SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
____________
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
X TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
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EXCHANGE ACT OF 1934
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(NO FEE REQUIRED)
For the transition period from July 1, 1997 to December 31, 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 ___
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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 $25,887,030 as of March 23, 1998 (computed by
reference to the closing price of such stock on the Nasdaq SmallCap Market).
The number of shares of common stock, $.01 par value, outstanding as of March
23, 1998 was 9,171,731.
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PART I
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 , 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 " 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. For the six months ended
December 31, 1997, international sales of all technical calculation and data
analysis software products and services represented 29.5% 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 , an
interactive computing environment that 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.
For the six-months ended December 31, 1997, worldwide sales of data analysis
products and services represented 32.2% 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.
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In November 1995, the Company acquired 100% of the outstanding stock of
TriMetrix, 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 , a Windows-based technical charting and data 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! for Math and StudyWorks! 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! 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 from 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, a warehouse-independent platform for
distributing statistical analysis and graphics to business professionals and
analysts over corporate Intranets. StatServer uses the S-PLUS technology to
create deployable intelligent analytics for an organization and integrates with
existing data storage and desktop applications.
In December 1997, the Company changed its fiscal year end from June 30 to
December 31. Accordingly, the Company began a new twelve-month fiscal year on
January 1, 1998. The six month period resulting from this change, July 1, 1997
through December 31, 1997, is referred to as the "Transition Period".
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 student's
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.
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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 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! for Math and StudyWorks! 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.
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StudyWorks! 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 teachers and students to each other via the Web-based
Collaboratory 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. 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.
<PAGE>
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 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. For the Transition Period, domestic
sales through distributor and reseller channels accounted for 46.9% 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. For the Transition Period, international sales through resellers
and distributors accounted for 99.6% 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.
<PAGE>
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 Denver, 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 and offers a Premium Support Plan to its corporate
customers. The Company currently provides technical support for its StudyWorks
products free of charge and additionally supports all 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 Transition Period, the six months ended December 31, 1996, and the
fiscal years ended June 30, 1997, 1996 and 1995, research and development costs
charged to operations were $2,816,000, $2,378,000, $5,143,000, $3,659,000, and
$3,059,000, respectively. The Company has not capitalized any internal software
development costs during the Transition Period.
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, StatSoft, Inc. and Visual Numerics.
<PAGE>
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. 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.
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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 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 a worldwide licensee until February 18, 2002 of Lucent
Technologies Inc. for the "S" programming language. Under the license, the
Company has the 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 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.
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Employees
As of December 31, 1997, the Company employed approximately 160 regular
full-time and part-time employees, of which 14 were outside the United States.
As necessary, the Company supplements its regular employees with temporary and
contract personnel. As of December 31, 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 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.
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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, 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. 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%, 32.5% and approximately 34.0% of the
Company's
total revenues in the twelve months ended June 30, 1995, 1996 and 1997, and
approximately 29.5% of the Company's total revenues in the Transition Period,
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.
<PAGE>
Year 2000 Issues. The Year 2000 issue exists because many computer systems and
applications currently use two-digit date fields to designate a year. As the
century date change occurs, date-sensitive systems will recognize the year 2000
as 1900, or not at all. This inability to recognize or properly treat the Year
2000 may cause systems to process critical financial and operational information
incorrectly. The Company utilizes software from third parties and related
technologies throughout its business that will be affected by the date change in
the year 2000. An internal study is currently under way to determine the full
scope and related costs to insure that the Company's systems continue to meet
its needs. The Company began incurring expenses in 1997 to resolve this issue.
All expenditures will be expensed as incurred and they are not expected to have
a significant impact on the Corporation's ongoing results of operations.
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 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. The Company has 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 15,891 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.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
An annual Meeting of the Stockholders of the Company was held on December 12,
1997. At the meeting, the Stockholders of the Company voted:
(i) to elect Charles J. Digate as a Class II director, to serve for a
three-year term (until the Annual Meeting of Stockholders in 2000) (6,978,260
shares in favor, 453,082 shares withheld);
(ii) to elect June L. Rokoff as a Class II director, to serve for a
three-year term (until the Annual Meeting of Stockholders in 2000) (6,981,061
shares in favor, 450,281 shares withheld);
(iii) to amend the Company's Amended and Restated 1992 Stock Plan to
increase the number of shares of Common Stock available for issuance under the
plan from 2,550,000 shares to 3,150,000 shares (2,927,183 shares in favor;
1,169,409 shares against; 48,035 shares abstaining; and 3,286,715 shares
unvoted); and
(iv) to ratify the selection of Arthur Andersen LLP as auditors for the next
fiscal year (7,359,217 shares in favor; 38,525 shares against; 33,660 shares
abstaining; and 0 shares unvoted).
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's 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
SmallCap 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 and
the Nasdaq SmallCap Market for the periods indicated. These prices do not
include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30, 1996: HIGH LOW
----- ------
<S> <C> <C>
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 YEAR ENDED JUNE 30, 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
TRANSITION PERIOD:
July 1 to September 30, 1997 4 2 7/16
October 1 to December 31, 1997 4 5/8 2 3/8
</TABLE>
As of March 23, 1998, the number of stockholders of record of Common
Stock was approximately 223.
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>
ITEM 6. SELECTED FINANCIAL DATA.
The selected consolidated financial data set forth below has been derived from
the audited financial statements of the Company. The information should be read
in conjunction with the financial statements and notes thereto set forth
elsewhere herein.
FIVE YEAR SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS
TRANSITION ENDED ------------FISCAL YEARS ENDED JUNE 30,-----------
(in thousands, except per share data) PERIOD (1) DEC 31, 1996 1997 1996 1995 1994 1993 (2)
- -------------------------------------------- ----------- -------------- -------- ------- -------- -------- -------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 13,024 $ 9,478 $17,678 $20,767 $15,883 $26,610 $25,649
Gross profit 10,505 7,495 13,732 16,766 11,819 20,113 20,933
Income (loss) from operations (3) (4) (5) 1,102 (1,131) (4,394) 933 (3,635) (7,296) (6,330)
Net income (loss) 1,105 (1,066) (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 0.11 (0.12) (0.49) 0.11 (0.50) (1.02) (1.10)
Working capital 1,870 3,186 457 4,688 617 1,618 10,190
Total assets 9,812 10,628 8,786 11,899 8,103 13,378 20,162
Long-term obligations, less current portion 74 ---- 183 3 13 79 183
Stockholders equity 3,495 5,238 2,168 6,759 2,624 5,800 12,611
<FN>
(1) The Company changed its fiscal year end from June 30 to December 31. The Transition Period represents the six month
period from July 1, 1997 through December 31, 1997.
(2) 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.
(3) 1995 amount includes a write-down of intangible assets of $1.662 million.
(4) 1994 amount includes a restructuring charge of $2.38 million.
(5) 1993 amount reflects a charge to operations of $6.57 million for purchased research and development related to the StatSci
acquisition.
</TABLE>
<PAGE>
ITEM 7. 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 six months ended December 31,
1997 (the "Transition Period") and the six months ended December 31, 1996, the
three years ended June 30, 1997 and the percentage changes in those items for
six months ended December 31, 1997 and 1996 and the two years ended June 30,
1997.
<TABLE>
<CAPTION>
Percentage Change
Transition
Percentage of Total Revenues Period (1) -
Six Months Six Months
Ended Fiscal Year Ended
Transition Dec 31, Ended June 30, Dec 31, Fiscal Year Ended
Period 1996 1997 1996 1995 1996 1997-96 1996-95
- --------------------------------- ------ ------ ------ ------ ------ -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software licenses 85.4% 87.2% 85.9% 87.4% 86.6% 34.6% -16.4% 32.0%
Services and other 14.6% 12.8% 14.1% 12.6% 13.4% 56.5% -4.3% 22.5%
------ ------ ------ ------ ------ -------- -------- -------
Total revenues 100.0% 100.0% 100.0% 100.0% 100.0% 37.4% -14.9% 30.7%
Cost of Revenues:
Software licenses 14.0% 16.7% 17.7% 14.7% 20.7% 15.1% 2.0% -6.8%
Services and other 5.4% 4.3% 4.6% 4.5% 4.9% 73.8% -12.4% 20.7%
------ ------ ------ ------ ------ -------- -------- -------
Total cost of revenues 19.3% 20.9% 22.3% 19.3% 25.6% 27.0% -1.4% -1.6%
Gross profit 80.7% 79.1% 77.7% 80.7% 74.4% 40.2% -18.1% 41.9%
Operating Expenses:
Sales and marketing 39.7% 52.8% 58.0% 46.8% 54.8% 3.2% 5.5% 11.7%
Research and development 21.6% 25.1% 29.1% 17.6% 19.3% 18.4% 40.5% 19.6%
General and administrative 10.9% 13.1% 15.5% 11.8% 12.8% 14.3% 11.3% 20.9%
Write-down of intangible assets 0.0% 0.0% 0.0% 0.0% 10.5% * * *
------ ------ ------ ------ ------ -------- -------- -------
Total operating expenses 72.2% 91.0% 102.5% 76.2% 97.3% 9.0% 14.5% 2.5%
Loss from operations 8.5% -11.9% -24.9% 4.5% -22.9% -197.4% -570.9% -125.7%
Interest income (expense), net 0.2% 0.8% 0.8% 0.9% 0.5% -73.8% -27.7% 134.1%
------ ------ ------ ------ ------ -------- -------- -------
Loss before provision
for income taxes 8.6% -11.1% -24.1% 5.4% -22.4% -206.9% -478.2% -131.7%
Provision for income taxes 0.1% 0.2% 0.3% 0.2% 0.0% 20.0% -9.7% *
------ ------ ------ ------ ------ -------- -------- -------
Net loss 8.5% -11.3% -24.4% 5.2% -22.5% -203.7% -499.7% -130.3%
====== ====== ====== ====== ====== ======== ======== =======
<FN>
(1) The Company changed its fiscal year from June 30 to December 31. The Transition Period represents
the six month period from July 1, 1997 - December 31, 1997.
* Not meaningful.
</TABLE>
<PAGE>
Transition Period Ended December 31, 1997 Compared to the Six-Month Period
Ended December 31, 1996
Total revenues for the Transition Period increased 37.4% from $9,478,000 for the
six months ended December 31, 1996 to $13,024,000 during the Transition Period.
This increase in total revenues was primarily attributable to upgrade revenue
generated by the recent release of Mathcad 7 for Windows in June 1997, new
license revenue generated from SPLUS-4.0 released in September 1997, and to a
lesser extent, SPLUS service revenue.
Mathcad for Windows generated upgrade revenue of $680,000 for the six months
ended December 31, 1996 compared to upgrade revenue of $2,677,000 during the
Transition Period, an increase as a percentage of total revenues from 7.2% to
20.6%, 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 July 1995 and therefore
upgrade revenue was much lower in the six months ended December 31, 1996.
Worldwide S-PLUS product line revenue increased 39.4% from $2,531,000 for the
six months ended December 31, 1996 to $3,529,000 during the Transition Period,
and increased as a percentage of total revenues from 26.7% to 27.1%,
respectively. Worldwide S-PLUS service revenue increased 167.7% from $269,000
in the six months ended December 31, 1996 to $720,000 during the Transition
Period, and increased as a percentage of total revenues from 2.8% to 5.5%,
respectively. Total international revenues attributable to sales of all Company
product lines increased 20.9% from $3,182,000 for the six months ended December
31, 1996 to $3,846,000 during the Transition Period, and decreased as a
percentage of total revenues from 33.6% to 29.5%, respectively.
Total cost of revenues for the six-month period increased 27.0% from $1,983,000
for the six months ended December 31, 1996 to $2,519,000 during the Transition
Period, and decreased as a percentage of total revenues from 20.9% to 19.3%,
respectively. The decrease in total cost of revenues as a percentage of total
revenues was primarily attributable to switching from disk to CD media with the
release of Mathcad 7 for Windows, thereby decreasing direct material costs on a
per unit basis. To a lesser degree, fixed costs, such as licensing costs for
the "S" language used in the S-PLUS product line and the amortization of
purchased technology, decreased as a percentage of total revenues due to an
overall higher revenue base during the Transition Period. Such decreases were
partially offset by increased inventory reserves during the Transition Period to
adequately cover inventory exposure in the sales distribution channel and an
increase in cost of services from $404,000 for the six months ended December 31,
1996 to $702,000 during the Transition Period due to the increase in service
revenue.
Sales and marketing expenses for the six-month period increased 3.2% from
$5,007,000 for the six months ended December 31, 1996 to $5,169,000 during the
Transition Period, and decreased as a percentage of total revenues from 52.8% to
39.7%, respectively. The increase in overall sales and marketing expenses was
primarily attributable to expenses incurred related to the launch of Mathcad 7
for Windows and S-PLUS 4.0, as well as an increase in S-PLUS domestic sales
expenses incurred to support direct sales of this expanding product line.
Research and development expenses for the six-month period increased 18.4% from
$2,378,000 for the six months ended December 31, 1996 to $2,816,000 during the
Transition Period, and decreased as a percentage of total revenues from 25.1% to
21.6%. The increase in overall research and development expenses was primarily
attributable to expenses related to development initiatives in the Company's
Data Analysis Products Division and additional personnel to support such
initiatives, as well as an increase in international product translation costs
for Mathcad 7 French, German and Japanese.
<PAGE>
General and administrative expenses for the six-month period increased 14.3%
from $1,241,000 for the six months ended December 31, 1996 to $1,418,000 during
the Transition Period and decreased as a percentage of total revenues from 13.1%
to 10.9%, respectively. The increase in overall general and administrative
expenses was primarily attributable to costs incurred for management incentive
compensation provisions based primarily on the achievement of profitability
targets, and to a lesser extent, to fluctuations in international exchange rate
transactions.
Net income for the Transition Period was $1,105,000 compared to net loss of
$1,066,000 for the six months ended December 31, 1996. Improved performance
from the recently refreshed Mathcad and S-PLUS product lines coupled with margin
improvements all contributed to this improvement in profit.
<PAGE>
Fiscal Year Ended June 30, 1997 Compared to Fiscal Year Ended June 30, 1996
Total revenues decreased 14.9% from $20,767,000 for the fiscal year ended June
30, 1996 ("Fiscal 1996") to $17,678,000 for the fiscal year ended June 30, 1997
("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.
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 during July 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
the Transition Period. 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>
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 during the Transition Period.
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 Year Ended June 30, 1996 Compared to Fiscal Year Ended June 30, 1995
Total revenues increased 30.7% from $15,883,000 for the fiscal year ended June
30, 1995 ("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 during January 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 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.
<PAGE>
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>
Liquidity and Capital Resources
Cash and cash equivalents totaling $4,133,000 at December 31, 1997, increased
$1,331,000 during the Transition Period from $2,802,000 at June 30, 1997. The
positive cash flow resulted primarily from cash provided by operating activities
of $1,602,000, proceeds from exercise of stock options and warrants of $179,000
offset by purchases of property and equipment of $424,000.
The Company generated $1,602,000 in cash from operating activities during the
Transition Period. The cash generated by operating activities was primarily
attributable to net income of approximately $1,105,000, non-cash depreciation
and amortization charges, and to an increase in accounts payable and a decrease
in prepaid expenses. The changes in accounts payable and prepaid expenses were
due to the timing of payments and management's cash planning and forecasting
efforts. The increase in accounts receivable and the decrease in accrued
expenses offset these sources of cash. Accounts receivable increased due to the
growth in the Company's business and accrued expenses decreased due to the
timing of certain payments. The Company used $439,000 in investing activities
primarily due to the purchase of $424,000 of property and equipment. Proceeds
generated from sales/leaseback equipment financing and the exercise of stock
options of $84,000 and $179,000, respectively, were offset by payments on
capital lease obligations of $139,000.
The Company's financial reserves are represented by cash and cash equivalents as
of December 31, 1997. The Company has a line of credit agreement with a
commercial bank. Borrowings under the line are limited to the lesser of 65% of
eligible domestic accounts or $1,000,000 based on certain profitability
covenants. Borrowings are secured 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 December
31, 1997.
The Company believes its financial reserves and cash flows from future
operations will be sufficient to meet its liquidity requirements for at least
the next twelve months. The foregoing statement is forward-looking and involves
risks and uncertainties, many of which are outside the Company's control. The
Company's actual experience may differ materially from that discussed above.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Cautionary Statements" in this Form 10-K for the Transition
Period 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 this Form 10-K for the Transition Period 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>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements are filed as part of this
report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and June 30, 1997 and 1996
Consolidated Statements of Operations for the six-month periods ended December
31, 1997 and December 31, 1996 (unaudited) and 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 and for the six-month period ended December 31, 1997
Consolidated Statements of Cash Flows for the six-month period ended December
31, 1997 and December 31, 1996 (unaudited) and for the years ended June 30,
1997, 1996 and 1995
Notes to Consolidated Financial Statements
<PAGE>
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 December 31, 1997, June 30,
1997 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six-month period ended December 31,
1997 and 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 December 31, 1997 and June 30, 1997 and 1996 and the results of their
operations and their cash flows for the six-month period ended December 31, 1997
and 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
February 9, 1998
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 4,133,541 $2,802,389 $ 4,954,416
Accounts and other receivables, less reserves of
approximately $1,598,000 at December 31, 1997 and
$1,720,000 and $776,000 at June 30, 1997 and 1996,
respectively 3,472,334 3,237,812 3,881,568
Inventories 255,205 343,785 547,892
Prepaid expenses 233,714 475,525 381,638
------------- ---------- -----------
Total current assets 8,094,794 6,859,511 9,765,514
------------- ---------- -----------
Property and Equipment, at cost:
Computer equipment and software 4,592,962 4,396,927 4,052,662
Property and equipment under capital lease 615,910 427,898 -
Furniture and fixtures 1,012,763 989,520 968,644
Leasehold improvements 643,310 626,889 621,354
------------- ---------- -----------
6,864,945 6,441,234 5,642,660
Less-Accumulated depreciation and amortization 5,315,979 4,888,216 4,044,072
------------- ---------- -----------
1,548,966 1,553,018 1,598,588
------------- ---------- -----------
Other Assets:
Purchased technology, net of accumulated amortization of
approximately $2,938,000 at December 31, 1997 and
$2,722,000 and $2,505,000 at June 30, 1997 and 1996,
respectively 70,500 287,253 504,006
Other assets 97,890 86,661 31,044
------------- ---------- -----------
168,390 373,914 535,050
------------- ---------- -----------
$ 9,812,150 $8,786,443 $11,899,152
============= ========== ===========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Current Liabilities:
Current portion of capital lease obligations $ 374,089 $ 319,690 $ 16,753
Accounts payable 2,243,290 2,036,745 1,699,414
Accrued expenses 2,207,834 2,592,532 2,255,214
Accrued restructuring, current portion 10,539 10,539 13,316
Deferred revenue 1,389,042 1,443,244 1,092,541
-------------- ------------- -------------
Total current liabilities 6,224,794 6,402,750 5,077,238
-------------- ------------- -------------
Accrued Restructuring, less current portion 7,465 13,613 24,152
-------------- ------------- -------------
Capital Lease Obligations, less current portion 73,751 182,619 2,694
-------------- ------------- -------------
Accrued Rent, less current portion 10,817 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-9,108,616, 9,006,376 and
8,579,262 shares at December 31, 1997, June 30, 1997
and 1996, respectively 91,086 90,064 85,793
Additional paid-in capital 29,339,752 29,161,835 28,158,558
Accumulated deficit (25,887,525) (26,992,109) (21,474,509)
Cumulative translation adjustment (47,990) (91,664) (11,146)
-------------- ------------- -------------
Total stockholders' equity 3,495,323 2,168,126 6,758,696
-------------- ------------- -------------
$ 9,812,150 $ 8,786,443 $ 11,899,152
============== ============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Operations
SIX-MONTH PERIODS ENDED DECEMBER 31, YEARS ENDED JUNE 30,
1997 1996 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses $11,145,569 $ 8,265,680 $15,179,191 $18,155,650 $13,751,456
Services and other 1,878,408 1,212,513 2,498,536 2,611,048 2,131,770
------------ ------------ ------------ ------------ ------------
Total revenues 13,023,977 9,478,193 17,677,727 20,766,698 15,883,226
------------ ------------ ------------ ------------ ------------
Cost of Revenues:
Software licenses 1,817,283 1,578,825 3,124,158 3,061,762 3,286,577
Services and other 701,433 403,991 821,781 938,596 777,664
------------ ------------ ------------ ------------ ------------
Total cost of revenues 2,518,716 1,982,816 3,945,939 4,000,358 4,064,241
------------ ------------ ------------ ------------ ------------
Gross profit 10,505,261 7,495,377 13,731,788 16,766,340 11,818,985
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Sales and marketing 5,169,379 5,007,644 10,251,376 9,719,346 8,703,130
Research and development 2,815,601 2,377,768 5,142,751 3,659,171 3,058,788
General and administrative 1,418,295 1,240,686 2,731,858 2,454,838 2,030,296
Write-down of intangible
assets - - - - 1,662,000
------------ ------------ ------------ ------------ ------------
Total operating
expenses 9,403,275 8,626,098 18,125,985 15,833,355 15,454,214
------------ ------------ ------------ ------------ ------------
Income (loss) from
operations 1,101,986 (1,130,721) (4,394,197) 932,985 (3,635,229)
Interest Income 49,653 82,365 153,111 199,049 108,372
Interest Expense (29,270) (2,642) (14,440) (7,196) (26,427)
------------ ------------ ------------ ------------ ------------
Income (loss)
before provision
for income taxes 1,122,369 (1,050,998) (4,255,526) 1,124,838 (3,553,284)
Provision for Income
Taxes 17,785 15,582 44,452 49,000 -
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 1,104,584 $(1,066,580) $(4,299,978) $ 1,075,838 $(3,553,284)
============ ============ ============ ============ ============
Basic Net Income (Loss)
per Share $ .12 $ (.12) $ (.49) $ .13 $ (.50)
============ ============ ============ ============ ============
Diluted Net Income
(Loss) per Share $ .11 $ (.12) $ (.49) $ .11 $ (.50)
============ ============ ============ ============ ============
Weighted Average
Number of Shares
Outstanding 9,068,714 8,693,148 8,841,170 8,247,036 7,169,593
============ ============ ============ ============ ============
Weighted Average
Shares Outstanding
Assuming Dilution 9,944,283 8,693,148 8,841,170 9,541,580 7,169,593
============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Stockholders' Equity
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
NUMBER OF $.01 PAR PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES VALUE CAPITAL DEFICIT 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
Exercise of stock options and Employee
Stock Purchase Plan 102,240 1,022 177,917 - - 178,939
Net income - - - 1,104,584 - 1,104,584
Translation adjustment - - - - 43,674 43,674
--------- -------- ----------- ------------- ------------- ---------------
Balance, December 31, 1997 9,108,616 $ 91,086 $29,339,752 $(25,887,525) $ (47,990) $ 3,495,323
========= ======== =========== ============= ============= ===============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
SIX-MONTH PERIODS ENDED DECEMBER 31, YEARS ENDED JUNE 30,
1997 1996 1997 1996 1995
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $1,104,584 $(1,066,580) $(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 648,866 545,620 1,063,503 1,043,052 1,624,761
Compensation associated with issuance - - 10,000 - 150,000
of options
Write-down of intangible assets - - - - 1,662,000
Changes in assets and liabilities-
Accounts and other receivables (234,522) 251,616 643,756 (2,301,420) 1,790,517
Inventories 88,580 17,472 210,946 (247,446) 500,760
Prepaid expenses 241,811 (64,123) (93,886) (172,936) 711,831
Accounts payable 206,543 694,961 329,822 136,252 (260,135)
Accrued expenses (399,362) (1,018,900) (252,499) (754,768) (2,043,772)
Deferred revenue (54,202) (55,707) 350,702 (74,285) 161,112
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
operating activities 1,602,298 (695,641) (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 (423,711) (449,107) (780,171) (1,059,263) (285,572)
Decrease (increase) in other assets (15,579) (35,834) (56,374) 15,688 17,355
Cash acquired from the acroScience and
TriMetrix acquisitions - 9,691 9,691 27,849 -
----------- ------------ ------------ ------------ ------------
Net cash (used in) provided by
investing activities (439,290) (475,250) (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 (138,901) (10,510) (132,975) (76,077) (161,698)
Borrowings on capital lease obligations 84,432 - 565,406 - -
Proceeds from exercise of stock options,
warrants and Employee Stock Purchase
Plan 178,939 235,318 376,548 586,975 212,649
Net proceeds from sale of common stock - - - 2,940,463 -
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities 124,470 224,808 792,979 3,378,173 (43,115)
----------- ------------ ------------ ------------ ------------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 43,674 (92,235) (80,518) (47,265) 14,332
----------- ------------ ------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents 1,331,152 (1,038,318) (2,152,027) 1,468,087 1,076,678
Cash and Cash Equivalents, beginning of
period 2,802,389 4,954,416 4,954,416 3,486,329 2,409,651
----------- ------------ ------------ ------------ ------------
Cash and Cash Equivalents, end of period $4,133,541 $ 3,916,098 $ 2,802,389 $ 4,954,416 $ 3,486,329
=========== ============ ============ ============ ============
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the period for-
Interest $ 29,271 $ 2,642 $ 14,439 $ 5,519 $ 26,426
=========== ============ ============ ============ ============
Income taxes $ 2,981 $ 23,111 $ 7,530 $ 49,220 $ 34,069
=========== ============ ============ ============ ============
<FN>
Supplemental Disclosure of Noncash Investing and Financing Activities:
The Company financed $83,623 of equipment through long-term debt and capital leases in the Transition Period.
The Company financed $63,333 of equipment through long-term debt and capital leases in the year ended June 30,
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.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(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.
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.
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.
(a) Change In Fiscal Year
On December 16, 1997, the Company's Board of Directors approved a change in the
Company's fiscal year. The Company's fiscal year ends on December 31.
(b) Revenue Recognition
The Company derives substantially all of its revenue from 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
postdelivery 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 products. Maintenance and training revenues are recognized
ratably over the term of the related contracts generally for one year or less.
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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(d) Inventories
<TABLE>
<CAPTION>
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Raw materials $ 44,786 $ 41,648 $162,627
Finished goods 210,419 302,137 385,265
------------- --------- --------
$ 255,205 $ 343,785 $547,892
============= ========= ========
</TABLE>
(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
<FN>
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.
</TABLE>
(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 one month after the general release over the shorter of
the estimated useful life of the product or 15 months.
No costs have been capitalized since 1995 because costs incurred from
technological feasibility to general release have been 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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(g) Basic and Diluted Net Income (Loss) per Common Share
In March 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No.
128 establishes standards for computing and presenting earnings per share. This
statement is effective for fiscal years ending after December 15, 1997. Net
income (loss) per share has been restated for all periods presented to conform
with SFAS No. 128.
Basic and diluted net income (loss) per share is as follows:
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net income (loss) $1,104,585 $(1,066,580) $(4,299,978) $1,075,838 $(3,553,284)
========== ============ ============ ========== ============
Weighted average shares
outstanding 9,068,714 8,693,148 8,841,170 8,247,036 7,169,593
Effect of dilutive securities,
stock options 875,569 - - 1,294,544 -
---------- ------------ ------------ ---------- ------------
Weighted average shares
outstanding assuming dilution 9,944,283 8,693,148 8,841,170 9,541,580 7,169,593
========== ============ ============ ========== ============
Basic net income (loss) per
share $ .11 $ (.12) $ (.49) $ .13 $ (.50)
========== ============ ============ ========== ============
Diluted net income (loss) per
share $ .11 $ (.12) $ (.49) $ .11 $ (.50)
========== ============ ============ ========== ============
<FN>
The following securities were not included in computing diluted earnings per share because their
effect would be antidilutive:
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
<TABLE>
<CAPTION>
SIX-MONTH PERIODS ENDED YEARS ENDED
DECEMBER 31, JUNE 30,
<S> <C> <C> <C> <C> <C>
1997 1996 1997 1996 1995
Antidilutive securities-
Stock options 1,996,723 2,628,974 3,001,562 1,073,824 1,922,626
---------- ---------- ---------- ---------- ----------
Average exercise price of
antidilutive securities $ 5.10 $ 2.24 $ 2.33 $ 8.20 $ 1.86
========== ========== ========== ========== ==========
</TABLE>
(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 $75,000 and $55,000 in the six-month periods ended December
31, 1997 and 1996, respectively, and were approximately $(257,000), $(12,000)
and $38,000 in the years ended June 30, 1997, 1996 and 1995, respectively.
(j) Other Assets
In 1997, the Company implemented 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 Company reviews all long-term assets for
impairment. Should there be an impairment, the Company will write down the
asset to its current value based on discounted cash flows.
(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
greater than 10% of the Company's net sales (see Note 8).
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(l) New Accounting Standards
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 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.
(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 in the accompanying
financial statements.
on
(o) Unaudited Period
The financial statements for the six months ended December 31, 1996 are
unaudited and, in the opinion of management, include all adjustments (consisting
only of normal and recurring adjustments) necessary for a fair presentation of
results for the period.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(2) Income Taxes
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 components of domestic and foreign income (loss) before the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
SIX MONTH
PERIOD ENDED
DECEMBER 31, JUNE 30,
1997 1997 1996 1995
<S> <C> <C> <C> <C>
Domestic $ 633,233 $(4,011,290) $ 325,215 $(2,813,334)
Foreign 489,137 (244,236) 799,623 (739,950)
---------- ------------ ---------- ------------
$1,122,370 $(4,255,526) $1,124,838 $(3,553,284)
========== ============ ========== ============
</TABLE>
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Current tax expense-
Federal $ 381,000 $ - $ 340,000
State 67,000 - 63,000
Foreign 17,785 44,452 49,000
Deferred tax expense-
Federal (381,000) - (340,000)
State (67,000) - (63,000)
---------- ------- ----------
$ 17,785 $44,452 $ 49,000
========== ======= ==========
<FN>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
The significant components of the deferred tax assets and liabilities are as
follows:
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Net operating loss $ 4,391,000 $ 4,722,000 $ 3,667,000
carryforward
Research and development
credit carryforwards 448,000 576,000 552,000
Temporary differences (819,000) (1,308,000) (159,000)
------------ ------------ ------------
4,020,000 3,990,000 4,060,000
Valuation allowance (4,020,000) (3,990,000) (4,060,000)
------------ ------------ ------------
Net deferred tax asset $ - $ - $ -
============ ============ ============
<FN>
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.
</TABLE>
At December 31, 1997, the Company had available net operating loss carryforwards
of approximately $12,916,000 and tax credit carryforwards of approximately
$448,000. The net operating loss and tax credit carryforwards may be used to
offset future federal taxable income and federal income taxes, respectively,
through the year ending December 31, 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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(3) Capital Leases
The Company leases certain equipment under noncancelable leases expiring through
fiscal 2002. Future minimum lease payments as of December 31, 1997 under these
arrangements are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1998 $380,293
1999 93,100
2000 9,580
2001 9,580
2002 4,434
--------
Total minimum lease payments 496,987
Less-Amount representing interest 49,147
--------
Present value of minimum lease payments 447,840
Less-Current portion of capital leases 374,089
--------
$ 73,751
========
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(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.
The approximate 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
<S> <C> <C> <C>
Year ending December 31,
1998 $ 948,000 $(204,000) $ 744,000
1999 702,500 (169,000) 533,500
2000 42,000 (3,000) 39,000
2001 2,500 - 2,500
---------- ---------- ----------
Total future lease payments $1,695,000 $(376,000) $1,319,000
========== ========== ==========
<FN>
Rental expense under the Company's operating leases was approximately $430,000
for the six-month period ended December 31, 1997, and was approximately
$723,000, $707,000 and $576,000 in the years ended June 30, 1997, 1996 and 1995,
respectively.
</TABLE>
(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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
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.
In 1996, the Company adopted the 1996 Non-Qualified, Non-Officer Stock Option
Plan (the 1996 Non-Officer Plan) under which employees and consultants to the
Company are granted nonqualified options to purchase stock in the Company. A
total of 200,000 shares of common stock may be issued under the 1996 Non-Officer
Plan. The vesting of options granted under the 1996 Non-Officer Plan are
determined at the date of grant. Each option expires 10 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, and are not transferable.
As of December 31, 1997, a total of 4,698,508 shares of common stock were
reserved for issuance under the Plans, the 1992 Director's Plan, the Key Officer
Stock Options, and the 1996 Non-Officer Plan.
The Company accounts for its stock-based compensation plans under Accounting
Principles Board 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 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
ended June 30, 1997 and 1996, or for the six-month period ended December 31,
1997.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
The assumptions used and the weighted average information are as follows:
<TABLE>
<CAPTION>
SIX-MONTH FISCAL YEARS ENDED JUNE 30,
PERIOD ENDED
DECEMBER 31,
1997 1997 1996
<S> <C> <C> <C>
Risk-free interest rates 5.95%-6.61% 6.00%-6.74% 5.61%-6.74%
Expected dividend yield None None None
Expected lives 5 years 5 years 5 years
Expected volatility 70% 70% 70%
Weighted average grant-date fair value of
options granted during the period $ 2.50 $ 1.62 $ 2.35
Weighted average remaining contractual
life of options outstanding 2.98 years 5.10 years 5.53 years
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
SIX-MONTH FISCAL YEARS ENDED JUNE 30,
PERIOD ENDED
DECEMBER 31,
1997 1997 1996
<S> <C> <C> <C>
Net income (loss) as reported $1,104,585 $(4,299,978) $1,075,838
Basic income (loss) per share as
reported .12 (.49) .13
Diluted net income (loss) per share as
reported .11 (.49) .11
Pro forma net income (loss) 706,565 (4,880,616) 622,956
Pro forma basic net income (loss) per
share .08 (.55) .07
Pro forma diluted net income (loss) per
share .07 (.55) .06
<FN>
Because the method prescribed by SFAS No. 123 has not been applied to options
granted prior to 1995, the resulting pro forma compensation cost may not be
representative of that to be expected in the future years.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
The Company's stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
<S> <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 2.33
Granted 110,900 3.42
Exercised (78,770) 1.60
Canceled (161,400) 2.35
---------- -----
Outstanding at December 31, 1997 2,872,292 $2.39
========== =====
Exercisable at June 30, 1997 1,378,182 $2.04
========== =====
Exercisable at December 31, 1997 1,593,753 $1.83
========== =====
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
WEIGHTED WEIGHTED
AVERAGE WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF REMAINING AVERAGE
OPTION OPTIONS CONTRACTUAL OPTION OPTIONS CONTRACTUAL OPTION
PRICES OUTSTANDING LIFE PRICE EXERCISABLE LIFE PRICE
<S> <C> <C> <C> <C> <C> <C>
.50- $2.00 980,990 1.87 years 1.57 882,553 1.79 years 1.52
2.25- 4.00 1,685,016 3.54 2.56 625,914 3.96 2.48
4.25- 6.00 183,000 3.67 5.34 62,000 4.56 5.64
6.13- 13.00 23,286 3.16 7.65 23,286 3.16 7.65
--------- ---------
.50-$13.00 2,872,292 2.98 2.39 1,593,753 2.77 1.83
========= =========
</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 the six-month period ended December 31, 1997,
the Company issued 23,470 shares under the Plan. During the years ended June
30, 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>
SIX-MONTH PERIODS
ENDED DECEMBER 31, YEARS ENDED JUNE 30,
GEOGRAPHIC AREA 1997 1996 1997 1996 1995
<S> <C> <C> <C> <C> <C>
North America 70% 67% 68% 67% 64%
Europe 22 26 23 24 26
Other 8 7 9 9 10
---- ---- ---- ---- ----
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
<FN>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(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 and the
six-month period ended December 31, 1997 are summarized as follows:
</TABLE>
<TABLE>
<CAPTION>
U.S. INTERNATIONAL ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
Year ended June 30, 1995-
Revenues from unaffiliated
customers $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
customers $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
customers $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
Six-Month Period Ended
December 31, 1997-
Revenues from unaffiliated
customers $ 9,178,311 $3,845,666 $ - $13,023,977
Operating income 626,621 475,366 - 1,101,987
Identifiable assets 12,600,675 2,591,942 (5,380,467) 9,812,150
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997
(Including Data Applicable to Unaudited Periods)
(Continued)
(7) Accrued Expenses
<TABLE>
<CAPTION>
Accrued expenses consist of the following:
DECEMBER 31, JUNE 30,
1997 1997 1996
<S> <C> <C> <C>
Accrued payroll and payroll-related items $ 403,058 $ 402,715 $ 827,950
Accrued bonuses 236,262 425,000 466,939
Accrued vacation 371,420 375,368 316,582
Accrued royalties 183,886 146,962 281,288
Other accrued expenses 1,013,208 1,242,487 362,455
---------- ---------- ----------
$2,207,834 $2,592,532 $2,255,214
========== ========== ==========
</TABLE>
(8) Significant Customer
During the six-month period ended December 31, 1997, one customer accounted for
12% of net sales. One customer accounted for 12% and 14% of net sales in the
years ended June 30, 1996 and 1997, respectively. There were no significant
customers in the year ended June 30, 1995.
(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 $1,000,000. Interest on outstanding borrowings
under this line is based on the bank's prime rate (8.5% at December 31, 1997)
plus 1%. The Company had no outstanding borrowings under this line as of
December 31, 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. The line of credit
expires in December 1998.
(10) Acquisitions
In November 1996 and 1995, the Company acquired 100% of the outstanding capital
stock of acroScience Corporation and TriMetrix, Inc., respectively, each
business combination was accounted for as a pooling 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>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers of the Corporation, their
ages, and the positions currently held by each such person with the Corporation
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Richard A. D'Amore*(1)(2) 44 Director
Charles J. Digate 44 Chairman of the Board of Directors, President and Chief Executive Officer
Charles H. Federman(2) 41 Director
Robert P. Orlando 39 Vice President Finance and Administration, Chief Financial Officer, Treasurer and Clerk
Steven R. Vana-Paxhia 50 Director
June L. Rokoff(1) 48 Director
<FN>
*Mr. D'Amore retired from the Board of Directors in February 1998.
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
</TABLE>
In accordance with the Corporation's Third Restated Articles of
Organization, the Corporation's Board of Directors is divided into three classes
each of which holds office for a three year term. Officers of the Corporation
are elected by, and serve at the discretion of, the Board of Directors.
Charles J. Digate. Mr. Digate has been a director and an executive officer of
the Corporation since September 1994. Mr. Digate's term as a Class II Director
will expire as of the date of the Annual Meeting of Stockholders to be held in
calendar year 2000. Mr. Digate founded Beyond Incorporated, a developer and
publisher of enterprise messaging systems, in 1988 and served as its Chairman,
Chief Executive Officer and President until February 1994 when Beyond was
acquired. Prior to founding Beyond, Mr. Digate spent more than four years at
Lotus Development Corp., where his posts included Senior Vice President,
Analytical Software Products and Vice-President, International Operations and
Corporate Marketing. Mr. Digate also served approximately seven years at Texas
Instruments, primarily focusing on its consumer electronics products, including
calculators and home computers. He also serves on the board of two privately
held software companies, Centra Software and Network Integrity.
June L. Rokoff. Ms. Rokoff has been a director of the Corporation since 1994.
Ms. Rokoff's term as a Class II Director will expire as of the date of the
Annual Meeting of Stockholders to be held in calendar year 2000. Ms. Rokoff is
also a director of NewsEDGE Corporation, a public company that provides
customized real-time news and information. Until December 1995, Ms. Rokoff was a
Senior Vice President, Worldwide Services Group, at Lotus Development Corp.,
where she had spent ten years in management. Lotus, a wholly owned subsidiary of
International Business Machines, is a provider of software and support services
for businesses and individuals. Prior management positions at Lotus included
Senior Vice President, Development, Vice President, Graphics and Information
Management Division, and General Manager, Lotus 1-2-3 Release 3.
<PAGE>
Richard A. D'Amore. Mr. D'Amore retired as a director of the Corporation in
February 1998. Mr. D'Amore had been a director since October 1987. Mr. D'Amore
has been a general partner of various venture capital funds affiliated with
Hambro International Venture Funds since 1982 and is currently also a general
partner of the venture capital fund North Bridge Venture Partners. Mr. D'Amore
is also a director of Solectron Corporation, a provider of customized
manufacturing services to original equipment manufacturers in the electronics
industry, Veeco Instruments, Inc., a designer, manufacturer and servicer of
precision ion beam etching and surface measurement systems, and Xionics Document
Technologies, a manufacturer of computer hardware and software for personal
computer document image processing.
Charles H. Federman. Mr. Federman has been a director since December 1994. Mr.
Federman's term as a Class I Director expires as of the date of the Annual
Meeting of Stockholders to be held in calendar year 1999. Mr. Federman is the
Managing Director of BMR Group, a private investment firm. Mr. Federman is also
a director of Logic Works, Inc., SQRibe Technologies, Inc., Phoenix Technologies
Ltd., International Micro Software, Inc. and Backweb Technologies, Inc. Logic
Works, Inc. develops and publishes computer aided software engineering (CASE)
software. SQRibe Technologies, Inc. develops off-the-shelf database enhancement
and optimization tools. Phoenix Technologies Ltd. designs, develops and markets
systems software compatibility products for personal computers, workstations and
peripheral devices. International Micro Software, Inc. develops and publishes
PC based productivity applications. Backweb Technologies, Inc. develops
intranet software tools.
Steven R. Vana-Paxhia. Mr. Vana-Paxhia has been a director since July
1996. Mr. Vana-Paxhia's term as a Class III Director expires as of the date of
the Annual Meeting of Stockholders to be held in calendar year 1998. Mr.
Vana-Paxhia has been the President and Chief Executive Officer of Inso
Corporation since the time of its initial public offering in March 1994. Inso
Corporation provides multilingual software products to software developers,
leading corporations and consumers across all industries. Inso Corporation was
formerly the Software Division of Houghton Mifflin Corporation. From November
1990 to March 1994, Mr. Vana-Paxhia was Vice President of the Software Division
of Houghton Mifflin Corporation. Mr. Vana-Paxhia is also a director of
Spyglass, Inc., a developer of internet enabling technologies.
Robert P. Orlando. Mr. Orlando joined the Corporation in December 1991 as
Vice President Finance and Administration and Chief Financial Officer. He was
named Treasurer in November, 1994. From May 1987 to November 1991, Mr. Orlando
was employed by Bitstream, Inc., most recently as Vice President of Finance and
Treasurer. Before that he served as Controller of Unicco Service Co. from 1986
to 1987, as General Accounting Manager of Orion Research from 1985 to 1986 and
as a certified public accountant with Arthur Andersen LLP from 1980 to 1985.
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Corporation's officers and directors, and persons who own more than ten
percent of a registered class of the Corporation's equity securities, to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission and The Nasdaq Stock Market. Officers, directors and
greater-than-ten percent stockholders are required by Securities and Exchange
Commission regulations to furnish the Corporation with all Section 16(a) forms
they file.
Based solely on its review of the copies of such forms received by it, the
Corporation believes that during the Transition Period all of its officers,
directors and greater-than-ten percent stockholders complied with all Section
16(a) filing requirements with the following exception: Mr. Meshberg filed one
report late which reported two transactions.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each non-employee director of the Corporation is entitled to participate in the
Corporation's 1992 Non-Employee Director Stock Option Plan (the "Director
Plan"). The Director Plan authorizes the grant of stock options only to members
of the Corporation's Board of Directors who are neither employees nor officers
of the Corporation. Under the Director Plan, each non-employee director who has
served as a member of the Board for at least one year on February 3rd of each
year receives automatically, on such date, an option to purchase 5,000 shares of
Common Stock at an exercise price equal to 100% of the fair market value of a
share of Common Stock on such date. Each non-employee director who has served
for less than an entire year on February 3rd receives automatically an option to
purchase the number of shares of Common Stock equal to the number of full months
he has served on the Board during the prior year, divided by 12 and multiplied
by 5,000. In addition, each non-employee director first elected to the Board of
Directors after February 3, 1993 will receive automatically on the date of his
or her election an option to purchase 20,000 shares of the Common Stock of the
Corporation at an exercise price equal to 100% of the fair market value of a
share of Common Stock on such date. Currently, the number of shares of Common
Stock authorized for issuance under the Director Plan is 160,000 shares, of
which 119,334 shares were outstanding as of March 23, 1998.
Options granted under the Director Plan may not be exercised until they
become vested. Each option granted under the Director Plan becomes exercisable
in one installment on the earlier of: (i) the first anniversary of the date of
grant; or (ii) the first Annual Meeting of Stockholders following the date of
grant at which members of the Board of Directors are elected, provided that the
optionee has continuously served as a member of the Board of Directors through
such date. Options granted under the Director Plan expire on the date which is
ten years from the date of the option grant.
SUMMARY COMPENSATION TABLE
The following table sets forth certain information with respect to the
annual compensation paid or accrued by the Corporation for services rendered to
the Corporation, in all capacities, for the Transition Period and for the fiscal
years ended June 30, 1997 and 1996 by its Chief Executive Officer (the "CEO")
and the other most highly compensated executive officer other than the CEO,
whose total salary and bonus exceeded $100,000 (collectively with the CEO, the
"Named Executive Officers"). The Corporation did not grant any restricted stock
awards or stock appreciation rights or make any long-term incentive plan payouts
during the Transition Period or the fiscal years ended June 30, 1997 and 1996.
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION(1) AWARDS
---------------------- ------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(2) OPTIONS/SARS(#)
- --------------------------- ---- ------ -------- ---------------
<S> <C> <C> <C> <C>
Charles J. Digate 1997(3) $125,000 $ 50,000 0
Chairman of the Board of 1997 250,000 0 100,000
Directors, President and Chief 1996 250,000 100,000 75,000
Executive Officer
Robert P. Orlando 1997(3) $ 64,000 $ 20,000 0
Vice President Finance and 1997 128,000 8,000 30,000
Administration, Chief Financial 1996 125,000 35,000 35,000
Officer, Treasurer and Clerk
<FN>
__________
(1) Excludes perquisites and other personal benefits, if any, the aggregate
annual amount of which for each officer was less than the lesser of $50,000 or
10% of the total of annual salary and bonus reported. The Corporation did not
grant any restricted stock awards or stock appreciation rights or make any long
term incentive plan payouts during the Transition Period or the fiscal years
ended June 30, 1997 or 1996.
(2) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(3) The Corporation changed its fiscal year end from June 30 to December 31.
Therefore, the footnoted period represents compensation earned during the
Transition Period.
</TABLE>
<PAGE>
OPTIONS/SAR GRANTS TABLE
There were no grants of stock options or SARs made to the Named Executive
Officers during the Transition Period.
OPTION EXERCISES AND FISCAL YEAR END VALUES
Shown below is information with respect to options to purchase the
Corporation's Common Stock granted under the Corporation's stock plans,
including: (i) the number of shares of Common Stock purchased upon exercise of
options in the Transition Period; (ii) the net value realized upon such
exercise; (iii) the number of unexercised options outstanding at December 31,
1997; and (iv) the value of such unexercised options at December 31, 1997.
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION / SAR EXERCISES IN TRANSITION PERIOD AND
DECEMBER 31, 1997 OPTION / SAR VALUES
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
ON VALUE OPTIONS/SARS AT DECEMBER 31, 1997 AT DECEMBER 31,1997(2)
---------------------------------------------------------------
NAME EXERCISE REALIZED(1) (EXERCISABLE) (UNEXERCISABLE) (EXERCISABLE) (UNEXERCISABLE)
----------- ------------- ------------ -------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Charles J. Digate 0 $ 0 554,064 245,936 $494,922 $73,828
Robert P. Orlando 30,000 67,500 23,486 54,800 10,375 11,200
<FN>
(1) Amounts disclosed in this column do not reflect amounts actually
received by the Named Executive Officers but are calculated based on the
difference between the fair market value of Common Stock on the date of exercise
and exercise price of the options. Named Executive Officers will receive cash
only if and when they sell the Common Stock issued upon exercise of the options
and the amount of cash, if any, received by such individuals is dependent on the
price of the Corporation's Common Stock at the time of such sale.
(2) Value is based on the difference between the option exercise price and
the fair market value at December 31, 1997, the end of the Transition Period
($2.75 per share), multiplied by the number of shares underlying the option.
</TABLE>
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Corporation has entered into an executive agreement (the "Executive
Agreement") with Charles J. Digate, the Corporation's President and Chief
Executive Officer. Pursuant to the Executive Agreement, Mr. Digate will receive
a base salary of $250,000 for the twelve months ended June 30, 1998 and a bonus
of up to $100,000 for the twelve months ended June 30, 1998 based on the
Corporation's achievement of a net income plan approved by the Board of
Directors, plus additional bonus payments based on specific objectives to be
agreed upon between Mr. Digate and the Board from time to time.
If the Corporation terminates Mr. Digate's employment without cause, or if
Mr. Digate terminates his employment following a change of control of the
Corporation for certain specified reasons, Mr. Digate will receive severance
benefits for eighteen months after such termination equal to his base salary
immediately prior to his termination. Any options held by Mr. Digate which are
then exercisable and unexpired may be exercised for three years following the
later of (i) the termination of his employment or (ii) the date he ceases to be
a member of the Corporation's Board of Directors. In addition, upon a change of
control of the Corporation, fifty percent (50%) of the unexercisable and
unexpired stock options held by Mr. Digate will become exercisable.
The Corporation has also entered into an option acceleration agreement with
Mr. Orlando (the "Option Acceleration Agreement"). The Option Acceleration
Agreement provides that (i) upon a change of control, the Corporation will cause
fifty percent (50%) of any unexercisable, unexpired installments of stock
options held by Mr. Orlando on the change of control to become exercisable, and
(ii) the Corporation shall extend the period within which any option may be
exercised by Mr. Orlando after the termination of his employment to twelve
months.
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Transition Period, Mr. D'Amore and Ms. Rokoff served on the
Compensation Committee. No person who served as a member of the Compensation
Committee was, during the Transition Period, an officer or employee of the
Corporation or any of its subsidiaries, was formerly an officer of the
Corporation or any of its subsidiaries, or had any relationship requiring
disclosure herein. No executive officer of the Corporation served as a member
of the Compensation Committee (or other Board committee performing equivalent
functions or, in the absence of any such committee, the entire Board of
Directors) of another entity, one of whose executive officers served as a
director of the Corporation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 23, 1998 (unless otherwise
indicated): (i) the name of each person who, to the knowledge of the
Corporation, owned beneficially more than 5% of the shares of Common Stock of
the Corporation outstanding at such date; (ii) the name of each director; (iii)
the name of each Named Executive Officer; (iv) the number of shares owned by
each of such persons; and (v) the percentage of the outstanding shares
represented thereby, and also sets forth such information for all current
directors and executive officers as a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL OWNER OF OWNERSHIP(1) PERCENT OF CLASS
------------------------------------ --------------- ----------------
<S> <C> <C>
Charles J. Digate**(2) 769,099 7.9%
Charles H. Federman(3) 40,417 *
c/o BMR Group
One Parker Plaza, Suite 1500
Fort Lee, NJ 07024
Samuel P. Meshberg and certain affiliates(4) 1,265,500 13.8%
c/o Financial Management Investment Services, Inc.
118 Burr Court
Bridgeport, CT 06605
Robert P. Orlando**(5) 74,986 *
June L. Rokoff**(6) 46,693 *
Steven R. Vana-Paxhia(7) 22,500 *
c/o Inso Corporation
31 St. James Avenue
Boston, MA 02116
All directors and executive officers as a group 953,695 10.0%
(5 persons) (8)
<FN>
* Less than 1%
** c/o MathSoft, Inc., 101 Main Street, Cambridge, MA 02142.
<PAGE>
(1) Except as otherwise noted, to the knowledge of the Corporation, each
person named in the table has sole voting and investment power with respect to
their shares of Common Stock, except to the extent authority is shared by
spouses under applicable law.
(2) Includes 599,375 shares issuable upon the exercise of outstanding stock
options exercisable on March 23, 1998 or within 60 days thereafter.
(3) Includes 30,417 shares issuable upon the exercise of outstanding stock
options exercisable on March 23, 1998 or within 60 days thereafter.
(4) Includes 3,000 shares owned by Ron Meshberg and Mr. Meshberg disclaims
beneficial ownership of such shares.
(5) Includes 34,986 shares issuable upon the exercise of outstanding stock
options exercisable on March 23, 1998 or within 60 days thereafter.
(6) Includes 30,417 shares issuable upon the exercise of outstanding stock
options exercisable on March 23, 1998 or within 60 days thereafter. Includes
1,000 shares owned by David Rokoff, spouse of Ms. Rokoff, as custodian for Sam
Rokoff, a minor child of Ms. Rokoff. Ms. Rokoff disclaims beneficial ownership
of these 1,000 shares.
(7) Includes 22,500 shares issuable upon the exercise of stock options
exercisable on March 23, 1998 or within 60 days thereafter.
(8) Includes 758,695 shares issuable upon the exercise of outstanding stock
options exercisable on March 23, 1998 or within 60 days thereafter.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation has adopted a policy that all transactions between the
Corporation and its officers, directors, principal stockholders and their
affiliates be on terms no less favorable to the Corporation than could be
obtained from unrelated third parties and must be approved by a majority of the
non-employee independent and disinterested directors.
<PAGE>
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
filed as part of this report.
Report of Independent Public Accountants.
Consolidated Balance Sheets as of December 31, 1997 and 1996 and June
30, 1997 and 1996.
Consolidated Statements of Operations for the six months ended
December 31, 1997 and 1996 and the twelve months ended June 30, 1997,
1996 and 1995.
Consolidated Statements of Stockholders' Equity for the six months
ended December 31, 1997 and 1996 and the twelve months ended
June 30, 1997,1996 and 1995.
Consolidated Statements of Cash Flows for the six months ended
December 31, 1997 and 1996 and the twelve months 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).
<PAGE>
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).
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).
<PAGE>
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.*
10.21 Executive Agreement, dated as of July 28, 1997, between the Company
and Charles J. Digate (filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997, file number 0-020992, and
incorporated herein by reference).#
10.22 Option Acceleration Agreement, dated as of September 15, 1997, between
the Company and Robert P. Orlando (filed as Exhibit 10.2 to the Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1997, file number
0-020992, and incorporated herein by reference).#
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP
* Confidential treatment as to portions of the filed exhibit was previously
granted.
# Management contract or compensatory arrangement required to be filed pursuant
to Item 14(c) of Form 10-K
(b) Reports on Form 8-K.
The Company filed a current Report on Form 8-K dated October 9, 1997
Reporting fiscal 1998 first quarter results.
The Company filed a Current Report on Form 8-K dated December 17, 1997
Reporting the change of the Company's fiscal year end from June 30
To December 31.
<PAGE>
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.
<TABLE>
<CAPTION>
<S> <C>
March 30, 1998 By: /s/ Charles J. Digate
-----------------------------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
</TABLE>
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.
<TABLE>
<CAPTION>
<S> <C>
March 30, 1998 /s/ Charles H. Federman
-----------------------------------------------
Charles H. Federman
Director
March 30, 1998 /s/ Robert P. Orlando
-----------------------------------------------
Robert P. Orlando
Vice President Finance and Administration, Chief Financial Officer, Treasurer and Clerk
(Principal Financial and Accounting Officer)
March 30, 1998 /s/ June L. Rokoff
------------------------------------------------
June L. Rokoff
Director
March 30, 1998 /s/ Steven R. Vana-Paxhia
------------------------------------------------
Steven R. Vana-Paxhia
Director
</TABLE>
<PAGE>
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).
<PAGE>
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).
<PAGE>
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.*
10.21 Executive Agreement, dated as of July 28, 1997, between the Company
and Charles J. Digate (filed as Exhibit 10.1 to the Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1997, file number 0-020992, and
incorporated herein by reference).
10.22 Option Acceleration Agreement, dated as of September 15, 1997, between
the Company and Robert P. Orlando (filed as Exhibit 10.2 to the Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1997, file number
0-020992, and incorporated herein by reference).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP
* Confidential treatment as to portions of the filed exhibit was previously
granted.
<PAGE>
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>
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, 333-165005, 333-18245, 333-19513 and 333-43833.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 30, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 4,133,541
<SECURITIES> 0
<RECEIVABLES> 3,472,334
<ALLOWANCES> 0
<INVENTORY> 255,205
<CURRENT-ASSETS> 8,094,794
<PP&E> 6,864,945
<DEPRECIATION> 5,315,979
<TOTAL-ASSETS> 9,812,150
<CURRENT-LIABILITIES> 6,224,794
<BONDS> 0
0
0
<COMMON> 91,086
<OTHER-SE> 3,404,237
<TOTAL-LIABILITY-AND-EQUITY> 9,812,150
<SALES> 11,145,569
<TOTAL-REVENUES> 13,023,977
<CGS> 1,817,283
<TOTAL-COSTS> 2,518,716
<OTHER-EXPENSES> 9,403,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,270
<INCOME-PRETAX> 1,122,369
<INCOME-TAX> 17,785
<INCOME-CONTINUING> 1,104,584
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,104,584
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
<PAGE>
</TABLE>
<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
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<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)
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 4,954,416
<SECURITIES> 0
<RECEIVABLES> 3,881,568
<ALLOWANCES> 0
<INVENTORY> 547,982
<CURRENT-ASSETS> 9,765,514
<PP&E> 5,642,660
<DEPRECIATION> 4,044,072
<TOTAL-ASSETS> 11,899,152
<CURRENT-LIABILITIES> 56,077,238
<BONDS> 0
0
0
<COMMON> 85,793
<OTHER-SE> 6,672,903
<TOTAL-LIABILITY-AND-EQUITY> 11,899,152
<SALES> 18,155,650
<TOTAL-REVENUES> 20,766,698
<CGS> 3,061,762
<TOTAL-COSTS> 4,000,358
<OTHER-EXPENSES> 15,833,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,196
<INCOME-PRETAX> 1,124,838
<INCOME-TAX> 17,785
<INCOME-CONTINUING> 1,075,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,075,838
<EPS-PRIMARY> .13
<EPS-DILUTED> .11
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 3,486,329
<SECURITIES> 448,618
<RECEIVABLES> 1,563,579
<ALLOWANCES> 0
<INVENTORY> 296,564
<CURRENT-ASSETS> 5,995,830
<PP&E> 4,434,547
<DEPRECIATION> 3,090,547
<TOTAL-ASSETS> 8,102,641
<CURRENT-LIABILITIES> 5,378,436
<BONDS> 0
0
0
<COMMON> 72,731
<OTHER-SE> 2,550,870
<TOTAL-LIABILITY-AND-EQUITY> 8,102,641
<SALES> 13,751,456
<TOTAL-REVENUES> 15,883,226
<CGS> 3,286,577
<TOTAL-COSTS> 4,064,241
<OTHER-EXPENSES> 15,454,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,427
<INCOME-PRETAX> (3,553,284)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,553,284)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,553,284)
<EPS-PRIMARY> (.50)
<EPS-DILUTED> (.50)
<PAGE>
</TABLE>
S-1
Report of Independent Public Accountants
To MathSoft, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of MathSoft, Inc. and subsidiaries included in this Form
10-K, and have issued our report thereon dated February 9, 1998. 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
February 9, 1998
<PAGE>
S-2
MATHSOFT, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Valuation and Qualifying Accounts
BALANCE, CHARGED TO BALANCE,
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS 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
========== ========== ======== ==========
Six-Month Period Ended December 31, 1997:
Allowance for doubtful accounts $ 410,825 $ 56,660 $ 7,665 $ 459,820
Allowance for sales returns 1,309,031 105,119 275,637 1,138,513
---------- ---------- -------- ----------
$1,719,856 $ 161,779 $283,302 $1,598,333
========== ========== ======== ==========
</TABLE>
