SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
COMMISSION FILE NUMBER 0-020992
MATHSOFT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2842217
(State or other jurisdiction (I.R.S. Employer Identification
Number)
of incorporation or organization)
101 MAIN STREET
CAMBRIDGE, MASSACHUSETTS 02142-1521
(Address, including zip code, of registrant's principal executive offices)
(617) 577-1017
(Registrant's telephone number including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR AT LEAST THE PAST 90 DAYS.
YES X NO
-----
AS OF MAY 5, 1999 THERE WERE 9,765,461 SHARES OF COMMON STOCK, $.01 PAR VALUE
PER SHARE, OUTSTANDING.
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MATHSOFT, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
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PART I. FINANCIAL INFORMATION:
Item 1. Consolidated Condensed Financial Statements
- Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 . . . . . . . . . . . . . . 3
- Consolidated Condensed Statements of Income for the
Three Months Ended March 31, 1999 and 1998 . . . . . . . . . . . 5
- Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998 . . . . . . . . . . . 6
- Notes to Consolidated Condensed Financial Statements. . 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . 11
Cautionary Statements. . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
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PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES . . . . . . . . . . 20
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . $ 5,787,638 $ 5,706,657
Accounts receivables, less reserves of
approximately $849,000 at March 31, 1999
and $870,000 at December 31, 1998 . . . . . 4,567,554 4,009,195
Other receivables. . . . . . . . . . . . . . . . 1,293,053 1,308,892
Inventories. . . . . . . . . . . . . . . . . . . 254,585 374,320
Prepaid expenses . . . . . . . . . . . . . . . . 642,816 342,599
Total current assets. . . . . . . . 12,545,646 11,741,663
----------- -------------
PROPERTY AND EQUIPMENT, AT COST:
Computer equipment and software. . . . . . . . . 4,844,382 4,765,347
Property and equipment under capital lease . . . 918,043 918,043
Furniture and fixtures . . . . . . . . . . . . . 1,045,505 1,036,313
Leasehold improvements . . . . . . . . . . . . . 624,658 624,658
----------- -------------
7,432,588 7,344,361
Less - Accumulated depreciation and amortization 6,279,770 6,082,535
1,152,818 1,261,826
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . 458,011 488,595
----------- -------------
$14,156,475 $ 13,492,084
=========== =============
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
3
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(UNAUDITED)
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MARCH 31, DECEMBER 31,
<S> <C> <C>
1999 1998
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CURRENT LIABILITIES:
Current portion of capital lease obligations
and equipment financing . . . . . . . . . $ 543,432 $ 482,004
Accounts payable . . . . . . . . . . . . . . . 1,986,012 2,481,154
Accrued expenses and other current liabilities 2,006,442 2,452,472
Deferred revenue . . . . . . . . . . . . . . . 2,119,152 1,886,533
------------- --------------
Total current liabilities . . . . 6,655,038 7,302,163
------------- --------------
Capital Lease Obligations and Equipment Financing,
Less current portion . . . . . . . . . . . 86,306 139,414
------------- --------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value -
Authorized - 1,000,000 shares
Issued and outstanding-none . . . . . . . - -
Common stock, $.01 par value-
Authorized - 20,000,000 shares
Issued and outstanding - 9,765,461 shares
at March 31, 1999 and 9,324,407 shares at
December 31, 1998 . . . . . . . . . . . . 97,655 93,244
Additional paid-in capital . . . . . . . . . . 30,430,265 29,706,364
Accumulated deficit. . . . . . . . . . . . . . (23,029,986) (23,667,397)
Cumulative translation adjustment. . . . . . . (82,803) (81,704)
------------- --------------
Total stockholders' equity . . . . 7,415,131 6,050,507
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$ 14,156,475 $ 13,492,084
============= ==============
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
4
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------
1999 1998
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REVENUES:
Software licenses. . . . . . . . . . . . . . . $ 5,276,947 $ 4,919,922
Services and other . . . . . . . . . . . . . . 1,262,427 782,371
------------------ ------------------
Total net revenues. . . . . . . . . . . . 6,539,374 5,702,293
------------------ ------------------
COST OF REVENUES:
Software licenses. . . . . . . . . . . . . . . 805,352 706,000
Services and other . . . . . . . . . . . . . . 389,441 296,735
------------------ ------------------
Total cost of revenues. . . . . . . . . . 1,194,793 1,002,735
------------------ ------------------
Gross profit. . . . . . . . . . . . . . . 5,344,581 4,699,558
------------------ ------------------
OPERATING EXPENSES:
Sales and marketing. . . . . . . . . . . . . . 2,815,576 2,420,954
Research and development . . . . . . . . . . . 1,187,575 1,219,232
General and administrative . . . . . . . . . . 735,379 601,852
------------------ ------------------
Total operating expenses. . . . . . . . . 4,738,530 4,242,038
------------------ ------------------
INCOME FROM OPERATIONS. . . . . . . . . . 606,051 457,520
Interest Income, net. . . . . . . . . . . . . . . . . 41,440 23,531
INCOME BEFORE PROVISION FOR
INCOME TAXES. . . . . . . . . . . . . 647,491 481,051
Provision for Income Taxes. . . . . . . . . . . . . . 10,080 -
------------------ ------------------
NET INCOME. . . . . . . . . . . . . . . . $ 637,411 $ 481,051
================== ==================
BASIC NET INCOME PER SHARE. . . . . . . . . . . . . . $ 0.07 $ 0.05
================== ==================
DILUTED NET INCOME PER SHARE. . . . . . . . . . . . . $ 0.06 $ 0.05
================== ==================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING . . . . 9,687,055 9,131,169
================== ==================
WEIGHTED AVERAGE SHARES OUTSTANDING ASSUMING DILUTION 10,869,334 10,214,439
================== ==================
<FN>
The accompanying notes are an integral part of these consolidated condensed financial
statements.
</TABLE>
5
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 637,411 $ 481,051
Adjustments to reconcile net income to net
cash used in operating activities -
Depreciation and amortization. . . . . . . . . . . . . . . . 219,252 230,588
Changes in assets & liabilities-
Accounts receivables . . . . . . . . . . . . . . . . . . (558,360) (432,011)
Other receivables. . . . . . . . . . . . . . . . . . . . 15,839 1,439
Inventories. . . . . . . . . . . . . . . . . . . . . . . 119,735 38,506
Prepaid expenses . . . . . . . . . . . . . . . . . . . . (201,273) (283,182)
Accounts payable . . . . . . . . . . . . . . . . . . . . (495,144) 64,807
Accrued expenses . . . . . . . . . . . . . . . . . . . . (446,027) (281,559)
Deferred revenue . . . . . . . . . . . . . . . . . . . . 232,619 (78,379)
----------- -----------
Net cash used in operating activities. . . . . . . . (475,948) (258,740)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment . . . . . . . . . . . . . . (88,228) (130,611)
Decrease (Increase) in other assets . . . . . . . . . . . . . . 8,568 (12,845)
----------- -----------
Net cash used in investing activities . . . . . . . . (79,660) (143,456)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations and equipment financing . (142,300) (81,027)
Borrowings on capital lease obligations and equipment financing 51,676 458,904
Proceeds from exercise of stock options and
Employee Stock Purchase Plan. . . . . . . . . . . . . . . 728,312 116,715
----------- -----------
Net cash provided by financing activities . . . . . . 637,688 494,592
Effect of exchange rate changes on cash and cash equivalents. . . (1,099) (16,368)
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . 80,981 76,028
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD. . . . . . . . . . 5,706,657 4,133,541
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD. . . . . . . . . . . . . $5,787,638 $4,209,569
=========== ===========
<FN>
The accompanying notes are an integral part of these consolidated condensed financial
statements.
</TABLE>
6
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(CONTINUED)
(UNAUDITED)
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THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest . . . . . . . . . $16,668 $18,830
======= =======
Income taxes . . . . . . . $16,368 $16,368
======= =======
<FN>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
</TABLE>
7
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by MathSoft, Inc. ("MathSoft" or the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto for the fiscal year ended December 31,
1998. The accompanying consolidated condensed financial statements reflect all
adjustments (consisting solely of normal, recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of results for the
interim periods presented. The results of operations for the three-month period
ended March 31, 1999 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. RECLASSIFICATION OF AMOUNTS
Certain amounts in the financial statements for the year ended December 31, 1998
and have been reclassified to conform to the presentation for the quarter ended
March 31, 1999.
3. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
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<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Materials and supplies $ 62,878 $ 98,200
Finished goods . . . . 191,707 276,120
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$ 254,585 $ 374,320
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<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. NET INCOME PER SHARE
The Company reports earnings per share in accordance with SFAS No. 128, Earnings
per Share. Under SFAS No. 128, basic net income per common share is computed
based on net income available to common stockholders and the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed by 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:
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THREE MONTHS ENDED
MARCH 31,
------------------
<S> <C> <C>
1999 1998
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Weighted average shares
outstanding . . . . . . . 9,687,055 9,131,169
Effect of dilutive securities 1,182,279 1,083,270
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Weighted average shares
outstanding assuming dilution 10,869,334 10,214,439
========== ==========
</TABLE>
The following securities were not included in computing diluted earnings per
share because their effect would be antidilutive:
<TABLE>
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THREE MONTHS ENDED
MARCH 31,
------------------
<S> <C> <C>
1999 1998
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Antidilutive securities- 156,036 224,986
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<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. COMPREHENSIVE INCOME
The Company reports comprehensive income in accordance with SFAS No. 130,
Reporting Comprehensive Income. Under SFAS No. 130, comprehensive income is
computed as the total of net income and all other nonowner changes in equity.
Total Comprehensive Income is as follows:
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THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
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Net Income. . . . . . . . . . . . $637,411 $481,051
Cumulative Translation Adjustment (1,099) (16,368)
--------- ---------
Comprehensive Income. . . . . . . $636,312 $464,683
--------- ---------
</TABLE>
5. SEGMENT REPORTING
The Company's continuing operations are classified in two primary business
segments: (1) Engineering and Education Product Line (formerly known as the
Technical Calculation Software Product Line) and (2) Data Analysis Software
Product Line. Summarized financial information by business segment for
continuing operations is as follows:
THREE MONTHS ENDED
MARCH 31,
---------
1999 1998
---- ----
(in thousands)
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Segment Revenues:
Engineering and Education Products $3,704 $3,653
Data Analysis Software Products. . 2,835 2,049
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Total net revenues. . . . . $6,539 $5,702
------ -------
Segment Income (Loss):
Engineering and Education Products $ 169 $ 561
Data Analysis Software Products. . 468 (80)
------ -------
Total net income. . . . . . $ 637 $ 481
------ -------
</TABLE>
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1999 Compared with the Three Months Ended March 31,
1998.
RESULTS OF OPERATIONS
Total net revenues increased 14.7% from $5,702,000 for the three months ended
March 31, 1998 to $6,539,000 for the three months ended March 31, 1999. The
increase in total net revenues was primarily attributable to an increase in both
license and service revenue generated from the Data Analysis Products Division
and to a lesser extent an increase in revenue from the Engineering and Education
Software Products Division.
Worldwide Data Analysis Products Division license and service revenue increased
38.4% from $2,049,000 in the three months ended March 31, 1998 to $2,835,000 in
the three months ended March 31, 1999, and increased as a percentage of total
net revenues from 35.9% to 43.4%. The increase in license and service revenue
was primarily attributable to an
increase in new license sales of S-PLUS 4.5 for Windows/NT released in May 1998
and S-PLUS 5.0 for Unix released in August 1998 as well as an increase in
maintenance, training and consulting services.
Worldwide Engineering and Education Software Products Division revenues for the
three months ended March 31, 1998 were $3,653,000 and remained relatively flat
at $3,703,000 for the three months ended March 31, 1999, and decreased as a
percentage of total net revenues from 64.1% to 56.6%. This consistency in
revenues is due to increased sales of Mathcad Add-on's, such as Axum 6, which
was released in March 1999, offsetting the decline in Mathcad 8 new license
revenue due to weaker than anticipated Educational sales as a result of the
timing of the Mathcad 8 release in relation to the back-to-school season.
Total international revenues attributable to sales of all Company product lines
increased 11.8% from $1,677,000 in the three months ended March 31, 1998 to
$1,875,000 in the three months ended March 31, 1999, and decreased as a
percentage of total revenues from 29.4% to 28.7%, respectively.
Total cost of revenues increased 19.2% from $1,003,000 in the three months ended
March 31, 1998 to $1,195,000 in the three months ended March 31, 1999, and
increased slightly as a percentage of total revenues from 17.6% to 18.3%,
respectively. The increase in total cost of revenues as a percentage of total
revenues was primarily attributable to an increase in fixed costs, such as
licensing costs for the "S" language used in the S-PLUS product line and the
amortization of purchased technology.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Sales and marketing expenses increased 16.3% from $2,421,000 in the three months
ended March 31, 1998 to $2,816,000 in the three months ended March 31, 1999, and
increased as a percentage of total revenues from 42.5% to 43.1%, respectively.
The increase in overall sales and marketing expenses was primarily attributable
to an increase in variable marketing expenditures and headcount additions to the
sales force.
Research and development expenses decreased slightly from $1,219,000 in the
first three months ended March 31, 1998 to $1,188,000 for the three months ended
March 31, 1999, and decreased as a percentage of total revenues from 21.4% to
18.2%, respectively.
General and administrative expenses increased 22.2% from $602,000 in the three
months ended March 31, 1998 to $735,000 in the three months ended March 31,
1999, and increased as a percentage of total revenues from 10.6% to 11.2%,
respectively. The increase in overall general and administrative expenses was
due primarily to increased professional fees.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents, totaling $5,788,000 at March 31, 1999, increased
$81,000 during the three months ended March 31, 1999, from $5,707,000 at
December 31, 1998. The positive cash flow resulted primarily from proceeds
generated by exercise of stock options and stock purchases under the employee
stock purchase plan of $728,000, offset by cash used in operations of $476,000
and payments of capital lease obligations and equipment financing of $142,000.
The Company's financial reserves are represented by cash and cash equivalents of
$5,788,000 as of March 31, 1999. The Company also has a line of credit
agreement with a commercial bank. Borrowings under the line are limited to the
lesser of 80% of eligible domestic accounts receivable or $2,000,000 based on
certain profitability covenants. Borrowings are secured by a first security
interest on substantially all of the Company's assets and bear interest at the
bank's prime rate plus 0.5%. The line of credit contains certain restrictive
covenants, including requirements to achieve or maintain minimum amounts of
profitability, equity, leverage and liquidity, all as defined in the agreement
which expires on April 30, 2000. As of March 31, 1999, the Company is in
compliance with the restrictive covenants and, as of March 31, 1999, the Company
can borrow up to $2,000,000. There were no amounts outstanding under this line
at March 31, 1999.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company believes its financial reserves and cash flows from future
operations will be sufficient to meet its liquidity requirements for at least
the next twelve months. The foregoing statement is forward-looking and involves
risks and uncertainties, many of which are outside the Company's control. The
Company's actual experience may differ materially from that discussed above.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Cautionary Statements" as well as future events that have
the effect of reducing the Company's available cash balances, such as
unanticipated operating losses or capital expenditures, 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 which require additional external financing, and the Company may
from time to time seek to obtain additional funds from public or private
issuances of equity or debt securities. There can be no assurance that any such
financing will be available at all or on terms acceptable to the Company.
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. Current
information about the Company's product compliance is available at the MathSoft
Year 2000 Readiness Disclosure section of our website. Finally, MathSoft is in
the process of sending out compliance question letters to all its major
suppliers and customers.
The Company's Year 2000 compliance efforts consist of the following phases: (1)
identification of all software products, information technology systems and
non-information technology systems; (2) assessment of repair or replacement
requirements; (3) repair or replacement; (4) testing; (5) implementation; and
(6) creation of contingency plans in the event of Year 2000 failures. The
Company has completed phase (1) and has substantially completed phase (2). The
Company expects to substantially complete phase (3) by June 1999 and phases (4),
(5) and (6) of its Year 2000 compliance efforts by September 1999.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 READINESS DISCLOSURE STATEMENT (CONT.)
To date, the Company has not incurred any material expenditures in connection
with identifying, evaluating or remediating any Year 2000 compliance issues. We
have reevaluated our preliminary estimates, regarding expected costs to MathSoft
for evaluating and correcting Year 2000 issues, and believe they are in the
range of $250,000 to $550,000. Most of these costs will be capital in nature,
will have an immaterial impact on earnings per share, will be funded through our
operating cash flows, and have been contemplated in the development of our 1999
operating plan. Although MathSoft does not anticipate any major non-compliance
issues, there can be no assurance that there will not be a delay in, or
increased costs associated with, the implementation of MathSoft's year 2000
readiness plan. MathSoft currently believes that the greatest risk of
disruption in its business exists in the event of non-compliance by third
parties with whom it has significant supplier and/or customer relationships.
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>
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
In addition to the other information in this report, the following cautionary
statements should be considered carefully in evaluating the Company and its
business. Information provided by the Company from time to time may contain
certain "forward-looking" information, as that term is defined by (i) the
Private Securities Litigation Reform Act of 1995 (the "Act") and (ii) in
releases made by the Securities and Exchange Commission (the "SEC"). These
cautionary statements are being made pursuant to the provisions of the Act and
with the intention of obtaining the benefits of the "safe harbor" provisions of
the Act.
VARIABILITY OF QUARTERLY OPERATING RESULTS. The Company's quarterly operating
results may vary significantly from quarter to quarter, depending upon factors
such as the introduction and market acceptance of new products and new versions
of existing products, the ability to reduce expenses, and the activities of
competitors. Because a high percentage of the Company's expenses are relatively
fixed in the near term, minor variations in the timing of orders and shipments
can cause significant variations in quarterly operating results. The Company
operates with little or no backlog and has no long-term contracts.
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 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, some of which could depart
from the Company's traditional business model. 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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
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 be available on terms
and conditions acceptable to the Company. Acquisitions involve numerous risks,
including, among other things, possible dilution to existing shareholders,
difficulties and expenses incurred in connection with the acquisitions and the
subsequent assimilation of the operations and services or products of the
acquired companies, the difficulty of operating new (albeit related) businesses,
the diversion of management's attention from other business concerns and the
potential loss of key employees of the acquired company. In the event that the
operations of an acquired business do not live up to expectations, the Company
may be required to restructure the acquired business or
write-off the value of some or all of the assets of the acquired business.
There can be no assurance that any acquisition will be successfully integrated
into the Company's operations.
RISKS ASSOCIATED WITH DIVESTITURES. The Company's product offerings presently
may be divided between two principal product families - those related to its
Mathcad line addressing the calculation needs of the technical, professional and
education markets, and 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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
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, approximately 28% of
the Company's total revenues in the fiscal year ended December 31, 1998, and
approximately 29% for the three months ended March 31, 1999, 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.
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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
CAUTIONARY STATEMENTS
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.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K dated January 11, 1999 reporting
results for the three-months ended December 31, 1998.
The Company filed a Current Report on Form 8-K dated April 20, 1999 reporting
fiscal first quarter results.
<PAGE>
MATHSOFT, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C>
MATHSOFT, INC.
Dated: May 7, 1999. . . . . . . . . . . . . . . . . By /s/ Charles J. Digate
-------------------------
Charles J. Digate
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 7, 1999. . . . . . . . . . . . . . . . . By /s/ Robert P. Orlando
-------------------------
Robert P. Orlando
Senior Vice President Finance and Administration,
Chief Financial Officer, Treasurer, and Clerk
(Principal Financial and Accounting Officer)
</TABLE>
MATHSOFT, INC. AND SUBSIDIARIES
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ------------ -----------
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 5,787,638
<SECURITIES> 0
<RECEIVABLES> 4,567,554
<ALLOWANCES> 0
<INVENTORY> 254,585
<CURRENT-ASSETS> 12,545,646
<PP&E> 7,432,588
<DEPRECIATION> 6,279,770
<TOTAL-ASSETS> 14,156,475
<CURRENT-LIABILITIES> 6,655,038
<BONDS> 0
0
0
<COMMON> 97,655
<OTHER-SE> 7,317,476
<TOTAL-LIABILITY-AND-EQUITY> 14,156,475
<SALES> 5,276,947
<TOTAL-REVENUES> 6,539,374
<CGS> 805,352
<TOTAL-COSTS> 1,194,793
<OTHER-EXPENSES> 4,738,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,668
<INCOME-PRETAX> 647,492
<INCOME-TAX> 10,080
<INCOME-CONTINUING> 637,412
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 637,412
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
<PAGE>
</TABLE>
