CALIFORNIA SOFTWARE CORP Filed on Nov 16 1999
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Item 2. Management's Discussion and Analysis of Operation
Item 2. Management's Discussion and Analysis of Operation A. The Company's Predecessor, California Software Products, Inc. California Software Products, Inc. (CSPI) was founded in 1975 and incorporated in California for the purpose of writing programs for mainframe manufacturers. In 1980, the company was approached by the PC Division of IBM to write a program that would compile System/32 software to run on a personal computer. Development continued throughout the eighties adding new features and updating current programs as IBM introduced newer computer systems. When the PC Division was disbanded and the AS/400 Division chose not to continue the relationship, CSPI continued to improve these products on its own. The company had excellent technical resources, but management did not understand the marketplace and thus began a gradual decline in revenues and profits. In late 1996 a new management team headed by Bruce Acacio and Carol Conway took over the company bringing their extensive knowledge of turnaround strategies and marketing. The first order of business for the new team was to restructure the company through immediate cost-cutting measures to make it profitable. Due to an unresolved conflict with a major creditor, the team filed for Chapter 11 protection under Federal Bankruptcy law in January of 1997. The Plan put forward by management was approved in October of 1997 and California Software Products, Inc. finished 1997 profitably, its first profitable year since 1988. 1998 revenues have grown by nearly 60% over 1997 and gross profits are higher. Compensation as paid by California Software Products, Inc. (CSPI) for Bruce Acacio and Carol Conway increased during the period from January 1997 through January 1999. These increases were substantially due to a determination by the board of directors that the additional efforts of both individuals in facilitating the asset purchase and restructuring of operations as well as the additional work efforts required of each, warranted a commensurate increase in wages. In January 1997 Bruce Acacio and Carol Conway were each compensated at an annual rate of $100,000. This increased to $120,000 in October 1997 pursuant to the Chapter 11 reorganization plan. In January 1999 remuneration levels increased to $180,000 for Bruce Acacio and $150,000 for Carol Conway. On January 15, 1999 California Software Corporation (CSC) replaced CSPI as the employer of record and began compensating both employees. B. Management's Plan of Operation In its initial approximately eleven-month operating period ended September 30, 1999, the Company generated net income of $2,805,508 for sales of products and services. On October 31, 1998, founding shareholders purchased 2,700,000 shares of the Company's authorized treasury stock for cash. An original stock offering was made pursuant to Nevada Revised Statues Chapter 90.490. Additionally, on December 7, 1998, the Company completed an offering of fi ve-hundred-seventy thousand and nine-hundred (570,900) shares of the Common Stock of the Company to approximately forty-five (45) unaffiliated shareholders. This offering was made in reliance upon an exemption from the registration provisions of Section 4(2) of the Securities Act of 1993, as amended, pursuant to Regulation D, Rule 504 of the Act. As of the date of this filing, the Company has three million two-hundred-seventy thousand nine-hundred (3,270,900) shares of its $0.001 par value common voting stock issued and outstanding which are held by approximately forty-seven (47) shareholders of record. Management fully anticipates that the proceeds from the sale of all of the Common Shares sold in this offering delineated above in addition to the cash flow and earnings from current operations will be sufficient to provide the Company's capital needs for the foreseeable future. In addition, management believes the need for additional capital going forward will be met from ongoing revenues and earnings generated from the assets and contracts the Company purchased via an Asset Purchase Agreement with California Software Products, Inc. - a California Company in a similar line of business as the Company as much as from cash flow and earnings from present and future operations. On January 12, 1999, the Company completed an acquisition of approximately $1,628,068 worth of assets and $702,742 of liabilities from California Software Products, Inc. - a California company - in exchange for a convertible note in the principal sum of $2,250,000, convertible into Common Shares of the Company once the Company is trading on the OTC-BB(R) or a similar market and based upon the Company's trading price sixty (60) days following the first day of trading of the Company's Shares on a recognized public exchange with a minimum exchange rate of $1.50 per share. Assuming the Company makes no further acquisitions of assets or capital stock of similar companies, management believes the Company will not need to raise additional equity funds to meet its cash requirements. The Company's continued revenue generation is primarily dependent upon the Company's ability to effectively and efficiently provide software and programming products and services to businesses. The Company designates as its priorities for the first twelve months of operations as developing and emphasizing its platform-migration software products to establish its business in the software and technology market. The Company's primary interest is the design of PC based software solutions to enable users to preserve their investment in existing legacy applications, reduce hardware and operating costs, and, in most cases, significantly improve system response times. The Company currently supports its products with a team of technical experts that can assist clients in a smooth migration to the PC environment. Management believes its technical support team and implementation consultants are well equipped to support IBM midrange, PC, connectivity hardware, and operating system environments. Realization of significant sales of the Company's products and services throughout the rest of the fiscal year ending December 31, 1999 is vital to its plan of operations. To this end, management is currently emphasizing distribution of its platform-migration software through a direct sales force, as well as through independent distributors. The Company may also seek to enter into strategic relationships with major hardware system vendors as well as international systems integrators. The Company believes that a multi-channel distribution strategy will enable it to effectively market its products and services to a wide range of potential customers. The Company anticipates that the long-term success of its product offering will require further product development. The Company expects to continually evaluate its products to determine what additional products or enhancements the marketplace requires. The Company plans to develop and enhance its products internally to meet clients' needs, but if the Company can purchase or license proven products at reasonable costs it will do so in order to avoid the time and expense involved in developing products. The Company has incurred $23,200 in research and development costs from October 28, 1998 (date of inception) through September 30, 1999. Based on expenditures to September 30, 1999, the Company estimates its fiscal year and calendar year December 31, 1999, Research and Development expenses to be $100,000. The cost of such activities is not expected to be borne by the Company's customers. The Company currently does not expect to purchase or sell any of its facilities or equipment. Management does not anticipate any significant changes in the number of employees. C. Segment Data In the quarter ending September 30, 1999, sales revenue has been generated by the Company. A table showing percentage breakdown of revenue by business segment or product line is included.
Segment Revenue
Percent of Total
Software Sales
$1,469,316
98.36%
Maintenance Income
11,900
0.80%
Shipping and Handling
12,580
0.84%
Total
$1,493,796
100% |
