<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
COMMISSION FILE NUMBER 0-19207
QUARTERDECK CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 95-4320650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13160 MINDANAO WAY, MARINA DEL REY, CALIFORNIA 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 309-3700
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 periods 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, $.001 par value,
outstanding as of April 30, 1997 was 38,154,381.
================================================================================
<PAGE> 2
QUARTERDECK CORPORATION AND SUBSIDIARIES
FORM 10-Q
MARCH 31, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Condensed Balance Sheets as of March 31, 1997
(unaudited) and September 30, 1996 3
Consolidated Unaudited Condensed Statements of Operations for
the three and six months ended March 31, 1997 and 1996 4
Consolidated Unaudited Condensed Statements of Cash Flows
for the six months ended March 31, 1997 and 1996 5
Notes to Consolidated Unaudited Condensed Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
</TABLE>
PAGE 2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
-------- -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,235 $ 25,554
Trade accounts receivable, net 12,998 9,265
Inventories 1,610 2,151
Other current assets 4,687 5,594
-------- --------
Total current assets 29,530 42,564
Property, plant and equipment, net 21,984 21,252
Capitalized software costs, net 2,544 3,448
Other assets 5,118 9,517
-------- --------
$ 59,176 $ 76,781
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 5,702 $ 10,685
Notes payable to banks 6,997 8,280
Accrued liabilities 14,194 17,232
Accrued acquisition, restructuring and other charges 3,445 10,940
Current portion of long-term obligations 17 111
-------- --------
Total current liabilities 30,355 47,248
Convertible notes 25,000 25,000
Long-term obligations, less current portion 140 108
-------- --------
Total liabilities 55,495 72,356
Litigation (Note 7)
Stockholders' equity:
Series B preferred stock (authorized: 2,000 shares;
issued and outstanding; 200 shares,
liquidation preference $20,000) 20,000 20,000
Common stock (authorized: 70,000 shares; issued
and outstanding: 38,150 and 37,666 shares) 38 38
Treasury stock (559) (559)
Additional paid-in-capital 65,469 64,819
Retained earnings (accumulated deficit) (80,579) (79,766)
Foreign currency translation adjustment (505) (468)
Note receivable from directors for sale of stock (18) (18)
Net unrealized gain (loss) on marketable securities (165) 379
-------- --------
Total stockholders' equity 3,681 4,425
-------- --------
$ 59,176 $ 76,781
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated unaudited
condensed financial statements.
PAGE 3
<PAGE> 4
QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 23,097 $ 49,078 $ 47,482 $ 93,753
Cost of revenues 5,304 13,726 12,352 25,812
-------- -------- -------- --------
Gross margin 17,793 35,352 35,130 67,941
Operating expenses:
Research and development 3,601 5,736 7,720 10,540
Sales and marketing 8,065 17,547 15,846 33,504
General and administrative 4,792 6,989 9,714 13,103
Acquisition and restructuring -- 4,919 -- 7,471
-------- -------- -------- --------
Total operating expenses 16,458 35,191 33,280 64,618
-------- -------- -------- --------
Operating income 1,335 161 1,850 3,323
Interest income (expense), net (501) 66 (993) 458
Other income (expense) (1,666) -- (1,666) --
-------- -------- -------- --------
Income (loss) before income taxes (832) 227 (809) 3,781
Provision (benefit) for income taxes -- (139) 3 614
-------- -------- -------- --------
Net income (loss) $ (832) $ 366 $ (812) $ 3,167
======== ======== ======== ========
Net income (loss) per share $ (0.02) $ 0.01 $ (0.02) $ 0.08
======== ======== ======== ========
Shares used to compute net income
(loss) per share 38,062 37,924 37,902 38,424
======== ======== ======== ========
Additional pro forma data:
Income (loss) before
income taxes $ (832) $ 227 $ (809) $ 3,781
Pro forma income taxes -- 2,999 3 4,003
-------- -------- -------- --------
Pro forma net income (loss) $ (832) $ (2,772) $ (812) $ (222)
======== ======== ======== ========
Pro forma net income
(loss) per share $ (0.02) $ (0.07) $ (0.02) $ (0.01)
======== ======== ======== ========
Shares used to compute
pro forma net income
(loss) per share 38,062 37,924 37,902 38,424
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
unaudited condensed financial statements
PAGE 4
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QUARTERDECK CORPORATION AND SUBSIDIARIES
CONSOLIDATED UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
1997 1996
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (812) $ 3,167
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization of equipment and leasehold improvements 2,570 1,747
Amortization of capitalized software costs 1,082 1,815
Write-off of property and equipment 176 --
Elimination of duplicate net income from acquired entities -- (717)
Decrease in unrealized gain on marketable securities (544) (195)
Changes in assets and liabilities:
Trade accounts receivable (3,733) (15,704)
Deferred tax asset -- (2,807)
Inventories 540 (1,929)
Other current assets 907 (1,577)
Other assets 4,400 (5)
Accounts payable (4,983) (8,957)
Accrued liabilities (3,182) 3,243
Income taxes payable 177 271
Accrued acquisition, restructuring and other charges (7,416) 1,129
Foreign currency translation adjustment (36) (3)
-------- --------
Net cash provided by (used in) operating activities (10,854) (20,522)
-------- --------
Cash flows from investing activities:
Sales of marketable securities -- 34,285
Loan to related party for Note receivable - Building -- (5,213)
Capital expenditures (3,503) (4,907)
Capitalized software costs (178) (1,554)
Cash acquired in acquisitions -- 5,094
Payments for minority interest of other companies -- (4,858)
-------- --------
Net cash provided by (used in) investing activities (3,681) 22,847
-------- --------
Cash flows from financing activities:
Proceeds from issuance of Convertible Notes -- 25,000
Principal debt repayments (2,944) (243)
Proceeds from bank borrowing 1,582 --
Dividends to shareholders of acquired entity -- (7,307)
Net proceeds from issuance of preferred stock -- 50
Net proceeds from issuance of common stock 578 1,965
-------- --------
Net cash provided by (used in) financing activities (784) 19,465
-------- --------
Net increase (decrease) in cash and cash equivalents (15,319) 21,790
Cash and cash equivalents at beginning of period 25,554 5,384
-------- --------
Cash and cash equivalents at end of period $ 10,235 $ 27,174
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 994 $ 197
Income taxes $ 50 $ 1,837
-------- --------
Non-cash transaction:
Tax benefits arising from exercise of non-qualified
stock options and warrants $ -- $ 1,100
-------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated
unaudited condensed financial statements
PAGE 5
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QUARTERDECK CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements of Quarterdeck
Corporation are unaudited (except for the Balance Sheet as of September 30,
1996) and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the consolidated
financial statements and notes thereto included in Quarterdeck's Annual Report
on Form 10-K for the fiscal year ended September 30, 1996. In the opinion of
management, the accompanying consolidated unaudited financial statements include
all adjustments which are necessary for a fair presentation. The results of
operations for the three and six month periods ended March 31, 1997 are not
necessarily indicative of results to be expected for the full fiscal year.
2. GENERAL
Quarterdeck Corporation develops, markets, and supports software that
enhances the performance, user productivity and cost-effectiveness of personal
computing in standalone and networked environments. The company provides its
software solutions to individual, business, and government/education users
through retail distribution, resellers, direct marketing operations and Internet
downloads. Its worldwide headquarters are in Marina del Rey, California, with
Dublin, Ireland serving as its European headquarters.
The Company was incorporated in California in 1982 as Quarterdeck
Office Systems. In June 1991, the Company changed its state of incorporation
from California to Delaware. In February 1995, the Company changed its name to
Quarterdeck Corporation. The Company's principal offices are located at 13160
Mindanao Way, Marina del Rey, California, 90292; its telephone number is (310)
309-3700. Quarterdeck's Internet home page is located on the World Wide Web at
http://www.quarterdeck.com/. Unless the context otherwise indicates, the
"Company" and "Quarterdeck" refer to Quarterdeck Corporation, its predecessor
and its subsidiaries.
PAGE 6
<PAGE> 7
3. BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
1997 1996
-------- -------------
(in thousands)
<S> <C> <C>
Trade accounts receivable:
Receivables ....................................... $ 25,684 $ 22,284
Less: allowance for doubtful accounts ............ (2,878) (2,032)
Less: allowance for sales returns ................ (5,821) (7,213)
Less: allowance for market development funds ..... (3,987) (3,774)
-------- --------
$ 12,998 $ 9,265
======== ========
Other current assets:
Prepaid royalties ................................. $ 515 $ 901
Income tax receivable ............................. 1,537 2,825
Other prepaid expenses ............................ 1,014 1,150
Notes receivable .................................. 62 1
Advances to employees ............................. 19 26
Marketable securities ............................. 1,288 --
Other ............................................. 252 691
-------- --------
$ 4,687 $ 5,594
======== ========
Equipment and leasehold improvements:
Building (C.I.P.) ................................. $ 12,809 $ 11,069
Computer equipment ................................ 12,499 12,748
Office furniture and equipment .................... 11,073 9,910
Office furniture and equipment under capital leases 140 252
Leasehold improvements ............................ 1,561 1,586
-------- --------
38,082 35,565
Less: accumulated depreciation and amortization .. (16,098) (14,313)
-------- --------
$ 21,984 $ 21,252
======== ========
Capitalized software costs:
Capitalized software costs ........................ $ 5,697 $ 5,607
Less: accumulated amortization ................... (3,153) (2,159)
-------- --------
$ 2,544 $ 3,448
======== ========
Other assets:
Marketable securities ............................. $ -- $ 968
Other investments ................................. 1,256 3,788
Notes receivable from employee .................... -- 13
Intangible assets acquired, net ................... 2,976 3,125
Other ............................................. 886 1,623
-------- --------
$ 5,118 $ 9,517
======== ========
Accrued expenses:
Accrued expenses, general ......................... $ 11,410 $ 12,599
Accrued payroll ................................... 1,208 2,052
Accrued vacation .................................. 1,510 1,460
Accrued advertising ............................... 66 1,121
-------- --------
$ 14,194 $ 17,232
======== ========
Accrued acquisition, restructuring and other charges:
Acquisition - pooling transactions ................. $ 1,883 $ 2,345
Acquisition - purchase transactions ................ 144 315
Restructuring ...................................... 1,418 8,280
-------- --------
$ 3,445 $ 10,940
======== ========
</TABLE>
PAGE 7
<PAGE> 8
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
STATEMENT OF OPERATIONS MARCH 31, MARCH 31,
SUPPLEMENTAL DATA 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Acquisition, restructuring
and other charges:
Restructuring $ -- $ 42 $ -- $ 450
Acquisition -- 4,877 -- $7,021
In-process R&D -- -- -- --
------ ------ ------ ------
$ -- $4,919 $ -- $7,471
====== ====== ====== ======
</TABLE>
4. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity to the Company of three months or less to be cash equivalents.
Cash and cash equivalents at March 31, 1997 amounted to $10,235,000.
5. COMPUTATION OF NET INCOME PER SHARE
The primary net income per common and common equivalent shares for the
three and six month periods ended March 31, 1997 and 1996 have been computed
using the weighted average number of common shares and also includes common
stock equivalents unless their inclusion would result in higher earnings
figures. The shares outstanding for each period are summarized below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average common
stock outstanding during period 38,062 35,605 37,902 35,538
Common stock equivalents of
stock options outstanding -- 2,319 -- 2,886
------ ------ ------ ------
Shares used in primary net income
per share calculation 38,062 37,924 37,902 38,424
====== ====== ====== ======
</TABLE>
Common stock equivalents consist of certain outstanding stock options
and shares of common stock held in escrow.
PAGE 8
<PAGE> 9
6. RESTRUCTURING CHARGES
During fiscal 1996, the Company implemented a comprehensive,
corporate-wide restructuring plan. As a result of the plan, the Company recorded
a restructuring charge and reduced its workforce by approximately 40%,
eliminating nearly 500 positions. This restructuring focused the Company in the
utilities and communications software categories. As part of the restructuring,
the Company has centralized operations and eliminated many duplicate functions
that resulted from a series of acquisitions during fiscal 1996 and 1995.
The following is an analysis of the significant components of the
fiscal 1996 restructuring and other charges and activity during the quarter
ended March 31, 1997 (in thousands):
<TABLE>
<CAPTION>
ACTIVITY
-------------------------------------
Restructuring and Non-Cash Cash Paid Category Accrued as of
Non-recurring Costs in Fiscal Reclass March 31,
Costs Accrued at 1997 1997
December 31, 1996
----------------- -------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
Discontinuance and $ 943 $ (137) $ (22) $ (185) $ 599
consolidation of offices
Severance costs/other charges 1,236 (107) (1,449) 712 392
Write-off of property and 897 (85) 0 (527) 285
equipment
------ ------- ------- ----- ------
Total $ 3,076 $ (329) $(1,471) $ -- $1,276
======= ======= ======= ===== =======
</TABLE>
Quarterdeck expects the restructuring accrual to be utilized, primarily
through cash disbursements, by the end of fiscal 1997. The Company anticipates
the cash effect of such disbursements to be of declining significance
throughout the remainder of fiscal 1997. Funding for these disbursements is
expected to come from the Company's working capital and available borrowings.
PAGE 9
<PAGE> 10
7. LEGAL PROCEEDINGS
Shareholder complaints were filed in November and December 1996 and
January 1997 in the Superior Court of the State of California, County of Los
Angeles, against the Company and one former and one current officer of the
Company alleging, among other things, violations of certain provisions of
California securities laws relating to statements made about the Company. The
suits are purportedly brought on behalf of all persons who purchased the
Company's common stock during the period January 26, 1996 through June 13, 1996
and seek damages in an unspecified amount and other relief. To date the Company
has not filed a response to the complaints. Due to the early stage of the
litigation and the inherent uncertainty, management is unable to estimate the
impact on the Company's results of operations, financial condition, or
liquidity, if any. Accordingly, no provision for any liability that may result
from these suits has been made in the Company's consolidated financial
statements (other than with respect to the $250,000 deductible under the
Company's directors and officers insurance policy which has been utilized for
costs relating to the defense). However, no assurances can be given that the
ultimate disposition of these cases will not have a material adverse effect on
the Company's results of operations and financial condition or liquidity.
In March 1997, a purported class action lawsuit, Jack Abbott, et al. v.
Quarterdeck Corporation, Case No. 00709198, was filed in the Superior Court of
the State of California, County of San Diego. The complaint purports to allege
claims against Quarterdeck on behalf of all licensees of MagnaRAM2 residing in
the United States. The complaint alleges, among other things, that MagnaRAM2
fails to significantly increase Random Access Memory or otherwise help Windows
95 and Windows 3.x users. The plaintiffs seek compensatory damages and punitive
damages in unspecified amounts, injunctive relief, and attorney fees and costs.
Quarterdeck has not yet been served with this complaint. If it is so served,
Quarterdeck intends to defend the case vigorously and to oppose any effort to
certify the claims for class resolution.
Quarterdeck is a defendant in various other pending claims and
lawsuits. Management believes that the disposition of such matters will not have
a material adverse impact on the results of operations or financial position of
the Company.
8. SUBSEQUENT EVENT - LINE OF CREDIT
During April, 1997, the Company established an asset based line of
credit with Greyrock Business Credit, a division of NationsBank. The Company
repaid and terminated the then existing line with Bank of America with proceeds
from the new line. Maximum borrowings under the new line are $12,000,000. The
Company may borrow 85% of eligible accounts receivable plus the value of
inventory to a maximum of $2,000,000 up to the maximum borrowing amount. The
line can be used for general corporate purposes, including investments and
acquisitions, and bears interest at prime plus 2%. The line is secured by
substantially all assets of Quarterdeck. The Company is obligated to pay a
minimum interest charge of $10,000 per month and comply with certain other
non-financial covenants and restrictions. At April 30, 1997 the Company had
$1,500,000 outstanding under the line and the ability to borrow up to the
maximum amount of $12,000,000. The current term of the agreement matures March
31, 1998 and contains renewal provisions.
PAGE 10
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements, the notes thereto and other information, including information set
forth in the Company's 10-K for the fiscal year ended September 30, 1996 and all
other recent filings the Company has made with the Securities and Exchange
Commission before making an investment decision with respect to the
Company's stock.
In addition to an analysis of recent and historical financial results,
this Form 10-Q includes a discussion of certain of the Company's business risks,
including risks which are inherent to software development as well as specific
trends and uncertainties relating to the competitive environment in which the
Company operates. The Company has sought to identify and disclose the
significant risks to its business. However, the Company cannot predict where or
to what extent any of such risks may be realized nor can there be any assurance
that the Company has identified all possible issues which the Company faces now
or may face in the future. In particular, the Company has completed a number of
acquisitions over the past two years and made investments in certain companies
and is in the process of restructuring its operations in an attempt to maximize
the benefit of such acquisitions (See trends and uncertainties for further
discussion). There can be no guarantee that the restructuring or such
acquisitions will ultimately be beneficial.
This Form 10-Q contains forward-looking statements which are made
pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. Within this Form 10-Q, words such as "believes",
"anticipates", "plans", "expects", "intends", and similar expressions are
intended to identify forward-looking statements, but are not the exclusive means
of identifying such statements. These forward-looking statements involve a
number of risks and uncertainties, including the timely development and market
acceptance of products and technologies, sell-through of products in the sales
channel, successful integration of acquisitions, the ability to secure
additional sources of financing, the ability to reduce operating expenses and
other factors described throughout this Form 10-Q and in the Company's other
filings with the Securities and Exchange Commission. The actual results that the
Company achieves may differ materially from any forward-looking statements due
to such risks and uncertainties. The Company undertakes no obligation to revise
or update any forward-looking statements in order to reflect events or
circumstances that may arise after the date of this report.
RESULTS OF OPERATIONS
Net Revenues: Net revenues for the three and six months ended March 31,
1997 decreased by $25,981,000 or 52.9% and $46,271,000 or 49.4% respectively, in
relation to the comparative periods of the prior year. The decreases compared
with the prior year periods resulted primarily from a steep decline in revenue
from certain memory management products including QEMM and MagnaRAM and certain
other communication, internet and utility products including Procomm, WebTalk
and HiJaak. Version 3.0 of Procomm was released in the March 1996 quarter and
had large initial shipments into the retail channel which have not continued at
that level.
Retailers such as Best Buy, Computer City, and Egghead recently have
been closing stores and/or reducing the amount of software products purchased.
As these retailers have historically represented approximately 25-30% of the
Company's North American retail business, such changes may have a material
adverse effect on the Company's future revenues. In an attempt to mitigate this
potential negative effect, the Company has broadened its distribution through
mass merchandisers, discount and club stores such as Walmart, Price-Costco and
Sam's Club. There can be no assurance that the Company will be successful in
replacing the lost revenues.
During the March 1997 quarter, the Company achieved net revenue of
$23,097,000 which was primarily the result of the continued marketplace success
of core product lines, especially Cleansweep and Procomm. Also contributing to
the March 1997 quarter revenues were the Company's new releases, including the
Essential Utilities Suite, which bundles four existing products, and Iware 3.0,
a new version of the Company's Internet connectivity product
PAGE 11
<PAGE> 12
for Novell networks. Internationally, Quarterdeck released French and German
versions of Fix-It; U.K., French and German versions of Partition-It; and
Japanese versions of Cleansweep 3.0, WebCompass 2.0, WinProbe 95 and MagnaRAM97.
Net revenues from European and other international distributors,
dealers and end-users outside of the United States amounted to $4,661,000 and
$8,801,000, respectively, representing 20.2% and 18.5% of the Company's net
revenues for the three and six month periods ended March 31, 1997. During the
comparative periods of the prior year the company recorded non-US revenue of
$9,336,000 and $16,537,000, respectively, or 19.0% and 17.6% of net revenue. The
increased proportion of international revenues is largely due to the sales of
Cleansweep.
Due to the inherent uncertainties in software development and in the
microcomputer software industry and the other factors discussed herein, the
Company is unable to predict net revenue trends. Past performance is not
necessarily indicative of future results.
Cost of Revenues: The Company's cost of revenues includes product
packaging, documentation and media, manufacturing expenses, amortization of
capitalized software costs, technical support and production costs as well as
translation costs and certain royalties paid to third parties. Overall cost of
revenues decreased by $8,422,000 and $13,460,000 respectively for the three and
six months ended March 1997, over the comparative periods of the prior year.
Cost of revenues as a percentage of net revenues decreased to 23.0% and 26.0%
for those periods as compared to 28.0% and 27.5% for the comparative periods.
While the aggregate dollar reductions reflect the sales volume reduction, the
reduced cost percentage is primarily due to an increased proportion of corporate
licensing revenues, the ongoing shift toward lower-cost CD-ROM versus diskette
versions of the Company's core products and the further consolidation and
centralization of the production and purchasing functions which have enabled the
Company to leverage volume pricing agreements and strengthen controls.
Capitalized software development and purchased software costs are
generally amortized over one to three year periods, commencing upon initial
product release. Fluctuations in amortization expense between periods may arise
depending on the amount of software costs incurred and capitalized for
particular software products and their respective release dates. Amortization of
capitalized software costs decreased from $685,000 for the three months and
$1,826,000 for the six months ended March 31, 1996 to $421,000 and $1,082,000
for the comparative periods of the current fiscal year. The decrease in the
first quarter was primarily due to a reduction in the amortization of ProComm
and the decrease in the second quarter is due primarily to WebCompass having
been fully amortized prior to the March 1997 quarter.
Future cost of revenues as a percentage of net revenues will depend
primarily on total sales, the mix of sales by product, domestic versus
international, and by single unit versus multiple license packages and the
proportion of revenues provided by corporate licensing.
The microcomputer software industry has experienced increased price
competition in recent years. The Company anticipates that increased price
competition will continue in the future and may result in reduced average unit
selling prices and corresponding reduced margins. In addition, the industry has
been subject to rapid changes that can be expected to continue. The introduction
of new or upgraded operating systems and future technology or market changes may
cause certain products to become obsolete more quickly than expected and thus
may result in capitalized software write-offs and an increase in required
inventory reserves and, reduced gross margins and net income.
PAGE 12
<PAGE> 13
Research and Development: Research and development expenses consist
primarily of salaries, benefits and consulting fees to support product
development, including product testing and documentation. Research and
development expense decreased by $2,135,000 and $2,820,000 respectively for the
three and six months ended March 31, 1997 over the comparative periods of the
prior year, while increasing as a percentage of net revenues from 11.7% and
11.2% for the respective fiscal 1996 periods to 15.6% and 16.3% for the current
fiscal year periods. This decrease is primarily due to reduced research and
development staffing levels on non-strategic products, a simplified management
structure and certain benefits from acquisition integration.
The Company capitalized $110,000 and $178,000 of purchased software
development costs during the three and six months ended March 31, 1997.
Quarterdeck did not capitalize any internal software development costs, since
the majority of development efforts incurred during the periods related to new
products for which technological feasibility had not been established.
Quarterdeck anticipates that spending for software development and
purchased software will continue as a significant expense in the future. Because
of the inherent uncertainties of software development projects and the software
market in general, the Company's software development efforts and purchased
software may not result in successful product introductions or increased sales.
Without successful product development and introductions the Company's results
of operations may be materially adversely affected.
Sales and Marketing, and General and Administrative: Sales and
marketing, and general and administrative expenses consist of salaries and
commissions and related costs of administrative, sales and marketing, customer
service and support personnel as well as advertising, trade show and promotional
expenses and facilities costs. Sales and marketing expenses decreased by
$9,482,000 and $17,658,000, respectively, for the three and six months ended
March 31, 1997, while decreasing as a percentage of net revenues from 35.8% and
35.7% for the fiscal 1996 periods to 34.9% and 33.4% for the current fiscal year
periods, including a reduction in advertising and market development fund
expense between March 31, 1996 and the comparative period in the current fiscal
year of $3,882,000 and $9,225,000 respectively for the three and six months then
ended. Advertising and marketing development expenses as a percentage of net
revenues decreased from 12.1% and 14.1% for the three and six months ended March
31, 1996 to 9.0% and 8.4% for the current fiscal year periods. This decline in
expenses is a reflection of the 1996 restructuring and Quarterdeck's efforts to
bring variable spending in line with the underlying sell-through of the
Company's products.
General and administrative expenses decreased by $2,197,000 and
$3,389,000, respectively, between the three and six months ended March 31, 1996
and the comparative periods of the current fiscal year while increasing as a
percentage of net revenues from 14.2% and 14.0% for the 1996 periods to 20.7%
and 20.5% for the current fiscal year periods. The Company is exploring
additional actions to reduce these expenses as a percentage of revenue,
including further facilities consolidation.
Acquisition and Other Charges: There were no acquisition and other
charges incurred for the three and six months ended March 31, 1997. The Company
incurred acquisition charges of $4,877,000 and $7,021,000 for the three and six
months ended March 31, 1996 primarily for costs incurred in connection with the
acquisitions of Inset Systems, Inc. and Datastorm Technologies, Inc. These
expenses included fees for financial advisory, legal and accounting services,
personnel severance and benefits, and other related expenses.
Restructuring Charges: There were no restructuring expenses incurred
for the three and six months ended March 31, 1997, as compared to restructuring
charges of $42,000 and $450,000 for the comparative periods of the prior year.
The Company is seeking to reduce certain ongoing obligations by pursuing
subleases for office space which has been vacated as a result of the
restructuring. See Note 6 of the Notes to the Consolidated Financial Statements
for a table and a detailed explanation of the activity during the quarter and
the balances remaining. Primarily as a result of restructuring and lower sales
volume, Quarterdeck reduced operating expenses for the quarter ended March 31,
1997 by approximately $13,814,000 versus the comparative quarter of the prior
year. The operating expense reduction for the six months totals $23,867,000. The
Company is currently conducting a further review of its operations. Such review
may result in further consolidation and integration of its business as well as
additional restructuring charges.
PAGE 13
<PAGE> 14
Other expense: During the three months ended March 31, 1997 the Company
wrote down the value of its investment in Infonautics, Inc. due to their current
public market value having declined considerably below the Company's carrying
value. The Company recorded a charge of $1,666,000 to the Statement of
Operations and charged equity directly for another $324,000 representing the
estimated temporary portion of the decline.
Income Taxes: A valuation allowance was recorded to offset 100% of the
Company's $25,900,000 net deferred tax asset as of March 31, 1997. The net
deferred tax asset of $25,900,000 (before applying the valuation allowance) is
comprised of the estimated tax effect of expected future temporary differences
and tax net operating losses, relating in part to charges taken for book
purposes that are not deductible for federal income tax purposes until the
amounts are paid in the future. Management believes that due to the fiscal 1996
financial results it is appropriate to record a full valuation allowance until
such time as it becomes more likely than not that the Company will realize some
or all of the benefit of the net deferred tax asset.
Net Income: The net loss for the three and six month periods ended
March 31, 1997 was $832,000 and $812,000, respectively, or $0.02 per share. This
represents a decrease to net income of approximately $1,198,000 and $3,979,000
for the three and six month periods of fiscal 1997 as compared to fiscal 1996.
The decrease in the March 1997 quarter is due in part to the recognition of a
previously discussed write-down in the value of the Company's investment in
Infonautics, Inc.
Trends and Uncertainties: The computer software industry is subject to
rapid technological changes often evidenced by new competing products and
improvements in existing products. Quarterdeck depends on the successful
development or acquisition and resulting sales of new products, including
upgrades of existing products, to replace revenues from products introduced in
prior periods that may have begun to experience reduced revenues. If
Quarterdeck's current leading products become outdated and lose market share
faster than those revenues are replaced by new products, or if new products or
existing product upgrades are not introduced when planned or do not achieve the
revenues anticipated by the Company, Quarterdeck's operating results could be
materially adversely affected. Even with normal development cycles, the market
environment can change so quickly that features in products can become outdated
soon after market introduction. These events may occur in the future and may
have an adverse effect on future revenues and operating results.
While Quarterdeck expects that memory management will continue to
provide benefit to users of Windows 95 and legacy systems, the Company has over
the past two years expanded its focus from a sole reliance on memory management
to a broader base of desktop utilities. Fiscal 1996 acquisitions of Limbex,
Vertisoft, Future Labs, Datastorm, Inset, as well as other acquisitions
completed during fiscal 1995 have broadened the Company's product portfolio and
sales distribution channels. There are significant business risks associated
with acquisitions, including the successful integration of the companies in an
efficient and timely manner, the coordination of research and development and
sales efforts, the retention of key personnel, diversion of management's
attention away from day-to-day matters and the integration of the acquired
products. Additionally, there may be an adverse impact on revenues of acquired
companies due to the transition of products, sales and marketing, and research
and development activities. The Company's future success will depend, in part,
on its ability to further integrate the operations of acquired companies and
effectively utilize the acquired intellectual property.
Quarterdeck is focusing software product development efforts on
products that are designed to operate on Windows 95 and Windows NT. Microsoft
Corporation may incorporate advanced utilities or other features in Windows 95
or Windows NT that may decrease the demand for certain of the Company's
products, including those under development. If Quarterdeck is not able to
continue to develop and market products that function under Windows 95 and
Windows NT, and offer value to Windows 95 and Windows NT users beyond that which
is offered in the base operating systems, future revenues would be adversely
affected.
Future competitive product releases may cause disruptions in orders and
lengthen sales cycles for the Company's products while users and the marketplace
evaluate the competitive products. The extent of the disruption in orders and
the impact on future orders of Quarterdeck's products will depend on various
factors that are not fully known at this time. Among those factors are the level
of functionality, performance and features included in the final release of
competitive products and the market's evaluation of those products as compared
to the then current functionality, performance and features of the Company's
products.
PAGE 14
<PAGE> 15
Quarterdeck has also made investments in certain companies and
technologies. The Company retained a portion of its investment in Lernout &
Hauspie which is carried at $748,000 on the accompanying balance sheet in other
current assets. The Company sold a portion of the investment in fiscal 1996 at a
substantial gain and during April, 1997 the Company sold its remaining
investment in Lernout & Hauspie. In the quarter ended March 31, 1997, the
Company wrote-down its investment in Infonautics, Inc. The Company continues to
monitor its investment in Infonautics, Inc., now carried at $540,000 and
Intelligence at Large, carried at $1,250,000. The Company also owns a building
in Columbia Missouri which has a net book value of $12,647,000 and is currently
listed for sale. Additional write-downs of these assets, if necessitated by
market conditions, could have a material adverse effect on the Company's
financial results.
Quarterdeck's distributor and reseller customers also carry the
products of Microsoft Corporation and other of the Company's competitors, many
of whom have substantially greater financial resources than the Company. The
distributors and resellers have limited capital to invest in inventory and their
decisions to purchase the Company's products and in the case of resellers, to
give them critical shelf space, is partly a function of pricing, terms and
special promotions offered by the Company's competitors, over which Quarterdeck
has no control and which it cannot predict. There can be no assurance that the
Company will negotiate successfully with resellers to obtain shelf space and
other terms needed to sell the Company's products at the levels currently
anticipated.
Quarterdeck's pattern of revenues and earnings were affected during the
third and fourth quarters of fiscal 1996, and may be affected in the future, by
the phenomenon known as "channel fill." Channel fill occurs following the
introduction of a new product or a new version of products as distributors buy
significant quantities of the new product or version in anticipation of sales of
such product or version. Following such purchases, the rate of distributors'
purchases often declines, depending on the rates of purchases by end users or
"sell-through." The phenomenon of "channel fill" may also occur in anticipation
of price increases or in response to sales promotions or incentives, some of
which may be designed to encourage customers to accelerate purchases that might
otherwise occur in later periods. Channels may also become filled simply because
the distributors are unable to, or do not, sell their inventories to retail
distribution or end users as anticipated. If sell-through does not occur at a
sufficient rate, distributors will delay purchases or cancel orders in later
periods or return prior purchases in order to reduce their inventories.
Consequently, there can be no assurance that existing channel inventories will
not adversely impact the sales in future periods. In addition, between the date
the Company announces a new version or new product and the date of release,
distributors, dealers and end users often delay purchases, cancel orders or
return products in anticipation of the availability of the new version or new
product. Such order delays or cancellations may cause material fluctuations in
revenues from one quarter to the next. Net revenues may be materially affected
favorably or adversely by these effects.
Quarterdeck operates with relatively little order backlog; therefore,
if near-term demand for the Company's products weaken in a given quarter, there
could be a material adverse effect on revenues and on the Company's operating
results. Like other manufacturers of packaged software products, Quarterdeck is
exposed to the risk of product returns from distributors, resellers and
individual customers. There can be no assurance that actual returns in excess of
recorded allowances will not result in a material adverse effect on business,
operating results and financial condition. Quarterdeck's return policy generally
allows its distributors, subject to certain limitations, to return purchased
products in exchange for new products or for credit toward future purchases.
However, competitive factors often require the Company to offer expanded rights
of return for products that distributors or retailers are unable to sell.
Product returns occur as a result of the introduction of upgrades and new
versions of products or when distributors order excessive product. The Company
estimates and maintains reserves for product returns. In addition to detailed
historical return rates, the Company's estimate of return reserves takes into
account future product upgrades and new releases, current market conditions and
customer inventories, as well as any other known factors that could impact
anticipated returns. However, there can be no assurance that future returns will
not exceed the reserves established by the Company or that future returns will
not have a material adverse effect on the operating results of the Company.
PAGE 15
<PAGE> 16
FACTORS AFFECTING QUARTERLY RESULTS AND STOCK PRICE
Quarterdeck has in the past experienced wide fluctuations in its
operating results and stock price, and the Company's future operating results
and stock price could be subject to significant volatility, particularly on a
quarterly basis. The Company's revenues and quarterly operating results may
experience significant fluctuations and be unpredictable as the result of a
number of factors including, among others, the factors noted above, including
the introduction of new or enhanced products by the Company or its competitors,
rapid technological changes in the Company's markets, seasonality of revenues,
changes in operating expenses and general economic and market conditions. Any
shortfalls in revenues or quarterly results could have an immediate and
significant adverse effect on the trading price of the Company's common stock in
any given period.
Net income per share is calculated using the treasury stock method (see
Note 5 of Notes to Consolidated Financial Statements). Increases in the price of
Quarterdeck's stock can have an adverse impact on the calculation of net income
per share in that period as more outstanding instruments are included as common
shares outstanding.
As a result of the foregoing factors and other factors that may arise
in the future, the market price of the Company's common stock may be subject to
significant fluctuations over a short period of time. These fluctuations may be
due to factors specific to the Company, to changes in analysts' earnings
estimates, or to factors affecting the computer industry or the securities
markets in general.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, cash and cash equivalents totaled $10,235,000 as
compared to $25,554,000 at September 30, 1996. Working capital at March 31, 1997
amounted to a deficit of $825,000, an improvement of $3,859,000 as compared to
the deficit of $4,684,000 at September 30, 1996. The improvement in working
capital and the decrease in cash and cash equivalents of $15,319,000 during the
six month period is primarily the result of the payment of accrued acquisition
and restructuring costs, a significant paydown of accounts payable and accrued
liabilities, an increase in accounts receivable, and approximately $3,500,000
paid for capital additions associated primarily with the construction of the
Datastorm building in Columbia Missouri. The Company borrowed approximately
$1,600,000 during the March 1997 quarter under the construction loan to finance,
in part, the final stages of construction.
Operating Activities: At March 31, 1997, trade accounts receivable
totaled $12,998,000, compared to $9,265,000 at September 30, 1996. Trade
accounts receivable balances at March 31, 1997 primarily reflect stronger sales
in the current quarter of $23,097,000 as compared to $19,740,000 for the quarter
ended September 30, 1996. Accounts receivable days sales outstanding (DSO) were
approximately 51 and 43 days at March 31, 1997 and September 30, 1996,
respectively. The increase in days sales outstanding is primarily due to a
$3,400,000 increase in gross accounts receivable as a result of stronger sales
and a $2,400,000 decrease in the allowance for sales returns between September
30, 1996 and March 31, 1997 due to the receipt and processing of returns that
had previously been reserved.
Inventories decreased to $1,610,000 from $2,151,000 primarily as a
result of improved inventory control and management of the purchasing process.
Other current assets decreased by $907,000 primarily due to a
$1,200,000 federal income tax refund which was received during the December 1996
quarter and other decreases which were partially offset by a reclassification to
this account from Other non current assets of $1,288,000 relating to the
Company's investments in Lernout & Hauspie, Inc. and Infonautics, Inc.
Other assets decreased by $4,399,000 primarily due to a
reclassification of certain investments to Other current assets. The write-down
of the value of the Infonautics investment also reduced the aggregate amount of
these assets.
The Company reduced its trade accounts payable by $4,983,000 from
$10,685,000 at September 30, 1996 to $5,702,000 at March 31, 1997. This
reduction is primarily due to the utilization of available cash to pay the
Company's trade vendors.
PAGE 16
<PAGE> 17
Investing Activities: The Company purchased capital assets composed of
property, plant and equipment, and capitalized software in the amounts of
$3,503,000 and $178,000 respectively during the six months ended March 31, 1997.
The capital expenditures were primarily incurred for construction of the
Columbia, Missouri building and related furniture and fixtures, in addition to
the purchase of a predictive dialing system for the Clearwater, Florida direct
sales division.
On August 6, 1996, the Company's Datastorm subsidiary secured
construction financing for a new facility from a bank for up to $5,000,000 with
an interest rate equal to the bank's commercial base rate, currently prime plus
2%, secured by the newly constructed Columbia, Missouri building. The principal
amount outstanding as of March 31, 1997 was $4,300,000. The principal amount
plus any unpaid interest was originally due February 7, 1997, and has been
extended until June 7, 1997 with the maximum borrowings reduced to $4,500,000.
During the third quarter of fiscal 1997 the Company plans to borrow the
remaining $200,000 available under this loan as well as pay an additional
$220,000 of the Company's own cash for the completion of the building.
Management is pursuing the sale and/or lease of the facility and other long-term
take-out financing options. There can be no assurance that the Company will be
successful in achieving a sale on favorable terms or in obtaining such long-term
financing with acceptable terms and conditions.
In April 1996, the Company's Datastorm subsidiary borrowed $2,000,000
from a bank to partially finance the completion of the building in Columbia,
Missouri. The loan was secured by Datastorm's equipment and initially had an
interest rate of 4.5% per annum. The rate was subsidized, in part by the State
of Missouri in exchange for the Company achieving certain local employment
targets. As part of the Company's restructuring the Company revised downward the
personnel complement at this location. As a result, it has written off a
significant portion of the equipment and collateral at this location, and the
interest rate was raised to 8.5%. The Company repaid $1,750,000 of the loan
during the current quarter. The outstanding loan balance as of March 31, 1997
was $250,000 which was paid in April, 1997.
The Company had a revolving credit facility with Bank of America
secured by accounts receivable and inventory which was replaced with a new
credit facility in April, 1997. The outstanding balance under this facility was
$2,450,000 as of March 31, 1997. This revolving credit facility was repaid, with
borrowings from the Company's new line of credit, and closed in April 1997.
During April 1997, the Company established an asset based line of
credit with Greyrock Business Credit, a division of NationsBank. The Company
repaid and terminated the then existing line with Bank of America with proceeds
from the new line. Maximum borrowings under the new line are $12,000,000. The
Company may borrow 85% of eligible accounts receivable plus the value of
inventory to a maximum of $2,000,000 up to the maximum borrowing amount. The
line can be used for general corporate purposes, including investments and
acquisitions, and bears interest at prime plus 2%. The line is secured by
substantially all assets of Quarterdeck. The Company is obligated to pay a
minimum interest charge of $10,000 per month and comply with certain other
non-financial covenants and restrictions. At April 30, 1997 the Company had
$1,500,000 outstanding under the line and the ability to borrow up to the
maximum amount of $12,000,000. The current term of the agreement matures March
31, 1998 and contains renewal provisions.
In conjunction with the Company's August, 1996 acquisition of Limbex
Corporation, the Company has an obligation to pay an additional $3,600,000, or
issue shares in lieu of cash, on the one year anniversary of the acquisition. It
is the Company's intention to issue shares of common stock to satisfy this
obligation. The shares will be valued at the time of issuance.
Divestiture of Products: As part of its restructuring, the Company
intends to dispose of certain non-core products, technologies and operations
obtained as part of the acquisitions which do not fit into the Company's ongoing
strategy. There can be no assurance that such divestitures will be successfully
completed.
PAGE 17
<PAGE> 18
The Company conducts business in various foreign currencies and is
therefore subject to the transaction exposures that arise from foreign exchange
rate movements between the dates that foreign currency transactions are recorded
and the date that they are consummated. The Company is also subject to certain
exposures arising from translation of the foreign subsidiaries financial
statements. There can be no assurance that actions taken to manage such
exposures will continue to be successful or that future changes in currency
exchange rates will not have a material impact on the Company's future operating
results. The Company does not hedge either its translation risk or its economic
risk.
Liquidity: The Company believes existing cash and cash equivalents,
borrowing capacity, plus funds provided by operations and the potential proceeds
from the divestiture of non-core products and technologies, as well as
anticipated proceeds from the sale of, or other take-out financing arrangements
with respect to, the Columbia, Missouri facility should be sufficient to fund
operations for the coming twelve months. Although the expense reductions
resulting from the restructuring are anticipated to provide additional funds
from operations in future quarters, there is no assurance that such anticipated
savings will occur or that any such increase will result in adequate operating
funds, or that sales will occur at anticipated levels or that potential proceeds
from divestitures and/or the Columbia facility sale or take-out financing will
occur, or that such additional financing will be available, or if available,
will be available on acceptable terms. Should product orders or shipments be
delayed or should the Company experience significant shortfalls in planned
revenues or collections, or not achieve sufficient cost savings as a result of
the restructuring, or experience unforeseen fixed expenses, the Company believes
it has the ability to make additional reductions to variable expenses to extend
its capital. The Company is actively exploring other financing alternatives,
including additional sales of equity securities and/or the divestiture of
non-core products and assets. Any decision or ability to obtain financing
through equity investment will depend on various factors, including, among
others, financial market conditions, strategic acquisition and investment
opportunities, and developments in the Company's markets. The sale of additional
equity securities or future conversion of any convertible security would result
in additional dilution to the Company's stockholders.
PAGE 18
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Shareholder complaints were filed in November and December 1996 and
January 1997 in the Superior Court of the State of California, County of Los
Angeles, against the Company and one former and one current officer of the
Company alleging, among other things, violations of certain provisions of
California securities laws relating to statements made about the Company. The
suits are purportedly brought on behalf of all persons who purchased the
Company's common stock during the period January 26, 1996 through June 13, 1996
and seek damages in an unspecified amount and other relief. To date the Company
has not filed a response to the complaints. Due to the early stage of the
litigation and the inherent uncertainty, management is unable to estimate the
impact on the Company's results of operations, financial condition, or
liquidity, if any. Accordingly, no provision for any liability that may result
from these suits has been made in the Company's consolidated financial
statements (other than with respect to the $250,000 deductible under the
Company's directors and officers insurance policy which has been utilized for
costs relating to the defense). However, no assurances can be given that the
ultimate disposition of these cases will not have a material adverse effect on
the Company's results of operations and financial condition, or liquidity.
In March 1997, a purported class action lawsuit, Jack Abbott, et al. v.
Quarterdeck Corporation, Case No. 00709198, was filed in the Superior Court of
the State of California, County of San Diego. The complaint purports to allege
claims against Quarterdeck on behalf of all licensees of MagnaRAM2 residing in
the United States. The complaint alleges, among other things that MagnaRAM2
fails to significantly increase Random Access Memory or otherwise help Windows
95 and Windows 3.x users. The plaintiffs seek compensatory damages and punitive
damages in unspecified amounts, injunctive relief, and attorney fees and costs.
Quarterdeck has not yet been served with this complaint. If it is so served,
Quarterdeck intends to defend the case vigorously and to oppose any effort to
certify the claims for class resolution.
Quarterdeck is a defendant in various other pending claims and
lawsuits. Management believes that the disposition of such matters will not have
a material adverse impact on the results of operations or financial position of
the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
A Form 8-K with respect to a press release issued January 14,
1997, which announced the appointment of a new chief executive
officer was filed with the Securities and Exchange Commission
on January 14, 1997.
PAGE 19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
QUARTERDECK CORPORATION
(Registrant)
Date: May 13, 1997 /s/ CURTIS A. HESSLER
Curtis A. Hessler
President and Chief Executive Officer
Date: May 13, 1997 /s/ FRANK GREICO
Frank Greico
Sr. Vice President and
Chief Financial Officer
PAGE 20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS INCLUDED WITH THE
QUARTERLY REPORT ON FORM 10Q DATED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND QUARTERLY REPORT.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 10,235
<SECURITIES> 0
<RECEIVABLES> 25,684
<ALLOWANCES> 12,686
<INVENTORY> 1,610
<CURRENT-ASSETS> 29,530
<PP&E> 38,082
<DEPRECIATION> 16,098
<TOTAL-ASSETS> 59,176
<CURRENT-LIABILITIES> 30,355
<BONDS> 25,000
0
20,000
<COMMON> 38
<OTHER-SE> (16,357)
<TOTAL-LIABILITY-AND-EQUITY> 59,176
<SALES> 23,097
<TOTAL-REVENUES> 23,097
<CGS> 5,304
<TOTAL-COSTS> 16,458
<OTHER-EXPENSES> 1,666
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 501
<INCOME-PRETAX> (832)
<INCOME-TAX> 0
<INCOME-CONTINUING> (832)
<DISCONTINUED> 0
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<NET-INCOME> (832)
<EPS-PRIMARY> (0.02)
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