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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-24289
ASYMETRIX LEARNING SYSTEMS, INC.
(Exact name of registrant as specified in its chapter)
DELAWARE 91-1276003
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110-110TH AVENUE NE, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
(425) 462-0501
(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
----- -----
The number of shares outstanding of the issuer's Common Stock, par value
$0.01, as of March 31, 1999 was 13,990,906 shares.
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations for the three months ended
March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
</TABLE>
2
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 18,852 $ 21,713
Accounts receivable, net of allowance for returns and
doubtful accounts of $906 and $1,397 7,986 7,917
Inventories 360 370
Prepaid royalties and licenses 49 66
Receivables from related companies 49 193
Other current assets 850 998
--------- ---------
Total current assets 28,146 31,257
Property and equipment, net 2,560 2,320
Goodwill and other intangible assets, net 9,827 9,917
Other assets 128 128
--------- ---------
Total assets $ 40,661 $ 43,622
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,474 $ 1,494
Accrued liabilities 1,952 1,637
Deferred revenue 728 1,401
Other current liabilities 1,560 1,812
--------- ---------
Total current liabilities 5,714 6,344
Other noncurrent liabilities 244 268
--------- ---------
Total liabilities 5,958 6,612
--------- ---------
Stockholders' equity:
Common stock 141 140
Additional paid-in capital 203,349 203,249
Accumulated deficit (167,928) (165,522)
Deferred stock compensation (534) (580)
Accumulated other comprehensive loss (325) (277)
--------- ---------
Total stockholders' equity 34,703 37,010
--------- ---------
Total liabilities and stockholders' equity $ 40,661 $ 43,622
--------- ---------
--------- ---------
</TABLE>
See the accompanying notes to Condensed Consolidated Financial Statements
3
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
------- -------
<S> <C> <C>
Revenue:
Product revenue:
Online learning products $ 2,736 $ 2,306
Other products 418 1,540
------- -------
Total product revenue 3,154 3,845
Services revenue 4,306 4,353
------- -------
Total revenue 7,460 8,198
------- -------
Cost of revenue:
Product revenue:
Online learning products 178 209
Other products 136 289
------- -------
Total cost of product revenue 314 498
Services revenue 3,277 2,852
------- -------
Total cost of revenue 3,591 3,350
------- -------
Gross margin 3,870 4,848
------- -------
Operating expenses:
Research and development 1,513 1,519
Sales and marketing 3,526 3,505
General and administrative 1,256 1,500
Amortization of goodwill 219 185
------- -------
Total operating expenses 6,515 6,709
------- -------
Loss from operations (2,645) (1,861)
Other income(expense), net 240 2,151
------- -------
Net income (loss) (2,406) 290
Accretion of redemption value of redeemable common stock - (766)
------- -------
Net loss attributable to common stockholders $(2,406) $ (476)
------- -------
------- -------
Net loss per share, basic and diluted $ (.17) $ (.07)
------- -------
------- -------
Weighted average common shares outstanding, basic and diluted 13,967 6,925
------- -------
------- -------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,406) $ 290
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 540 404
Write-off property and equipment - 8
Stock compensation expense 46 135
Equity in (income) losses from Infomodelers, Inc. - (2,169)
Changes in assets and liabilities:
Accounts receivable (69) 1,375
Inventories 10 59
Prepaid royalties and licenses 17 (39)
Receivables from related companies 144 (15)
Other current assets 148 (399)
Accounts payable (20) (577)
Accrued liabilities 316 341
Deferred revenue (673) (697)
Other current liabilities (252) (859)
------- -------
Net cash used in operating activities (2,198) (2,143)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (691) (93)
Disposal of investment in Infomodelers, Inc. - 2,373
------- -------
Net cash (used in)/provided by investing activities (691) 2,280
------- -------
Cash flows from financing activities:
Proceeds from (repayment) of notes payable (24) 25
Proceeds from exercise of stock options 100 74
------- -------
Net cash provided by financing activities 76 99
------- -------
Effect of foreign exchange rate changes (49) 85
------- -------
Net increase(decrease) in cash and cash equivalents (2,861) 321
Cash and cash equivalents at beginning of period 21,713 2,541
------- -------
Cash and cash equivalents at end of period $18,852 $ 2,862
------- -------
------- -------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
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ASYMETRIX LEARNING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements
of Asymetrix Learning Systems, Inc. ("Asymetrix") include the accounts of
Asymetrix and its wholly-owned subsidiaries. All significant intercompany
transactions have been eliminated in consolidation. These statements reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the financial position and results of
operations for the periods presented. These condensed consolidated financial
statements and notes should be read in conjunction with Asymetrix's audited
consolidated financial statements included in Asymetrix's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. Certain information
and footnote disclosures normally included in financial statements prepared
in conformity with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities
and Exchange Commission. Interim results of operations for the three months
ended March 31, 1999 are not necessarily indicative of the operating results
for the full fiscal year. Factors that may affect such operating results,
include, but are not limited to, those discussed in "FACTORS THAT MAY AFFECT
FUTURE RESULTS OF OPERATIONS".
INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ------------
<S> <C> <C>
Raw materials $ 232 $ 247
Finished goods 234 226
Less obsolescence reserve (106) (103)
------ -----
$ 360 $ 370
------ -----
------ -----
</TABLE>
NET LOSS PER SHARE
Basic earnings per share is computed by dividing the sum of net loss
plus accretion of redemption value of redeemable common stock by the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed by dividing the sum of net loss plus accretion
of redemption value of redeemable common stock by the weighted average number
of common and dilutive common equivalent shares outstanding during the
period. As Asymetrix had a net loss attributable to common stockholders in
each of the periods presented, basic and diluted net loss per share is the
same.
Excluded from the computation of diluted earnings per share are options
to acquire approximately 4,302,927 shares of Common Stock with a weighted
average exercise price of $4.97 for the three months ended March 31, 1999 and
options to acquire approximately 3,576,966 shares of Common Stock with a
weighted average exercise price of $3.91 for the three months ended March 31,
1998 because their effects would be anti-dilutive.
REVENUE RECOGNITION
Asymetrix recognizes revenue in accordance with Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION ("SOP 97-2"), which provides specific
industry guidance and stipulates that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on
the relative fair values of the elements, such as software products,
upgrades, enhancements, post contract customer support, installation, or
training. Under SOP 97-2, the determination of fair value is based on
objective evidence which is specific to the vendor. If such evidence of fair
value for each element of the arrangement does not exist, all revenue from
the arrangement is deferred until such time that evidence of fair value does
exist or until all elements of the arrangement are delivered.
6
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Revenue from sales of software products to end-users, resellers, and
distributors is recognized when the products are delivered provided all the
requirements of SOP 97-2 have been met. Asymetrix's agreements with certain
distributors and resellers permit them to exchange products under certain
circumstances and permit returns from certain resellers subject to specific
limitations. When appropriate, accruals are established for estimated returns
and exchanges. In the case of nonrefundable minimum royalties from an OEM,
reseller or other distributor, provided that no significant obligations of
Asymetrix remain, Asymetrix recognizes revenue when it delivers its product
to the OEM reseller or other distributor. Additional royalties are paid to
the extent that the advances are exceeded and these additional royalties are
recognized upon delivery of the products by the OEM reseller or other
distributor to its customers. Asymetrix recognizes revenue associated with
technical support agreements over the life of the contract.
Asymetrix recognizes revenue under custom development contracts as
services are provided for time and materials contracts or by using the
percentage-of-completion method of accounting, based on the ratio of costs
incurred to the total estimated project cost, for individual fixed-price
contracts. Provisions for any estimated losses on uncompleted contracts are
made in the period in which such losses become evident.
In December 1998, the AICPA issued Statement of Position 98-9,
MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO
CERTAIN TRANSACTIONS ("SOP 98-9") which amends certain elements of SOP 97-2
and is effective for fiscal years beginning after March 15, 1999. Asymetrix
believes that the adoption of SOP 98-9 will not have a material effect on
results of operations or financial position.
COMPREHENSIVE INCOME
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("Statement
130"). Statement 130 establishes revenues for reporting and disclosure of
comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. The following
table sets forth the components of comprehensive income(loss) for the periods
presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income (loss) $(2,406) $290
Foreign currency translation adjustment (48) 86
------- -------
Total comprehensive income (loss) $(2,454) $376
------- -------
------- -------
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 established
guidance on accounting for the costs incurred related to internal used
software. SOP 98-1 is effective for fiscal years beginning after December 15,
1998. Asymetrix adopted SOP 98-1 effective January 1, 1999. Adoption of SOP
98-1 did not have a material impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES ("Statement 133"). Statement 133 provides
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. Statement 133 is effective for fiscal
years beginning after June 15, 1999. Asymetrix does not expect the adoption
of Statement 133 to have a material impact on its consolidated financial
statements.
SEGMENT INFORMATION
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION ("SFAS No. 131"). SFAS No. 131 establishes standards
7
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for the reporting by public business enterprises about operating segments,
products and services, geographic areas, and major customers. The method for
determining what information to report is based on the way that management
organizes the operating segments within Asymetrix for making operating
decisions and assessing financial performance.
Asymetrix's chief operating decision-maker is considered to be
Asymetrix's Chief Executive Officer ("CEO"). The CEO reviews financial
information on a consolidated basis with disaggregated information about
revenues by product categories and geographic region for purposes of making
operating decisions and assessing financial performance. The product
categories reviewed by the CEO are on-line learning products and other
products. These categories are identical to those in the accompanying condensed
consolidated statements of operations. The consolidated financial information
reviewed by the CEO does not include information regarding profitability of
Asymetrix's different products or services. Therefore, Asymetrix operates in
a single operating segment, on-line learning.
Revenue and long-lived asset information regarding operations in the
United States and International - primarily Europe is as follows (in
thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
-----------------------
1999 1998
------- -------
<S> <C> <C>
Revenue:
Domestic $ 5,904 $ 6,977
International - primarily Europe 1,557 1,221
------- -------
$ 7,460 $ 8,198
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31
-----------------------
1999 1998
------- -------
<S> <C> <C>
Long-lived assets:
Domestic operations $12,305 $10,262
International operations - primarily Europe 82 49
------- -------
$12,387 $10,311
------- -------
------- -------
</TABLE>
No single customer accounted for greater than 10% of total revenues in
any period presented.
8
<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 ASYMETRIX SHOULD BE READ IN CONJUNCTION WITH ASYMETRIX'S CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS REPORT. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ASYMETRIX'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS."
OVERVIEW
Asymetrix's comprehensive learning solution consists of an open,
standards-based, Internet-centric technology platform as well as a variety of
professional learning services for the online learning market. Asymetrix's
technology platform includes authoring products which enable customers to
create online learning applications and learning management systems which
enable customers to deploy and manage such applications, automate
instructor-led training, logistics and tracking of individual and group
competencies. Asymetrix's professional services include a wide range of
consulting, integration and custom development services focused on the online
learning market as well as training and customer support.
From September 1997 through June 1998, Asymetrix acquired eight
companies and issued an aggregate of 3,457,504 shares of common stock. All of
these acquisitions were accounted for using the purchase method of
accounting. Accordingly, Asymetrix's historical consolidated financial
statements do not include results of operations, financial position or cash
flows of these entities prior to their respective dates of acquisition. In
addition, as a result of certain acquisitions, Asymetrix has incurred charges
relating to the cost of acquired in-process research and development of
approximately $4.1 million for 1997 and, in connection with all of its
acquisitions from July 1997 through September 1998, has recorded an aggregate
of approximately $10.2 million in goodwill, of which approximately $1.5
million will be amortized on a straight-line basis over a five-year life and
approximately $8.7 million will be amortized over a fifteen-year life. If
Asymetrix were to incur additional charges for acquired in-process research
and development and amortization of goodwill with respect to any future
acquisitions, Asymetrix's business, operating results and financial condition
could be materially and adversely affected. In July 1998, Asymetrix acquired
Meliora Systems Inc. ("Meliora"), an online learning product and consulting
company, which has been accounted for under the pooling of interests method.
Asymetrix issued 268,000 shares of common stock in exchange for all
outstanding shares of Meliora. The consolidated financial statements of
Asymetrix have been restated to give effect to the combination as if the
companies had been combined since their inception.
As part of its strategy to focus on the online enterprise learning
market, Asymetrix divested product lines and technologies that were unrelated
to this market. In October 1996, Asymetrix completed the spin-off of its
Database Tools Division to Infomodelers, Inc. ("Infomodelers") and
distributed a controlling interest in Infomodelers to its stockholders. In
March 1998, Asymetrix sold substantially all of its remaining interest in
Infomodelers to Vulcan Ventures, Inc. for an aggregate purchase price of
approximately $2.4 million in cash, which price included approximately
$2.0 million for shares of Infomodelers Series A Preferred Stock and
approximately $390,000 for shares of Infomodelers common stock.
In July 1997, Asymetrix established SuperCede, Inc. ("SuperCede"),
a subsidiary, and transferred the assets of its Internet Development Tools
Division and SuperCede products to SuperCede. Following an investment by Vulcan
Ventures, Inc. and certain related transactions, 50% of SuperCede was owned by
Asymetrix. However, Asymetrix held Series B Preferred Stock which was
subordinate to the Series A Preferred stock held by Vulcan Ventures. All of the
assets of SuperCede were subsequently acquired by Instantiations, Inc. in
January 1999 and SuperCede was dissolved. Because the total consideration
received in the transaction was less than the liquidation preference of the
Series A Preferred Stock, Asymetrix received no portion of that consideration
and believes that it will receive no future value from its SuperCede interest.
Asymetrix's historical financial statements do not consolidate the results of
operations, financial position or cash flows of Infomodelers subsequent to
October 1996 or of SuperCede subsequent to September 1997.
Asymetrix incurred net losses of $13.7 million in 1997 and $5.2
million in 1998 and a net loss of $2.4 million in the three months ended
March 31, 1999, and has yet to achieve operating income or net income under
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its online learning business model. Asymetrix's limited operating history
under this business model, and the emerging nature of the market for online
enterprise learning among other factors, make prediction of Asymetrix's
future operating results difficult. Although Asymetrix has experienced
revenue growth in certain recent periods there can be no assurance that such
growth rates are sustainable or indicative of actual growth rates that
Asymetrix may experience and, therefore, they should not be considered
indicative of future operating results. In addition, Asymetrix intends to
continue to invest in various aspects of its online learning business. As a
result, Asymetrix expects to continue to incur operating losses at least
through 1999. There can be no assurance that Asymetrix will achieve
profitability or, if profitability is achieved, that it will be sustained.
RESULTS OF OPERATIONS
The following table presents Asymetrix's results of operations as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
---------------------------------
1999 1998
------------- -------------
% %
------------- -------------
<S> <C> <C>
Revenue:
Product revenue:
Online learning products 36.7 28.1
Other products 5.6 18.8
------------- -------------
Total product revenue 42.3 46.9
Services revenue 57.7 53.1
------------- -------------
Total revenue 100 100
Cost of revenue:
Product revenue:
Online learning products 2.4 2.5
Other products 1.8 3.6
------------- -------------
Total cost of product revenue 4.2 6.1
Services revenue 43.9 34.8
------------- -------------
Total cost of revenue 48.1 40.9
------------- -------------
Gross margin 51.9 51.9
Operating expenses:
Research and development 20.3 18.5
Sales and marketing 47.3 42.8
General and administrative 16.8 18.3
Amortization of goodwill 2.9 2.3
------------- -------------
Total operating expenses 87.3 81.8
------------- -------------
Loss from operations (35.5) (22.7)
Other income(loss), net 3.2 26.2
------------- -------------
Net loss (32.2) 3.5
------------- -------------
------------- -------------
</TABLE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUE. Total revenue decreased 9% from $8.2 million in the three
months ended March 31, 1998 to $7.5 million in the three months ended March
31, 1999.
Online learning product revenue increased 19% from $2.3 million in
the three months ended March 31, 1998 to $2.7 million in the three months
ended March 31, 1999. The increase in online learning product revenue was due
primarily to increased demand for Asymetrix's online learning products as a
result of Asymetrix's focus on the online learning market. Other product
revenue decreased 73% from $1.5 million in the three months ended March 31,
1998 to $418,000 in the three months ended March 31, 1999. Other product
revenue consists of revenue from Asymetrix's products which are not targeted
at the online learning market. Total product revenue decreased 18% from $3.8
million in the three months ended March 31, 1998 to $3.2 million in the three
months ended March 31, 1999, reflecting the decrease in other product
revenue. As a result of Asymetrix's strategy to focus on
10
<PAGE>
the online learning market, Asymetrix anticipates that future growth in
product sales, if any, will be attributable to its online learning products
and that its other product revenue will continue to decrease in the future.
Services revenue was $4.4 million in the three months ended March 31,
1998 and $4.3 million in the three months ended March 31, 1999.
COST OF REVENUE. Cost of product revenue includes costs of media,
manuals and distribution costs. Gross margin from Asymetrix's online learning
products is generally higher than that of its other products because these
products are typically sold by Asymetrix's direct sales force, as compared
with other products sold through indirect channels, such as OEMs and
resellers. Cost of services revenue consists primarily of personnel-related
costs in providing consulting, maintenance and training to customers. Gross
margin on product revenue is higher than gross margin on services revenue,
reflecting the lower materials, packaging and other costs of software
compared with the relatively high personnel costs associated with providing
professional services.
Total cost of revenue increased 7.2% from $3.4 million in the three
months ended March 31, 1998 to $3.6 million in the three months ended March
31, 1999, reflecting the increase of services revenue relative to product
revenue as a percentage of total revenue.
Cost of online learning products revenue decreased 14.8% from
$209,000 in the three months ended March 31, 1998 to $178,000 in the three
months ended March 31, 1999. The decrease was due primarily to lower per unit
costs. Cost of other products revenue decreased 52.9% from $289,000 in the
three months ended March 31, 1998 to $136,000 in the three months ended March
31, 1999. The decline was due to decreased sales of Asymetrix's other
products. Total cost of product revenue decreased 36.9% from $498,000 in the
three months ended March 31, 1998 to $314,000 in the three months ended March
31, 1999.
Online learning products gross margin increased from 90.9% in the
three months ended March 31, 1998 to 93.5% in the three months ended March
31, 1999. Other products gross margin decreased from 81.2% in the three
months ended March 31, 1998 to 67.2% in the three months ended March 31,
1999. Total product gross margin increased from 87% in the three months ended
March 31, 1998 to 90% in the three months ended March 31, 1999.
Cost of services revenue increased 14.9% from $2.9 million in the
three months ended March 31, 1998 to $3.3 million in the three months ended
March 31, 1999. The increase was due primarily to increased personnel due to
over capacity.
Services gross margin decreased from 34.5% in the three months ended
March 31, 1998 to 23.9% in the three months ended March 31, 1999. Asymetrix
anticipates that cost of services revenue will increase in absolute dollars
as it adds additional professional services personnel. To the extent services
revenue increases relative to product sales revenue as a percentage of total
revenue, overall gross margins would decline.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses include
expenses associated with the development of new products and new product
versions and consist primarily of salaries, depreciation of development
equipment, supplies and overhead allocations. Research and development
expenses were $1.5 million in the three months ended March 31, 1998 and the
three months ended March 31, 1999. Research and development expenses as a
percentage of total revenue increased from 18.5% in the three months ended
March 31, 1998 to 20.3% in the three months ended March 31, 1999. Asymetrix
expects research and development expenses to increase in absolute dollars in
the future.
SALES AND MARKETING. Sales and marketing expenses consist primarily
of sales and marketing personnel costs, including sales commissions, travel,
advertising, public relations, seminars, trade shows and other marketing
literature and overhead allocations. Sales and marketing expenses were $3.5
million in the three months ended March 31, 1998 and the three months ended
March 31,1999. Sales and marketing expenses as a percentage of total revenue
increased from 42.8% in the three months ended March 31, 1998 to 47.3% in the
three months ended March 31, 1999. Asymetrix expects that sales and marketing
expenses will increase in absolute dollars in the future as Asymetrix
continues to increase its sales and marketing efforts in the online learning
market.
11
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GENERAL AND ADMINISTRATIVE. General and administrative expenses
consist primarily of salaries and other personnel-related expenses for
Asymetrix's administrative, executive and finance personnel as well as
outside legal and audit costs. General and administrative expenses decreased
16.3% from $1.5 million for the three months ended March 31, 1998 to $1.3
million for the three months ended March 31, 1999. In the three months ended
March 31, 1998 there was a $135,000 charge relating to the cashless exercise
of stock options by employees of Asymetrix who transferred to Infomodelers.
General and administrative expenses as a percentage of total revenue
decreased from 18.3% to 16.8% in the three months ended March 31, 1999
compared to three months ended March 31, 1998. Asymetrix expects that general
and administrative expenses will increase in absolute dollars in the future
as Asymetrix incurs additional costs (including directors' and officers'
liability insurance, investor relations programs and increased professional
fees) related to being a public company.
AMORTIZATION OF GOODWILL
Amortization of goodwill expense relates to the amortization of
excess purchase price over net assets from acquired companies recorded under
the purchase method of accounting. For the three months ended March 31, 1998,
Asymetrix recognized $185,000 amortization of goodwill and for the three
months ended March 31, 1999, recognized $219,000 amortization of goodwill.
OTHER INCOME (EXPENSE)
Asymetrix recorded no other expense in the three months ended March
31, 1998 and 1999. Other interest income, net was $0 in the three months ended
March 31, 1998 and $230,000 in the three months ended March 31, 1999. The
increase was due to interest earned on Asymetrix's higher cash and cash
equivalents balance as a result of its initial public offering. Equity in
income (losses) from Infomodelers was $2.2 million in the three months ended
March 31, 1998, representing Asymetrix's equity in the net income (losses)
from Infomodelers in such periods, and $0 in the three months ended March 31,
1999. Equity in income (losses) from Infomodelers in 1998 resulted from the
sale by Infomodelers of substantially all of its assets to Visio Corporation.
Because Asymetrix sold substantially all of its interest in Infomodelers in
March 1998, Asymetrix does not anticipate that it will record equity in income
(losses) from Infomodelers in future periods.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, Asymetrix had cash and cash equivalents totaling
$18.9 million, a decrease of $2.9 million from December 31, 1998. The
decrease in cash and cash equivalents was due primarily to $2.2 million used
in operating activities and $691,000 used in investing activities. At March
31, 1999, the principal source of liquidity for Asymetrix was $22.4 million
in working capital.
Asymetrix anticipates that its cash and cash equivalents will be
sufficient to meet its working capital needs and capital expenditures for at
least the next 12 months. Asymetrix's long-term liquidity will be affected by
numerous factors, including acquisitions of businesses or technologies,
demand for Asymetrix's online learning products and services, the extent to
which such online learning products and services achieve market acceptance,
the timing of and extent to which Asymetrix invests in new technology, the
expenses of sales and marketing and new product development, the extent to
which competitors are successful in developing their own products and
services and increasing their own market share, the level and timing of
revenues, and other factors. In addition, Asymetrix from time to time
evaluates potential acquisitions of businesses, products or technologies that
complement Asymetrix's business. To the extent that resources are
insufficient to fund Asymetrix's activities, Asymetrix may need to raise
additional funds. There can be no assurance that such additional funding, if
needed, will be available on terms attractive to Asymetrix, or at all. If
adequate funds are not available on acceptable terms, Asymetrix may be unable
to expand its business, develop or enhance its products and services, take
advantage of future opportunities or respond to competitive pressures, any of
which could have a material adverse effect on Asymetrix's business, operating
results and financial condition.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field and cannot
distinguish 21st century dates from 20th century dates. These date code
12
<PAGE>
fields will need to distinguish 21st century dates from 20th century dates
and, as a result, many companies' software and computer systems may need to
be upgraded or replaced in order to comply with such "year 2000" requirements.
Asymetrix has designed and tested the most current versions of its
products to be year 2000 compliant. However, some of Asymetrix's customers
may be using older versions of its products that are not year 2000 compliant.
Asymetrix has been encouraging its customers to upgrade to current product
versions, and Asymetrix has been required by certain customers to warrant
that the current versions of its products and custom development applications
are year 2000 compliant. Although Asymetrix believes the current versions of
its products are year 2000 compliant, the current product versions may
contain undetected errors or defects associated with year 2000 date
functions. These undetected date functions may result in material costs to
Asymetrix, as well as claims against Asymetrix for breach of its warranties
of year 2000 compliance. Furthermore, although Asymetrix has not made any
express representations or warranties with respect to year 2000 compliance of
older versions of its products and has included clauses disclaiming any
implied warranties and limiting its liability for product defects in the
agreements under which those older versions were licensed to customers,
Asymetrix may still face claims or litigation based on older versions of its
products. Asymetrix is aware of a growing number of lawsuits against other
software vendors related to year 2000 compliance, including lawsuits based on
those companies charging their customers for new versions of their products
that are year 2000 compliant rather than providing such versions for free.
Because of the unprecedented nature of such litigation, Asymetrix is
uncertain of the extent to which it may be affected. If Asymetrix is affected
by such litigation, it could have a material adverse effect on Asymetrix's
business, operating results and financial condition. Asymetrix is not
currently a party to any such litigation.
With respect to Asymetrix's internal information technology systems,
Asymetrix's year 2000 internal readiness program primarily covers the
following activities: (1) taking inventory of hardware and software systems,
(2) determining those systems' level of year 2000 compliance, (3) assessing
the business and customer satisfaction risks associated with those systems,
(4) creating action plans to address known risks, (5) executing and
monitoring its action plans, and (6) contingency planning.
At this time Asymetrix has substantially completed its review of its
most mission critical information technology systems including finance, order
processing, customer service, project management, and sales management, and
believes that those systems are substantially year 2000 compliant. Asymetrix
is currently reviewing and addressing year 2000 issues in its second tier
information technology systems, including its network servers, network
software and widely used software applications. Asymetrix expects that it
will substantially complete its year 2000 readiness preparations with respect
to its second tier systems and network hardware and software systems by third
quarter 1999. Asymetrix expects to continue implementation and testing of
year 2000 compliance activities throughout calendar 1999. Asymetrix has no
current plans to perform an assessment of imbedded technology outside of its
information technology systems, and believes that the failure of any such
imbedded technology to be year 2000 compliant will not have a material effect
on Asymetrix's business. Asymetrix has no current plan to retain any outside
consultants to assist in its year 2000 compliance activities.
Asymetrix has not sent detailed questionnaires to vendors and service
providers to certify year 2000 readiness, but Asymetrix has obtained or
relied upon published assurances of year 2000 compliance in relation to
purchases of new information technology systems and Asymetrix has conducted
and is continuing to conduct its own internal year 2000 analysis. While
Asymetrix has no plans to broadly survey its vendors and service providers
for year 2000 compliance, Asymetrix does intend to obtain and review the year
2000 readiness statements of its significant vendors who are required to file
proxy statements and annual and quarterly reports with the SEC in order to
help determine their level of year 2000 compliance. Asymetrix does not rely
on products and services provided by any single vendor in the conduct of its
business, and believes that even if the ability of one of its suppliers to
provide goods or services was negatively impacted by a year 2000 problem,
alternative sources would be available to supply such goods and services on
commercially reasonable terms.
Asymetrix has not sent and does not currently plan to send
questionnaires to its customers to independently verify its customers' level
of year 2000 compliance. However, most of Asymetrix's significant customers
are large business enterprises and government agencies which Asymetrix
believes are devoting significant resources to ensuring their own internal
year 2000 compliance. Most of Asymetrix's significant customers are also
required to file proxy statements and annual and quarterly reports with the
SEC disclosing their
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<PAGE>
own year 2000 readiness, and Asymetrix intends to obtain and review such
disclosure for its significant customers to help determine their level of
year 2000 compliance. Moreover, Asymetrix has received and responded to a
large number of detailed year 2000 questionnaires from its customers as a
part of their own year 2000 compliance programs. Asymetrix believes that its
customers' or potential customers' year 2000 compliance efforts have affected
their purchasing patterns as these companies or agencies expend significant
resources and focus personnel on ensuring their own internal year 2000
compliance. Devoting resources and personnel to year 2000 compliance may
result in reduced funds available to purchase other products or services and
may delay the implementation of new information technology systems such as
those offered by Asymetrix, either of which could have a material adverse
effect on Asymetrix's business, operating results and financial condition.
Asymetrix estimates that the total cost of evaluating and addressing
its year 2000 issues will be approximately $100,000. Asymetrix has spent
$9,500 in the three months ending March 31, 1999 and to date, $47,500 in
connection with evaluating and addressing year 2000 issues. Such expenditures
represented 6% of Asymetrix's total information technology budget. All funds
used for evaluating and addressing year 2000 issues are from Asymetrix's
information technology budget and no additional budget dollars were allocated
specifically to address year 2000 compliance. As a result, resources devoted
to year 2000 compliance are not available for other information technology
systems or projects.
Although Asymetrix does not believe that it will incur any material
costs or experience material disruptions in its business associated with
preparing its internal systems for the year 2000, Asymetrix may experience
serious unanticipated negative consequences and material costs caused by
undetected errors or defects in the technology used in its internal systems,
which are composed of third party software, third party hardware and
internally developed software, or in the internal systems of its vendors or
customers. The most reasonably likely worst case scenarios would include: (1)
loss or corruption of data contained in Asymetrix's internal information
systems, (2) hardware failure, (3) the failure of infrastructure services
provided by government agencies and other third parties (e.g., electricity,
phone service, water transport, internet services, etc.); and (4) the failure
of the internal systems of Asymetrix's vendors or customers, resulting in
problems with providing services or making payments to Asymetrix. Asymetrix
is in the early phases of contingency planning at this time and expects to
undertake more in depth contingency planning following the completion of its
analysis and correction of its internal year 2000 issues. Asymetrix expects
its contingency plans to include, among other things, manual work-arounds for
software and hardware failures, as well as substitution of systems or
vendors, if necessary.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
LIMITED OPERATING HISTORY IN ONLINE LEARNING MARKET. Asymetrix was
incorporated in December 1984. Until early 1995, Asymetrix was engaged in
various technology and development activities and in the development and
marketing of multimedia authoring products, database and Internet tools,
World Wide Web publishing products and other ancillary products, most of
which are not included as part of Asymetrix's online enterprise learning
solution. Starting in 1995, Asymetrix recapitalized and redirected its focus
to the development and marketing of authoring products and a learning
management system designed to capitalize on the advantages of the Internet as
a means of delivering technology-based training applications. Since 1995,
Asymetrix has also introduced a variety of professional services.
Accordingly, Asymetrix has only a limited operating history upon which to
base an evaluation of its current business and prospects. Asymetrix's
prospects must be considered in light of the risks and uncertainties
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets such as online enterprise
learning and by companies engaged in a business transition from developing
and marketing software products to offering an integrated product and
services solution. Such risks include, but are not limited to the demand for
technology-based training and online enterprise learning applications; the
management of both internal and acquisition-based growth; demand for
Asymetrix's products and services; the ability of Asymetrix to meet the needs
of sophisticated corporate customers; and competition. To address these
risks, Asymetrix must, among other things, successfully introduce new
products and services; achieve commercial acceptance of its new products and
services; continue to expand its professional services business; successfully
identify, acquire and integrate acquired businesses; respond to competitive
developments; attract, integrate, retain and motivate qualified personnel;
and address new or evolving technologies and standards. Asymetrix may not be
successful in addressing such risks and the failure to do so could have a
material adverse effect on Asymetrix's business, operating results and
financial condition.
14
<PAGE>
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. Asymetrix's quarterly
operating results have varied significantly in the past and are expected to
fluctuate significantly in the future as a result of a variety of factors,
many of which are outside Asymetrix's control. Factors that may adversely
affect Asymetrix's quarterly operating results include the demand for
technology-based training in general and demand for online enterprise
learning solutions in particular; the size and timing of product orders and
the timing and execution of professional services engagements; the mix of
revenue from products and services; the mix of products sold; the inability
of Asymetrix to meet its own or client project milestones or to meet client
expectations; the effect of year 2000 issues on the purchasing decisions of
customers and potential customers; market acceptance of Asymetrix's or
competitors' products and services; the ability of Asymetrix to develop and
market new or enhanced products and services in a timely manner and market
acceptance of such products and services; the timing of revenue recognition;
charges related to acquisitions; competitive conditions; technological
changes; personnel changes; general economic conditions; and economic
conditions specific to the technology-based training and online learning
markets. With its emphasis on providing an online enterprise learning
solution, Asymetrix is targeting its selling and marketing efforts towards
customers with the potential need for enterprise-wide solutions. Because the
implementation of its solutions may require an enterprise-wide decision by
prospective customers, Asymetrix may be required to provide a significant
level of education to prospective customers regarding Asymetrix's solutions
before a sale is completed. Therefore, Asymetrix believes that the period
between initial contact and the sale of Asymetrix's solutions could be
lengthy, and the implementation cycle could lengthen because of increases in
the size and complexity of customer implementations. Uncertainty of timing
with respect to sales or implementations could have a material adverse effect
on Asymetrix's business and operations and cause Asymetrix's operating
results to vary significantly from quarter to quarter. Therefore, Asymetrix's
operating results for any particular quarterly period may not be indicative
of future operating results.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL. Asymetrix's
future success will be highly dependent on the performance of its senior
management team and other key employees and on Asymetrix's ability to
attract, integrate, motivate and retain additional highly skilled technical,
sales and marketing and professional services personnel. There is intense
competition for such personnel in the areas of Asymetrix's activities.
Asymetrix does not have employment agreements with most of its executives or
other key employees. In addition, Asymetrix does not maintain key person life
insurance for any of its officers or key employees. The loss of the services
of any of Asymetrix's senior management team or other key employees or the
failure of Asymetrix to attract, integrate, motivate and retain additional
key employees, including professional services personnel, could have a
material adverse effect on Asymetrix's business, operating results and
financial condition.
CUSTOMER REQUIREMENTS; FIXED PRICE ENGAGEMENTS. The online learning
market is a developing market characterized by complex and varied customer
expectations and requirements, a lack of technical standards and frequent
introductions and announcements of new products and services. Because
Asymetrix's online learning solution is targeted at customers with
enterprise-wide deployments in an emerging market, customers and potential
customers may have a greater sensitivity to product integration,
interoperability and defects than customers in the market for software
products generally. In addition, these customers may have evolving and
rapidly changing requirements for their online enterprise learning needs,
which Asymetrix must address satisfactorily. Many of Asymetrix's professional
services engagements require Asymetrix to develop learning applications to
suit unique customer requirements. Asymetrix's failure or inability to meet a
customer's expectations or requirements in the performance of its services
could potentially damage Asymetrix's reputation or result in a claim for
substantial damages against Asymetrix, regardless of Asymetrix's
responsibility for such failure. In addition, most such professional services
engagements that are billed on a fixed-price basis. Asymetrix's failure to
estimate accurately the resources and time required for an engagement, to
manage client expectations effectively regarding the scope of services to be
delivered for the estimated fees or to complete fixed-price engagements
within budget, on time and to clients' satisfaction would expose Asymetrix to
risks associated with cost overruns and may expose Asymetrix, in certain
cases, to penalties, any of which could have a material adverse effect on
Asymetrix's business, operating results and financial condition.
DEVELOPING MARKET. The market for online enterprise learning is a
new and emerging market. Although technology-based training applications have
been available for several years, they currently account for only a small
portion of the overall training market. The failure of technology-based
training, and online learning in particular, to gain wide market acceptance
within the time frame anticipated by Asymetrix could have a material adverse
effect on Asymetrix's business, operating results and financial condition.
Asymetrix's success depends on the continued adoption of the Internet and
intranets as means of communication, particularly for corporate training
15
<PAGE>
and education. Even if the Internet and intranets are widely adopted, the
adoption of these networks for corporate training and education, particularly
by companies that have relied on traditional means of training their
personnel, will require broad acceptance of new training methods. In
addition, companies that have already invested substantial resources in other
methods of corporate training and education may be reluctant to adopt a new
strategy that may limit or compete with their existing investments.
COMPETITION. The online learning market is highly fragmented and
competitive, rapidly evolving and subject to rapid technological change, with
no single competitor accounting for a dominant market share. Because of the
lack of significant barriers to entry in its market, Asymetrix expects that a
number of new competitors will enter this market in the future, and a number
of large companies have announced an intention to enter the market for online
learning and technology-based training. Increased competition could result in
pricing pressures, reduced margins or the failure of Asymetrix's products and
services to achieve or maintain market acceptance, any of which could have a
material adverse effect on Asymetrix's business, operating results and
financial condition. Furthermore, several of Asymetrix's current and
potential competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than Asymetrix
and therefore may be able to respond more quickly than Asymetrix to new or
changing opportunities, technologies, standards and customer requirements. As
a result of the foregoing and other factors, there can be no assurance that
Asymetrix will compete effectively with current or future competitors or that
competitive pressures faced by Asymetrix will not have a material adverse
effect on Asymetrix's business, operating results and financial condition.
GENERAL ECONOMIC CONDITIONS. Asymetrix's revenue is subject to
fluctuation as a result of general economic conditions. A significant portion
of Asymetrix's revenue is derived from the sale of products and services to
Fortune 1000 companies, educational organizations and government agencies,
which historically have adjusted their expenditures for education and
training during economic downturns. Should the economy weaken in any future
period, these organizations may not increase or may reduce their expenditures
on education and training generally, and on technology-based training and
online learning in particular, which could have an adverse effect on
Asymetrix's business, operating results and financial condition.
VOLATILITY OF STOCK PRICE. The stock market from time to time has
experienced significant price and volume fluctuations. In addition, the
market price of Asymetrix common stock has been highly volatile since the
initial public offering. Factors such as fluctuations in Asymetrix's
operating results, announcements of technological innovations or new products
by Asymetrix or its competitors, analysts' reports and projections and
general market conditions may have a significant effect on the market price
of Asymetrix's common stock. In the past, following periods of volatility in
the market price of a company's securities, securities class action
litigation has often been instituted against such a company. The institution
of such litigation against Asymetrix could result in substantial costs and a
diversion of management's attention and resources, which could have a
material adverse effect on Asymetrix's business, operating results and
financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Asymetrix holds its assets primarily in cash and cash equivalents,
such as short-term marketable debt securities, money market funds and other cash
equivalents. Asymetrix minimizes its risk by investing in financial instruments
with a maturity of three months or less. Asymetrix does not use derivative
financial instruments.
16
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with Asymetrix's initial public offering, it
registered for public sale 3,000,000 shares of common stock, all of which
were sold by Asymetrix. The Registration Statement on Form S-1 (Registration
No. 333-49037), as amended, was declared effective by the Securities and
Exchange Commission on June 11, 1998. NationsBanc Montgomery Securities LLC
was the managing underwriter of the IPO. The IPO commenced on June 12, 1998,
and terminated following the sale of all of the securities registered under
the Registration Statement, plus an additional 25,000 shares pursuant to the
exercise of the underwriters' over-allotment option. The common stock was
offered and sold to the public at $11.00 per share, for aggregate
consideration of $33,275,000, of which Asymetrix received net proceeds of
$29,331,000.
From the effective date of the Registration Statement through March
31, 1999, Asymetrix has incurred an estimated $3,944,000 in expenses in
connection with the issuance and distribution of the common stock, including
underwriting discounts and commissions of $2,329,250 and other expenses of
$1,614,750. No finders' fees or expenses were paid to or for the
underwriters. None of these payments were made, directly or indirectly, to:
(1) directors or officers of Asymetrix, or their associates; (2) persons
owning ten percent or more of any class of equity securities of Asymetrix; or
(3) affiliates of Asymetrix.
From the effective date of the Registration Statement through March
31, 1999, Asymetrix has applied approximately $10.4 million of the offering
proceeds to working capital requirements. None of these payments were made,
directly or indirectly, to: (1) directors or officers of Asymetrix, or their
associates; (2) persons owning ten percent or more of any class of equity
securities of Asymetrix; or (3) affiliates of Asymetrix. To date, Asymetrix
believes that it has used the offering proceeds in a manner consistent with
the use of proceeds described in the Registration Statement. The remaining
$18.9 million of the offering proceeds is invested in short-term marketable
debt securities, money market funds and other cash equivalents.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended
March 31, 1999.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASYMETRIX LEARNING SYSTEMS, INC.
May 17, 1999 /s/ John D. Atherly
- ---------------- ------------------------------------------------------
Date John D. Atherly
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized Officer and Chief Accounting Officer)
18
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
27 Financial Data Schedule
</TABLE>
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,852
<SECURITIES> 0
<RECEIVABLES> 8,892
<ALLOWANCES> 906
<INVENTORY> 360
<CURRENT-ASSETS> 28,146
<PP&E> 8,885
<DEPRECIATION> 6,324
<TOTAL-ASSETS> 40,661
<CURRENT-LIABILITIES> 5,714
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 34,562
<TOTAL-LIABILITY-AND-EQUITY> 40,661
<SALES> 3,154
<TOTAL-REVENUES> 7,460
<CGS> 314
<TOTAL-COSTS> 3,591
<OTHER-EXPENSES> 6,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,406)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
