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, 1998
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
(650) 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 4,409,488.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
MYSOFTWARE COMPANY
FORM 10-QSB
For the Quarterly Period Ended September 30, 1998
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of September 30, 1998 and December 31, 1997 3
b) Condensed Statements of Operations
for the three and nine months ended September 30, 1998
and 1997 4
c) Condensed Statements of Cash Flows
for the nine months ended September 30, 1998 and 1997 5
d) Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 8
Part II. Other Information
Item 6. Exhibits and reports on form 8-K 13
Signatures 14
<PAGE>
<TABLE>
Part I. Financial Information
Item 1. Financial Statements
MYSOFTWARE COMPANY
CONDENSED BALANCE SHEETS
September 30, 1998 and December 31, 1997
(Unaudited)
(in thousands except per share data)
<CAPTION>
September 30, December 31,
1998 1997
_____________ ____________
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 5,314 $ 5,035
Accounts receivable, net 2,180 1,031
Inventories 399 621
Other current assets 71 1,019
_____________ ____________
Total current assets 7,964 7,706
Property and equipment, net 227 278
Other assets 837 674
_____________ ____________
Total assets $ 9,028 $ 8,658
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,037 $ 848
Accrued compensation 420 464
Other accrued liabilities 2,452 2,655
------------- ------------
Total current liabilities 3,909 3,967
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; 4,409,488 and 4,235,866
shares issued and outstanding 4 4
Deferred compensation expense (256) ------
Additional paid-in capital 9,139 8,568
Accumulated deficit (3,768) (3,881)
------------ ------------
Total stockholders' equity 5,119 4,691
------------ ------------
Total liabilities and stockholders' equity $ 9,028 $ 8,658
============ ============
See accompanying notes to financial statements.
<FN>
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
For the three and nine months ended
September 30, 1998 and 1997
(Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues $ 3,760 $ 3,289 $ 10,351 $ 9,236
Cost of revenues 971 2,470 2,954 4,226
------------- ------------- ------------- ------------
Gross profit 2,789 819 7,397 5,010
------------- ------------- ------------- ------------
Operating expenses:
Research and development 348 475 1,110 1,519
Sales and marketing 1,598 1,483 4,540 4,543
General and administrative 673 539 1,808 1,627
------------- ------------- ------------- ------------
2,619 2,497 7,458 7,689
------------- ------------- ------------- ------------
Operating income (loss) 170 (1,678) (61) (2,679)
Interest income, net 58 72 180 243
------------- ------------- ------------- ------------
Income (loss) before taxes 228 (1,606) 119 (2,436)
Income tax expense 5 --- 5 ---
------------- ------------- ------------- ------------
Net income (loss) $ 223 $ (1,606) $ 114 $ (2,436)
============= ============= ============= ============
Basic net income
(loss) per share $ 0.05 $ (0.38) $ 0.03 $ (0.58)
============= ============= ============= ============
Shares used in computing
basic net income
(loss) per share 4,412 4,233 4,524 4,233
============= ============= ============= ============
Diluted net income
(loss) per share $ 0.05 $ (0.38) $ 0.02 $ (0.58)
============= ============= ============= ============
Shares used in computing
diluted net income
(loss) per share 4,672 4,233 4,792 4,233
============= ============= ============= ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
For the nine months ended
September 30, 1998 and 1997
(Unaudited)
(in thousands)
<CAPTION>
<S>
Nine Months Ended
September 30,
1998 1997
------ ------
Cash flows from operating activities: <C> <C>
Net income (loss) $ 114 $ (2,436)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 563 1,914
Stock compensation expense 7 7
Provision for returns and doubtful accounts (987) (666)
Changes in operating assets and liabilities:
Accounts receivable (549) (292)
Inventories 222 (18)
Other assets 941 46
Accounts payable 189 320
Accrued compensation (44) 41
Other accrued liabilities 184 189
------ ------
Net cash provided by (used for) operating
activities 638 (895)
------ ------
Cash flows from investing activities:
Additions to property and equipment (92) (133)
Software production costs and other assets (575) (1,328)
------ ------
Net cash used for investing activities (667) (1,461)
------ ------
Cash flows from financing activities:
Proceeds from exercise of stock options 308 ---
------ ------
Net provided by financing activities 308 ---
------ ------
Net increase (decrease) in cash and cash
equivalents 279 (2,356)
Cash and cash equivalents at beginning of period 5,035 7,718
------ ------
Cash and cash equivalents at end of period $ 5,314 $ 5,362
====== ======
Supplemental cash flow information:
Deferred compensation associated with stock
compensation $ 262 $ ---
====== ======
See accompanying notes to financial statements.
<FN>
</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, 1997.
2. Per Share Computation
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding during each period presented. Diluted net
income (loss) per share is computed using the weighted average number of
shares of common stock and potential common stock using the treasury stock
method, when dilutive. The difference between shares used for basic net
income per share and diluted net income per share for the three month and
nine months periods ended September 30, 1998 is comprised of the weighted
of common stock options outstanding included in the computation of diluted
earning per share for the three month and nine month periods ended
September 30, 1998, were 260,721 and 268,203, respectively. The weighted
average number of common stock options outstanding for the three and nine
month periods ended September 30, 1997, amounting to 58,560 and 92,372,
respectively, were not included in the computation of diluted loss per share
because to do so would have been antidilutive for those periods.
3. Revenue Recognition
For software transactions entered into beginning January 1, 1998, the Company
adopted the American Institute of Certified Public Accountants' Statement of
Position (SOP) No. 97-2, Software Revenue Recognition. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
to be allocated to each element based on the relative fair value of the
elements. The fair value of the element must be based on evidence that is
specific to the vendor, and if no such evidence exists all revenue from the
arrangement is deferred until all elements are delivered. The adoption of
SOP 97-2 did not have a material impact on the Company's results of
operations.
<PAGE>
4. Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards (FASB) No. 130, Reporting of Comprehensive
Income. FASB No. 130 establishes standards for the display of comprehensive
income and its components in a full set of financial statements.
Comprehensive income (loss) includes all changes in equity during a period
except those resulting from the issuance of shares of stock and distributions
to shareholders. There were no material differences between net income (loss)
and comprehensive income(loss).
5. Derivatives and Hedging
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging
activities and requires the Company to recognize all derivatives as either
assets or liabilities on the balance sheet and measure them at fair value.
Gains and losses resulting from changes in fair value would be accounted for
depending on the use of the derivative and whether it is designated a
and does not believe its adoption will have an effect on its financial
statements.
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
In addition to historical information contained herein, the following
discussion contains words such as "intends," "believe," "anticipates,"
"plans," "expects" and similar expressions which are intended to identify
forward-looking statements that involve risks and uncertainties. The
Company's actual results could differ significantly from the results
discussed in these forward-looking statements. Factors that could cause or
contribute to such differences include the factors discussed below as well as
the factors discussed in the Company's Form 10-KSB for the year ended
December 31, 1997. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
The Company undertakes no obligation to release the results of any revision
to these forward-looking statements which may be made to reflect events or
circumstances occurring after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
Three Months Ended September 30, 1998 and 1997
- ----------------------------------------------
Net revenues for the three months ended September 30, 1998 increased
$471,000, or 14 percent, to $3.8 million, compared with net revenues of $3.3
million for the corresponding quarter in 1997. The increase in third quarter
revenue was due primarily to MySoftware's continued success in the retail,
Original Equipment Manufacturers (OEM) and direct sales channels. The Company
also experienced a very successful sell-in to the retail channel of the
Company's first new seasonal promotion product, Holiday Mailing Kit, designed
specifically for holiday mailing. In addition, the Company has made an
estimated for return of this product. However, if the sell through for this
product is not as expected, the results of fourth quarter could be materially
adversely affected.
Gross profit for the three months ended September 30, 1998 increased 240
percent to $2.8 million, from $819,000 in the same period in 1997. Gross
margin for the third quarter was 74.2 percent, compared to 24.9 percent for
the same period in 1997. The increase in the gross profit for the quarter
was primarily due to reduction in cost of goods. The 1997 period's gross
profit included $1,296,000 for a one-time 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 increase in gross margin would have been 64.3 percent. The
Company's gross margins vary from period to period due primarily 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,
1998 increased 5 percent to $2.6 million, from $2.5 million for the correspond-
ing period in 1997. The increase in operating expenses resulted primarily from
higher sales and marketing expenses as well as general and administrative
expenses.
Product development expenses decreased 27 percent to $348,000 in the three
months ended September 30, 1998 from $475,000 in the same period in 1997,
reflecting the Company's cost reduction efforts.
Sales and marketing expenses increased 8 percent to $1.6 million in the third
quarter of 1998, from $1.5 million for the corresponding period in 1997.
Sales and marketing expenses increased principally as a result of higher
marketing and selling expenses with respect to channel promotional programs.
General and administrative expenses increased 25 percent to $673,000 in the
three months ended September 30, 1998, from $539,000 in the same period of
1997, primarily as a result of an increase in systems expenses, higher
investor relations expenses, and higher bonus expenses.
The Company had an operating income of $170,000 for the three months ended
September 30, 1998, compared to operating loss of $1.7 million in the
comparable period of 1997, which included the write-off and accelerated
amortization of capitalized software production costs of $1,296,000 in the
third quarter of 1997.
Net interest income was $58,000 for the quarter ended September 30, 1998,
compared to $72,000 for the comparable period of 1997. The decrease in
interest income was due primarily to lower cash balances in the third quarter
of 1998 period compared to the third quarter of 1997.
The Company reported a $5,000 income tax expense for the three months ended
September 30, 1998, compared to no income tax expense for the same period of
1997.
The resulting net income for the three months ended September 30, 1998 was
$223,000, compared to net loss of $1.6 million in the comparable period in
1997.
Nine Months Ended September 30, 1998 and 1997
- ---------------------------------------------
For the nine months ended September 30, 1998, net revenues increased $1.1
million, or 12 percent, to $10.4 million, compared with net revenues of
$9.2 million for the corresponding period in 1997. The increase was
attributable primarily to increased sales of the Company's annuity-based
products and product bundle and license sales in its OEM channel.
<PAGE>
For the nine months ended September 30, 1998, gross profit increased 48
percent to $7.4 million, from $5 million for the corresponding period in
1997. Gross margin for the nine months ended September 30, 1998 was 71.5
percent, compared to 54.2 percent for the same period in 1997. The 1997
period's gross profit included a one-time write-off of $1,296,000 for
accelerated amortization of certain capitalized software production costs.
Without this write-off charge, the gross profit for nine months ended September
30, 1997 would have been $6.3 million with a gross margin og 68.3 percent. The
increase in the gross margin percent for the 1998 period was primarily due to
the mix of OEM sales as well as the success of cost reduction programs.
For the nine months ended September 30, 1998, total operating expenses
decreased 3 percent to $7.5 million, from $7.7 million for the corresponding
period in 1997 due to the success of the Company's cost reduction efforts.
For the nine months ended September 30, 1998, product development expenses
were down 27 percent to $1.1 million, compared to $1.5 million for the
corresponding period in 1997, reflecting the success of the Company's cost
reduction efforts.
For the nine months ended September 30, sales and marketing expenses remained
constant at $4.5 million for both 1998 and 1997.
For the nine months ended September 30, 1998, general and administrative
expenses increased 11 percent to $1.8 million, compared to $1.6 million for
the corresponding period in 1997, primarily as a result of an increase in
systems expenses, higher investor relations costs and bonus expenses.
For the nine months ended September 30, 1998, the Company reported an
operating loss of $61,000, compared to an operating loss of $2.7 million in
the corresponding period in 1997.
Net interest income in the first nine months of 1998 was $180,000, compared
to $243,000 for the corresponding period in 1997, primarily as a result of
lower cash balances in 1998.
The Company reported income tax expense of $5,000 for the nine months ended
September 30, 1998, compared no income tax expense for the same period in
1997.
For the nine months ended September 30, 1998, the Company reported a net
income of $114,000, compared to a net loss of $2.4 million in the comparable
period in 1997.
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.
<PAGE>
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.
As of September 30, 1998, the Company had $5.3 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 1999.
Year 2000 Issue
The Company has undertaken various initiatives intended to help ensure that
its computer equipment and software, as well as its software products will
function properly with respect to dates in the Year 2000 and thereafter. For
this purpose, the term "computer equipment and software" includes systems
that are commonly thought of as information technology systems, including
accounting, data processing, telephone/PBX systems, and miscellaneous systems
as well as systems that are not commonly thought of as IT systems, such as
fax machines, or other miscellaneous systems. Both IT and non-IT systems
may contain imbedded technology, which complicates the Company's Year 2000
assessment, remediation, and testing efforts.
As of September 30, 1998, all of the Company's current software products for
Windows 95 are Year 2000 compliant. Although the Company's software which is
designed for use with Windows 3.1 is not Year 2000 compliant, the Company
provides upgrades to Windows 95 software products. In addition, the Company
encourages its customers to upgrade to products compatible with Windows 95
through its written materials and during verbal communications with end
users. However, there is no guarantee for customers whose computer equipment
and software are not Year 2000 compliant not to encounter any unforseen
problems or disruption to their systems.
The Company believes that certain computer equipment and software it
currently uses internally will require replacement or modification. The
Company currently is utilizing its internal resources to identify and assess
the extent to which Year 2000 remediation will be required. The Company
currently anticipates that its Year 2000 identification, assessment,
remediation and testing efforts, which began in fall 1997, will be completed
by September 30, 1999, and that such efforts will be completed prior to any
currently anticipated impact on its copmuter equipment and software. The
Company estimates that as of September 30, 1998, it had completed
approximately 25% of the initiatives that it believes will be necessary to
fully address potential Year 2000 issues relating to its computer equipment
and software.
<PAGE>
The total cost associated with required modifications to become Year 2000
compliant is not expected to be material to the Company's financial position.
The estimated total cost of the Year 2000 issues is approximately $200,000.
As of September 30, 1998, the Company had incurred costs of approximately
$15,000 related to its Year 2000 identification, assessment, upgrading,
remediation and testing efforts.
The Company presently believes that the Year 2000 issues will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing
are not effected timely with respect to Year 2000 problems that are
identified, there can be no assurance that the Year 2000 issue will not
materially adversely impact the Company's result of operations or adversely
affect the Company's relationship with customers or others. Additionally, the
failure to correct a material Year 2000 problem could result in an
interruption om certain normal business activitiess activities or operations.
Such failure could materially and adversely affect the Company's systems,
results of operations, liquidity and financial condition.
<PAGE>
Part II. Other Information
Item 6. Exhibits and reports on form 8-K
Exhibit 27. Financial Data Schedule.
No reports have been filed on Form 8-K during this quarter.
Items 1,2,3,4 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 12, 1998 By: /s/Gregory W. Slayton
----------------------
Gregory W. Slayton
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 5,314
<SECURITIES> 0
<RECEIVABLES> 2,180
<ALLOWANCES> 0
<INVENTORY> 399
<CURRENT-ASSETS> 7,964
<PP&E> 227
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,028
<CURRENT-LIABILITIES> 3,909
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 5,115
<TOTAL-LIABILITY-AND-EQUITY> 9,028
<SALES> 10,351
<TOTAL-REVENUES> 10,351
<CGS> 2,954
<TOTAL-COSTS> 2,954
<OTHER-EXPENSES> 7,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 119
<INCOME-TAX> 5
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.02
</TABLE>
