<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-28430
SS&C TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 06-1169696
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Corporate Place
705 Bloomfield Avenue
Bloomfield, Connecticut 06002
(Address of principal executive offices) (Zip Code)
860-242-7887
(Registrant's telephone number, including area code)
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
------ ------
Number of shares outstanding of the issuer's classes of common stock as of
October 31, 1997:
<TABLE>
<CAPTION>
Class Number of Shares Outstanding
- -------------------------------------- ----------------------------
<S> <C>
Common Stock, par value $.01 per share 12,617,019
</TABLE>
1
<PAGE>
SS&C TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets at
December 31, 1996 and September 30, 1997 3
Consolidated Condensed Statements of Operations
for the three- and nine-month periods
ended September 30, 1996 and 1997 4
Consolidated Condensed Statements of Cash Flows
for the nine-month periods ended September 30, 1996 5
and 1997
Notes to Consolidated Condensed Financial
Statements 6-8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 19
EXHIBIT INDEX 20
</TABLE>
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
For this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. The
important factors discussed below under the caption "Certain Factors That May
Affect Future Operating Results," among others, could cause actual results to
differ materially from those indicated by forward-looking statements made herein
and presented elsewhere by management from time to time.
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---------------- ---------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,091 $ 25,203
Marketable securities 15,580 29,661
Accounts receivable, net 8,434 8,200
Unbilled accounts receivable, net 3,455 3,199
Income taxes 1,058 704
Other 885 1,527
---------------- ---------------
Total current assets 65,503 68,494
Property and equipment, net 3,126 3,596
Unbilled accounts receivable - related party 630 420
Unbilled accounts receivable, net 1,387 1,103
Intangible assets, net 1,905 1,470
Deferred income taxes 3,230 3,230
Other 505 -
---------------- ---------------
Total assets $ 76,286 $ 78,313
================ ===============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt - related party $ 1,390 $ -
Current portion of long-term debt 450 -
Accounts payable 476 786
Accrued expenses 2,526 3,419
Deferred revenues 7,090 8,303
---------------- ---------------
Total current liabilities 11,932 12,508
---------------- ---------------
Commitments and Contingencies (Note 5)
Stockholders' equity:
Common stock 137 139
Additional paid-in capital 69,598 70,032
Accumulated deficit (2,976) (1,961)
---------------- ---------------
66,759 68,210
Less treasury stock, at cost (2,405) (2,405)
---------------- ---------------
Total stockholders' equity 64,354 65,805
---------------- ---------------
Total liabilities and stockholders' equity $ 76,286 $ 78,313
================ ===============
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
3
<PAGE>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except share and per share information)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ --------------------------------------
September 30, September 30, September 30, September 30,
1996 1997 1996 1997
------------------- ------------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 2,765 $ 5,104 $ 10,199 $ 12,475
Maintenance 1,576 2,308 4,402 6,264
Professional services 1,501 1,793 4,340 5,561
------------------ ------------------- ---------------- ----------------
Total revenues 5,842 9,205 18,941 24,300
------------------ ------------------- ---------------- ----------------
Cost of revenues:
Software licenses 157 126 404 382
Maintenance 584 617 1,405 1,935
Professional services 1,129 1,339 3,241 3,770
------------------ ------------------- ---------------- ----------------
Total cost of revenues 1,870 2,082 5,050 6,087
------------------ ------------------- ---------------- ----------------
Gross profit 3,972 7,123 13,891 18,213
------------------ ------------------- ---------------- ----------------
Operating expenses:
Selling and marketing 2,375 2,998 6,620 7,927
Research and development 1,751 2,042 4,951 5,351
General and administrative 971 2,177 2,881 4,901
------------------ ------------------- ---------------- ----------------
Total operating expenses 5,097 7,217 14,452 18,179
------------------ ------------------- ---------------- ----------------
Operating income (loss) (1,125) (94) (561) 34
Interest income, net 433 496 554 1,494
------------------ ------------------- ---------------- ----------------
Income (loss) before income taxes (692) 402 (7) 1,528
Provision (benefit) for income taxes (259) 109 14 513
------------------ ------------------- ---------------- ----------------
Net income (loss) $ (433) $ 293 $ (21) $ 1,015
================== =================== ================ ================
Net income (loss) per common and
common equivalent share $ (0.04) $ 0.02 $ (0.00) $ 0.08
================== =================== ================ ================
Weighted average number of common and
common equivalent shares outstanding 12,297,920 13,146,356 11,000,439 12,917,191
================== =================== ================ ================
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
4
<PAGE>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------------
September 30, September 30,
1996 1997
--------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (21) $ 1,015
--------------------- -------------------
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,289 1,356
Deferred income taxes (337) -
Provision for doubtful accounts 205 978
Changes in operating assets and liabilities:
Accounts receivable (564) (379)
Unbilled accounts receivable (965) 385
Income taxes (493) 354
Other 442 (642)
Accounts payable (231) 310
Accrued expenses (679) 893
Deferred revenues (1,270) 1,213
--------------------- -------------------
Total adjustments (2,603) 4,468
--------------------- -------------------
Net cash (used in) provided by operating activities (2,624) 5,483
--------------------- -------------------
Cash flows from investing activities:
Additions to other assets - capitalized software - (206)
Additions to property and equipment (1,154) (1,185)
Purchases of marketable securities, net - (14,081)
--------------------- -------------------
Net cash used in investing activities (1,154) (15,472)
--------------------- -------------------
Cash flows from financing activities:
Exercise of options 659 287
Issuance of common stock 52,639 149
Release of collateral requirement on letter of credit - 505
Repayment of debt (1,288) (1,840)
--------------------- -------------------
Net cash provided by (used in) financing activities 52,010 (899)
--------------------- -------------------
Net increase (decrease) in cash and cash equivalents 48,232 (10,888)
Cash and cash equivalents, at beginning of period 1,585 36,091
--------------------- -------------------
Cash and cash equivalents, at end of period $ 49,817 $ 25,203
===================== ===================
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 212 $ 111
Income taxes 1,271 98
</TABLE>
See accompanying notes to Consolidated Condensed Financial Statements.
5
<PAGE>
SS&C TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
(unaudited)
1. Summary of Significant Accounting Policies:
Basis of Presentation
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments, except as noted elsewhere in the notes to the
consolidated condensed financial statements) necessary to present fairly its
financial position as of September 30, 1997 and the results of its operations
for the three and nine month periods ended September 30, 1996 and 1997,
respectively. These statements are condensed and therefore do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. The statements should be read in
conjunction with the consolidated financial statements and footnotes as of and
for the year ended December 31, 1996 included in the Company's Form 10-K filed
with the Securities and Exchange Commission. The December 31, 1996 consolidated
condensed balance sheet data were derived from audited financial statements, but
do not include all disclosures required by generally accepted accounting
principles. The results of operations for the three and nine months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year.
Net Income per Common and Common Equivalent Share
Net income per common share is computed based upon the weighted average number
of common shares and common equivalent shares outstanding after certain
adjustments described below. The computation of net income per common and common
equivalent share is based on net income divided by the weighted average number
of common and common equivalent shares outstanding during the period after
giving effect to all stock splits. Common equivalent shares comprise stock
options and warrants using the treasury stock method. Common equivalent shares
from stock options and warrants are excluded from the computation if their
effect is anti-dilutive. For the nine months ended September 30, 1996, pursuant
to the Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common and common equivalent shares issued at prices below the initial public
offering price during the 12 months immediately preceding the initial filing
date have been included in the calculation as if they were outstanding for that
period (using the treasury stock method and the anticipated initial public
offering price). Also for the nine months ended September 30, 1996, all
preferred stock is considered to be a common stock equivalent based on its terms
and conditions.
Fully diluted net income per share is not presented as it is the same as the
amounts disclosed in historical net income per share for all periods presented.
Accounting Standards
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) will be adopted by the Company in the fourth quarter of 1997. Upon such
adoption, all prior periods are required to be restated. The standard requires
the replacement of the current primary earnings per share presentation with a
basic earnings per share presentation. Basic earnings per share includes no
dilution and is computed by dividing income available to common stockholders by
the weighted-average number of common shares outstanding for the period. The
standard also requires companies with complex capital stock structures to
disclose diluted earnings per share and, among other things, a reconciliation of
the numerator and denominator for purposes of the calculation. Management does
not believe the adoption of SFAS No. 128 will have a material impact on the
calculation of earnings per share.
6
<PAGE>
In February 1997, the Financial Accounting Standards Board ("FASB") also issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." This pronouncement establishes standards for the
disclosure of information about an entity's capital structure and is effective
for financial statements issued for periods ending after December 15, 1997. The
adoption of this pronouncement is expected to have no impact on the disclosures
in the financial statements of the Company.
In June 1997, the FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS No.
130)and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131). SFAS No. 130 establishes standards for reporting
and display of comprehensive income, which is defined as the equity of a
business enterprise during a period from nonowner sources. SFAS No. 130 is
effective for years beginning after December 15, 1997 and requires restatement
of financial statements for all prior years presented. The adoption of SFAS No.
130 is expected to only impact the presentation of financial information.
SFAS No. 131 requires public companies to report financial and descriptive
information about operating segments in annual financial statements and requires
selected information about operating segments to be reported in interim
financial reports issued to shareholders. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Operating segment financial information is required to be reported on
the basis that it is used internally for evaluating segment performance and
allocation of resources. SFAS No. 131 is effective for financial statements for
periods beginning after December 15, 1997 and requires presentation of
comparative information for prior periods presented. The adoption of SFAS No.
131 is expected to impact the way the Company reports information about its
operating segments.
2. Capital Stock:
On April 25, 1996, the Company reincorporated in the State of Delaware and
exchanged each outstanding share of common stock for ten shares of common
stock,$.01 par value, and exchanged each outstanding share of preferred stock
Series A, Series B, and Series C for one share of preferred stock Series A,
Series B and Series C, respectively. Holders of outstanding options were
entitled, upon exercise, to purchase ten times the number of common stock shares
provided in each option, at an exercise price per share of one-tenth the price
per share in the option. Each outstanding share of preferred stock was
convertible into ten shares of common stock. The Company authorized a total of
25,000,000 shares of common stock, $.01 par value, and a total of 1,000,000
shares of preferred stock, $.01 par value. The outstanding Series A, Series B
and Series C preferred stock was subsequently converted into common stock on
June 5, 1996, the closing date of the Company's initial public offering. As of
September 30, 1997, there was no preferred stock outstanding.
The Company consummated an initial public offering of 3,750,000 shares of common
stock on June 5, 1996, of which 723,750 shares were sold by selling
stockholders. The Company received proceeds from the offering of approximately
$52,639,000, net of underwriting discounts and commissions and offering expenses
paid by the Company.
3. Operating Expenses:
In August 1997, the Company announced a plan to close its Virginia office
facility in the fourth quarter of 1997. The Company has recognized
a liability for severance packages, outplacement services, unoccupied lease fees
under the current lease and other exit costs during the three months ended
September 30, 1997. Severance packages and outplacement services for nine
employees total $110,000, of which $47,000 has been paid as of September 30,
1997. Remaining lease payments and other exit costs total $230,000. The total of
$340,000 has been included in general and administrative expense for the three
and nine months ended September 30, 1997.
In August 1997, the Company announced plans to relocate its corporate
facilities. In connection with the relocation, and in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121)
and EITF No. 94-3, the Company has recognized in general and administrative
expense an impairment loss on the building and furniture it currently occupies
and uses of $484,000. Under a current lease, the Company is also obligated to
continue making payments from the expected date of the relocation through
November 30,
7
<PAGE>
1998. Unoccupied lease fees of $143,000 were included in general and
administrative expense for the three and nine months ended September 30, 1997.
4. Related Party Transactions:
In January 1996, the Company licensed its CAMRA and FILMS applications software
and certain other programs to a related party for a total purchase price of
$2,054,786, including a five-year maintenance program beginning in February
1996. The purchase price was allocated to license fees of $1,543,561,
maintenance fees over the five-year period of $375,000 and deferred interest of
$136,225 resulting from an extended payment plan. Terms of the agreement include
$900,000 paid upon execution of the agreement in January 1996 and quarterly
installments of $52,500 payable for five years. In addition, all outstanding
receivables and payables between the parties as of January 27, 1996 were
forgiven, resulting in an additional $104,786 allocated to the purchase price.
Interest was imputed at 9% for payments on the license fee. The amount collected
from the related party during the nine months ended September 30, 1997 was
$160,285, including sales tax. The balance currently billed and receivable at
September 30, 1997 was $53,250.
The note payable to a related party was issued in connection with the Company's
acquisition of the assets and operations of Chalke Incorporated on March
31,1995. The Company paid the note in full with all accrued interest on April
4,1997.
5. Commitments and Contingencies:
On March 18, 1997 and April 8, 1997, two separate purported class action
lawsuits ("Complaints") were filed against the Company, certain of its officers
and the two leading managers of the Company's initial public offering. On July
8, 1997, a Consolidated Amended Class Action Complaint was filed in the United
States District Court for the District of Connecticut (the "Consolidated
Complaint") in which the Complaints were consolidated and amended. The
Consolidated Complaint claims that the Prospectus for the Company's initial
public offering allegedly made material misrepresentations in violation of
Sections 11 and 12(2) of the Securities Act of 1933. The plaintiffs in the suit
are seeking an undetermined amount of damages and costs and expenses of the
litigation. The Company and the leading managers have each filed a motion to
dismiss the Consolidated Complaint on the grounds that it fails to state a claim
against the Company and the leading managers, respectively. The Company believes
it has meritorious defenses to the claims made in the lawsuit and intends to
contest the Consolidated Complaint vigorously; however, legal counsel for the
Company is unable to predict, with any degree of certainty, the outcome of such
claims. While the resolution of these claims could affect the Company's results
of operations in future periods, the Company does not expect these matters to
have a material adverse effect on its consolidated financial position. However,
the Company is unable to predict the ultimate outcome or the potential financial
impact of these claims.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
Revenues
The Company's revenues are derived from software licenses and related
maintenance and professional services. Total revenues increased 58% from $5.8
million in the three months ended September 30, 1996 to $9.2 million in the
three months ended September 30, 1997.
Software Licenses. Software license revenues increased 85% from $2.8 million
in the three months ended September 30, 1996 to $5.1 million in the three months
ended September 30, 1997. The increase in software license revenues was
primarily due to an increase in CAMRA, FILMS, Finesse and International software
license revenues. International software license revenues increased 77% from
$350,000 in the three months ended September 30, 1996 to $620,000 in the three
months ended September 30, 1997. The increase in software license revenues was
partially offset by a decline in PTS software license revenues. During the three
months ended September 30, 1996, the Company generated the majority of the PTS
software license revenues from the second quarter release of PTS 2000. The sales
of PTS 2000 in 1996 were primarily to the current client base.
Maintenance. Maintenance revenues increased 46% from $1.6 million in the
three months ended September 30, 1996 to $2.3 million in the three months ended
September 30, 1997. The increase was primarily due to an increase in the
Company's installed base of clients with maintenance contracts as a result of
the Company's license sales for all products.
Professional Services. Professional services revenues increased 19% from
$1.5 million in the three months ended September 30, 1996 to $1.8 million in the
three months ended September 30, 1997. The increase was primarily due to the
increase in demand for the Company's implementation, conversion and training
services, both domestically and internationally, and an increase in the
Company's outsourcing business. An increase in international assignments, where
hourly rates are significantly higher than rates on domestic assignments,
contributed to the increase in implementation, conversion and training services.
The increase in professional services revenues from SS&C Direct, the Company's
investment accounting outsourcing services, was due to an increase in the assets
under management, primarily from a larger client base and also from existing
clients increasing the asset size being reported under SS&C Direct services.
Cost of Revenues
Total cost of revenues increased 11% from $1.9 million in the three months
ended September 30, 1996 to $2.1 million in the three months ended September 30,
1997. The gross margin increased from 68% for the three months ended September
30, 1996 to 77% for the three months ended September 30, 1997, primarily due to
an increase in the software license revenues. Software license revenues carry
the highest gross profit margin of all of the Company's sources of revenue. The
increase in the overall gross profit margin is primarily attributable to the
large increase in software license revenues without a corresponding increase in
the cost of software licenses.
Cost of Software Licenses. Cost of software license revenues relates
primarily to royalties, as well as to the costs of product media, packaging,
documentation and labor involved in the distribution of the Company's software.
The cost of software licenses decreased 20% from $157,000 in the three months
ended September 30, 1996 to $126,000 in the three months ended September 30,
1997. The cost of software license revenues as a percentage of such revenues
decreased from 6% in the three months ended September 30, 1996 to 3% in the
three months ended September 30, 1997. The 1997 cost of software license
revenues was lower
9
<PAGE>
than the 1996 cost of software license revenues primarily due to the decrease in
the labor allocated to the distribution process.
Cost of Maintenance. Cost of maintenance revenues primarily consists of
technical customer support and development costs associated with product and
regulatory updates. The cost of maintenance revenues increased 6% from $584,000
in the three months ended September 30, 1996 to $617,000 in the three months
ended September 30, 1997. The increase in costs reflected a normal increase in
costs including wage adjustments. The cost of maintenance revenues as a
percentage of such revenues decreased from 37% in the three months ended
September 30, 1996 to 27% in the three months ended September 30, 1997.
Cost of Professional Services. Cost of professional services revenues
consists primarily of the cost related to personnel utilized to provide
implementation, conversion and training services to the Company's software
licensees, as well as custom programming, system integration and actuarial
consulting services. The cost of professional services revenues increased 19%
from $1.1 million in the three months ended September 30, 1996 to $1.3 million
in the three months ended September 30, 1997. The increase in the cost of
professional services was primarily attributable to an increase in personnel
costs. The cost of professional services revenues as a percentage of such
revenues remained relatively stable at 75% in the three months ended September
30, 1996 and 1997.
Operating Expenses
Selling and Marketing. Selling and marketing expenses consist primarily of
the cost of personnel associated with the selling and marketing of the Company's
products, including salaries, commissions and travel and entertainment. Such
expenses also include the cost of branch sales offices, advertising, trade
shows, marketing and promotional materials. Selling and marketing expenses
increased 26% from $2.4 million in the three months ended September 30, 1996 to
$3.0 million in the three months ended September 30, 1997. The increase in
selling and marketing expenses was primarily due to an increase in recruiting
and personnel expenses related to the hiring of senior sales executives and
technical pre-sales consulting staff and an increase in commissions due to the
increase in software license revenues. Selling and marketing expenses for the
three months ended September 30, 1996 and 1997 represented 41% and 33%,
respectively, of total revenues for those periods.
Research and Development. Research and development expenses consist
primarily of personnel costs attributable to the development of new software
products and the enhancement of existing products. Research and development
expenses increased 17% from $1.8 million in the three months ended September 30,
1996 to $2.0 million in the three months ended September 30, 1997. The increase
in research and development expenses was primarily due to increases in personnel
costs for existing employees, recruiting costs for new employees and costs for
independent contractors. Research and development expenses in the three months
ended September 30, 1996 and 1997 represented 30% and 22%, respectively, of
total revenues for those periods.
General and Administrative. General and administrative expenses primarily
comprise personnel costs related to management, accounting, human resources and
administration and associated overhead costs, as well as fees for professional
services. General and administrative expenses increased 124% from $971,000 in
the three months ended September 30, 1996 to $2.2 million in the three months
ended September 30, 1997, representing 17% and 24%, respectively, of total
revenues for those periods. General and administrative expenses in the three
months ended September 30, 1997 included $967,000 accrued for the closing of the
Virginia office facility and the announced move of the corporate headquarters.
Excluding the $967,000 charge, general and administrative expenses increased 25%
from $971,000 in the three months ended September 30, 1996 to $1.2 million in
the three months ended September 30, 1997, representing 17% and 13%,
respectively, of total revenues for those periods. The increase in general and
administrative expenses, excluding the charges associated with the closing of
the Virginia office facility and the announced move of the corporate
headquarters, was primarily attributable to an increase in the bad debt reserve
and an increase in personnel costs, including the salary of the new president of
the Company.
Interest Income. The Company recorded net interest income of $433,000 in the
three months ended September 30, 1996 as compared to net interest income of
$496,000 in the three months ended September 30, 1997. The increase was
primarily due to the proceeds of the initial public offering being fully
invested in securities for the entire three-month period
10
<PAGE>
ended September 30, 1997. In the three months ended September 30, 1996, the
Company was in the process of initially diversifying its securities portfolio.
Provision for Income Taxes. The Company had effective tax rates of
approximately 37% and 27% for the three months ended September 30, 1996 and
1997, respectively. The tax rate decrease was primarily based on a larger
percentage of income generated from tax-free interest income.
NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1997
Revenues
Total revenues increased 28% from $18.9 million in the nine months ended
September 30, 1996 to $24.3 million in the nine months ended September 30, 1997.
Software Licenses. Software license revenues increased 22% from $10.2
million in the nine months ended September 30, 1996 to $12.5 million in the nine
months ended September 30, 1997. The increase was primarily due to an increase
in international software license revenues, partially offset by a decline in PTS
software license revenues. International software license revenues increased
712% from $350,000 in the nine months ended September 30, 1996 to $2.8 million
in the nine months ended September 30, 1997, which included revenues on one
contract for $1.5 million. PTS software license revenues declined after the
initial license revenues generated from the introduction of PTS 2000 in 1996.
The sales of PTS 2000 in 1996 were primarily to the current client base which
provided a ready market for the product.
Maintenance. Maintenance revenues increased 42% from $4.4 million in the
nine months ended September 30, 1996 to $6.3 million in the nine months ended
September 30, 1997. The increase was primarily due to an increase in the
Company's installed base of clients with maintenance contracts as a result of
the Company's license sales for all products.
Professional Services. Professional services revenues increased 28% from
$4.3 million in the nine months ended September 30, 1996 to $5.6 million in the
nine months ended September 30, 1997. The increase was primarily due to the
increase in demand for the Company's implementation, conversion and training
services, both domestically and internationally, and an increase in the
Company's outsourcing business. An increase in international assignments, where
hourly rates are significantly higher than rates on domestic assignments,
contributed to the increase in implementation, conversion and training services.
The increase in professional services revenue from SS&C Direct, the Company's
investment accounting outsourcing services, was due to an increase in the assets
under management, primarily from a larger client base and also from existing
clients increasing the asset size being reported under SS&C Direct services.
Cost of Revenues
Total cost of revenues increased 21% from $5.1 million in the nine months
ended September 30, 1996 to $6.1 million in the nine months ended September 30,
1997. The gross margin increased from 73% for the nine months ended September
30, 1996 to 75% for the nine months ended September 30, 1997, primarily due to
an increase in the software license revenues.
Cost of Software Licenses. The cost of software license revenues decreased
5% from $404,000 in the nine months ended September 30, 1996 to $382,000 in the
nine months ended September 30, 1997. The cost of software licenses revenues
decreased primarily due to the decrease in the labor allocated to the
distribution process. The cost of software license revenues as a percentage of
such revenues decreased from 4% in the nine months ended September 30, 1996 to
3% in the nine months ended September 30, 1997.
Cost of Maintenance. The cost of maintenance revenues increased 38% from
$1.4 million in the nine months ended September 30, 1996 to $1.9 million in the
nine months ended September 30, 1997. The increase in costs reflected the
continued development of a dedicated support infrastructure for the Company's
operations as the total number of full-time employees in client support
increased from 23 as of September 30, 1996 to 33 as of September 30, 1997. The
cost of maintenance revenues as a percentage of such revenues decreased from
11
<PAGE>
32% in the nine months ended September 30, 1996 to 31% in the nine months ended
September 30, 1997.
Cost of Professional Services. The cost of professional services revenues
increased 16% from $3.2 million in the nine months ended September 30, 1996 to
$3.8 million in the nine months ended September 30, 1997. The cost of
professional services revenues as a percentage of such revenues decreased from
75% in the nine months ended September 30, 1996 to 68% in the nine months ended
September 30, 1997, primarily due to an increase in the utilization rates and
average billing rates of the personnel performing the services.
Operating Expenses
Selling and Marketing. Selling and marketing expenses increased 20% from
$6.6 million in the nine months ended September 30, 1996 to $7.9 million in the
nine months ended September 30, 1997. The increase in selling and marketing
expenses was primarily due to direct selling costs associated with a contract
signed with an international client, an increase in recruiting and personnel
expenses related to the sales and marketing staff and an increase in commissions
due to the increase in software license revenues. Selling and marketing expenses
in the nine months ended September 30, 1996 and 1997 represented 35% and 33%,
respectively, of total revenues for those periods.
Research and Development. Research and development expenses increased 8%
from $5.0 million in the nine months ended September 30, 1996 to $5.4 million in
the nine months ended September 30, 1997. The increase in research and
development expenses was primarily due to increases in personnel costs for
existing employees, recruiting costs for new employees and costs for independent
contractors.Research and development expenses in the nine months ended September
30, 1996 and 1997 represented 26% and 22%, respectively, of total revenues for
those periods.
General and Administrative. General and administrative expenses increased
70% from $2.9 million in the nine months ended September 30, 1996 to $4.9
million in the nine months ended September 30, 1997, representing 15% and 20%,
respectively, of total revenues for those periods. General and administrative
expenses in the nine months ended September 30, 1997 included $967,000 accrued
for the closing of the Virginia office facility and the announced move of the
corporate headquarters. Excluding the $967,000 charge, general and
administrative expenses increased 37% from $2.9 million in the nine months ended
September 30, 1996 to $3.9 million in the nine months ended September 30, 1997,
representing 15% and 16%, respectively, of total revenues for those periods. The
increase in general and administrative expenses, excluding the charges
associated with the closing of the Virginia office facility and the announced
move of the corporate headquarters, was primarily due to an increase in the bad
debt reserve of $784,000, an increase in a reserve for legal expenses and
recruiting fees and salary for the new president of the Company. The increase in
the reserve for legal fees pertains to various legal issues that the Company is
involved in, including the class action lawsuits filed in March and April 1997.
The reserve is for legal fees in connection with the defenses. There is no
reserve for settlements and the Company believes it has meritorious defenses.
See Part II, Item 1 for a more complete description of the litigation.
Interest Income. The Company recorded net interest income of $554,000 in the
nine months ended September 30, 1996 as compared to net interest income of $1.5
million in the nine months ended September 30, 1997. The increase was primarily
due to investing the proceeds from the Company's initial public offering for the
entire nine-month period ended September 30, 1997 as compared to approximately
four months in the nine-month period ended September 30, 1996.
Provision for Income Taxes. The Company had an effective tax rate of
approximately 43%, prior to the one-time assessment by the IRS for $17,000 for
tax years 1993-1994, for the nine months ended September 30, 1996. The effective
tax rate was 34% for the nine months ended September 30, 1997. The tax rate
decrease was primarily based on a larger percentage of income generated from
tax-free interest income.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996 and 1997, the Company
financed its operations primarily through cash flows generated from operations
and financing activities. Net cash used in operations was $2.6 million for the
nine months ended September 30, 1996. Net cash provided by operations was $5.5
million for the nine months ended September 30, 1997. The increase in the cash
provided by operations was primarily due to improved collection of accounts and
unbilled accounts receivable. Accounts and unbilled accounts receivable
increased $1.5 million in the nine months ended September 30, 1996 on a revenue
base of $18.9 million. Accounts receivable and unbilled accounts remained
relatively stable in the nine months ended September 30, 1997 on a revenue base
of $24.3 million. The receivable level has remained relatively stable even while
revenues have increased. The Company improved collections on license fees by
receiving a higher percentage of new license fees at the time of signing the
contract. In addition, the balance in deferred revenues has increased while
there has been no corresponding increase in accounts and unbilled accounts
receivable. This was primarily due to an increase in the number and size of
maintenance clients. The Company invoices clients for maintenance at the
beginning of a maintenance period and generally will receive payment prior to
recognizing all of the revenues associated with the maintenance service. The
change in deferred revenues was due to a large increase in maintenance billings
and collections of the accounts receivable on these billings, while the revenue
has yet to be recognized.
Investing activities used cash of $1.2 million and $15.5 million for the
nine months ended September 30, 1996 and 1997, respectively. Investing
activities during the nine months ended September 30, 1997 consisted primarily
of a change in the Company's investment portfolio whereby the Company increased
its positions in investments which matured in less than 90 days and had fewer
investments in securities with maturities greater than 90 days.
Financing activities provided cash of $52.0 million for the nine months
ended September 30, 1996 and used cash of $899,000 for the nine months ended
September 30, 1997. Financing activities during the nine months ended September
30, 1996 consisted primarily of proceeds of $52.6 million from the issuance of
common stock in the initial public offering, proceeds of $659,000 from the
exercise of stock options, net of the repayment of $1.3 million of debt.
Financing activities during the nine months ended September 30, 1997 consisted
primarily of the repayment of $1.8 million of debt, offset by the release of a
letter of credit of $505,000. In connection with the acquisition of Chalke
Incorporated on March 31, 1995, the Company issued a promissory note in the
principal amount of $3.0 million, with an imputed interest rate of 7.91% per
annum. The final payment of $1.5 million was paid on April 4, 1997.
As of September 30, 1997, the Company had $54.9 million in cash, cash
equivalents and marketable securities. The Company believes that its current
cash balances and net cash provided by operating activities will be sufficient
to meet its working capital and capital expenditure requirements for the next 12
months.
CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Fluctuations in Quarterly Performance. The Company's revenues and operating
results historically have varied substantially from quarter to quarter. The
Company's quarterly operating results may continue to fluctuate due to a number
of factors, including the timing, size and nature of the Company's individual
license transactions; the timing of the introduction and the market acceptance
of new products or product enhancements by the Company or its competitors; the
relative proportions of revenues derived from license fees, maintenance,
consulting and other recurring revenues and professional services; changes in
the Company's operating expenses; personnel changes and fluctuations in economic
and financial market conditions. The timing, size and nature of individual
license transactions are important factors in the Company's quarterly operating
results. Many such license transactions involve large dollar amounts, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that the Company will be successful in closing large license
transactions on a timely basis or at all.
Dependence on Financial Services Industry. The Company's clients include a range
of organizations in the financial services industry, and the success of such
clients is intrinsically linked to the health of the financial markets. In
addition, because of the capital expenditures required in connection with an
investment in the Company's products, the Company believes that demand for its
products could be disproportionately affected by fluctuations, disruptions,
instability or downturns in the financial markets, which may cause clients and
potential clients to exit the industry or delay, cancel or reduce any planned
13
<PAGE>
expenditures for investment management systems and software products. Any
resulting decline in demand for the Company's products could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Product Concentration. To date, substantially all of the Company's revenues have
been attributable to the licensing of its CAMRA, PTS and FILMS software and the
provision of maintenance and consulting services in connection therewith. The
Company currently expects that the licensing of CAMRA, PTS and FILMS software,
and the provision of related services, will account for a substantial portion of
its revenues for the foreseeable future. As a result, factors adversely
affecting the pricing of or demand for such products and services, such as
competition or technological change, could have a material adverse effect on the
Company's business, financial condition and results of operations.
Management of Growth. The Company's business has grown significantly in size and
complexity over the past several years. The growth in the size and complexity
of the Company's business as well as its client base has placed and is expected
to continue to place a significant strain on the Company's management and
operations. The Company's senior management has had limited experience in
managing publicly traded companies. The Company's ability to compete effectively
and to manage future growth, if any, will depend on its ability to continue to
implement and improve operational, financial and management information systems
on a timely basis and to expand, train, motivate and manage its work force.
There can be no assurance that the Company's personnel, systems, procedures and
controls will be adequate to support the Company's operations. If the Company's
management is unable to manage growth effectively, the quality of the Company's
products and its business, financial condition and results of operations could
be materially adversely affected.
Competition. The market for financial services software is competitive, rapidly
evolving and highly sensitive to new product introductions and marketing efforts
by industry participants. Although the Company believes that none of its
competitors currently competes against the Company in each of the industry
segments served by the Company, there can be no assurance that such competitors
will not compete against the Company in the future in additional industry
segments. In addition, many of the Company's current and potential future
competitors have significantly greater financial, technical and marketing
resources, generate higher revenues and have greater name recognition than does
the Company.
Rapid Technological Change. The market for the Company's products and services
is characterized by rapidly changing technology, evolving industry standards and
new product introductions. The Company's future success will depend in part
upon its ability to enhance its existing products and services and to develop
and introduce new products and services to meet changing client requirements.
The process of developing software products such as those offered by the Company
is extremely complex and is expected to become increasingly complex and
expensive in the future with the introduction of new platforms and technologies.
There can be no assurance that the Company will successfully complete the
development of new products in a timely fashion or that the Company's current or
future products will satisfy the needs of the financial markets.
Dependence on Database Supplier. The relational database design in many of the
Company's software products incorporates PFXplus, a "C"-based database
management system licensed to the Company by POWERflex Corporation Proprietary
Limited, an Australian vendor ("Powerflex"). If Powerflex were to increase its
fees under the license agreement, the Company's results of operations could be
materially adversely affected. Moreover, if Powerflex were to terminate the
license agreement, the Company would have to seek an alternative relational
database for its software products. While the Company believes that it could
migrate its products to an alternative database, there can be no assurance that
the Company would be able to license in a timely fashion a database with similar
features and on terms acceptable to the Company.
Dependence on Proprietary Technology. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company
relies on a combination of trade secret, copyright and trademark law,
nondisclosure agreements and technical measures to protect its proprietary
technology. There can be no assurance that the steps taken by the Company to
limit access to its proprietary technology will be adequate to deter
misappropriation or independent third-party development of such technology.
Product Defects and Product Liability. The Company's software products are
highly complex and sophisticated and could from time to time contain design
defects or software errors that could be difficult to detect and correct.
Errors, bugs or viruses may result in loss of or
14
<PAGE>
delay in market acceptance or loss of client data. Although the Company has not
experienced material adverse effects resulting from any software defects or
errors, there can be no assurance that, despite testing by the Company and its
clients, errors will not be found in new products, which errors could result in
a delay in or inability to achieve market acceptance and thus could have a
material adverse impact upon the Company's business, financial condition and
results of operations.
Key Personnel. The Company's success will depend in large part upon its ability
to attract, train and retain highly-skilled technical, managerial and sales
personnel. The loss of services of one or more of the Company's key employees
could have a materially adverse effect on the Company's business operating
results and financial condition. The Company continues to hire a significant
number of additional sales, service and technical personnel. Competition for the
hiring of such personnel in the software industry is intense. Locating
candidates with the appropriate qualifications, particularly in the desired
geographic location can be difficult. Although the Company expects to continue
to attract and retain sufficient numbers of highly skilled employees for the
forseeable future, there can be no assurance that the Company will be able to do
so.
Risks Associated with International Operations. The Company intends to expand
its international sales activity as part of its business strategy. To accomplish
such expansion, the Company must establish additional foreign operations and
hire additional personnel, requiring significant management attention and
financial resources that could materially adversely affect the Company's
business, financial condition or results of operations. An increase in the value
of the U.S dollar relative to foreign currencies could make the products more
expensive and, therefore, potentially less competitive in those markets. An
increasing portion of the Company's international sales are denominated in
foreign currency. The Company hedges some of this risk; however, significant
fluctuations in the value of foreign currencies could have an adverse effect on
the earnings of the Company. In addition, the Company's international business
may be subject to a variety of risks, including difficulties in obtaining U.S.
export licenses, potentially longer payment cycles, increased costs associated
with maintaining international marketing efforts, the introduction of non-tariff
barriers and higher duty rates and difficulties in enforcement of contractual
obligations and intellectual property rights. There can be no assurance that
such factors will not have a material adverse effect on the Company's business,
financial condition or results of operations.
Because of these and other factors, past financial performance should not be
considered an indication of future performance. The Company's quarterly
operating results may vary significantly, depending on factors such as the
timing, size and nature of licensing transactions and new product introductions
by the Company or its competitors. Investors should not use historical trends
to anticipate future results and should be aware that the trading price of the
Company's common stock may be subject to wide fluctuations in response to
quarterly variations in operating results and other factors, including those
discussed above.
Accounting Pronouncements. Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS No. 128) will be adopted by the Company in the fourth
quarter of 1997. Upon such adoption, all prior periods are required to be
restated. The standard requires the replacement of the current primary earnings
per share presentation with a basic earnings per share presentation. Basic
earnings per share includes no dilution and is computed by dividing income
available to common stockholders by the weighted-average number of common shares
outstanding for the period. The standard also requires companies with complex
capital stock structures to disclose diluted earnings per share and, among other
things, a reconciliation of the numerator and denominator for purposes of the
calculation. Management does not believe the adoption of SFAS No. 128 will have
a material impact on the calculation of earnings per share.
In February 1997, the Financial Accounting Standards Board ("FASB") also issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure." This pronouncement establishes standards for the
disclosure of information about an entity's capital structure and is effective
for financial statements issued for periods ending after December 15, 1997. The
adoption of this pronouncement is expected to have no impact on the disclosures
in the financial statements of the Company.
In June 1997, the FASB issued two pronouncements, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," (SFAS No. 130)
and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS No. 131) SFAS No. 130 establishes standards for reporting and
display of comprehensive income, which is defined as the equity of a business
enterprise during a period from nonowner sources. SFAS No. 130 is effective for
years beginning after December 15, 1997 and requires restatement of financial
statements for all prior years presented. The adoption of SFAS No. 130 is
expected to only impact the presentation of financial information.
SFAS No. 131 requires public companies to report financial and descriptive
information about operating segments in annual financial statements and requires
selected information about operating segments to be reported in interim
financial reports issued to shareholders.
15
<PAGE>
It also establishes standards for related disclosures about products and
services, geographic areas and major customers. Operating segment financial
information is required to be reported on the basis that is used internally for
evaluating segment performance and allocation of resources. SFAS No. 131 is
effective for financial statements for periods beginning after December 15, 1997
and requires presentation of comparative information for prior periods
presented. The adoption of SFAS No. 131 is expected to impact the way the
Company reports information about its operating segments.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
On March 18, 1997, Elery G. Montagna and Marjory G. Montagna filed a
purported class action lawsuit in the United States District Court for the
Southern District of New York (the "New York Complaint") against the Company,
its Chief Executive Officer, its Executive Vice President and its Chief
Financial Officer, as well as against BT Alex. Brown Incorporated (as successor
to Alex. Brown & Sons Incorporated, "Alex. Brown") and Hambrecht & Quist LLC
("Hambrecht & Quist"), the lead managers of the Company's initial public
offering. On April 8, 1997, Marc A. Feiner filed a purported class action
lawsuit in the United States District Court for the District of Connecticut (the
"Connecticut Complaint") against the Company, its directors and its Chief
Financial Officer, as well as against Alex. Brown and Hambrecht & Quist. On July
8, 1997, Marc A. Feiner, Joseph Aogiere, Arthur S. Davis, Theodore S. Davis,
James Gregory, Brian Kreidler, Daniel Kreidler, Robert Miller, Elery Montagna,
Marjory Montagna and Gilda Shapiro Trust filed a Consolidated Amended Class
Action Complaint in the United States District Court for the District of
Connecticut (the "Consolidated Complaint") in which the New York Complaint and
the Connecticut Complaint were consolidated and amended. The Consolidated
Complaint claims that the Prospectus for the Company's initial public offering
allegedly made material misrepresentations in violation of Sections 11 and 12(2)
of the Securities Act of 1933. The plaintiffs are seeking an undetermined amount
of damages and costs and expenses of the litigation. On October 3, 1997, the
Company filed a motion to dismiss the Consolidated Complaint on the grounds that
it failed to state a claim against the Company or the individual defendants. On
October 6, 1997, Alex. Brown and Hambrecht and Quist filed a similar motion to
dismiss the Consolidated Complaint on the grounds that it failed to state a
claim against them. Although the Company believes that it has meritorious
defenses to the claims made in the lawsuit and intends to contest the lawsuit
vigorously, an adverse resolution of the lawsuit could have a material adverse
effect on the Company's financial condition and results of operations in the
period in which the litigation is resolved.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
This Item 2 contains information with respect to the use of proceeds from
the Company's initial public offering of Common Stock (the "Offering").
(1) The effective date of the Company's Registration Statement on Form S-1
(File No. 333-3094)(the "Registration Statement") relating to the
Offering, for which the following use of proceeds information is being
disclosed, was May 30, 1996.
(2) The date on which the Offering commenced was May 30, 1996.
(3) Not applicable.
(4) (i) The Offering terminated after the sale of all securities
registered pursuant to the Registration Statement. The closing
of the Offering occurred on June 5, 1996.
(ii) The managing underwriters of the Offering were:
Alex. Brown & Sons Incorporated
Hambrecht & Quist LLC
(iii) The Company registered Common Stock, $.01 par value per share,
pursuant to the Registration Statement.
(iv) For the account of the Company (a) 3,026,250 shares of Common
Stock were registered pursuant to the Registration Statement,
(b) the aggregate Offering price of the amount registered was
$57,498,750, (c) the amount sold pursuant to the Offering was
3,026,250 shares of Common Stock and (d) the aggregate
Offering price of the amount sold was $57,498,750.
For the accounts of the Selling Stockholders in the Offering,
(a) 1,286,250 shares of Common Stock were registered pursuant
to the Registration Statement, (b) the aggregate Offering
price of the amount registered was $24,438,750, (c) the amount
sold pursuant to the Offering was 1,286,250 shares of Common
Stock and (d) the aggregate Offering price of the amount sold
was $24,438,750.
(v) In connection with the Offering, the Company made direct or
indirect payments to persons other than: directors, officers,
general partners of the Company or their associates; persons
owning ten percent or more of any class of equity securities
of the Company; or affiliates of the Company as follows:
Underwriting Discounts and Commissions $4,024,913
Other Expenses $ 834,547
Total Expenses $4,859,460
(vi) The net Offering proceeds to the Company after deducting the
Total Expenses described in (v) above were $52,639,290.
17
<PAGE>
(vii) From the effective date of the Registration Statement through
September 30, 1997, the Company has used the net Offering
proceeds to the Company as follows:
Repayment of Indebtedness $450,000
Working Capital $3,150,000*
Municipal Bonds $40,039,290
Municipal Bond Funds $4,000,000
Corporate Bonds $5,000,000
* Estimate
All of the above-listed payments were direct or indirect
payments to persons other than: directors, officers, general
partners of the Company or their associates; persons owning
ten percent or more of any class of equity securities of the
Company; or affiliates of the Company.
(viii) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. The exhibits listed in the Exhibit Index filed as part of this
report are filed as part of or are included in this report.
b. The Company filed no reports on Form 8-K during the quarter for
which this report is filed.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SS&C TECHNOLOGIES, INC.
Date: November 13, 1997 By: /s/ John S. Wieczorek
------------------------
John S. Wieczorek
Vice President, Chief
Financial Officer and
Treasurer
(Principal Financial and Accounting
Officer)
19
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
11 Statement re Computation of Per Share Earnings
27 Financial Data Schedule
</TABLE>
20
<PAGE>
Exhibit 11
SS&C Technologies, Inc.
Statement Regarding The Computation of Net income
per common and common equivalent shares (4)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
------------- ------------- ------------- -------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Historical - Primary (1):
Weighted average issued common and preferred
stock outstanding (2)......................... 12,297,920 12,558,794 10,516,059 12,494,534
Weighted average cheap stock (3).............. - - 484,380 -
Weighted average common stock equivalents..... - 1,461,775 - 1,330,219
Less: Assumed purchase of treasury stock...... - (874,213) - (907,562)
------------ ------------ ------------ ------------
Weighted average number of common and common
equivalent shares outstanding 12,297,920 13,146,356 11,000,439 12,917,191
============ ============ ============ ============
Net income (loss)..................................... $ (433,000) $ 293,000 $ (21,000) $1,015,000
============ ============ ============ ============
Net income (loss) per common and common equivalent
share................................................. $ (0.04) $ 0.02 $ 0.00 $ 0.08
============ ============ ============ ============
</TABLE>
Notes:
(1) For the three months and nine months ended September 30, 1996, all common
and common equivalent share amounts have been restated to reflect the 10-for-1
stock split on April 25, 1996 as if in effect from the date of issuance.
(2) For the three months and nine months ended September 30, 1996, all shares of
convertible preferred stock are considered common stock equivalents and are
included using the if-converted method, adjusted for the 10-for-1 stock split,
except where their effect would be anti-dilutive.
(3) In accordance with Securities and Exchange Commission Staff Accounting
Bulletin No. 83, issuances of common stock and common stock equivalents, within
one year prior to the initial filing of the registration statement, at share
prices below the assumed initial public offering price are considered to have
been made in anticipation of the contemplated public offering. Accordingly,
these stock issuances are treated as if issued and outstanding, using the
treasury stock method for options, for the nine months ended September 30, 1996.
(4) Fully diluted net income per common and common equivalent share is not
presented as it was the same for all periods presented.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 25,203 25,203
<SECURITIES> 29,661 29,661
<RECEIVABLES> 15,328 15,328
<ALLOWANCES> 2,406 2,406
<INVENTORY> 0 0
<CURRENT-ASSETS> 68,494 68,494
<PP&E> 6,556 6,556
<DEPRECIATION> 2,960 2,960
<TOTAL-ASSETS> 78,313 78,313
<CURRENT-LIABILITIES> 12,508 12,508
<BONDS> 0 0
0 0
0 0
<COMMON> 139 139
<OTHER-SE> 65,666 65,666
<TOTAL-LIABILITY-AND-EQUITY> 78,313 78,313
<SALES> 9,205 24,300
<TOTAL-REVENUES> 9,205 24,300
<CGS> 0 0
<TOTAL-COSTS> 2,082 6,087
<OTHER-EXPENSES> 2,042 5,351
<LOSS-PROVISION> 266 1,037
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 402 1,528
<INCOME-TAX> 109 513
<INCOME-CONTINUING> 293 1,015
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 293 1,015
<EPS-PRIMARY> .02 .08
<EPS-DILUTED> .02 .08
</TABLE>
