-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DKJrehfCKiRmvOv+CTX88BydgBdR9ZHYFxbx4NEbWVPz9GXOeXsp1sVpDpLLPQvt zJf94fYL8Tt3HHvxm2uBwg== 0000840824-96-000004.txt : 19960216 0000840824-96-000004.hdr.sgml : 19960216 ACCESSION NUMBER: 0000840824-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOFTWARE DEVELOPERS CO INC/DE/ CENTRAL INDEX KEY: 0000840824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-CATALOG & MAIL-ORDER HOUSES [5961] IRS NUMBER: 042911320 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10139 FILM NUMBER: 96519134 BUSINESS ADDRESS: STREET 1: 90 INDUSTRIAL PARK RD CITY: HINGHAM STATE: MA ZIP: 02043 BUSINESS PHONE: 6177400101 MAIL ADDRESS: STREET 1: 90 INDUSTRIAL PARK ROAD CITY: HINGHAM STATE: MA ZIP: 02043 10-Q 1 February 14, 1996 Securities and Exchange Commission VIA EDGAR LINK Re: The Software Developer's Company, Inc. Commission File No. 1-10139; Quarterly Report on Form 10-Q for the Quarter Ended December 31, 1995 Dear Sir/Madam: Enclosed for filing on behalf of The Software Developer's Company, Inc. is the Company's Form 10-Q for the quarter ended December 31, 1995. The Company is maintaining a copy which has been manually signed by the President and Chief Executive Officer and the Chief Financial Officer of the Company. If you have any questions or comments regarding this filing, please do not hesitate to call me at (617) 740-0101. Very truly yours, James O'Connor, Jr. Vice President and Chief Financial Officer SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q XX Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the quarterly period ended December 31, 1995, or Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, For the transition period from ___________ to ___________ Commission File Number 1-10139 _____________________________ THE SOFTWARE DEVELOPER'S COMPANY, INC. (Exact name of registrant as specified in its charter) DELAWARE 04-2911320 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 90 INDUSTRIAL PARK ROAD HINGHAM, MASSACHUSETTS 02043 (Address of principal executive offices) (Zip Code) (617) 740-0101 (Registrant's Telephone Number) Securities registered pursuant to Section 12(g) of the Act: NONE _________________________ 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 other 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 XX Yes No As of February 9, 1996 there were 8,114,341 shares of Common Stock outstanding. FORM 10-Q QUARTERLY REPORT TABLE OF CONTENTS Facing Sheet . . . . . . . . . . . . . . . . . . . . . . 1 Table of Contents . . . . . . . . . . . . . . . . . . . 2 PART I. FINANCIAL INFORMATION Item 1. Financial Statements Balance Sheets. . . . . . . . . . . . . 3 Statements of Operations. . . . . . . . 5 Statements of Cash Flows. . . . . . . . 7 Notes to Financial Statements . . . . . 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings . . . . . . . . . . . . 16 Item 2. Changes in Securities . . . . . . . . . . 16 Item 3. Defaults Upon Senior Securities . . . . . 16 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . 16 Item 5. Other Information . . . . . . . . . . . . 17 Item 6. Exhibits and Reports on Form 8-K. . . . . 17 SIGNATURES . . . . . . . . . . . . . . . . . . . . . 18 Exhibit 11 - Computation of earnings per share . . . . . 19 PART I. - FINANCIAL INFORMATION THE SOFTWARE DEVELOPER'S COMPANY, INC. BALANCE SHEETS (Unaudited) ASSETS December 31, March 31, 1995 1995 CURRENT ASSETS: Cash $ 1,258,061 $ 672,386 Accounts receivable - trade, net of allowance for doubtful accounts of $422,138 and $408,177 at December 31, 1995 and March 31, 1995, respectively 5,194,734 4,693,978 Inventory 2,350,572 1,695,993 Other current assets 288,324 512,158 TOTAL CURRENT ASSETS 9,091,691 7,574,515 EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net 431,513 540,971 GOODWILL AND OTHER INTANGIBLES 867,515 967,262 OTHER ASSETS 127,372 88,421 $10,518,091 $9,171,169 The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. BALANCE SHEETS (Unaudited) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, March 31, 1995 1995 CURRENT LIABILITIES: Accounts payable - trade $ 5,092,795 $4,389,118 Line of credit 1,423,470 1,423,470 Other accrued expenses 1,585,116 1,107,592 Accrued income taxes 180,000 --- TOTAL CURRENT LIABILITIES 8,281,381 6,920,180 LONG-TERM NOTES PAYABLE 300,000 300,000 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, authorized 5,000,000 shares: Series C, voting, non-cumulative 711,876 shares issued and outstanding at December 31, 1995 (905,968 issued and outstanding at March 31, 1995) 7,119 9,060 Common stock, voting, $.01 par value, 25,000,000 authorized shares; 8,100,841 issued and 8,075,740 outstanding at December 31, 1995 (7,321,599 issued and 7,296,498 outstanding at March 31, 1995) 81,008 73,217 Additional paid-in capital 10,011,345 9,949,566 Cumulative translation adjustment 35,376 22,242 Cumulative deficit (8,114,481) (8,019,439) 2,020,367 2,034,646 Less treasury stock, at cost, 25,101 shares (83,657) (83,657) TOTAL STOCKHOLDERS' EQUITY 1,936,710 1,950,989 $10,518,091 $9,171,169 The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. STATEMENT OF OPERATIONS (UNAUDITED) For the THREE months ended December 31, Restated 1995 1994 Net Revenues: Product sales $13,168,701 $10,093,517 Marketing services income 1,184,380 1,330,150 14,353,081 11,423,66 Costs and expenses: Costs of products sold 10,780,429 8,137,762 Cost of marketing services income 695,168 887,827 Selling, general and administrative expenses 2,890,472 2,047,986 14,366,069 11,073,575 OPERATING INCOME (LOSS) (12,988) 350,092 Interest expense, net 37,046 54,114 Other (income) expense (9,693) 14,332 Total interest and other expense 27,353 68,446 Income (loss) before income tax (40,341) 281,646 Provision for taxes 36,719 --- NET INCOME (LOSS) $ (77,060) $ 281,646 NET INCOME (LOSS) PER SHARE $(0.01) $0.03 Weighted average shares outstanding 9,261,000 8,209,000 The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. STATEMENT OF OPERATIONS (Continued) (UNAUDITED) For the NINE months ended December 31, Restated 1995 1994 Net Revenues: Product sales $38,517,400 $24,582,722 Marketing services income 3,839,963 3,294,744 42,357,363 27,877,466 Costs and expenses: Costs of products sold 31,716,097 19,582,703 Cost of marketing services income 2,272,514 1,982,081 Selling, general and administrative expenses 8,005,634 5,733,641 41,994,245 27,298,425 OPERATING INCOME (LOSS) 363,118 579,041 Interest expense, net 118,850 155,425 Other (income) expense (16,671) 21,367 Total interest and other expense 102,179 176,792 Income before income tax 260,939 402,249 Provision for taxes 98,979 --- NET INCOME $ 161,960 $ 402,249 NET INCOME PER SHARE $0.02 $0.05 Weighted average shares outstanding 8,791,000 8,206,000 The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. STATEMENT OF CASH FLOWS (Unaudited) For the nine months ended December 31, Restated 1995 1994 OPERATING ACTIVITIES Net income from continuing operations $161,960 $ 402,249 Adjustments to reconcile net income to net cash provided by operating activities: Sale of advertising for product (680,375) (865,804) Depreciation and amortization 342,269 333,657 Provision for doubtful accounts receivable 516,540 149,625 Provision for inventory obsolescence 115,000 151,800 Change in assets and liabilities: (Increase) in accounts receivable (500,756) (1,399,013) (Increase) decrease in inventory (654,579) 846,524 Decrease in other current assets 223,834 136,878 Increase in accounts payable 703,677 430,100 Increase (decrease) in other accrued expenses 477,524 154,035 Increase in accrued income taxes 180,000 --- Total adjustments $ 723,134 $ (62,198) Net cash provided by continuing operating activities 885,094 340,051 Net cash (used for) discontinued operating activities --- (47,896) Net cash provided by operating activities 885,094 292,155 The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. STATEMENT OF CASH FLOWS (Continued) (Unaudited) For the nine months ended December 31, Restated 1995 1994 INVESTING ACTIVITIES Capital expenditures for equipment $ (129,487) $ (156,585) Net cash used for investing activities (129,487) (156,585) FINANCING ACTIVITIES Principal payments under capital lease obligations (27,011) (31,605) Dividend payments (231,000) --- Issuance of common stock 74,945 5,701 Net cash provided by (used for) financing activities (183,066) (25,904) Effect of exchange rate changes on cash 13,134 23,056 Net increase (decrease) in cash 585,675 132,722 Cash at beginning of period 672,386 550,560 Cash at end of period $1,258,061 $ 683,282 Supplemental disclosures of cash flow information: Interest paid $ 137,454 $ 153,213 Income taxes paid $ 13,500 --- The accompanying footnotes are an integral part of the financial statements. THE SOFTWARE DEVELOPER'S COMPANY, INC. NOTES TO FINANCIAL STATEMENTS Note 1 - The unaudited financial information furnished herein reflects all adjustments which are of a normal recurring nature, which in the opinion of management are necessary to fairly state the Company's financial position, cash flows and the results of its operations for the periods presented. Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. This information should be read in conjunction with the Company's audited financial statements for the fiscal year ended March 31, 1995, included in Form 10-K filed on July 14, 1995. Note 2 - Net income per share is based upon the weighted average number of common shares outstanding including the dilutive effects of options and warrants. Note 3 - The Company provides for income taxes during interim reporting periods based on reported earnings before income taxes using an estimate of the annual effective tax rate. Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for tax purposes. These deferred taxes are measured by applying currently enacted tax laws. Note 4 - Effective April 1, 1994, the Company changed its method of accounting for income taxes from the deferred method to the liability method required by FASB Statement No. 109 "Accounting for Income Taxes". The effect of the adoption of this statement had no impact on the operating results, components of the income tax expense, or financial position of the Company. The principal components of the Company's deferred tax assets and liabilities as of April 1, 1995 consisted of the following (in thousands): Deferred Tax Assets: Expenses not currently deductible $ 462 Operating loss carryforwards 3,004 3,466 Deferred tax liabilities --- 3,466 Valuation allowance (3,466) Net --- There was no change to the valuation allowance during the first nine months of fiscal 1996. Note 5 - Interest payments of $9,000 and $27,000 were paid to a related party for the three-month and nine-month periods ended December 31, 1995, respectively. Interest was on a $300,000 note payable which is due December, 1996. Note 6 - On November 16, 1995, the Company (SDC) acquired 100% of the outstanding capital stock of Internet Security Corporation (ISC) in exchange for 465,838 shares of the Company's Common Stock. ISC, a Massachusetts corporation, markets and distributes certain software products and services under distribution and reseller agreements with third-party software companies. A Form 8-K was duly filed with the Securities and Exchange Commission on November 30, 1995, a Form 8-KA was filed on January 30, 1996. The acquisition was accounted for as a "pooling of interests" transaction and, accordingly, prior financial results of SDC have been restated to reflect the consolidation of ISC herewith. Selected financial information for each company, stated separately, is shown below: For the three months For the nine months ended December 31, ended December 31, 1995 1994 1995 1994 Net revenues: SDC 13,271,815 10,824,650(1) 39,961,517 27,083,260(1) ISC 1,081,266 599,017 2,395,846 794,206(2) Net income (loss): SDC (200,677) 152,130(1) (26,022) 207,905(1) ISC 123,617 129,516 187,982 194,344(2) (1) Reflects SDC's restated financial results from 1994 audit adjustments. (2) Reflects ISC's activity from date of inception (June 15, 1994) through December 31, 1994. ISC prepares financial statements on a calendar year basis. Beginning April 1, 1996, ISC will change to a fiscal year end of March 31 to conform with the Company's fiscal year. Note 7 - In a prior press release the Company reported revenues for the quarter ended December 31, 1995 of $13,623,000 and net income of $11,000, which only included ISC's results of operations from November 17, 1995 through December 31, 1995. The Company was later advised by its accountants that the Company should report the full impact of ISC's operating results for the period. ISC's full results of operations for the periods ended December 31, 1995 and December 31, 1994 are reflected herein. Note 8 - SUBSEQUENT EVENT: On February 9, 1996, the Company decided to cease publication of the "New Media SuperShop" catalog. The Company booked a $100,000 charge to cover any possible write down of inventory related to this decision. Although the Company will attempt to vigorously sell off all of the remaining inventory related to this catalog, the Company has fully reserved for the inventory. There were no additional costs associated with this decision. The impact of transferring employees assigned to New Media SuperShop into the Company's general operations will be immaterial. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. In that context, the discussion in this Item 2 contains forward-looking statements which involve certain degrees of risk and uncertainties, including statements relating to liquidity and capital resources. Except for the historical information contained herein, the matters discussed in this section are such forward-looking statements that involve risks and uncertainties, including the impact of competitive pricing within the software industry, the effect any reaction to such competitive pressures has on current inventory valuations, the need for and effect of any business restructuring, the presence of competitors with greater financial resources, product commercialization risks, capacity and supply constraints or difficulties and the Company's continuing need for improved profitability and liquidity. Additional factors which could affect the Company's financial results are included in the Company's report on Form 10-K for the period ended March 31, 1995, which was filed with the Securities and Exchange Commission on July 14, 1995. OVERVIEW The Company's revenues are generated by marketing and distributing specialty PC-based software and hardware to technical and professional PC users through its catalog operations of The Programmer's SuperShop (TPS), Personal Computing Tools SuperShop (PCT), and New Media SuperShop (NMS). In addition, SDC Communications (SDCC) provides marketing services to third-party manufacturers, developers and publishers of the products the Company distributes. Marketing services are designed to generate sales leads, increase market visibility and assist in the launch of new products. Through the newly acquired Internet Security Corporation (ISC), the Company provides product integration and consulting support services in the area of network security to companies doing business on the Internet. RESULTS OF OPERATIONS The following information should be read in conjunction with the consolidated financial statements and notes thereto: Three-month period ended December 31, 1995 vs. % to Net Revenue % Change December 31, 1994 1995 1994 95 v. 94 Net Revenues: Product sales 92% 88% 31% Marketing services 8% 12% (11%) Combined 100% 100% 26% Gross Margins: Product sales 18% 19% 22% Marketing services 41% 33% 11% Combined 20% 21% 20% Selling, general and administrative expenses 20% 18% 41% Net income (1%) 3% (127%) Revenues: Total net revenues for the third quarter ended December 31, 1995 increased by $2,929,414, or 26%, to $14,353,081 from $11,423,667 for the same period last year. Net product sales increased by $3,075,184, or 31%, to $13,168,701 in the third quarter of fiscal 1996 from $10,093,517 in the third quarter of fiscal 1995. The increase in net product sales was primarily generated by the continued growth in the Company's corporate sales group, The Programmer's Shop Catalog and the addition of ISC. The Company's PCT catalog has experienced a large drop in sales from the same period last year. Marketing services revenue decreased by $145,770, or, 11%, to $1,184,380 for the quarter ended December 31, 1995 from $1,330,150 for the same period last year. This decrease was primarily due to an overall reduction in new product releases in the marketplace along with a general rollback of vendor sponsored advertising. Gross Margins: Total gross margin increased by $479,406, or 20%, to $2,877,484 for the quarter ended December 31, 1995 from $2,398,078 for the same period in 1994. Gross margin from product sales increased by $432,517, or 22%, to $2,388,272 in the third quarter of fiscal 1996 from $1,955,755 for the same period in fiscal 1995. Product gross margin, as a percent of sales, decreased to 18% for the quarter ended December 31, 1995 from 19% for the same period last year. The decline in gross margin percent, despite sales growth, was the result of continued competition in the marketplace and a greater number of upgrades being released by software manufacturers, which resulted in lower selling prices. Gross margin from marketing services increased by $46,899, or 11%, to $489,212 for the quarter ended December 31, 1995 from $442,323 for the same period last year. The increase in gross margin was mainly due to an increase in advertising related to auxiliary programs. Selling, General and Administrative Expenses (SG&A): Selling, general and administrative expenses increased by $842,486, or 41%, to $2,890,472 in the third quarter of fiscal 1996 from $2,047,986 in the third quarter of fiscal 1995. SG&A expenses, as a percent of sales, increased to 20% for the quarter ended December 31, 1995 from 18% in the same period in 1994. The increase in expenses reflects additional charges for professional fees related to the acquisition of ISC and increases in headcount to support the Company's growth. Interest Expense: Net interest expense decreased by $17,068 to $37,046 in the third quarter of fiscal 1996 from $54,114 for the same period last year. This decrease was due to lower interest rates in effect on the Company's line of credit and approximately $7,000 in interest income provided by ISC. Nine-month period ended December 31, 1995 vs. % to Net Revenue % Change December 31, 1994 1995 1994 95 v. 94 Net Revenues: Product sales 91% 88% 57% Marketing services 9% 12% 17% Combined 100% 100% 52% Gross Margins: Product sales 18% 20% 36% Marketing services 41% 40% 19% Combined 20% 23% 33% Selling, general and administrative expenses 19% 21% 40% Net income * 1% (60%) * Less than 1% Revenues: Total net revenues for the nine months ended December 31, 1995 increased by $14,479,897, or 52%, to $42,357,363 from $27,877,466 in the nine months ended December 31, 1994. Net product sales increased by $13,934,678, or 57%, to $38,517,400 for the first nine months of fiscal 1996 from $24,582,722 in the comparable period last year. Sales growth was primarily generated by continued growth in the Company's corporate sales group, The Programmer's Shop Catalog and the addition of ISC. Marketing services revenue increased by $545,219, or 17%, to $3,839,963 in the first nine months of fiscal 1996 from $3,294,744 for the same period in fiscal 1995. This increase was the net result of supplemental marketing and promotional initiatives in the first six months of fiscal 1996. The Company has experienced a reduction in the most recently reported quarter. Gross Margins: Total gross margin increased by $2,056,070, or 33%, to $8,368,752 in the first nine months of fiscal 1996 from $6,312,682 for the same period in fiscal 1995. Gross margin from product sales increased by $1,801,284, or 36%, to $6,801,303 in the nine months ended December 31, 1995 from $5,000,019 for the same period last year. The increase in gross margin was derived from the acquisition of ISC and the continued growth in the Company's corporate sales group. Gross margin from marketing services increased by $254,786, or 19%, to $1,567,449 in the first nine months of fiscal 1996 from $1,312,663 for the same period in fiscal 1995. This increase was attributable to the sale of supplemental marketing and promotional activities. Selling, General and Administrative Expenses (SG&A): Selling, general and administrative expenses increased by $2,271,993, or 40%, to $8,005,634 in nine month period ended December 31, 1995 from $5,733,641 for the same period last year. SG&A expenses, as a percent of sales, decreased to 19% from 21% in the prior year. The increase in SG&A expenses was the result of additional charges for professional fees related to the acquisition of ISC and increases in headcount to support the continued growth of the Company. Interest Expense: Net interest expense decreased by $36,575, or 24%, to $118,850 for the nine months ended December 31, 1995 from $155,425 for the same period last year. This decrease was due to lower interest rates in effect on the Company's line of credit with borrowing levels that were comparable to the same period last year and approximately $14,000 in interest income provided by ISC. LIQUIDITY AND CAPITAL RESOURCES (in thousands, except ratios) Financial Condition as of December 31, March 31, 1995 1995 Cash and cash equivalents $1,258 $672 Working capital 810 654 Current ratio 1.10 1.09 Cash Flow Activity Summary for Nine Months Ended December 31, 1995 1994 Net cash provided by continuing operating activities $885 $340 Net cash (used for) discontinued operating activities --- (48) Net cash (used for) investing activities (129) (157) Net cash (used for) financing activities (183) (26) The Company's net cash balance increased $585,675 to $1,258,061 at December 31, 1995 from $672,386 at March 31, 1995. Cash generated by operating activities of $885,094 was achieved during the first nine months of fiscal 1996 primarily from increased credit support from vendors. Accounts receivable-trade increased $500,756 to $5,194,734 at December 31, 1995 from $4,693,978 at March 31, 1995. This increase resulted from the Company's revenue growth. The Company continues to maintain an expanded collections program that has yielded favorable collection results. The Company has a $2,000,000 secured bank line of credit under which borrowings bear interest at the bank's prime rate plus 2.5%. The line was recently renewed on February 9, 1996. Available borrowings under the line are based on 65% of eligible accounts receivable. Covenants under the line of credit require the Company to maintain certain net worth and financial ratios. The Company was in default of certain financial covenants and has received a written waiver for the period December 31, 1995 with the condition that the maximum borrowings under the credit facility be limited to the current outstanding balance until such time as a new credit restructuring is agreed upon. The Company and the bank have renegotiated the line of credit and the covenants governing the agreement which have caused past defaults. The renegotiation resulted in the credit line being reset to the $2,000,000 limit. The Company anticipates that its existing cash resources, cash flow from operations and the continued availability of its bank line of credit will be sufficient to fund its operations through June 30, 1996, provided it meets its operating plan and remains in compliance with its credit agreement. The Company's ability to finance its operations will be dependent on its ability to renegotiate its bank line of credit for a continued availability of borrowing thereunder. There can be no assurance that the Company will be successful in renegotiating its line of credit or that the bank will permit continued borrowings under its line of credit. If the Company is unsuccessful in renegotiating its line of credit with the bank, it will need to seek alternative financing for working capital. Future capital requirements will depend on many factors, including cash flow from continuing operations, competition from larger catalog distributors and market developments, and the Company's ability to distribute products and marketing services successfully. To the extent cash flow from operations is insufficient to fund the Company's activities, it may be necessary to raise additional funds through equity or debt financing. The Company is exploring additional sources of capital; however, there are currently no firm commitments at this time. Additional debt financings will likely result in higher interest charges. Additional equity financings will likely result in dilution of stockholders' interests. The Company's ability to generate cash from operations depends upon, among other things, revenue growth, improvements in operating productivity, its credit and payment terms with vendors and improved collections of accounts receivable. The Company's ability to borrow under this facility is dependent upon satisfying certain financial covenants, and there can be no assurances that the Company will remain in compliance. If such sources of cash prove insufficient, the Company will be required to make changes in its operations or to seek additional debt or equity financing. There can be no assurances that cash generated from operations and borrowings under its credit facility will be sufficient to meet its operating requirements, or if required, that additional debt or equity financing will be available on terms acceptable to the Company. The Company currently anticipates that its available cash, expected cash flow from operations, and its borrowing capacity will be sufficient to fund operations through June 30, 1996. In June 1995, the Company became aware of information indicating that cash and other accrued expenses had been reported improperly in fiscal 1994 and fiscal 1995 by the accounting staff while implementing controls and procedures associated with the new computerized transaction processing system installed in fiscal 1994. As a result of this information, the Company restated its financial statements in June 1995, with respect to the year ended March 31, 1994. The effect on the results of the restatement of the quarter ended December 31, 1994, prior to the pooling of ISC, is as follows: Quarter Ended December 31, 1994 As Reported As Restated Net revenues $10,840,929 $10,824,650 SG&A expenses 1,934,596 1,946,877 Net income 180,691 152,130 Net income per share 0.02 0.02 Accounts receivable 3,772,620 3,756,341 Total current assets 6,108,357 6,092,078 Total assets 7,715,660 7,699,381 Other accrued expenses 518,664 530,945 Total current liabilities 4,942,070 4,954,351 Accumulated deficit (7,473,215) (7,501,775) Total stockholders' equity 2,469,952 2,441,392 Total liabilities and stockholders' equity 7,715,660 7,699,381 PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is not currently involved in any material legal proceedings. ITEM 2. CHANGES IN SECURITIES There have been no changes in securities during the quarter ended December 31, 1995. ITEM 3. DEFAULTS UPON SENIOR SECURITIES At December 31, 1995, the Company was in default of certain financial covenants relating to its line of credit and a note payable to a related party. The Company has obtained a written waiver for the period December 31, 1995 and has renegotiated the line of credit as of February 9, 1995. The line has been reinstated to the $2,000,000 level and will expire in July 1996. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On September 14, 1995 the Board of Directors caused to be distributed to stockholders of record as of September 1, 1995, a Notice of Annual Meeting of Stockholders, Proxy and a Proxy Statement for the Annual Meeting, held on October 18, 1995. As of the record date, 7,443,748 shares of Common Stock (excluding treasury shares) were outstanding and entitled to vote. Additionally, there were 760,968 shares of Series C Preferred Stock that were outstanding and entitled to vote. At the meeting, the stockholders acted upon the following proposals: (i) election of directors; and (ii) ratification of the firm of Coopers & Lybrand as independent auditors for the fiscal year ending March 31, 1996. All of the above matters were approved by the stockholders. Votes "For" represent affirmative votes and do not include abstentions or broker non-votes. In cases where a signed proxy was submitted without direction, the shares represented by the proxy were voted "For" each proposal in the manner disclosed in the proxy statement and Proxy. Voting results were as follows: I. Election of Directors: FOR WITHHELD Stephen L. Watson 5,910,239 177,488 Barry N. Bycoff 5,910,239 177,488 Aaron Kleiner 5,910,239 177,488 Gustav H. Koven 5,910,239 177,488 Milton J. Pappas 5,910,239 177,488 Ralph B. Wagner 5,767,071 320,656 Michael L. Mark 5,910,239 177,488 II. Ratification of Independent Auditors: FOR AGAINST ABSTAIN 5,929,489 157,938 300 ITEM 5. OTHER INFORMATION Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. 11 - Computation of earnings per share. (b) Report on Form 8-K: On November 30, 1995, the Company filed a Form 8-K relating to the acquisition of Internet Security Corporation, and a subsequent Form 8-KA filed on January 30, 1996. 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. Date: February 14, 1996 THE SOFTWARE DEVELOPER'S COMPANY, INC. By: /s/ Barry N. Bycoff Barry N. Bycoff President and Chief Executive Officer (Principal Executive Officer) Date: February 14, 1996 By: /s/ James O'Connor, Jr. James O'Connor, Jr. Vice President, Finance and Chief Financial Officer (Principal Financial and Chief Accounting Officer) EXHIBIT 11 THE SOFTWARE DEVELOPER'S COMPANY, INC. COMPUTATION OF EARNINGS PER SHARE (In thousands, except per share data) Three months ended December 31, Restated 1995 1994 Weighted average shares outstanding 8,583 8,202 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price 678 7 Total 9,261 8,209 Net income for EPS computation $ (77) $ 282 Net income per share $(0.01) $0.03 Nine months ended December 31, Restated 1995 1994 Weighted average shares outstanding 8,300 8,202 Net effect of dilutive stock options and warrants - based on the treasury stock method using the average market price 491 4 Total 8,791 8,206 Net income for EPS computation $ 162 $ 402 Net income per share $ 0.02 $ 0.05 EX-27 2
5 This schedule contains summary financial information extracted from SEC Form 10-Q ended December 31, 1995 and is qualified in its entirety by reference to such financial statements. This schedule should be read in conjunction with footnotes as they are an integral part of the financial statements. 3-MOS MAR-31-1996 DEC-31-1995 1,258,061 0 5,616,872 422,138 2,350,572 9,091,691 2,194,564 1,763,051 10,518,091 8,281,381 0 81,008 0 7,119 0 10,518,091 14,353,081 14,353,081 11,475,597 14,366,069 0 36,719 37,046 (40,341) 0 (77,060) 0 0 0 (77,060) (0.01) (0.01)
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