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
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, 1997 was 4,233,366.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
MYSOFTWARE COMPANY
FORM 10-QSB
For the Quarterly Period Ended September 30, 1997
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of September 30, 1997 and December 31, 1996 3
b) Condensed Statements of Operations
for the three and nine months ended September 30, 1997 and 1996 4
c) Condensed Statements of Cash Flows
for the nine months ended September 30, 1997 and 1996 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
Part II. Other Information
Item 6. Exhibits and reports on form 8-K 11
Signatures 12
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements
MYSOFTWARE COMPANY
CONDENSED BALANCE SHEETS
September 30, 1997 and December 31, 1996
(in thousands)
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,362 $ 7,718
Accounts receivable, net 1,755 1,242
Inventories 614 596
Other current assets 775 821
Deferred income taxes 308 308
----------- ----------
Total current assets 8,814 10,685
Property and equipment, net 346 354
Other assets 925 1,370
----------- ----------
Total assets $ 10,085 $ 12,409
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,050 $ 730
Accrued compensation 429 388
Other accrued liabilities 2,295 2,551
----------- ----------
Total current liabilities 3,774 3,669
Other liabilities 25 25
Stockholders' 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; 4,233,366 and 4,233,366
shares issued and outstanding 4 4
Additional paid-in capital 8,569 8,562
Retained earnings (deficit) (2,287) 149
----------- ----------
Total stockholders' equity 6,286 8,715
----------- ----------
Total liabilities and stockholders' equity $ 10,085 $ 12,409
=========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net revenues $ 3,289 $ 4,274 $ 9,236 $ 10,442
Cost of revenues 2,470 1,226 4,226 2,878
---------- ---------- ----------- ----------
Gross profit 819 3,048 5,010 7,564
---------- ---------- ----------- ----------
Operating expenses:
Research and development 475 511 1,519 1,424
Sales and marketing 1,483 1,536 4,543 4,394
General and administrative 539 473 1,627 1,297
Write-off of acquired technology --- --- 255
---------- ---------- ----------- ----------
2,497 2,520 7,689 7,370
---------- ---------- ----------- ----------
Operating income(loss) (1,678) 528 (2,679) 194
Interest income, net 72 102 243 295
---------- ---------- ----------- ----------
Income(loss) before taxes (1,606) 630 (2,436) 489
Income tax expense --- 230 --- 176
---------- ---------- ----------- ----------
Net income(loss) $ (1,606) $ 400 $ (2,436) $ 313
========== ========== =========== ==========
Net income(loss) per share$ (0.38) $ 0.09 $ (0.58) $ 0.07
========== ========== =========== ==========
Shares used in computing
net income(loss) per share 4,233 4,331 4,233 4,310
========== ========== =========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(in thousands)
<CAPTION>
Nine Months Ended
September 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,436) $ 313
Adjustments to reconcile net loss to net
cash provided by (used for) operating activities:
Depreciation 141 85
Write-off and amortization of software production costs 1,773 142
Stock compensation expense 7 ---
Provision for returns and doubtful accounts (666) 573
Changes in operating assets and liabilities:
Accounts receivable (292) (875)
Inventories (18) (149)
Other assets 46 (190)
Accounts payable 320 115
Accrued compensation 41 33
Deferred officers' compensation --- (53)
Other accrued liabilities 189 584
--------- --------
Net cash provided by (used for) operating activities (895) 578
--------- --------
Cash flows from investing activities:
Additions to property and equipment (133) (143)
Software production costs (1,328) (989)
--------- --------
Net cash used for investing activities (1,461) (1,132)
--------- --------
Net decrease in cash and cash equivalents (2,356) (554)
Cash and cash equivalents at beginning of period 7,718 7,794
--------- --------
Cash and cash equivalents at end of period $ 5,362 $ 7,240
========= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
MYSOFTWARE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, the accompanying balance sheets, statements of
operations, and statements of cash flows include all material adjustments
necessary for their fair presentation. The interim results presented are not
necessarily indicative of results for a full year. Certain reclassifications
have been made for consistent presentation. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-KSB dated December 31, 1996.
2. Per Share Computation
Net income(loss) per share is computed using the weighted average number of
common and common equivalent shares outstanding during each period presented
using the treasury stock method. Common stock equivalents are not considered
in the computation of net loss per share as their inclusion would be anti-
dilutive. Common stock equivalents consist of stock options.
3. Writeoff of Acquired In-Process Research and Development
The nine months ended September 30, 1996 include 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.
4. Recent Pronouncements
The Financial Accounting Standards Board recently issued Statements of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 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 31, 1996. Had
SFAS No. 128 been effective for the quarter and nine month periods ended
September 30, 1997, basic EPS and diluted EPS would not have been
significantly different from the reported net loss per share.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
This discussion contains foward-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-KSB for the
year ended December 31, 1996, which has been filed with the Securities and
Exchange Commission. Actual results may differ significantly from those
discussed in the foward-looking statements.
Results of Operations
The Company initiated a review of its strategy in the second quarter of 1997
in response to changed market conditions, and began implementing a new
strategy in the third quarter of 1997. The Company's new strategy calls for
four things: (a) an increased focus on its mailing line of products,
(b) development and introduction of products that complement its mailing
software and generate continuing or annuity revenues, (c) creating increased
revenues from strategic relationships with other companies, and (d) the
development of a direct-to-consumer channel to sell the Company's annuity
products and lessen its dependence on its retail channel. In light of the
Company's new strategy, the Company in the third quarter wrote off or
accelerated the amortization of the software production costs associated with
projects that either were no longer strategic to the new strategy, were
associated with products that were canceled in the third quarter, or were not
expected to support the timely amortization of their software production
costs.
Three Months Ended September 30, 1997 and 1996
Net revenues for the three months ended September 30, 1997 decreased
$985,000, or 23 percent, to $3.3 million, compared with net revenues of $4.3
million for the corresponding quarter in 1996. The decrease in net revenues
resulted from decreased sales to retailers and distributors of the Company's
existing product titles. In the third quarter of 1996, the Company's
revenues benefited from the introduction of three new products as well as
from a 1996 fall sales promotion.
Gross profit for the three months ended September 30, 1997 decreased 73
percent to $819,000, from $3.0 million in the same period in 1996. Gross
margin for the third quarter was 24.9 percent, compared to 71.3 percent for
the same period in 1996. The decrease in the gross margin for the quarter
was primarily due to the $1,296,000 write-off and accelerated amortization of
certain capitalized software production costs. Without this charge, the
gross profit in the third quarter of 1997 would have been $2.1 million and
the gross margin would have been 64.3 percent. 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 capitalized software production costs.
<PAGE>
The Company's total operating expenses for the three months ended September
30, 1997 decreased less than one percent to $2.5 million. The decrease in
operating expenses resulted primarily from lower product development and
sales and marketing expenses.
Product development expenses decreased 7 percent to $475,000 in the third
quarter of 1997 from $511,000 in the same period in 1996. Product
development expenses were higher in 1996 because of work that was being done
to upgrade the Company's products to Windows 95. Sales and marketing
expenses decreased three percent to $1.5 million in the third quarter. Sales
and marketing expenses decreased principally as a result of lower promotion
expenses. General and administrative expenses increased 14 percent to
$539,000 in the three months ended September 30, 1997, from $473,000 in the
same period of 1996, primarily as a result of an increase in headcount and
higher occupancy costs.
The company had an operating loss of $1.7 million for the three months ended
September 30, 1997, compared to operating income of $528,000 in the
comparable period of 1996, reflecting the write-off and accelerated
amortization of capitalized software production costs in the third quarter of
1997.
Interest income was $72,000 for the quarter ended September 30, 1997,
compared to $102,000 for the comparable period of 1996. The decrease in
interest income was due to lower cash balances in the 1997 period compared to
the 1996 period.
The Company reported no income tax benefit or expense for the three months
ended September 30, 1997, compared to an income tax expense of $230,000 for
the same quarter a year earlier. For further information, refer to the
footnotes included in the Company's Annual Report on Form 10-KSB dated
December 31, 1996.
The resulting net loss for the three months ended September 30, 1997 was
$1.6 million, compared to net income of $400,000 in the comparable period in
1996.
Nine Months Ended September 30, 1997 and 1996
For the nine months ended September 30, 1997, net revenues decreased $1.2
million, or 12 percent, to $9.2 million, compared with net revenues of
$10.4 million for the corresponding period in 1996. The decrease was
primarily attributable to decreased sales of the Company's existing software
titles.
For the nine months ended September 30, 1997, gross profit decreased 34
percent to $5.0 million, from $7.6 million for the corresponding period in
1996. Gross margin for the nine months ended September 30, 1997 was 54.2
percent, compared to 72.4 percent for the same period in 1996. The decrease
in the margin percent for the period was primarily due to the charge in the
third quarter of 1997.
<PAGE>
For the nine months ended September 30, 1997, total operating expenses
increased four percent to $7.7 million, from $7.4 million for the
corresponding period in 1996. The nine-month 1996 period included a 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, 1997, product development expenses
were up 7 percent to $1.5 million, compared to $1.4 million for the
corresponding period in 1996, reflecting the Company's efforts to introduce
new products and to update its existing products with additional features.
Sales and marketing expenses increased three percent to $4.5 million compared
to $4.4 million for the corresponding period in 1996, primarily as a result
of increased employee expenses resulting from higher headcount. General and
administrative expenses increased 25 percent to $1.6 million, compared to
$1.3 million for the corresponding period in 1996, primarily as a result of
an increase in headcount and higher occupancy costs.
For the nine months ended September 30, 1997, the Company reported operating
loss of $2.7 million, compared to an operating income of $194,000 in the
corresponding period in 1996.
Interest income in the first nine months of 1997 was $243,000, compared to
$295,000 for the corresponding period in 1996, as a result of lower cash
balances in 1997.
The Company reported no income tax benefit or expense for the nine months
ended September 30, 1997, compared to an income tax expense of $176,000 for
the same period a year earlier. For further information, refer to the
footnotes included in the Company's Annual Report on Form 10-KSB dated
December 31, 1996.
For the nine months ended September 30, 1997, the Company reported a net loss
of $2.4 million, compared to net income of $313,000 in the comparable period
in 1996.
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.
<PAGE>
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.
As of September 30, 1997, the Company had $5.4 million in cash and cash
equivalents and has no debt. 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 1998.
<PAGE>
Part II. Other Information
Item 6. Exhibits and reports on form 8-K
Exhibit 11. Computation of Net Income (Loss) Per Share on page 14.
Exhibit 27. Financial Data Schedule.
No reports have been filed on Form 8-K during this quarter.
Items 1,2,3 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 6, 1997 By: /s/ Thomas C. Hoster
_______________________
Thomas C. Hoster
Chief Financial Officer
<PAGE>
Index to Exhibits
Exhibit Number Page Number
- -------------- -----------
11 Computation of Net Income (Loss) Per Share 14
27 Financial Data Schedule
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
Exhibit 11
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands, except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
--------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income(loss) $ (1,606) $ 400 $ (2,436) $ 313
--------- ------- -------- -------
Weighted average number of shares of
common stock outstanding 4,233 4,231 4,233 4,231
Number of Common Stock Equivalents
as a result of stock option outstanding
using the treasury stock method --- 100 --- 79
--------- -------- ------- -------
4,233 4,331 4,233 4,310
========= ======== ======= =======
Net income(loss) per share $ (0.38) $ 0.09 $ (0.58) $ 0.07
========= ======== ======== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,362
<SECURITIES> 0
<RECEIVABLES> 1,755
<ALLOWANCES> 0
<INVENTORY> 614
<CURRENT-ASSETS> 8,814
<PP&E> 346
<DEPRECIATION> 0
<TOTAL-ASSETS> 10,085
<CURRENT-LIABILITIES> 3,774
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 6,282
<TOTAL-LIABILITY-AND-EQUITY> 10,085
<SALES> 9,236
<TOTAL-REVENUES> 9,236
<CGS> 4,226
<TOTAL-COSTS> 4,226
<OTHER-EXPENSES> 7,689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,436)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,436)
<EPS-PRIMARY> (0.58)
<EPS-DILUTED> (0.58)
</TABLE>