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, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 0-26008
MYSOFTWARE COMPANY
STATE OF INCORPORATION: DELAWARE
IRS EMPLOYER I.D. NUMBER: 77-0195362
2197 E. BAYSHORE ROAD
PALO ALTO, CA 94303
(415) 473-3600
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
The number of shares outstanding of the registrant's common stock as of
September 30, 1996 was 4,231,366.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
MYSOFTWARE COMPANY
FORM 10-QSB
For the Quarterly Period Ended September 30, 1996
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of September 30, 1996 and December 31, 1995 3
b) Condensed Income Statements for the three
and nine months ended September 30, 1996 and 1995 4
c) Condensed Statements of Cash Flows for the nine
months ended Spetember 30, 1996 and 1995 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Part II. Other Information
Item 2. Changes in Securities 12
Item 6. Exhibits and reports on form 8-K 12
Signatures 13
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MYSOFTWARE COMPANY
CONDENSED BALANCE SHEETS
September 30, 1996 and December 31, 1995
(in thousands)
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,240 $ 7,794
Accounts receivable, net 2,827 2,525
Inventories 598 449
Other current assets 347 157
Deferred income taxes 449 449
------------- --------------
Total current assets 11,461 11,374
Property and equipment, net 272 215
Prepaid royalties and other 1,524 676
------------- --------------
Total assets $ 13,257 $ 12,265
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 892 $ 777
Accrued compensation 375 342
Other accrued liabilities 1,990 1,406
------------- --------------
Total current liabilities 3,257 2,525
Other liabilities 17 70
------------- --------------
Stockholder equity:
Preferred stock; $0.001 par value; 2,000,000
shares authorized; none outstanding ----- -----
Common stock; $0.001 par value;
20,000,000 shares authorized;
4,231,366 shares issued and outstanding 4 4
Additional paid-in capital 8,562 8,562
Retained earnings 1,417 1,104
------------ --------------
Total stockholders' equity 9,983 9,670
------------ --------------
Total liabilities and stockholders' equity $ 13,257 $ 12,265
============ ==============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED INCOME STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
-------------------- -------------------
Sept. 30, Sept. 30, Sept.30, Sept. 30,
1996 1995 1996 1995
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net revenues $ 4,274 $ 3,605 $ 10,442 $ 9,129
Cost of revenues 1,226 954 2,878 2,332
--------- --------- -------- ---------
Gross profit 3,048 2,651 7,564 6,797
--------- --------- -------- ---------
Operating expenses:
Product development 511 400 1,424 943
Sales and marketing 1,536 1,315 4,394 3,645
General and administrative 473 378 1,297 998
Write-off of acquired technology ---- ---- 255 ----
--------- --------- -------- ---------
2,520 2,093 7,370 5,586
--------- --------- -------- ---------
Operating income 528 558 194 1,211
Interest income, net 102 134 295 161
--------- --------- -------- ---------
Income before taxes 630 692 489 1,372
Income taxes expenses 230 270 176 18
--------- --------- -------- ---------
Net income $ 400 $ 422 $ 313 $ 1,354
========= ========= ======== =========
Net income per share $ 0.09 $ 0.10 $ 0.07
========= ========= ========
Shares used in computing
net income per share 4,331 4,394 4,310
========= ========= ========
Pro forma net income data (unaudited)
Income before taxes as reported $ 1,372
Pro forma income taxes 522
---------
Pro forma income $ 850
=========
Pro forma net income per share $ 0.22
=========
Shares used in computing pro forma 3,874
net income per share =========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
September 30,
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 313 $ 1,354
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 227 28
Provision for returns and doubtful accounts 573 (47)
Changes in operating assets and liabilities:
Accounts receivable (875) (432)
Inventories (149) (210)
Other current assets (190) (174)
Deferred income taxes --- (334)
Accounts payable 115 407
Accrued compensation 33 27
Other accrued liabilities 584 703
Deferred officers' compensation (53) (43)
--------- --------
Net Cash provided by
operating activities 578 1,279
--------- --------
Cash flows from investing activities:
Additions to property and equipment (143) (76)
Prepaid royalties (989) (293)
--------- --------
Net cash used for investing activities (1,132) (369)
--------- --------
Cash flows from financing activities:
Stockholder distributions --- (2,815)
Proceeds from sale of common stock --- 9,445
--------- --------
Net cash from financing activities --- 6,630
--------- --------
Net increase (decrease) in cash and cash equivalents (554) 7,540
Cash and cash equivalents at beginning of period 7,794 924
--------- --------
Cash and cash equivalents at end of period $ 7,240 $ 8,464
========= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
MYSOFTWARE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of financial position
and results of operations have been made. Operating results for interim periods
are not necessarily indicative of results which may be expected for a full
year. The information included in this Form 10-QSB should be read in
conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the 1995 consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K filed with
the Commission.
The prepartion of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reported period. Actual
results could differ from those estimates.
2. Income Taxes
The Company's income statements for the nine-month period ended September 30,
1995 included a $269,000 one-time net credit resulting from the establishment
of the Company's net deferred tax assets upon its conversion to a C corporation.
3. Pro Forma Information
The unaudited pro forma amounts included in the accompanying pro forma income
statement for the nine-month period ended September 30, 1995, reflect an
unaudited pro forma adjustment for the provision for income taxes as if the
Company had been a C Corporation, fully subject to federal and state income
taxes.
4. Pro Forma Per Share Computation
Pro forma net income per share is computed using pro forma net income (as
described in note 3) and is based on the weighted average number of shares of
common stock outstanding and common equivalent shares from the stock options
outstanding (using the treasury stock method). In accordance with certain
Securities and Exchange Commission (SEC) Staff Accounting Bulletins, such
computations include all common and common equivalent shares issued within 12
months of the offering date as if they were outstanding for all periods
presented using the treasury stock method and the anticipated IPO price. In
addition, the pro forma calculation includes 160,000 shares deemed to be
outstanding representing the number of shares (at the assumed initial public
offering price) sufficient to fund the final S Corporation distribution.
<PAGE>
5. Write-off of Acquired In-Process Research and Development
The income statement for the nine months ended September 30, 1996 includes a
one-time write-off of $255,000, resulting from the Company's acquisition of
technology which had not reached technology feasibility from MediaTech
Corporation, an Internet publishing tools company.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
This discussion contains forward-looking statements, which are subject to
certain risks and uncertainties, including without limitation those risks and
uncertainties described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1995, which has been filed with the Securities and
Exchange Commission. Actual results may differ significantly from those
discussed in the forward-looking statements.
Results of Operations
Three Months Ended September 30, 1996 and 1995
Net revenues for the three months ended September 30, 1996 increased
$669,000, or 19 percent, to $4.3 million, compared with net revenues of $3.6
million for the corresponding quarter in 1995. The increase in net revenues
resulted from increased sales to retailers and distributors of the Company's
existing product titles. During the quarter, the Company also benefited from
the introduction of three new products: MyInternetBusinessPage,
MyProfessionalMarketingMaterials, and Easy Custom Invoices.
Gross profit for the three months ended September 30, 1996 increased 15
percent to $3.0 million, from $2.7 million in the same period in 1995. Gross
margin for the third quarter was 71.3 percent, compared to 73.5 percent for
the same period in 1995. The decrease in the gross margin for the quarter
was primarily due to a change in the freight arrangements with certain
customers. The Company's gross margins vary primarily from period to period
due to changes in product mix, the timing and nature of promotional
activities, changes in product return levels, and the amortization of prepaid
royalties.
The Company's total operating expenses for the three months ended September
30, 1996 increased 20 percent to $2.5 million, from $2.1 million for the same
period of 1995. The increase in operating expenses resulted primarily from
continued investment in new product development and marketing, as well as an
increase in headcount. Product development expenses were up 28 percent to
$511,000 in the three months ended September 30, 1996, compared to $400,000
in the same period of 1995, primarily reflecting the Company's efforts to
upgrade its products to operate with Windows 95 as well as development of new
products.
Sales and marketing expenses increased 17 percent to $1.5 million in the
third quarter, from $1.3 million in the comparable 1995 quarter. Sales and
marketing expenses increased principally as a result of increased employee
expenses due to higher headcount. General and administrative expenses
increased 25 percent to $473,000 in the three months ended September 30,
1996, from $378,000 in the same period of 1995, primarily as a result of an
increase in headcount.
<PAGE>
Operating income was $528,000 for the three months ended September 30, 1996,
down 5 percent from operating income of $558,000 in the comparable period of
1995, reflecting higher operating expenses partially offset by increased net
revenues.
Interest income was $102,000 for the quarter ended September 30, 1996,
compared to $134,000 for the comparable period of 1995. The decrease in
interest income was due to lower cash balances in the 1996 period compared to
the 1995 period.
The Company reported an income tax expense for the three months ended
September 30, 1996 of $230,000 with an effective tax rate of 36 percent.
The lower tax accrual rate was due to the reinstatement of the research and
development tax credit starting July 1, 1996. Income tax expense in the three
months ended September 30, 1995 was $270,000.
The resulting net income for the three months ended September 30, 1996 was
$400,000, compared to net income of $422,000 in the comparable period in
1995, a 5 percent decrease.
Nine Months Ended September 30, 1996 and 1995
For the nine months ended September 30, 1996, net revenues increased $1.3
million, or 14 percent, to $10.4 million, compared with net revenues of $9.1
million for the corresponding period in 1995. The increase was primarily
attributable to increased sales of the Company's existing software titles, in
addition to new releases prior to and during the first nine months of 1996.
For the nine months ended September 30, 1996, gross profit increased 11
percent to $7.6 million, from $6.8 million for the corresponding period in
1995. Gross margin for the nine months ended September 30, 1996 was 72.4
percent, compared to 74.4 percent for the same period in 1995. The decrease
in the margin percent for the period was primarily due to a change in the
freight arrangements with certain customers.
For the nine months ended September 30, 1996, total operating expenses
increased 32 percent to $7.4 million, from $5.6 million for the corresponding
period in 1995. The nine-month 1996 period included a one-time write-off of
$255,000 of in-process research and development, resulting from the Company's
acquisition of technology from MediaTech Corporation, an Internet publishing
tools company.
For the nine months ended September 30, 1996, product development expenses
were up 51 percent to $1.4 million, compared to $943,000 for the
corresponding period in 1995, reflecting the Company's efforts to introduce
new products and to update its existing products to Windows 95 while adding
additional features.
For the nine months ended September 30, 1996, sales and marketing expenses
increased 21 percent to $4.4 million compared to $3.6 million for the
corresponding period in 1995, primarily as a result of increased employee
expenses resulting from higher headcount.
<PAGE>
For the nine months ended September 30, 1996, general and administrative
expenses increased 30 percent to $1.3 million, compared to $1.0 million for
the corresponding period in 1995. Much of the increase was attributable to
higher expenses associated with the Company's status as a public company, as
well as an increase in headcount.
For the nine months ended September 30, 1996, the Company reported operating
income of $194,000, compared to an operating income of $1.2 million in the
corresponding period in 1995.
Interest income in the first nine months of 1996 was $295,000, compared to
$161,000 for the corresponding period in 1995; the increased interest income
was generated by the invested proceeds of the Company's initial public
offering.
For the nine months ended September 30, 1996, the Company reported an income
tax expense of $176,000, compared to an expense of $18,000 for the
corresponding period in 1995. The Company received an income tax benefit in
June 1995 of $254,000 due to a one-time $269,000 net credit from the
establishment of the Company's net deferred tax assets upon its conversion to
a C corporation that month.
For the nine months ended September 30, 1996, the Company reported net income
of $313,000 compared to net income of $1.4 million in the comparable period
in 1995 and to a pro forma net income of $850,000 for the 1995 period.
The Company has experienced, and may continue to experience, significant
fluctuations in operating results due to a variety of factors. These factors
include: the size and rate of growth of the market for task-specific
applications for small businesses and of the software market in general;
market acceptance of the Company's products and those of its competitors;
development and promotional expenses; product returns; changes in pricing
policies by the Company and its competitors; accuracy of retailers' forecasts
of consumer demand; the timing of orders from major retailer and distributor
customers; and cancellations or terminations by retail or distributor
accounts; shelf space reductions; and delays in shipment.
The Company's business has experienced and is expected to continue to
experience significant seasonality, primarily due to retailer, distributor
and end-user buying patterns. Typically, net revenues are weakest in the
second and third quarters. The Company expects its net revenues and
operating results to continue to reflect this seasonality.
Liquidity and Capital Resources
Since its inception, the Company has financed its activities almost
exclusively from cash generated by operations and contributions to capital
by its stockholders. Except for its initial public offering in June 1995,
the Company has not borrowed money or sold stock since 1988.
<PAGE>
As of September 30, 1996, the Company had $7.2 million in cash and cash
equivalents. The Company believes that its existing cash, its ability to
obtain additional credit, and cash generated by operations will be sufficient
to meet its working capital needs at least through 1997.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES: None since registration
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 11. Computation of Net Income Per Share and Pro Forma Net
Income Per Share is on page 14.
ITEMS 1,3,4 AND 5 ARE NOT APPLICABLE.
<PAGE>
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.
MySoftware Company
Date: November 1, 1996 By:/s/ Thomas C. Hoster
Thomas C. Hoster
Chief Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Page Number
11 Computation of Net Income Per Share and 15
Pro Forma Income Per Share
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
Exhibit 11
COMPUTATION OF NET INCOME PER SHARE
AND PRO FORMA NET INCOME PER SHARE
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
--------- -------- -------- -------
<S> <C> <C> <C> <C>
Net income $ 400 $ 422 $ 313
========= ======== ========
Weighted average number of shares of
common stock outstanding 4,231 4,219 4,231
Number of Common Stock Equivalents
as a result of stock option outstanding
using the treasury stock method 100 175 79
--------- -------- ---------
4,331 4,394 4,310
========= ======== =========
Net income per share $ 0.09 $ 0.10 $ 0.07
========= ======== =========
Pro forma net income $ 850
=======
Weighted average number of shares of
common stock outstanding 3,611
Number of Common Stock Equivalents
as a result of stock option outstanding
using the treasury stock method 58
Number of stock options granted in
accordance with SAB No. 83 98
Shares deemed outstanding to fund final
S Corporation shareholder distribution 107
------
3,874
------
Pro forma net income per share $ 0.22
======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,240
<SECURITIES> 0
<RECEIVABLES> 2,827
<ALLOWANCES> 0
<INVENTORY> 598
<CURRENT-ASSETS> 11,461
<PP&E> 272
<DEPRECIATION> 0
<TOTAL-ASSETS> 13,257
<CURRENT-LIABILITIES> 3,257
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 8,562
<TOTAL-LIABILITY-AND-EQUITY> 13,257
<SALES> 10,442
<TOTAL-REVENUES> 10,442
<CGS> 2,878
<TOTAL-COSTS> 2,878
<OTHER-EXPENSES> 7,370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 489
<INCOME-TAX> 176
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 313
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
