20.6% to 7.9%, respectively. Prior to the
release of Mathcad 7 for Windows in June 1997, the Company's last
significant upgrade, Mathcad 6.0 for Windows, was released approximately
twenty-three months earlier in fiscal 1995, and its upgrade cycle therefore
came to a close in fiscal 1997. Worldwide Mathcad for Windows non-upgrade
revenue decreased 13.8% from $7,377,000 in fiscal 1996 to $6,359,000 in
fiscal 1997 due primarily to the Company's distribution channel's
anticipation of the delivery of the next major release of Mathcad for
Windows, Mathcad 7 for Windows, and decreasing sell-through of the older
Mathcad 6.0 for Windows release. Worldwide S-PLUS product line and services
revenue decreased 8.7% from $5,904,000 in fiscal 1996 to $5,389,000 in
fiscal 1997, and increased as a percentage of total revenues from 28.4% to
30.5%, respectively. The decrease in S-PLUS product line and services
revenue was attributable to a reduction in license revenue, due to a
material shift from UNIX license sales to lower priced Windows license
sales, and to the discontinuance of unprofitable S-PLUS services revenue.
Moreover, the product line reached its fourth year of life without a major
new release resulting in sluggish new license sales prior to the delivery
of S-PLUS 4.0 in early fiscal 1998. Revenues attributable to the Axum
product line acquired in the TriMetrix, Inc. acquisition accounted for
$676,000, or 3.3% of total revenues, in fiscal 1996 compared to $1,023,000,
or 5.8% of total revenues, in fiscal 1997. Total international revenues
attributable to sales of all Company product lines decreased 10.9% from
$6,756,000 in fiscal 1996 to $6,018,000 in fiscal 1997, and increased as a
percentage of total revenues from 32.5% to 34.0%, respectively.
Total cost of revenues decreased 1.4% from $4,000,000 in fiscal 1996 to
$3,946,000 in fiscal 1997, and increased as a percentage of total revenues
from 19.3% to 22.3%, respectively. The increase in total cost of revenues
as a percentage of total revenues was primarily attributable to a reduction
of inventory reserves in fiscal 1996 based on an evaluation of actual
inventory exposure and reserve requirements. In contrast, the Company
increased inventory reserves in fiscal 1997 to adequately cover inventory
exposure in the sales distribution channel as the Company prepared to
release its next major upgrade of Mathcad, Mathcad 7 for Windows. In
addition, fixed licensing costs for the "S" language used in the S-PLUS
product line increased in fiscal 1997 per terms of the license agreement
and other fixed costs, such as the amortization of purchased technology,
increased as a percentage of total revenues by approximately 1.51% due to
an overall lower revenue base in fiscal 1997.
<PAGE> 5
Sales and marketing expenses increased 5.5% from $9,719,000 in fiscal 1996
to $10,251,000 in fiscal 1997, and increased as a percentage of total
revenues from 46.8% to 58.0%, respectively. The increase in overall sales
and marketing expenses was attributable to marketing expenses incurred
related to the fiscal 1997 launch of the StudyWorks! product line, Mathcad
6.0 for Macintosh and, most recently, Mathcad 7 for Windows, as well as to
an increase in S-PLUS domestic sales expenses as the Company reorganized
its sales infrastructure to support direct sales into this expanding
product line. International sales and marketing expenses increased 3.8%
from $2,285,000 in fiscal 1996 to $2,372,000 in fiscal 1997.
Research and development expenses increased 40.6% from $3,659,000 in fiscal
1996 to $5,143,000 in fiscal 1997, and increased as a percentage of total
revenues from 17.6% to 29.1%. The increase in overall research and
development expenses was primarily attributable to increased personnel and
consulting costs associated with the continued expansion and development of
the S-PLUS product line, specifically related to the first release of
StatServer in April, 1997 and the impending release of S-PLUS 4.0 in early
fiscal 1998.
General and administrative expenses increased 11.3% from $2,455,000 in
fiscal 1996 to $2,732,000 in fiscal 1997 and increased as a percentage of
total revenues from 11.8% to 15.5%, 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 $12,000 in fiscal 1996 compared to
exchange rate losses of $257,000 in fiscal 1997.
Net loss for fiscal 1997 was $4,300,000 compared to net income of
$1,076,000 in fiscal 1996. Fiscal 1997 reflected a year of investment for
the Company as evidenced by its commitment to strategic development
initiatives, most notably in the Company's Data Analysis Products Division.
The release of new products with new product cycles will support renewed
growth in both the Mathcad and S-PLUS product lines.
Fiscal 1996 Compared to Fiscal 1995
Total revenues increased 30.7% from $15,883,000 in fiscal 1995 to
$20,767,000 in fiscal 1996. The increase in total revenues was primarily
attributable to an increase in worldwide Mathcad product line licenses, an
increase in worldwide S-PLUS product line and services revenue and revenue
generated from the Axum product line acquired in the second quarter of
fiscal 1996. The release of Mathcad 6.0 in July 1995 supported a 129%
worldwide increase in Mathcad upgrade revenue from $1,873,000 in fiscal
1995 to $4,287,000 in fiscal 1996. Mathcad upgrade revenue also increased
as a percentage of total revenues from 11.8% in fiscal 1995 to 20.6% in
fiscal 1996. The Company's last significant upgrade, Mathcad 5.0, was
released approximately eighteen months earlier in fiscal 1994, and its
upgrade cycle therefore came to a close in fiscal 1995. Worldwide Mathcad
non-upgrade product line sales increased 18.3% from $6,236,000 in fiscal
1995 to $7,377,000 in fiscal 1996 and worldwide S-PLUS product line and
services revenue
<PAGE> 6
increased 10.9% from $5,324,000 in fiscal 1995 to $5,904,000 in fiscal
1996. The increase in worldwide non-upgrade Mathcad revenue was due
primarily to the Company's focus throughout fiscal 1996 on a generating new
license Mathcad sales by an increased penetration into the education market
and renewed growth in the commercial markets. Total international revenues
increased 17.7% from $5,739,000 in fiscal 1995 to $6,756,000 in fiscal
1996, and decreased as a percentage of total revenues from 36.1% to 32.5%,
respectively. The increase in total international revenues was due to
Mathcad upgrade revenues generated by the release of Mathcad 6.0, in
addition to global distribution expansion efforts in both the commercial
and education markets. Revenues attributable to the Axum product line
acquired in the TriMetrix, Inc. acquisition accounted for $676,000, or 3.3%
of total revenues, in fiscal 1996. Gains and losses from foreign currency
transactions in fiscal 1996 were not significant.
Total cost of revenues decreased 1.6 % from $4,064,000 in fiscal 1995 to
$4,000,000 in fiscal 1996, and decreased as a percentage of total revenues
from 25.6% to 19.3%, respectively. The decrease in total cost of revenues
as a percentage of total revenues was primarily attributable to the
allocation of fixed costs, such as royalties and the amortization of
purchased technology, over a higher revenue base for the year. In addition,
amortization of product development costs accounted for $489,000 of total
cost of revenues, or 3.1% of total revenues, in fiscal 1995. There was no
amortization of product development costs in fiscal 1996 as amounts were
fully amortized.
Sales and marketing expenses increased 11.7% from $8,703,000 in fiscal 1995
to $9,719,000 in fiscal 1996, and decreased as a percentage of total
revenues from 54.8% to 46.8%, respectively. The increase in overall sales
and marketing expenses was primarily attributable to more aggressive
advertising and channel promotional activities and additional headcount and
related costs in both the domestic sales and marketing functions. These
increases were partially offset by a reduction in direct mail marketing
activities to prospective customers. International marketing expenses
decreased from $2,168,000 in fiscal 1995 to $1,661,000 in fiscal 1996 due
primarily to a discontinuance of direct mail marketing activity to
prospective customers and reduced installed base direct mail marketing
activity.
Research and development expenses increased 19.6% from $3,059,000 in fiscal
1995 to $3,659,000 in fiscal 1996, and decreased as a percentage of total
revenues from 19.2% to 17.6%. The increase in overall research and
development expenses was primarily due to the addition of personnel from
the TriMetrix, Inc. acquisition as well as expenses incurred related to
product localization for international markets and S-PLUS development
efforts.
General and administrative expenses increased 20.9% from $2,030,000 in
fiscal 1995 to $2,455,000 in fiscal 1996 and decreased as a percentage of
total revenues from 12.8% to 11.8%, respectively. The increase in overall
general and administrative expenses was primarily attributable to costs
incurred to attract and retain key management personnel in both the
Company's Cambridge headquarters and Seattle operation including the
addition of a new General Manager for the Company's Data Analysis Products
Division in the third quarter of fiscal 1996.
Net income for fiscal 1996 was $1,076,000 compared to a net loss of
$1,891,000 in fiscal 1995, excluding the $1,662,000 non-cash charge for the
revaluation of certain intangible assets. The release of Mathcad 6.0 in
July 1995 and expansion of global distribution channels supported worldwide
growth in both the Mathcad and S-PLUS product lines. In addition, the
Company's renewed commitment to the education market in fiscal 1996
resulted in increased penetration for both existing product lines and new
product lines, such as StudyWorks released in June 1996.
<PAGE> 7
Liquidity and Capital Resources
Cash and cash equivalents totaling $2,802,000 at June 30, 1997, decreased
$2,152,000 during fiscal 1997 from 4,954,000 at June 30, 1996. The negative
cash flow resulted primarily from cash used in operating activities and
purchases of property and equipment, offset by proceeds generated from
capital lease equipment financing and the exercise of stock options.
The Company used $2,038,000 in operating activities in fiscal 1997 compared
to cash used in operations of $1,296,000 in fiscal 1996, an increase of
$742,000. The use of cash in operating activities was primarily
attributable to a net loss of approximately $4,300,000 and, to a lesser
extent, to an increase in prepaid expenses and a decrease in accrued
expenses. Prepaid expenses increased proportionally with increases in
licensing royalties payable for the "S" language used in the S-PLUS product
line and increases in Directors and Officers insurance coverage purchased
by the Company in fiscal 1997, the expenses of which are recognized ratably
over the period covered by the related agreements. Accrued expenses
decreased from fiscal 1996 levels due to the settlement of liabilities
associated with the acquisition of acroScience Corporation. These uses of
cash were partially offset by non-cash depreciation and amortization
charges, decreases in accounts receivable and inventory costs and increases
in accounts payable. Accounts receivable decreased due to an overall
decline in Mathcad product sold into the Company's distribution channel and
timing of new product releases, such as StudyWorks! in late June 1996,
which accelerated both receivables and inventory levels in fiscal 1996
relative to fiscal 1997. Inventory levels in the Company's Data Analysis
Products Division also decreased throughout fiscal 1997 as the Company
minimized stocking levels of S-PLUS in anticipation of the release of
S-PLUS 4.0 in the first quarter of fiscal 1998. Accounts payable increased
due to timing of liabilities and management's cash planning and forecasting
efforts. During fiscal 1997, the Company purchased $780,000 of property and
equipment, compared to $1,059,000 in fiscal 1996. Proceeds generated from
capital lease equipment financing totaled $565,000 in fiscal 1997. The
Company did not enter into any capital lease equipment financing
transactions in fiscal 1996. In addition, proceeds from the exercise of
stock options and warrants totaled approximately $377,000 in fiscal 1997
compared to $587,000 in fiscal 1996.
The Company's financial reserves are represented by cash and cash
equivalents as of June 30, 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 or $500,000 to $1,000,000 based on
certain profitability covenants. 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%. 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 31,1998. There were no amounts outstanding under this line at June
30, 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
<PAGE> 8
from that discussed above. Factors that might cause such a difference
include, but are not limited to, those discussed in "Cautionary Statements"
of the Company's Form 10-K for the fiscal year ended June 30, 1997 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 favorable to
the Company.
In addition to the other information in this report, the cautionary
statements discussed in the Company's Form 10-K for the fiscal year ended
June 30, 1997 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.
<PAGE> 9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To MathSoft, Inc.:
We have audited the accompanying consolidated balance sheets of MathSoft, Inc.
(a Massachusetts corporation) and subsidiaries as of June 30, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of MathSoft, Inc. and subsidiaries
as of June 30, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 1997, in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
August 1, 1997
<PAGE> 10
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
JUNE 30,
--------------------------
1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,802,389 $ 4,954,416
Accounts and other receivables, less reserves
of approximately $1,720,000 and $776,000 at
June 30, 1997 and 1996, respectively 3,237,812 3,881,568
Inventories 343,785 547,892
Prepaid expenses 475,525 381,638
---------- -----------
Total current assets 6,859,511 9,765,514
---------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment and software 4,396,927 4,052,662
Property and equipment under capital lease 427,898 --
Furniture and fixtures 989,520 968,644
Leasehold improvements 626,889 621,354
---------- -----------
6,441,234 5,642,660
Less--Accumulated depreciation and amortization 4,888,216 4,044,072
---------- -----------
1,553,018 1,598,588
---------- -----------
OTHER ASSETS:
Purchased technology, net of accumulated
amortization of approximately $2,722,000 and
$2,505,000 at June 30, 1997 and 1996,
respectively 287,253 504,006
Other assets 86,661 31,044
---------- -----------
373,914 535,050
---------- -----------
$8,786,443 $11,899,152
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
-----------------------------
1997 1996
<S> <C> <C>
CURRENT LIABILITIES:
Current portion of capital lease obligations $ 319,690 $ 16,753
Accounts payable 2,036,745 1,699,414
Accrued expenses 2,592,532 2,255,214
Accrued restructuring, current portion 10,539 13,316
Deferred revenue 1,443,244 1,092,541
------------ ------------
Total current liabilities 6,402,750 5,077,238
------------ ------------
ACCRUED RESTRUCTURING, LESS CURRENT PORTION 13,613 24,152
------------ ------------
CAPITAL LEASE OBLIGATIONS, LESS CURRENT PORTION 182,619 2,694
------------ ------------
ACCRUED RENT, LESS CURRENT PORTION 19,335 36,372
------------ ------------
COMMITMENTS (Note 4)
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--9,006,376 shares and
8,579,262 shares at June 30, 1997 and 1996,
respectively 90,064 85,793
Additional paid-in capital 29,161,835 28,158,558
Accumulated deficit (26,992,109) (21,474,509)
Cumulative translation adjustment (91,664) (11,146)
------------ ------------
Total stockholders' equity 2,168,126 6,758,696
------------ ------------
$ 8,786,443 $ 11,899,152
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 12
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Software licenses $15,179,191 $18,155,650 $13,751,456
Services and other 2,498,536 2,611,048 2,131,770
----------- ----------- -----------
Total revenues 17,677,727 20,766,698 15,883,226
----------- ----------- -----------
COST OF REVENUES:
Software licenses 3,124,158 3,061,762 3,286,577
Services and other 821,781 938,596 777,664
----------- ----------- -----------
Total cost of revenues 3,945,939 4,000,358 4,064,241
----------- ----------- -----------
Gross profit 13,731,788 16,766,340 11,818,985
----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 10,251,376 9,719,346 8,703,130
Research and development 5,142,751 3,659,171 3,058,788
General and administrative 2,731,858 2,454,838 2,030,296
Write-down of intangible assets -- -- 1,662,000
----------- ----------- -----------
Total operating expenses 18,125,985 15,833,355 15,454,214
----------- ----------- -----------
Income (loss) from operations (4,394,197) 932,985 (3,635,229)
INTEREST INCOME 153,111 199,049 108,372
INTEREST EXPENSE (14,440) (7,196) (26,427)
----------- ----------- -----------
Income (loss) before provision
for income taxes (4,255,526) 1,124,838 (3,553,284)
PROVISION FOR INCOME TAXES 44,452 49,000 --
----------- ----------- -----------
Net income (loss) $(4,299,978) $ 1,075,838 $(3,553,284)
=========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ (.49) $ .11 $ (.50)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING 8,841,170 9,541,580 7,169,593
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 13
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL ACCUMULATED CUMULATIVE TOTAL
NUMBER OF $.01 PAR PAID-IN DEFICIT TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1994 7,091,389 $70,914 $24,217,450 $(18,510,247) $ 21,787 $ 5,799,904
Exercise of stock options, warrants and Employee Stock
Purchase Plan 181,759 1,817 210,832 -- -- 212,649
Compensation associated with issuance of stock options -- -- 150,000 -- -- 150,000
Net loss -- -- -- (3,553,284) -- (3,553,284)
Translation adjustment -- -- -- -- 14,332 14,332
--------- ------- ----------- ------------ -------- -----------
BALANCE, JUNE 30, 1995 7,273,148 72,731 24,578,282 (22,063,531) 36,119 2,623,601
Acquisition of TriMetrix, Inc. 219,997 2,200 63,700 (486,816) -- (420,916)
Sale of common stock 750,000 7,500 2,932,963 -- -- 2,940,463
Exercise of stock options, warrants and Employee Stock
Purchase Plan 336,117 3,362 583,613 -- -- 586,975
Net income -- -- -- 1,075,838 -- 1,075,838
Translation adjustment -- -- -- -- (47,265) (47,265)
--------- ------- ----------- ------------ -------- -----------
BALANCE, JUNE 30, 1996 8,579,262 85,793 28,158,558 (21,474,509) (11,146) 6,758,696
Acquisition of acroScience Corporation 250,000 2,500 618,500 (1,217,622) -- (596,622)
Exercise of stock options and Employee Stock Purchase
Plan 177,114 1,771 374,777 -- -- 376,548
Compensation associated with issuance of stock options -- -- 10,000 -- -- 10,000
Net loss -- -- -- (4,299,978) -- (4,299,978)
Translation adjustment -- -- -- -- (80,518) (80,518)
--------- ------- ----------- ------------ -------- -----------
BALANCE, JUNE 30, 1997 9,006,376 $90,064 $29,161,835 $(26,992,109) $(91,664) $ 2,168,126
========= ======= =========== ============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 14
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------------------------
1997 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $(4,299,978) $ 1,075,838 $(3,553,284)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities, net of acquisitions-
Depreciation and amortization 1,063,503 1,043,052 1,624,761
Compensation associated with issuance of options 10,000 -- 150,000
Write-down of intangible assets -- -- 1,662,000
Changes in assets and liabilities-
Accounts and other receivables 643,756 (2,301,420) 1,790,517
Inventories 210,946 (247,446) 500,760
Prepaid expenses (93,886) (172,936) 711,831
Accounts payable 329,822 136,252 (260,135)
Accrued expenses (252,499) (754,768) (2,043,772)
Deferred revenue 350,702 (74,285) 161,112
----------- ----------- -----------
Net cash provided by (used in) operating activities (2,037,634) (1,295,713) 743,790
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in short-term investments -- 448,618 629,888
Purchases of property and equipment (780,171) (1,059,263) (285,572)
Decrease (increase) in other assets (56,374) 15,688 17,355
Cash acquired from the acroScience and TriMetrix acquisitions 9,691 27,849 --
----------- ----------- -----------
Net cash provided by (used in) investing activities (826,854) (567,108) 361,671
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt (16,000) (73,188) (94,066)
Payments on capital lease obligations (132,975) (76,077) (161,698)
Borrowings on capital lease obligations 565,406 -- --
Proceeds from exercise of stock options, warrants and Employee
Stock Purchase Plan 376,548 586,975 212,649
Net proceeds from sale of common stock -- 2,940,463 --
----------- ----------- -----------
Net cash provided by (used in) financing activities 792,979 3,378,173 (43,115)
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (80,518) (47,265) 14,332
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,152,027) 1,468,087 1,076,678
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,954,416 3,486,329 2,409,651
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,802,389 $ 4,954,416 $ 3,486,329
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 14,439 $ 5,519 $ 26,426
=========== =========== ===========
Income taxes $ 7,530 $ 49,220 $ 34,069
=========== =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES: The
Company financed $63,333 of equipment through long-term debt and capital leases
in fiscal 1997.
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 financial
statements.
<PAGE> 15
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
MathSoft, Inc. (MathSoft) was incorporated on October 12, 1984. MathSoft
develops, markets and supports software productivity tools for the
technical calculation and data analysis markets comprised of professionals,
students and educators (see Note 10).
The accompanying consolidated financial statements reflect the application
of certain accounting policies as described in this note and elsewhere in
the consolidated financial statements and notes.
(a) Basis of Presentation
The accompanying consolidated financial statements comprise those of
MathSoft and its wholly owned subsidiaries Statistical Sciences, Inc.
(StatSci), TriMetrix, Inc. and acroScience Corporation (collectively
referred to as the Company). All material intercompany accounts and
transactions have been eliminated.
(b) Revenue Recognition
The Company derives substantially all of its revenue from technical
calculation and data analysis software products for use on desktop
computers. Revenue from the licensing of software products is
recognized when the products are shipped, as there are no significant
post-delivery obligations, and the Company provides for estimated
returns and warranty costs at the time of sale. The Company offers
maintenance contracts and training on its data analysis software
products. Maintenance and training revenues are recognized ratably
over the term of the related contracts. Amounts received in advance
for maintenance agreements are recorded as deferred revenue on the
accompanying consolidated balance sheets.
(c) Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates
market, and consist of short-term, highly liquid investments with
original maturities of less than three months.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1997 1996
<S> <C> <C>
Materials and supplies $ 41,648 $162,627
Finished goods 302,137 385,265
-------- --------
$343,785 $547,892
======== ========
</TABLE>
<PAGE> 16
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(e) Depreciation and Amortization
The Company provides for depreciation and amortization by charges to
operations on a straight-line basis, in amounts estimated to recover
the cost of the assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION USEFUL LIVES
<S> <C>
Computer equipment and software 3 years
Furniture and fixtures 3-5 years
Leasehold improvements Life of lease
</TABLE>
Property and equipment under capital leases are amortized over the
shorter of the estimated useful life of three to five years or the
term of the lease.
(f) Product Development Costs
The Company capitalizes product development costs subsequent to the
establishment of technological and commercial feasibility, until the
product is available for general release. Costs incurred prior to the
establishment of technological feasibility are charged to research and
development expense. Development costs associated with product
enhancements that extend the original product's life or significantly
improve the original product's marketability are also capitalized upon
technological feasibility. Amortization of product development costs
begins the month after the general release over the shorter of the
estimated useful life of the product or fifteen months.
No costs were capitalized for the years ended June 30, 1997 or 1996,
as costs incurred from technological feasibility to general release
were immaterial. Amortization of product development costs of $488,964
for the year ended June 30, 1995, has been included in cost of
revenues in the accompanying consolidated statements of operations.
(g) Net Income (Loss) per Common and Common Equivalent Share
For the years ended June 30, 1997 and 1995, net loss per share was
computed using the weighted average number of shares of common stock
outstanding during the respective years. Common stock equivalents have
not been included, as their effect would have been antidilutive.
<PAGE> 17
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
For the year ended June 30, 1996, net income per common and common
equivalent share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the year,
computed in accordance with the treasury stock method. Fully diluted
earnings per share have not been presented, as the amounts would not
differ significantly from primary earnings per share.
(h) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(i) Foreign Currency Translation
Assets and liabilities of the Company's foreign branch are translated
to U.S. dollars using the exchange rate at each balance sheet date.
Income and expense accounts are translated using an average rate of
exchange during the period. Foreign currency translation adjustments
are accumulated as a separate component of stockholders' equity. The
effect of aggregate transaction gains and losses were approximately
$(257,000), $(12,000) and $38,000 in 1997, 1996 and 1995,
respectively.
(j) Other Assets
In fiscal 1997, the Company implemented Statement of Financial
Accounts Standards (SFAS) No. 121, Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. This
standard establishes accounting standards for long-lived assets and
certain identifiable intangibles to be disposed of. The effect of
adopting SFAS No 121 was immaterial.
(k) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk, requires disclosure of any significant
off-balance-sheet and credit risk concentrations. The Company's
financial instruments that subject the Company to credit risk consist
primarily of cash and cash equivalents and accounts receivable. The
Company maintains the majority of its cash balances with one financial
institution. The Company's accounts receivable are not concentrated
within a specific geographic area; however, one single customer
represents a credit risk to the Company (see Note 8).
<PAGE> 18
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(l) New Accounting Standards
In March 1997, the Financial Accounting Standards Board (FASB) 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 or potential 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' reported per share amounts.
The Company will adopt this statement for its fiscal year ending June
30, 1998 and does not believe that the effect of the adoption of this
standard would be materially different from the amounts presented in
the accompanying consolidated statements of income.
In July 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components in a full set of general
purpose financial statements, in order to measure all changes in
equity of an enterprise that result from transactions and other
economic events of the period other than transactions with owners.
Comprehensive income, as defined by SFAS No. 130, is the total of net
income and all other nonowner changes in equity. Under SFAS No. 130,
companies would include the cumulative total of comprehensive income
as a separate component of its stockholders' equity statement. This
statement is effective for fiscal years beginning after December 15,
1997, and is applicable on both an interim and annual basis.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. SFAS No. 131 requires
certain financial and supplementary information to be disclosed on an
annual and interim basis for each reportable segment of an enterprise.
Reportable segments, as defined by this statement, correspond to the
way management organizes units and evaluates performance internally,
and may be based upon products, geography, legal entity, management
structure or a combination of these methods. SFAS No. 131 is
applicable only to public, for-profit entities and is effective for
fiscal years beginning after December 15, 1997. Unless impracticable,
companies would be required to restate prior period information upon
adoption.
(m) Use of Estimates
The preparation of these consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
<PAGE> 19
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(n) Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires disclosure about fair value of financial instruments
consisting of cash, accounts receivable and capital leases. The
estimated fair value of these financial instruments approximates their
carrying value.
(2) INCOME TAXES
At June 30, 1997, the Company had available net operating loss
carryforwards of approximately $13,889,000 and tax credit carryforwards of
approximately $576,000. The net operating loss and tax credit carryforwards
may be used to offset future federal taxable income and federal income
taxes, respectively, through the fiscal year ending June 30, 2012. The
Internal Revenue Code contains provisions that limit the net operating loss
and credit carryforwards available to be used in any given year upon the
occurrence of certain events, including significant changes in ownership
interests.
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax bases of assets and liabilities using currently enacted
tax rates.
The provisions for income taxes for the years ended June 30, 1997 and 1996
consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
<S> <C> <C>
Current tax expense-
Federal $ -- $ 340,000
State -- 63,000
Foreign 44,452 49,000
Deferred tax expense-
Federal -- (340,000)
State -- (63,000)
Foreign -- --
------- ---------
$44,452 $ 49,000
======= =========
</TABLE>
The income tax provision is due to international income taxes.
<PAGE> 20
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The significant components of the deferred tax assets and liabilities at June
30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
<S> <C> <C>
Net operating loss carryforward $ 4,722,000 $ 3,667,000
Research and development credit
carryforwards 576,000 552,000
Temporary differences (1,308,000) (159,000)
----------- -----------
3,990,000 4,060,000
Valuation allowance (3,990,000) (4,060,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
Due to the uncertainty surrounding the realization of its deferred tax assets,
the Company has recorded a full valuation allowance against its deferred tax
assets.
The components of domestic and foreign income (loss) before the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
------------------- JUNE 30, -------------------
1997 1996 1995
<S> <C> <C> <C>
Domestic $(4,011,290) $ 325,215 $(2,813,334)
Foreign (244,236) 799,623 (739,950)
----------- ----------- -----------
$(4,255,526) $ 1,124,838 $(3,553,284)
=========== =========== ===========
</TABLE>
<PAGE> 21
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(3) CAPITAL LEASES
The Company leases certain equipment under noncancelable leases expiring
through fiscal 2002. Future minimum lease payments as of June 30, 1997
under these arrangements are as follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1998 $353,001
1999 181,583
2000 9,580
2001 9,580
2002 9,580
--------
Total minimum lease payments 563,324
Less--Amount representing interest 61,015
--------
Present value of minimum lease payments 502,309
Less--Current portion of capital leases 319,690
--------
$182,619
========
</TABLE>
(4) COMMITMENTS
In August 1993, the Company entered into a six-year operating lease for its
facility in Cambridge, Massachusetts. The lease provides for uneven
payments during the six-year period. However, rent expense is charged to
operations evenly over the leased period. The Company also has operating
leases for its Seattle and International office spaces and certain office
equipment.
Future lease payments under the Company's operating lease arrangements,
exclusive of operating costs and net of sublease revenue through October
2000, are as follows:
<TABLE>
<CAPTION>
GROSS SUBLEASE NET
OPERATING RENTAL OPERATING
LEASES RECEIPTS LEASES
Year ending June 30,
<S> <C> <C> <C>
1998 $ 976,000 $(204,000) $ 772,000
1999 970,000 (204,000) 766,000
2000 265,000 (84,000) 181,000
2001 9,000 -- 9,000
2002 1,000 -- 1,000
---------- --------- ----------
Total future lease payments $2,221,000 $(492,000) $1,729,000
========== ========= ==========
</TABLE>
<PAGE> 22
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Rental expense under the Company's operating leases was approximately
$723,000, $707,000 and $576,000 in fiscal 1997, 1996 and 1995,
respectively. The fiscal 1997 and 1996 amounts are net of sublease income
of approximately $171,000 and $169,000, respectively.
(5) STOCKHOLDERS' EQUITY
(a) Stock Option Plans
The Company adopted two stock option plans in 1987 and 1992 (the Plans)
whereby the Board of Directors may grant incentive stock options (ISOs),
nonqualified stock options, awards of common stock and authorizations to
make direct purchases of common stock to eligible employees and others, as
defined. ISOs are granted at a price not less than fair market value at the
date of grant. The options typically vest over a five-year period.
The Company has adopted the 1992 Nonemployee Director Stock Option Plan
(the 1992 Director's Plan) pursuant to which directors who are not officers
or employees of the Company annually receive options to purchase shares of
the Company's common stock. A total of 160,000 shares of common stock may
be issued under the 1992 Director's Plan. The exercise price of each option
equals the fair market value of the stock on the date of grant. The options
are exercisable upon the earlier of one year from the date of grant or the
first annual meeting of stockholders, following the date of grant at which
members of the Board are elected.
The Board of Directors granted Key Officer Stock Options to members of
senior management of the Company in 1992. The Key Officer Stock Options are
nonqualified, nonplan stock options exercisable for an aggregate of 907,556
shares of common stock at an exercise price of $1.08 per share, the fair
market value of the common stock on the date of grant. Each such option
expires 11 years from the date of grant, subject to earlier termination if
the optionee ceases to serve the Company other than by reason of death or
disability. Each Key Officer Stock Option became exercisable upon the
closing of the Company's initial public offering.
As of June 30, 1997, a total of 3,898,508 shares of common stock were
reserved for issuance under the Plans, the 1992 Director's Plan and the Key
Officer Stock Options.
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995,
the FASB issued SFAS No. 123, Accounting for Stock-Based Compensation. SFAS
No. 123 establishes a fair-value-based method of accounting for stock-based
compensation plans. The Company has adopted the disclosure-only alternative
under SFAS No. 123 for employees, which requires disclosure of the pro
forma effects on earnings and earnings per share as if SFAS No. 123 had
been adopted, as well as certain other information. The Company has
computed the pro forma disclosures required under SFAS No. 123 for all
stock options granted during fiscal years 1996 and 1997, including the
Employee Stock
<PAGE> 23
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Purchase Plan using the Black-Scholes option pricing model prescribed by
SFAS No. 123. For nonemployees, SFAS No. 123 requires that the compensation
expense calculated using the Black-Scholes option pricing model be charged
to the statement of operations. The value of options awarded to
nonemployees as determined under SFAS No. 123 is not material to the
results of operations for both fiscal years 1997 and 1996.
The assumptions used and the weighted average information for the fiscal
years ended June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
---- FISCAL YEARS ENDED ----
JUNE 30, JUNE 30,
1997 1996
<S> <C> <C>
Risk-free interest rates 6.00%-6.74% 5.61%-6.74%
Expected dividend yield None None
Expected lives 5 years 5 years
Expected volatility 70% 70%
Weighted average grant-date fair value of
options granted during the period $1.62 $2.35
Weighted average remaining contractual life of
options outstanding 5.10 years 5.53 years
Weighted average exercise price of 422,536
and 139,715 vested options exercisable at
June 30, 1997 and 1996, respectively $1.42 $2.50
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
---- FISCAL YEARS ENDED ----
JUNE 30, JUNE 30,
1997 1996
<S> <C> <C>
Net (loss) income as reported $(4,299,978) $ 1,075,838
Net (loss) income per share as reported (.49) .11
Pro forma net (loss) income (4,880,616) 622,956
Pro forma net (loss) income per share (.55) .07
</TABLE>
Because the method prescribed by SFAS No. 123 has not been applied to
options granted prior to June 30, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in the
future years.
<PAGE> 24
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The Company's stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE WEIGHTED
OF SHARES RANGE AVERAGE
OPTION PRICE
<S> <C> <C> <C>
Outstanding at June 30, 1994 1,457,671 -- $2.84
Granted 1,155,000 -- 2.13
Exercised (145,304) -- 1.05
Canceled (544,741) -- 6.01
--------- -----
Outstanding at June 30, 1995 1,922,626 -- 1.86
Granted 961,434 -- 5.52
Exercised (320,452) -- 1.65
Canceled (195,240) -- 5.53
--------- -----
Outstanding at June 30, 1996 2,368,368 -- 3.03
Granted 1,289,514 -- 2.74
Exercised (148,651) -- 1.64
Canceled (507,669) -- 4.28
--------- -----
Outstanding at June 30, 1997 3,001,562 $.50- $13.00 $2.33
========= ============ =====
Exercisable at June 30, 1997 1,378,182 $.50- $13.00 $2.04
========= ============ =====
</TABLE>
<PAGE> 25
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
----------- OPTIONS OUTSTANDING ----------- --------- OPTIONS EXERCISABLE --------
RANGE OF NUMBER OF WEIGHTED WEIGHTED NUMBER OF WEIGHTED WEIGHTED
OPTION PRICES OUTSTANDING AVERAGE AVERAGE OPTIONS AVERAGE AVERAGE
OPTIONS REMAINING OPTION EXERCISABLE REMAINING OPTION
CONTRACTUAL PRICE CONTRACTUAL PRICE
LIFE LIFE
<C> <C> <C> <C> <C> <C> <C>
$ .50- $2.00 1,011,910 2.31 years 1.54 846,768 2.15 years 1.45
2.25- 4.00 1,816,366 4.99 2.44 446,128 4.62 2.36
4.25- 6.00 150,000 4.98 5.53 62,000 5.06 5.64
6.13- 13.00 23,286 3.66 7.65 23,286 3.66 7.65
--------- ---------
.50-13.00 3,001,562 4.08 2.33 1,378,182 3.11 2.04
========= =========
</TABLE>
(b) Employee Stock Purchase Plan
The Company has an employee stock purchase plan pursuant to which the
Company has reserved and may issue up to 200,000 shares of common
stock in semiannual offerings over a 10-year period. Shares of common
stock are sold at 85% of fair market value, as defined. During fiscal
1997, 1996 and 1995, the Company issued 28,463, 13,065, and 14,565
shares, respectively, under the Plan.
(6) GEOGRAPHIC DATA
Revenues by geographic area as a percentage of total revenues were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
GEOGRAPHIC AREA 1997 1996 1995
<S> <C> <C> <C>
North America 68% 67% 64%
Europe 23 24 26
Other 9 9 10
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
<PAGE> 26
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
Revenues, operating income (loss) and identifiable assets for the Company's
U.S. and international operations for the three years ended June 30, 1997
are summarized as follows:
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Year ended June 30, 1995-
Revenues from unaffiliated
locations $10,144,936 $5,738,290 $ -- $15,883,226
Operating loss (2,869,452) (765,777) -- (3,635,229)
Identifiable assets 6,804,596 1,218,927 79,118 8,102,641
Year ended June 30, 1996-
Revenues from unaffiliated
locations $14,010,567 $6,756,131 $ -- $20,766,698
Operating income 161,909 771,076 -- 932,985
Identifiable assets 11,467,596 2,349,923 (1,918,367) 11,899,152
Year ended June 30, 1997-
Revenues from unaffiliated
locations $11,659,991 $6,017,736 $ -- $17,677,727
Operating loss (3,994,060) (400,137) -- (4,394,197)
Identifiable assets 12,179,468 1,987,444 (5,380,469) 8,786,443
</TABLE>
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
1997 1996
<S> <C> <C>
Accrued payroll and payroll-related items $ 402,715 $ 827,950
Accrued bonuses 425,000 466,939
Accrued vacation 375,368 316,582
Accrued royalties 146,962 281,288
Other accrued expenses 1,242,487 362,455
---------- ----------
$2,592,532 $2,255,214
========== ==========
</TABLE>
<PAGE> 27
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(Continued)
(8) SIGNIFICANT CUSTOMER
There were no significant customers in fiscal 1995. One customer accounted
for 12% and 14% of net sales in fiscal 1996 and 1997, respectively.
(9) LINE OF CREDIT
The Company has a line of credit with a bank, collateralized by
substantially all of the Company's assets. Borrowings are limited to the
lesser of 65% of eligible domestic accounts or $500,000. Interest on
outstanding borrowings under this line is based on the bank's prime rate
(8.5% at June 30, 1997) plus 1%. The Company had no outstanding borrowings
under this line as of June 30, 1997. The agreement contains covenants that,
among other things, require the Company to meet certain profitability and
maximum leverage ratios, and to maintain a minimum level of tangible net
worth. Through June 30, 1997, the Company has complied with all such
covenants. The line of credit expires in December 1997.
(10) ACQUISITIONS
In November, 1996 and 1995, the Company acquired 100% of the outstanding
capital stock of acroScience Corporation and TriMetrix, Inc., respectively,
in business combinations accounted for as poolings of interests. As a
result of the business combinations, acroScience Corporation and TriMetrix,
Inc. became wholly owned subsidiaries of the Company. acroScience
Corporation develops visual modeling and programming tools. In
consideration of this acquisition, former stockholders of acroScience
Corporation received a total of 250,000 shares of the Company's common
stock. TriMetrix, Inc. develops and manufactures advanced charting and data
analysis software. In consideration of this acquisition, former
stockholders of TriMetrix, Inc. received a total of 219,997 shares of the
Company's common stock. For financial reporting purposes, the periods
preceding the acquisitions have not been restated, as the acquisitions were
not material. The results of operations of acroScience Corporation and
TriMetrix, Inc. have been included in the consolidated operating results
since the dates of the respective acquisitions.
<PAGE> 1
EXHIBIT 21.1
MATHSOFT, INC. AND SUBSIDIARIES
SUBSIDIARIES
STATISTICAL SCIENCES. INC.
(A MASSACHUSETTS CORPORATION)
TRIMETRIX, INC.
(A WASHINGTON CORPORATION)
ACROSCIENCE CORPORATION
(A WASHINGTON CORPORATION)
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File Nos. 33-58560, 33-74848, 33-72162, 33-94466,
33-87542, 33-99618, 33-99620, 333-16005, 333-18245 and 333-19513.
/S/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,802,389
<SECURITIES> 0
<RECEIVABLES> 3,237,812
<ALLOWANCES> 0
<INVENTORY> 343,785
<CURRENT-ASSETS> 6,859,511
<PP&E> 6,441,234
<DEPRECIATION> 4,888,216
<TOTAL-ASSETS> 8,786,443
<CURRENT-LIABILITIES> 6,402,750
<BONDS> 0
0
0
<COMMON> 90,064
<OTHER-SE> 2,078,062
<TOTAL-LIABILITY-AND-EQUITY> 8,786,443
<SALES> 15,179,191
<TOTAL-REVENUES> 17,677,727
<CGS> 3,124,158
<TOTAL-COSTS> 3,945,939
<OTHER-EXPENSES> 18,125,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,440
<INCOME-PRETAX> (4,225,526)
<INCOME-TAX> 44,452
<INCOME-CONTINUING> (4,299,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,299,978)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
