<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
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 December 31, 1999
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 000-23997
----------------
BRIO TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 77-0210797
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
3460 West Bayshore Road
Palo Alto, California 94303
(Address of principal executive offices, including zip code)
(650) 856-8000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
----------------
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 [_]
As of February 9, 2000 there were 27,540,733 shares of the registrant's
Common Stock outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
BRIO TECHNOLOGY, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED DECEMBER 31, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
PART I. Financial Information
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets--December 31, 1999 and
March 31, 1999............................................... 3
Condensed Consolidated Statements of Operations--Three and
Nine Months Ended December 31, 1999 and 1998................. 4
Condensed Consolidated Statements of Cash Flows--Nine Months
Ended December 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.... 26
PART II. Other Information
Item 1. Legal Proceedings............................................. 27
Item 2. Changes in Securities and Use of Proceeds..................... 27
Item 3. Defaults Upon Senior Securities............................... 27
Item 4. Submission of Matters to a Vote of Security Holders........... 27
Item 5. Other Information............................................. 27
Item 6. Exhibits and Reports on Form 8-K.............................. 27
Signature..................................................... 28
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
BRIO TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1999 1999
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 10,602 $ 21,026
Short-term investments................................ 20,837 14,285
Accounts receivable, net of allowance of $2,253 and
$1,394............................................... 30,674 20,674
Inventories........................................... 635 376
Deferred income taxes................................. 2,095 2,095
Prepaid expenses and other current assets............. 2,999 1,458
-------- --------
Total current assets.............................. 67,842 59,914
Property and equipment, net............................. 8,113 6,540
Other assets............................................ 2,104 1,806
-------- --------
$ 78,059 $ 68,260
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 5,539 $ 4,251
Accrued liabilities--
Payroll and related benefits........................ 10,050 5,902
Other............................................... 11,716 5,716
Line of credit........................................ -- 2,000
Deferred revenue, current............................. 23,509 18,666
-------- --------
Total current liabilities......................... 50,814 36,535
Noncurrent deferred revenue............................. 2,013 2,194
Other noncurrent liabilities............................ 3,893 133
-------- --------
Total liabilities................................. 56,720 38,862
-------- --------
Redeemable common stock................................. -- 3,110
Stockholders' equity:
Convertible preferred stock........................... -- 5
Common stock.......................................... 27 26
Additional paid-in capital............................ 74,876 66,175
Notes receivable from stockholders.................... (524) (1,820)
Deferred compensation................................. (214) (456)
Accumulated components of comprehensive income
(loss)............................................... 548 (132)
Accumulated deficit................................... (53,374) (37,510)
-------- --------
Total stockholders' equity........................ 21,339 26,288
-------- --------
$ 78,059 $ 68,260
======== ========
</TABLE>
See accompanying notes.
3
<PAGE>
BRIO TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- -------------------
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
License fees...................... $ 23,311 $ 15,090 $ 62,781 $ 40,095
Services.......................... 10,868 7,420 29,633 19,555
--------- --------- --------- --------
Total revenues.................. 34,179 22,510 92,414 59,650
--------- --------- --------- --------
Cost of revenues:
License fees...................... 847 719 2,345 1,746
Services.......................... 4,305 2,842 12,113 7,060
--------- --------- --------- --------
Total cost of revenues.......... 5,152 3,561 14,458 8,806
--------- --------- --------- --------
Gross profit........................ 29,027 18,949 77,956 50,844
--------- --------- --------- --------
Operating expenses:
Research and development.......... 4,999 3,659 14,514 9,588
Sales and marketing............... 16,769 12,572 46,420 34,535
General and administrative........ 3,265 2,663 10,400 7,326
In-process research and
development...................... -- 1,653 -- 1,653
Non-recurring operating expenses.. 896 -- 22,297 --
--------- --------- --------- --------
Total operating expenses........ 25,929 20,547 93,631 53,102
--------- --------- --------- --------
Income (loss) from operations....... 3,098 (1,598) (15,675) (2,258)
Interest and other income, net...... 341 459 520 1,099
--------- --------- --------- --------
Net income (loss) before income
taxes.............................. 3,439 (1,139) (15,155) (1,159)
Income taxes........................ 310 83 709 247
--------- --------- --------- --------
Net income (loss)................... 3,129 (1,222) (15,864) (1,406)
Increase in redemption value of
redeemable common stock............ -- (270) -- (556)
--------- --------- --------- --------
Net income (loss) applicable to
common stock....................... $ 3,129 $ (1,492) $ (15,864) $ (1,962)
========= ========= ========= ========
Basic net income (loss) per share... $ 0.12 $ (0.07) $ (0.74) $ (0.10)
========= ========= ========= ========
Shares used in computing basic net
income (loss) per share............ 27,041 20,767 21,385 19,648
========= ========= ========= ========
Diluted net income (loss) per
share.............................. $ 0.10 $ (0.07) $ (0.74) $ (0.10)
========= ========= ========= ========
Shares used in computing diluted net
income (loss) per share............ 30,880 20,767 21,385 19,648
========= ========= ========= ========
</TABLE>
See accompanying notes.
4
<PAGE>
BRIO TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss applicable to common stock....................... $(15,864) $ (1,962)
Adjustments to reconcile net loss to cash (used in)
provided by operating activities--
Depreciation and amortization........................... 2,240 1,499
Increase in redemption value of redeemable common
stock.................................................. -- 556
Provision for returns and doubtful accounts............. 859 335
Deferred compensation amortization...................... 130 99
Loss on disposal of property and equipment.............. 768 47
Provision for loss on marketable securities............. 346 --
Changes in operating assets and liabilities--
Accounts receivable................................... (10,859) (1,050)
Inventories........................................... (259) (18)
Deferred income taxes................................. -- (1,696)
Prepaid expenses and other assets..................... (2,119) (836)
Accounts payable and accrued liabilities.............. 15,196 3,480
Deferred revenue...................................... 4,662 2,502
-------- --------
Cash (used in) provided by operating activities..... (4,900) 2,956
-------- --------
Cash Flows from Investing Activities:
Purchase of short-term investments........................ (20,741) (12,178)
Sales of short-term investments........................... 14,413 --
Purchases of property and equipment....................... (4,301) (2,962)
-------- --------
Cash used in investing activities................... (10,629) (15,140)
-------- --------
Cash Flows from Financing Activities:
Repayments of notes payable............................... (2,000) (3,708)
Proceeds from issuance of common stock, net............... 5,490 31,448
Proceeds from repayment of notes receivable from
stockholders............................................. 1,254 24
Income tax benefit from exercise of options............... 251 8
-------- --------
Cash provided by financing activities............... 4,995 27,772
-------- --------
Net (decrease) increase in cash and cash equivalents...... (10,534) 15,588
Effect of exchange rate changes on cash................... 110 (143)
Cash and cash equivalents, beginning of period............ 21,026 7,326
-------- --------
Cash and cash equivalents, end of period.................. $ 10,602 $ 22,771
======== ========
</TABLE>
See accompanying notes.
5
<PAGE>
BRIO TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies.
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Brio, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in consolidated financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. However, Brio believes that
the disclosures are adequate to make the information not misleading. These
condensed consolidated financial statements should be read in conjunction with
the consolidated financial statements and the notes thereto included in Brio's
annual report on Form 10-K for the fiscal year ended March 31, 1999.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments)
that are, in the opinion of management, necessary to state fairly the results
for the periods presented. The results for such periods are not necessarily
indicative of the results to be expected for the full fiscal year.
The preparation of condensed consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the condensed consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Revenue Recognition
The Company's revenues are derived from two sources, license fees and
services. Services include software maintenance and support, training and
system implementation consulting.
Revenue from license fees is recognized upon shipment of the software if
collection of the resulting receivable is probable, the fee is fixed or
determinable and vendor-specific objective evidence exists to allocate the
total fee to all delivered and undelivered elements of the arrangement. Such
undelivered elements in these arrangements typically consist of services.
Allowances are established for potential product returns and credit losses. In
instances where payments are subject to extended payment terms, revenue is
deferred until the earlier of the date when payments become due or the date
payment is received. If an acceptance period is required, revenue is
recognized upon the earlier of customer acceptance or the expiration of the
acceptance period.
Maintenance revenue is recognized ratably over the term of the maintenance
contract. If maintenance is included in an arrangement which includes a
license agreement, amounts related to maintenance are unbundled from the
license fee based on vendor specific objective evidence. Consulting and
training revenue is recognized when the services are performed.
Cost of revenues consists primarily of third-party fees, related personnel
and overhead allocations, the cost of media, documentation, packaging and
shipping related to products sold.
Reclassifications
Certain reclassifications have been made to the prior year amounts to
conform with the fiscal year 2000 presentation.
6
<PAGE>
Comprehensive Income (Loss)
A summary of comprehensive income (loss) follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
-------------- -----------------
1999 1998 1999 1998
------ ------- -------- -------
<S> <C> <C> <C> <C>
Net income (loss) applicable to common
stock................................. $3,129 $(1,492) $(15,864) $(1,962)
Unrealized gain on short-term
investments........................... 153 3 301 7
Foreign currency translation
adjustment............................ 22 (135) 110 (143)
------ ------- -------- -------
Comprehensive income (loss).......... $3,304 $(1,624) ($15,453) $(2,098)
====== ======= ======== =======
</TABLE>
Computation of Basic and Diluted Net Income (Loss) Per Share
Basic net income (loss) per share is computed using the weighted average
number of shares of common stock outstanding. Diluted net income (loss) per
share information is computed using the weighted average number of shares of
common and potential common stock outstanding. For the nine months ended
December 31, 1999 and for the three and nine months ended December 31, 1998,
potential common shares from conversion of preferred stock, stock options and
warrants and contingently issuable shares have been excluded from the
calculation of diluted net income (loss) per share because Brio incurred a
loss in these periods and therefore, their affect would be antidilutive.
Potential common shares of 8,461,000 for the nine months ended December 31,
1999, 6,456,000 for the three months ended December 31, 1998 and 6,749,000 for
the nine months ended December 31, 1998 were not included in the computation
of diluted net income (loss) per share.
The following is a reconciliation of the shares used in computing basic net
income (loss) per share to the shares used in computing diluted net income
(loss) per share (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
------------- -------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares used in computing basic net income
(loss) per share.............................. 27,041 20,767 21,385 19,648
Options........................................ 3,815 -- -- --
Warrants and other contingent shares........... 24 -- -- --
------ ------ ------ ------
Shares used in computing diluted net income
(loss) per share.............................. 30,880 20,767 21,385 19,648
====== ====== ====== ======
</TABLE>
Note 2. Acquisition of Sqribe Technologies Corp.
In August 1999, Brio completed its merger with SQRIBE Technologies Corp., a
Delaware Corporation (SQRIBE). SQRIBE develops, markets, licenses and supports
enterprise reporting software that enables organizations to improve the
quality and speed of decision making. Brio acquired all of the outstanding
shares of SQRIBE preferred and common stock in a tax-free, stock-for-stock
transaction for approximately 13.2 million shares of Brio common stock. The
acquisition was accounted for as a pooling-of-interests. In addition, Brio
assumed all outstanding stock options and warrants of SQRIBE. All prior period
condensed financial statements were restated, in accordance with required
pooling-of-interests accounting and disclosures. SQRIBE had a fiscal year that
ended on December 31 of each year. The combined financial results for the nine
months ended December 31, 1998, include the results of SQRIBE for the nine
months ended September 30, 1998. The results of operations for the three
months ended March 31, 1999, which reflected total revenues of $10.8 million,
a net loss of $1.8 million and a net loss applicable to common stock of $3.6
million, are reflected as an adjustment to accumulated deficit in the combined
fiscal 1999 combined consolidated financial statements. Reconciliation of
7
<PAGE>
the current condensed consolidated financial statements with previously
reported separate company performance is presented below (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
1998 1998
------------ ------------
<S> <C> <C>
Total revenues
Brio............................................. $12,390 $32,304
SQRIBE........................................... 10,120 27,346
------- -------
Combined and restated.............................. $22,510 $59,650
======= =======
Net loss
Brio............................................. $(1,140) $(1,692)
SQRIBE........................................... (82) 286
------- -------
Combined and restated.............................. ($1,222) $(1,406)
======= =======
Net loss applicable to common stock
Brio............................................. $(1,140) $(1,692)
SQRIBE........................................... (352) (270)
------- -------
Combined and restated.............................. $(1,492) $(1,962)
======= =======
</TABLE>
Note 3. Notes Payable
At December 31, 1999, Brio had a $15.0 million accounts receivable-based
line of credit agreement. Interest on borrowings under the line of credit
accrue at the bank's prime rate (8.5% at December 31, 1999). At December 31,
1999, no amounts were outstanding under the line of credit. Borrowings under
the line of credit are limited to 80% of eligible accounts receivable. The
line of credit is collateralized by substantially all of Brio's assets,
including Brio's copyrights and trademarks, to the extent required to
establish a security interest in the accounts receivable. The line of credit
requires Brio to comply with a net income covenant, excluding non-recurring
operating charges, of $1.00. The line of credit expires on December 31, 2000.
Note 4. Litigation
On January 20, 1997, Business Objects, S.A. filed a complaint against Brio
in the U.S. District Court for the Northern District of California in San
Jose, alleging that certain of Brio's products (including at least the
BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer products)
infringed at least claims 1, 2, and 4 of U.S. Patent Number 5,555,403. On
April 4, 1997, Brio filed an answer and affirmative defenses to the complaint,
denying certain of the allegations in the complaint and asserting a
counterclaim requesting declaratory relief that Brio was not infringing the
patent and that the patent was invalid and enforceable. In December 1997,
venue for the case was changed to the Northern District of California in San
Francisco. On July 30, 1999, Brio filed an action against Business Objects,
S.A. in the U.S. District Court for the Northern District of California in San
Jose, alleging that certain of Business Objects, S.A. products infringe U.S.
Patent Number 5,915,257. On September 9, 1999, Brio and Business Objects, S.A.
executed a Memorandum of Understanding settling Business Object's pending
patent litigation against Brio involving patent number 5,555,403 pursuant to
which Brio agreed to pay to Business Objects, S.A. $10.0 million, payable in
$1.0 million payments over the next 10 quarters, with the first payment due
September 30, 1999. Settlement costs of $9.1 million, which represent the net
present value of the 10 quarterly payments, are included in non-recurring
operating expenses for the nine months ended December 31, 1999. The remaining
$900,000 represents interest and will be recognized over the payment term
using the effective interest rate method. As part of this settlement, Business
Objects, S.A. dismissed its pending lawsuit against Brio involving patent
number 5,555,403 and Brio dismissed its pending lawsuit against Business
Objects, S.A. involving patent number 5,915,257.
8
<PAGE>
Note 5. Non-recurring Operating Expenses
Non-recurring operating expenses in the three and nine months ended
December 31, 1999 are comprised of merger and restructuring costs related to
the SQRIBE acquisition and the settlement of Brio's ongoing patent litigation
with Business Objects, S.A. as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
--------------- ---------------
1999 1998 1999 1998
------ ------ ------- ------
<S> <C> <C> <C> <C>
Merger and restructuring costs.............. $ 896 $ -- $13,160 $ --
Settlement costs (see Note 4)............... -- -- 9,137 --
------ ------ ------- ------
Total non-recurring operating expenses.... $ 896 $ -- $22,297 $ --
====== ====== ======= ======
</TABLE>
Brio's merger with SQRIBE was completed on August 3, 1999. For the three
months ended December 31, 1999, merger and restructuring costs of $896,000
consisted of $155,000 in transaction and related professional fees, $377,000
in severance costs to terminate employees and $364,000 in other miscellaneous
merger-related expenses. For the nine months ended December 31, 1999, merger
and restructuring costs of $13.2 million consisted of $7.4 million in
transaction and related professional fees, $639,000 in severance costs to
terminate employees, $1.3 million in merger integration expenses, $387,000 in
consolidation of facilities, $697,000 in equipment retirements and $2,737,000
in other miscellaneous merger-related expenses. All termination notices and
benefits were communicated to the affected employees prior to period-end and
substantially all of the merger-related expenses were incurred prior to
period-end. Brio expects that substantially all of the merger-related charges
for the quarter ended December 31, 1999, will be paid by March 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto, and with Brio's
audited financial statements and notes thereto for the fiscal year ended March
31, 1999 included in Brio's Form 10-K and the other information included
elsewhere in this Report. Certain statements in this "Management's Discussion
and Analysis of Financial Condition and Results of Operations" are forward-
looking statements. The forward-looking statements contained herein are based
on current expectations and entail various risks and uncertainties that could
cause actual results to differ materially from those expressed in such
forward-looking statements. For a more detailed discussion of these and other
business risks, see "Risk Factors That May Affect Future Operating Results"
below.
Overview
Brio designs, develops, markets and supports enterprise business
intelligence software, which is software that enables organizations to
maximize the value of their corporate information through intuitive,
interactive data access and analysis. Brio had net losses of $8.6 million in
fiscal 1997, $15.7 million in fiscal 1998 and $753,000 in fiscal 1999. Brio
had an accumulated deficit of approximately $53.4 million as of December 31,
1999. See "Risk Factors That May Affect Future Operating Results" for a
description of the risks related to Brio's operating results fluctuating in
future periods.
In August 1999, Brio completed its merger with SQRIBE Technologies, Corp.,
a Delaware Corporation (SQRIBE). SQRIBE develops, markets, licenses and
supports enterprise reporting software that enables organizations to improve
the quality and speed of decision-making. Brio acquired all of the outstanding
shares of SQRIBE preferred and common stock in a tax-free, stock-for-stock
transaction for approximately 13.2 million shares of Brio common stock. The
acquisition was accounted for as a pooling-of-interests. In addition, Brio
assumed all outstanding stock options and warrants of SQRIBE. All prior period
condensed financial statements have been restated, in accordance with required
pooling-of-interest accounting and disclosures.
9
<PAGE>
Brio's revenues consist of license fees for software products and fees for
services, including software maintenance and support, training and system
implementation consulting. Revenues in current periods are generally
attributable to the sale of the most recent version of Brio's products. Brio
generally discontinues marketing older product versions when a new product
version is introduced. The products are typically licensed on a per user basis
with the price per user varying based on the selection of products licensed or
on a per computer server basis with the price varying based on the computing
power of the server. Additionally, Brio also sells larger enterprise-wide
implementations of their products through site licenses with the price per
site varying based on the selection of:
. products licensed;
. the number of authorized users or computer servers for each product at
each site; and
. the number of licensed sites.
Revenues from license fees are recognized upon shipment of the software if:
. collection of the resulting receivable is probable;
. the fee is fixed or determinable; and
. vendor-specific objective evidence exists to allocate the total fee to
all delivered and undelivered elements of the arrangement. If vendor-
specific objective evidence does not exist to allocate the total fee to
all delivered and undelivered elements of the arrangement, revenue is
deferred until such evidence does exist, or until all elements are
delivered, whichever is earlier.
If payments are subject to extended payment terms and are not deemed fixed
or determinable, Brio defers revenue until payments become due. If an
acceptance period is required, Brio recognizes revenue upon the earlier of
customer acceptance or the expiration of the acceptance period. Brio
establishes allowances for potential product returns and credit losses, which
have been insignificant to date. Brio charges fees for services separately
from license fees. Brio recognizes revenues from maintenance and support
services, including ongoing product support and periodic product updates,
ratably over the term of each contract, which is typically twelve months.
Payments for maintenance and support services are generally made in advance
and are non-refundable. Brio recognizes revenues from training and consulting
services when the services are performed.
To date, Brio has derived revenues from license fees principally from
direct sales of software products to end users through Brio's direct sales
force. Although Brio believes that such direct sales will continue to account
for a significant portion of revenues from license fees in the foreseeable
future, Brio has recently developed and intends to continue to develop
reselling relationships with value added resellers, resellers and
distributors. Brio expects that revenues from sales through value added
resellers, resellers and distributors will increase in the future as a
percentage of revenues from license fees. Revenues from value added resellers,
resellers and distributors were 21% of total revenues for fiscal 1997, 24% of
total revenues for fiscal 1998 and 21% of total revenues for fiscal 1999.
Brio's ability to achieve revenue growth and improved operating margins, as
well as increased worldwide sales, in the future will depend in large part
upon its success in expanding and maintaining relationships with value added
resellers, resellers and distributors. See "Risk Factors That May Affect
Future Operating Results" for a description of the risks related to Brio's
sales strategy.
Brio is also increasing its efforts to sell customers licenses for larger,
enterprise-wide implementations of Brio's products, rather than departmental
or local network sales, which may increase the complexity and length of the
sales cycle. Brio has in the past and may in the future choose to grant
greater pricing and other concessions, such as discounted training and
consulting, for sales of site licenses. See "Risk Factors That May Affect
Future Operating Results" for a description of the risks related to the sales
cycle of Brio's products.
Brio has, to date, sold its products internationally through direct sales
offices in the United Kingdom, France, Germany and Australia, and indirectly
through established distribution relationships in more than
10
<PAGE>
20 countries, including Belgium, Italy, Japan, The Netherlands and South
Africa. Brio's direct sales offices in the United Kingdom and Australia were
formed through the acquisition of distributors in those countries. Sales to
customers outside of the United States and Canada, including sales generated
by Brio's foreign subsidiaries, represented 11% of total revenues for fiscal
1997, 17% of total revenues for fiscal 1998 and 18% of total revenues for
fiscal 1999. A substantial portion of Brio's international sales in the past
have been denominated and collected in foreign currencies and Brio believes
that a portion of Brio's cost of revenues and operating expenses will continue
to be incurred in foreign currencies. To date, there have been no material
effects of changes in foreign currency exchange rates on revenues or operating
expenses. During fiscal 1999, Brio incurred foreign currency transaction
losses of $13,000 resulting from intercompany receivables from its foreign
subsidiaries. Although it is impossible to predict future exchange rate
movements between the U.S. dollar and other currencies, to the extent the U.S.
dollar strengthens or weakens against other currencies, a substantial portion
of Brio's revenues, cost of revenues and operating expenses will be
commensurately lower or higher than would be the case in a more stable foreign
currency environment. Although Brio has not historically undertaken foreign
exchange hedging transactions to cover its potential foreign currency
exposure, it may do so in the future. See "Risk Factors That May Affect Future
Operating Results" for a description of the risks related to Brio's
international sales strategy.
Although Brio has experienced significant quarter-to-quarter revenue growth
in fiscal 1997, 1998 and 1999, the same rate of sequential quarterly revenue
growth may not be sustainable and profitability may not be attained in the
future. Brio currently intends to commit substantial financial resources to:
. research and development;
. customer support;
. sales and marketing, including the expansion of its direct sales force,
third-party partnering relationships and its indirect channel sales
organization; and
. increased staffing and systems infrastructure to support Brio's expanding
operations.
As a result, Brio expects that its operating expenses will increase
significantly in fiscal 2001.
11
<PAGE>
Results of Operations
The following table includes consolidated statements of operations data as
a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
--------------- ----------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Revenues:
License fees....................... 68% 67% 68% 67%
Services........................... 32 33 32 33
------ ------ ------ ------
Total revenues................... 100 100 100 100
Cost of revenues:
License fees....................... 2 3 3 3
Services........................... 13 13 13 12
------ ------ ------ ------
Total cost of revenues........... 15 16 16 15
------ ------ ------ ------
Gross profit......................... 85 84 84 85
Operating expenses:
Research and development........... 15 16 16 16
Sales and marketing................ 49 56 50 58
General and administrative......... 9 12 11 12
In-process research and
development....................... -- 7 -- 3
Non-recurring operating expenses... 3 -- 24 --
------ ------ ------ ------
Total operating expenses......... 76 91 101 89
------ ------ ------ ------
Income (loss) from operations........ 9 (7) (17) (4)
Interest and other income, net....... 1 2 1 2
------ ------ ------ ------
Net income (loss) before income
taxes............................... 10 (5) (16) (2)
Income taxes......................... 1 1 1 --
------ ------ ------ ------
Net income (loss).................... 9 (6) (17) (2)
Increase in redemption value of
redeemable common stock............. -- (1) -- (1)
------ ------ ------ ------
Net income (loss) applicable to
common stock........................ 9% (7)% (17)% (3)%
====== ====== ====== ======
</TABLE>
Revenues
Brio derives revenues from license fees and services, which include
software maintenance and support, training and system implementation
consulting. Total revenues increased by 52% from $22.5 million for the three
months ended December 31, 1998 to $34.2 million for the three months ended
December 31, 1999. Total revenues also increased by 55% from $59.7 million for
the nine months ended December 31, 1998 to $92.4 million for the nine months
ended December 31, 1999. These increases were primarily due to increased
license revenue and related maintenance and support revenue.
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<PAGE>
Revenues by geographic location were as follows for the three and nine
months ended December 31, 1998 and 1999:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
--------------- ---------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues by Geography:
Domestic..................................... $28,001 $18,581 $74,809 $49,035
International................................ 6,178 3,929 17,605 10,615
------- ------- ------- -------
Total revenues........................... $34,179 $22,510 $92,414 $59,650
======= ======= ======= =======
</TABLE>
Revenue from international sources increased by 57% from $3.9 million for
the three months ended December 31, 1998 to $6.2 million for the three months
ended December 31, 1999. Revenues from international sources also increased by
66% from $10.6 million for the nine months ended December 31, 1998 to $17.6
million for the nine months ended December 31, 1999. The increases were
primarily due increased demand for Brio products in Europe and Asia as Brio
continued to expand direct and indirect sales efforts in these areas.
License Fees. Revenues from license fees increased by 54% from $15.1
million for the three months ended December 31, 1998 to $23.3 million for the
three months ended December 31, 1999. Approximately $2.5 million of the
increase was due to growing sales to new customers and approximately $5.7
million of the increase was due to increased follow-on sales to existing
customers. Revenues from license fees also increased by 57% from $40.1 million
for the nine months ended December 31, 1998 to $62.8 million for the nine
months ended December 31, 1999. Approximately $7.0 million of the increase was
due to growing sales to new customers and approximately $15.7 million of the
increase was due to increased follow-on sales to existing customers.
Services. Services revenues increased by 46% from $7.4 million for the
three months ended December 31, 1998 to $10.9 million for the three months
ended December 31, 1999. Approximately $2.4 million of the increase was due to
an increase in maintenance and support revenues and approximately $1.1 of the
increase was due to an increase in training and consulting revenues related to
increases in Brio's installed customer base. Service revenues also increased
by 52% from $19.6 million for the nine months ended December 31, 1998 to $29.6
million for the nine months ended December 31, 1999. Approximately $7.2
million of the increase was due to increases in maintenance and support
revenue and approximately $2.8 million of the increase was due to increases in
training and consulting services revenue related to increases in the Company's
installed customer base.
Cost of Revenues
License Fees. Cost of revenues from license fees consists primarily of
product packaging, shipping, media, documentation and related personnel and
overhead allocations. Cost of revenues from license fees increased by 18% from
$719,000 for the three months ended December 31, 1998 to $847,000 for the
three months ended December 31, 1999. Cost of revenues from license fees also
increased by 34% from $1.7 million for the nine months ended December 31, 1998
to $2.3 million for the nine months ended December 31, 1999. The increase in
absolute dollars was due to an increase in the number of licenses sold. Cost
of revenues from license fees may vary between periods due to mix of customers
purchasing master disks relative to customers purchasing "shrinkwrapped"
product.
Services. Cost of revenues from services consists primarily of personnel
costs and third-party consulting fees associated with providing software
maintenance and support and training and consulting services. Cost of revenues
from services increased by 51% from $2.8 million for the three months ended
December 31, 1998 to $4.3 million for the three months ended December 31,
1999. Approximately $970,000 million of the increase was due to increases in
personnel and related costs resulting from Brio's expansion in support
services in response to increased demand for maintenance and support and
training and consulting services, offset by
13
<PAGE>
decreases in travel and entertainment expenses. Approximately $530,000 of the
increase was due to increases in the use of outside consultants for training
and consulting services. Cost of service revenues also increased by 72% from
$7.1 million for the nine months ended December 31, 1998 to $12.1 million for
the nine months ended December 31, 1999. Approximately $3.5 million of the
increase was due to increases in personnel and related costs resulting from
the Company's expansion of its support services. Approximately $1.5 million of
the increase was due to increases in the use of outside consultants for
training and consulting services and for level one technical support services.
Cost of revenues from services may vary between periods due to the mix of
services provided by Brio's personnel relative to services provided by outside
consultants and to varying levels of expenditures required to build the
services organization.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with the development of
new products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased by 37% from
$3.7 million for the three months ended December 31, 1998 to $5.0 million for
the three months ended December 31, 1999. Research and development expenses
also increased by 51% from $9.6 million for the nine months ended December 31,
1998 to $14.5 million for the nine months ended December 31, 1999. The
increases were primarily due to increased personnel and related costs required
to develop new products and enhance existing products. Brio believes that
significant investment for research and development is essential to product
and technical leadership and anticipates that it will continue to commit
substantial resources to research and development in the future. Brio
anticipates that research and development expenditures will continue to
increase in absolute dollars, although such expenses may vary as a percentage
of total revenues.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and other personnel related costs, commissions, bonuses and sales
incentives, travel, marketing programs such as trade shows and seminars and
promotion costs. Sales and marketing expenses increased by 33% from $12.6
million for the three months ended December 31, 1998 to $16.8 million for the
three months ended December 31, 1999. Approximately $1.0 million of the
increase was attributable to the costs associated with the expansion of Brio's
worldwide sales organization, approximately $2.3 million of the increase was
attributable to higher sales commissions, bonuses and sales incentives
associated with increased revenues and approximately $900,000 of the increase
was attributable to increased domestic and international marketing expenses,
including marketing activities, personnel and related costs. Sales and
marketing expenses also increased by 34% from $34.5 million for the nine
months ended December 31, 1998 to $46.4 million for the nine months ended
December 31, 1999. Approximately $6.1 million of the increase was attributable
to the costs associated with the expansion of Brio's sales organization,
including the addition of field and telesales personnel and related costs,
domestically and internationally, approximately $3.4 million of the increase
was attributable to higher sales commissions, bonuses and sales incentives
associated with increased revenues and approximately $2.4 million of the
increase was attributable to increased domestic and international marketing
expenses, including marketing activities, personnel and related costs. Brio
believes that as it continues to expand its direct sales and pre-sales support
organization, its third-party partnering relationships and its indirect
channel sales organization on a worldwide basis, sales and marketing expenses
will continue to increase in absolute dollars. These expenses are currently
intended to be funded by Brio's working capital. In particular, Brio expects
that sales compensation, travel and related expenses will increase
significantly as Brio continues to increase the number of its direct sales
personnel and its emphasis on direct field sales efforts. Nonetheless, Brio
expects sales and marketing expenses will continue to vary as a percentage of
total revenues.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, human resources, information systems
and general management, as well as legal, accounting and unallocated overhead
expenses. General and administrative expenses increased by 23% from $2.7
million for the three months ended December 31, 1998 to $3.3 million for the
three months ended December 31, 1999. Approximately $440,000 of the increase
was attributable increased personnel and related costs and approximately
14
<PAGE>
$160,000 of the increase was attributable to fees to support Brio's growth and
facilities expansion. General and administrative expenses also increased by
42% from $7.3 million for the nine months ended December 31, 1998 to $10.4
million for the nine months ended December 31, 1999. Approximately $2.0
million of the increase was attributable to legal fees related to the Business
Objects, S.A. litigation and increased professional fees necessary to manage
and support Brio's growth and facilities expansion and approximately $1.1
million of the increase was attributable to increased personnel related costs.
The decrease in general and administrative expenses as a percentage of total
revenues is primarily attributable to increased efficiencies in Brio's
administrative operations and increased revenues. Brio expects that its
general and administrative expenses will increase in absolute dollars as Brio
expands its staffing to support expanded operations and continues its
responsibilities as a public company. Brio expects that such expenses will
continue to vary as a percentage of total revenues.
In-process Research and Development. In connection with the acquisition of
MerlinSoft, Inc. (Merlinsoft), Brio allocated $1.7 million of the purchase
price to in-process research and development projects. This allocation
represented the estimated fair value based on future cash flows that have been
adjusted by the projects' completion percentage. While Brio relied upon an
independent, third party appraisal of the acquired intangible assets,
management was primarily responsible for estimating their fair values. At the
acquisition date, the development of these projects had not yet reached
technological feasibility due to issues involving the completion of
scalability, performance and security functions and the research and
development in progress had no alternative future uses. Accordingly, these
costs were expensed as of the acquisition date. The excess of the purchase
price over identified intangible assets was approximately $600,000.
The value assigned to purchased in-process research and development was
determined by estimating the contribution of the purchased in-process
technology in developing a commercially viable product, estimating the
resulting net cash flows from the expected sales of such a product, and
discounting the net cash flows to their present value using an appropriate
discount rate. The discount rate included a factor that took into account the
uncertainty surrounding the successful development of the acquired in-process
technology.
To date, Merlinsoft's results have not differed significantly from the
forecast assumptions. Brio's research and development expenditures since the
acquisition have not differed materially from expectations. Revenue
contribution from the acquired technology falls within an acceptable range of
plans in its role in Brio's suite of products. The risks associated with the
research and development are still considered high and no assurance can be
made that upcoming products will meet market expectations.
Non-recurring Operating Expenses. Non-recurring operating expenses in the
three and nine months ended December 31, 1999 are comprised of merger and
restructuring costs related to the SQRIBE acquisition and the settlement of
Brio's ongoing patent litigation with Business Objects, S.A. as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
December 31, December 31,
--------------- ---------------
1999 1998 1999 1998
------ ------ ------- ------
<S> <C> <C> <C> <C>
Merger and restructuring costs............... $ 896 $ -- $13,160 $ --
Settlement costs............................. -- -- 9,137 $ --
------ ------ ------- ------
Total non-recurring costs.................. $ 896 $ -- $22,297 $ --
====== ====== ======= ======
</TABLE>
Brio's merger with SQRIBE was completed on August 3, 1999. For the three
months ended December 31, 1999, merger and restructuring costs of $896,000
consisted of $155,000 in transaction and related professional fees, $377,000
in severance costs to terminate employees and $364,000 in other miscellaneous
merger-related expenses. For the nine months ended December 31, 1999, merger
and restructuring costs of $13.2 million consisted of $7.4 million in
transaction and related professional fees, $639,000 in severance costs to
terminate employees, $1.3 million in merger integration expenses, $387,000 in
consolidation of facilities, $697,000 in equipment retirements and $2,737,000
in other miscellaneous merger-related expenses. All termination notices and
benefits were communicated to the affected employees prior to quarter-end and
substantially all of the
15
<PAGE>
merger-related expenses were incurred prior to quarter-end. Brio expects that
substantially all of the merger-related charges for the quarter ended December
31, 1999, will be paid by March 2000.
On September 9, 1999, Brio and Business Objects, S.A. announced the
settlement of a patent infringement action, pending in the U.S. District Court
for the Northern District of California in San Jose, pursuant to which Brio
agreed to pay to Business Objects, S.A. $10.0 million, payable quarterly in
$1.0 million payments over the next 10 quarters, with the first payment due
September 30, 1999. Settlement costs of $9.1 million, which represent the net
present value of the quarterly payments, are included in non-recurring
operating expenses for the nine months ended December 31, 1999. The remaining
$900,000 represents interest and will be recognized over the payment term
using the effective interest rate method.
Deferred Compensation. In connection with the granting of 1,369,368 stock
options to employees during fiscal 1998, with a weighted average exercise
price of $1.49 per share and a weighted average deemed fair market value of
$1.91 per share, Brio recorded deferred compensation of $580,000, representing
the difference between the deemed value of the common stock for accounting
purposes and the option exercise price of such options at the date of grant.
In addition, Brio granted 67,419 stock options to employees during fiscal
1999, at a weighted average exercise price of $1.56 per share, with a weighted
average deemed fair market value of $4.27 per share. Brio recorded deferred
compensation of $250,500 representing the difference between the deemed value
of the common stock for accounting purposes and the option exercise price of
such options at the date of grant. Such amounts are presented as a reduction
of stockholders' equity and amortized ratably over the vesting period of the
applicable options. Approximately $29,000 was expensed during the three months
ended December 31, 1998, approximately $99,000 was expensed during the nine
months ended December 31, 1998, approximately $33,000 was expensed during the
three months ended December 31, 1999, approximately $130,000 was expensed
during the nine months ended December 31, 1999 and the balance will be
expensed ratably over the next three years as the options vest.
Interest and Other Income, Net
Interest and other income, net, is comprised primarily of interest income
and foreign currency transaction gains or losses, and realized gains or losses
from the sale of investments, net of interest expense. Interest expense is
comprised of interest incurred on Brio's bank line of credit. Interest and
other income, net, decreased from $459,000 for the three months ended December
31, 1998 to $341,000 for the three months ended December 31, 1999. The
decrease in interest and other income, net for the three months ended December
31, 1999 is attributable to interest charges relating to the B.O. litigation
settlement and lower cash and short-term investment balances. Interest and
other income, net also decreased from $1.1 million for the nine months ended
December 31, 1998 to $520,000 for the nine months ended December 31, 1999. The
decrease in interest and other income, net for the nine months ended December
31, 1999 is attributable to a loss provision recorded for a permanent
impairment on a marketable security owned by Brio in the amount of $346,000,
interest charges relating to the B.O. litigation settlement and lower cash and
short-term investment balance.
Income Taxes
Brio's effective tax rate in the third quarter of fiscal 2000 was 9%. The
increase in the effective tax rate over the third quarter of fiscal 1999
relates primarily to the increase in profitability, offset by the utilization
of Federal and State net operating loss carry forwards in fiscal 1999.
Liquidity and Capital Resources
As of December 31, 1999, Brio had cash, cash equivalents and short-term
investments of $31.4 million. In addition, Brio maintains an accounts
receivable-based line of credit which provides for up to $15.0 million in
borrowings, with interest at the bank's prime rate. Brio can borrow up to 80%
of eligible accounts receivable against this line of credit. Borrowings are
secured by substantially all of Brio's assets, including Brio's copyrights and
trademarks, to the extent required to secure the Bank's interest in the
accounts receivables. The
16
<PAGE>
line of credit requires Brio to comply with a net income covenant, excluding
non-recurring operating charges, of $1.00. The line of credit expires on
December 31, 2000, when any amounts outstanding thereunder would be due and
payable. As of December 31, 1999, there were no outstanding bank borrowings.
Net cash provided by operating activities was $3.0 million for the nine
months ended December 31, 1998 and net cash used in operating activities was
$4.9 million for the nine months ended December 31, 1999. The decrease of $7.9
million was due to changes in operating assets and liabilities of
approximately $6.0 million, offset by increases in net losses of approximately
$13.9 million.
Net cash used in investing activities was $15.1 million for the nine months
ended December 31, 1998, consisting primarily of $12.1 million for the
purchase of short term investments and $3.0 million for purchases of property
and equipment. Net cash used in investing activities was $10.6 million for the
nine months ended December 31, 1999, consisting primarily of $6.3 million for
the purchase of short-term investments, net, and approximately $4.3 million
for the purchase of property and equipment.
Net cash provided by financing activities was $27.8 million for the nine
months ended December 31, 1998, consisting primarily of the net proceeds from
Brio's initial public offering. Net cash provided by financing activities was
$5.0 million for the nine months ended December 31, 1999, consisting primarily
of proceeds from the issuance of common stock to employees under various
incentive stock plans and proceeds from the repayment of notes receivable from
stockholders, net of repayments of notes payable.
Year 2000 Readiness
Background. Computer systems have traditionally used a two-digit field to
designate a year. This format will not recognize the century date change that
will take place at the end of 1999. Such systems will recognize the year 2000
as 1900, not at all, or some year other than 2000. The inability to recognize
the proper date can and will cause systems to process information incorrectly,
resulting in system failures or other serious business problems.
Risks. As of December 31, 1999, we did not experience any operational
interruptions due to the year 2000 problem. We did not experience operational
difficulties caused by undetected errors or defects in the technology we use
in our internal systems. Brio's year 2000 readiness team developed and
implemented a four phase approach in order to prepare the organization for any
interruption which could have occurred on the advent of the year 2000.
Assessment Plan. Brio's year 2000 readiness team developed a plan which
consisted of four phases.
. In phase one, Brio identified and contacted the vendors of all of Brio's
internal information systems and non-informational technology systems to
determine whether these systems could potentially present a year 2000
problem. Brio requires that all vendors who provide material hardware or
software for Brio's information technology systems, or upgrades or
replacements of those products, provide assurances of their year 2000
compliance. Brio completed phase one in December 1998.
. In phase two, Brio identified mission critical technology systems and
proceeded to test these systems for their year 2000 compliance. Testing
included automated polling of networked client and server computers,
compilation of relevant data regarding the software used by Brio, and a
manual review of the compiled data to locate systems which may be
vulnerable to year 2000 problems. This phase also included the
establishment of replica systems for critical software and hardware
systems, rolling forward the replica date to December 31, 1999, allowing
the system to roll over into the year 2000 and observing the results. End
users and Brio's year 2000 readiness team will conducted simulations, and
verified and evaluated compliance and tested integrated systems for
potential failure which might occur. Brio completed phase two in December
1999.
17
<PAGE>
. In phase three, Brio's year 2000 readiness team, working with end users
and management, developed contingency plans for mission-critical
technology systems. Brio completed phase three in December 1999.
. In phase four, Brio's year 2000 readiness team, information technology
department staff and end users performed tests and evaluated the
readiness of mission critical technology systems on December 31, 1999. In
order to circumvent system failures resulting from any unanticipated year
2000 failures, all mission critical technology systems were tested and
judged to be ready for the start of the next business day.
Cost. Brio anticipated that the total cost of the year 2000 program,
including the cost of material upgrades, purchase of replica servers, software
modifications and related consulting fees, would be approximately $150,000. To
date, the costs associated with the year 2000 program have not differed
significantly from the forecast estimate.
Contingency Plans. Brio did not experience any significant system failures
as the result of the Year 2000 problem. Brio has not yet finalized any
contingency plans as a result of its year 2000 readiness program, but will
prepare contingency plans if required upon the results of ongoing assessments
of the Year 2000 problem.
Risk Factors That May Affect Future Operating Results
We desire to take advantage of the "Safe Harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and of Section 21B and Rule 3b-6
under the Securities and Exchange Act of 1934. Specifically, we wish to alert
readers that the following important factors, as well as other factors
including, without limitation, those described elsewhere in reports we have
filed with the SEC and incorporated into this quarterly report on Form 10-Q by
reference, could in the future affect, and in the past have affected, our
actual results and could cause our results for future periods to differ
materially from those expressed in any forward-looking statements made by or
on behalf of us. We assume no obligation to update these forward-looking
statements.
Because our plans to achieve profitability in the future require us to grow
our work force, improve our infrastructure and acquire and develop new
technologies, failure to successfully do so could lower our operating results
and cause our stock price to decrease. If we cannot execute our growth
strategy, our stock price could decrease. Successfully achieving our growth
strategy depends upon the combined company's ability to:
. expand, train and manage our work force;
. continue to attract, retain and motivate qualified personnel; and
. develop or acquire new businesses, products and technologies.
In addition, if we cannot manage an expanding work force, improve our
reporting systems and customer service infrastructure and manage the
integration of acquired businesses, products or technologies, we will be
unable to continue manage the growth of our operations, which could harm our
business and financial results.
Brio has a history of net losses, and may not be profitable in the
future. Brio has a history of net losses, and cannot provide any assurance
that we will experience revenue growth or profitability on a quarterly or
annual basis in the future. In particular, Brio incurred net losses of $8.6
million in fiscal 1997, $15.7 million in fiscal 1998 and $753,000 in fiscal
1999. As of December 31, 1999, Brio had stockholders' equity of approximately
$21.3 million.
Brio anticipates increased operating expenses and a reduced rate of revenue
growth in the future. Brio currently expects to increase its expenses, and our
operating results will be harmed if increased revenues do not accompany these
increased expenses. Brio does not expect to sustain in future periods the same
rate of sequential quarterly revenue growth it has experienced in the past. In
addition, Brio will likely increase its operating expenses significantly in
fiscal 2001. Brio currently intends to commit substantial financial resources
to research
18
<PAGE>
and development, customer support and sales and marketing, including the
continued expansion of its domestic and international direct sales force,
third-party partnering relationships and Brio's domestic and international
indirect channel sales organization. Brio also expects to increase staffing
and systems infrastructure in order to support expanding operations.
Our prospects for increased future revenues must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their early stage of development, particularly companies in rapidly evolving
markets. To address these risks, the company must:
. successfully increase the scope of its operations;
. respond to competitive developments;
. continue to attract, retain and motivate qualified personnel; and
. continue to commercialize products incorporating advanced technologies.
Brio may not be able to achieve these goals.
If Brio and SQRIBE do not effectively integrate their technologies,
operations and personnel, the combined company will not realize the expected
financial and marketing benefits of the merger. Brio expects the merger to
result in improved cross-selling opportunities, and increased market presence
and an enhanced product line. To achieve these benefits, Brio must effectively
integrate technologies, operations and personnel in a timely and efficient
manner. If this cannot be done, the combined company may not realize the
expected benefits from the merger. In particular, if the integration is not
successful:
. the combined company may lose personnel;
. the combined company may not be able to retain SQRIBE's customer base to
the extent expected; and
. the process of integrating operations could cause and interruption of the
combined company's ongoing business activties.
Any of these factors could hurt the combined company's operating results.
In addition, the costs of the merger could exceed management's expectations
and the attention and effort devoted to the integration of the two companies
will significantly divert management's attention from other important issues,
either of which could harm the combined company's business, results of
operations or financial condition.
Brio's quarterly operating results will likely fluctuate based on factors
beyond our control. Brio has experienced and expects to continue to experience
significant fluctuations in quarterly operating results based on a number of
factors, many of which are not within its control. Among other things, Brio's
operating results have fluctuated in the past due to:
. the timing of product enhancements and new product announcements;
. the lengthy sales cycle of its products;
. market acceptance of and demand for its products;
. capital spending patterns of its customers;
. customer order deferrals in anticipation of enhancements or new products;
. its ability to attract and retain key personnel;
. the mix of domestic and international sales;
19
<PAGE>
. the mix of license and service revenues;
. personnel changes; and
. changes in the timing and level of operating expenses.
In addition, the announcement or introduction of new products by Brio or
its competitors or any change in industry standards may cause customers to
defer or cancel purchases of existing products. Furthermore, the introduction
of products with reliability, quality or compatibility problems could result
in reduced orders, delays in collecting accounts receivable and additional
service costs. Accordingly, Brio's results of operations may also fluctuate in
the future due to a number of additional factors, including but not limited to
those discussed above, as well as:
. the number and significance of product enhancements and new product
announcements by competitors;
. changes in customer buying patterns related to the year 2000 issue;
. changes in pricing policies by Brio and its competitors;
. Brio's ability to develop, introduce and market new and enhanced versions
of its products on a timely basis;
. customer order deferrals in anticipation of enhancements or new products
offered by competitors;
. nonrenewal of service agreements, software defects and other product
quality problems;
. the mix of direct and indirect sales;
. currency fluctuations; and
. general economic conditions.
Due to these factors, quarterly revenue and operating results are difficult
to forecast and may not meet expectations.
Seasonality may affect Brio's results. Brio has experienced seasonality due
to customer capital spending patterns and the general summer slowdown in
sales. Brio expects to continue to experience seasonality as a result of these
factors. This seasonality could materially hurt results of operations,
particularly for the quarters ending June 30 or September 30.
If Brio's operating results do not meet financial analysts' expectations,
our stock price may decline. In the future, our reported or anticipated
operating results may fail to meet or exceed the expectations of securities
analysts or investors. In that event, Brio's common stock price could be
materially reduced.
Because Brio depends on a direct sales force, any failure by Brio to
attract and retain adequate sales personnel could slow its sales and increase
its expenses, causing significant financial and operational risks. Brio may
not be able to attract and retain adequate sales personnel, despite the
expenditure of significant resources to do so, and the failure to do so could
materially harm its ability to sell its products at expected levels. Because
turnover tends to slow sales efforts until replacement personnel can be
recruited and trained, failure to retain sales personnel could seriously
hamper its business, operating results and financial condition. Competition
for personnel with a sufficient level of expertise and experience for direct
sales positions is intense, particularly among competitors who may have
substantially greater resources than the company or greater resources
dedicated to hiring direct sales personnel. In addition, Brio has experienced
significant turnover of its sales force.
Brio's success depends on key personnel who may not continue to work for
it. The loss of the services of any of the key personnel or the inability to
attract or retain qualified personnel in the future could harm Brio's
business, operating results and financial condition. The success of Brio will
depend to a significant degree upon the continued contributions of key
management, engineering, sales and marketing personnel, many of whom would be
difficult to retain or replace if they leave Brio. Because competition for
qualified personnel is intense, Brio may not be successful in attracting and
retaining the personnel it seeks.
20
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Brio has recently experienced difficulties in hiring highly qualified sales
and engineering personnel, and may continue to have difficulty in attracting
employees in those categories. Brio has employment contracts with five members
of its executive management personnel. Brio currently maintains "key person"
life insurance only on Yorgen Edholm, its President and Chief Executive
Officer, and Katherine Glassey, its Executive Vice President, Business
Intelligence Products and Chief Technology Officer. Brio does not believe its
current insurance would adequately compensate it for the loss of either Mr.
Edholm or Ms. Glassey.
Because the sales cycle for Brio's products is long, the timing of sales is
difficult to predict and Brio's quarterly revenues and earnings may fluctuate
significantly. Based in part on the lengthy sales cycle for Brio's products,
quarterly revenues and operating results could vary significantly in the
future. The sales cycle associated with the purchase of Brio's products is
typically three to nine months in length and subject to a number of
significant risks over which Brio has little or no control, including
customers' budgeting constraints and internal acceptance review procedures.
Sales transactions may be delayed during the customer acceptance process
because Brio must provide a significant level of education to prospective
customers regarding the use and benefits of its products. Additionally, the
sales cycle for Brio's products in international markets has historically
been, and is expected to continue to be, longer than the sales cycle in the
United States and Canada. Accordingly, if Brio's international operations
expand, the average sales cycle for its products is expected to lengthen. In
addition, Brio anticipates that an increasing portion of its revenue could be
derived from larger orders, in which case the timing of receipt and
fulfillment of those orders could cause material fluctuations in operating
results, particularly on a quarterly basis.
Because Brio expects to achieve revenue growth and increased margins
through indirect sales channels, Brio's failure to develop and manage indirect
sales channels could limit its sales growth and financial performance. Brio
may not be able to continue to attract and retain additional indirect channel
partners that will be able to market its products effectively and provide
timely and cost-effective customer support and services. Brio may not be able
to manage conflicts within its indirect channel or that its focus on
increasing sales through the indirect channels will not divert management
resources and attention from direct sales. In addition, Brio's agreements with
indirect channel partners do not restrict the channel partners from
distributing competing products, and in many cases may be terminated by either
party without cause. The ability of Brio to achieve revenue growth and
improved operating margins on product sales in the future will depend in large
part upon its success in expanding and maintaining indirect channels
worldwide. Indirect channels include value added resellers, resellers and
distributors.
To date, Brio has sold its products principally through its direct sales
and service organizations and, to a lesser extent, through the indirect
channel. Revenues from Brio's indirect channel were 21% of total revenues for
fiscal 1997, 24% of total revenues for fiscal 1998 and 21% of total revenues
for fiscal 1999.
Brio's strategy of acquiring new businesses and technologies involves
integration and transaction completion risks. As part of our business
strategy, we expect to enter into business combinations and acquisitions.
Acquisition transactions are accompanied by a number of risks, including:
. the difficulty of assimilating the operations and personnel of the
acquired companies;
. the potential disruption of our ongoing business and distraction of
management;
. the difficulty of incorporating acquired technology or content and rights
into our products;
. the correct assessment of the relative percentages of in-process research
and development expense which can be immediately written off as compared
to the amount which must be amortized over the appropriate life of the
asset;
. the failure to successfully develop an acquired in-process technology
could result in the impairment of amounts currently capitalized as
intangible assets;
21
<PAGE>
. unanticipated expenses related to technology integration;
. the maintenance of uniform standards, controls, procedures and policies;
. the impairment of relationships with employees and customers as a result
of any integration of new management personnel; and
. the potential unknown liabilities associated with acquired businesses.
We may not be successful in addressing these risks or any other problems
encountered in connection with such acquisitions.
Brio is in a highly competitive industry and some of its competitors may be
more successful in attracting and retaining customers. The market in which
Brio operates is highly competitive. Brio expects that competition will
continue to intensify. Increased competition could result in:
. price reductions;
. fewer customer orders;
. reduced gross margins;
. longer sales cycles; and
. loss of market share.
Brio or its competitors may announce enhancements to existing products, or
new products embodying new technologies, industry standards or customer
requirements that have the potential to supplant or provide lower-cost
alternatives to Brio's existing products.
Current and potential competitors offer a variety of software solutions and
generally fall within several categories:
. vendors of business intelligence software, such as Cognos, Business
Objects, Hummingbird and Seagate Software;
. vendors offering alternative approaches to delivering analysis
capabilities to users, such as Information Advantage, Actuate and
MicroStrategy;
. vendors offering enterprise information portal software, such as Plumtree
and Viador;
. database vendors that offer products which operate specifically with
their proprietary database, such as Microsoft, IBM, Arbor and Oracle; and
. other companies that may in the future announce offerings of an
enterprise business intelligence solution.
These competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements or devote greater resources
to the development, promotion and sales of their products than Brio. Brio
expects additional competition as other established and emerging companies
enter into the business intelligence software market and new products and
technologies are introduced. Brio will compete on the basis of the following
factors:
. completeness of product offering;
. product features;
. time to market;
. ease of use;
. product performance;
22
<PAGE>
. product quality;
. analytical capabilities;
. scalability;
. open architecture;
. customer support; and
. price.
Brio's failure to compete favorably in these areas could limit its ability
to attract and retain customers, which could have a material adverse affect on
our results of operations.
Market consolidation may create more formidable competitors. Alliances
among current and new competitors may emerge and rapidly gain significant
market share. The failure of Brio to compete successfully against current and
future competitors could materially harm its business, operating results and
financial condition by driving down prices and reducing revenue growth.
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 Brio's
prospective customers. Current or future indirect channel partners of Brio may
establish cooperative relationships with current or potential competitors,
thereby limiting Brio's ability to sell its products through particular
distribution channels. Such competition could have a material adverse effect
on Brio's ability to obtain new licenses, and maintenance and support renewals
for existing licenses, on favorable terms. Further, competitive pressures may
require Brio to reduce the price of its products, which could have a material
adverse effect on its revenues, profitability and business condition.
Brio's plans to expand internationally expose Brio to risks related to
managing international operations, currency exchange rates, tariffs and other
difficulties related to foreign operations. A key component of Brio's strategy
is its planned expansion into additional international markets. If the
international revenues generated by these expanded operations are not adequate
to offset the expense of establishing and maintaining these foreign
operations, Brio's business, operating results and financial condition could
be materially harmed. In addition to the uncertainty as to Brio's ability to
expand its international presence, there are risks inherent in doing business
on an international level, including:
. technical difficulties associated with product localization in foreign
countries;
. increased difficulty in controlling operating expenses;
. unexpected changes in regulatory requirements;
. tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. longer payment cycles;
. problems in collecting accounts receivable;
. political instability;
. fluctuations in currency exchange rates;
. seasonal reductions in business activity during the summer months in
Europe; and
. potentially adverse tax consequences.
Each of these factors could adversely impact the success of Brio's
international operations and, consequently, on Brio's business, operating
results and financial condition. In particular, Brio's international sales are
generally denominated and collected in foreign currencies, and Brio has not
historically undertaken
23
<PAGE>
foreign exchange hedging transactions to cover potential foreign currency
exposure. Brio incurred losses on foreign currency translations resulting from
intercompany receivables from foreign subsidiaries of approximately $227,000
in fiscal 1998 and approximately $13,000 in fiscal 1999.
Brio's future success will depend upon successful product development in
the face of changing customer requirements and rapid technological
change. Brio's failure to develop and introduce new products and product
enhancements on a timely basis that meet changing customer requirements and
technological changes could result in reduced demand for or market acceptance
of Brio's products, which could hurt Brio's business, operating results and
financial condition. Brio's products incorporate a number of advanced
technologies, including proprietary data analysis engines, a distributed
architecture, as well as Web access and delivery technology. Brio may be
required to change and improve its products in response to changes in
operating systems, applications, networking and connectivity software,
computer and communications hardware, programming tools and computer language
technology.
Brio may not successfully respond to changing technology, identify new
product opportunities or develop and bring new products to market in a timely
and cost-effective manner. In the past Brio has experienced delays in software
development. In particular, development efforts in the UNIX server environment
are complex, and in the past Brio has encountered delays in developing
products for this environment. Brio may experience delays in connection with
current or future product development activities.
Because Brio's future success will depend upon successful product
development in the face of evolving industry standards, failure to introduce
new products could hurt its growth and profitability. Brio's failure to
introduce new products or product enhancements on a timely basis that are
compatible with industry standards could delay or hinder demand for or market
acceptance of its products, which could hurt Brio's growth and profitability.
The market may not accept Brio's products, which would reduce revenues,
growth and profitability. Brio is focusing its selling efforts increasingly on
larger, enterprise-wide implementations of its products, and Brio expects
these sales to constitute an increasing portion of any of its future revenue
growth. Failure of a significant market for enterprise business intelligence
products to develop, or failure of enterprise-wide implementations of Brio's
products to achieve broad market acceptance, could materially harm Brio's
business, operating results and financial condition. To date, Brio's selling
efforts have resulted in limited enterprise-wide implementations of its
products. Brio believes that most companies currently are not yet aware of the
benefits of enterprise-wide business intelligence solutions or of its products
and capabilities, nor have most companies deployed business intelligence
solutions on an enterprise-wide basis. Brio's efforts to promote market
awareness of its products and the problems its products address may not be
sufficient to build market awareness of the need for enterprise business
intelligence or acceptance of Brio's products.
The year 2000 problem could cause Brio's software products to malfunction
and Brio's customers to cease their purchasing of Brio's products. Brio's
computer systems and applications could fail or create erroneous results
unless corrected so that they can process data related to the year 2000 and
beyond. Brio relies on its systems, applications and devices in operating and
monitoring all major aspects of its business, including financial systems,
customer services, infrastructure, networks and telecommunications equipment.
Brio also relies, directly and indirectly, on external systems of business
enterprises including customers, suppliers, creditors, financial organizations
and governmental entities, both domestic and international, for accurate
exchange of data. Although Brio did not experience significant system failures
as the result of the Year 2000, it is continuing to identify the impact of
year 2000 issues on its internal systems and determine whether it can resolve
these issues without disruption of its business and without incurring
significant expense.
In addition, even though Brio's internal systems were not materially
affected by the year 2000 issue, Brio could be affected through disruption in
the operation of the enterprises with which it interacts. No issues have been
identified to-date, however, Brio believes that the purchasing patterns of
customers and potential customers may be affected by year 2000 issues as
companies expend significant resources to correct or patch their current
24
<PAGE>
software systems to comply with year 2000 requirements. These expenditures may
result in reduced funds available to purchase software products like those
offered by Brio, which could have a material adverse effect on Brio's
business, operating results and financial condition.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of the impact of the year 2000 problem
on Brio's operations.
Product defects could adversely affect Brio's operating results. As a
result of their complexity, Brio's software products may contain undetected
errors, failures or viruses. Brio or its customers may discover errors in new
products or enhancements after commencement of commercial shipments, resulting
in loss of revenues, delay in market acceptance or damage to Brio's
reputation, which could have a material adverse effect upon Brio's business,
operating results and financial condition. Further, Brio's license agreements
with customers typically contain provisions designed to limit Brio's exposure
for potential claims based on errors or malfunctions of Brio's products.
The limitation of liability provisions contained in Brio's license
agreements may not be effective under the laws of all jurisdictions. Brio's
sale and support of its products entails the risk of warranty claims, and
Brio's insurance against product liability risks may not be adequate to cover
a potential claim. A product liability claim brought against Brio could have a
material adverse effect on its business, operating results and financial
condition.
Brio has one issued patent and one pending patent application. Brio's
intellectual property protection may not be adequate to prevent competitors
from entering its markets or developing competing products. Brio's limited
intellectual property protection may allow competitors to enter its market or
develop competing products, resulting in competitive harm to Brio. The methods
used by Brio to protect its proprietary rights afford only limited protection.
Brio currently relies primarily on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. Brio currently has one U.S patent and one
pending application. This patent application may not result in the issuance of
a patent. Our issued patent and any additional patents issued to us may be
invalidated, circumvented or challenged, and the rights granted under these
patents may not provide Brio competitive advantages. Brio may not obtain any
more patents. Others may develop technologies that are similar or superior to
Brio's technology or design around our patent or any other patent that Brio
may come to own.
Despite Brio's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of Brio's products or to obtain and use
information that Brio regards as proprietary. Policing unauthorized use of
Brio's products is difficult, and while Brio is unable to determine the extent
to which piracy of its software products exists, Brio expect software piracy
to be a persistent problem. In addition, the laws of some foreign countries do
not protect proprietary rights as fully as do the laws of the U.S. Brio's
means of protecting its proprietary rights in the U.S. or abroad may not be
adequate, and competitors may independently develop similar technology.
Investment Risks
Brio's common stock has a limited trading history and a volatile
price. There has only been a public market for Brio's common stock since April
30, 1998, and an active public market may not continue. The market price of
the shares of Brio's common stock is likely to be highly volatile and may be
significantly affected by a number of factors, including:
. actual or anticipated fluctuations in our operating results; announcement
of business partnerships;
. technological innovations or new product introductions by us or our
competitors;
. changes of estimates of our future operating results by securities
analysts;
25
<PAGE>
. developments with respect to copyrights or proprietary rights; or
. general market conditions.
In addition, the stock market has, from time to time, experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many technology companies. Broad market
fluctuations, as well as economic conditions generally and in the software
industry specifically, may result in material adverse effects on the market
price of Brio's common stock. In the past, following periods of volatility in
the market price of a particular company's securities, securities class action
litigation has often been brought against that company. Such litigation may
occur in the future with respect to Brio, and could result in substantial
costs and a diversion of management's attention and resources, which could
have a material adverse effect upon Brio's business, operating results and
financial condition.
Anti-takeover provisions may adversely effect Brio's stock price and make
it more difficult for a third party to acquire Brio. Provisions of Brio's
charter documents may have the effect of delaying or preventing a change in
control of Brio or its management, which could have a material adverse effect
on the market price of Brio common stock. These include provisions:
. relating to a classified board of directors and provisions eliminating
cumulative voting;
. eliminating the ability of stockholders to take actions by written
consent; and
. limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice.
In addition, the Brio board of directors has authority to issue up to
2,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of these shares without
any further vote or action by the stockholders. The rights of the holders of
Brio common stock will be subject to, and may be adversely affected by, the
rights of the holders of any preferred stock that Brio may issue in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire a
majority of Brio's outstanding voting stock, thereby delaying, deferring or
preventing a change in control of Brio. Brio has no present plan to issue
shares of preferred stock.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Brio's exposure to market risk for changes in interest rates relates
primarily to Brio's investment portfolio. Brio maintains an investment policy
which ensures the safety and preservation of its invested funds by limiting
default risk, market risk, and reinvestment risk. As of December 31, 1999,
Brio had $10.6 million of cash and cash equivalents with a weighted average
variable rate of 4.5% and $20.8 million of short-term investments with a
weighted average variable rate of 5.6%.
Brio mitigates default risk by attempting to invest in high credit quality
securities and by constantly positioning its portfolio to respond
appropriately to a significant reduction in a credit rating of any investment
issuer or guarantor. The portfolio includes only marketable securities with
active secondary or resale markets to ensure portfolio liquidity and maintains
a prudent amount of diversification.
Brio has no cash flow exposure due to rate changes for long-term debt
obligations. Brio has entered into borrowing agreements to support general
corporate purposes including capital expenditures and working capital needs,
should the need arise. Brio currently has no short-term or long-term debt
outstanding.
Brio conducts business on a global basis in international currencies. As
such, it is exposed to adverse or beneficial movements in foreign currency
exchange rates. Brio may enter into foreign currency forward contracts to
minimize the impact of exchange rate fluctuations on certain foreign currency
commitments and balance sheet positions. The realized gains and losses on
these contracts are deferred and offset against realized and unrealized gains
and losses when the transaction occurs. At December 31, 1999 there were no
outstanding foreign currency exchange contracts.
26
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On January 20, 1997, Business Objects, S.A. filed a complaint against Brio
in the U.S. District Court for the Northern District of California in San
Jose, alleging that certain of Brio's products (including at least the
BrioQuery Navigator, BrioQuery Explorer and BrioQuery Designer products)
infringed at least claims 1, 2 and 4 of U.S. Patent Number 5,555,403. On April
4, 1997, Brio filed an answer and affirmative defenses to the complaint,
denying certain of the allegations in the complaint and asserting a
counterclaim requesting declaratory relief that Brio was not infringing the
patent and that the patent was invalid and enforceable. In December 1997,
venue for the case was changed to the Northern District of California in San
Francisco. On July 30, 1999, Brio filed an action against Business Objects,
S.A. in the U.S. District Court for the Northern District of California in San
Jose, alleging that certain of Business Objects, S.A. products infringe U.S.
Patent Number 5,915,257. On September 9, 1999 Brio and Business Objects, S.A.
executed a Memorandum of Understanding settling Business Object's pending
patent litigation against Brio involving patent number 5,555,403 for $10.0
million. Settlement costs of $9.1 million, which represent the net present
value of the 10 quarterly payments, are included in non-recurring operating
expenses for the nine months ended December 31, 1999. The remaining $900,000
represents interest and will be recognized over the payment term using the
effective interest rate method. As part of this settlement, Business Objects,
S.A. dismissed its pending lawsuit against Brio involving patent number
5,555,403 and Brio dismissed its pending lawsuit against Business Objects,
S.A. involving patent number 5,915,257.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to Vote of Security Holders.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
27.1 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
27
<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.
Brio Technology, Inc.
/s/ Karen J. Willem
By: _________________________________
Karen J. Willem
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Date: February 14, 2000
28
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EXHIBIT INDEX
<TABLE>
<C> <S>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 10,602
<SECURITIES> 20,837
<RECEIVABLES> 32,927
<ALLOWANCES> (2,253)
<INVENTORY> 635
<CURRENT-ASSETS> 67,842
<PP&E> 14,223
<DEPRECIATION> (6,110)
<TOTAL-ASSETS> 78,059
<CURRENT-LIABILITIES> 50,814
<BONDS> 0
0
0
<COMMON> 74,903
<OTHER-SE> (53,564)
<TOTAL-LIABILITY-AND-EQUITY> 78,059
<SALES> 34,179
<TOTAL-REVENUES> 34,179
<CGS> 5,152
<TOTAL-COSTS> 25,929
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,439
<INCOME-TAX> 310
<INCOME-CONTINUING> 3,129
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,129
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.10
</TABLE>
