<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] 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 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3355 WEST ALABAMA, SUITE 1200 HOUSTON, TX 77098
(Address of principal executive offices) (Zip code)
(713) 843-1799
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's Common Stock, no par value, outstanding
as of September 30, 1998, was 19,965,170
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 (UNAUDITED) 1997 (AUDITED)
---------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 48,374 $ 7,203
Accounts receivables, net 3,706 4,729
Other current assets 686 --
Deferred tax asset 3,939 3,150
-------- --------
Total current assets 56,705 15,082
Property and equipment, net 3,784 1,370
Other assets 31 57
-------- --------
Total assets $ 60,520 $ 16,509
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,496 $ 785
Accrued liabilities 908 831
Accrued compensation 822 614
Deferred revenue 4,357 2,029
-------- --------
Total current liabilities 7,583 4,259
-------- --------
Shareholders' equity:
Convertible preferred stock, $0.01 par value, 20,000 -- 25
shares authorized, 0 and 2,528 shares issued and
outstanding, respectively, liquidation preference of $18,002
Common stock, no par value, 100,000 shares authorized, 1 1
19,965 and 13,198 shares issued and outstanding, respectively
Additional paid-in capital 56,244 31,728
Common stock warrant to purchase 438 shares -- 550
Accumulated deficit (3,308) (6,037)
Treasury stock, 4,922 shares -- (14,017)
-------- --------
Total shareholders' equity 52,937 12,250
-------- --------
Total liabilities and shareholders' equity $ 60,520 $ 16,509
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Licenses $ 7,984 $ 4,524 $18,587 $10,782
Services 2,136 794 5,366 1,871
------- ------- ------- -------
Total revenues 10,120 5,318 23,953 12,653
------- ------- ------- -------
Cost of revenues:
Cost of licenses 329 150 790 379
Cost of services 281 139 722 386
------- ------- ------- -------
Total cost of revenues 610 289 1,512 765
------- ------- ------- -------
Gross profit 9,510 5,029 22,441 11,888
------- ------- ------- -------
Costs and expenses:
Sales and Marketing 4,493 2,325 10,935 5,521
Research and Development 2,250 837 5,944 2,159
General and Administrative 903 550 2,313 1,544
------- ------- ------- -------
Operating income 1,864 1,317 3,249 2,664
Other income, net 485 22 756 51
------- ------- ------- -------
Income before income tax provision 2,349 1,339 4,005 2,715
Provision for income tax 822 -- 1,276 --
------- ------- ------- -------
Net income 1,527 1,339 2,729 2,715
Pro forma charge in lieu of
income taxes -- 469 -- 951
------- ------- ------- -------
Pro forma net income $ 1,527 $ 870 $ 2,729 $ 1,764
======= ======= ======= =======
Earnings per common share:
Basic $ 0.09 $ 0.11 $ 0.24 $ 0.21
Diluted $ 0.07 $ 0.06 $ 0.14 $ 0.12
Shares used in computing earnings
per common share:
Basic 17,810 8,228 11,492 8,228
Diluted 22,220 14,540 19,543 14,295
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,729 $ 2,715
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expenses 691 448
Deferred income taxes (789) --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,023 (790)
(Increase) in other assets (660) (50)
Increase (decrease) in accounts payable 711 (72)
Decrease in accrued liabilities 285 159
Increase in deferred revenues 2,328 982
-------- --------
Net cash provided by operating activities 6,318 3,392
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (3,105) (931)
-------- --------
Net cash used by investing activities (3,105) (931)
-------- --------
Cash flows from financing activities:
S Corporation distribution -- (1,274)
Proceeds from exercise of stock options 3,687 --
Proceeds from exercise of stock warrants 4,246 --
Proceeds from initial public offering 30,025 --
-------- --------
Net cash provided by financing activities 37,958 (1,274)
-------- --------
Net increase in cash and cash equivalents 41,171 1,187
Cash and cash equivalents at beginning of period 7,203 766
-------- --------
Cash and cash equivalents at end of period $ 48,374 $ 1,953
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL COMMON EARNINGS TOTAL
PREFERRED ---------------------- PAID-IN STOCK (ACCUMULATED TREASURY SHAREHOLDERS'
STOCK SHARES AMOUNT CAPITAL WARRANT DEFICIT) STOCK EQUITY
--------- -------- -------- ---------- -------- ------------ -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1997 $ 25 13,198 $ 1 $ 31,728 $ 550 $ (6,037) $(14,017) $ 12,250
Exercise of stock options -- 860 -- 1,622 -- -- -- 1,622
Exercise of stock warrants -- 1,188 -- 4,796 (550) -- -- 4,246
Tax benefit related
to exercise of employee
stock options -- -- -- 2,065 -- -- -- 2,065
Conversion of preferred
stock (25) 6,320 -- 25 -- -- -- --
Initial public offering -- 3,321 -- 30,025 -- -- -- 30,025
Retirement of treasury
stock -- (4,922) -- (14,017) -- -- 14,017 --
Net income for the
nine months ended
September 30, 1998 -- -- -- -- -- 2,729 -- 2,729
-------- -------- -------- -------- -------- -------- -------- --------
Balance at September 30,
1998 $ -- 19,965 $ 1 $ 56,244 $ -- $ (3,308) $ -- $ 52,937
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited consolidated financial statements.
5
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BINDVIEW DEVELOPMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL DATA
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim condensed consolidated financial
statements of BindView Development Corporation, a Texas corporation (the
"Company" or "BindView"), reflect all adjustments (consisting of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair presentation of the results for the interim periods presented. These
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
These financial statements should be read in conjunction with the Company's
annual audited financial statements for the year ended December 31, 1997, which
are included in Amendment No. 4 to the Company's Registration Statement on Form
S-1 filed with the Securities and Exchange Commission (the "Commission") on July
23, 1998 (Reg. No. 333-52883).
Operating results for the three and nine month periods ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1998.
NOTE 2 - DESCRIPTION OF BUSINESS
The Company was incorporated in May 1990. Previous to 1995, the Company was
known as The LAN Support Group, Inc. The Company develops, markets and supports
a suite of systems management software products that manage the security and
integrity of complex, distributed client/server networks operating on Microsoft
Windows NT and Novell NetWare environments.
NOTE 3 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is computed using the
weighted average number of shares outstanding, adjusted for the incremental
shares attributed to outstanding shares of convertible preferred stock, phantom
stock and outstanding stock options and warrants to purchase common stock.
Incremental shares of 6,312 and 4,410 in the third quarter of 1997 and 1998,
respectively, and incremental shares of 6,067 and 8,051 in the nine months ended
September 30, 1997 and 1998, respectively, were used in the calculation of
diluted earnings per common share.
NOTE 4 - INCOME TAX
For the third quarter of 1998, the Company recorded a tax provision on the
income from operations. The effective tax rate increased in the third quarter
from the second quarter due to the expiration of a research and development
credit that the Company had been generating. On October 23, 1998, new tax
legislation was signed into law which retroactively reinstated the research and
development tax credit to July 1, 1998 through June 30, 1999. The amounts
previously reported by the Company for the three months ended September 30, 1998
in its earnings release on October 13, 1998 and as disclosed in this Form 10-Q
were based on the tax laws which existed at that time and exclude the
retroactive benefit of this tax credit. The Company will include the effect of
this retroactive change in the tax law in its annual and fourth quarter 1998
income statement.
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<PAGE> 7
As of September 30, 1998, the Company's remaining net operating loss
carryforwards approximate $3,500 for federal tax purposes, which may be utilized
to reduce future taxable income through the year 2012. Based on the historical
earnings generated by the Company, management believes it is likely that the tax
benefits related to the net operating loss carryforward will be realized and
has, therefore, provided no valuation allowance for the related deferred tax
asset.
NOTE 5 - INITIAL PUBLIC OFFERING
On May 15, 1998, the Company filed a registration statement with the
Commission permitting the Company to sell 2,759 shares of its common stock to
the public, and 563 additional shares to cover over-allotments. The registration
statement also permitted certain stockholders of the Company to sell 991 shares
to the public. The registration statement became effective on July 23, 1998.
With the exercise of the over-allotment, the initial public offering resulted in
proceeds to the Company of approximately $30,025, net of approximately $3,189 in
underwriting fees and offering expenses. The Company received no proceeds from
the sale of shares by selling stockholders in the initial public offering.
NOTE 6 - EXERCISE OF WARRANTS AND CONVERSION OF PREFERRED STOCK
On July 20, 1998, warrants to purchase 750 shares common stock at $4.00 per
share were exercised. Pursuant to the initial public offering that became
effective on July 23, 1998, the Company's preferred stock automatically
converted into 6,320 shares of common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the "Risk
Factors" set forth in the Company's Registration Statement on Form S-1 (Reg. No.
333-52883). The following discussion should be read in conjunction with the
discussion under "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the annual financial statements included in the
Company's Registration Statement on Form S-1 and the condensed consolidated
interim financial statements and the accompanying notes.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
selected items in the Condensed Consolidated Statement of Income to total
revenues:
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<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------ ------- ------
(PERCENT OF TOTAL NET REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Licenses 78.9 85.1 77.6 85.2
Services 21.1 14.9 22.4 14.8
------ ------ ------ ------
Total revenues 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of revenues:
Cost of licenses 3.2 2.8 3.3 3.0
Cost of services 2.8 2.6 3.0 3.0
------ ------ ------ ------
Total cost of revenues 6.0 5.4 6.3 6.0
------ ------ ------ ------
Gross profit 94.0 94.6 93.7 94.0
------ ------ ------ ------
Costs and expenses
Sales and Marketing 44.4 43.7 45.7 43.6
Research and Development 22.2 15.8 24.8 17.1
General and Administrative 9.0 10.3 9.6 12.2
------ ------ ------ ------
Operating income 18.4 24.8 13.6 21.1
Other income,net 4.8 0.4 3.1 0.4
------ ------ ------ ------
Income before income tax provision 23.2 25.2 16.7 21.5
Provision for income tax 8.1 -- 5.3 --
------ ------ ------ ------
Net income 15.1 25.2 11.4 21.5
Pro forma charge in lieu of income taxes -- 8.8 -- 7.6
------ ------ ------ ------
Pro forma net income -- 16.4 -- 13.9
====== ====== ====== ======
</TABLE>
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $4.8 million or 90% in the third quarter of 1998 over the comparable
quarter of the prior year and $11.3 million or 89% over the comparable nine
months of the prior year.
The Company's license revenues increased $3.5 million or 76% in the third
quarter of 1998 over the comparable quarter of the prior year and $7.8 million
or 72% over the comparable nine months of the prior year. The increase in the
Company's license revenues over these periods is a result of continued market
acceptance of the BindView EMS product family.
The Company's service revenues increased $1.3 million or 169% in the third
quarter of 1998 over the comparable quarter of the prior year and $3.5 million
or 187% over the comparable nine months of the prior year. The increase in the
Company's service revenues over these periods is a result of increase in
purchases of subscription contracts by the Company's growing installed customer
base. As subscription contracts are recognized ratably over the one-year
contract term, an increase in such revenues as a percentage of total revenues
would result in greater deferred revenue recognition. This may, in turn, impact
the Company's operating margins.
COST OF REVENUES
Cost of licenses includes product manuals, packaging, distribution and media
costs for the Company's software products. The Company's cost of licenses
increased $179,000 or 119% in the third quarter of 1998 over the comparable
quarter of the prior year and $411,000 or 108% over the comparable nine months
of the prior year. The cost of licenses has increased primarily due to increases
in product shipments. The Company believes these costs will remain relatively
constant as a percentage of total revenue, although there will continue to be
quarterly fluctuations due to the timing of certain expenses.
Cost of services includes personnel and other costs related to technical
support and professional services. The Company's cost of services increased
$142,000 or 102% in the third quarter of 1998 over the comparable quarter of the
prior year and $336,000 or 87% over the comparable nine months of the prior
year. The cost of services has increased primarily due to increases in the cost
of technical support staff providing support to the Company's
8
<PAGE> 9
growing customer base and increases in the cost of professional services staff
providing customer training and implementation services.
COSTS AND EXPENSES
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, general office expenses, travel
and entertainment and promotional expenses. The Company's sales and marketing
expenses increased $2.2 million or 93% in the third quarter of 1998 over the
comparable quarter of the prior year and $5.4 million or 98% over the comparable
nine months of the prior year. Sales and marketing expenses increased to 44.4%
of revenues for the third quarter of 1998 compared to 43.7% in the corresponding
period of 1997 and increased to 45.7% of revenues from 43.6% of revenues for the
nine months ended September 30, 1998 and 1997, respectively. The increase in
sales and marketing expenses as a percentage of revenues is related to the
growth in the size and infrastructure of the Company's domestic sales force and
the start-up costs associated with the launch of a direct telesales organization
in France during the third quarter of 1998. Due to the seasonal nature of
revenues, the Company anticipates that for the remainder of 1998, sales and
marketing expenses will decrease as a percentage of revenues but increase in
absolute dollars as the Company continues to invest in marketing campaigns
relative to the sales growth and increase its expansion of domestic and
international sales efforts.
Research and development expenses consist primarily of salaries and benefits
of product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $1.4 million or 169% in
the third quarter of 1998 over the comparable quarter of the prior year and $3.8
million or 175% over the comparable nine months of the prior year. Research and
development expenses increased to 22.2% of revenues in the third quarter of 1998
compared to 15.8% in the corresponding period of 1997 and increased to 24.8% of
revenues from 17.1% of revenues for the nine months ended September 30, 1998 and
1997, respectively. The Company believes that a significant increase in its
research and development investment is essential for it to maintain market
leadership and continue to expand its product line. Accordingly, the
Company anticipates it will continue to devote substantial resources to product
research and development for the foreseeable future, and that research and
development expenses will remain relatively constant as a percentage of total
revenue recorded for the first nine months of 1998, but will increase in
absolute dollars.
General and administrative expenses consist primarily of salaries, personnel
and related costs for the Company's executive, administrative, finance and
information services staff. The Company's general and administrative expenses
increased $353,000 or 64% in the third quarter of 1998 over the comparable
quarter of the prior year and $769,000 or 50% over the comparable nine months of
the prior year. General and administrative expenses declined to 9.0% of revenues
in the third quarter of 1998 compared to 10.3% in the corresponding period of
1997 and declined to 9.6% of revenues from 12.2% of revenues for the nine months
ended September 30, 1998 and 1997, respectively. This decline in general and
administrative expenses as a percentage of revenue is a result of the Company's
ongoing efforts to manage operating expenses. The Company expects that general
and administrative expenses will remain relatively constant as a percentage of
total revenue, but will increase in absolute dollars.
OTHER INCOME, NET
The Company had other income of $485,000 in the third quarter of 1998
compared to $22,000 in the corresponding period of 1997. This increase is
primarily due to an increase in interest income related to higher cash and cash
equivalent balances.
PROVISION FOR INCOME TAXES
As the research and development credit the Company had been generating
expired on June 30, 1998, the effective tax rate for the third quarter of 1998
increased to 35% from 28% in the second quarter. Congress retroactively
reinstated the research and development credit on October 23, 1998. The Company
will include the effect of this retroactive change in the tax law in its annual
and fourth quarter 1998 income statement.
9
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LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $49.1 million at September 30,
1998 from $10.8 million at December 31, 1997. The Company's cash and cash
equivalent balance increased to $48.4 million at September 30, 1998 from $7.2
million at December 31, 1997 due primarily to the initial public offering
completed on July 23, 1998, positive cash flow operating activities and the
exercise of stock options and warrants.
The Company believes that the net proceeds of its initial public offering,
together with existing cash and cash equivalents and cash flow from operations
will be sufficient to meet its normal working capital requirements for at least
the next 12 months. Thereafter, the Company may require additional funds to
support its working capital requirements or for other purposes and may seek to
raise such additional funds through public or private equity financing or from
other sources. There can be no assurance that additional financing will be
available at all or that, if available, such financing will be obtainable on
terms favorable to the Company or that any additional financing would not be
dilutive.
The Company currently intends to use the net proceeds of its initial public
offering for working capital and general corporate purposes, including financing
accounts receivable and capital expenditures made in the ordinary course of
business, as well as for possible acquisitions of businesses, products and
technologies that are complementary to those of the Company. There can be no
assurance the Company will be able to identify any acquisitions of businesses,
products or technology that are complimentary to those of the Company or are on
terms that are acceptable to the Company. Pending such uses, the net proceeds
will be invested in government securities and other short-term,
investment-grade, interest-bearing instruments.
YEAR 2000 ISSUES
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment. The Year 2000 Problem could affect computers, software and
other equipment used by the Company. Accordingly, the Company is reviewing its
internal computer programs and systems to ensure that such programs and systems
will be Year 2000 compliant. The Company presently believes that its computer
systems will be Year 2000 compliant in a timely manner. However, while the
estimated cost of these efforts is not expected to be material to the Company's
financial position or any year's results of operations, there can be no
assurance to this effect.
Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a are not Year 2000 compliant or have not been tested for Year 2000
compliance. In addition, the Company believes that it is not possible to
determine with complete accuracy that all Year 2000 Problems affecting the
Company's software products have been identified or corrected due to the
complexity of such products and the fact that such products interact with other
third party vendor products and operate on computer systems that are not under
the Company's control.
Internal Infrastructure. The Company believes that it has identified
substantially all of the major computers, software applications and related
equipment used in connection with its internal operations that must be modified,
upgraded or replaced to minimize the possibility of a material disruption to its
business. The Company has commenced the process of modifying, upgrading and
replacing the Company's accounting and contact management systems that have been
identified as potentially being adversely affected and expects to complete this
process before the end of the first quarter of 1999. The cost related to these
efforts is not material to the Company's business, financial condition or
results of operations.
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of the Company's office and facilities
equipment, such as fax machines, photocopiers, telephone switches, security
systems, elevators and other common devices may be affected by the Year 2000
Problem. The Company is currently assessing the potential effect of, and costs
of remediating, the Year 2000 Problem on its office and facilities equipment.
The Company has recently replaced its primary telephone switch with equipment
that provides additional capacity and is believed to be Year 2000 compliant. The
Company estimates that the total cost to the Company of completing any required
modifications, upgrades or replacements of these internal systems will not have
a material effect on the Company's business, financial condition or results of
operations. This estimate is being monitored and will be revised as additional
information becomes available.
Suppliers. The Company has been gathering information from vendor web sites
and available compliance statements and has initiated communications with
third-party suppliers of the major computers, software and other equipment used,
operated or maintained by the Company to identify and, to the extent possible,
resolve issues involving the Year 2000 Problem. However, the Company has limited
or no control over the actions of such third-party suppliers. Thus, while the
Company expects that it will be able to resolve any significant Year 2000
Problems with such systems, there can be no assurance that such suppliers will
resolve any or all Year 2000 Problems with such systems before the occurrence of
a material disruption to the business of the Company or any of its suppliers.
Any failure of these third-parties to resolve Year 2000 problems with their
systems in a timely manner could have a material adverse effect on the Company's
business, financial condition or results of operation.
Most Likely Consequences of Year 2000 Problems. The Company expects to
identify and resolve all Year 2000 Problems that could materially adversely
affect its business, financial condition or results of operations. However, the
Company believes that it is not possible to determine with complete certainty
that all Year 2000 Problems affecting the Company have been identified or
corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, the Company cannot
accurately predict how many failures related to the Year 2000 Problem will occur
or the severity, duration or financial consequences of such failures. As a
result, the Company expects that it could possibly suffer the following
consequences:
- a significant number of operational inconveniences and inefficiencies for
the Company and its customers that may divert management's time and
attention and financial and human resources from its ordinary business
activities; and
- a lesser number of serious system failures that may require significant
efforts by the Company or its customers to prevent or alleviate material
business disruptions.
Contingency Plans. The Company is currently developing contingency plans to
be implemented as part of its efforts to identify and correct Year 2000 Problems
affecting its internal systems. The Company expects to complete its contingency
plans by the end of the first quarter of 1999. Depending on the systems
affected, these plans could include (i) accelerated replacement of affected
equipment or software, (ii) short- to medium-term use of backup equipment and
software, (iii) increased work hours for Company personnel or use of contract
personnel to correct on an accelerated schedule any Year 2000 Problems which
arise or to provide manual workarounds for information systems (iv) and other
similar approaches. If the Company is required to implement any of these
contingency plans, such plans could have a material adverse effect on the
Company's business, financial condition or results of operations.
However, based on the activities described above, the Company does not
believe that the Year 2000 Problem will have a material adverse effect on the
Company's business, financial condition or results of operations.
Disclaimer. The discussion of the Company's efforts and expectations
relating to Year 2000 compliance are forward-looking statements. The Company's
ability to achieve Year 2000 compliance and the level of incremental costs
associated therewith, could be adversely impacted by, among other things, the
availability and cost of programming and testing resources, vendors' ability to
modify proprietary software and unanticipated problems identified in the
Company's ongoing compliance review.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's financial position,
business strategy, products, products under development, markets, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in statements set forth under "Cautionary Statements" and elsewhere in
this Report, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written and
oral forward-looking statements attributable to the Company, or persons on its
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements. For purposes of this Item 5, references to the
"Company", "BindView", "we", "us" and "our" refer to BindView Development
Corporation and its subsidiaries.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results may fluctuate
significantly due to a number of factors, including:
- demand for our products;
- size and timing of significant orders and their fulfillment;
- our ability to develop and upgrade our technology;
- changes in our level of operating expenses;
- our ability to compete in a highly competitive market;
- undetected software errors and other product quality problems;
- changes in our sales incentive plans and staffing of sales territories;
and
- changes in the mix of domestic and international revenues and the level
of international expansion.
We operate with virtually no order backlog because we ship our products
shortly after orders are received. As a result, orders booked throughout a
quarter substantially impact product revenues in that quarter. We also book a
disproportionate amount of our sales in the last few weeks or days of each
quarter as a result of customer buying patterns. We base our expenses to a
significant extent on our expectations of future revenues. Most of our expenses
are fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. If our revenue levels do not meet
our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that these seasonal trends may cause first quarter
revenues to be significantly lower than the level achieved in the preceding
fourth quarter.
Prior to January 1, 1998, we provided telephone support free of charge and
sold product upgrades separately or through subscription contracts. We now
require our customers to purchase a subscription policy in order to receive
product upgrades and technical support. Unlike software license revenues that we
generally recognize upon shipment of the product, we recognize subscription
contract revenues ratably over the life of the contract term. As a result, if we
derive a larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our business, operating results and financial condition.
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<PAGE> 12
As a result, we believe quarter-to-quarter comparisons of our revenues,
expenses and results of operations are not necessarily meaningful. You should
not rely on our quarterly revenues, expenses and results of operations to
predict our future performance.
WE HAVE A LIMITED OPERATING HISTORY
Although BindView was founded in 1990, we have derived substantially all of
our revenues since 1995 from sales of BindView NCS, replaced in 1996 by BindView
EMS. We therefore have a limited operating history based on our primary
products. An investor in our Company must consider the risks and uncertainties
frequently encountered by software companies in the early stages of development,
particularly those faced by companies in the highly competitive and rapidly
evolving systems management software market. To compete in this market, we
believe that we must devote substantial resources to expanding our sales and
marketing organization and to continue product development. As a result, we will
need to recognize significant quarterly revenues to remain profitable. Our
revenues have increased in recent years, and revenues for recent quarters have
exceeded revenues for the same quarter for the prior year. However, we cannot be
certain that we can sustain these growth rates or that we will remain profitable
on a quarterly or annual basis in the future.
OUR MARKETS ARE HIGHLY COMPETITIVE
We face competition from different sources. Currently, we compete
principally with providers of the following products:
- security analysis and audit products from Axent Technologies, Inc. and
Security Dynamics Technologies, Inc.;
- stand-alone inventory and asset management products from Tally Systems
Corp.;
- LAN desktop management suites from Intel Corporation, Hewlett-Packard
Company and Microsoft Corporation; and
- Year 2000 assessment products from Network Associates, Inc. and Greenwich
Mean Time-UTA, L.C.
In addition, certain management features included in our products compete
with the native tools from Novell, Inc. and third-party tools from certain
vendors, such as Computer Associates, Inc. and other companies.
We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are likely
to enjoy substantial competitive advantages, including:
- greater resources that can be devoted to the development, promotion and
sale of their products;
- more established sales channels;
- greater software development experience; and
- greater name recognition.
We also believe that operating system software vendors, particularly
Microsoft and Novell, could enhance their products to include functionality that
we currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours,
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<PAGE> 13
there is a substantial risk that a significant number of customers would elect
to keep this limited functionality rather than purchase additional software.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products, services and sales channels.
Any pricing pressures, reduced margins or loss of market share resulting from
our failure to compete effectively could materially adversely affect our
business.
OUR PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE
The market for our products is characterized by rapid technological change,
frequent new product introductions and enhancements, uncertain product life
cycles, changes in customer demands and evolving industry standards. Our
products could be rendered obsolete if new products based on new technologies
are introduced or new industry standards emerge. We rely heavily on our
relationships with Microsoft and Novell and attempt to coordinate our product
offerings with the future releases of their operating systems. These companies
may not notify us of feature enhancements prior to new releases of their
operating systems in the future. In that case, we may not be able to introduce
products on a timely basis that capitalize on new operating system releases and
feature enhancements.
Client/server computing environments are inherently complex. As a result,
we cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.
Our future success will depend, in part, upon our ability to enhance
existing products, develop and introduce new products, satisfy customer
requirements and achieve market acceptance. We cannot be certain that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner. Further, the products,
capabilities or technologies developed by others may render our products or
technologies obsolete or shorten their life cycles.
WE ARE DEPENDENT UPON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND NOVELL
NETWARE OPERATING SYSTEMS
We depend upon the success of Microsoft's Windows NT and Novell's NetWare
operating systems. In particular, market acceptance of our products depends on
the increasing complexity of these operating systems and the lack of effective
tools to simplify system administration and security management for these
environments. Although demand for Windows NT and NetWare operating systems has
grown in recent years, this market is still emerging and we cannot be certain
that it will continue to grow. If the market does continue to grow, we cannot be
certain that the market for our products will continue to develop or that our
products will be widely accepted. If the markets for our products fail to
develop or develop more slowly than we anticipate, our business could be
materially adversely affected.
The percentages of our revenues attributable to software licenses for
particular operating system platforms can change from time to time. A number of
factors outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms.
7
<PAGE> 14
PRODUCT CONCENTRATION
Substantially all of our revenues are from the sale of our NOSadmin and
NETinventory products. We anticipate that these products will account for
substantially all of our revenues for the foreseeable future. Our future
operating results will depend on continued market acceptance of NOSadmin and
NETinventory, enhancements to these products and the continued development of
additional snap-in modules for our Enterprise Console product. Competition,
technological change or other factors could reduce demand for, or market
acceptance of, the NOSadmin and NETinventory products and could substantially
damage our business. Although we currently plan to broaden our product line, we
cannot be certain that we will be able to reduce our product concentration.
RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE
We have sold our products to customer workgroups and corporate divisions.
As a result, our sales cycle has ranged from three to six months. Recently, we
have focused more of our selling effort on products for the customer's entire
enterprise and have found that our sales cycle to enterprises has ranged from
six to twelve months. The sales cycle to enterprises is typically longer for a
number of reasons, including:
- the significant resources committed to an evaluation of network
management software by an enterprise require us to expend substantial
time, effort and money educating them on the value of our products and
services; and
- decisions to license and deploy enterprise-wide software generally
involve an evaluation of our software by a significant number of
personnel of the enterprise in various functional and geographic areas,
each often having specific and conflicting requirements.
As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and could cause
our operating results to vary significantly from quarter to quarter. For more
information, see "-- Our Quarterly Financial Results are Subject to Significant
Fluctuations."
NEED TO MANAGE CHANGING OPERATIONS
We have expanded our operations rapidly in recent years. We intend to
continue to expand in the foreseeable future to pursue existing and potential
market opportunities. This rapid growth places a significant demand on
management and operational resources. In order to manage growth effectively, we
must implement and improve our operational systems, procedures and controls on a
timely basis. If we fail to implement and improve these systems, our business,
operating results and financial condition will be materially adversely affected.
In addition, we are moving a portion of our operations to new facilities in
Houston, Texas at the end of the fourth quarter of 1998 and in the first quarter
of 1999, which we expect will be a disruptive, time consuming and expensive
process.
DEPENDENCE ON KEY PERSONNEL
Our success depends largely on the efforts of our executive officers,
particularly Eric J. Pulaski, the President and Chief Executive Officer of
BindView. We do not have an employment contract requiring Mr. Pulaski to
continue his employment for any period of time. We do not maintain key man life
insurance policies on any of our executive officers.
We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled research and development, technical
support and sales and marketing personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or more of our key individuals or the
8
<PAGE> 15
failure to attract and retain additional qualified personnel could substantially
damage our business.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
During 1995, 1996 and 1997, and during the nine months ended September 30,
1998, we derived approximately 16%, 10%, 13% and 10% of our revenues,
respectively, from sales outside North America. We only recently opened our
second direct telesales and service office outside the United States. We have
historically generated revenues outside North America through indirect channels,
including VARs and other distributors. We are in the early stages of developing
our indirect distribution channels in certain markets outside the United States.
We cannot be certain that we will be able to attract third parties that will be
able to market our products effectively or to provide timely and cost-effective
customer support and service. Our reseller arrangements generally provide that
resellers may carry competing product offerings. We cannot be certain that any
distributor or reseller will continue to represent our products. The inability
to recruit, or the loss of, important sales personnel, distributors or resellers
could materially and adversely affect our business.
As we expand our sales and support operations internationally, we
anticipate that international revenues will continue to grow as a percentage of
our total revenues. To successfully expand international sales, we must:
- establish additional international direct telesales offices;
- expand the management and support organizations for our international
sales channel;
- hire additional personnel;
- customize our products for local markets;
- recruit additional international resellers where appropriate; and
- expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales
model, we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able to
successfully expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT
Our success depends to a significant degree upon our software and other
proprietary technology. The software industry has experienced widespread
unauthorized reproduction of software products. We rely on a combination of
trademark, trade secret, and copyright law and contractual restrictions to
protect our technology. These legal protections provide only limited protection.
The steps we have taken may deter competitors from misappropriating our
proprietary information. However, we may not be able to detect unauthorized use
or take appropriate steps to enforce our intellectual property rights. If we
litigated to enforce our rights, litigation would be expensive, would divert
management resources and may not be adequate to protect our business. We also
could be subject to claims alleging infringement of third-party intellectual
property rights. In addition, we may be required to indemnify our distribution
partners and end-users for similar claims made against them. Any claims against
us could require us to spend significant time and money in litigation, pay
damages, develop non-infringing intellectual property or acquire licenses to
intellectual
9
<PAGE> 16
property that is the subject of the infringement claims. As a result, claims
against us could materially adversely affect our business.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
We may make investments in complementary companies, technologies, services
or products if we find appropriate opportunities. If we buy a company, we could
have difficulty assimilating the personnel and operations of the acquired
company. If we make other types of acquisitions, assimilating the technology,
services or products into our operations could be difficult. Acquisitions can
disrupt our ongoing business, distract management and other resources and make
it difficult to maintain our standards, controls and procedures. We may not
succeed in overcoming these risks or in any other problems we might encounter in
connection with any future acquisitions. In addition, we may be required to
incur debt or issue equity securities to pay for any future acquisitions.
RISK OF UNDETECTED SOFTWARE ERRORS
Our software products are complex and may contain certain undetected
errors, particularly when first introduced or when new versions or enhancements
are released. We have previously discovered software errors in certain of our
new products after their introduction. We cannot be certain that, despite our
testing, such errors will not be found in current versions, new versions or
enhancements of our products after commencement of commercial shipments. Such
undetected errors could result in adverse publicity, loss of revenues, delay in
market acceptance or claims against us by customers, all of which could
materially adversely affect our business.
YEAR 2000 RISKS
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
Assessment. The Year 2000 Problem could affect computers, software and
other equipment that we use. Accordingly, we are reviewing our internal computer
programs and systems to ensure that they will be Year 2000 compliant. We
presently believes that our computer systems will be Year 2000 compliant in a
timely manner. However, while the estimated cost of these efforts is not
expected to be material to our financial position or any year's results of
operations, there can be no assurance to this effect.
Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a are not Year 2000 compliant or have not been tested for Year 2000
compliance. In addition, we believe that it is not possible to determine with
complete accuracy that all Year 2000 Problems affecting our software products
have been identified or corrected due to the complexity of our products and the
fact that these products interact with other third party vendor products and
operate on computer systems that are not under our control.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We have commenced the process of modifying, upgrading and replacing the two
systems that have been identified as potentially being adversely affected and
expects to complete this process before the end of the first quarter of 1999.
The cost related to these efforts is not material to our business, financial
condition or results of operations.
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<PAGE> 17
Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We are currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on our office and facilities equipment. We have recently replaced our
primary telephone switch with equipment that provides additional capacity and is
believed to be Year 2000 compliant.
We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.
Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment used,
operated or maintained by us to identify and, to the extent possible, resolve
issues involving the Year 2000 Problem. However, we have limited or no control
over the actions of such third-party suppliers. Thus, while we expect that we
will be able to resolve any significant Year 2000 Problems with such systems,
there can be no assurance that our suppliers will resolve any or all Year 2000
Problems with such systems before the occurrence of a material disruption to our
business or any of our suppliers. Any failure of these third-parties to resolve
Year 2000 problems with their systems in a timely manner could have a material
adverse effect on our business, financial condition or results of operation.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe that
it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related to
the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:
- a significant number of operational inconveniences and inefficiencies for
us and our customers that may divert our time and attention and financial
and human resources from our ordinary business activities; and
- a lesser number of serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material business
disruptions.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the first quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short- to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches. If
we are required to implement any of these contingency plans, such plans could
have a material adverse effect on our business, financial condition or results
of operations.
RISK OF PRODUCT LIABILITY CLAIMS
Because our product design provides critical network management services,
we may receive significant liability claims. Our agreements with customers
typically contain provisions intended to limit our exposure to liability claims.
These limitations may not, however, preclude all potential claims. Liability
claims could require us to spend significant time and money in litigation or to
pay significant damages. As a result, any such
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<PAGE> 18
claims, whether or not successful, could seriously damage our reputation and our
business.
ANTI-TAKEOVER PROVISIONS
Incumbent management and our Board of Directors could use certain
provisions of our certificate of incorporation and Delaware law to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could discourage
potential takeover attempts and could adversely affect the market price of our
common stock.
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<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this Quarterly Report.
11 -- Statement Regarding Computation of Earnings Per Share
27 -- Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated October 13, 1998 to report its
financial results for the third quarter of fiscal year 1998.
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<PAGE> 20
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.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ ERIC J. PULASKI
-----------------------------------------------
Eric J. Pulaski
President and Chief Executive Officer
November 6, 1998
By: /s/ SCOTT R. PLANTOWSKY
-----------------------------------------------
Scott R. Plantowsky
Vice-President and Chief Financial Officer
November 6, 1998
19
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ---------------------------------------------------------
<S> <C>
11 -- Statement Regarding Computation of Earnings Per Share
27 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 11
BINDVIEW DEVELOPMENT CORPORATION
STATEMENT REGARDING COMPUTATION OF EARNING PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income $ 1,527 $ -- $ 2,729 $ --
Pro forma net income -- 870 -- 1,764
======= ======= ======= =======
Shares used in basis calculation
Total basic shares 17,810 8,228 11,492 8,228
Additional shares for diluted computation:
Effect of stock options 3,265 512 2,914 267
Effect of warrants 92 -- 572 --
Effect of convertible preferred stock 1,053 -- 4,565 --
Effect of phantom stock -- 5,800 -- 5,800
------- ------- ------- -------
Total diluted shares 22,220 14,540 19,543 14,295
======= ======= ======= =======
Earnings per common share
Basic $ 0.09 $ 0.11 $ 0.24 $ 0.21
Diluted $ 0.07 $ 0.06 $ 0.14 $ 0.12
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 48,374
<SECURITIES> 0
<RECEIVABLES> 3,946
<ALLOWANCES> 240
<INVENTORY> 0
<CURRENT-ASSETS> 56,705
<PP&E> 5,971
<DEPRECIATION> 2,187
<TOTAL-ASSETS> 60,520
<CURRENT-LIABILITIES> 7,583
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 52,936
<TOTAL-LIABILITY-AND-EQUITY> 60,520
<SALES> 23,953
<TOTAL-REVENUES> 23,953
<CGS> 1,512
<TOTAL-COSTS> 19,192
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,005
<INCOME-TAX> 1,276
<INCOME-CONTINUING> 4,005
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,729
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.14
</TABLE>
