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 June 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 June 30,
1998 was 4,403,685.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
MYSOFTWARE COMPANY
FORM 10-QSB
For the Quarterly Period Ended June 30, 1998
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of June 30, 1998 and December 31, 1997 3
b) Condensed Statements of Operations
for the three and six months ended June 30, 1998 and 1997 4
c) Condensed Statements of Cash Flows
for the six months ended June 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 4. Submission of Matters to a Vote of Security Holders 11
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
June 30, 1998 and December 31, 1997
(in thousands)
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,915 $ 5,035
Accounts receivable, net 2,313 1,031
Inventories 359 621
Other current assets 131 1,019
---------- ----------
Total current assets 7,718 7,706
Property and equipment, net 223 278
Other assets 745 674
---------- ----------
Total assets $ 8,686 $ 8,658
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 895 $ 848
Accrued compensation 398 464
Other accrued liabilities 2,526 2,655
---------- ----------
Total current liabilities 3,819 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; 4,403,685 and 4,235,866
shares issued and outstanding 4 4
Deferred compensation expense (262) ----
Additional paid-in capital 9,116 8,568
Accumulated deficit (3,991) (3,881)
---------- ---------
Total stockholders' equity 4,867 4,691
---------- ---------
Total liabilities and stockholders' equity $ 8,686 $ 8,658
========== ==========
<FN> See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months Ended Six Months Ended
---------------------- -------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 3,461 $ 2,937 $ 6,591 $ 5,948
Cost of revenues 927 811 1,983 1,757
-------- -------- -------- --------
Gross profit 2,534 2,126 4,608 4,191
-------- -------- -------- --------
Operating expenses:
Product development 436 524 762 1,044
Sales and marketing 1,460 1,378 2,942 3,061
General and administrative 618 558 1,135 1,087
-------- --------- --------- --------
2,514 2,460 4,839 5,192
-------- --------- --------- --------
Operating income (loss) 20 (334) (231) (1,001)
Interest income, net 61 80 122 171
-------- --------- --------- --------
Income (loss) before taxes 81 (254) (109) (830)
-------- --------- --------- --------
Net income (loss) $ 81 $ (254) $ (109) $ (830)
======== ========= ========= ========
Basic net income (loss)
per share $ 0.02 $ (0.06) $ (0.03) $ (0.20)
======== ========= ========= ========
Shares used in computing basic
net income (loss) per share 4,381 4,233 4,320 4,233
======== ========= ========= ========
Diluted net income (loss)
per share $ 0.02 $ (0.06) $ (0.03) $ (0.20)
======== ========= ========= ========
Shares used in computing diluted
net income (loss) per share 4,736 4,233 4,320 4,233
======== ========= ========= ========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1997
(Unaudited)
(in thousands)
<CAPTION>
Six Months Ended
June 30,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (109) $ (830)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 406 366
Provision for returns and doubtful accounts (1,162) (1,009)
Changes in operating assets and liabilities:
Accounts receivable (413) 349
Inventories 262 21
Other assets 897 (5)
Accounts payable 46 373
Accrued compensation (66) (2)
Other accrued liabilities 164 68
---------- ----------
Net cash used for operating activities 25 (669)
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (38) (83)
Software production costs (392) (1,022)
---------- ----------
Net cash used for investing activities (430) (1,105)
---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 285 7
---------- ----------
Net cash provided by financing activities 285 7
---------- ----------
Net decrease in cash and cash equivalents (120) (1,767)
Cash and cash equivalents at beginning of
period 5,035 7,718
---------- ----------
Cash and cash equivalents at end of period $ 4,915 $ 5,951
========== ==========
Supplemental disclosure of cash flow information:
Preferred compensation expenses
for issuance of restricted stock $ 262 $ ----
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
MYSOFTWARE COMPANY
NOTES TO 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 period
ended June 30, 1998 is comprised of the weighted average number of common
stock options outstanding during the period. The weighted average number of
common stock options outstanding for the three month period ending June 30,
1997, six months ending June 30, 1997 and 1998 of 73,988, 101,387, and
273,789, respectively, were not included in the computation of diluted loss
per share because to do so would have been antidilutive for these periods
presented.
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).
<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 June 30, 1998 and 1997
Net revenues for the three months ended June 30, 1998 increased 18 percent to
$3.5 million, compared with net revenues of $2.9 million for the
corresponding quarter in 1997. The increase in net revenues resulted
primarily from increased sales of annuity-based products, as well as the
growing success of the Company's OEM efforts.
Gross profit for the three months ended June 30, 1998 increased 19 percent to
$2.5 million, from $2.1 million in the same period in 1997. Gross margin for
the second quarter was 73.2 percent, compared to 72.4 percent for the same
period in 1997. The increase in the gross margin for the quarter was due to
cost of goods sold reduction efforts, as well as higher margins in the
Company's OEM license sales. The Company's gross margins vary from period to
period, primarily due to changes in product mix, the timing and nature of
promotional activities, changes in product return levels and the amortization
of software production costs.
Product development expenses were down 17 percent to $436,000 in the three
months ended June 30, 1998, compared to $524,000 in the same period of 1997,
reflecting the success of the Company's cost reduction efforts.
Sales and marketing expenses increased 6 percent to $1.5 million in the
second quarter, from $1.4 million in the comparable 1997 quarter. Sales and
marketing expenses increased principally as a result of higher marketing and
selling expenses with respect to channel promotional programs.
<PAGE>
General and administrative expenses increased 11 percent to $618,000 in the
three months ended 1998 from $558,000 in the same period of 1997, primarily
as a result of higher expenses with respect to MIS and investor relations
activities, as well as higher bonus expenses.
The Company had an operating income of $20,000 for the three months ended
June 30, 1998, compared with an operating loss of $334,000 in the comparable
period of 1997. The improvement was primarily due to increases in net
revenues, partially offset by higher operating expenses.
Interest income was $61,000 for the quarter ended June 30, 1998, compared to
$80,000 for the comparable period of 1997. The decrease in interest income
was primarily due to lower average cash balances during the 1998 quarter.
The Company reported no income tax benefit or expense for the three months
ended June 30, 1998 or for the same quarter a year earlier. For further
information, see the footnotes included in the Company's Annual Report on
Form 10-KSB dated December 31, 1997.
The resulting net income for the three months ended June 30, 1998 was
$81,000, compared to a net loss of $254,000 in the comparable period in 1997.
Six Months Ended June 30, 1998 and 1997
For the six months ended June 30, 1998, net revenues increased 11 percent to
$6.6 million, compared with net revenues of $5.9 million for the
corresponding period in 1997. The increase was primarily attributable to
increased sales of the Company's existing and new titles in the retail
channel, annuity-based products and OEM channels.
For the six months ended June 30, 1998, gross profit increased 10 percent to
$4.6 million, from $4.2 million for the corresponding period in 1997. Gross
margin for the six months ended June 30, 1998 was 69.9 percent, compared to
70.5 percent for the same period in 1997. The decrease in gross margin in
1998 was primarily due to the mix of OEM sales during the first quarter.
For the six months ended June 30, 1998, total operating expenses decreased 7
percent to $4.8 million, from $5.2 million for the corresponding period in
1997.
For the six months ended June 30, 1998, product development expenses were
down 27 percent to $762,000, compared to $1,044,000 for the corresponding
period in 1997, reflecting the success of the Company's cost reduction
efforts.
For the six months ended June 30, 1998, sales and marketing expenses
decreased 4 percent to $2.9 million compared to $3.1 million for the
corresponding period in 1997, primarily as a result of cost reduction efforts.
<PAGE>
For the six months ended June 30, 1998 and 1997, general and administrative
expenses remained constant at $1.1 million.
For the six months ended June 30, 1998, the Company reported an operating
loss of $231,000, compared to an operating loss of $1.0 million in the
corresponding period in 1997. The improvement was primarily due to increases
in net revenues, as well as lower operating expenses.
Interest income in the first half of 1998 was $122,000, compared to $171,000
for the corresponding period in 1997. The decrease in interest income was
primarily due to lower average cash balances in 1998.
The Company reported no income tax benefit or expense for the six months
ended June 30, 1998 and June 30, 1997. For further information, see the
footnotes included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997.
For the six months ended June 30, 1998, the Company reported a net loss of
$109,000, compared to a net loss of $830,000 in the comparable period in 1997.
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 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 sold stock to third parties since 1988. The Company has no
debt.
As of June 30, 1998, the Company had $4.9 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 1998.
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders of MySoftware Company was held on
May 21, 1998.
The matters voted upon at the meeting and the voting of stockholders
with respect thereto are as follows:
(1) The election of James F. Willenborg, David P. Mans, Gregory W.
Slayton, John J. Katsaros, and Donald F. Wood as directors to
hold office until the 1999 annual meeting of stockholders:
For Withheld
--- --------
James F. Willenborg 4,195,199 16,515
David P. Mans 4,195,199 16,515
Gregory W. Slayton 4,195,199 16,515
John J. Katsaros 4,194,149 17,565
Donald F. Wood 4,195,149 16,565
(2) Ratification of the selection of KPMG Peat Marwick LLP as
independent auditors of the Company for its fiscal year ended
December 31, 1998:
For: 4,193,374 Against: 12,540 Abstain: 5,800
Item 6. Exhibits and Reports on Form 8-K
Exhibit 27. Financial Data Schedule.
On June 10, 1998, the Company filed an 8-K filing with respect to the
adoption of a Preferred Share Purchase Rights Plan with the Securities and
Exchange Commission.
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: August 6, 1998 By:/S/ Gregory W. Slayton
_______________________
Gregory W. Slayton
Chief Executive Officer
[ARTICLE] 5
[MULTIPLIER] 1,000
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] JUN-30-1998
[CASH] 4,915
[SECURITIES] 0
[RECEIVABLES] 2,313
[ALLOWANCES] 0
[INVENTORY] 359
[CURRENT-ASSETS] 131
[PP&E] 223
[DEPRECIATION] 0
[TOTAL-ASSETS] 8,686
[CURRENT-LIABILITIES] 3,819
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 4
[OTHER-SE] 4,863
[TOTAL-LIABILITY-AND-EQUITY] 8,686
[SALES] 6,591
[TOTAL-REVENUES] 6,591
[CGS] 1,983
[TOTAL-COSTS] 1,983
[OTHER-EXPENSES] 4,839
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] (109)
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (109)
[EPS-PRIMARY] (0.03)
[EPS-DILUTED] (0.03)
</TABLE>
