<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
--------------------------
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, 1996
Commission File Number 0-23098
--------------------------
SOFTDESK, INC.
(Exact name of registrant as specified in its charter)
Delaware 02-0390273
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
7 Liberty Hill Road
Henniker, New Hampshire 03242
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (603) 428-5000
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
--- ---
As of May 10, 1996 issuer had outstanding 5,995,960 shares of Common Stock.
This Form 10-Q contains 14 pages (excluding the EDGAR Financial Data Schedule
which is Exhibit 27). The Exhibit Index is on page 13.
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<PAGE>
SOFTDESK, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I - Financial Information
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. 3
Condensed Consolidated Statements of Income for the three
months ended March 31, 1996 and 1995. 4
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995. 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K 12
Signatures 12
Exhibit Index 13
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
SOFTDESK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31, December 31,
Notes 1996 1995
----- ------------------ ------------------
(unaudited) (audited)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 3,815 $ 4,800
Short-term investments 7,558 7,575
Accounts receivable 9,495 11,060
Inventory 719 671
Prepaid expenses and other current assets 1,496 1,402
Deferred income taxes 751 751
------------------ ------------------
Total current assets 23,834 26,259
------------------ ------------------
Plant, property and equipment, at cost:
Land 401 409
Buildings and improvements 2,089 2,002
Equipment 6,310 5,853
Furniture and fixtures 283 414
------------------ ------------------
9,083 8,678
Less: Accumulated depreciation (4,213) (4,085)
------------------ ------------------
4,870 4,593
Long-term investments 4,430 4,815
Deferred income taxes 103 103
Other assets, net 250 247
------------------ ------------------
Total assets $ 33,487 $ 36,017
------------------ ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of mortgage payable $ 34 $ 34
Accounts payable 1,806 3,122
Accrued expenses 4,278 5,179
Customer advances 1,351 1,350
Accrued income taxes 74 876
------------------ ------------------
Total current liabilities 7,543 10,561
------------------ ------------------
Mortgage payable, less current maturities 1,181 1,193
Commitments
Stockholders' equity: 3
Preferred stock, $.01 par value - - -
Authorized - 1,000,000 shares; Issued - none.
Common stock, $.01 par value -
Authorized - 15,000,000 shares
Issued and outstanding - 5,995,476 shares and
5,980,380 shares at March 31, 1996 and
December 31, 1995, respectively 60 60
Additional paid-in capital 21,490 21,353
Retained earnings 3,305 2,973
Cumulative translation adjustment (92) (123)
------------------ ------------------
Total stockholders' equity 24,763 24,263
------------------ ------------------
Total liabilities and stockholders' equity $ 33,487 $ 36,017
================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
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SOFTDESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Notes 1996 1995
----- ---------- ----------
<S> <C> <C> <C>
NET REVENUES $ 8,953 $ 9,325
COST OF REVENUES 1,454 1,211
--------- ---------
Gross Profit 7,499 8,114
OPERATING EXPENSES:
Selling and marketing expenses 3,706 3,212
Product development expenses 2,533 2,348
General and administrative expenses 847 676
---------- ----------
Income from operations 413 1,878
INTEREST INCOME 146 160
INTEREST EXPENSE 24 14
---------- ----------
Income before provision for income taxes 535 2,024
PROVISION FOR INCOME TAXES 203 819
---------- ----------
NET INCOME $ 332 $ 1,205
========== ==========
NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE 4 $ 0.05 $ 0.20
========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 4 6,067 6,116
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
SOFTDESK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
Notes 1996 1995
----- ---------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 332 $ 1,205
Adjustments to reconcile net income to cash provided
by operating activities:
Depreciation and amortization 258 493
Foreign currency translation 23 (89)
Changes in assets and liabilities, net of assets
acquired in connection with the acquisition of
Foresight Resources Corp.:
Accounts receivable 1,565 (1,485)
Inventory (48) (65)
Prepaid expenses and other current assets (94) (308)
Accounts payable (1,316) -
Accrued expenses 1 (901) 42
Customer advances 1 221
Accrued income taxes (802) 609
---------- ----------
Net cash provided by (used in) operating
activities (982) 623
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (535) (1,692)
Increase in other assets (3) (84)
Cash acquired from the acquisition of Foresight
Resources Corp. - 28
Decrease (increase) in short term investments 17 (2,694)
Decrease in long term investments 385 1,777
---------- ----------
Net cash used in investing activities (136) (2,665)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock in connection
with the exercise of common stock options 137 124
Payments of notes payable - (1,473)
Proceeds (payments) on mortgage payable (12) 1,084
---------- ----------
Net cash provided by (used in) financing activities 125 (265)
---------- ----------
EFFECT OF FOREIGN CURRENCY TRANSLATION 8 (44)
---------- ----------
Net decrease in cash and cash equivalents (985) (2,351)
Cash and cash equivalents, beginning of period 4,800 4,209
---------- ----------
Cash and cash equivalents, end of period $ 3,815 $ 1,858
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash used for interest $ 24 $ 14
========== ==========
Cash used for income taxes $ 988 $ 173
========== ==========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
In January 1996, the Company acquired SOFT-TECH
Software Technologie GmbH which was accounted for as a
pooling of interests. 2
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<PAGE>
SOFTDESK, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed consolidated financial statements presented have
been prepared by Softdesk, Inc. and subsidiaries (the Company) and, in the
opinion of management, reflect all adjustments consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
results for the interim periods shown. The results of operations for the interim
periods shown in this report are not necessarily indicative of results for any
future interim periods or for the entire fiscal year. Certain amounts in the
1995 financial statements have been reclassified to conform to the 1996
presentation. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. Although the Company believes that the disclosures
included are adequate to make the information presented not misleading, the
condensed consolidated financial statements and the notes included herein should
be read in conjunction with the financial statements and notes for the fiscal
year ended December 31, 1995 and with the section entitled "Certain Factors That
May Affect Future Results" included in the 1995 Annual Report on Form 10-K.
2. Acquisition of SOFT-TECH Software Technologie GmbH
On January 22, 1996, the Company acquired SOFT-TECH Software Technologie
GmbH (SOFT-TECH), a German developer of architectural software for the European
marketplace. The Company exchanged 250,000 shares of common stock for all the
share capital of SOFT-TECH. The Company placed 25,000 shares into escrow as
security for indemnification obligations of the SOFT-TECH stockholders relating
to representations, warranties and tax matters. This acquisition has been
accounted for as a pooling of interests and accordingly the Company has restated
its historical consolidated financial statements.
3. Stockholders' Equity
(a) 1993 Stock Option Plan
In December 1993, the Company adopted the 1993 Equity Incentive Plan (the
1993 Plan). Under the terms of the 1993 Plan, the Company may grant either
incentive or nonqualified stock options to purchase common stock and restricted
common stock to employees and consultants. The Company originally reserved
750,000 shares for issuance under the 1993 Plan. In April 1996, the Board of
Directors of the Company approved an increase in the number of shares reserved
for issuance under the 1993 Plan to 1,150,000 shares. This increase is subject
to the approval of the Company's stockholders at the 1996 Annual Meeting of
Stockholders to be held on June 24, 1996 (the "Annual Meeting").
In addition, effective May 1, 1996 the Board of Directors of the Company
agreed to offer the then current employees an opportunity to forfeit existing
common stock options in exchange for new common stock options at the May 1, 1996
common stock closing price of $13.25. The new common stock options would be for
the same number of shares as the forfeited stock options and the vesting of the
new grant would mirror the vesting of the option forfeited. The maximum number
of shares covered by existing options
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anticipated to be forfeited and subsequently regranted is equal to approximately
468,000.
(b) Employee Stock Purchase Plan
In January 1996, the Board of Directors of the Company adopted the 1996
Softdesk, Inc. Employee Stock Purchase Plan (the "Employee Plan"). The Employee
Plan provides for 250,000 shares of the Company's common stock to be issued in a
series of offerings. Except for the initial offering, offering periods are 12
months in length commencing each January 1 and July 1 and expire when all shares
are issued. The initial offering commenced March 1, 1996 and is 10 months in
length. The price at which shares are sold in each offering will be 85% of the
closing price of the common stock on the first or last day of each offering
period, whichever is lower. Participants may have up to 10% of their qualifying
compensation deducted and set aside for purchasing shares in each offering under
the Employee Plan. The Employee Plan may be terminated by the Board of
Directors at any time and is subject to the approval of the Company's
Stockholders at the Annual Meeting.
4. Computation of Per Share Earnings
Income per common and common equivalent share is based upon net income for
the three months ended March 31, 1996 and 1995. Income per common and common
equivalent share has been determined, in accordance with the treasury stock
method, by dividing net income by the weighted average number of common and
common equivalent shares outstanding during the period computed. Fully diluted
and primary income per common share do not differ materially for any of the
periods presented.
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<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
On January 22, 1996 Softdesk acquired all the outstanding capital stock of
SOFT-TECH Software Technologie GmbH (SOFT-TECH), a German based developer of
professional architectural software. The transaction was accounted for as a
pooling of interests and Softdesk has therefore restated its historical
consolidated financial statements and financial information to reflect the
combined financial condition and results of operations of the two entities for
all periods presented. (See Note 2 to the Condensed Consolidated Financial
Statements.) The following discussions refer to the combined consolidated
Company. Management recommends that these discussions be read in conjunction
with its 1995 Annual Report on Form 10-K including the section entitled "Certain
Factors That May Affect Future Results".
Results of Operations: Three Months Ended March 31, 1996 and 1995
Net revenues decreased approximately 4% in the first quarter of 1996 as
compared to the same period in 1995. The overall revenue shortfall was
primarily attributable to the decrease in sales of the Company's high-range
professional software products, especially its products for the AutoCAD market
which historically have represented a majority of the Company's total revenues.
The Company believes that sales of its software for this market decreased during
the first quarter of 1996 because of delays in the final release of Autodesk's
AutoCAD release 13. In addition, the Company believes that the decline in the
high-range product sales was also a result of customers delaying their software
purchases until they completed their purchases of new computer hardware required
to transition from a DOS to a Windows operating environment, on which AutoCAD
release 13 and many of the Company's new releases of software are optimized.
Partially offsetting the decline in these software sales was an increase in
sales of the Company's low to mid-range product lines, including Retail
products, which the Company believes was attributable to the release of new
products during the quarter combined with an expansion of their "shelf space" in
the retail stores which offer these products for sale.
International revenues decreased approximately 15% during the first three
months of 1996 as compared with the same period in 1995 and declined to 28% of
net first quarter of 1996 revenues from 32% in the first quarter of 1995.
During the first quarter of 1996 revenues from Asia/Pacific and Other (rest of
world) increased while revenues from Europe and Canada declined, from their
respective levels during the first quarter of 1995. The decline in European
revenues was primarily a result of decreased sales in Germany of the Spirit
Software line which was in the final stages of a new release during the first
quarter of 1996. In order to bolster its European position, the Company plans
to open a sales office in the United Kingdom during the second quarter of 1996.
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The following table summarizes total revenues by geographic region:
<TABLE>
<CAPTION>
In thousands Q1 1996 Q1 1995
----------- -----------
<S> <C> <C> <C> <C>
United States $6,405 72% $6,325 68%
Europe 1,827 20 2,208 24
Asia Pacific 319 3 295 3
Other 249 3 165 1
Canada 153 2 332 4
------- --- ------- ---
$8,953 100% $9,325 100%
</TABLE>
The Company's revenues are primarily denominated in U.S. Dollars. However,
revenues and expenses for foreign operations, particularly the Company's German
subsidiary, are usually recorded in the applicable foreign currency and
translated with any applicable foreign exchange adjustments. There were no
foreign exchange transaction or translation gains or losses which were material
to the Company's financial results in either of the quarters ended March 31,
1996 and 1995. In addition, during these two periods the Company did not
experience any material effects caused by inflation.
Total costs and expenses, as a percentage of net revenues, increased to
approximately 95% of net revenues in the first quarter of 1996 from
approximately 80% of net revenues in the comparable quarter in 1995. As a
percentage of revenue, the 15 percentage point increase in total costs and
expenses consisted of a 3 percentage point increase in the cost of revenues and
a 12 percentage point increase in the other costs and expenses. These items are
discussed below. The number of employees at the end of the first quarter of
1996 was 2% greater than the number of employees at the end of the first quarter
of 1995, and this also contributed to the increase in other costs and expenses,
in absolute dollars. Headcount totaled 264 at the end of March 1996 as compared
to 260 at the end of March 1995. The headcount had decreased to 256 as of May
10, 1996.
Gross profit margin decreased to approximately 84% in the first quarter of
1996 from approximately 87% in the first quarter of 1995. The decrease was
primarily attributable to a shift in the overall product mix toward lower margin
products which included the Company's low to mid-range product lines and, to a
lesser extent, to the lack of the benefit caused by economies of scale which
usually occur with increasing revenues, as was the case during the first quarter
of 1995. Softdesk continues to monitor and react to market events and
developments in an attempt to improve its gross margin levels.
Selling and marketing expenses, which include distribution, marketing, and
training, increased 15% in the first quarter of 1996 from its total in the first
quarter of 1995 and increased, as a percentage of net revenues, to 41% from 34%,
in the comparable quarters. The increase in expenses was primarily a result of
increased trade show, public relations and advertising expenses. The increase
was also partially attributable to an increased average sales and marketing
headcount, which contributed to increased salary and travel costs. These
increases were partially offset by a decrease in total commission expense which
resulted from the decrease in sales in the first quarter of 1996. As Softdesk
attempts to expand its sales and marketing programs during 1996, in an effort to
increase its market share and revenues, increased expenditures in sales and
marketing are planned.
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<PAGE>
Product development expenses, which consist primarily of developers' wages
and benefits, increased approximately 8% in the first quarter of 1996 from its
total in the first quarter of 1995 and increased, as a percentage of net
revenues, to 28% from 25%, in the first quarter of 1996 and 1995, respectively.
The increase in expenses was due to the addition of development staff through
hiring and outside contracting. These additional resources were required to keep
pace with advancing changes in Windows and other operating environments as well
as to develop future products and upgrade releases.
There were no capitalized product development costs in either the first
quarter of 1996 or the first quarter of 1995 periods, as determined in
accordance with Statement of Financial Accounting Standards No. 86. The Company
intends either to increase its product development expenses in the remainder of
1996 or make acquisitions of third party technologies to keep pace with the
technological needs of the marketplace, to improve and expand the Company's
product lines and to respond to its customers' needs.
General and administrative expenses, which include the costs of the
Company's corporate finance, human resource and administrative functions,
increased 25% in the first quarter of 1996 from its total in the first quarter
of 1995, and increased, as a percentage of net revenues, to 9% from 7% in the
first quarters of 1996 and 1995, respectively. The increase in expenses was
primarily due to increased bad debt expense and higher professional fees which
have increased with the overall growth of the Company. These increases were
somewhat offset by savings generated by the continued centralization and
consolidation of administrative functions on a company-wide basis. Additional
resources will be invested in the general and administrative areas as required
by the Company's future growth.
Net interest income decreased approximately 16% in the first quarter of 1996
as compared to the first quarter of 1995, primarily due to significantly higher
interest expense in the first quarter of 1996 from a mortgage related to the
purchase of facility space in Germany in March 1995. In addition, the Company
had somewhat lower average cash balances earning interest during the first
quarter of 1996.
The Company's consolidated income tax decreased in the first quarter of 1996
approximately 75% as compared to the first quarter of 1995 due to the decreased
pretax earnings in the first quarter of 1996. The Company's effective income tax
rate decreased to approximately 38% in the first quarter of 1996 from 40% in the
first quarter of 1995 due primarily to the level of foreign earnings and taxes
thereon.
The Company's net income in the first quarter of 1996 was $332,000, or $.05
per share, as compared to net income in the first quarter of 1995 of $1,205,000,
or $.20 per share.
Liquidity and Capital Resources
The Company is currently satisfying its operating cash requirements from its
cumulative cash flow from operations and its existing cash balances. As of
March 31, 1996, the Company had cash, cash equivalents, short and long term
investments of $15,803,000 as compared to $17,190,000 at December 31, 1995.
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The decrease in total cash and investments during the first quarter of 1996
was primarily attributable to the Company's use of cash to purchase capital
assets, the payment of income taxes, funds used to complete the SOFT-TECH
acquisition, combined with an increase in the Company's accounts receivable and
DSO's (Day Sales Outstanding). During the quarter the Company received $137,000
from the exercise of stock options. During the same period the Company invested
a net $535,000 in the purchase of property and equipment.
The purchase of property and equipment was primarily related to the addition
of computer equipment and software including a new corporate MIS and
telecommunication system as well as to the expansion of facility space completed
in the first quarter of 1996. The Company is in the process of upgrading its
information and communication network in an attempt to improve its worldwide
communication and operations. The management of the Company plans to continue to
invest in these efforts during the next 12 months. In addition, the Company has
also committed to the expansion of its corporate headquarters. These
expenditures are not expected to have a material effect on the Company's overall
cash position or its operations during the next 12 months.
With the acquisition of SOFT-TECH the Company acquired a mortgage which
totaled $1,215,000 (as of March 31, 1996) on its product development facility in
Germany. The Company may repay part or all of this amount during the coming
year.
During the first quarters of 1996 and 1995 the Company invested its cash
reserves mainly in debt securities, with maturities of less than 2 years, issued
by the U.S. treasury, other U.S. government agencies and political subdivisions
of the states and municipalities. The Company expects to continue similar
conservative investment policies in the future.
The Company has an unsecured line of credit from First NH Bank for
$1,000,000 at the prime rate. There were no borrowings against this line of
credit as of March 31, 1996 nor as of the date of this report. The Company
believes that its existing cash, investments and projected funds from operations
will satisfy the Company's working capital and operating needs for at least the
next 12 months.
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PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1 Computation of Per Share Earnings.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated January 22, 1996
which was filed on February 6, 1996 regarding the acquisition of SOFT-
TECH Software Technologie GmbH. This report on Form 8-K was
subsequently amended by Form 8-K/A which was filed on April 8, 1996.
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 hereunto duly authorized.
SOFTDESK, INC.
Date: May 13, 1996 By: /s/ David C. Arnold
-------------------------
David C. Arnold,
President & Chief Executive Officer
Date: May 13, 1996 By: /s/ John A. Rogers
-------------------------
John A. Rogers,
Vice President, Finance
and Chief Financial Officer
(Principal financial and accounting officer)
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EXHIBIT INDEX
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Page
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11.1 Computation of Per Share Earnings 14
27 Financial Data Schedule (EDGAR) 15
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<PAGE>
EXHIBIT 11.1
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
Weighted Average Number of Shares
Outstanding 1996 1995
---------- ----------
<S> <C> <C>
Common Stock 5,987 5,919
Common equivalent shares resulting from
stock options issued
(treasury stock method) 80 197
---------- ----------
Total 6,067 6,116
========== ==========
Net income applicable to common stock $ 332 $ 1,205
========== ==========
Net income per common stock $ 0.05 $ 0.20
========== ==========
</TABLE>
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,815
<SECURITIES> 7,558
<RECEIVABLES> 9,495
<ALLOWANCES> 0
<INVENTORY> 719
<CURRENT-ASSETS> 23,834
<PP&E> 9,083
<DEPRECIATION> 4,213
<TOTAL-ASSETS> 33,487
<CURRENT-LIABILITIES> 7,543
<BONDS> 0
0
0
<COMMON> 60
<OTHER-SE> 24,703
<TOTAL-LIABILITY-AND-EQUITY> 33,482
<SALES> 8,953
<TOTAL-REVENUES> 8,953
<CGS> 1,454
<TOTAL-COSTS> 8,540
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> 535
<INCOME-TAX> 203
<INCOME-CONTINUING> 332
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 332
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
