Here is Ian Reece's (PC DOCS' CFO) response to some questions I had about their latest numbers.------------DavidThe reason that S&M expenses have increased more than sales is more todo with the disappointing level of sales increase than with the level ofour investing in infrastructure and marketing initiatives. In F97 wehad two quarters of unexpectedly low sales, for a variety of reasonsincluding industry slow downs, a not very effective (initially at least)sales force reorganization and a shortage of sales people (occasioned inpart by our raising the bar for required performance).During F97, as all our markets are expected to grow over the mid-term athealthy rates and notwithstanding our topline performance, we continuedto invest in a higher level of market differentiation of all ourproducts, plus hiring more sales people. We did reduce the rate ofincrease of our expenses, but did not go so far as to cut back onresources overall. We expect that the increased number of better "feeton the street" will stand us in good stead as the market opens up onceagain for commercial (as opposed to retail) software.The main increases in G&A year over year, other than the addition of twonew companies, were in occupancy costs - all our businesses either movedinto new space or added space, professional fees for various matters,significant foreign exchange losses on the US$60 million funds held inCanada from the April 96 financing, more executives on board for longerin the year than in F96, and overall we had 88 G&A employees compared tothe 78 at year end F96.The DataRamp sub has been absorbed into PC DOCS Inc and Canterburypredominantly works for CMS/Data. Two of the other subs are distributors>for the US companies. Beyond that, we have no immediate plans to"liquidate/sell" any other sub - all of which are profitable and providesignificant cross-selling opportunities.On the "so-called "re-pricing" of employee options", the Board approveda plan to allow all option holders to reprice options to Cdn$8.00(US$5.82), at the cost to the optionholder of delaying vesting for ayear, or if vested, by a year from the Board approval date. Almostexactly half of the 3.9 million options outstanding are priced overCdn$8.00. Under the TSE rules, repricing options of insiders (directorsand officers) has to be approved by a majority of the "disinterested"shareholders.Ian ReeceCFO>---------->Sent: Wednesday, August 13, 1997 2:11 PM>To: Ian Reece>Subject: Annual Report Questions>>I have just gone through the Press Release on the Quarterly/Annual earnings>and>would like to hear your comments on the following:>>Why is the Selling and Marketing expense almost double what it was in the>previous year - especially in light of the fact that revenues only went up by>7%?>>Likewise, the G&A expenses are up by 64% (from $10.2m to $16.4m). What is>the>cause of such an excessive increase in this "overhead" item?>>Since PC DOCS International is effectively composed of 5 subsidiaries with>the>PC DOCS subsidiary being the most prestigious - both in terms of corporate>image>>and in revenue dollars produced, are there any plans to liquidate/sell two or>three of these non-producing subsidiaries. If not, why not?>>I would also like to have more information sent to me on the so-called>"re-pricing" of employee options. Most importantly, does this involve the>options of the officers and directors of the company?>>>Thank you for your time,>>David LaSalle>>
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