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 March 31, 1999
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
March 31, 1999 was 4,501,840.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
MYSOFTWARE COMPANY
FORM 10-QSB
For the Quarterly Period Ended March 31, 1999
Table of Contents
Part I. Financial Information Page
Item 1. Financial Statements
a) Condensed Balance Sheets
as of March 31, 1999 and December 31, 1998 3
b) Condensed Statements of Operations
for the three months ended March 31, 1999 and 1998 4
c) Condensed Statements of Cash Flows
for the three months ended March 31, 1999 and 1998 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>
<CAPTION>
Part I. Financial Information
Item 1. Financial Statements
MYSOFTWARE COMPANY
CONDENSED BALANCE SHEETS
March 31, 1998 and December 31, 1998
(Unaudited)
(in thousands except share data)
March 31, December 31,
----------- --------------
1999 1998
----------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,711 $ 5,387
Accounts receivable, net 5,212 3,355
Inventories 559 266
Other current assets 305 88
----------- -------------
Total current assets 10,787 9,096
Property and equipment, net 390 217
Other assets 516 619
----------- -------------
Total assets $ 11,693 $ 9,932
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,295 $ 1,088
Accrued compensation 467 460
Other accrued liabilities 1,421 2,174
Deferred revenues 1,470 599
----------- -------------
Total current liabilities 5,653 4,321
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; 4,501,840 and 4,458,950
shares issued and outstanding 5 4
Deferred compensation (230) (249)
Additional paid-in capital 9,369 9,259
Accumulated deficit (3,104) (3,403)
----------- ------------
Total stockholders' equity 6,040 5,611
----------- ------------
Total liabilities and stockholders' equity $ 11,693 $ 9,932
=========== ============
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF OPERATIONS
For the three months ended
March 31, 1999 and 1998
(Unaudited)
(in thousands except per share data)
1999 1998
---------- ----------
<S> <C> <C>
Net revenues $ 4,318 $ 3,130
Cost of revenues 1,396 1,056
---------- ----------
Gross profit 2,922 2,074
---------- ----------
Operating expenses:
Research and development 562 327
Sales and marketing 1,550 1,482
General and administrative 568 516
---------- ----------
2,680 2,325
---------- ----------
Operating income (loss) 242 (251)
Interest income, net 66 61
---------- ----------
Income (loss) before taxes 308 (190)
Income tax expense 9 ---
---------- ----------
Net income (loss) $ 299 $ (190)
========== ==========
Basic net income (loss) per share $ 0.07 $ (0.04)
========== ==========
Shares used in computing
basic net income (loss) per share 4,484 4,257
========== ==========
Diluted net income (loss) per
share $ 0.06 $ (0.04)
========== ==========
Shares used in computing diluted
net income (loss) per share 5,423 4,257
========== ==========
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MYSOFTWARE COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
For the three months ended
March 31, 1999 and 1998
(Unaudited)
(in thousands)
1999 1998
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 299 $ (190)
Adjustments to reconcile net income
(loss) to net cash used for operating
activities:
Depreciation and amortization 197 184
Amortization of deferred compensation 20 ---
Provision for returns and doubtful accounts (36) (479)
Changes in operating assets and liabilities:
Accounts receivable (1,927) 349
Inventories (293) 167
Other assets (205) (10)
Accounts payable 1,207 (90)
Accrued compensation ( 7) (60)
Deferred revenues 871 ---
Other accrued liabilities (648) 41
----------- -----------
Net cash used for operating activities (508) (88)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (218) ---
Software production costs and other assets (61) (217)
----------- -----------
Net cash used for investing activities (279) (217)
----------- -----------
Cash flows from financing activities:
Proceeds from exercise of stock options 111 71
----------- -----------
Net provided by financing activities 111 71
----------- -----------
Net decrease in cash and cash equivalents (676) (234)
Cash and cash equivalents at beginning of
period 5,387 5,035
---------- ----------
Cash and cash equivalents at end of period $ 4,711 $ 4,801
========== ==========
<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 unaudited 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 1998 Annual Report on Form 10-KSB.
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 March 31, 1999 is comprised of the weighted average number of
common stock options outstanding during the period. A total of 86,376
common equivalent shares with a weighted average exercise price of $2.96
was not included in the computation of diluted loss per share for the
three-month period ended March 31, 1998 because their effect would have been
antidilutive.
3. Recent Accounting Pronouncements
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 and
qualifies for hedge accounting. The Company will be required to implement
SFAS No. 133 for fiscal 2000 and does not believe its adoption will have an
effect on its financial statements.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP
98-9 establishes the method of recognizing revenue for certain
multiple-element software arrangements. The Company will be required to
adopt SOP 98-9 for transactions entered into beginning January 1, 2000.
The Company expects that the adoption of SOP 98-9 will not have a material
impact on the Company financial position, results of operations or cash
flows.
4. Segment and Geographic Information
The Company is principally engaged in the development, marketing and
manufacturing of small business application programs and Internet services.
The Company's main products provide solutions for creating customized,
professional-quality mailing lists, brochures, labels, business cards,
invoices/estimates, and other marketing communications materials. The
Company also markets annuity-based mailing products and services which
complement the Company's existing mailing software products.
<PAGE>
MYSOFTWARE COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS-CONTINUED
The Company identifies such segments based principally upon the type of
products sold. There have been no significant changes in operating segments
or the basis of measurement of segment profit(loss) since December 31, 1998.
The following segment information is provided for the three months ended
March 31, 1999 and 1998 (in thousands):
<TABLE>
<CAPTION>
Mailing Core Other
Retail Annuity Retail OEM Other Total
--------- --------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
For the three months
ended March 31, 1999
Net revenues $ 1,283 $ 442 $ 1,696 $ 488 $ 411 $ 4,318
Cost of revenues 469 49 594 133 152 1,396
--------- --------- -------- ----- ------- --------
Gross profit 814 393 1,102 355 259 2,922
Segment operating
expenses 468 293 501 94 757 2,112
--------- --------- -------- ----- ------- --------
Segment profit (loss) $ 346 $ 100 $ 601 $ 261 $ (498) 810
========= ========= ======== ===== =======
General and administrative expenses (568)
Interest income, net 66
--------
Income before taxes, as reported $ 308
========
</TABLE>
<TABLE>
<CAPTION>
Mailing Core Other
Retail Annuity Retail OEM Other Total
--------- --------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
For the three months
ended March 31, 1998
Net revenues $ 592 $ 306 $ 1,275 $ 373 $ 584 $ 3,130
Cost of revenues 172 8 515 149 213 1,056
--------- --------- -------- ----- ------- -------
Gross profit 420 298 760 224 371 2,074
Segment operating
expenses 449 355 676 218 111 1,809
--------- --------- -------- ----- ------- -------
Segment profit (loss) $ (28) $ (57) $ 84 $ 6 $ 260 265
========= ========= ======== ===== =======
General and administrative expenses (516)
Interest income, net 61
-------
Income before taxes, as reported $ (190)
=======
</TABLE>
<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," "believes," "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 fiscal year
ended December 31, 1998. 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
Net revenues for the three months ended March 31, 1999 increased $1.2
million, or 38 percent, to $4.3 million, compared with net revenues of
$3.1 million for the corresponding quarter in 1998. The increase in first
quarter revenue was due primarily to the Company's continued success in the
retail, Original Equipment Manufacturers (OEM) and direct sales channels.
During the quarter, the Company also benefited from sales of
MyContactManager and Office Builder, which were introduced in the first
quarter of 1999.
Gross profit for the three months ended March 31, 1999 increased 41 percent
to $2.9 million, from $2.1 million in the same period in 1998. Gross
margin for the first quarter of 1999 was 67.7 percent, compared to 66.3
percent for the same period in 1998. The increase in the gross profit for
the quarter was primarily due to a lower cost of goods structure that was
established in 1998. 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.
The Company's total operating expenses for the three months ended
March 31, 1999 increased 15 percent to $2.7 million, from $2.3 million for
the corresponding period in 1998. The increase in operating expenses
resulted primarily from higher product development and marketing expenses.
Product development expenses increased 72 percent to $562,000 in the three
months ended March 31, 1999, from $327,000 in the same period in 1998. The
increase in product development expenses was mainly due to the development
and enhancement of the Company's Internet direct marketing services.
Sales and marketing expenses increased 5 percent to $1.6 million in the
first quarter of 1999, from $1.5 million for the corresponding period in
1998. Sales and marketing expenses increased principally as a result of
higher marketing expenses associated with its Internet direct marketing
services, MyProspect.com.
General and administrative expenses increased 10 percent to $568,000 in the
three months ended March 31, 1999, from $516,000 in the same period of
1998, primarily as a result of an increase in systems expenses to support
its Internet services.
The Company had an operating income of $242,000 for the three months ended
March 31, 1999, compared to operating loss of $190,000 in the comparable
period of 1998.
<PAGE>
Net interest income was $66,000 for the quarter ended March 31, 1999,
compared to $61,000 for the comparable period of 1998. The increase in
interest income was due primarily to higher cash balances in the first
quarter of 1999 period compared to the first quarter of 1998.
Due to the loss carryforwards from prior years, the Company reported a
$9,000 income tax expense for the three months ended March 31, 1999,
compared to no income tax expense for the same period of 1998.
The resulting net income for the three months ended March 31, 1999 was
$299,000, compared to net loss of $190,000 in the comparable period in 1998.
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.
As of March 31, 1999, the Company had $4.7 million in cash and cash
equivalents and had 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.
Recent Accounting Pronouncements
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 and
qualifies for hedge accounting. The Company will be required to implement
SFAS No. 133 for fiscal 2000 and does not believe its adoption will have an
effect on its financial statements.
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP
98-9 establishes the method of recognizing revenue for certain
multiple-element software arrangements. The Company will be required to
adopt SOP 98-9 for transactions entered into beginning January 1, 2000.
The Company expects that the adoption of SOP 98-9 will not have a material
impact on the Company financial position, results of operations or cash
flows.
<PAGE>
Year 2000 Issues
Background of Year 2000 Issues
Many currently installed computer systems and software use only two digits
to identify a year in the date field and are unable to distinguish between
twentieth and twenty-first century dates. Such systems, applications and/or
devices could result in system failures or miscalculations causing
disruptions of operations of any businesses, including, among other things,
a temporary disability to process transactions, send invoices or engage in
similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such
"Year 2000" requirements.
State of Readiness
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, communications networks such as the
Internet and private Intranets, telephone/PBX systems, and other
miscellaneous systems. "Computer equipment and software" also include
systems that are not commonly thought of as IT systems, such as fax
machines, or other miscellaneous systems. In addition, IT and non-IT
systems may contain imbedded technology, which complicates the Company's
Year 2000 assessment, remediation, and testing efforts.
Company's External Software Products
As of March 31, 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 for a fee. 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. There is no assurance that customers whose
computer equipment and software are not Year 2000 compliant will not
encounter unforeseen problems or disruption to their systems.
Company's Internal Systems and Equipment
Based on an analysis of all systems potentially impacted by conducting
business in the year 2000 and beyond, the Company applies a phased approach
to make such systems, software applications and, accordingly, operations
are ready for the Year 2000. Beyond awareness of the issues and the scope of
systems involved, the phases of activities in progress include: an
assessment and evaluation of specific underlying computer systems, software
applications and/or hardware; remediation or replacement of Year 2000
non-complaint technology; validation and testing of technologically
compliant Year 2000 solutions; and the implementation of Year 2000
compliant solutions. The following table outlines the status and the timing
of such phased activities.
Percentage Completed Expected
ImpactedSystems As of March 31, 1999 Completion Date
---------------------------- ------------------------ ---------------
Hardware and software systems
used to deliver services.... 85% Q3 1999
Telecommunication equipment.. 85% Q2 1999
Operability with internal
systems of customers and
suppliers................... 20% Q3 1999
<PAGE>
Company's Vendors and Suppliers
The Company relies on two outside software vendors for some of its software
coding. These vendors have reported to the Company that they are Year 2000
compliant. The Company's operational suppliers are for the most part not
date-sensitive for the services or capacity that they are providing the
Company. However, the Company cannot be certain such vendors will not
encounter operational problems due to unforeseen problems related to the
Year 2000 issue. Such unforeseen problems could disrupt the services these
vendors provide the Company. If such interruption should occur, the Company
does not foresee any major problems in replacing these vendors or
suppliers, and the cost of replacing such vendors and suppliers, if
necessary, is not expected to materially adversely affect the Company
financially.
Costs to Address Year 2000 Issues
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 addressing Year 2000 issues is
approximately $200,000. As of March 31, 1999, the Company had incurred
costs of approximately $65,000 related to its Year 2000 identification,
assessment, upgrading, remediation and testing efforts.
Year 2000 Issues
The Company 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 if 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 results 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 in certain normal business activities or operations. Such
failure could materially and adversely affect the Company's systems, results
of operations, liquidity and financial condition.
Contingency Plans
The Company expects to develop contingency plans for key internal systems
by mid-1999. This contingency planning includes, but is not limited to,
identifying additional vendors who could provide similar goods services on
short notice. Management expects these plans to substantially reduce the
risk of interruption, delay, or failure of key processes required for the
Company's business operations.
<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: May 7, 1999 By: /s/ Sharon S. Chiu
-------------------------
Sharon S. Chiu
Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,711
<SECURITIES> 0
<RECEIVABLES> 5,212
<ALLOWANCES> 0
<INVENTORY> 559
<CURRENT-ASSETS> 10,787
<PP&E> 390
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,693
<CURRENT-LIABILITIES> 5,653
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 6,035
<TOTAL-LIABILITY-AND-EQUITY> 11,693
<SALES> 4,318
<TOTAL-REVENUES> 4,318
<CGS> 1,396
<TOTAL-COSTS> 1,396
<OTHER-EXPENSES> 2,680
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 66
<INCOME-TAX> 9
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
