<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - QSB
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23446
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
----------------------------------
(Exact Name as registrant specified in its charter)
CALIFORNIA 94-3008888
---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
999 BAKER WAY, FIFTH FLOOR, SAN MATEO, CALIFORNIA 94404
(Address of principal executive offices) (Zip code)
(650) 578-0700
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of September 30, 1997:
<TABLE>
<CAPTION>
OUTSTANDING
CLASS SEPTEMBER 30, 1997
----- ------------------
<S> <C>
Common Stock, no par value 2,953,955
</TABLE>
This is Page 1 of 15 Pages.
The Index to Exhibits begins on Page 15
<PAGE> 2
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
QUARTERLY REPORT ON FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
- -----------------------------------------------------------------------------------
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
As of September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statements of Operations -
Three months ended September 30, 1997 and 1996, and
Nine months ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
- -----------------------------------------------------------------------------------
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
- -----------------------------------------------------------------------------------
SIGNATURES 14
- -----------------------------------------------------------------------------------
</TABLE>
Page 2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 299,955 $ 689,611
Short term investments 286,651 1,639,065
Accounts receivable, less allowance for doubtful accounts 1,209,159 1,500,051
Refundable income taxes 127,035 400,669
Prepaid expenses and other assets 180,761 215,819
----------- -----------
Total current assets 2,103,561 4,445,215
Property and equipment, net 976,297 1,152,302
Acquired technology and software development costs, net 690,891 903,346
Other assets 221,034 208,384
----------- -----------
$ 3,991,783 $ 6,709,247
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 319,573 $ 344,266
Accrued and other current liabilities 264,544 595,252
Deferred revenue 1,358,376 1,475,273
----------- -----------
Total current liabilities 1,942,493 2,414,791
----------- -----------
Shareholders' equity:
Common stock 5,058,989 4,921,208
Unrealized gain on investments 651 --
Accumlated deficit (3,010,350) (626,752)
----------- -----------
Total shareholders' equity 2,049,290 4,294,456
----------- -----------
$ 3,991,783 $ 6,709,247
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Page 3
<PAGE> 4
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Product license fees $ 365,173 $ 958,087 $ 1,337,803 $ 1,453,107
Product maintenance fees 835,294 783,832 2,544,186 2,559,698
Consulting services 35,022 58,203 110,784 374,744
----------- ----------- ----------- -----------
Total revenue 1,235,489 1,800,122 3,992,773 4,387,549
Cost of revenue 233,577 285,512 699,503 808,984
----------- ----------- ----------- -----------
Gross profit 1,001,912 1,514,610 3,293,270 3,578,565
----------- ----------- ----------- -----------
Operating expenses:
Research and development 453,052 568,693 1,691,204 1,411,339
Sales and marketing 743,912 804,410 2,861,728 2,036,442
General and administrative 386,870 359,908 1,189,586 1,014,930
----------- ----------- ----------- -----------
Total operating expenses 1,583,834 1,733,011 5,742,518 4,462,711
----------- ----------- ----------- -----------
Operating loss (581,922) (218,401) (2,449,248) (884,146)
----------- ----------- ----------- -----------
Other income (expense):
Interest income net of interest expense 33,897 35,686 68,905 107,368
Foreign exchange gain (loss), net (9,574) 19,705 (2,177) (36,761)
----------- ----------- ----------- -----------
Total other income 24,323 55,391 66,728 70,607
----------- ----------- ----------- -----------
Loss before income taxes (557,599) (163,010) (2,382,520) (813,539)
Income tax expense (benefit) 0 1,822 1,080 (156,414)
----------- ----------- ----------- -----------
Net loss $ (557,599) $ (164,832) $(2,383,600) $ (657,125)
=========== =========== =========== ===========
Net loss per share $ (0.19) $ (0.06) $ (0.81) $ (0.23)
=========== =========== =========== ===========
Shares used in computing net loss per share 2,946,040 2,894,273 2,936,025 2,875,060
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Page 4
<PAGE> 5
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,383,600) $ (657,125)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization 523,807 434,849
Changes in operating assets and liabilities:
Accounts receivable, net 290,892 (335,923)
Refundable income taxes 273,634 (164,391)
Prepaid expenses and other assets 22,408 (29,605)
Trade accounts payable (24,693) 291,624
Accrued and other liabilities (330,708) (347,013)
Deferred revenue (116,897) (115,291)
----------- -----------
Net cash used for operating activities (1,745,157) (922,875)
----------- -----------
Cash flows from investing activities:
Short-term investments, net 1,353,065 (754,572)
Capitalization of software development costs (66,449) (378,667)
Purchases of property and equipment (68,898) (141,451)
----------- -----------
Net cash provided by (used for) investing activities 1,217,718 (1,274,690)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of stock 137,783 257,927
----------- -----------
Net decrease in cash and cash equivalents (389,656) (1,939,638)
Cash and cash equivalents at beginning of period 689,611 2,124,525
----------- -----------
Cash and cash equivalents at end of period $ 299,955 $ 184,887
=========== ===========
</TABLE>
The accompanying notes are an integral part of the
condensed consolidated financial statements.
Page 5
<PAGE> 6
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The Consolidated Financial Statements of ENlighten Software Solutions, Inc. and
Subsidiary (the "Company") included in the Company's Form 10-KSB for the year
ended December 31, 1996 contain additional information about the Company, its
operations, and its financial statements and accounting practices, and should be
read in conjunction with this Quarterly Report on Form 10-QSB. The balance sheet
at December 31, 1996 was derived from audited financial statements; however, it
does not include all disclosures required by generally accepted accounting
principles. These interim unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions for Form 10-QSB and
therefore certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim financial information
contained herein is not necessarily indicative of results for any future period.
The accompanying unaudited condensed consolidated financial statements of the
Company reflect all adjustments of a normal recurring nature which are, in the
opinion of management, necessary to present a fair statement of the financial
position as of September 30, 1997, and the results of operations and cash flows
for the interim periods presented.
2. Revenue Recognition
Product license fees are recognized after the following events have occurred: a
product evaluation has been shipped to the customer; the customer elects to
purchase the software following an evaluation period; the customer signs the
related contract; and collection of the sales price is probable. Product
maintenance fees committed as part of new product licenses and maintenance
resulting from renewed maintenance contracts are deferred and recognized ratably
over the contract period, generally one year. Consulting service revenue is
recognized when services are performed for time and material contracts and on a
percentage of completion basis for fixed price contracts.
3. Cash and Cash Equivalents
The Company considers all liquid investments purchased with an original maturity
of three months or less to be cash equivalents.
The Company has classified its investments in preferred stock as
"available-for-sale." Such investments are recorded at fair market value based
on quoted market prices, with unrealized gains and losses reported as a separate
component of stockholders' equity.
4. Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated on the
straight-line basis over the estimated useful lives of the assets, generally
five years. Leasehold improvements are amortized on a straight-line basis over
the lease term or the estimated useful life of the asset, whichever is less.
Page 6
<PAGE> 7
ENLIGHTEN SOFTWARE SOLUTIONS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Acquired Technology and Software Development Costs
A summary of acquired technology and software development costs as of September
30, 1997 and December 31, 1996 follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------- ----------
<S> <C> <C>
Acquired technology $ 475,000 $ 475,000
Software development costs 1,579,182 1,512,733
---------- ----------
2,054,182 1,987,733
---------- ----------
Less accumulated amortization:
Acquired technology 374,374 334,999
Software development costs 988,917 749,388
---------- ----------
1,363,291 1,084,387
---------- ----------
$ 690,891 $ 903,346
========== ==========
</TABLE>
6. Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) recently issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 replaces the presentation of primary earnings per share and requires the
presentation of basic earnings per share ("EPS") and, for companies with complex
capital structures or potentially dilutive securities, such as convertible debt,
options and warrants, diluted EPS. SFAS No. 128 is effective for annual and
interim periods ending after December 15, 1997 and requires restatement of all
prior period earnings per share data presented after the effective date. Had
SFAS No. 128 been effective for the quarter ended September 30, 1997, basic EPS
and diluted EPS would not have been significantly different from the reported
net loss per share.
On July 1, 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of comprehensive
income and its components (including revenues, expenses, gains, and losses) in a
full set of general purpose financial statements. This statement is effective
for fiscal years beginning after December 15, 1997, with earlier application
permitted.
Page 7
<PAGE> 8
The FASB also recently issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which supersedes SFAS No. 14, "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 changes current
practice under SFAS No. 14 by establishing a new framework on which to base
segment reporting and also requires interim reporting of segment information.
SFAS 131 is effective for fiscal years beginning after December 31, 1997, with
earlier application encouraged. The statement's interim reporting disclosures
would not be required until the first quarter immediately subsequent to the
fiscal year in which SFAS No. 131 is effective. The Company is currently
evaluating the impact of these statements on the financial statements.
7. Subsequent Event
On September 22, 1997, the Company entered into an Agreement (the "Agreement")
with New Dimension Software, Inc., a California corporation ("NDS"), a wholly
owned subsidiary of New Dimension Software, Ltd., a publicly-held company that
develops, markets, and supports integrated software solutions that allow
information technology organizations to manage data center production flow
end-to-end, pursuant to which NDS will acquire the Company's Tandem software
products and related equipment. Under the terms of the Agreement, effective
October 1, 1997, NDS paid the Company an initial amount of approximately $2.5
million with additional payments over the subsequent three-year period based
upon various performance objectives.
Page 8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis Of Financial Condition and
Results Of Operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical results or those anticipated. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed under the heading "Risk Factors" contained in the Company's 1996
Report on Form 10-KSB. In this report, the words "anticipates", "believes",
"expects", "intends", "future", and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
The following discussion should be read in conjunction with the attached
consolidated financial statements and notes thereto, and with the audited
financial statements and notes thereto of the Company for the year ended
December 31, 1996 included in the Company's Form 10-KSB.
OVERVIEW
ENlighten Software Solutions, Inc. develops, markets, and supports
software products designed to automate the management of computer systems used
by some of the world's largest companies in banking, finance,
telecommunications, health care, information technology, and other major
industries. ENlighten Software offers systems management and administration
solutions for the UNIX and NT, as well as the Tandem systems markets. The
Company's product solutions allow companies to manage their information systems
by enabling systems managers and administrators to control their systems from
diverse platforms such as Sun Microsystems, IBM, Hewlett-Packard, Silicon
Graphics, Digital Equipment Corporation, Santa Cruz Operation (SCO), and
Microsoft Windows NT. The Company develops software products internally and
enhances and packages other software products it acquires.
On September 22, 1997, the Company entered into a definitive agreement
with New Dimension Software, Inc. providing for New Dimension's purchase of
ENlighten's Tandem systems management software product line, effective October
1, 1997. Under the terms of the Agreement, effective October 1, 1997, NDS paid
the Company an initial amount of approximately $2.5 million with additional
payments over the subsequent three-year period based upon various performance
objectives. The sale of the Tandem product line also included the transfer of
approximately 12 employees associated with ENlighten's Tandem operations to New
Dimension.
The following statements regarding the Company's future revenues,
expenses, and net income are forward-looking statements, and actual results may
vary substantially depending upon a variety of factors described in this
paragraph and elsewhere in this report.
Prior to its disposition, the Company's Tandem product line provided the
substantial majority of the Company's revenue. The Company now intends to expand
its market presence by focusing its resources on the development, support,
marketing, and distribution of its UNIX/NT product line. Concurrently, the
Company is shifting its sales model from using primarily direct field sales to
employing primarily indirect channels, relying on third parties (OEMs, VARs
system integrators, applications software vendors, and resellers) to distribute
the Company's products. The Company intends to expand its engineering and
technical service departments in order to effectively maintain and support an
anticipated expansion of its customer base as a result of the distribution of
its product through indirect channels.
Page 9
<PAGE> 10
The sales cycle associated with an indirect sales model is considerably
longer than those associated with a direct sales model. Consequently, this may
require the Company to incur substantial additional operating expenses prior to
its receipt of material additional revenues, if any, resulting from those
expenditures. The Company expects that these expenses will be incurred prior to
earning any related revenue and, therefore, may adversely affect the Company's
quarterly net income from operations in future periods.
The success of the Company's strategy is dependent on the Company's
ability to expand its indirect sales, technical services, and engineering
organizations and to establish indirect distribution channels, including OEMs,
VARs system integrators, applications software vendors, and resellers. If the
Company is unable to expand its indirect sales, technical services, and
engineering organizations and develop appropriate distribution channels on a
timely basis, the Company's business, operating results and financial condition
would be materially adversely affected.
The Company will derive a substantial majority of its revenues from its
ENlighten for UNIX Distributed Systems ManagerTM ("DSM") software product and
related services, and the Company expects that revenues from DSM will continue
to account for a majority of the Company's revenues for the foreseeable future.
Broad market acceptance of DSM is, therefore, critical to the Company's future
success. As a result, failure to achieve broad market acceptance of DSM, as a
result of competition, technological change, or otherwise, would have a material
adverse effect on the business, operating results and financial condition of the
Company. The life cycle of DSM is difficult to estimate due in large measure to
the recent emergence of the Company's market, the effect of new products,
applications or product enhancements, technological changes in the distributed
system management environment in which DSM operates and future competition.
There can be no assurance that the Company will be successful in marketing DSM
or any new products, applications, or product enhancements.
VARIABILITY OF QUARTERLY RESULTS
The Company has experienced significant quarterly fluctuations in
operating results and expects that these fluctuations will continue in future
periods. These fluctuations have been caused by a number of factors, including
the timing of new product or product enhancement introductions by the Company or
its competitors, purchasing patterns of its customers, size and timing of
individual orders, the rate of customer acceptance of new products, and pricing
and promotion strategies undertaken by the Company or its competitors. Future
operating results may fluctuate as a result of these and other factors,
including the Company's ability to continue to develop, acquire, and introduce
new products on a timely basis. Additionally, the Company's operating results
may be influenced by seasonality (principally in Europe where sales are
typically lower in the summer months) and overall trends in the global economy.
Because the Company operates with a relatively small backlog, quarterly sales
and operating results generally depend on the volume and timing of orders
received during the quarter, which are difficult to forecast.
RESULTS OF OPERATIONS
Total revenue. Total revenue decreased 31% from $1,800,000 for the three
months ended September 30, 1996, to $1,235,000 for the three months ended
September 30, 1997, and decreased 9% from $4,388,000 for the nine months ended
September 30, 1996, to $3,993,000, for the nine months ended September 30, 1997.
The decrease in total revenue was primarily a result of declines in product
license fees and consulting fees.
Page 10
<PAGE> 11
Product license fees decreased 62% from $958,000 for the three months
ended September 30, 1996 to $365,000 for the three months ended September 30,
1997 and decreased 8% from $1,453,000 for the nine months ended September 30,
1996 to $1,338,000 for the nine months ended September 30, 1997. License fees
were impacted by a higher than normal turnover rate in the sales and marketing
organization at both the staff and executive management levels and was also
negatively affected by the pending disposition of the Tandem product line.
Additionally, the third quarter of 1996 included significant revenue from a
license to one customer for which there was no comparable significant single
sale in the third quarter of 1997. Product license fees from the Company's
Tandem product line decreased by $399,000 for the nine months ended September
30, and was partially offset by a $284,000 increase in the Company's UNIX
product, ENlighten for UNIX - Distributed Systems ManagerTM ("DSM"). DSM
generated license fees of $391,000 in the nine months ended September 30, 1997.
Revenue from consulting services decreased 40% from $58,000 for the
three months ended September 30, 1996 to $35,000 for the three months ended
September 30, 1997 and decreased 70% from $375,000 for the nine months ended
September 30, 1996 to $111,000 for the nine months ended September 30, 1997. The
decrease is due to a restructuring of the services division that resulted in the
termination of high level custom development services projects by the end of the
first quarter of 1996. The Company expects continued decreasing consulting
service revenue as it continues to terminate Tandem related services projects
and restructures its service division to focus on service projects closely
related to its UNIX/NT product.
Cost of revenue. Cost of revenue decreased 18% from $286,000 for the
three months ended September 30, 1996 to $234,000 for the three months ended
September 30, 1997 and decreased 14% from $809,000 for the nine months ended
September 30, 1996 to $700,000 for the nine months ended September 30, 1997.
This decrease is attributable to a decrease in costs associated with consulting
services. Costs of consulting services were reduced commensurate with the
decrease in consulting revenue. The decrease in consulting services costs was
partially offset by an increase in amortization related to capitalized costs
from internally developed software. The increase in amortization is a result of
the release of various internally developed products.
Research and development. Research and development expenditures
decreased by 20% from $569,000 for the three months ended September 30, 1996 to
$453,000 for the three months ended September 30, 1997 and increased 20% from
$1,411,000 for the nine months ended September 30, 1996 to $1,691,000 for the
nine months ended September 30, 1997. The decrease in the comparative quarters
is related to a reduction in personnel, particularly contractors. The increase
in the nine months ended September 30, is a result of a $313,000 reduction in
capitalized software development costs which was partially offset by a $33,000
decrease in gross research and development costs. The Company believes that a
significant level of research and development investment is required as the
Company expands the market penetration of its DSM product and to remain
competitive. Thus, it expects such expenses related to the DSM product will
increase in future periods, although they will be partially offset by a decrease
in such expenses as a result of the disposition of the Tandem product line.
Sales and marketing. Sales and marketing expenses decreased 8% from
$804,000 for the three months ended September 30, 1996 to $744,000 for the three
months ended September 30, 1997 and increased 41% from $2,036,000 for the nine
months ended September 30, 1996 to $2,862,000 for the nine months ended
September 30, 1997. The decrease for the comparative quarters was primarily due
to decreased sales commissions as a result of lower revenue and a reduction in
personnel in the sales organization. This decrease was partially offset by
increased expense related to the Company's UK subsidiary, which was a result of
an increase in personnel and increased marketing expenses. The increase in sales
and marketing expenses for the nine months ended September 30, is mainly
attributable to an increase in expenses related to the Company's UK subsidiary
including the addition of
Page 11
<PAGE> 12
senior management positions and the undertaking of several new marketing
initiatives. Additionally sales and marketing expenses in the first nine months
of 1996 reflected lower personnel costs due to a reduction in force in January
1996. An expansion of the worldwide sales and marketing force began during the
third quarter of 1996.
General and administrative. General and administrative expenses
increased 7% from $360,000 for the three months ended September 30, 1996 to
$387,000 for the three months ended September 30, 1997 and increased 17% from
$1,015,000 for the nine months ended September 30, 1996 to $1,190,000 for the
nine months ended September 30, 1997. The increase in expenses was due to
increased legal fees related to legal proceedings against a third party
developer described in the Company's Form 10-KSB for the year ended December 31,
1996.
Provision for income taxes. The Company recognized a net tax benefit of
$156,000 in the first nine months of 1996. A tax benefit was recognized due to
the Company's ability to recover previously paid income taxes and no similar tax
benefit exists in 1997. The tax expense for the nine months of 1997 is a result
of tax expense related to foreign jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and short-term investments totaled
$587,000 at September 30, 1997, and represented 15% of total assets. Cash and
cash equivalents are highly liquid with original maturities of ninety days or
less. Short-term investments consist mainly of investment grade commercial
paper. At September 30, 1997, the Company had no long-term debt and
shareholders' equity was $2,049,000.
During the first nine months of 1997 the Company's operating activities
used cash of $1,745,000, compared to cash used by operating activities of
$923,000 in the same period of the prior year. The change is principally related
to an increased net loss for the nine months ended September 30, 1997.
The Company's investing activities have consisted primarily of sales of
short-term investments, capitalization of software development costs, and
expenditures for capital equipment. Investing activities provided cash of
$1,218,000 for the nine months ended September 30, 1997, compared with using
cash of $1,275,000 in same period in 1996. The change is due to an increase in
sales of short-term investments and a decrease in capitalization of software
development costs during the nine months ended September 30, 1997, when compared
to the same period in 1996.
Financing activities provided cash of $138,000 in the nine months ended
September 30, 1997, compared with providing cash of $258,000 for the same period
in the prior year. The change is primarily due to a decrease in the proceeds
from exercises of employee stock options.
The Company believes that its cash, cash equivalents, and short-term
investment balances, the proceeds from the sale of the Tandem product line and
funds from operations, if any, will be sufficient to meet the Company's
projected working capital and capital expenditure requirements at least through
June 30, 1998. Thereafter the Company may require additional funds to support
its working capital requirements or for other purposes and may seek to raise
such additional funds through public or private equity financing or from other
sources. There can be no assurance that additional financing will be available
at all or that, if available, such financing will be obtainable on terms
favorable to the Company.
Page 12
<PAGE> 13
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
FORM 10-QSB, SEPTEMBER 30, 1997
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
In January 1997, the Company was served with two complaints and demands for
arbitration from TRIicon Solutions, Inc. ("TSI"). In the first complaint, TSI
requested arbitration in order to confirm the termination of a distribution
agreement entered into by and between the Company and TSI in August 1993. The
Company filed a response and counter-claim in February 1997 asserting the
termination by TSI was improper and a breach of contract for which it seeks
compensation from TSI. In the second complaint, TSI requested arbitration in
order to confirm the termination of an agreement for use of technology by and
between TSI and the Company entered into in February 1994. The Company filed a
response and counter-claim in February 1997 asserting the termination by TSI was
improper and a breach of contract for which it seeks compensation from TSI.
In June 1997 the parties agreed to mutually terminate the agreement for use of
technology by and between TSI and the Company entered into in February 1994, and
to drop all claims and counter-claims with respect to such agreement. Each party
agreed to bear its own costs associated with this complaint and counter-claim.
An arbitration hearing before the American Arbitration Association was held in
July 1997 with respect to the distribution agreement entered into by and between
the Company and TSI in August 1993. It was determined that the distribution
agreement was properly terminated by TSI and TSI was not in violation of breach
of contract. Additionally, damages were not awarded to either party and each
party was ordered to bear its own legal costs.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Index of Exhibits on Page
15 are filed or incorporated by reference as part of this report.
Exhibit numbers 10.21, 10.21.1, 10.22, 10.23, 10.24, 10.25, and
10.26 are management contracts or compensatory plans or
arrangements.
(b) Reports on Form 8-K
During the quarter ended September 30, 1997, the Company did not
file any reports on Form 8-K.
ITEMS 2, 3, 4, AND 5 HAVE BEEN OMITTED AS THEY ARE NOT APPLICABLE.
Page 13
<PAGE> 14
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
FORM 10-QSB, SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
ENlighten Software Solutions, Inc.
DATE: _________________________ SIGNATURE: /s/ David D. Parker
-----------------------
David D. Parker
Chief Executive Officer
DATE: _________________________ SIGNATURE: /s/ Michael A. Morgan
-----------------------
Michael A. Morgan
Chief Financial Officer
Page 14
<PAGE> 15
ENLIGHTEN SOFTWARE SOLUTIONS, INC.
FORM 10-QSB, SEPTEMBER 30, 1997
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.21(1)@ Employment letter and Termination and Change in Control Agreement, dated March 4,
1996, by and between ENlighten Software Solutions, Inc. and Byron E. Jacobs.
10.21.1(2)@ Amendment to Employment letter and Termination and Change in Control Agreement,
dated November 6, 1996, by and between ENlighten Software Solutions, Inc. and
Byron E. Jacobs.
10.22(1)@ Nonqualified Stock Option Agreement, dated March 4, 1996, by and between
ENlighten Software Solutions, Inc. and Byron E. Jacobs.
10.23(1)@ Incentive Stock Option Agreement, dated March 4, 1996, by and between ENlighten
Software Solutions, Inc. and Byron E. Jacobs.
10.24(2)@ Termination and Change in Control Agreement, dated April 24, 1996, by and
between ENlighten Software Solutions, Inc. and Michael A. Morgan.
10.25(2)@ Employment letter, dated December 27, 1996, by and between ENlighten Software
Solutions, Inc. and Mark Himelstein.
10.26(2)@ Nonqualified Stock Option Agreement, dated December 27, 1996, by and between
ENlighten Software Solutions, Inc. and Mark Himelstein.
10.27(3) Agreement dated as of September 22, 1997 by and among ENlighten
Software Solutions, Inc., Peter J. McDonald and New Dimension
Software, Inc.
</TABLE>
- -------------------------------
(1) Incorporated by reference from an exhibit of the same number in the
Company's Quarterly Report on Form 10-QSB for the quarter ended March
31, 1996.
(2) Incorporated by reference from an exhibit of the same number in the
Company's Annual Report on Form 10-KSB for the year ended December 31,
1996.
(3) Incorporated by reference from exhibit 10.27 in the Company's
Current Report on Form 8-K dated October 1, 1997.
@ Compensatory or employment arrangement.
Page 15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 299,955
<SECURITIES> 286,651
<RECEIVABLES> 1,209,159
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,103,561
<PP&E> 2,516,801
<DEPRECIATION> 1,540,504
<TOTAL-ASSETS> 3,991,783
<CURRENT-LIABILITIES> 1,942,493
<BONDS> 0
0
0
<COMMON> 5,058,989
<OTHER-SE> 651
<TOTAL-LIABILITY-AND-EQUITY> 3,991,783
<SALES> 3,992,773
<TOTAL-REVENUES> 3,992,773
<CGS> 699,503
<TOTAL-COSTS> 699,503
<OTHER-EXPENSES> 5,742,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,382,520)
<INCOME-TAX> 1,080
<INCOME-CONTINUING> (2,383,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,383,600)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
