<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
COMMISSION FILE NUMBER: 0-22369
BEA SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 77-0394711
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
385 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 90489
(Address of principal executive office)
(408) 743-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 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
--- ---
As of November 30, 1997, there were 64,366,866 shares of the Registrant's
Common Stock outstanding.
<PAGE>
BEA SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
--------
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Condensed Consolidated Statements of Operations
Three and nine months ended October 31, 1997 and 1996....... 3
Condensed Consolidated Balance Sheets
October 31, 1997 and January 31, 1997........................ 4
Condensed Consolidated Statements of Cash Flows
Nine months ended October 31, 1997 and 1996.................. 5
Notes to Condensed Consolidated Financial Statements........... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................... 17
SIGNATURES..................................................... 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31, OCTOBER 31,
---------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
License $ 29,585 $ 11,693 $ 80,144 $ 26,855
Services 11,435 4,323 25,420 9,494
---------- ---------- ---------- ----------
Total revenues 41,020 16,016 105,564 36,349
Cost of revenues:
License 3,505 3,202 10,087 7,655
Services 6,968 2,559 15,760 4,843
---------- ---------- ---------- ----------
Total cost of revenues 10,473 5,761 25,847 12,498
---------- ---------- ---------- ----------
Gross margin 30,547 10,255 79,717 23,851
Operating expenses:
Sales and marketing 19,101 9,049 51,742 19,411
Research and development 6,884 4,868 17,806 12,638
General and administrative 4,256 3,519 11,867 8,876
Write-off of in-process
research and development -- -- 16,000 62,248
---------- ---------- ---------- ----------
Total operating expenses 30,241 17,436 97,415 103,173
---------- ---------- ---------- ----------
Income (loss) from operations 306 (7,181) (17,698) (79,322)
Interest and other income
(expense), net 98 (1,850) (4,218) (4,848)
---------- ---------- ---------- ----------
Income (loss) before provision
for income taxes 404 (9,031) (21,916) (84,170)
Provision for income taxes 721 146 1,893 300
---------- ---------- ---------- ----------
Net loss $ (317) $ (9,177) $ (23,809) $ (84,470)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net loss per share $ (0.00) $ (0.42)
---------- ----------
---------- ----------
Shares used in computing net
loss per share 64,041 56,696
---------- ----------
---------- ----------
Pro forma net loss per share $ (0.18) $ (1.69)
---------- ----------
---------- ----------
Shares used in computing pro
forma net loss per share 52,062 50,107
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
3
<PAGE>
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
October 31, 1997 January 31, 1997
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 90,913 $ 3,283
Accounts receivable, net 38,037 24,778
Other current assets 3,223 3,083
---------- ----------
Total current assets 132,173 31,144
Computer equipment, furniture and
leasehold improvements, net 7,194 6,648
Acquired Intangible assets, net 15,660 17,226
Other assets 3,438 2,955
---------- ----------
Total assets $ 158,465 $ 57,973
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Borrowing under line of credit $ -- $ 9,050
Accounts payable 4,057 3,488
Accrued liabilities 22,471 14,527
Deferred revenues 8,949 8,697
Current portion of notes payable and
capital lease obligations 27,519 28,180
---------- ----------
Total current liabilities 62,996 63,942
Notes payable and capital lease
obligations 20,788 49,540
Series B redeemable preferred stock -- 20,780
Stockholders' equity (deficit):
Preferred stock -- 17
Common stock 64 11
Additional paid-in capital 207,480 32,335
Notes receivable from shareholders (544) (544)
Deferred compensation (662) (845)
Foreign currency translation
adjustment (242) 74
Accumulated deficit (131,415) (107,337)
---------- ----------
Total stockholders' equity
(deficit) 74,681 (76,289)
---------- ----------
Total liabilities and
stockholders' equity (deficit) $ 158,465 $ 57,973
---------- ----------
---------- ----------
See accompanying notes.
4
<PAGE>
BEA SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended
October 31,
-------------------------
1997 1996
----------- -----------
Operating activities:
Net loss $ (23,809) $ (84,470)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation 1,779 1,219
Amortization of intangible assets acquired and
write-off of in-process research and
development 24,634 67,689
Changes in operating assets and liabilities,
net of business combinations (10,170) (3,437)
Other 438 --
----------- -----------
Net cash used in operating activities (7,128) (18,999)
----------- -----------
Investing activities:
Acquisitions of intangible assets and
business combinations, net of cash acquired (2,919) (2,348)
Purchase of computer equipment, furniture
and leasehold improvements (1,570) (3,365)
----------- -----------
Net cash used in investing activities (4,489) (5,713)
----------- -----------
Financing activities:
Net borrowings (payments) on line of credit (9,050) 5,530
Net payments on long-term debt
and capital lease obligations (30,715) (4,846)
Proceeds from issuance of stock 139,328 21,253
----------- -----------
Net cash provided by financing activities 99,563 21,937
----------- -----------
Net increase in cash and cash equivalents 87,946 (2,775)
Foreign currency translation adjustment (316) (1)
Cash and cash equivalents at beginning of year 3,283 4,549
----------- -----------
Cash and cash equivalents at end of quarter $ 90,913 $ 1,773
----------- -----------
----------- -----------
See accompanying notes.
5
<PAGE>
BEA SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of presentation
The condensed consolidated financial statements at October 31, 1997 and for
the three- and nine-month periods then ended are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods.
These financial statements should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements for the fiscal year ended January
31, 1997 included in the Company's Registration Statement on Form SB-2
(Registration Statement File No. 333-29961) and related prospectus for the
Company's offering of its Common Stock, which was completed in July 1997.
The results of operations for the three and nine months ended October 31,
1997 are not necessarily indicative of the results for the entire fiscal year
ending January 31, 1998.
The consolidated balance sheet at January 31, 1997 has been derived from
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
Note 2. Net loss per share
Except as noted below, net loss per share is computed using the weighted
average number of shares of common stock outstanding during the period.
Common stock equivalents relating to stock options, the convertible preferred
stock and the convertible line of credit are excluded from the computation as
their effect would be anti-dilutive. However, for the three and nine month
periods ended October 31, 1996, the calculation includes those common stock
equivalent shares as required by the Securities and Exchange Commission's
staff accounting bulletins and guidelines. Net loss per share information
calculated on the above noted basis is as follows:
Three months ended Nine months ended
October 31, 1996 October 31, 1996
------------------ -----------------
Net loss per share $ (0.32) $ (3.05)
---------- ---------
---------- ---------
Shares used in computing net
loss per share (in thousands) 29,862 27,907
---------- ---------
---------- ---------
For the three and nine month periods ended October 31, 1996, pro forma net
loss per share has been computed as described above and also gives effect,
pursuant to Securities and Exchange Commission policy, to common stock
equivalent shares from convertible preferred stock issued more than twelve
months prior to the Company's initial public offering and converted upon
completion of the offering.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings Per Share." The
Statement is effective for both interim and annual financial statements for
periods ending after December 15, 1997. Under the Statement, primary
earnings per share computed in accordance with Accounting Principle Board
Opinion No. 25 will be replaced with a new simpler calculation called "basic
earnings per share" and the Company will be required to restate comparative
earnings per share amounts for all prior periods. Under the new
requirements, basic loss per share for the three and nine month periods ended
October 31, 1997 would be unchanged from the loss per share of $(0.00) and
$(0.42), respectively. For the three and nine month periods ended October
31, 1996, the basic loss per share under the new standard would be $(0.89)
based on weighted average shares outstanding of 10,338,000 and $(10.08) based
on weighted average shares outstanding of 8,383,000, respectively.
6
<PAGE>
Note 3. Transaction with Digital Equipment Corporation
On March 26, 1997, the Company completed an agreement with Digital Equipment
Corporation ("DEC") to acquire exclusive worldwide rights to MessageQ,
ObjectBroker and other related products. The purchase price (including
direct acquisition costs) was approximately $19.8 million. Of the aggregate
consideration, $5 million was payable in cash on closing and aggregate
payments of $17 million was due pursuant to a convertible promissory note.
Interest was imputed on the convertible promissory note at 8 percent which
resulted in the recorded liability of approximately $14 million at present
value. The convertible promissory note provided for payments of $2 million,
$4 million and $11 million payable on or before February 1, 1998, 1999 and
2000, respectively. Of the final installment of $11 million, $5 million was
convertible into the Company's common stock. In addition, the Company
granted DEC a warrant to purchase 500,000 shares of Common Stock at a price
of $6.00 per share, exerciseable for a one year period, commencing in October
1997.
In August 1997, the Company and DEC entered into an agreement whereby the
Company issued 925,925 shares of Common Stock and paid $4,925,000 as a full
settlement of the convertible promissory note. Additionally, the Company
issued 364,022 shares of Common Stock to DEC in connection with DEC's
"cashless exercise" of the entire warrant as provided for in the warrant
agreement.
Note 4. Notes Payable and Capital Lease Obligations
Notes Payable and capital lease obligations consist of the following:
<TABLE>
<CAPTION>
October 31, 1997 January 31, 1997
---------------- ----------------
<S> <C> <C>
Subordinated notes payable to founders of IMC $ -- $ 4,589
Note payable to Novell 46,374 69,900
Credit arrangement with majority stockholder -- 1,000
Note payable to former shareholders of Bay
Technologies Pty., Ltd. 598 928
Other notes payable 137 299
Capital lease obligations 1,198 1,004
-------- --------
48,307 77,720
Less amounts due within one year (27,519) (28,180)
-------- --------
Notes payable and capital lease obligations $ 20,788 $ 49,540
-------- --------
-------- --------
</TABLE>
Note 5. Public Offerings
During the first quarter ended April 30, 1997, the Company completed its
initial public offering of Common Stock. The offering generated net proceeds
of approximately $25.6 million from the sale of 5.0 million shares. During
the second quarter, the underwriters exercised a portion of their
over-allotment option, generating additional net proceeds of approximately
$2.1 million from the sale of 373,000 shares of Common Stock.
During the second fiscal quarter ended July 31, 1997, the Company completed a
follow-on public offering of its Common Stock. The offering generated net
proceeds of approximately $110.7 million from the sale of 6.9 million shares.
The proceeds from the follow-on offering will be used to fund scheduled debt
payments and operating activities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF THE BEA SYSTEMS, INC. SHOULD BE READ IN CONJUNCTION WITH THE MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM SB-2 (REGISTRATION STATEMENT FILE
NO. 333-29961) AND RELATED PROSPECTUS FOR THE COMPANY'S PUBLIC OFFERING OF
ITS COMMON STOCK, WHICH WAS COMPLETED IN JULY 1997. THIS DISCUSSION CONTAINS
FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. FORWARD LOOKING STATEMENTS INCLUDE, BUT
ARE NOT LIMITED TO, STATEMENTS REGARDING THE SUFFICIENCY OF THE COMPANY'S
CURRENT CASH BALANCES, USE OF PROCEEDS FROM THE FOLLOW-ON PUBLIC OFFERINGS,
EXPECTATIONS OF AMOUNT AND COMPOSITION OF REVENUE, FUTURE AMORTIZATION AND
OTHER EXPENSE LEVELS. THESE STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS.
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY INCLUDE RISKS
AND UNCERTAINTIES INCLUDING, BUT NOT LIMITED TO, THOSE DESCRIBED UNDER THE
HEADING "CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS." ALL
FORWARD-LOOKING STATEMENTS AND REASONS WHY RESULTS MIGHT DIFFER INCLUDED IN
THIS FORM 10-QSB ARE MADE AS OF THE DATE HEREOF, BASED ON INFORMATION
AVAILABLE TO BEA SYSTEMS, INC. AS OF THE DATE HEREOF, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY SUCH FORWARD-LOOKING STATEMENT OR REASON WHY
RESULTS MIGHT DIFFER.
RESULTS OF OPERATIONS
The Company acquired the TUXEDO product from Novell, Inc. in February 1996.
Since this acquisition, the Company has continued to purchase and develop
additional middleware products and technologies as well as establish
distribution channels for its products and services. For these reasons, the
Company has experienced significant growth.
THREE AND NINE MONTHS ENDED OCTOBER 31, 1997 AND 1996
REVENUES. The Company's revenues are derived primarily from fees for
software licenses and from maintenance, customer support and consulting
services. The Company's revenues were $41.0 million and $16.0 million for
the fiscal quarters ended October 31, 1997 and 1996, respectively, and $105.6
million and $36.3 million for the nine months ended October 31, 1997 and
1996, respectively.
License revenues were $29.6 million and $11.7 million for the fiscal quarters
ended October 31, 1997 and 1996, representing 72% and 73% of total revenues
in the respective periods. License revenues were $80.1 million and $26.9
million for the nine months ended October 31, 1997 and 1996, representing 76%
and 74% of total revenues. The increase in dollar amount of license revenues
was primarily due to the continued market acceptance of BEA TUXEDO and
adjacent middleware products.
Service revenues were $11.4 million and $4.3 million for the fiscal quarters
ended October 31, 1997 and 1996, respectively, representing 28% and 27% of
total revenues. For the nine months ended October 31, 1997 and 1996,
service revenues were $25.4 million and $9.5 million, respectively,
representing 24% and 26% of total revenues. The increase in service revenue
is due to additional sales of consulting, training and maintenance associated
with the increased sales of software licenses. The increase in services
revenue for the three months ended October 31, 1997 of 42% from the three
months ended July 31, 1997 is due to efforts to resell services to the
Company's installed user
8
<PAGE>
base and renew customer support agreements. In the future, management
expects services revenue to range between 25% and 30% of total revenues as
the Company continues to build its support and service organizations,
although there can be no assurance that total revenue will increase, or
that service revenue will increase to achieve such percentages.
International revenues, which the Company defines as revenues from sales to
customers outside the United States, accounted for 47% of total revenues in
each of the fiscal quarters ended October 31, 1997 and 1996. For the nine
months ended October 31, 1997 and 1996, international revenues accounted for
48% and 31% of total revenues, respectively. Management anticipates that
international revenues will continue to comprise a material portion of the
Company's revenues as BEA Tuxedo continues to gain international acceptance
and the Company build local market presence in Europe and Asia.
COST OF LICENSES. Cost of licenses consists primarily of amortization of
certain intangible assets related to acquisitions as well as product media,
product duplication and shipping. Cost of licenses totaled $3.5 million and
$3.2 million for the fiscal quarters ended October 31, 1997 and 1996,
respectively, representing 12% and 27% of license revenues. For the nine
months ended October 31, 1997 and 1996, cost of licenses totaled $10.1
million and $7.7 million, respectively, representing 13% and 29% of license
revenues. The decrease in cost of licenses as a percentage of license
revenues was due primarily to the substantial increase in license revenues
during the period and the fixed nature of certain of the expenses.
Amortization of intangible assets included in cost of licenses totaled $3.0
million and $2.3 million in the fiscal quarters ended October 31, 1997 and
1996 and $8.4 million and $5.3 million for the nine months ended October 31,
1997 and 1996, respectively. Amortization of intangible assets is expected to
continue to comprise a material portion of cost of licenses and, assuming no
further acquisitions, management expects this expense item to total
approximately $3.0 million in the fourth quarter ending January 31, 1998,
approximately $7.2 million for the fiscal year ending January 31, 1999 and
approximately $3.0 million through the fiscal year ending January 31, 2003.
COST OF SERVICES. Cost of services consists primarily of personnel-related
costs incurred in providing consulting services, training, maintenance and
support to customers. Cost of services were $7.0 million and $2.6 million
for the fiscal quarters ended October 31, 1997 and 1996, respectively,
representing 61% and 59% of total service revenues for each period. For the
nine months ended October 31, 1997 and 1996, cost of services were $15.8
million and $4.8 million, respectively, representing 62% and 51% of total
service revenues for each period. The increase in absolute dollars was due
primarily to the Company's growing customer base and increased operating
activity resulting from such growth. The increase in costs as a percentage of
related service revenues for the periods presented is the result of costs
related to the hiring and training of consulting and support personnel. The
Company has also invested substantial resources in a worldwide customer
support organization to provide a high level of service to the Company's
customers.
OPERATING EXPENSES. The Company expects to increase expense levels in each
of the next several quarters, primarily to support increased sales, services
and customer support efforts, and ongoing research and development, and to
build greater infrastructure in its international offices, particularly in
finance and administrative functions.
Sales and marketing expenses include salaries, commissions, advertising,
direct mail, seminars, public relations, trade shows, travel and other
related selling and marketing expenses. Sales and marketing expenses were
$19.1 million and $9.0 million for the fiscal quarters ended October 31, 1997
and 1996, respectively, representing 47% and 57% of total revenues for each
period. For the nine months ended October 31, 1997 and 1996, sales and
marketing expenses were $51.7 million and $19.4 million, respectively,
representing 49% and 53% of total revenues for each period. The increase in
absolute dollars was due primarily to the expansion of the Company's direct
sales force and an increase in sales and marketing personnel and activities.
The decrease in costs as a percentage of revenues for the three months ended
October 31, 1997 over the same period in 1996 was due primarily to the
substantial increase in revenues. The Company believes that sales and
marketing expenses will continue to increase as the Company expands its sales
and marketing organization.
Research and development expenses include engineering personnel and related
expenses, as well as consulting costs associated with new product development
and enhancement of existing products. Research and development
9
<PAGE>
expenses were $6.9 million and $4.9 million for the fiscal quarters ended
October 31, 1997 and 1996, respectively, representing 17% and 30% of total
revenues in each period. For the nine months ended October 31, 1997 and
1996, research and development expenses were $17.8 million and $12.6 million,
respectively, representing 17% and 35% of total revenues in each period. The
increase in dollar amount was due to an increase in development personnel and
related expenses. The decrease in research and development expenses as a
percentage of total revenues was primarily due to economies of scale
associated with the substantial increase in revenues. The Company expects
that the dollar amount of research and development expenses will increase as
the Company continues to commit substantial resources to product development
and engineering in future periods.
General and administrative expenses include personnel costs for
administration, finance, human resources, information technology and general
management, as well as amortization of goodwill related to certain
acquisitions. General and administrative expenses were $4.3 million and $3.5
million for the fiscal quarters ended October 31, 1997 and 1996,
respectively, representing 10% and 22% of total revenues for each period.
For the nine months ended October 31, 1997 and 1996, general and
administrative expenses were $11.9 million and $8.9 million, respectively,
representing 11% and 24% of total revenues for each period. The increase in
general and administrative expenses is attributed to the expansion of the
Company's general and administrative staff and associated expenses necessary
to manage and support the Company's growth. The decrease in general and
administrative expenses as a percentage of total revenues was primarily due
to the substantial increase in revenues. The Company expects that general and
administrative expenses will continue to increase in absolute dollars in the
future as the Company builds its administrative infrastructure and incurs
costs associated with being a public company. Amortization of goodwill
totaled $129,000 and $47,000 in the quarters ended October 31, 1997 and 1996,
respectively. Amortization of goodwill totaled $268,000 and $141,000 in the
nine months ended October 31, 1997 and 1996, respectively. Assuming no
further acquisitions, amortization of goodwill is expected to total $229,000
for the fourth quarter ending January 31, 1998, approximately $914,800 for
the fiscal year ending January 31, 1999 and approximately $1.3 million
through the fiscal year ending January 31, 2003.
As a result of the acquisitions of MessageQ, ObjectBroker and other related
products from Digital Equipment Corporation in the first quarter ended April
30, 1997, the acquisition of TUXEDO from Novell in the quarter ended April
30, 1996, and the acquisition of CST (Finland) in the quarter ended October
31, 1996, the Company has acquired a number of projects and products that had
not reached technological feasibility at the date of purchase. Accordingly,
$16.0 million and $62.2 million in the nine months ended October 31, 1997 and
1996, respectively, was expensed in the period acquired.
PROVISION FOR INCOME TAXES. While the Company has experienced operating
losses to date, the Company has incurred income tax expense of $721,000 and
$146,000 for the fiscal quarters ended October 31, 1997 and 1996,
respectively, and $1.9 million and $300,000 for the nine months ended October
31, 1997 and 1996, respectively. The income tax expense is comprised
primarily of foreign withholding tax and foreign income tax expense incurred
as a result of local country profits.
CERTAIN RISK FACTORS WHICH MAY IMPACT FUTURE OPERATING RESULTS
BEA Systems, Inc. operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The
following discussion highlights some of these risks and the possible impact
of these factors on future results of operations.
LIMITED OPERATING HISTORY; INTEGRATION OF ACQUISITIONS; NO ASSURANCE OF
PROFITABILITY - The Company was incorporated in January 1995 and,
accordingly, has a limited operating history upon which an evaluation of the
Company and its prospects can be based. Revenues generated by the Company to
date have been derived primarily from sales of BEA TUXEDO, a product to which
the Company acquired worldwide rights in February 1996, and from fees for
related services. Since its inception, the Company has acquired a number of
businesses and other products. Prior to the consummation of these
acquisitions, the Company had no revenues and limited business activities.
Accordingly, the Company is subject to the risks inherent both in the
operation of a new business enterprise and the integration of a number of
previously separate and independent business operations, and there can
10
<PAGE>
be no assurance that the Company will be able to address these risks
successfully. Although the Company has experienced recent substantial
revenue growth, the Company has incurred significant net losses since its
inception, including losses of approximately $88.7 million and $17.7 million
during the fiscal years ended January 31, 1997 and 1996, respectively, and
$23.8 million for the nine months ended October 31, 1997. At October 31,
1997, the Company had an accumulated deficit of approximately $131.4 million.
In addition, in connection with certain acquisitions, the Company recorded
approximately $123.4 million as intangible assets, approximately $107.7
million of which has already been amortized and expensed and approximately
$15.7 million of which is expected to be amortized and expensed in future
periods through the Company's fiscal year ending January 31, 2003. The
amounts of such intangible assets to be expensed in future periods, which
will not be separately reported but will be included primarily in cost of
sales, are expected to be $3.2 million for the remainder of the fiscal year
ending January 31, 1998 and are expected to average $2.0 million per fiscal
quarter in the fiscal year ending January 31, 1999. To the extent the
Company makes additional acquisitions of businesses, products and
technologies in the future, the Company may report additional, potentially
significant, amortization expenses related thereto. To the extent future
events result in the impairment of any capitalized intangible assets,
amortization expenses may occur sooner than the Company expects. For the
foregoing reasons, there can be no assurance that the Company will be
profitable in any future period, and recent operating results should not be
considered indicative of future financial performance.
POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS - The Company expects
that it will experience significant fluctuations in future quarterly
operating results as a result of many factors, including, among others: the
size and timing of customer orders; introduction or enhancement of products
by the Company or its competitors; market acceptance of middleware products;
the lengthy sales and implementation cycle for the Company's products;
technological changes in computer systems and environments; the structure and
timing of future acquisitions of businesses, products and technologies; the
ability of the Company to develop, introduce and market new products on a
timely basis; changes in the Company's or its competitors' pricing policies;
customer order deferrals in anticipation of future new products and product
enhancements; the Company's success in expanding its sales and marketing
programs; mix of products and services sold; mix of distribution channels;
ability to meet the service requirements of its customers; costs associated
with acquisitions; loss of key personnel; fluctuations in foreign currency
exchange rates; and general economic conditions. As a result of all of these
factors, the Company believes that quarterly revenues and operating results
are difficult to forecast and period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as
indications of future performance.
A portion of the Company's revenues are derived from large orders as
customers deploy BEA products throughout their organizations. Any inability
of the Company to generate large customer orders, or any delay or loss of
such orders in a particular quarter, will have a material adverse affect on
the Company's revenues and, more significantly on a percentage basis, its net
income or loss in that quarter. Moreover, the Company typically receives and
fulfills a majority of its orders within the quarter, with a substantial
portion occurring in the third month of a fiscal quarter. As a result, the
Company may not learn of revenue shortfalls until late in a fiscal quarter.
Additionally, the Company's operating expenses are based in part on its
expectations for future revenue and are relatively fixed in the short term.
Any revenue shortfall below expectations could have an immediate and
significant adverse effect on the results of operations.
Similarly, shortfalls in BEA's revenues and earnings from levels expected by
securities analysts could have an immediate and significant adverse effect on
the trading price of the Company's Common Stock. Moreover, the Company's
stock price is subject to the volatility generally associated with software
and technology stocks and may also be affected by broader market trends
unrelated to the Company's performance.
PRODUCT CONCENTRATION - Revenues to date have been derived primarily from
sales of BEA TUXEDO, a product to which the Company acquired worldwide rights
in February 1996, and from related services. These products and services are
expected to continue to account for the substantial majority of the Company's
revenues for the foreseeable future. As a result, factors adversely
affecting the pricing of or demand for BEA TUXEDO, such as competition,
product performance or technological change, could have a material adverse
effect on the Company's business and consolidated results of operations and
financial condition.
11
<PAGE>
The middleware market, in which the Company conducts its business, is still
emerging and is characterized by continuing technological developments,
evolving industry standards and changing customer requirements. The
Company's success is dependent in large part on the Company's middleware
software products' achieving market acceptance by large customers with
substantial legacy mainframe systems. The Company's future financial
performance will depend in large part on continued growth in the number of
companies extending their mainframe-based, mission-critical applications to
an enterprise-wide distributed computing environment through the use of
middleware technology. There can be no assurance that the market for
middleware technology and related services will continue to grow. If the
middleware market fails to grow or grows more slowly than the Company
currently anticipates, or if the Company experiences increased competition in
this market, the Company's business, results of operations and financial
condition will be adversely affected.
LENGTHY SALES CYCLE - The Company's products are typically used to integrate
large, sophisticated applications that are critical to a customer's business
and the purchase of the Company's products is often part of a customer's
implementation of a distributed computing environment. Customers evaluating
the Company's software products face complex decisions regarding alternative
approaches to the integration of enterprise applications, competitive product
offerings, rapidly changing software technologies and limited internal
resources due to other information systems requirements. For these and other
reasons, the sales cycle for the Company's products is lengthy and is subject
to delays or cancellation over which the Company has little or no control.
Any significant change in the Company's sales cycle could have a material
adverse effect on the Company's business, results of operations and financial
condition.
COMPETITION - The market for middleware software and related services is
highly competitive. The Company's competitors are diverse and offer a
variety of solutions directed at various segments of the middleware software
marketplace. These competitors include database vendors such as Oracle
Corporation ("Oracle"), IBM Corporation ("IBM") and others, which offer their
own development tools for use with their proprietary databases, as well as
companies offering and developing middleware software products and related
services or application development tools that compete with products offered
by the Company. Further, internal development groups within prospective
customers' organizations may develop software and hardware systems that may
substitute for those offered by the Company. A number of the Company's
competitors and potential competitors have longer operating histories,
significantly greater financial, technical, marketing and other resources,
greater name recognition and a larger installed base of customers than the
Company.
Microsoft has announced that it will provide middleware functionality in
future versions of its Windows NT operating system and has recently announced
the release of a product that includes certain middleware functionality. The
bundling of middleware functionality in Windows NT will require the Company
to compete with Microsoft in the Windows NT marketplace, where Microsoft will
have an inherent advantage. If Microsoft successfully incorporates
middleware functionality into Windows NT or separately offers middleware
applications, the Company will need to differentiate its products based on
functionality, interoperability with non-Microsoft platforms, performance and
reliability and establish its products as more effective solutions to
customers' needs. There can be no assurance that the Company will be able to
successfully differentiate its products from those offered by Microsoft, or
that Microsoft's entry into the middleware market will not materially
adversely affect the Company's business, operating results and financial
condition.
In addition, current and potential competitors may make strategic
acquisitions or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address
the needs of the Company's current and prospective customers. Accordingly,
it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. Such
competition could materially adversely affect the Company's ability to sell
additional licenses and maintenance and support renewals on terms favorable
to the Company. Further, competitive pressures could require the Company to
reduce the price of its products and related services, which could materially
adversely affect the Company's business, operating results and financial
condition. There can be no assurance that the Company will be able to
compete successfully against competitors, and the failure to do so would have
a material adverse effect upon the Company's business, results of operations
and financial condition.
12
<PAGE>
MANAGEMENT OF GROWTH - The Company currently is experiencing a period of
rapid and substantial growth that has placed, and is expected to continue to
place, a strain on the Company's administrative, financial and operational
infrastructure. The Company's revenues have increased from $5.1 million for
the fiscal year ended January 31, 1996 to $61.6 million for the fiscal year
ended January 31, 1997. Revenue was $105.6 million for the nine months ended
October 31, 1997. The number of Company employees has increased from 120
employees in three offices in the United States at January 31, 1996 to
approximately 800 employees in 41 offices in 22 countries at October 31,
1997. The Company's ability to manage its staff and growth effectively will
require it to continue to improve its operational, financial and management
controls, reporting systems and procedures; to train, motivate and manage its
employees; and, as required, to install new management information and
control systems. In that regard, the Company is currently installing and
implementing a new management information system that is designed to
integrate financial and other reporting among the Company's multiple domestic
and foreign offices. In addition, the Company intends to increase its staff
in its foreign offices and to improve financial reporting and controls for
the Company's international operations. There can be no assurance that the
Company will be able to implement improvements to its management information
and control systems in an efficient or timely manner or that, during the
course of this implementation, deficiencies in existing systems and controls
will not be discovered. If management of the Company is unable to manage
growth effectively, the Company's business, results of operations and
financial condition will be materially adversely affected.
DEPENDENCE ON KEY PERSONNEL AND NEED TO HIRE ADDITIONAL PERSONNEL - The
Company believes its future success will depend upon its ability to attract
and retain highly skilled personnel including the Company's founders, Messrs.
William Coleman, Edward Scott, Alfred Chuang and key members of management.
Competition for such personnel is intense, and there can be no assurance that
the Company will be able to retain its key employees or that it will be
successful in attracting, assimilating and retaining them in the future. As
the Company seeks to expand its worldwide support organization, hiring of
qualified technical personnel in foreign countries will be difficult due to
the limited number of qualified professionals. Failure to attract,
assimilate and retain key personnel would have a material adverse effect on
the Company's business, results of operations and financial condition.
EXPANDING DISTRIBUTION CHANNELS AND RELIANCE ON THIRD PARTIES - To date, the
Company has sold its products principally through its direct sales force, as
well as through indirect sales channels, such as independent software vendors
("ISVs"), hardware OEMs, systems integrators, independent consultants and
distributors. The Company's ability to achieve significant revenue growth in
the future will depend in large part on its success in expanding its direct
sales force and in further establishing and maintaining relationships with
distributors, OEMs and ISVs. In particular, a significant element of the
Company's strategy is to embed its technology in products offered by the
Company's ISV customers. The Company intends to seek distribution
arrangements with other ISVs to embed the Company's technology in their
products and expects that these arrangements will account for a significant
portion of the Company's revenues in future periods. There can be no
assurance that the Company will be able to successfully expand its direct
sales force or other distribution channels, secure license agreements with
additional ISVs on commercially reasonable terms or at all, or otherwise
further develop its relationships with distributors and ISVs, or that any
such expansion or additional license agreements would result in an increase
in revenues. Although the Company believes that its investments in the
expansion of its direct sales force and in the establishment of other
distribution channels through third parties ultimately will improve the
Company's operating results, to the extent that such investments are made and
revenues do not correspondingly increase, the Company's business, results of
operations and financial condition will be materially and adversely affected.
INTERNATIONAL REVENUES - For the three and nine months ended October 31, 1997,
sales to customers outside of the United States accounted for 47% and 48% of
total revenues, respectively. The Company anticipates that international
revenues will continue to account for a significant portion of its consolidated
revenues. Risks inherent in the Company's international sales include the
following: unexpected changes in regulatory practices and tariffs; greater
difficulties in staffing and managing foreign operations; longer collection
cycles; potential changes in tax laws; greater difficulty in protecting
intellectual property; and the impact of fluctuating exchange rates between the
US dollar and foreign currencies in markets where BEA does business, in
particular the Japanese yen, the French franc, the German mark and the British
pound. The Company's international revenues may also be impacted by general
economic and political conditions in these foreign markets. Specifically, the
Company's business in the Pacific Rim could be negatively impacted in the short
run by unsettled economic conditions in that region including
13
<PAGE>
Japan and Korea. There can be no assurances that these factors and other
factors will not have a material adverse effect on the Company's future
international revenues and consequently on the Company's business and
consolidated results of operations.
RAPID TECHNOLOGY CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
- -The market for the Company's products is highly fragmented, competitive with
alternative computing architectures, and characterized by continuing
technological development, evolving industry standards and changing customer
requirements. The introduction of products embodying new technologies, the
emergence of new industry standards or changes in customer requirements could
render the Company's existing products obsolete and unmarketable. As a
result, the Company's success depends upon its ability to enhance existing
products, respond to changing customer requirements, and develop and
introduce in a timely manner new products that keep pace with technological
developments and emerging industry standards. There can be no assurance that
the Company's products will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and
marketing enhancements to its existing products or products incorporating new
technology on a timely basis. Failure to develop and introduce new products,
or enhancements to existing products, in a timely manner in response to
changing market conditions or customer requirements, will materially and
adversely affect the Company's business, results of operations and financial
condition.
SOFTWARE DEFECTS - The software products offered by the Company are
internally complex and, despite extensive testing and quality control, may
contain errors or defects ("bugs"), especially when first introduced. Such
defects or errors could result in corrective releases to the Company's
software products, damage to the Company's reputation, loss of revenue, an
increase in product returns or order cancellations, or lack of market
acceptance of its products, any of which could have a material and adverse
effect on the Company's business and consolidated results of operations.
PRODUCT LIABILITY - The Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. It is possible, however, that the
limitation of liability provisions contained in the Company's license
agreements may not be effective as a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions.
Although the Company has not experienced any product liability claims to
date, the sale and support of its products may entail the risk of such
claims, which could be substantial in light of the use of such products in
mission-critical applications. A successful product liability claim brought
against the Company could have a material adverse effect on the Company's
business, results of operations and financial condition.
DEPENDENCE OF PROPRIETARY TECHNOLOGY; RISK OF INFRINGEMENT - The Company's
success depends upon its proprietary technology. The Company relies on a
combination of copyright, trademark and trade secret rights, confidentiality
procedures and licensing arrangements to establish and protect its
proprietary rights. No assurance can be given that competitors will not
successfully challenge the validity or scope of the Company's patents and
that such patents will provide a competitive advantage to the Company.
As part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation
and other proprietary information. Despite these precautions, it may be
possible for a third party to copy or otherwise obtain and use the Company's
products or technology without authorization. In particular, the Company has,
in the past, provided certain hardware OEMs with access to its source code,
and any unauthorized publication or proliferation this source code could
materially adversely affect the Company's business, operating results and
financial condition. Monitoring unauthorized use of the Company's products is
difficult and, although the Company is unable to determine the extent to
which piracy of its software products exists, software piracy can be expected
to be a persistent problem. Effective protection of intellectual property
rights is unavailable or limited in many foreign countries. There can be no
assurance that the Company's protection of its proprietary rights will be
adequate or that the Company's competitors will not independently develop
similar technology, duplicate the Company's products or design around any
patents issued to the Company or other intellectual property rights of the
Company.
The Company is not aware that any of its products infringe the proprietary
rights of third parties. There can be no assurance, however, that third
parties will not claim infringement by the Company with respect to current or
future products. The Company has received correspondence claiming that its
ObjectBroker product infringes certain
14
<PAGE>
third-party patents. The Company is investigating this claim and currently
believes it to be without merit and that the Company is entitled to
indemnification for such claim. The Company expects that software product
developers will increasingly be subject to such claims as the number of
products and competitors in the Company's industry segment grows and the
functionality of products in the industry segment overlaps. Any such claims,
with or without merit, could result in costly litigation that could absorb
significant management time, which could have a material adverse effect on
the Company's business, results of operations and financial condition.
VOLATILITY OF STOCK PRICE - The market price for the Company's Common Stock
is affected by a number of factors, including the announcement of new
products or product enhancements by the Company or its competitors, quarterly
variations in the Company's or its competitors' results of operations,
changes in earnings estimates or recommendations by securities analysts,
developments in the software industry, general market conditions and other
factors, including factors unrelated to the operating performance of the
Company or its competitors. In addition, stock prices for many companies in
the technology and emerging growth sectors have experienced wide fluctuations
that have often been unrelated to the operating performance of such
companies. Such factors and fluctuations, as well as general economic,
political and market conditions, such as recessions, may materially adversely
affect the market price of the Company's Common Stock.
POTENTIAL EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON MARKET PRICE OF THE
COMPANY'S COMMON STOCK - Sales of a substantial number of shares of Common
Stock could adversely affect the market price of the Company's Common Stock
and could impair the Company's ability to raise capital through the sale of
equity securities. On October 31, 1997, the Company had 64.3 million shares
of Common Stock outstanding (including 20.8 million shares of Common Stock
issuable upon conversion of the Class B Common Stock). Of these shares, the
6.9 million shares sold in the offering completed in July 1997, the 5.4
million shares sold in the Company's initial public offering and 193,000
shares issued pursuant to the Company's Employee Stock Purchase Plan are
freely transferable without restriction under the Securities Act, unless they
are held by "affiliates" of the Company as defined under the Securities Act
and the Regulations promulgated thereunder. An additional 926,000 shares
were issued to Digital in August, 1997 upon conversion of a portion of a
certain note payable to Digital. Upon issuance, such shares became eligible
for immediate resale. In addition, 364,000 additional shares were issued
subject to the full exercise of a warrant and are eligible for sale.
Of the remaining 50.5 million shares of common stock outstanding, certain
shares were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are restricted securities
within the meaning of Rule 144 under the Securities Act. On October 8, 1997,
approximately 2.4 million shares became eligible for sale subject to the
provisions of Rule 144 or Rule 701, and on November 22, 1997, 6.0 million
shares became eligible for sale subject to such provisions. On January 18,
1998, an additional 42.1 million shares will become eligible for sale subject
to such provisions. On each of the dates above, shares become eligible for
sale upon the expiration of agreements with Goldman, Sachs & Co. or the
Company.
On October 8, 1997 and November 22, 1997, an additional 1.3 million and
250,000, respectively, in vested options were available for sale upon
exercise into Common Stock subject to compliance with Rule 701, in each case
upon the expiration of agreements not to sell such shares entered into with
Goldman, Sachs & Co. or the Company. Any shares subject to lock-up
agreements may be earlier released at any time without notice by Goldman,
Sachs & Co.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations and acquisitions of
subsidiaries, technologies and distribution rights, primarily through public
offerings of securities, the private sale of equity securities and borrowings.
During the quarter ended April 30, 1997, the Company completed its initial
public offering of securities. The offering generated net proceeds of
approximately $25.6 million from the sale of 5.0 million shares of Common
Stock. Subsequent to the end of the quarter, the underwriters exercised a
portion of their over-allotment option, generating additional net proceeds of
approximately $2.1 million from the sale of 372,633 shares of Common Stock.
15
<PAGE>
During the quarter ended July 31, 1997, the Company completed a follow-on
offering. The follow-on offering generated net proceeds of approximately
$110.7 million from the sale of 6.9 million shares of Common Stock.
Under the terms of the revolving credit arrangement, the Company has the
ability to borrow a maximum of $20 million based on eligible accounts
receivable. At October 31, 1997, the Company's borrowing capacity under this
facility was $13.5 million and no borrowings were outstanding. The credit
arrangement is scheduled to expire in April 1998.
As of October 31, 1997, the balance of the note payable to Novell was $46.4
million. Scheduled payments for the next twelve months are $29.5 million, in
aggregate.
During the nine months ended October 31, 1997 and 1996, the Company used
approximately $1.6 million and $3.4 million, respectively, of cash to
purchase leasehold improvements, computers, furniture and other office
equipment. The Company also acquired equipment with a cost of approximately
$600,000 under a capital lease line of credit during the nine months ended
October 31, 1997.
At October 31, 1997, the Company had $90.9 million in cash and cash
equivalents and working capital of $69.2 million. The Company believes that
the current cash balance will be sufficient to meet its working capital
requirements for the next twelve months. Although operating activities may
provide cash in certain periods, to the extent that the Company experiences
growth in the future, the Company anticipates that its operating and
investing activities may use cash.
16
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed by attachment to this Form 10-QSB:
Exhibit
Number Description of Exhibit
------- ----------------------
11 Statement re: computation of earnings per share
27 Financial Data Schedule
No reports on Form 8-K were filed during the quarter ended October 31, 1997.
SIGNATURES
In accordance with 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.
Dated: December 8, 1997
BEA Systems, Inc.
(Registrant)
/s/ WILLIAM T. COLEMAN III
--------------------------
William T. Coleman III
President, Chief Executive Officer and
Chairman
/s/ STEVE L. BROWN
------------------
Steve L. Brown
Executive Vice President and Chief Financial
Officer
(Duly Authorized Officer and Principal
Financial Officer)
17
<PAGE>
EXHIBIT 11
BEA SYSTEMS, INC.
OCTOBER 31, 1997 FORM 10-Q
Computation of Net Loss Per Share
(in thousands, except for per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, October 31,
--------------------------- ---------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net loss per share:
Weighted average common shares outstanding for the period 64,014 10,338 56,696 8,383
Common equivalent shares pursuant to Staff Accounting
Bulletin Nos. 64 and 83 -- 19,524 -- 19,524
------------ ------------ ------------ ------------
Shares used in historical per share computation 64,014 29,862 56,696 27,907
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss $ (317) $ (9,177) $ (23,809) $ (84,470)
Cumulative dividends on Series B redeemable
convertible preferred stock -- (254) (268) (565)
------------ ------------ ------------ ------------
Net loss applicable to common stockholders $ (317) $ (9,431) $ (24,077) $ (85,035)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per share $ (0.00) $ (0.32) $ (0.42) $ (3.05)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net loss per share:
Shares used in historical per share computation 29,862 27,907
Common equivalent shares assuming conversion
of preferred stock 22,200 22,200
------------ ------------
Shares used in pro forma per share computation 52,062 50,107
------------ ------------
------------ ------------
Net loss $ (9,177) $ (84,470)
------------ ------------
------------ ------------
Pro forma loss per share $ (0.18) $ (1.69)
------------ ------------
------------ ------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THIS FORM 10-QSB AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 90,913
<SECURITIES> 0
<RECEIVABLES> 39,415
<ALLOWANCES> (1,378)
<INVENTORY> 0
<CURRENT-ASSETS> 132,173
<PP&E> 10,256
<DEPRECIATION> (3,062)
<TOTAL-ASSETS> 158,465
<CURRENT-LIABILITIES> 62,996
<BONDS> 20,788
0
0
<COMMON> 64
<OTHER-SE> 74,617
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 80,144
<TOTAL-REVENUES> 105,564
<CGS> 10,087
<TOTAL-COSTS> 25,847
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 408
<INTEREST-EXPENSE> (4,218)
<INCOME-PRETAX> (21,916)
<INCOME-TAX> 1,893
<INCOME-CONTINUING> (23,809)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,809)
<EPS-PRIMARY> (0.42)
<EPS-DILUTED> 0
</TABLE>
