SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 $28,887,326 as of March 22, 1999 (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
22, 1999 was 9,765,461.
Documents incorporated by reference in Part III of this 10K: Proxy
Statement for Registrant's 1999 Annual Meeting of Shareholders.
<PAGE>
PART I
ITEM 1. BUSINESS.
General
MathSoft, Inc. ("MathSoft" or the "Company") develops, markets and supports
software productivity tools and services for the technical calculation and data
analysis markets comprised of technical 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 to transfer
formulas, data and results to Mathcad for instant calculation and analysis. The
Company delivers 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 twelve months ended
December 31, 1998, international sales of all technical calculation and data
analysis software products and services represented approximately 28% of total
revenues (refer to Footnote 7 & 8 for further detail).
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 twelve-months ended December 31, 1998, worldwide sales of data analysis
products and services represented approximately 36% of total revenues.
The market for data analysis software consists principally of professional
scientists, engineers, statisticians and business analysts as well as educators
and students. 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.
<PAGE>
In November 1995, the Company acquired TriMetrix, Inc. ("TriMetrix"). 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 the Axum technology is now a key component of S-PLUS for Windows.
In June 1996, the Company released StudyWorks! for Math and StudyWorks! for
Science targeted specifically toward high school and non-technical 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 acroScience Corporation ("acroScience").
MathSoft integrated visual modeling and programming technology acquired from
acroScience into Mathcad.
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.
<PAGE>
Products
Technical Calculation Software Products
MathSoft publishes a range of technical calculation and software products that
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
Extension Packs. Electronic Books provide on-screen libraries of
industry-leading reference work, user guides, solution templates, and
educational materials while Extension Packs provide additional functionality for
advanced users. StudyWorks, the most recent addition to the Mathcad product
line, was designed as an integrated learning tool combining math, text, graphs
and graphics for the high school and college market. StudyWorks helps students
master math and science concepts, get better grades and create
professional-looking homework and lab reports.
Mathcad
Mathcad's broad appeal lies in its use of MathSoft's proprietary "live document
interface" technology. This permits users to calculate on a computer in much the
same way that they would on a scratchpad where equations can be written
anywhere, using real math notation, and erased, changed and moved. A scratchpad
can show a variety of expressions such as formulas, words, graphs, data,
equations and pictures. Mathcad works in a similar free-form manner by
literally turning a computer screen into a live worksheet and therefore provides
a very intuitive interface to perform a wide range of numeric or symbolic
calculations, but Mathcad has one distinct advantage over a real scratchpad - it
calculates.
When using Mathcad, the computer screen initially appears blank, like a
scratchpad. Using the keyboard and the mouse, the user begins by placing the
cursor anywhere on the screen and then starts typing. To create a formula, the
user types keystrokes such as +, /, or * 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. Its 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 online technical reference
works. Mathcad performs numeric and symbolic calculations in the real and
complex domain, solves systems of linear and non-linear equations, and performs
iterative calculations.
Electronic Books
An extension of the Mathcad product line, Electronic Books deliver information
and solutions in an interactive form to Mathcad users. Electronic Books provide
the user with on-screen libraries of technical data combined with Mathcad's
capacity to utilize and manipulate the raw data through its "live document
interface." This enables the user to search the book for material, use
hyperlinks to jump to related sections within the work, and calculate problems
and manipulate data using formulas and data contained in the work. A key feature
of MathSoft's Electronic Books is that the material is live and interactive,
enabling a Mathcad user to apply the formulas or data 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.
Extension Packs
Extension Packs provide additional functionality to Mathcad in the areas of
signal processing, wavelets, image processing, and advanced optimization. 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 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. Each product is a three-in-one combination of an application,
rich interactive content and two-way Internet access. StudyWorks is based on a
powerful graphical calculation and document preparation tool and includes rich
multimedia encyclopedias of math and science formulas and key concepts in
algebra, geometry, earth science, chemistry, pre-calculus, physics, calculus and
statistics. Users also receive built-in links to the Company's StudyWorks home
page, which allows high school students, college students and teachers to
participate in virtual study groups and discussion forums, pick up Homework
Hints and link to related sites on the World Wide Web.
StudyWorks! 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, online tutoring, and the dissemination of class or lab notes,
problem sets, exams and solutions.
<PAGE>
Data Analysis Software Products
S-PLUS
On June 30, 1993, the Company acquired 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.
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 academia (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 on 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 twelve months ended December
31, 1998, domestic sales through distributor and reseller channels accounted for
approximately 51% of total domestic sales of technical calculation software
products, with the balance of such sales through either installed base direct
mail, the Company's telesales operations, electronic mail, or the Company's
webstore. One distributor, Ingram Micro, accounted for 13% and 12% of net
revenues, respectively, for the year ended December 31, 1998 and the six-month
period ended December 31, 1997. Ingram Micro also accounted for 14% and 12% of
net revenues in the years ended June 30, 1997 and 1996, respectively. Ingram
Micro is a distributor of our products primarily to various resellers and retail
accounts, none of which comprised more than 10% of the Company's total revenues
during the periods mentioned.
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 twelve months ended December 31, 1998, international sales
through resellers and distributors accounted for substantially all 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 an outside sales team. Leads
are generated from advertising, Public Relations, seminars and tradeshows and
these leads are then pursued by the telesales organization.
Internationally, the Company reaches customers of its data analysis products
primarily through a network of resellers and distributors. In the United
Kingdom, the Company sells directly to end-users.
Customer Technical Support
Technical Calculation Software Products
MathSoft provides technical support to its domestic customers by phone, fax,
mail and automated technical support via a telephone response system and the
Company's home page on the World Wide Web. A technical support staff of
engineers located in Cambridge provides solutions to installation and basic
usage problems as well as assistance on advanced technical and mathematical
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 Mathcad, StudyWorks and
Axum product lines and offers a variety of product add-ons.
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 as well as the
Company's direct customers in the United Kingdom.
<PAGE>
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 Wilmington, 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 updates. The Company
warehouses inventory and processes and fulfills domestic orders internally out
of its Seattle office. All international orders are processed and fulfilled by
third party vendors located in the United Kingdom that also provide warehousing
and fulfillment services.
Product Development
MathSoft's research and development organization, divided between the Company's
Cambridge, Massachusetts and Seattle, Washington locations, is responsible for
software development, product documentation, and quality assurance. Its
priorities are to continue technical innovation for power and performance and to
respond to market feedback by continuing to design products for ease-of-use.
MathSoft's development team consists of experts in software engineering, quality
assurance, mathematics, statistics, engineering and documentation. In software
engineering, MathSoft's professional staff has expertise in computer graphics,
compiler design, user interface design and advanced Windows and Internet
technologies.
During the fiscal year ended December 31, 1998, the Transition Period, and the
fiscal years ended June 30, 1997, and 1996, research and development costs
charged to operations were $4,964,000, $2,816,000, $5,143,000 and $3,659,000,
respectively. The Company did not capitalize any software research and
development costs during the twelve months ended December 31, 1998 as software
research and development costs incurred from technological feasibility to
general release were not material.
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 and SPSS. 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, as well as
more focused competition from companies in related markets. For example,
providers of spreadsheet programs 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 certain technological advantages over existing competitors in
the technical calculation and the data analysis software markets, maintaining
these advantages 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 its competitive position.
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.
In fiscal 1994, the Company was granted a non-exclusive worldwide perpetual
license to Maple V Symbolic Algebra Software 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 because Lucent Technologies is the sole licensor of the "S"
programming language, the Company is not presently aware of any circumstances
which would prevent it from fulfilling its obligations under the license.
Due to the rapid pace of technological change in the software industry, the
Company believes that patent, trade secret and copyright protection are less
significant to its competitive position than factors such as the knowledge,
ability and experience of the Company's personnel, new product development,
frequent product enhancements, name recognition, and ongoing reliable product
maintenance and support.
The Company believes that its products and other proprietary rights do not
infringe the proprietary rights of third parties. There can be no assurance,
however, that third parties will not assert infringement claims in the future.
Employees
As of December 31, 1998, the Company employed approximately 174 regular
full-time and part-time employees, of which 17 were outside the United States.
As necessary, the Company supplements its regular employees with temporary and
contract personnel. As of December 31, 1998, the Company employed 12 temporary
and contract personnel, of which none were 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.
<PAGE>
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.
Substantially all of its product revenues in each quarter result from software
licenses issued in that quarter making the Company's ability to accurately
forecast future revenues and income for any period 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.
<PAGE>
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 those related to its S-PLUS offerings, marketed primarily
to professionals needing statistical analysis tools.
In setting strategic goals to maximize shareholder value, the Company from time
to time considers the options of divesting itself of one product family or the
other, or product lines within a given family, to concentrate its focus on the
business opportunity associated with the remaining product family or product
lines.
At the present time, the Company is not party to any agreement relating to the
sale of either of its product families or product lines within such families,
but it may elect to pursue such options at any time. If the Company were to
consummate such a sale, there can be no assurance that it would receive returns
from such sale that investors in the Company would consider attractive.
Risks Associated with Distribution Channels. The Company markets and
distributes its S-PLUS products in the U.S. through the Company's telesales and
outside sales force and internationally through third party resellers and
distributors and its own salesforce. Mathcad products are currently marketed
and distributed in the U.S. through third party resellers and distributors,
telesales and direct mail and electronic methods. 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 33% and approximately 34% of the Company's total
revenues in the fiscal years ended June 30, 1996 and 1997, approximately 30% of
the Company's total revenues during the Transition Period, and approximately 28%
of the Company's total revenues in the fiscal year ended December 31, 1998, 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 Mathcad, contains certain copyrighted texts licensed from third party
publishers incorporated in the Company's Electronic Books, and the S programming
language, the language on which all of the StatSci'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.
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.
Risks Associated with New Products or Services. The Company's future revenue
growth rate and earnings performance depend on a number of factors, including
the continued success of its existing products and service offerings and the
development of one or more new products or services. These investments may
adversely affect the Company's quarterly and annual financial results until such
time that they begin to return a profit. Furthermore, there can be no assurance
that these investments will ever achieve the desired financial results.
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 Company renewed its
lease for the 23,350 square feet it currently occupies on November 30, 1998 and
this lease is scheduled to terminate in October 2004. 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 7,043 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 on a
renewable 90 day basis, the term of which will terminate in March 1999. 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.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Company is not involved in any legal proceedings which could have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
Not applicable.
<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
FISCAL YEAR ENDED DECEMBER 31, 1998:
First Quarter. . . . . . . . . . . . 3 1/2 2 11/16
Second Quarter . . . . . . . . . . . 4 11/32 3 13/32
Third Quarter. . . . . . . . . . . . 3 7/8 1 27/32
Fourth Quarter . . . . . . . . . . . 3 1/4 2 1/32
</TABLE>
As of March 22, 1999, the number of stockholders of record of Common Stock was
approximately 226.
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, except for the twelve months
ended December 31, 1997 which has been presented for comparison purposes only.
The information should be read in conjunction with the financial statements and
notes thereto set forth elsewhere herein.
<TABLE>
<CAPTION>
FISCAL
YEAR ENDED YEAR ENDED
DEC 31, DEC.31, TRANSITION FISCAL YEARS ENDED JUNE 30,
(in thousands, except per share data) 1998 1997 PERIOD(1) 1997 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues. . . . . . . . . . . . $ 24,447 $21,224 $13,024 $17,678 $20,767 $15,883 $26,610
Gross profit. . . . . . . . . . . . . 20,201 16,742 10,505 13,732 16,766 11,819 20,113
Income (loss) from operations. . . . 2,161 (2,160) 1,102 (4,394) 933 (3,635) (7,296)
Net income (loss) . . . . . . . . . . 2,220 (2,129) 1,105 (4,300) 1,076 (3,553) (7,146)
Diluted net income (loss) per common
and common equivalent share. . . 0.22 (0.24) 0.11 (0.49) 0.11 (0.50) (1.02)
Working capital . . . . . . . . . . . 4,439 1,852 1,870 457 4,688 617 1,618
Total assets. . . . . . . . . . . . . 13,492 9,812 9,812 8,786 11,899 8,103 13,378
Long-term obligations,. . . . . . . . 139 74 74 183 3 13 79
less current portion
Stockholders equity . . . . . . . . . 6,051 3,495 3,495 2,168 6,759 2,624 5,800
<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.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In December 1997, the Company changed its fiscal year end from June 30 to
December 31. Accordingly, a six-month transition period ended December 31, 1997
is included below.
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 fiscal year ended December 31,
1998 and the twelve months ended December 31, 1997 (unaudited), the fiscal year
ended December 31, 1998 compared to the fiscal year ended June 30, 1997, the six
months ended December 31, 1997 (the "Transition Period") and the six months
ended December 31, 1996, the two years ended June 30, 1997 and 1996 and the
percentage changes in those items for the twelve months ended December 31, 1998
and 1997 (unaudited), the fiscal year ended December 31, 1998 and June 30, 1997,
and the year ended June 30, 1997.
<TABLE>
<CAPTION>
--------------Percentage Change--------------
Fiscal Transition Fiscal
- - ---------------------------------Percentage of Total Revenues--------------- Fiscal Year Ended Period (1) Year Ended
Fiscal Year Ended Dec 31,1998 compared to June 30,1997
Year Year Six Months Fiscal Year Dec 31, 1998 compared to Six Months compared to
Ended Ended Ended Ended compared to Fiscal Ended Fiscal
Dec 31, Dec 31, Transition Dec 31, June 30 Year Ended Year Ended Dec 31, Year Ended
1998 1997 Period 1996 1997 1996 Dec 31, 1997 June 30,1997 1996 June 30,1996
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues: (unaudited) (unaudited)
Software licenses. . . . 85.2% 85.0% 85.4% 87.2% 85.9% 87.4% 15.5% 37.3% 34.6% -16.4%
Services and other . . . 14.8% 15.0% 14.6% 12.8% 14.1% 12.6% 13.3% 44.4% 56.5% -4.3%
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
Total revenues . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 15.2% 38.3% 37.4% -14.9%
Cost of Revenues:
Software licenses. . . . 12.1% 16.0% 14.0% 16.7% 17.7% 14.7% -12.8% -5.1% 15.1% 2.0%
Services and other . . . 5.3% 5.1% 5.4% 4.3% 4.6% 4.5% 18.3% 56.0% 73.8% -12.4%
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
Total cost of revenues 17.4% 21.1% 19.3% 20.9% 22.3% 19.3% -5.3% 7.6% 27.0% -1.4%
Gross profit. . . . . . 82.6% 78.9% 80.7% 79.1% 77.7% 80.7% 20.7% 47.1% 40.2% -18.1%
Operating Expenses:
Sales and marketing. . . . 42.4% 49.1% 39.7% 52.8% 58.0% 46.8% -0.5% 1.1% 3.2% 5.5%
Research and development . 20.3% 26.3% 21.6% 25.1% 29.1% 17.6% -11.1% -3.5% 18.4% 40.5%
General and administrative 11.1% 13.7% 10.9% 13.1% 15.5% 11.8% -6.7% -0.7% 14.3% 11.3%
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
Total operating expenses.73.8% 89.1% 72.2% 91.0% 102.5% 76.2% -4.6% -0.5% 9.0% 14.5%
Income(loss) from operations. 8.8% -10.2% 8.5% -11.9% -24.9% 4.5% 200.0% 149.2% 9.0% -570.9%
Interest income(expense),net 0.4% 0.4% 0.2% 0.8% 0.8% 0.9% 3.8% -40.8% -73.8% -27.7%
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
Income (loss) before provision
for income taxes . . . . . 9.2% -9.8% 8.5% -11.% -24.1% 5.4% 207.7% 152.7% 9.8% -478.2%
Provision for income taxes . 0.1% 0.2% 0.1% 0.2% 0.3% 0.2% -51.1% -48.3% 20.0% -9.7%
------ ------ ------- ------ ------ ------ -------- -------------- ------ --------
Net Income (loss) . . . . 9.1% -10.0% 8.5% -11.3% -24.4% 5.2% 204.2% 151.6% 9.8% -499.7%
====== ====== ======= ====== ====== ====== ======== ========== ====== ========
<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.
</TABLE>
<PAGE>
Fiscal Year Ended December 31, 1998 Compared to the Twelve Months Ended December
31, 1997 (unaudited)
Total revenues increased 15.2% from $21,224,000 for the twelve months ended
December 31, 1997 to $24,447,000 for the fiscal year ended December 31, 1998.
The increase in total revenues was primarily attributable to worldwide new
license and upgrade revenue generated by the Company's Mathcad product line, as
well as new license and service revenue generated from the S-PLUS product line.
Worldwide Mathcad product line revenues increased 11.9% from $13,947,000 in the
twelve months ended December 31, 1997 to $15,606,000 during the twelve months
ended December 31, 1998, but decreased as a percentage of total revenues from
65.7% to 63.8% for the twelve months ended December 31, 1997 and 1998,
respectively. The increase in Mathcad product line revenue is due primarily to
the release of Mathcad 8 (released in September 1998) and Mathcad 7 (released in
June 1997). To a lesser extent, this increase is also due to the release of
StudyWorks II in March 1998. Worldwide S-PLUS license and service revenue
increased 21.5% from $7,277,000 in the twelve months ended December 31, 1997 to
$8,841,000 during the twelve months ended December 31, 1998, and increased as a
percentage of total revenues from 34.3% to 36.2%, respectively. The increase in
S-PLUS product line revenue is primarily attributable to the release of S-PLUS
4.5 (released in May 1998) and S-PLUS 4.0 (released in September 1997). Total
international revenues, attributable to all product lines, increased 3.2% from
$6,682,000 in 1997 to $6,897,000 in 1998, and decreased as a percentage of total
revenues from 31.5% to 28.2%, respectively.
Total cost of revenues decreased 5.3% from $4,482,000 for the twelve months
ended December 31, 1997 to $4,246,000 during the twelve months ended December
31, 1998, and decreased as a percentage of total revenues from 21.1% to 17.4%,
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.
Sales and marketing expenses for the twelve-months ended December 31, 1997 were
$10,413,000 and remained relatively consistent as compared to $10,364,000 for
the fiscal year ended December 31, 1998, and decreased as a percentage of total
revenues from 49.1% to 42.4%, respectively.
Research and development expenses decreased 11.1% from $5,581,000 for the twelve
months ended December 31, 1997 to $4,964,000 during the fiscal year ended
December 31, 1998, and decreased as a percentage of total revenues from 26.3% to
20.3%, respectively. The decrease in research and development expenses was
primarily attributable to a decrease in consulting costs associated with
development initiatives in the Company's Data Analysis Products Division and an
increase in research contribution.
General and administrative expenses decreased 6.7% from $2,909,000 for the
twelve months ended December 31, 1997 to $2,713,000 during the fiscal year ended
December 31, 1998, and decreased as a percentage of total revenues from 13.7% to
11.1%, respectively. The decrease in overall general and administrative
expenses was primarily attributable to decreases in foreign currency transaction
losses.
Net income for the fiscal year ended December 31, 1998 was $2,220,000 compared
to a net loss of $2,129,000 for the twelve months ended December 31, 1997.
Improved performance from the recently refreshed Mathcad and S-PLUS product
line, coupled with margin improvements and management control of operating
expenses contributed to this improvement in profit.
<PAGE>
Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended June 30, 1997
Total revenues increased 38.3% from $17,678,000 for the twelve months ended June
30, 1997 to $24,447,000 for the fiscal year ended December 31, 1998. This
increase in total revenues was primarily attributable to worldwide new license
and upgrade revenue generated by the Mathcad product line as well as new license
and service revenue generated from the S-PLUS product line.
Worldwide Mathcad product line sales increased 31.7% from $11,850,000 in the
twelve months ended June 30, 1997 to $15,606,000 during the fiscal year ended
December 31, 1998, but decreased as a percentage of total revenues from 67.0% to
63.8%, respectively. The twelve months ended December 31, 1998 had increased
revenue associated with Mathcad 8 (released in September 1998) and Mathcad 7
(released in June 1997). Worldwide S-PLUS product line revenue increased 51.7%
from $5,828,000 in the twelve months ended June 30, 1997 to $8,841,000 during
the fiscal year ended December 31, 1998, and increased as a percentage of total
revenues from 33.0% to 36.2%, respectively. S-PLUS product line had increased
license and services revenue in the fiscal year ended December 31, 1998 due to
the release of S-PLUS 4.5 (released in May 1998) and S-PLUS 4.0 (released in
September 1997). Total international revenues, attributable to all product
lines, increased 14.6% from $6,017,000 in 1997 to $6,897,000 in 1998, and
decreased as a percentage of total revenues from 34.0% to 28.2%, respectively.
Total cost of revenues increased 7.6% from $3,946,000 for the twelve months
ended June 30, 1997 to $4,246,000 during the fiscal year ended December 31,
1998, and decreased as a percentage of total revenues from 22.3% to 17.4%,
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.
Sales and marketing expenses for the twelve-months ended June 30, 1997 were
$10,251,000 and remained relatively consistent compared to $10,364,000 for the
fiscal year ended December 31, 1998, but decreased as a percentage of total
revenues from 58.0% to 42.4%, respectively.
Research and development expenses decreased 3.5% from $5,143,000 for the twelve
months ended June 30, 1997 to $4,964,000 during the fiscal year ended December
31, 1998, and decreased as a percentage of total revenues from 29.1% to 20.3%.
The decrease in research and development expenses was primarily attributable to
a decrease in consulting costs associated with development initiatives in the
Company's Data Analysis Products Division and an increase in research
contribution.
General and administrative expenses for the fiscal year ended June 30, 1997 were
$2,732,000 and remained consistent at $2,713,000 during the twelve months ended
December 31, 1998, and decreased as a percentage of total revenues from 15.5% to
11.1%, respectively. The consistency in expenditures and reduction as a
percentage of total revenues was due to management efforts to control costs.
Net income for the fiscal year ended December 31, 1998 was $2,220,000 compared
to net loss of $4,300,000 for the twelve months ended June 30, 1997. Improved
performance from the recently refreshed Mathcad and S-PLUS product lines coupled
with margin improvements contributed to this increase in profit.
<PAGE>
Transition Period Ended December 31, 1997 Compared to the Six-Month Period Ended
December 31, 1996 (unaudited)
Total revenues 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 release
of Mathcad 7 for Windows in June 1997, new license revenue generated from S-PLUS
4.0 released in September 1997, and to a lesser extent, S-PLUS service revenue.
Mathcad for Windows generated upgrade revenue of $680,000 during 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 all product lines,
increased 20.9% from $3,182,000 in 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 an increase in the inventory provision to adequately cover
excess inventory exposure 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
consistent with the increase in service revenue.
Sales and marketing expenses 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 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 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 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 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 refreshed Mathcad and S-PLUS product lines coupled with margin
improvements all contributed to this improvement in profit.
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 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 the fiscal year ended June 30, 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 September 1997. 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.
<PAGE>
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 1.5% due to an overall lower revenue base in Fiscal 1997.
Sales and marketing expenses increased 5.5% from $9,719,000 in Fiscal 1996 to
$10,251,000 in Fiscal 1997, and increased as a percentage of total revenues from
46.8% to 58.0%, respectively. The increase in overall sales and marketing
expenses was attributable to marketing expenses incurred related to the Fiscal
1997 launch of the StudyWorks! product line, Mathcad 6.0 for Macintosh and, most
recently, Mathcad 7 for Windows, as well as to an increase in S-PLUS domestic
sales expenses as the Company reorganized its sales infrastructure to support
direct sales into this expanding product line. International sales and
marketing expenses increased 3.8% from $2,285,000 in Fiscal 1996 to $2,372,000
in Fiscal 1997.
Research and development expenses increased 40.6% from $3,659,000 in Fiscal 1996
to $5,143,000 in Fiscal 1997, and increased as a percentage of total revenues
from 17.6% to 29.1%. The increase in overall research and development expenses
was primarily attributable to increased personnel and consulting costs
associated with the continued expansion and development of the S-PLUS product
line, specifically related to the first release of StatServer in April 1997 and
the impending release of S-PLUS 4.0 in September 1997.
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.
<PAGE>
Liquidity and Capital Resources
Cash and cash equivalents, totaling $5,707,000 at December 31, 1998, increased
$1,573,000 during the fiscal year ended December 31, 1998, from $4,134,000 at
December 31, 1997. The positive cash flow resulted primarily from cash provided
by operating activities of $2,163,000 and proceeds from the exercise of stock
options of $369,000 which were offset by purchases of property, equipment and
other assets of $1,098,000.
The Company generated $2,163,000 in cash from operating activities during the
fiscal year ended December 31, 1998. The cash generated by operating activities
was primarily attributable to net income of approximately $2,220,000, non-cash
depreciation and amortization charges, and an increase in deferred revenue,
offset by an increase in accounts receivable. Accounts receivable and deferred
revenue increased primarily due to the growth in the Company's business. The
Company used $1,098,000 in investing activities primarily due to the purchase of
$624,000 of property and equipment, and the purchase of certain intangible
assets for $382,000. Proceeds generated from capital lease obligations and
equipment financing and the exercise of stock options of $815,000 and $369,000,
respectively, were offset by payments on capital lease obligations and equipment
financing of $641,000.
The Company's financial reserves are represented by cash and cash equivalents as
of December 31, 1998. 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 by 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. There were no
amounts outstanding under this line at December 31, 1998. This line was
renewed on February 24, 1999 and now expires on April 30, 2000. Borrowings
under this renewed line are limited to the lesser of 80% of eligible domestic
accounts or $2,000,000 based on certain profitability covenants. Borrowings are
secured by substantially all of the Company's assets and bear interest at the
bank's prime rate plus 0.5%.
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 fiscal year
ended December 31, 1998 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, cash expenditures related to possible future
acquisitions, or investment in new products or services. The Company may be
presented from time to time with acquisition opportunities that require
additional external financing, and the Company may from time to time seek to
obtain additional funds from public or private issuance 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.
<PAGE>
Year 2000 Readiness Disclosure Statement
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, many companies' software and computer systems
may need to be upgraded or replaced in order to comply with such "Year 2000"
requirements. MathSoft is in the process of evaluating and correcting the Year
2000 compliance of its proprietary products and services and third party
equipment and software that it uses, as well as its non-information technology
systems, such as building security, voice mail and other systems.
The Company's Year 2000 compliance efforts consist of the following phases: (i)
identification of all software products, information technology systems and
non-information technology systems; (ii) assessment of repair or replacement
requirements; (iii) repair or replacement; (iv) testing; (v) implementation; and
(vi) creation of contingency plans in the event of Year 2000 failures. The
Company has completed phase (i) and has substantially completed phase (ii).
The Company expects to substantially complete phase(iii) by June 1999 and phases
(iv), (v) and (vi) of its Year 2000 compliance efforts by September 1999.
To date, the Company has not incurred any material expenditure in connection
with identifying or evaluating Year 2000 compliance issues. Preliminary
estimates regarding expected costs to MathSoft for evaluating and correcting
Year 2000 issues are in the range of $450,000 to $850,000, but there can be no
assurance that the costs will not exceed such amounts. The Company's
expectations regarding Year 2000 remediation efforts will evolve as it continues
to analyze and correct its systems. The Company has not yet developed a formal
Year 2000-specific contingency plan. The Company expects that a formal Year
2000 contingency plan will evolve as it completes its Year 2000 compliance
efforts. Failure by the Company to resolve Year 2000 issues with respect to its
products and services could have a material adverse effect on the Company's
business, results of operation and financial condition. Furthermore, failure of
third-party equipment or software to operate properly with regards to the year
2000 and thereafter could require MathSoft to incur significant unanticipated
expenses to remedy any problems.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 and the Index therein for a listing of the financial statements and
supplementary data as part of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information with respect to this item may be found under the caption
"Occupations of Directors and Executive Officers" appearing in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year ended
December 31, 1998. Such information is incorporated here by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item may be found under the caption
"Compensation and Other Information Concerning Directors and Officers" appearing
in the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the close of the fiscal year
ended December 31, 1998. Such information is incorporated here by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item may be found under the caption "Management
and Principal Holders of Voting Securities" appearing in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year ended
December 31, 1998. Such information is incorporated here by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to this item may be found under the caption "Certain
Relationships and Related Transactions" appearing in the Company's definitive
proxy statement to be filed with the Securities and Exchange Commission not
later than 120 days after the close of the fiscal year ended December 31, 1998.
Such information is incorporated here by reference.
<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, 1998 and 1997
Consolidated Statements of Operations for the year ended December 31,
1998, the year ended December 31, 1997 (unaudited), the six-month
period ended December 31, 1997 and for the years ended June 30, 1997
and 1996
Consolidated Statements of Stockholders' Equity for the years ended
June 30, 1997 and 1996, the six-month period ended December 31, 1997
and for the year ended December 31, 1998
Consolidated Statements of Cash Flows for the year ended December 31,
1998, the year ended December 31, 1997 (unaudited), the six-month
period ended December 31, 1997 and for the years ended June 30, 1997
and 1996
Notes to Consolidated Financial Statements
2. Financial Statement Schedules. The following financial
statement schedule is filed as part of this report and should be read
in conjunction with the consolidated financial statements of the Company
Schedule II Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
3. Exhibits.
2.1 Asset Purchase Agreement, dated as of June 30, 1993 among the
Registrant, Statistical Sciences, Inc., a Washington corporation, and the
Stockholders listed on Schedule I thereto (filed as Exhibit 2.1 to the
Registrant's Current Report on Form 8-K dated June 30, 1993 and incorporated
herein by reference).
3.1 Third Restated Articles of Organization of the Company (filed as Exhibit
3.2 to Registration Statement number 33-55658 on Form S-1 and incorporated
herein by reference).
3.2 Amended and Restated By-laws of the Company (filed as Exhibit 3.2 to
Annual Report on Form 10-K for the fiscal year ended June 30, 1994, file number
0-020992, and incorporated herein by reference).
4.1 Specimen certificate representing the Common Stock (filed as Exhibit 4.1
to Registration Statement number 33-55658 on Form S-1 and incorporated herein by
reference).
4.2 Please refer to Article VI of Exhibit 3.1.
10.1 Amended and Restated 1992 Stock Plan (filed as Exhibit 10.1 to
Registration Statement number 33-55658 on Form S-1 and incorporated herein by
reference).
10.2 1987 Combination Stock Plan, as amended (filed as Exhibit 10.2 to
Registration Statement number 33-55658 on Form S-1 and incorporated herein by
reference).
10.3 Form of Key Officer Stock Option Agreement (filed as Exhibit 10.3 to
Registration Statement number 33-55658 on Form S-1 and incorporated herein by
reference).
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).*
<PAGE>
10.16 Perpetual Technology License dated as of March 1, 1994, as amended by
Addendum No. 1 thereto dated as of March 25, 1994, between the Company and
766884 Ontario Inc., carrying on business as Waterloo Maple Software (filed as
Exhibit 10.16 to Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994, file number 0-020992, and incorporated herein by reference).*
10.17 Line of Credit Agreement, dated January 11, 1996, between the Company
and Fleet Bank of Massachusetts (filed as Exhibit 10.1 to Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996, file number 0-020992, and
incorporated herein by reference).
10.18 Consulting Agreement dated March 26, 1996 between the Company and
Allen M. Razdow (filed as Exhibit 10.18 to Annual Report on Form 10-K for the
fiscal year ended June 30, 1996, file number 0-020992, and incorporated herein
by reference).
10.19 Software License Agreement, dated February 18, 1996, between the
Company and Lucent Technologies Inc. (filed as Exhibit 10.1 to Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 1996, file number
0-020992, and incorporated herein by reference).*
10.20 Amendment to Software License Agreement, dated September 25, 1997,
between the Company and Lucent Technologies Inc.*
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).#
10.23 Amended and Restated Executive Agreement dated as of November 23,
1998, between the Company and Charles J. Digate.
10.24 Amendments to Agreement of Lease Between Riverfront Office Park Joint
Venture and MathSoft, Inc., dated as of October 23, 1998 and November 30, 1998,
respectively.
10.25 Amended Line of Credit Agreement dated February 24, 1999, between the
Company and Fleet Bank of Massachusetts.
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
<PAGE>
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated April 16, 1998 reporting
fiscal first quarter results.
The Company filed a Current Report on Form 8-K dated July 22, 1998 reporting
fiscal second quarter results.
The Company filed a Current Report on Form 8-K dated October 13, 1998 reporting
fiscal third quarter results.
<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.
March 30, 1999 . . . . . . . . . . . . . . . . . . By: /s/ Charles J. Digate
-------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
March 30, 1999 . . . . . . . . . . . . . . . . . . . /s/ Charles H. Federman
-----------------------
Charles H. Federman
Director
March 30, 1999 . . . . . . . . . . . . . . . . /s/ David D. Martin
-----------------------
David D. Martin
Director
March 30, 1999 . . . . . . . . . . . . . . . . . . . /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, 1999 . . . . . . . . . . . /s/ June L. Rokoff
-----------------------
June L. Rokoff
Director
<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).
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).
<PAGE>
EXHIBIT NO. DESCRIPTION
10.12 Lease Agreement with the Bartell Drug Co. (Landlord), dated as of June
22, 1990, together with Addendum Nos. A, B, C & D of even date and as amended by
Addendum No. E dated December 9, 1992 (filed as Exhibit 10.12 to Annual Report
on Form 10-K for the fiscal year ended June 30, 1993, file number 0-020992, and
incorporated herein by reference).
10.13 Software License Agreement with American Telephone & Telegraph
Company, effective as of April 1, 1991, as amended February 18, 1993 (filed as
Exhibit 10.13 to Annual Report on Form 10-K for the fiscal year ended June 30,
1993, file number 0-020992, and incorporated herein by reference).*
10.14 Distributor Agreement with Mathematical Systems Institute, Inc., dated
August 24, 1990 (filed as Exhibit 10.14 to Annual Report on Form 10-K for the
fiscal year ended June 30, 1993, file number 0-020992, and incorporated herein
by reference).
10.15 Distributorship Agreement dated as of March 1, 1994 between the
Company and 766884 Ontario Inc., carrying on business as Waterloo Maple Software
(filed as Exhibit 10.15 to Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1994, file number 0-020992, and incorporated herein by
reference).*
10.16 Perpetual Technology License dated as of March 1, 1994, as amended by
Addendum No. 1 thereto dated as of March 25, 1994, between the Company and
766884 Ontario Inc., carrying on business as Waterloo Maple Software (filed as
Exhibit 10.16 to Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1994, file number 0-020992, and incorporated herein by reference).*
10.17 Line of Credit Agreement, dated January 11, 1996, between the Company
and Fleet Bank of Massachusetts (filed as Exhibit 10.1 to Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31, 1996, file number 0-020992, and
incorporated herein by reference).
10.18 Consulting Agreement dated March 26, 1996 between the Company and
Allen M. Razdow (filed as Exhibit 10.18 to Annual Report on Form 10-K for the
fiscal year ended June 30, 1996, file number 0-020992, and incorporated herein
by reference).
10.19 Software License Agreement, dated February 18, 1996, between the
Company and Lucent Technologies Inc. (filed as Exhibit 10.1 to Quarterly Report
on Form 10-Q for the fiscal quarter ended December 31, 1996, file number
0-020992, and incorporated herein by reference).*
10.20 Amendment to Software License Agreement, dated September 25, 1997,
between the Company and Lucent Technologies Inc.*
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).
10.23 Amended and Restated Executive Agreement dated as of November 23,
1998, between the Company and Charles J. Digate.
10.24 Amendments to Agreement of Lease Between Riverfront Office Park Joint
Venture and MathSoft, Inc., dated as of October 23, 1998 and November 30, 1998,
respectively.
10.25 Amended Line of Credit Agreement dated February 24, 1999, between the
Company and Fleet Bank of Massachusetts.
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>
F-1
MATHSOFT, INC. AND SUBSIDIARIES
Index
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the Year ended December 31,
1998, the Year Ended December 31, 1997 (unaudited), the Six-Month Period
Ended December 31, 1997 and for the Years Ended June 30, 1997 and 1996 F-5
Consolidated Statements of Stockholders' Equity for the Year ended
December 31, 1998, for the Six-Month Period Ended December 31, 1997 and
for the Years Ended June 30, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the year ended December 31,
1998, the Year Ended December 31, 1997 (unaudited), the Six-Month Periods
Ended December 31, 1997 and for the Years Ended June 30, 1997 and 1996 F-7
Notes to Consolidated Financial Statements F-8
<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, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended December 31, 1998, the six-month period ended
December 31, 1997 and each of the two years in the period ended June 30, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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, 1998 and 1997, and the results of their operations and their
cash flows for the year ended December 31, 1998, the six-month period ended
December 31, 1997, and for each of the two years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 24, 1999
<PAGE>
F-3
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
<S> <C> <C>
1998 1997
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,706,657 $ 4,133,541
Accounts and other receivables, less reserves of approximately $870,000 and
$1,598,000 at December 31, 1998 and 1997, respectively . . . . . . . . . . 5,318,087 3,472,334
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 374,320 255,205
Prepaid expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 342,599 233,714
------------- -------------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,741,663 8,094,794
------------- -------------
Property and Equipment, at cost:
Computer equipment and software . . . . . . . . . . . . . . . . . . . . . . 4,786,904 4,609,382
Property and equipment under capital lease. . . . . . . . . . . . . . . . . 896,486 615,910
Furniture and fixtures. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,036,313 1,012,763
Leasehold improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . 624,658 626,890
------------- -------------
7,344,361 6,864,945
Less-Accumulated depreciation and amortization. . . . . . . . . . . . . . . 6,082,535 5,315,979
------------- -------------
1,261,826 1,548,966
------------- -------------
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488,595 168,390
------------- -------------
$ 13,492,084 $ 9,812,150
============= =============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
<S> <C> <C>
1998 1997
Current Liabilities:
Current portion of capital lease obligations and equipment financing. $ 482,004 $ 374,089
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,481,154 2,243,290
Accrued expenses and other current liabilities. . . . . . . . . . . . 2,452,472 2,236,655
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,886,533 1,389,042
-------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . 7,302,163 6,243,076
-------------- --------------
Capital Lease Obligations and Equipment Financing,
less current portion. . . . . . . . . . . . . . . . . . . . . . . . . 139,414 73,751
-------------- --------------
Commitments (Note 5)
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-9,324,407 and 9,108,616,
shares at December 31, 1998 and 1997, respectively. . . . . . . . . . 93,244 91,086
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . 29,706,364 29,339,752
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (23,667,397) (25,887,525)
Cumulative translation adjustment . . . . . . . . . . . . . . . . . . (81,704) (47,990)
-------------- --------------
Total stockholders' equity. . . . . . . . . . . . . . . . . . . . . . 6,050,507 3,495,323
-------------- --------------
$ 13,492,084 $ 9,812,150
============== ==============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31, YEARS ENDED JUNE 30,
1998 1997 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Software licenses . . . . . $20,839,101 $18,039,610 $11,145,569 $15,179,191 $18,155,650
Services and other. . . . . 3,607,670 3,183,901 1,878,408 2,498,536 2,611,048
------------ ------------ ------------ ------------ ------------
Total revenues. . . . . . . 24,446,771 21,223,511 13,023,977 17,677,727 20,766,698
------------ ------------ ------------ ------------ ------------
Cost of Revenues:
Software licenses . . . . . 2,963,682 3,397,952 1,817,283 3,124,158 3,061,762
Services and other. . . . . 1,282,085 1,083,887 701,433 821,781 938,596
------------ ------------ ------------ ------------ ------------
Total cost of
revenues. . . . . . . . . . 4,245,767 4,481,839 2,518,716 3,945,939 4,000,358
------------ ------------ ------------ ------------ ------------
Gross profit. . . . . . . . 20,201,004 16,741,672 10,505,261 13,731,788 16,766,340
------------ ------------ ------------ ------------ ------------
Operating Expenses:
Sales and marketing . . . . 10,364,022 10,413,111 5,169,379 10,251,376 9,719,346
Research and development. . 4,963,618 5,580,584 2,815,601 5,142,751 3,659,171
General and administrative. 2,712,508 2,909,467 1,418,295 2,731,858 2,454,838
------------ ------------ ------------ ------------ ------------
Total operating
expenses . . . . . . . . . 18,040,148 18,903,162 9,403,275 18,125,985 15,833,355
------------ ------------ ------------ ------------ ------------
Income (loss) from
operations . . . . . . . . 2,160,856 (2,161,490) 1,101,986 (4,394,197) 932,985
Interest Income . . . . . . 168,217 120,399 49,653 153,111 199,049
Interest Expense. . . . . . (86,066) (41,068) (29,270) (14,440) (7,196)
------------ ------------ ------------ ------------ ------------
Income (loss)
before provision
for income taxes. . . . . . 2,243,007 (2,082,159) 1,122,369 (4,255,526) 1,124,838
Provision for Income
Taxes . . . . . . . . . . . 22,879 46,655 17,785 44,452 49,000
------------ ------------ ------------ ------------ ------------
Net income (loss) . . . . . $ 2,220,128 $(2,128,814) $ 1,104,584 $(4,299,978) $ 1,075,838
============ ============ ============ ============ ============
Basic Net Income (Loss)
per Share. . . . . . . . . $ .24 $ (.24) $ .12 $ (.49) $ .13
============ ============ ============ ============ ============
Diluted Net Income
(Loss) per Share . . . . . $ .22 $ (.24) $ .11 $ (.49) $ .11
============ ============ ============ ============ ============
Weighted Average
Number of Shares
Outstanding . . . . . . . . 9,244,307 9,026,376 9,068,714 8,841,170 8,247,036
============ ============ ============ ============ ============
Weighted Average
Shares Outstanding
Assuming Dilution . . . . . 10,126,758 9,026,376 9,944,283 8,841,170 9,541,580
============ ============ ============ ============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL Comprehensive
NUMBER OF $.01 PAR PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS' Income
SHARES VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
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 1,075,838
Translation adjustment . . . . . . . . . - - - - (47,265) (47,265) (47,265)
------------
Comprehensive income for the year ended
June 30, 1996. . . . . . . . . . . . . . $ 1,028,573
============
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) (4,299,978)
Translation adjustment . . . . . . . . . - - - - (80,518) (80,518) (80,518)
------------
Comprehensive loss for the year ended
June 30, 1997. . . . . . . . . . . . . . $(4,380,496)
============
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 1,104,584
Translation adjustment . . . . . . . . . - - - - 43,674 43,674 43,674
------------
Comprehensive income for the six-month
period ended December 31, 1997 . . . . . $ 1,148,258
============
Balance, December 31, 1997 . . . . . . . 9,108,616 91,086 29,339,752 (25,887,525) (47,990) 3,495,323
Exercise of stock options and Employee
Stock Purchase Plan. . . . . . . . . . . 215,791 2,158 366,612 - - 368,770 -
Net income . . . . . . . . . . . . . . . - - - 2,220,128 - 2,220,128 2,220,128
Translation adjustment . . . . . . . . . - - - - (33,714) (33,714) (33,714)
------------
Comprehensive income for the year ended
December 31, 1998. . . . . . . . . . . . $ 2,186,414
============
Balance, December 31, 1998 . . . . . . . 9,324,407 $93,244 $29,706,364 $(23,667,397) $(81,704) $ 6,050,507
============ ======= =========== ============= ========= ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD ENDED
YEARS ENDED DECEMBER 31 DECEMBER 31, YEARS ENDED JUNE 30,
1998 1997 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss). . . . . . . . . . . $ 2,220,128 $(2,128,814) $1,104,584 $(4,299,978) $ 1,075,838
Adjustments to reconcile net
income (loss) To net cash provided
by (used in) Operating activities,
net of acquisitions-
Depreciation and amortization. . . . . 1,065,421 1,166,749 648,866 1,063,503 1,043,052
Compensation associated with
Issuance of stock options. . . . . . . - 10,000 - 10,000 -
Changes in assets and liabilities-
Accounts and other receivables . . . . (1,845,753) 157,618 (234,522) 643,756 (2,301,420)
Inventories. . . . . . . . . . . . . . (119,115) 282,054 88,580 210,946 (247,446)
Prepaid expenses . . . . . . . . . . . (108,885) 212,048 241,811 (93,886) (172,936)
Accounts payable . . . . . . . . . . . 237,868 (158,596) 206,543 329,822 136,252
Accrued expenses and other
current liabilities. . . . . . . . . . 215,813 367,039 (399,362) (252,499) (754,768)
Deferred revenue . . . . . . . . . . . 497,491 352,207 (54,202) 350,702 (74,285)
------------ ------------ ----------- ------------ ------------
Net cash provided by
(used in) operating
activities. . . . . . . . . . . . . . 2,162,968 260,305 1,602,298 (2,037,634) (1,295,713)
------------ ------------ ----------- ------------ ------------
Cash Flows from Investing Activities:
Decrease in short-term investments . . - - - - 448,618
Purchases of property and equipment. . (624,081) (754,775) (423,711) (780,171) (1,059,263)
(Increase) decrease in other assets. . (474,405) (36,119) (15,579) (56,374) 15,688
Cash acquired from the acroScience
and TriMetrix acquisitions . . . . . . - - - 9,691 27,849
------------ ------------ ----------- ------------ ------------
Net cash used in investing
activities . . . . . . . . . . . . . . (1,098,486) (790,894) (439,290) (826,854) (567,108)
------------ ------------ ----------- ------------ ------------
Cash Flows from Financing Activities:
Payments on long-term debt . . . . . . - - - (16,000) (73,188)
Payments on capital lease
obligations and equipment
financing. . . . . . . . . . . . . . . (641,425) (277,366) (138,901) (132,975) (76,077)
Borrowings on capital lease
obligations and equipment
financing. . . . . . . . . . . . . . . 815,003 649,838 84,432 565,406 -
Proceeds from exercise of stock
options, warrants and Employee
Stock Purchase Plan. . . . . . . . . . 368,770 320,169 178,939 376,548 586,975
Net proceeds from sale of
common stock . . . . . . . . . . . . . - - - - 2,940,463
------------ ------------ ----------- ------------ ------------
Net cash provided by
Financing activities . . . . . . . . . 542,348 692,641 124,470 792,979 3,378,173
------------ ------------ ----------- ------------ ------------
Effect of Exchange Rate
Changes on Cash and Cash
Equivalents. . . . . . . . . . . . . . (33,714) 55,391 43,674 (80,518) (47,265)
------------ ------------ ----------- ------------ ------------
Net Increase (Decrease) in Cash
and Cash Equivalents . . . . . . . . . 1,573,116 217,443 1,331,152 (2,152,027) 1,468,087
Cash and Cash Equivalents,
beginning of period. . . . . . . . . . 4,133,541 3,916,098 2,802,389 4,954,416 3,486,329
------------ ------------ ----------- ------------ ------------
Cash and Cash Equivalents,
end of period. . . . . . . . . . . . . $ 5,706,657 $ 4,133,541 $4,133,541 $ 2,802,389 $ 4,954,416
============ ============ =========== ============ ============
Supplemental Disclosure of
Cash Flow Information:
Cash paid during the period for-
Interest . . . . . . . . . . . . . . . $ 85,437 $ 41,068 $ 29,271 $ 14,439 $ 5,519
============ ============ =========== ============ ============
Income taxes . . . . . . . . . . . . . $ 10,000 $ 10,511 $ 2,981 $ 7,530 $ 49,220
============ ============ =========== ============ ============
<FN>
Supplemental Disclosure of Noncash Investing and Financing Activities:
The Company financed $83,623 and $63,333 of equipment through capital leases in the six-month period ended
December 31, 1997 and
in the year ended June 30, 1997, respectively.
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, 1998
(Including Data Applicable to Unaudited Period)
(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 in consolidation.
(a) Change In Fiscal Year
On December 16, 1997, the Company changed its fiscal year from June 30 to
December 31. Accordingly, the Company's transition period, which ended on
December 31, 1997, was the six-month period from July 1, 1997 to December 31,
1997. The unaudited consolidated statements of operations and cash flows for
the year ended December 31, 1997 are presented for comparative purposes only.
These unaudited statements, in the opinion of management, include all
adjustments (consisting only of normal and recurring adjustments) necessary for
fair presentation of results for the period.
(b) Revenue Recognition
The Company derives substantially all of its revenue from technical calculation
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 StatSci's products. Maintenance revenue is recognized
ratably over the term of the related contracts generally for one year or less.
Training revenue is recognized as services are performed. 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. Cash equivalents were approximately $4,000,000 and
$1,000,000 as of December 31, 1998 and 1997, respectively, and consisted
primarily of investments in commercial paper.
<PAGE>
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
Raw materials. $ 98,200 $ 44,786
Finished goods 276,120 210,419
------------- -------------
$ 374,320 $ 255,205
============= =============
</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 allocate the cost of the
assets over their estimated useful lives as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
ASSET CLASSIFICATION USEFUL LIVES
Computer equipment and software 3 years
Furniture and fixtures. . . . . 3-5 years
Leasehold improvements. . . . . Life of lease
</TABLE>
Property and equipment under capital leases are amortized over the shorter of
the estimated useful life of three to five years or the term of the lease.
(f) Research and Development
The Company accounts for its software research and development costs in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software To Be Sold, Leased or Otherwise
Marketed. During the year ended December 31, 1998, the six-month period ended
December 31, 1997, and the years ended June 30, 1997 and 1996, the Company
expensed all research and development costs as those costs incurred from
technological feasibility to general release were not material.
<PAGE>
(g) Net Income (Loss) Share
The Company reports earnings per share in accordance with SFAS No. 128, Earnings
per Share. Under SFAS No. 128, basic net income (loss) per common share is
computed based on net income (loss) available to common stockholders and the
weighted average number of common shares outstanding during the period. Diluted
net income (loss) per share is computed based on including the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.
A reconciliation of basic and diluted shares outstanding is as follows:
<TABLE>
<CAPTION>
SIX-MONTH
YEARS ENDED PERIOD ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
1998 1997 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Weighted average shares
outstanding. . . . . . 9,244,307 9,026,376 9,068,714 8,841,170 8,247,036
Effect of dilutive
securities . . . . . . 882,451 - 875,569 - 1,294,544
----------------------- --------- --------- --------- ---------
Weighted average shares
outstanding assuming
dilution . . . . . . . 10,126,758 9,026,376 9,944,283 8,841,170 9,541,580
======================= ========= ========= ========= =========
</TABLE>
The following securities were not included in computing diluted earnings per
share because their effect would be antidilutive:
<TABLE>
<CAPTION>
SIX-MONTH
YEARS ENDED PERIOD ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
1998 1997 1997 1997 1996
(Unaudited)
<S> <C> <C> <C> <C> <C>
Antidilutive securities 255,586 2,872,292 1,996,723 3,001,562 1,073,824
=========== ========= ========= ========= =========
</TABLE>
(h) Postretirement Benefits
The Company has no obligation for postretirement benefits.
<PAGE>
(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
are recognized currently in the statements of operations and were approximately
$20,000 and $277,000 in the years ended December 31, 1998 and December 31, 1997
(unaudited), respectively, $75,000 in the six-month period ended December 31,
1997, and approximately $(257,000) and $(12,000) in the years ended June 30,
1997 and 1996, respectively.
(j) Other Assets
Other assets are comprised primarily of purchased technology and intangible
assets. Purchased technology of $3,008,765 was fully amortized at December 31,
1998 and had accumulated amortization of $2,938,265 at December 31, 1997. Other
assets totaled $488,595 and $97,890, net of accumulated amortization of $98,415
and $7,715 as of December 31, 1998 and 1997, respectively. During 1998, the
Company purchased intangible assets for approximately $382,000 and this amount
is included in other assets and is being amortized over 36 months.
The Company assesses the realizability of its long-lived assets in accordance
with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of. Under SFAS No. 121, the Company is
required to assess the valuation of its long-lived assets, including intangible
assets, based on the estimated cash flows to be generated by such assets. Based
on its most recent analysis, the Company believes that no material impairment of
intangible assets exists as of December 31, 1998.
(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 has not experienced significant losses
related to accounts receivable from any individual customers or groups of
customers in any specific industry or geographic area.
During the year ended December 31, 1998 and the six-month period ended December
31, 1997, one customer accounted for 13% and 12% of net revenues, respectively.
One customer accounted for 14% and 12% of net revenues in the years ended June
30, 1997 and 1996, respectively. As of December 31, 1998 the Company had one
customer that accounted for 12% of accounts receivable. As of December 31,
1997, the Company had two customers that individually accounted for 17% and 11%
of accounts receivable.
(l) Use of Estimates and Uncertainities
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.
The Company is subject to a number of risks and uncertainties similar to those
of other companies of the same size within its industry, including, without
limitation, rapid technological change, competition, and reliance on attracting
and retaining key employees.
(m) 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.
(n) New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999. The Company
does not expect the adoption of this statement to have a material impact on its
consolidated financial position or results of operations.
(2) Unaudited Comparative Results
The following unaudited financial information for the six-month period ended
December 31, 1996 is presented to provide comparative results for the transition
period, included in the accompanying statement of operations.
<TABLE>
<CAPTION>
<S> <C>
SIX-MONTH
PERIOD ENDED
DECEMBER 31,
1996
(Unaudited)
Total revenues. . . . . . . . . . . . $ 9,478,193
Gross profit. . . . . . . . . . . . . 7,495,377
Loss from operations. . . . . . . . . (1,130,721)
Interest income, net. . . . . . . . . 79,723
--------------
Loss before provision for income
taxes. . . . . . . . . . . . . . . . (1,050,998)
Provision for income taxes. . . . . . 15,582
--------------
Net loss. . . . . . . . . . . . . . . $ (1,066,580)
==============
Basic and diluted net loss per share. $ (.12)
==============
Weighted average number of shares
outstanding . . . . . . . . . . 8,693,148
==============
</TABLE>
(3) 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.
<PAGE>
The components of domestic and foreign income (loss) before the provision for
income taxes are as follows:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD
ENDED ENDED
DEC 31, DEC 31, YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C>
1998 1997 1997 1996
Domestic $1,706,031 $ 633,233 $(4,011,290) $ 325,215
Foreign. 536,976 489,137 (244,236) 799,623
---------- ---------- ------------ ----------
$2,243,007 $1,122,370 $(4,255,526) $1,124,838
========== ========== ============ ==========
</TABLE>
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD
ENDED ENDED
DEC 31, DEC 31, YEARS ENDED JUNE 30,
<S> <C> <C> <C> <C>
1998 1997 1997 1996
Current tax expense-
Federal . . . . . . . $ 763,000 $ 381,000 $ - $ 340,000
State . . . . . . . . 135,000 67,000 - 63,000
Foreign . . . . . . . 22,879 17,785 44,452 49,000
Deferred tax benefit-
Federal . . . . . . . (763,000) (381,000) - (340,000)
State . . . . . . . . (135,000) (67,000) - (63,000)
---------- ---------- ------- ----------
$ 22,879 $ 17,785 $44,452 $ 49,000
========== ========== ======= ==========
</TABLE>
<PAGE>
The significant components of the deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
DECEMBER 31, DECEMBER 31,
1998 1997
Net operating loss
carryforward. . . . . . $ 5,021,000 $ 5,530,000
Research and development
credit carryforwards. . 903,000 711,000
Temporary differences. . 566,000 875,000
-------------- --------------
6,490,000 7,116,000
Valuation allowance. . . (6,490,000) (7,116,000)
-------------- --------------
Net deferred tax asset . $ - $ -
============== ==============
</TABLE>
Due to the uncertainty surrounding the realization of its deferred tax assets,
the Company has recorded a full valuation allowance against its deferred tax
assets.
At December 31, 1998, the Company has utilized approximately $3,855,000 of net
operating loss carryforwards and has available net operating loss carryforwards
of approximately $14,767,000 and tax credit carryforwards of approximately
$903,000. 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, 2013. 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.
(4) Equipment Financing and Capital Leases
During 1998, the Company entered into several financing arrangements for the
purchase of fixed assets totaling $815,000, of which $511,929 were equipment
lease financing arrangements and the remaining were capital leases. All of the
financing arrangements are payable in 24 equal monthly payments of principal
plus interest ranging from 10.1% to 10.7%.
<PAGE>
The Company leases certain equipment under capital leases expiring through
fiscal 2002. Future minimum payments as of December 31, 1998 under these leases
and financing arrangements are as follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1999. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 522,851
2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133,968
2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,781
2002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,133
-------------------------
Total minimum lease and financing payments. . . . . . . . . . . 671,733
Less-Amount representing interest . . . . . . . . . . . . . . . 50,315
-------------------------
Present value of minimum lease and financing payments . . . . . 621,418
Less-Current portion of capital leases and equipment financing. 482,004
-------------------------
139,414
==========================
</TABLE>
(5) 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. On November 30, 1998, the Company renewed the
lease for a period of five years ending October 2004. 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 2004, are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
GROSS SUBLEASE NET
OPERATING RENTAL OPERATING
LEASES RECEIPTS LEASES
Year ending December 31,
1999. . . . . . . . . . . . . $ 956,000 $(133,000) $ 823,000
2000. . . . . . . . . . . . . 416,000 - 416,000
2001. . . . . . . . . . . . . 353,000 - 353,000
2002. . . . . . . . . . . . . 350,000 - 350,000
2003 and thereafter . . . . 613,000 - 613,000
------------------------- ---------- ----------
Total future lease payments $ 2,688,000 $(133,000) $2,555,000
========================= ========== ==========
</TABLE>
<PAGE>
Rental expense under the Company's operating leases was approximately $793,000
and $786,000 for the years ended December 31, 1998 and December 31, 1997
(unaudited), respectively, $430,000 for the six-month period ended December 31,
1997 and approximately $723,000 and $707,000 for the years ended June 30, 1997
and 1996, respectively.
(6) Stockholders' Equity
(a) Stock Option Plans
The Company has a stock option plan that was adopted in 1992 (the 1992 Plan)
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. At December 31,
1998 the Company had 101,379 options available for future grant under the 1992
Plan.
The Company has a 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.
The Company has a 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 is 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 is not transferable.
<PAGE>
As of December 31, 1998, 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 Employee, and
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, 1997 and 1998, and the
six months ended December 31, 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. There were no grants to nonemployees for the year ended December 31,
1998.
The assumptions used and the weighted average information are as follows:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
YEAR ENDED ENDED YEARS ENDED
DEC 31, DEC 31 JUNE 30,
1998 1997 1997 1996
<S> <C> <C> <C> <C>
Risk-free interest rates. . . . . . . . . 4.53%-5.67% 5.95%-6.61% 6.00%-6.74% 5.61%-6.74%
Expected dividend yield . . . . . . . . . None None None None
Expected lives. . . . . . . . . . . . . . 5 years 5 years 5 years 5 years
Expected volatility . . . . . . . . . . . 77% 70% 70% 70%
Weighted average grant-date fair value of
options granted during the period. . . $ 1.67 $ 2.50 $ 1.62 $ 2.35
Weighted average remaining contractual
life of options outstanding. . . . . . 7.16 years 7.76 years 5.10 years 5.53 years
</TABLE>
<PAGE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
SIX-MONTH
PERIOD
YEAR ENDED ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
1998 1997 1997 1996
<S> <C> <C> <C> <C>
Net income (loss)
as reported . . . . . . $2,220,128 $1,104,584 $(4,299,978) $$1,075,838
========== ========== ============ ===========
Pro forma net
income (loss). . . . . $1,271,140 $ 706,565 $(4,880,616) $ 622,956
========== ========== ============ ===========
Basic income (loss)
per share as reported. $ .24 $ .12 $ (.49) $ .13
========== ========== ============ ===========
Diluted net income (loss)
per share as reported. . . . $ .22 $ .11 $ (.49) $ .11
========== ========== ============ ===========
Pro forma basic net income
(loss) per share. . . . . . $ .14 $ .08 $ (.55) $ .07
========== ========== ============ ============
Pro forma diluted net
income (loss) per share . . $ .13 $ .07 $ (.55) $ .06
========== ========== ============ ===========
</TABLE>
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.
<PAGE>
The Company's stock option activity for all plans is as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
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
Granted. . . . . . . . . . . . . 721,150 2.67
Exercised. . . . . . . . . . . . (161,278) 1.56
Canceled . . . . . . . . . . . . (183,658) 3.30
---------- ---------------
Outstanding at December 31,1998. 3,248,506 $ 2.43
========== ===============
Exercisable at December 31, 1998 1,847,454 $ 2.21
========== ===============
</TABLE>
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
<C> <S> <C> <C> <C> <C> <C> <C>
WEIGHTED . . WEIGHTED
AVERAGE . . WEIGHTED AVERAGE WEIGHTED
NUMBER OF. . . REMAINING AVERAGE NUMBER OF REMAINING AVERAGE
RANGE OF . . . OPTIONS CONTRACTUAL OPTION OPTIONS CONTRACTUAL OPTION
OPTION PRICES OUTSTANDING LIFE PRICE EXERCISABLE LIFE PRICE
1.00 - 2.03 947,862. . . 5.72 years 1.65 865,112 5.34 years 1.63
2.25 - 4.00 2,158,358. . 7.79 years 2.57 906,056 7.42 years 2.48
5.13 - 6.38 142,286 . . . 7.26 years 5.52 76,286 7.13 years 5.58
-------------- ----------
3,248,506 7.16 years . . 2.43 1,847,454 6.43 years 2.21
============= ===========
</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 year ended December 31, 1998 and the
six-month period ended December 31, 1997, the Company issued 54,513 and 23,470
shares under the Plan, respectively. During the years ended June 30, 1997 and
1996, the Company issued 28,463, and 13,065, shares, respectively, under the
Plan.
(7) Geographic Data
Revenues by geographic area were as follows (in thousands):
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD
ENDED ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
GEOGRAPHIC AREA 1998 1997 1997 1996
<S> <C> <C> <C> <C>
United States and
Canada. . . . $ 17,549 $ 9,177 $11,661 $14,011
United Kingdom 1,640 977 1,675 1,152
Germany. . . . 813 625 648 1,264
Japan. . . . . 768 442 849 1,056
Other. . . . . 3,677 1,803 2,845 3,284
------------------ ------- ------- -------
$ 24,447 $13,024 $17,678 $20,767
================== ======= ======= =======
</TABLE>
<PAGE>
(8) Segment Reporting
The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information, during the fourth quarter of 1998. SFAS No. 131
established standards for reporting information about operating segments in
annual financial statements and requires selected information about operating
segments in interim financial reports issued to stockholders. It also
established standards for related disclosures about products and services, and
geographic areas. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision, or decision making group, in deciding
how to allocate resources and in assessing performance. MathSoft's chief
operating decision making group consists of the Chief Executive Officer, members
of Senior Management and the Board of Directors. The operating segments are
managed separately because each represents a specific type of software
productivity tools for a specific market.
MathSoft's reportable operating segments include the Technical Calculation
Software Product line and the Data Analysis Software Product line. Revenues for
Technical Calculation Software Products are derived from sales of Mathcad,
Electronic Books, Extension Packs and StudyWorks. Revenues from the Data
Analysis Software Product line include S-PLUS licenses, maintenance and
consulting services, add-on modules and StatServer.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. MathSoft evaluates performance
based on stand-alone operating segment net income. Revenues are attributed to
geographic areas based on where the end customer is located (see Note 7).
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD
ENDED ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
1998 1997 1997 1996
(In thousands)
<S> <C> <C> <C> <C>
Segment Revenues:
Technical Calculation Software Products. $ 15,604 $ 8,776 $11,850 $14,632
Data Analysis Software Products. . . . . 8,843 4,248 5,828 6,135
------------------- -------- -------- -------
Total net revenues . . . . . . . . . . . $ 24,447 $13,024 $17,678 $20,767
=================== ======== ======== =======
Segment Income (Loss)
Technical Calculation Software Products. $ 2,366 $ 1,353 $(1,753) $ 698
Data Analysis Software Products. . . . . (146) (248) (2,547) 378
------------------- -------- -------- -------
Total net income (loss). . . . . . . . . $ 2,220 $ 1,105 $(4,300) $ 1,076
=================== ======== ======== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIX-MONTH
YEAR PERIOD
ENDED ENDED YEARS ENDED
DEC 31, DEC 31, JUNE 30,
1998 1997 1997 1996
(In thousands)
<S> <C> <C> <C> <C>
Segment Assets:
Technical Calculation Software Products. . $ 14,798 $12,125 $11,201 $14,762
Data Analysis Software Products. . . . . . 4,074 3,067 2,965 3,086
Eliminations . . . . . . . . . . . . . . . (5,380) (5,380) (5,380) (5,949)
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 13,492 $ 9,812 $ 8,786 $11,899
================= ======== ======== ========
Segment Expenditures to Acquire Long-Lived
Assets:
Technical Calculation Software Products. . $ 436 $ 232 $ 440 $ 605
Data Analysis Software Products. . . . . . 662 207 397 454
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 1,098 $ 439 $ 837 $ 1,059
================= ======== ======== ========
Segment Interest Income:
Technical Calculation Software Products. . $ 168 $ 50 $ 147 $ 193
Data Analysis Software Products. . . . . . - - 6 6
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 168 $ 50 $ 153 $ 199
================= ======== ======== ========
Segment Interest Expense:
Technical Calculation Software Products. . $ 50 $ 18 $ 11 $ -
Data Analysis Software Products. . . . . . 36 11 3 7
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 86 $ 29 $ 14 $ 7
================= ======== ======== ========
Segment Income Tax Expense:
Technical Calculation Software Products. . $ 23 $ 18 $ 44 $ 49
Data Analysis Software Products. . . . . . - - - -
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 23 $ 18 $ 44 $ 49
================= ======== ======== ========
Segment Depreciation and Amortization:
Technical Calculation Software Products. . $ 584 $ 396 $ 667 $ 666
Data Analysis Software Products. . . . . . 481 253 397 377
----------------- -------- -------- --------
Total. . . . . . . . . . . . . . . . . . . $ 1,065 $ 649 $ 1,064 $ 1,043
================= ======== ======== ========
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998
(Including Data Applicable to Unaudited Period)
(Continued)
F-31
(9) Accrued Expenses and other Current Liabilites
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DEC 31, DEC 31,
1998 1997
<S> <C> <C>
Accrued payroll and payroll-related items $1,196,616 $ 639,320
Accrued vacation. . . . . . . . . . . . . 440,676 371,420
Accrued royalties . . . . . . . . . . . . 178,918 183,886
Other accrued expenses. . . . . . . . . . 636,262 1,042,029
---------- ----------
$2,452,472 $2,236,655
========== ==========
</TABLE>
(10) 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 receivable, as defined, or $1,000,000. Interest on
outstanding borrowings under this line is based on the bank's prime rate (7.75%
at December 31, 1998) plus 1%. The Company had no outstanding borrowings under
this line of credit as of December 31, 1998. 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 was extended during December 1998 and was renewed on February
24, 1999. Under the renewal, borrowings are limited to the lesser of 80% of
eligible domestic accounts receivable, as defined, or $2,000,000. Interest on
outstanding borrowings is based on the bank's prime rate plus .5%.
<PAGE>
Exhibit 10.23
AMENDED AND RESTATED EXECUTIVE AGREEMENT
---------------------------------------
AMENDED AND RESTATED EXECUTIVE AGREEMENT, dated as of November 23, 1998, by
and between MathSoft, Inc. (the "Company") and Charles J. Digate (the
"Executive").
WHEREAS, the Company and the Executive wish to amend and restate their
agreement dated July 28, 1997;
WHEREAS, the Executive continues to be the President and Chief Executive
Officer of the Company and has made and is expected to continue to make major
contributions to the Company;
WHEREAS, the Company desires continuity of management; and
WHEREAS, the Executive is willing to continue to render services to the
Company subject to the conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the Executive agree
as follows:
1. TERM OF EMPLOYMENT. This Agreement shall be for an initial term of
-------------------
two (2) years. Upon the second anniversary of the date of this Agreement (and
upon each successive anniversary thereafter), this Agreement shall be
automatically renewed for an additional one (1) year term, unless either party
hereto notifies the other in writing of its intent not to renew this Agreement
upon not less than ninety (90) days notice prior to the end of the then-current
term. In the event either party gives the other proper notice of non-renewal,
then this Agreement shall only continue for the balance of the then existing
term. Notwithstanding anything contained herein to the contrary, any term of
employment may be earlier terminated as provided in Sections 3, 5, and 7 hereof.
2. SALARY.
------
(a) As compensation for the services rendered by the Executive under
this Agreement, the Company shall pay to the Executive an annual salary equal to
the amount for the current fiscal year as listed on Exhibit A under the heading
---------
"Salary" (which may be amended or supplemented in writing by the parties from
time to time), payable to the Executive in accordance with the Company's payroll
practices in effect from time to time. The Compensation Committee of the Board
of Directors of the Company shall review the Executive's salary not less
frequently than annually.
(b) In addition, the Executive shall be eligible to earn a target bonus
(the "Target Annual Bonus") equal to the amount for the current fiscal year as
listed on Exhibit A under the heading "Target Annual Bonus" based upon the
----------
Company's achievement of the Annual Diluted Net Income Per Share Plan approved
by the Compensation Committee of the Board of Directors of the Company for such
fiscal year (subject to downward adjustment, or upward adjustment to an amount
not to exceed the amount identified on Exhibit A under the heading "Maximum
---------
Annual Bonus", based on the Company's achievement of the Annual Diluted Net
Income Per Share Plan for such fiscal year), plus such additional bonus payments
based on specific objectives as may be agreed upon between the Executive and the
Compensation Committee of the Board of Directors of the Company from time to
time. Any bonus, if earned, shall be payable to the Executive in accordance with
the Company's payroll practices in effect from time to time.
3. NOTICE OF VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive
----------------------------------------------------
agrees to provide the Board of Directors of the Company with three months
advance written notice of his intention to terminate his employment with the
Company; provided, however, that the Executive is not required to provide any
notice if such termination is pursuant to Sections 6(b) and/or 7.
4. MEMBERSHIP ON THE BOARD OF DIRECTORS. After any termination of the
-------------------------------------
Executive's employment with the Company, the Company may request that the
Executive serve as a non-executive member of the Board of Directors of the
Company. If the Executive agrees to serve in such a capacity following the
termination of his employment, the Executive shall be considered as maintaining
a "business relationship" with the Company during such period of service, and
any installments of any stock options held by the Executive on the termination
of his employment that are not exercisable and have not expired shall continue
to become exercisable in accordance with the terms of the relevant option
agreements and option plans during such period of service. When the Executive
ceases to be a non-executive member of the Board of Directors, he shall have
three years to exercise any then-exercisable, unexpired installments of any
stock options held by the Executive on the Executive's last date of service on
the Board of Directors.
5. TERMINATION PRIOR TO A CHANGE OF CONTROL. If, prior to a "Change of
----------------------------------------
Control" (as such term is defined in Section 8(c) below), the Company terminates
the Executive's employment with the Company (i) without "Cause" (as such term is
defined in Section 8(d) below) or (ii) by electing not to renew this Agreement
pursuant to Section 1, the Company shall:
(a) Continue to pay to the Executive, in accordance with the Company's
normal payroll practices and policies in effect from time to time (including any
required withholding), the Executive's base salary (at the monthly base salary
rate in effect for such Executive immediately prior to the termination of his
employment) for eighteen (18) months following the termination of the
Executive's employment; provided, however, that the Company shall not be
obligated to make any payments pursuant to this Section 5(a) during any period
in which the Executive is in violation of the terms of his Confidential
Information, Inventions and Non-Competition Agreement with the Company.
(b) Provide the Executive with health insurance substantially similar
to that which the Executive was receiving immediately prior to the termination
of his employment until the earlier of: (i) the date which is eighteen (18)
months following the termination of the Executive's employment; or (ii) the date
the Executive begins receiving substantially similar insurance from a subsequent
employer.
(c) Provide that the Executive shall have three years to exercise any
then-exercisable, unexpired installments of any stock options held by the
Executive on the Executive's last date of employment or if later, the date when
the Executive ceases to be a member of the Board of Directors of the Company.
6. CHANGE OF CONTROL. (a) Upon a Change of Control, and if the
-------------------
Executive is an employee of the Company at the time of such Change of Control,
the Company shall cause half of any unexercisable installments of any stock
options held by the Executive on the Change of Control that have not expired to
become exercisable on the Change of Control; provided, however, that such
acceleration of exercisability shall not occur to the extent that: (A) the
Change of Control is intended to be accounted for as a pooling of interests; and
(B) the Company concludes, after consulting with its independent accountants,
that such acceleration would prevent the Change of Control transaction from
being accounted for as a pooling of interests for financial accounting purposes.
(b) Following a Change of Control, (i) if the Executive is terminated
by the Company without Cause, (ii) if the Executive remains employed with the
Company through the ninety-first day after such Change of Control, or (iii) if
the Executive terminates his employment for "Good Reason" (as such term is
defined in Section 7(b) below) and the Executive provides mutually agreeable
consulting services through the ninety-first day after such Change of Control
the Company shall pay to the Executive a lump sum amount (net of any required
withholding) equal to $250,000 (the "Retention Bonus") payable upon the date the
Executive is terminated or the Executive's ninety-first day of employment
following the Change of Control, whichever is earlier.
7. TERMINATION FOLLOWING A CHANGE OF CONTROL.
----------------------------------------------
(a) If, at any time after a Change in Control, the Company terminates
the Executive's employment without Cause or the Executive terminates his
employment with the Company for "Good Reason" (as such term is defined in
Section 7(b) below) (the "Termination Date"), the Company shall:
(1) Subject to Section 7(c) below, continue to pay to the Executive, in
accordance with the Company's normal payroll practices and policies in effect
from time to time (including any required withholding), (i) the Executive's
current base salary (at the monthly base salary rate in effect for such
Executive immediately prior to the termination of his employment) for eighteen
(18) months following the Termination Date and (ii) one hundred fifty percent
(150%) of the Executive's bonus (which shall be the greater of (A) the Target
Bonus set by the Company's Board of Directors for the fiscal year in which the
termination of employment occurred and (B) the actual amount of all bonuses paid
or payable in respect of the preceding fiscal year) paid ratably on a monthly
basis during the eighteen (18) months following the Termination Date
(collectively, the "Severance Payments").
(2) Pay to the Executive a lump sum amount (net of any required
withholding) within thirty (30) days following the termination of his
employment, determined as follows: (i) for each full calendar quarter during
which Executive was employed by the Company that has elapsed since January 1st
of the year in which his employment terminated, the total of each applicable
amount(s) specified on Exhibit A attached hereto under the heading "Quarterly
---------
Diluted Net Income Per Share-Based Bonus Amount"; provided, however, that the
amounts described in this clause (i) shall only be payable if the Company
achieved the relevant portion of the Quarterly Diluted Net Income Per Share Plan
approved by the Compensation Committee of the Board of Directors for each of
such quarters and (ii) for any partial calendar quarter during which the
Executive was employed by the Company that has elapsed since the end of the last
full fiscal quarter ending prior to the date the Executive's employment was
terminated, a pro rated portion of the amount specified on Exhibit A hereto
---------
under the heading "Quarterly Diluted Net Income Per Share-Based Bonus Amount"
for such quarter equal to the number of days during such quarter that the
Executive was employed by the Company divided by 90, multiplied by the
applicable Quarterly Diluted Net Income Per Share-Based Bonus Amount.
(3) Provide the Executive with health insurance substantially similar
to that which the Executive was receiving immediately prior to the Termination
Date until the earlier of: (i) the date which is eighteen (18) months following
the Termination Date; or (ii) the date the Executive begins receiving
substantially similar health insurance from a subsequent employer.
(4) Provide the Executive not more than $20,000 of outplacement
services annually from an outplacement company selected by the Company, with
such services to extend until the two-year anniversary of the Termination Date.
(5) Provide that the Executive shall have three years to exercise any
then-exercisable, unexpired installments of any stock options held by the
Executive on the Executive's last date of employment or, if later, the date when
the Executive ceases to be a member of the Board of Directors of the Company.
(b) For purposes of Sections 6 and 7, "Good Reason" shall mean the
occurrence of one or more of the following events following a Change of Control:
(i) the assignment to the Executive of any duties inconsistent with his
position, authority, duties or responsibilities immediately prior to the Change
of Control or any other action by the Company which results in a diminution in
such position, authority, duties or responsibilities; (ii) a reduction in the
aggregate of the Executive's base or incentive compensation or the termination
of the Executive's rights to any employee benefits immediately prior to the
Change of Control, except to the extent any such benefit is replaced with a
substantially similar benefit, or a reduction in scope or value thereof; or
(iii) a relocation of the Executive's place of business which results in the
one-way commuting distance for the Executive increasing by more than 40 miles
from the location thereof immediately prior to the Change of Control (provided,
--------
however, that travel consistent with past practices for business purposes shall
- - -------
not be considered "commuting" for purposes of this clause (iii)); or (iv) a
failure by the Company to obtain the agreement referenced in Section 8(f).
(c) If the Executive finds employment with a subsequent employer or
becomes self-employed after the Termination Date (a "Reemployment Event"), then
the Severance Payments shall be paid in full for the first six (6) months
following the Termination Date and then shall be reduced by fifty percent (50%)
for the remaining twelve (12) months or for that shorter portion of such twelve
(12) month period following the date of the Reemployment Event. For purposes of
this Section 7(c), when determining whether a Reemployment Event has occurred,
employment or self-employment (including ad hoc or temporary assignments) for
which the Executive receives remuneration in any year in an aggregate amount
(including remuneration received from all such employment or self-employment
during such year) which does not exceed 50% of the Executive's base salary rate
with the Company at the time of his termination, shall be excluded.
8. GENERAL.
-------
(a) Notwithstanding anything else to the contrary herein: (i) the
Company's obligation to provide any of the amounts and benefits set forth in
this Agreement shall be subject to, and conditioned upon, the Executive's
execution of a full release of claims satisfactory to the Company releasing the
Company and its affiliates, subsidiaries, divisions, directors, employees and
agents from any claims arising from or related to the Executive's employment or
severance from employment with the Company, including any claims arising from
this Agreement, such release to be substantially in the form of Exhibit B hereto
---------
(the "Release"); (ii) the Company shall not be obligated to provide any of the
amounts and benefits set forth in this Agreement until any applicable period
within which the Executive may revoke the Release has expired; and (iii) any
amounts and benefits set forth in this Agreement shall be reduced by any and all
other severance or other amounts or benefits paid or payable to the Executive as
a result of the termination of his employment.
(b) In the event the Executive's employment with the Company is
terminated by the Company for any reason other than without Cause, or the
Executive terminates his employment with the Company for any reason other than
Good Reason, the Executive shall not be entitled to any severance benefits or
other considerations described herein.
(c) For purposes of this Agreement, "Change of Control" shall mean the
closing of: (i) a merger, consolidation, liquidation or reorganization of the
Company, with or without its wholly-owned subsidiary, Statistical Sciences, Inc.
("StatSci"), into or with another company or other legal person, after which
merger, consolidation, liquidation or reorganization the capital stock of the
Company outstanding prior to consummation of the transaction is not converted
into or exchanged for or does not represent more than 50% of the aggregate
voting power of the surviving or resulting entity; (ii) the direct or indirect
acquisition by any person (as the term "person" is used in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934, as amended) of more than 50% of
the voting capital stock of the Company, which may or may not include the voting
capital stock of StatSci, in a single or series of related transactions; or
(iii) the sale, exchange, or transfer of all or substantially all of the
Company's assets, which may or may not include StatSci's assets, (other than a
sale, exchange or transfer to one or more entities where the stockholders of the
Company immediately before such sale, exchange or transfer retain, directly or
indirectly, at least a majority of the beneficial interest in the voting stock
of the entities to which the assets were transferred).
(d) For purposes of this Agreement, "Cause" shall mean: (i) the
commission of the Executive of a felony, either in connection with the
performance of his obligations to the Company or which adversely affects the
Executive's ability to perform such obligations; (ii) gross negligence,
dishonesty or breach of fiduciary duty; or (iii) the commission by the Executive
of an act of fraud or embezzlement which results in loss, damage or injury to
the Company, whether directly or indirectly.
(e) Notwithstanding anything to the contrary in this Agreement, if the
Company determines in its sole discretion after consultation with its tax and
accounting advisors that the Executive is a Disqualified Individual (as defined
in Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"))
and that any portion of any payment or distribution by the Company to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise (a "Payment")
would be an Excess Parachute Payment (as defined in Section 280G of the Code)
but for the application of this sentence, then the amount of all such Payments
otherwise payable to the Executive pursuant to this Agreement shall be reduced
to the minimum extent necessary (but in no event to less than zero) so that no
portion of any Payment, as so reduced, constitutes an Excess Parachute Payment.
For purposes of this reduction, no portion of any Payment shall be taken into
account to the extent that such Payment, in the opinion of the Company, after
consultation with its tax and accounting advisors, does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the Code.
(f) Except as otherwise provided herein, this Agreement shall be
binding upon and inure to the benefit of the Company and any successor (whether
direct or indirect, by purchase, merger, consolidation, reorganization or
otherwise) of the Company; provided, however, that the Company shall obtain the
-------- -------
written agreement of any successor (whether direct or indirect, by purchase,
merger, consolidation, reorganization or otherwise) of the Company to be bound
by the provisions of this Agreement as if such successor were the Company and
for purposes of this Agreement, any such successor of the Company shall be
deemed to be the "Company" for all purposes.
(g) Nothing in this Agreement shall create any obligation on the part
of the Company or any other person to continue the employment of the Executive.
If the Executive elects to receive the severance and benefits set forth in this
Agreement by executing the Release, the Executive shall not be entitled to any
other salary continuation, severance or other termination benefits in the event
of his cessation of employment with the Company.
(h) Nothing herein shall affect the Executive's obligations under any
key employee, non-competition, confidentiality, option or similar agreement
between the Company and the Executive currently in effect or which may be
entered into in the future.
(i) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts. This Agreement constitutes
the entire Agreement between the Executive and the Company concerning the
subject matter hereof and supersedes any prior negotiations, understandings or
agreements concerning the subject matter hereof, whether oral or written, and
may be amended or rescinded only upon the written consent of the Company and the
Executive. The invalidity or unenforceability of any provision of this
Agreement shall not affect the other provisions of this Agreement and this
Agreement shall be construed and reformed to the fullest extent possible. The
Executive may not assign any of his rights or obligations under this Agreement;
the rights and obligations of the Company under this Agreement shall inure to
the benefit of, and shall be binding upon, the successors and assigns of the
Company. This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
The Company:
- - ------------
MATHSOFT, INC.
By: /s Robert P. Orlando
----------------------
Name: Robert P. Orlando
-------------------
Title: VP Finance and Administration, CFO
--------------------------------------
The Executive:
- - --------------
/s/ Charles J. Digate
- - ----------------------
Charles J. Digate
<PAGE>
Exhibit 10.24
AMENDMENT NO. 1 TO AGREEMENT OF LEASE
-------------------------------------
THIS AMENDMENT TO AGREEMENT OF LEASE, made as of the 23rd day of October,
1998, between RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint
venture (hereinafter referred to as "Landlord") and MATHSOFT, INC., a
Massachusetts corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
----------------
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease dated as
of August 17, 1993 for 11,212 rentable square feet on the 15th floor and 23,350
rentable square feet on the 16th floor of the building commonly known as and
numbered 101 Main Street, Cambridge, Massachusetts (hereinafter referred to as
the "Lease"); and
WHEREAS, the par-ties hereto wish to amend the Lease as set forth herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, it is
agreed as follows:
1. Unless the context otherwise requires, all capitalized terms used
herein shall have
the same meaning as set forth in the Lease.
2. Effective as of the last day of the initial Tern of this Lease (October
14, 1999) the
fifteenth (15th) floor of the Building shown on the plan attached hereto as
Exhibit A-1
and made a part hereof consisting of 11,212 square feet of rentable space
(hereinafter referred to as the "Eliminated I-Cube Fifteenth Floor Space") shall
cease to constitute a part of the Demised Premises.
3. Effective upon execution of this Amendment, reference to the Demised
Premises in Section 3.3 of the Lease shall mean the Demised Premises, exclusive
of the Eliminated I-Cube Fifteenth Floor Space.
4. From and after October 14, 1999, solely with respect to the Eliminated
I-Cube
Fifteenth Floor Space, Landlord and Tenant do hereby mutually release each other
(and their respective employees, officers, directors, owners, subsidiaries and
affiliates, collectively, the "Related Parties") from all claims, costs and
demands
and causes of actions arising out of and in connection with the Lease with
respect
to the Eliminated I-Cube Fifteenth Floor Space, except that nothing herein
contained shall be deemed to constitute a release or discharge of Landlord or
Tenant, as the case may be, or the Related Parties, with respect to any
obligation
or liability incurred by Landlord or Tenant under the Lease with respect to the
Eliminated I-Cube Fifteenth Floor Space which is outstanding and unsatisfied on
October 14, 1999.
<PAGE>
5. From and after October 14, 1999 (except as set forth in paragraph
numbered 3
above), the Demised Premises under the lease shall be deemed to be the
Demised
Premises, exclusive of the Eliminated I-Cube Fifteenth Floor Space, and
accordingly, the Lease is hereby deemed amended as follows: (i) on October 14,
1999, Tenant's annual base rent shall be adjusted as set forth in Section 3.3 of
the
Lease; and (ii) from and after October 14, 1999, Tenant's proportionate share of
operating expenses and taxes as set forth in Section 6.4 of the Lease, shall be
reduced to 6.86% (23,350/340,240 square feet) and 7.14% (23,350/326,900
square feet), respectively. Further, notwithstanding anything to the contrary
contained herein, Landlord shall properly apportion any charges or credits due
to
or from Tenant under Section 6.2, 6.3 and 6.4 of the Lease based on Tenant's
proportionate share applicable to such period.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument
executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: /s/ Michael P. Sullivan
------------------------
Michael P. Sullivan, Vice President
MATHSOFT, INC.
By: /s/ Robert P. Orlando
---------------------
AMENDMENT NO. 2 TO AGREEMENT OF LEASE
-------------------------------------
THIS AMENDMENT TO AGREEMENT OF LEASE, made as of the 30th day of November,
1998, between RIVERFRONT OFFICE PARK JOINT VENTURE, a Massachusetts joint
venture (hereinafter referred to as "Landlord") and MATHSOFT, INC., a
Massachusetts corporation (hereinafter referred to as "Tenant").
WITNESSETH THAT:
----------------
WHEREAS, Landlord and Tenant are parties to an Agreement of Lease dated as
of
August 17, 1993 for 11,212 rentable square feet on the 15th floor and 23,350
rentable square feet
on the 16th floor of the building commonly known as and numbered 101 Main
Street, Cambridge, Massachusetts, as amended by Amendment No. 1 to Agreement of
Lease dated as of October 23, 1998 (said Agreement of Lease as amended by said
Amendment No. 1 to Agreement of Lease, hereinafter referred to as the "Lease");
and
WHEREAS, the parties hereto wish to further amend the Lease as set forth
herein.
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged by each of the parties hereto, it is
agreed as follows:
1. Unless the context otherwise requires, all capitalized terms used herein
shall have the same meaning as set forth in the Lease.
2. Pursuant to Section 3.3 of the Lease, Tenant has exercised the first of
its two (2)
options to extend the Term of the Lease by an additional five (5) year period.
As
a consequence of the foregoing, the Term of this Lease, which is presently
scheduled to terminate on October 14, 1999, is hereby extended for an additional
five (5) year period ending on October 14, 2004.
3. Effective as of October 15, 1999, Article 1(19) of the Lease shall
be amended to
modify the Yearly Fixed Rent to equal the product of (a) $350,250
(calculated on
the basis of $15.00 per square for the 23,350 rentable square feet constituting
the
Demised Premises, multiplied by (b) a fraction the denominator of which shall be
151.0 (the consumer price index for urban wage earners and clerical workers
(CPI-W), Boston-Brockton-Nashua, MA-NH-ME-CT, all items for the month of
September, 1993) and the numerator of which shall be the consumer price index
for urban wage earners and clerical workers (CPI-W), Boston-Brockton-Nashua,
MA-NH-ME-CT, all items for the month of September, 1999). Promptly,
following publication of the consumer price index for urban wage earners and
clerical workers (CPI-W), Boston-Brockton-Nashua, MA-NH-ME-CT of all items
for the month of September, 1999, Landlord and Tenant shall execute a written
amendment to the Lease setting forth the Yearly Fixed Rent for the five (5) year
extension period as determined as aforesaid.
<PAGE>
4. Effective as of October 15, 1999, Article 1(9) of the Lease is
amended to read in
its entirety as follows:
"(9) Parking Spaces: Seventy (70)."
5. Pursuant to Section 27.6 of the Lease, the Additional Rent for
Parking Spaces
during the renewal Period shall be equal to seventy-five percent (75%) of the
then
prevailing monthly charge for enclosed parking spaces for tenants of other first
class office buildings in the Kendall Square, Cambridge, Massachusetts area.
6. Except as herein expressly modified, the provisions of the Lease are
hereby
confirmed and ratified and shall continue in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this instrument to be
executed under seal, all as of the day and year first above written.
RIVERFRONT OFFICE PARK JOINT VENTURE
By: RIVERFRONT OFFICE PARK ASSOCIATES
By: DARVEL REALTY TRUST
Managing General Partner
By: /s/ Michael P. Sullivan
------------------------
Michael P. Sullivan, Vice President
MATHSOFT, INC.
By: /s/ Robert P. Orlando
----------------------
<PAGE>
Exhibit 10.25
THIRD LOAN MODIFICATION AGREEMENT
This Third Loan Modification Agreement ("this Agreement") is made as of
February 24, 1999 among MathSoft, Inc., a Massachusetts corporation
("MathSoft"), Statistical Sciences, Inc., a Massachusetts corporation
("StatSci") (MathSoft and StatSci being hereinafter referred to collectively as
the "Borrowers" and individually as a "Borrower") and Fleet National Bank (the
"Bank") (the Bank being successor by merger to Fleet Bank of Massachusetts,
N.A.). For good and valuable consideration, receipt and sufficiency of which
are hereby acknowledged, the Borrowers and the Bank act and agree as follows:
1. Reference is made to: (i) that certain letter agreement dated
January 11, 1996 among the Borrowers and Fleet Bank of Massachusetts, N.A., the
Bank having succeeded to the rights of Fleet Bank of Massachusetts, N.A.
thereunder, as modified and amended, among other things, by that certain Loan
Modification Agreement dated as of February 14, 1997 and by that certain Second
Loan Modification Agreement dated as of September 25, 1997 (as so modified and
amended, the "Letter Agreement"); (ii) that certain $1,000,000 face principal
amount promissory note dated September 25, 1997 (the "1997 Revolving Note") made
jointly and severally by the Borrowers and payable to the order of the Bank;
(iii) that certain Inventory, Accounts Receivable and Intangibles Security
Agreement dated January 11, 1996, as amended (as so amended, the "MathSoft IAR
Security Agreement") given by MathSoft to Fleet Bank of Massachusetts, N.A., the
Bank having succeeded to the rights of Fleet Bank of Massachusetts, N.A.
thereunder; (iv) that certain Supplementary Security Agreement - Security
Interest in Goods and Chattels dated January 11, 1996, as amended (as so
amended, the "MathSoft Supplementary Security Agreement") given by MathSoft to
Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the rights of
Fleet Bank of Massachusetts, N.A. thereunder; (v) that certain Inventory,
Accounts Receivable and Intangibles Security Agreement dated January 11, 1996,
as amended (as so amended, the "StatSci Security Agreement") given by StatSci to
Fleet Bank of Massachusetts, N.A., the Bank having succeeded to the rights of
Fleet Bank of Massachusetts, N.A. thereunder; (vi) that certain Supplementary
Security Agreement - Security Interest in Goods and Chattels dated January 11,
1996, as amended (as so amended, the "StatSci Supplementary Security Agreement")
given by StatSci to Fleet Bank of Massachusetts, N.A., the Bank having succeeded
to the rights of Fleet Bank of Massachusetts, N.A. thereunder; (vii) that
certain Assignment of Trademarks as Security dated January 19, 1996, as amended
(as so amended, the "Trademark Assignment") given by MathSoft to Fleet Bank of
Massachusetts, N.A., the Bank having succeeded to the rights of Fleet Bank of
Massachusetts, N.A. thereunder; (viii) that certain Assignment of Patents as
Security dated January 19, 1996, as amended (as so amended, the "Patent
Assignment") given by MathSoft to Fleet Bank of Massachusetts, N.A., the Bank
having succeeded to the rights of Fleet Bank of Massachusetts, N.A. thereunder;
and (ix) that certain $2,000,000 face principal amount promissory note of even
date herewith (the "1999 Revolving Note") made jointly and severally by the
Borrowers and payable to the order of the Bank. The Letter Agreement, the
MathSoft IAR Security Agreement, the MathSoft Supplementary Security Agreement,
the StatSci IAR Security Agreement, the StatSci Supplementary Security
Agreement, the Trademark Assignment, the Patent Assignment and the 1999
Revolving Note are hereinafter collectively referred to as the "Financing
Documents". The aforesaid Loan Modification Agreement dated as of February 14,
1997 is hereinafter referred to as the "First Modification" and the aforesaid
Second Loan Modification Agreement dated as of September 25, 1997 is hereinafter
referred to as the "Second Modification".
2. The Letter Agreement is hereby amended, effective as of the date
hereof:
a. By deleting in its entirety clause (i) of Section 1.1 of the Letter
Agreement and by substituting in its stead the following:
"(i) that certain $2,000,000 face principal amount promissory note (the
'Revolving Note') dated February 24, 1999 made jointly and severally by the
Borrowers and payable to the order of the Bank,"
As a result, all references in the Letter Agreement to a "Revolving Note" will
be deemed to refer to the 1999 Revolving Note.
b. By deleting from the fourth sentence of Section 1.2 of the Letter
Agreement the words "two (2%) percent" and by substituting in their stead the
following:
"four (4%) percent"
c. By inserting into the eighth sentence of Section 1.2 of the Letter
Agreement (as amended by the First Modification), immediately after the words
"in immediately available funds", the following:
"in lawful currency of the United States"
d. By deleting in its entirety the tenth sentence of Section 1.2 of the
Letter Agreement and by substituting in its stead the following:
"All monies received by the Bank shall be applied first to fees, charges and
expenses payable to the Bank under this letter agreement, the Revolving Note
and/or any of the other Loan Documents and/or with respect to any letter of
credit and/or with respect to any other Obligation, next to interest then
accrued on account of any Revolving Loans or letter of credit reimbursement
obligations or any of the other Obligations and only thereafter to principal of
the Revolving Loans and letter of credit reimbursement obligations and other
Obligations, being applied against the Revolving Loans, such reimbursement
obligations and/or such other Obligations in such order as the Borrowers may
designate (and, failing such designation, being applied first against the letter
of credit reimbursement obligations and such other Obligations and thereafter
against the Revolving Loans)."
e. By inserting into the last sentence of Section 1.2 of the Letter
Agreement, immediately after the words "Revolving Note", the following:
"and/or with respect to any of the other Obligations"
f. By inserting into the first sentence of the second paragraph of
Section 1.4 of the Letter Agreement, immediately after the words "any letter of
credit", the following:
"and/or with respect to any of the other Obligations"
g. By deleting the period at the end of the second sentence of the
second paragraph of Section 1.4 of the Letter Agreement and by substituting in
its stead the following:
"or with respect to any of the other Obligations"
h. By inserting into each of the first and second sentences of the
third paragraph of Section 1.4 of the Letter Agreement, immediately after the
words "any letter of credit", in each place where same appear, the following:
"and/or with respect to any of the other Obligations"
i. By inserting into the Letter Agreement, immediately after Section
1.5 thereof, the following:
"1.5A. ACH Exposure. The Bank may from time to time prior to the Expiration
-------------
Date, at the request of MathSoft, initiate automated clearinghouse ('ACH')
transactions for MathSoft; provided that the Bank's total ACH Exposure shall not
(unless otherwise agreed by the Bank in its sole discretion) exceed $1,800,000
at any one time. ACH transactions will bear such fees and charges as may be
agreed upon by the Bank and MathSoft and will be governed by the Bank's then
current documentation and practices with respect to such transactions. As used
herein, 'ACH Exposure' as determined at any date means the sum of (i) all
amounts then owed by MathSoft to the Bank in connection with any ACH transaction
pursuant to which the Bank has advanced funds on behalf of MathSoft plus (ii)
----
the maximum amount which could be owed by MathSoft (assuming settlement within
two (2) Business Days of each date when funds are advanced) to the Bank in
connection with all ACH transactions then authorized by MathSoft but as to which
the Bank has not yet advanced funds.
1.5B. Foreign Exchange Contracts. During the term of this letter agreement
---------------------------
and subject to the terms and conditions hereof, the Bank may from time to time,
at MathSoft's request, provide to MathSoft one or more forward contracts
('Foreign Exchange Contracts') for the purchase by MathSoft of foreign currency
from the Bank; provided that (i) each such Foreign Exchange Contract will be at
such pricing as the Bank and MathSoft may agree at the time of execution of such
Foreign Exchange Contract, (ii) the documentation for each such Foreign Exchange
Contract will be in such form as is then customarily used by the Bank for
transactions of this type, (iii) the Foreign Exchange Contracts will be used by
MathSoft to minimize its exposure to the fluctuation of the value of those
foreign currencies in which payments are expected to be made to MathSoft by
customers or in which MathSoft is required to make payments to suppliers, and
(iv) the United States Dollar equivalent of all amounts subject to the Foreign
Exchange Contracts will not exceed $1,333,000 in the aggregate. As used herein,
the 'F/X Exposure' as determined at any date means the sum of (i) all amounts
then owed by MathSoft to the Bank in connection with settlement of any Foreign
Exchange Contract, plus (ii) 15% of the aggregate notional amounts of all
----
outstanding Foreign Exchange Contracts."
j. By inserting into the introductory clause of the second grammatical
paragraph of Section 1.6 of the Letter Agreement, immediately after the words
"Revolving Loan is made", the following:
"(or when any ACH transaction is initiated or any F/X Contract is
issued)"
k. By inserting into each of the clause (a) and clause (b) of the
second grammatical paragraph of Section 1.6 of the Letter Agreement, immediately
after the word "Loan", in each place where same appears, the following:
"(or the initiation of any ACH transaction or the issuance of any Foreign
Exchange Contract)"
l. By inserting into the first sentence of the last paragraph of
Section 1.6 of the Letter Agreement, immediately after the word "Loan", in each
place where same appears, the following:
"(or the initiation of any ACH transaction or the issuance of any Foreign
Exchange Contract)"
m. By inserting into the introductory clause of Section 2.1 of the
Letter Agreement, immediately after the words "letters of credit hereunder", the
following:
"and/or engage in ACH transactions for MathSoft and/or issue Foreign Exchange
Contracts"
n. By adding to Section 2.1 of the Letter Agreement, at the end of such
Section, the following:
"The Borrower has reviewed the software which it uses in its business for
'Year 2000' compliance and has determined that such software will continue to
function in the manner intended without interruption of service or other
difficulty resulting from the 'Year 2000 problem'. The Borrower will, at the
request of the Bank, provide such reports and such other information as the Bank
may reasonably request in order to evidence such Year 2000 compliance."
o. By inserting into the introductory clause of Article III of the
Letter Agreement, immediately after the words "letter of credit issued hereunder
shall be outstanding", the following:
"or any Foreign Exchange Contract shall be outstanding or any amount shall be
owed by MathSoft in respect of any ACH transaction or any Foreign Exchange
Contract"
p. By adding to clause (i) of Section 3.6 of the Letter Agreement, at
the end of such clause, the following:
"Without limitation of the foregoing, MathSoft represents, warrants and agrees
that the audited annual consolidated financial statements for MathSoft and
Subsidiaries for its fiscal year ended December 31, 1998 will not be materially
different from the management-prepared financial statements of MathSoft as at
December 31, 1998 previously furnished to the Bank."
q. By deleting their entireties Sections 3.7, 3.8, 3.9 and 3.10 of the
Letter Agreement and by substituting in their stead the following:
"3.7. Debt to Worth. MathSoft will maintain as at the end of each
---------------
fiscal quarter (commencing with its results as at December 31, 1998) on a
consolidated basis a Leverage Ratio of not more than 1.25 to 1. As used herein,
'Leverage Ratio' means, as at any date when same is to be determined, the ratio
of (x) the outstanding consolidated Adjusted Debt of MathSoft and its
Subsidiaries to (y) the consolidated Tangible Net Worth of MathSoft.
3.8. Net Worth. MathSoft will maintain as at the end of each fiscal
----------
quarter (commencing with its results as at December 31, 1998) a consolidated
Tangible Net Worth which shall be not less than the then-effective TNW
Requirement. As used in this 3.8, the 'TNW Requirement' will be deemed to have
been $4,800,000 as at December 31, 1998; and as at the last day of each fiscal
quarter thereafter (each, a 'Determination Date') (beginning with March 31,
1999) the TNW Requirement will be deemed to become an amount equal to the sum
of: (i) that TNW Requirement which had been in effect on the last day of the
immediately preceding fiscal quarter, plus (ii) 80% of the net proceeds of any
----
equity securities sold by MathSoft during the fiscal quarter ended with the
Determination Date in question, plus (iii) 80% of the consolidated Net Income of
----
MathSoft and Subsidiaries during the fiscal quarter ended with the Determination
Date in question (but without giving effect to any Net Income which is less than
zero for any fiscal quarter).
3.9. Quick Ratio. MathSoft will maintain as at the end of each fiscal
------------
quarter (commencing with its results as of December 31, 1998) on a consolidated
basis a ratio of Net Quick Assets to Current Liabilities, which ratio shall be
not less than 1.5 to 1.
3.10. Profitability. MathSoft will achieve consolidated Net Income of
-------------
not less than $300,000 for each period of two fiscal quarters ending at any
Determination Date (beginning with its results for the period of two fiscal
quarters ended December 31, 1998). Without limitation of the foregoing,
MathSoft will achieve consolidated annual Net Income of at least $1,000,000 for
each fiscal year, commencing with its results for its fiscal year ended December
31, 1998."
r. By inserting into the introductory clause of Article IV of the
Letter Agreement, immediately after the words "letter of credit issued hereunder
shall be outstanding", the following:
"or any Foreign Exchange Contract shall be outstanding or any amount shall be
owed by the Borrower in respect of any ACH transaction or any Foreign Exchange
Contract"
s. By deleting the semicolon at the end of clause (i) of Section 4.1 of
the Letter Agreement and by substituting in its stead the following:
"or in respect of any ACH transactions or in respect of any Foreign Exchange
Contracts;"
t. By deleting from clause (iv) of Section 4.1 of the Letter Agreement
the amount "$750,000" and by substituting in its stead the following:
"$1,400,000"
u. By inserting into clause (a) of Section 5.1 of the Letter Agreement,
immediately after the words "issued by the Bank", the following:
"or with respect to any Foreign Exchange Contract or with respect to any ACH
transaction"
v. By inserting into clause (b) of Section 5.1 of the Letter Agreement,
immediately after the words "letter of credit", the following:
"or any ACH transaction or any Foreign Exchange Contract"
w. By deleting the period at the end of clause (b) of Section 5.2 of
the Letter Agreement and by substituting in its stead the following:
", as well as terminating all facilities provided for herein for letters of
credit, ACH transactions and/or Foreign Exchange Contracts."
x. By deleting the last sentence of Section 5.3 of the Letter Agreement
and by substituting in its stead the following:
"The Borrower hereby grants to the Bank a lien, security interest and right of
setoff as security for all liabilities and obligations to the Bank, whether now
existing or hereafter arising, upon and against all deposits, credits,
collateral and property, now or hereafter in the possession, custody,
safekeeping or control of the Bank or any entity under the control of Fleet
Financial Group, Inc. or in transit to any of them. At any time after the
occurrence and during the continuance of an Event of Default, without further
demand or notice, the Bank may set off the same or any part thereof and apply
the same to any liability or obligation of the Borrower, even though unmatured
and regardless of the adequacy of any other collateral securing any of the
Revolving Loans or other Obligations. ANY AND ALL RIGHTS TO REQUIRE THE BANK TO
EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH
SECURES ANY LOAN OR OTHER OBLIGATION PRIOR TO EXERCISING ITS RIGHT OF SETOFF
WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED."
y. By adding to Section 5.4 of the Letter Agreement, at the end of such
Section, the following:
"Upon the occurrence of any event described in clause (i) or clause (ii) of the
immediately preceding sentence, the Bank may also require the Borrower to cash
collateralize the outstanding F/X Exposure and the outstanding ACH Exposure."
z. By inserting into the first sentence of Section 6.1 of the Letter
Agreement, immediately after the words "letter of credit issued hereunder", the
following:
"and/or any of the other Obligations"
aa. By inserting into the first sentence of Section 6.1 of the Letter
Agreement, immediately after the words "in connection herewith", the following:
"or in connection with any of the other Obligations"
bb. By inserting into the first sentence of Section 6.2 of the Letter
Agreement, immediately after the words "for the account of any Borrower", the
following:
"and/or any of the other Obligations"
cc. By deleting the period at the end of the first sentence of Section
6.2 of the Letter Agreement and by substituting in its stead the following:
"and/or any of the other Obligations."
dd. By changing the notice address of the Bank, pursuant to Section 6.6
of the Letter Agreement, to the following:
"Fleet National Bank
High Technology Division
Mail Code: MA OF D07A
One Federal Street, 7th Floor
Boston, MA 02110
Attention: Lucie Burke, Vice President"
ee. By inserting into Section 6.7 of the Letter Agreement, immediately
after the fourth sentence of such Section, the following:
"Without limitation of the foregoing generality,
(i) The Bank may at any time pledge all or any portion of its rights under
the Loan Documents (including any portion of the Revolving Note) to any of the
12 Federal Reserve Banks organized under Section 4 of the Federal Reserve Act,
12 U.S.C. Section 341. No such pledge or the enforcement thereof shall release
the Bank from its obligations under any of the Loan Documents.
ii) The Bank shall have the unrestricted right at any time and from time to
time, and without the consent of or notice to any Borrower, to grant to one or
more banks or other financial institutions (each, a 'Participant') participating
interests in the Bank's obligation to lend hereunder and/or any or all of the
Revolving Loans held by the Bank hereunder. In the event of any such grant by
the Bank of a participating interest to a Participant, whether or not upon
notice to any Borrower, the Bank shall remain responsible for the performance of
its obligations hereunder and the Borrowers shall continue to deal solely and
directly with the Bank in connection with the Bank's rights and obligations
hereunder. The Bank may furnish any information concerning the Borrowers in its
possession from time to time to prospective assignees and Participants; provided
that the Bank shall require any such prospective assignee or Participant to
agree in writing to maintain the confidentiality of such information to the same
extent as the Bank would be required to maintain such confidentiality."
ff. By inserting into Article VI of the Letter Agreement, at the end of
such Article, the following:
"6.10. Replacement Note. Upon receipt of an affidavit of an officer of the
-----------------
Bank as to the loss, theft, destruction or mutilation of the Revolving Note or
of any other Loan Document which is not of public record and, in the case of any
such mutilation, upon surrender and cancellation of the Revolving Note or other
Loan Document, the Borrowers will issue, in lieu thereof, a replacement
Revolving Note or other Loan Document in the same principal amount (as to the
Revolving Note) and in any event of like tenor.
6.11. Usury. All agreements between any one or more of the Borrowers and the
-----
Bank are hereby expressly limited so that in no contingency or event whatsoever,
whether by reason of acceleration of maturity of the Revolving Note or
otherwise, shall the amount paid or agreed to be paid to the Bank for the use or
the forbearance of the Indebtedness represented by the Revolving Note exceed the
maximum permissible under applicable law. In this regard, it is expressly
agreed that it is the intent of the Borrowers and the Bank, in the execution,
delivery and acceptance of the Revolving Note, to contract in strict compliance
with the laws of The Commonwealth of Massachusetts. If, under any circumstances
whatsoever, performance or fulfillment of any provision of the Revolving Note or
any of the other Loan Documents at the time such provision is to be performed or
fulfilled shall involve exceeding the limit of validity prescribed by applicable
law, then the obligation so to be performed or fulfilled shall be reduced
automatically to the limit of such validity, and if under any circumstances
whatsoever the Bank should ever receive as interest an amount which would exceed
the highest lawful rate, such amount which would be excessive interest shall be
applied to the reduction of the principal balance evidenced by the Revolving
Note and not to the payment of interest. The provisions of this 6.11 shall
control every other provision of this Agreement and of the Revolving Note.
6.12. WAIVER OF JURY TRIAL. EACH BORROWER AND THE BANK HEREBY KNOWINGLY,
-----------------------
VOLUNTARILY AND INTENTIONALLY MUTUALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN
RESPECT OF ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH
THIS LETTER AGREEMENT, THE REVOLVING NOTE OR ANY OTHER LOAN DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PARTY. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ENTER INTO THIS LETTER AGREEMENT AND TO MAKE REVOLVING LOANS AS
CONTEMPLATED HEREIN."
gg. By inserting into Section 7.1 of the Letter Agreement, immediately
before the definition of "Adjusted Debt", the following:
"'ACH Exposure' - As defined in 1.5A."
hh. By deleting from the definition of "Expiration Date" appearing in
Section 7.1 of the Letter Agreement the date "December 31, 1998" (such date
having been inserted by the Second Modification) and by substituting in its
stead the following:
"April 30, 2000"
As a result, from and after the date hereof, for the purposes of the Letter
Agreement and the other Financing Documents, the "Expiration Date" will be
deemed to be April 30, 2000.
ii. By inserting into Section 7.1 of the Letter Agreement, immediately
after the definition of "Expiration Date", the following:
"'F/X Exposure' - As defined in 1.5B."
jj. By inserting into the definition of "Loan Documents" appearing in
Section 7.1 of the Letter Agreement, immediately after the words "letters of
credit issued hereunder", the following:
"or to any Foreign Exchange Contract or ACH transaction"
kk. By deleting in its entirety the definition of "Maximum Credit
Amount" appearing in Section 7.1 of the Letter Agreement (such definition has
been inserted by the Second Modification) and by substituting in its stead the
following:
"'Maximum Credit Amount' - $2,000,000."
ll. By adding to the definition of "Obligations" appearing in Section
7.1 of the Letter Agreement, at the end of such definition, the following:
"'Obligations' includes, without limitation, the Revolving Loans and obligations
with respect to ACH transactions, letters of credit and Foreign Exchange
Contracts issued hereunder."
mm. By deleting from the definition of "Principal Office" appearing in
Section 7.1 of the Letter Agreement the words "75 State Street, Boston, MA
02109" and by substituting in their stead the following:
"One Federal Street, Boston, MA 02110"
nn. By adding to the definition of "Qualified Receivables" appearing in
Section 7.1 of the Letter Agreement, at the end of such definition, the
following:
"In no event will 'Qualified Receivables' be deemed to include any Receivables
of the type described as 'Other Receivables' on the consolidated balance sheet
of MathSoft as at September 30, 1998, as delivered to the Bank."
oo. By deleting the period at the end of Subsection 7.2(a) of the
Letter Agreement and by substituting in its stead the following:
", as well as all obligations in respect of ACH transactions and Foreign
Exchange Contracts."
3. Wherever in any Financing Document, or in any certificate or opinion
to be delivered in connection therewith, reference is made to a "letter
agreement" or to the "Letter Agreement", from and after the date hereof same
will be deemed to refer to the Letter Agreement, as hereby amended.
4. Simultaneously with the execution and delivery of this Agreement,
the Borrowers are executing and delivering to the Bank the 1999 Revolving Note,
in substitution for the 1997 Revolving Note. The 1999 Revolving Note is a
$2,000,000 joint and several promissory note of the Borrowers, substantially in
the form attached hereto as Exhibit 1. Wherever in any of the Financing
Documents or in any certificate or opinion to be delivered in connection
therewith, reference is made to a "Revolving Note", from and after the date
hereof same will be deemed to refer to the 1999 Revolving Note.
5. In order to induce the Bank to enter into this Agreement, the
Borrowers jointly and severally represent and warrant that each of the MathSoft
IAR Security Agreement, the MathSoft Supplementary Security Agreement, the
StatSci IAR Security Agreement, the StatSci Supplementary Security Agreement,
the Trademark Assignment and the Patent Assignment remain in full force and
effect and secure, inter alia, the 1999 Revolving Note and the Letter Agreement,
----- ----
as amended by this Agreement.
6. In order to induce the Bank to enter into this Agreement, the
Borrowers jointly and severally agree to pay, on demand, all costs and expenses
(including, without limitation, reasonable fees and expenses of the Bank's
attorneys) incurred by the Bank in connection with the preparation of this
Agreement and/or the transactions contemplated hereby.
7. In order to induce the Bank to enter into this Agreement, the
Borrowers further jointly and severally represent and warrant as follows:
a. The execution, delivery and performance of this Agreement and the
1999 Revolving Note have been duly authorized by each of the Borrowers by all
necessary corporate and other action, will not require the consent of any third
party (except any such consents which have already been received) and will not
conflict with, violate the provisions of, or cause a default or constitute an
event which, with the passage of time or the giving of notice or both, could
cause a default on the part of any Borrower under its charter documents or
by-laws or under any contract, agreement, law, rule, order, ordinance,
franchise, instrument or other document, or result in the imposition of any lien
or encumbrance (except in favor of the Bank) on any property or assets of any
Borrower.
b. Each Borrower has duly executed and delivered each of this Agreement
and the 1999 Revolving Note.
c. Each of this Agreement and the 1999 Revolving Note is the legal,
valid and binding joint and several obligation of the Borrowers, enforceable
against each of the Borrowers in accordance with its respective terms.
d. The statements, representations made in the Letter Agreement, in the
MathSoft IAR Security Agreement, in the MathSoft Supplementary Security
Agreement, in the StatSci IAR Security Agreement and/or in the StatSci
Supplementary Security Agreement continue to be correct as of the date hereof;
except as amended, updated and/or supplemented by the attached Supplemental
Disclosure Schedule.
e. Giving effect to the amendments contained in this Agreement, the
covenants and agreements of each Borrower contained in the Letter Agreement, in
the MathSoft IAR Security Agreement, in the MathSoft Supplementary Security
Agreement, in the StatSci IAR Security Agreement and/or in the StatSci
Supplementary Security Agreement have been complied with on and as of the date
hereof.
f. Giving effect to amendments contained in this Agreement, no event
which constitutes, or which, with notice or lapse of time or both, could
constitute, an Event of Default (as defined in the Letter Agreement) has
occurred and is continuing.
g. Except as heretofore disclosed in writing to the Bank, no material
adverse change has occurred in the financial condition of any Borrower from that
disclosed in the unaudited consolidated financial statements of the Borrowers as
at December 31, 1998, heretofore furnished to the Bank.
8. Except as expressly affected hereby, the Letter Agreement and each
of the other Financing Documents remains in full force and effect as heretofore.
9. Nothing contained herein will be deemed to constitute a waiver or a
release of any provision of any of the Financing Documents. Nothing contained
herein will in any event be deemed to constitute an agreement to give a waiver
or a release or to agree to any amendment or modification of any provision of
any of the Financing Documents on any other or future occasion.
<PAGE>
Executed, as an instrument under seal, as of the day and year first above
written.
MATHSOFT, INC.
By: /s/ Robert P. Orlando
-------------------
Name: Robert P. Orlando
Title: VP Finance &Administration,CFO
STATISTICAL SCIENCES, INC.
By: /s/ Robert P. Orlando
-------------------
Name: Robert P. Orlando
Title: VP Finance & Administration,CFO
Accepted and agreed:
FLEET NATIONAL BANK
By: /s/ Lucie Burke
Name: Lucie Burke
Title: Vice President
PROMISSORY NOTE
$2,000,000.00 Boston,
Massachusetts
February 24, 1999
FOR VALUE RECEIVED, the undersigned MathSoft, Inc., a Massachusetts
corporation ("MathSoft") and Statistical Sciences, Inc., a Massachusetts
corporation ("StatSci") (MathSoft and StatSci being hereinafter referred to
collectively as the "Borrowers" and individually as a "Borrower") hereby jointly
and severally promise to pay to the order of FLEET NATIONAL BANK (the "Bank")
the principal amount of Two Million and 00/100 ($2,000,000.00) Dollars or such
portion thereof as has been advanced by the Bank and/or its corporate
predecessor or may hereafter be advanced by the Bank pursuant to 1.2 of that
certain letter agreement among the Borrowers and Fleet Bank of Massachusetts,
N.A. dated January 11, 1996, as amended (as so amended, the "Letter Agreement")
(the Bank having succeeded to the rights of Fleet Bank of Massachusetts, N.A.
thereunder) and remains outstanding from time to time hereunder ("Principal"),
with interest, at the rate hereinafter set forth, on the daily balance of all
unpaid Principal, from the date hereof until payment in full of all Principal
and interest hereunder.
Interest on all unpaid Principal shall be due and payable monthly in
arrears, on the first day of each month, commencing on the first such date after
the advance of any Principal and continuing on the first day of each month
thereafter and on the date of payment of this note in full, at a fluctuating
rate per annum (computed on the basis of a year of three hundred sixty (360)
days for the actual number of days elapsed) which shall at all times (except as
described in the next sentence) be equal to the sum of (i) one-half of one
(0.5%) percent plus (ii) the Prime Rate, as in effect from time to time (but in
----
no event in excess of the maximum rate permitted by then applicable law), with a
change in the aforesaid rate of interest shall become effective on the same day
on which any change in the Prime Rate is effective. Overdue Principal and, to
the extent permitted by law, overdue interest from and after the date on which
same becomes past due shall bear interest at a fluctuating rate per annum which
at all times shall be equal to the sum of (i) four (4%) percent per annum plus
----
(ii) the per annum rate otherwise payable under this note (but in no event in
excess of the maximum rate permitted by then applicable law), compounded monthly
and payable on demand. As used herein, "Prime Rate" means that variable rate of
interest per annum designated by the Bank from time to time as its prime rate,
it being understood that such rate is merely a reference rate and does not
necessarily represent the lowest or best rate being charged to any customer. If
the entire amount of any required Principal and/or interest is not paid within
ten (10) days after the same is due, the Borrowers shall pay (and shall be
jointly and severally obligated to pay) to the Bank a late fee equal to five
percent (5%) of the required payment, provided that such late fee shall be
reduced to three percent (3%) of any required Principal and interest that is not
paid within fifteen (15) days of the date it is due if this note is secured by a
mortgage on an owner-occupied residence of 1-4 units.
All outstanding Principal and all interest accrued thereon shall be due and
payable in full on the first to occur of: (i) an acceleration under 5.2 of the
Letter Agreement or (ii) April 30, 2000. The Borrowers may at any time and from
time to time prepay all or any portion of said Principal, without premium or
penalty. Under certain circumstances set forth in the Letter Agreement,
prepayments of Principal may be required.
Payments of both Principal and interest shall be made, in lawful money of
the United States in immediately available funds, at the office of the Bank
located at One Federal Street, Boston, Massachusetts 02110, or at such other
address as the Bank may from time to time designate.
Each of the undersigned Borrowers irrevocably authorizes the Bank to make
or cause to be made, on a schedule attached to this note or on the books of the
Bank, at or following the time of making any Revolving Loan (as defined in the
Letter Agreement) and of receiving any payment of Principal, an appropriate
notation reflecting such transaction and the then aggregate unpaid balance of
Principal. Failure of the Bank to make any such notation shall not, however,
affect any obligation of any Borrower hereunder or under the Letter Agreement.
The unpaid Principal balance of this note, as recorded by the Bank from time to
time on such schedule or on such books, shall constitute presumptive evidence of
the aggregate unpaid principal amount of the Revolving Loans.
Each Borrower hereby (a) waives notice of and consents to any and all
advances, settlements, compromises, favors and indulgences (including, without
limitation, any extension or postponement of the time for payment), any and all
receipts, substitutions, additions, exchanges and releases of collateral, and
any and all additions, substitutions and releases of any person primarily or
secondarily liable, (b) waives presentment, demand, notice, protest and all
other demands and notices generally in connection with the delivery, acceptance,
performance, default or enforcement of or under this note, and (c) agrees to
pay, to the extent permitted by law, all costs and expenses, including, without
limitation, reasonable attorneys' fees, incurred or paid by the Bank in
enforcing this note and any collateral or security therefor, all whether or not
litigation is commenced.
This note is the Revolving Note referred to in the Letter Agreement. This
note is secured by, and is entitled to the benefits of, the Security Agreements
(as defined in the Letter Agreement). This note is subject to prepayment as set
forth in the Letter Agreement. The maturity of this note may be accelerated upon
the occurrence of an Event of Default, as provided in the Letter Agreement.
This note is the joint and several obligation of each of the undersigned.
EACH BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES THE
RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY CLAIM BASED ON THIS NOTE OR ARISING
OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY RELATED DOCUMENTS OR OUT OF
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF ANY PERSON. THIS WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR THE
BANK TO ACCEPT THIS NOTE AND TO MAKE REVOLVING LOANS AS CONTEMPLATED IN THE
LETTER AGREEMENT.
<PAGE>
Executed, as an instrument under seal, as of the day and year first above
written.
CORPORATE SEAL MATHSOFT, INC.
ATTEST:
/s/ Gordon Hayes By: /s/ Robert P. Orlando
- - ----------------------- -----------------------------
Assistant Clerk Name: Robert P. Orlando
Title: VP Finance & Admin, CFO
CORPORATE SEAL STATISTICAL SCIENCES, INC.
ATTEST:
/s/ Gordon Hayes By: /s/ Robert P. Orlando
- - ----------------------- -----------------------------
Assistant Clerk Name:Robert P. Orlando
Title: VP Finance & Admin, CFO
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, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 5,706,657
<SECURITIES> 0
<RECEIVABLES> 5,318,087
<ALLOWANCES> 0
<INVENTORY> 374,320
<CURRENT-ASSETS> 11,741,663
<PP&E> 7,344,361
<DEPRECIATION> 6,082,535
<TOTAL-ASSETS> 13,492,084
<CURRENT-LIABILITIES> 7,302,163
<BONDS> 0
0
0
<COMMON> 93,244
<OTHER-SE> 5,957,263
<TOTAL-LIABILITY-AND-EQUITY> 13,492,084
<SALES> 20,839,101
<TOTAL-REVENUES> 24,446,771
<CGS> 2,963,682
<TOTAL-COSTS> 4,245,767
<OTHER-EXPENSES> 18,040,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 86,066
<INCOME-PRETAX> 2,243,007
<INCOME-TAX> 22,879
<INCOME-CONTINUING> 2,220,128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,220,128
<EPS-PRIMARY> .24
<EPS-DILUTED> .22
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1997
<PERIOD-START> JAN-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> 6,684,945
<DEPRECIATION> 5,315,979
<TOTAL-ASSETS> 9,812,150
<CURRENT-LIABILITIES> 6,243,076
<BONDS> 0
0
0
<COMMON> 91,086
<OTHER-SE> 3,404,237
<TOTAL-LIABILITY-AND-EQUITY> 9,812,150
<SALES> 18,039,610
<TOTAL-REVENUES> 21,223,511
<CGS> 3,397,952
<TOTAL-COSTS> 4,481,839
<OTHER-EXPENSES> 18,903,162
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,068
<INCOME-PRETAX> (2,082,159)
<INCOME-TAX> 46,655
<INCOME-CONTINUING> (2,128,814)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,128,814)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> (.24)
<PAGE>
</TABLE>
S-1
Report of Independent Public Accountants
To MathSoft, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in MathSoft, Inc. and subsidiaries'
annual report to shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 24, 1999. 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
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic consolidated 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 24, 1999
S-1
<PAGE>
Schedule II
S-2
MATHSOFT, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE, CHARGED TO BALANCE,
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
<S> <C> <C> <C> <C>
Year Ended December 31, 1998:
Allowance for doubtful accounts . . . . . $ 459,820 $ 97,708 $388,466 $ 169,062
Allowance for sales returns . . . . . . . 1,138,513 122,487 560,453 700,547
---------- ---------- -------- ----------
Total reserve for accounts receivable . . $1,598,333 $ 220,195 $948,919 $ 869,609
========== ========== ======== ==========
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
---------- ---------- -------- ----------
Total reserve for accounts receivable . . $1,719,856 $ 161,779 $283,302 $1,598,333
========== ========== ======== ==========
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
========== ========== ======== ==========
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
========== ========== ======== ==========
</TABLE>
