<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-26750
COOPER & CHYAN TECHNOLOGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 77-0409778
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1601 SOUTH DE ANZA BOULEVARD
CUPERTINO, CALIFORNIA 95014
(Address of Principal Executive Offices) (Zip Code)
(408) 366-6966
(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
----- -----
As of August 6, 1996, Registrant had outstanding 12,488,683 shares of
Common Stock.
See Exhibit Index on page 19
Page 1
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COOPER & CHYAN TECHNOLOGY, INC.
QUARTERLY REPORT ON
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
TABLE OF CONTENTS
FORM 10-Q NAME OF ITEM PAGE
ITEM NO. ------------------------------------------------------------------
--------
PART I
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995...................................... 3
Consolidated Statements of Income for the quarter
ended June 30, 1996 and 1995 and the six months
ended June 30, 1996 and 1995............................... 4
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995........................ 5
Notes to Consolidated Financial Statements.................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 7
PART II
Item 1 Legal Proceedings.............................................. 14
Item 4. Submission of Matters to a Vote of Security-Holders............ 15
Item 5. Other Information.............................................. 15
Item 6. Exhibits and Reports on Form 8-K............................... 16
Signatures..................................................... 17
______________________
ShapeBased and IC Craftsman in combination with "Inspector," "Apprentice,"
"Journeyman" or "Master" and SPECCTRA, in combination with "AutoRoute,"
"EditRoute" and "AutoPlace," are trademarks of the Company. SPECCTRA and IC
Craftsman are registered trademarks of the Company.
Page 2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
COOPER & CHYAN TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
------------ ----------
(UNAUDITED)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 6,692,886 $ 3,000,177
Short term investments 23,144,006 23,402,236
Accounts receivable, net 4,896,008 4,360,639
Deferred income taxes 373,525 373,525
Prepaid expenses and other current assets 1,167,680 994,152
----------- -----------
Total current assets 36,274,105 32,130,729
Property, equipment net 2,844,155 2,552,413
Other assets 304,718 291,093
----------- -----------
$39,442,978 $34,974,235
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable 561,671 787,686
Accrued salary and employee benefits 1,414,801 747,943
Other accrued liabilities 1,248,253 1,725,235
Income taxes payable 1,471 142,185
Deferred revenue 2,119,081 2,601,492
---------- -----------
Total current liabilities 5,345,277 6,004,541
Deferred income taxes 238,851 238,851
Stockholders' equity
Common stock 124,610 119,408
Additional paid-in capital 28,681,901 25,728,890
Notes receivable from stockholders - (39,010)
Deferred compensation (357,023) (404,626)
Retained earnings 5,389,362 3,326,181
----------- -----------
Total stockholders' equity 33,838,850 28,730,843
----------- -----------
$39,422,978 $34,974,235
=========== ===========
</TABLE>
See accompanying notes.
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<PAGE>
COOPER & CHYAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------- -----------------
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
------------ ------------ ------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue
License $ 5,685,008 $ 3,100,009 $10,837,259 $ 5,854,009
Service 1,296,000 556,000 2,584,000 1,024,000
----------- ----------- ----------- -----------
Total revenue 6,981,008 3,656,009 13,421,259 6,878,009
----------- ----------- ----------- -----------
Costs and expenses
Cost of license revenue 225,727 130,880 500,165 271,880
Cost of service revenue 113,095 69,849 240,759 120,849
Research and development 1,526,510 1,088,970 2,921,701 2,057,970
Sales and marketing 2,638,930 1,849,970 5,389,257 3,412,970
General and administrative 921,393 515,056 1,618,215 962,056
----------- ----------- ----------- -----------
Total costs and expenses 5,425,655 3,654,725 10,670,097 6,825,725
----------- ----------- ----------- -----------
Income from operations 1,555,353 1,284 2,751,162 52,284
Other income, net 259,519 20,225 514,125 21,225
----------- ----------- ----------- -----------
Income before provision for 1,814,872 21,509 3,265,287 73,509
income taxes
Provision for income taxes 616,599 8,987 1,110,197 28,987
----------- ----------- ----------- -----------
Net income $ 1,198,273 $ 12,522 $ 2,155,090 $ 44,522
=========== =========== =========== ===========
Net income per share $ 0.09 $ 0.00 $ 0.16 $ 0.00
=========== =========== =========== ===========
Shares used in computing per 13,894,065 11,559,000 13,826,765 11,471,000
share amounts
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
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COOPER & CHYAN TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Six months ended June 30
------------------------------
1996 1995
------------ -----------
(Unaudited) (Unaudited)
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net Income $ 2,155,090 $ 44,522
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 463,378 266,206
Deferred income taxes - (70,259)
Amortization of deferred stock compensation 47,603 19,721
Other (17,241)
Changes in assets and liabilities:
Accounts receivable (535,369) 185,659
Income taxes receivable - (266,754)
Prepaid expenses and other current assets (173,528) (60,109)
Other assets (13,625) 40,470
Trade accounts payable (226,015) 176,992
Accrued salary and employee benefits 666,858 (307,862)
Other accrued liabilities (476,983) 239,902
Income taxes payable (140,714) -
Deferred revenue (482,411) (75,416)
-------------- -------------
Total adjustments (870,805) 131,309
-------------- -------------
Net cash provided by operating activities 1,284,285 175,831
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (755,120) (829,713)
Purchase of available-for-sale securities (10,198,457) (44,442)
Proceeds from sale of available-for-sale securities 10,437,014 405,776
-------------- -------------
Net cash provided by (used in) investing activities (516,563) (468,379)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (payments) on notes payable to stockholders 39,010 -
Repayment of bank credit facility - (500,000)
Proceeds from issuance of convertible preferred stock - 2,499,981
Proceeds from issuance of common stock 2,958,213 47,247
-------------- -------------
Net cash provided by (used in) financing activities 2,997,223 2,047,228
-------------- -------------
Net increase in cash and cash equivalents 3,764,944 1,754,680
Effect of exchange rates on foreign currency cash balances (72,235) 27,527
Cash and cash equivalents at beginning of period 3,000,177 1,214,542
-------------- -------------
Cash and cash equivalents at end of period $ 6,692,886 $ 2,996,749
============== =============
Supplemental disclosure of cash flow information
Cash paid during the period for income taxes $ 1,213,394 $ 370,000
============== =============
</TABLE>
See accompanying notes.
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COOPER & CHYAN TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The unaudited, condensed, consolidated financial statements included herein
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information or footnote disclosure
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The statements reflect all adjustments of a normal and
recurring nature which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. These financial
statements should be read in conjunction with the Company's Annual Report on
Form 10-K for the fiscal year 1995 as filed with the Commission on April 29,
1996. The interim results presented herein are not necessarily indicative of the
results of operations that may be expected for the full fiscal year ending
December 31, 1996 or any other future periods.
NET INCOME PER SHARE
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the periods. Common
equivalent shares include common stock issuable upon exercise of stock options
using the treasury stock method.
STOCKHOLDERS EQUITY
In May 1996, Synopsys, Inc. ("Synopsys") and the Company entered into a
strategic marketing and development relationship. As part of this relationship,
Synopsys purchased approximately 9.9% of the outstanding shares of Common Stock
of the Company at $14.50 per share. In connection with the equity investment,
Synopsys has also been granted certain rights to maintain its percentage
ownership interest in the Company. The cash investment consisted of 1,046,250
shares of stock purchased from corporate officers as well as 160,292 newly
issued shares purchased from the Company. The net proceeds received by the
Company for the shares issued to Synopsys were $2,262,368.
SUBSEQUENT EVENTS
- -----------------
On July 22, 1996, the Company entered into a definitive agreement to
acquire UniCAD, Inc. ("UniCAD"), a privately held company engaged in the
development, marketing and support of electrical integrity, analysis and
optimization software tools for PCB design. Under the terms of the agreement,
the Company will issue shares of its common stock to the stockholders of UniCAD
according to a conversion ratio subject to adjustment based on changes in the
market price of the Company's common stock. At the July 22 closing price, the
Company would issue approximately 365,000 shares of its common stock in exchange
for all shares of UniCAD stock currently outstanding. In accordance with the
same conversion ratio as applicable to UniCAD's common stock, the Company will
also assume all outstanding options under the UniCAD stock option plan which,
after the acquisition, will result in the issuance of approximately 69,000
additional shares of the Company's common stock (also as of the July 22 closing
price for the Company's stock) as the options are vested and exercised.
The transaction is intended to be a tax-free reorganization and will be
accounted for as a pooling of interests. Subject to approval by UniCAD's
stockholders, and to normal closing conditions, the transaction is currently
scheduled to close in late August 1996. Upon completion of the transaction (the
"Merger") UniCAD will become a wholly-owned subsidiary of the Company.
Page 6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Except for the historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements that involve risks
and uncertainties, including the timely availability and acceptance of new
products, the impact of competitive products and pricing, the management of
growth and the other risks detailed herein. The actual results that the Company
achieves may differ materially from any forward-looking statements due to such
risks and uncertainties.
The Company develops, markets and supports software tools that help
designers route the physical wiring interconnections within high performance
printed circuit boards ("PCBs") and integrated circuits ("ICs"). The Company
was founded in 1989 and licensed its first product, SPECCTRA, for the PCB market
in December 1989. The Company has subsequently developed and released several
new versions of the product. As of June 30, 1996, SPECCTRA products were
available on a broad number of operating system platforms with several available
option packages. Until 1995, the Company derived substantially all of its
revenue from its SPECCTRA line of products. The IC Craftsman product line,
introduced in early 1995, has accounted for approximately 21% of the Company's
total revenue in 1995 and 31% of the Company's total revenue in the first half
of 1996.
Revenue consists primarily of fees for licenses of the Company's software
products and for maintenance and customer support. The Company recognizes
revenue from software licenses after shipment of the products and fulfillment of
acceptance terms, if any, and when no significant contractual obligations remain
outstanding and collection of monies owed is probable. After delivering the
software, the Company determines the significance of remaining contractual
obligations, if any, based on an estimate of the costs and difficulty to fulfill
the obligations in comparison to the overall contract. When the Company
receives payment prior to shipment and fulfillment of significant vendor
obligations, such payments are recorded as deferred revenue and are recognized
as revenue upon shipment and fulfillment of significant vendor obligations.
The Company also derives service revenue primarily from maintenance
agreements that provide customers access to product enhancements and customer
support. Most of the Company's customers have purchased annual maintenance
contracts on initial licenses and have renewed such contracts upon their
expiration. Maintenance revenue is deferred and recognized ratably over the
term of the maintenance agreement, which is typically one year. Revenue from
customer training, support and other services is recognized as the service is
performed.
Recently, the Company has significantly increased its research and
development and sales and marketing personnel. The increase in research and
development personnel was primarily to support the development of the IC
Craftsman product line. The increase in sales and marketing personnel was begun
in anticipation of the introduction of the IC Craftsman product line and was
continued in order to expand worldwide distribution, principally in Europe and
Japan. While the Company anticipates an increase in revenues as the IC
Craftsman product line gains commercial acceptance and international sales
increase, there can be no assurance that the Company will achieve revenue levels
that justify the increased expenses.
The Company's revenues and results of operations are affected by seasonal
trends that may include higher revenues in the Company's second and fourth
fiscal quarters and lower revenues in its first and third fiscal quarters as a
result of many customers' purchasing and budgetary practices, and lower revenues
in the summer months (particularly in Europe) when many businesses make fewer
purchases. The Company's expense levels are based, in part, on its expectations
as to future revenue. If revenue levels are below expectations due to delays
associated with customers' acceptance and evaluation procedures or for any other
reason, operating results are likely to be materially adversely affected. Net
income, if any, may be disproportionately affected by a reduction in revenue
because only a small portion of the Company's expenses varies with its revenue.
Although the Company has recently experienced significant revenue growth,
such growth should not be considered to be indicative of future revenue growth,
if any, or of future operating results. The Company's recent revenue growth is
a result of increased unit volume and new product introductions. There can be
no assurance that the Company's revenue will grow or be sustained in future
periods or that the Company will remain profitable in any future period. In
addition, the rapid growth and expansion the Company has experienced has placed,
and continues to place, a significant strain upon its management, operational
and financial resources. The Company has grown from 75 permanent full time
employees at December 31, 1994 to 118 permanent full time employees at June 30,
1996, and currently plans to continue to expand its staff.
Page 7
<PAGE>
To accommodate this recent growth, the Company is currently enhancing a
variety of new and upgraded operational and financial systems, procedures and
controls, including the improvement of its general ledger accounting and other
internal management systems, its customer database and its transaction
processing systems. There can be no assurance that the Company will be able to
continue to enhance these systems, procedures and controls successfully. The
failure of the Company to respond to and manage its growth and changing business
conditions, or to adapt its operational, management and financial control
systems to accommodate its growth, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The increase in the number of the Company's employees and the Company's
market diversification and product development activities have resulted in
increased responsibilities for the Company's management. The Company's senior
management team has worked together for only a short period of time. The
Company's ability to operate successfully will require such personnel to work
together effectively. Failure to do so could have a material adverse effect
upon the Company's business, financial condition and results of operations.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data of the Company expressed as a percentage of total
revenue.
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------- ----------------
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
License 81 % 85 % 81 % 85 %
Service 19 15 19 15
----- ---- ---- ----
Total revenue 100 100 100 100
----- ---- ---- ----
Costs and expenses
Cost of license revenue 3 4 4 4
Cost of service revenue 2 2 2 2
Research and development 22 30 22 30
Sales and marketing 38 50 40 49
General and administrative 13 14 12 14
----- ---- ---- ----
Total costs and expenses 78 100 80 99
----- ---- ---- ----
Income from operations 22 0 20 1
----- ---- ---- ----
Other income, net 4 1 4 0
----- ---- ---- ----
Income before provision for income taxes 26 1 24 1
----- ---- ---- ----
Provision for income taxes 9 0 8 0
----- ---- ---- ----
Net income 17 % 0 % 16 % 1 %
===== ==== ==== ====
</TABLE>
Page 8
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Revenue
Total revenue increased by 91% from $3.7 million in the second quarter of
1995 to $7.0 million in the second quarter of 1996. For the first half of 1996,
total revenue was $13.4 million, an increase of 95% from total revenue of $6.9
million for the first half of 1995.
License revenue increased by 83% from $3.1 million in the second quarter of
1995 to $5.7 million in the second quarter of 1996. For the first half of 1996,
license revenue was $10.8 million, an increase of 85% from license revenue of
$5.8 million for the first half of 1995. The increase in license revenue from
both the second quarter and the first half of 1995 to the corresponding periods
of 1996 was primarily attributable to increased licensing of both the Company's
SPECCTRA products and the Company's IC Craftsman products. License revenue
increased 10% from the first quarter of 1996 to the second quarter of 1996.
Substantially all of this increase was attributable to increased licensing of
the Company's SPECCTRA products as license revenue attributable to the Company's
IC Craftsman products was essentially flat between the first and second quarters
of 1996.
Service revenue increased by 133% from $0.55 million in the second quarter
of 1995 to $1.3 million in the second quarter of 1996. For the first half of
1996, service revenue was $2.58 million, an increase of 152% from service
revenue of $1.0 million for the first half of 1995. The increase in service
revenue in the period was primarily attributable to maintenance contracts in
connection with the continued growth of the installed base of customers
licensing the Company's products. The percentage of the Company's total revenue
attributable to service revenue rose from 15% in both the second quarter and the
first half of 1995 to 19% in the corresponding periods of 1996. The company
expects that service revenue in absolute dollars will continue to increase.
However, service revenue as a percentage of total revenue may or may not
increase depending upon a number of factors, including new maintenance sales
rates, maintenance renewal rates and the level of consulting revenue.
International license and service revenue accounted for $1.3 million in the
second quarter of 1995, rising to $2.1 million in the second quarter of 1996.
For the first half of 1996, international revenue was $4.3 million, versus $2.7
million for the first half of 1995. International revenue growth this quarter
was not as high as the domestic revenue growth. In particular, revenue in Japan
fell short of the Company's expectations, due, in large part, to the departure
of certain employees during the quarter, including the departure of the
President of the Company's subsidiary in Japan. Because a majority of the
Company's European revenue is denominated in U.S. dollars, the Company has not
engaged in European currency hedging activities there. However, in Japan, where
the Company's revenue is denominated in local currency, the Company has entered
into foreign exchange hedging activities. The Company expects that international
license and service revenue will continue to account for a significant portion
of its revenue in the short term, and as a result, foreign currency exposure may
increase.
The Company's international revenue involves a number of risks, including
the impact of possible recessionary environments in economies outside the United
States, longer receivables collection periods and greater difficulty in accounts
receivable collection, unexpected changes in regulatory requirements, reduced
protection for intellectual property rights in some countries, tariffs and other
trade barriers, foreign currency exchange rate fluctuations, difficulties in
staffing and managing foreign operations, the burdens of complying with a
variety of foreign laws, potentially adverse tax consequences and political and
economic instability. There can be no assurance that the foregoing factors will
not have a material adverse effect on the Company's future international license
and service revenue and, consequently, on the Company's business, financial
condition and results of operations.
In the second quarter of 1995, sales to Mentor Graphics Corporation
("Mentor Graphics") accounted for 12% of the Company's total revenue. For the
corresponding period of 1996, sales to Mentor Graphics represented 16% of the
Company's total revenue. For the first half of 1995, Mentor Graphics accounted
for 18% of the Company's revenue versus 13% for the first half of 1996. No other
customer accounted for more than 10% of revenue during either of these two
periods.
The proportion of revenue earned from distributors and OEMs was 37% and 32%
during the second quarter and the first half of 1996, respectively. The Company
is dependent upon the continued viability and financial stability of these
distributors and OEMs. Since the Company's products are used by highly skilled
professional engineers, an effective distributor or OEM representative must
possess sufficient technical, marketing and sales resources and must devote
these resources to a lengthy sales cycle, customer training and product service
and support. In addition, the Company's distributors and OEMs generally offer
products of several different companies, including, in some cases, products that
are competitive with the Company's products. Although the Company is not aware
of any financial difficulties being experienced by any of its OEMs or
distributors, there can be no assurance
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that Mentor Graphics or any of the Company's distributors or other OEMs will be
able to continue to market, service and support the Company's products
effectively, that economic conditions or industry demand will not adversely
affect these distributors and OEMs, that Mentor Graphics or any distributor or
other OEM that licenses the Company's products will choose to continue to
license such products or that any of these distributors and OEMs will not devote
greater resources to marketing and supporting products of other companies. The
current OEM agreement with Mentor Graphics will expire in March 1998. There can
be no assurance that the Company will reach a subsequent agreement with Mentor
Graphics. Should the Company fail to reach a subsequent agreement with Mentor
Graphics, there can be no assurance that the Company would be successful in
either securing alternative channels of distribution for its products or
expanding its own direct sales to replace Mentor Graphics. The loss of, or a
significant reduction in revenue from, Mentor Graphics or any of the Company's
distributors or other OEMs would have a material adverse effect on the Company's
business, financial condition and results of operations, at least to the extent
such loss is not offset by a corresponding increase in the Company's direct
sales.
Cost of Revenue
Cost of license revenue includes personnel and related operating costs
associated with order processing, documentation and other production costs
related to the licensing of the Company's products. Cost of license revenue
increased by 73% from $131,000 in the second quarter of 1995 to $226,000 in the
second quarter of 1996. The increases in cost of license revenue was primarily
attributable to an increase in licenses of the Company's products. Cost of
license revenue was 4% of total revenue for the second quarter of 1995 and 3%
for the the second quarter of 1996.
The cost of license revenue increased by 84% from $272,000 for the first
half of 1995 to $500,000 in the first half of 1996. Cost of license revenue was
4% of total revenue for the first half of both 1995 and 1996.
Cost of service revenue includes personnel and related costs allocated to
maintenance and other customer support activities. Cost of service revenue
increased by 61% from $70,000 in the second quarter of 1995 to $113,000 in the
second quarter of 1996. The increase in cost of service revenue was primarily
attributable to an increase in technical support personnel. Cost of service was
2% of total revenue for both the second quarter of 1995 and the second quarter
of 1996.
The cost of service revenue increased by 99% from $121,000 in the first
half of 1995 to $241,000 in the first half of 1996. Cost of license revenue was
2% of total revenue for both the first half of 1995 and 1996.
Research and Development
Research and development expenses include all costs associated with the
development of new products and enhancements to existing products. Research and
development expenses increased by 40% from $1.1 million in the second quarter of
1995 to $1.5 million in the second quarter of 1996. These expenses were 30% and
22% of total revenue in the second quarter of 1995 and the second quarter of
1996, respectively. Research and development expenses increased by 42% from $2.1
million in the first half of 1995 to $2.9 million in the first half of 1996. The
increase in expenses resulted principally from growth in the number of research
and development personnel. To date, all software development costs have been
expensed as incurred. The Company anticipates that it will continue to commit
substantial resources to research and development in the future. At least for
the short term, the Company expects research and development expenses to
increase in absolute dollars but to stay flat or decrease slightly as a
percentage of total revenue, to the extent revenue increases. However, there can
be no assurance that there will be a corresponding increase in revenue to
justify the increase in expenditure.
Sales and Marketing
Sales and marketing expenses consist of salaries, commissions paid to
internal sales and marketing personnel and certain third parties, promotional
costs and related operating expenses. Sales and marketing expenses increased by
43% from $1.85 million in the second quarter of 1995 to $2.6 million in the
second quarter of 1996. These expenses were 50% and 38% of total revenue in the
second quarter of 1995 and the second quarter of 1996, respectively. Sales and
marketing expenses increased by 58% from $3.4 million in the first half of 1995
to $5.4 million million in the first half of 1996. The increases in sales and
marketing expenses in each period consist principally of the cost of additional
sales and marketing personnel related to the expansion of the Company's direct
sales capability in the PCB market, to support the Company's entry into the IC
market and to expand worldwide distribution, principally in Europe and Japan,
and increases in variable sales compensation due to increased revenue. The
number of sales and marketing personnel increased from 43 at the end of the
second quarter of 1995 to 49 at the
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end of the second quarter of 1996. At least for the short term, the Company
expects sales and marketing expenses to increase in absolute dollars, but to
stay flat or increase slightly as a percentage of total revenue, to the extent
revenue increases. This is due to the continuing focus on direct sales. However,
there can be no assurance that there will be a corresponding increase in revenue
to justify the increase in expenditure.
The increase in sales and marketing personnel was begun in anticipation of
the introduction of the IC Craftsman product line and has been continued in
order to expand worldwide distribution. While the Company anticipates an
increase in revenues as the IC Craftsman product line gains commercial
acceptance and international sales increase, there can be no assurance that the
Company will continue to achieve revenue levels that justify the increased
expenses. The Company has relatively little experience in direct sales in the
IC market. There can be no assurance that expansion of the Company's direct
sales efforts will succeed or that such expansion will result in increased
sales. Although the success of this direct channel has reduced the Company's
dependence on the OEM channel, there can be no assurance that the expansion of
this channel will not have an adverse effect on existing distributor and OEM
relationships.
The Company has expanded its international sales and support organization,
which has resulted in an increase in sales and marketing expenses. The Company
intends to further expand these organizations, resulting in additional increases
in sales and marketing expenses. However, the Company expects the growth rate of
such expenses to be lower than in the past. There can be no assurance that the
Company will be able to sustain or increase revenue derived from international
licensing and service. Any failure to expand sales in foreign markets would
have a material adverse effect on the Company's business, financial condition
and results of operations.
General and Administrative
General and administrative expenses increased 79% from $515,000 in the
second quarter of 1995 to $921,000 in the second quarter of 1996. These
expenses were 14% and 13% of total revenue in the second quarter of 1995 and the
second quarter of 1996, respectively. General and adminstrative expenses
increased by 68% from $962,000 in the first half of 1995 to $1.6 million in the
first half of 1996. The increases in general and administrative expenses were
primarily attributable to the addition of new general and administrative
personnel. A portion of the increase is also attributable to the additional
cost of professional and other fees associated with being a public company,
principally audit and legal fees and insurance premiums. At least for the short
term, the Company expects general and administrative expenses to increase in
absolute dollars but to stay flat or decrease slightly as a percentage of total
revenue, to the extent revenue increases. However, there can be no assurance
that there will be a corresponding increase in revenue to justify the increase
in expenditure.
Income Taxes
The provision for income taxes as a percentage of pre-tax income was 33%
for 1995 and 34% for the first half of 1996. These percentages are less than
the federal and state combined statutory rate of approximately 40% due primarily
to the utilization of research and development credits in both periods.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations to date with cash from operations
and through private and public sales of equity securities. Private sales of
equity securities have yielded approximately $4.7 million, including the sales
of shares of Common Stock to Synopsys described below. In addition, in October
1995, the company completed its initial public offering, raising approximately
$22.4 million.
In May 1996, Synopsys, Inc. ("Synopsys") and the Company entered into a
strategic marketing and development relationship. As part of this relationship,
Synopsys purchased approximately 9.9% of the outstanding shares of Common Stock
of the Company at $14.50 per share. In connection with the equity investment,
Synopsys has also been granted certain rights to maintain its percentage
ownership interest in the Company. The cash investment consisted of 1,046,250
shares of stock purchased from corporate officers as well as 160,292 newly
issued shares purchased from the Company. The net proceeds received by the
Company for the shares issued to Synopsys were $2,262,368.
Net cash provided by operating activities in the first half of 1996 was
$1.3 million versus $175,000 in the corresponding period of 1995. The cash
generated resulted principally from net income and an increase in accrued salary
and employee benefits, somewhat offset by an increase in receivables and
decreases in accounts payable,
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<PAGE>
accrued liabilities and deferred revenue. The level of receivables rose in the
first half of 1996 partly because a significant portion of the revenue was
billed towards the end of the quarter, therefore not allowing sufficient time
for collection before the quarter ended.
Cash used in investing activities resulted primarily from additions to
property and equipment and purchases of available for sale securities.
Purchases of property and equipment, consisting primarily of computer equipment,
were $755,120 in the first half of 1996 versus $830,000 in the corresponding
period of 1995. Capital spending was particularly high during the first of 1995,
due to the significant increase in headcount during that period and the
associated spending on equipment that was required to support it.
As of June 30, 1996, the Company had working capital of $30.9 million,
including cash, cash equivalents and short term investments of $29.8 million.
As of June 30, 1996, the Company had no bank indebtedness and no long-term
commitments other than operating lease obligations. The Company believes that
existing cash balances and funds generated from operations will provide the
Company with sufficient funds to finance its operations in the near future.
Thereafter, the Company may require additional funds to support its working
capital requirements and for other purposes and may seek to raise such
additional funds through public or private equity financings or from other
sources. No assurance can be given that additional financing will be available
or that, if available, such financing will be obtainable on terms favorable to
the Company or its stockholders.
OTHER FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. There can be no assurance that the
Company's competitors will not engage in pricing practices that are detrimental
to the Company. In addition, the Company believes that the amount of design
work done by the users of the Company's products on Windows-based personal
computers is increasing relative to UNIX-based workstations. This trend has led
to a decrease in the average selling prices of the Company's products. If this
trend continues, it may continue to negatively impact the Company's average
selling prices. There can be no assurance that such decreases in average
selling price will be offset by an increase in the volume of sales.
Many of the Company's current and potential competitors have longer
operating histories, significantly greater financial, technical, product
development and marketing resources, greater name recognition and larger
customer bases than the Company. There can be no assurance that the Company's
competition will not be able to develop products comparable or superior to those
developed by the Company, adapt more quickly to new technologies, evolving
industry trends or customer requirements than the Company, or devote greater
resources to the development, promotion and sale of their products than the
Company. In addition, current competitors of the Company have established and
may establish cooperative relationships among themselves or with third parties
to increase the ability of their products to address the needs of the Company's
existing and prospective customers. Such alliances among competitors could
present increased competition to the Company. Moreover, the EDA industry has
become increasingly concentrated in recent years as the result of numerous
mergers and acquisitions. The Company expects that competition may increase as
a result of this increased concentration. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on its business, financial condition and results of
operations.
In addition, the introduction or announcement by the Company or one or more
of its competitors of products embodying new technologies or features could
render the Company's existing products obsolete or unmarketable. There can be
no assurance that the introduction or announcement of new product offerings by
the Company or one or more of its competitors will not cause customers to defer
purchases of existing Company products. Such deferral of purchases could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company's success is heavily dependent upon its proprietary software
technology. The Company does not currently have any patents and relies
principally on trade secret, copyright and trademark laws, nondisclosure and
other contractual agreements and technical measures to protect its technology,
including its ShapeBased technology. The Company generally enters into
confidentiality and/or license agreements with its employees, distributors, OEMs
and customers, and limits access to and distribution of its software,
documentation and other proprietary information. The Company's software is
shipped with a software security lock which limits software access to authorized
users. In addition, the Company does not license or release its source code,
except in connection with source code escrow arrangements. However, effective
copyright and trade secret protection may be unavailable or limited in certain
Page 12
<PAGE>
foreign countries. There also can be no assurance that the steps taken by the
Company will prevent misappropriation of its technology. Any failure by or
inability of the Company to protect its proprietary technology could have a
material adverse effect on the Company's business, financial condition and
results of operations. Furthermore, such protections do not preclude
competitors from developing products with functionality or features similar to
the Company's products, and there can be no assurance that third parties will
not independently develop competing technologies that are substantially
equivalent or superior to the Company's technologies. However, the Company
believes that, due to the rapid pace of innovation within the EDA industry,
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are more important to establishing and maintaining
a technology leadership position than are the various legal protections of its
technology.
The Company does not believe its products infringe the proprietary rights
of any third parties. However, there can be no assurance that infringement
claims will not be asserted against the Company or its customers. See Part II,
Item 1, "Legal Proceedings". Furthermore, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation, either as plaintiff or defendant, would cause the Company to incur
substantial costs and divert management resources from productive tasks, whether
or not such litigation is resolved in the Company's favor, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. Parties making claims against the Company could secure
substantial damages, as well as injunctive or other equitable relief, which
could effectively block the Company's ability to license its products in the
United States or abroad. Such a judgment could have a material adverse effect
on the Company's business, financial condition and results of operations. If it
appears necessary or desirable, the Company may seek licenses to intellectual
property that it is allegedly infringing. The Company is not currently seeking
any such license. There can be no assurance, however, that licenses could be
obtained on commercially reasonable terms, if at all, or that the terms of any
offered license would be acceptable to the Company. The failure to obtain the
necessary licenses or other rights could have a material adverse effect on the
Company's business, financial condition and results of operations. As the
number of software products in the industry increases and the functionality of
these products further overlaps, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with
or without merit, can be time consuming and expensive to defend and could
adversely affect the Company's business, financial condition and results of
operations.
The Company's future depends in large part on the continued service of its
key technical personnel, in particular its founders, and its ability to continue
to attract and retain such personnel, many of whom are highly skilled. The
competition for such personnel in the software industry in general, and the EDA
industry in particular, is intense, and there can be no assurance that the
Company will retain its key technical personnel or continue to attract such
personnel in the future. There are only a limited number of qualified EDA
engineers, and competition for such individuals is especially intense. The
Company has at times experienced and continues to experience difficulty in
recruiting qualified technical personnel. Although such difficulties have not
had a material impact on the Company's business to date, there can be no
assurance that such difficulties will not do so in the future. Generally, the
Company's employees are not bound by employment or noncompetition agreements or
covered by key man life insurance policies. In addition, competitors may
attempt to recruit the Company's key employees. The loss of any key technical,
management or marketing personnel or the failure to recruit such personnel
successfully in the future could have a material adverse effect on the Company's
business, financial condition and results of operations.
The EDA industry is characterized by extremely rapid technological change,
frequent new product introductions and enhancements, evolving industry standards
and rapidly changing customer requirements. Customers in the EDA industry
require software products that allow them to minimize their time-to-market,
differentiate their products, maximize their engineering productivity and reduce
design time and costs. The Company's future success will depend upon its
ability to continually enhance its current products and develop and introduce
new products that keep pace with technological advancements and address the
increasingly sophisticated needs of its customers. There can be no assurance
that the Company will be successful in developing and marketing product
enhancements or new products that respond to technological change, evolving
industry standards and changing customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or product enhancements or that its
new products and product enhancements will adequately meet the requirements of
the marketplace and achieve any significant degree of market acceptance.
Failure of the Company, for technological or other reasons, to develop and
introduce new products and product enhancements in a timely and cost-effective
manner would have a material adverse effect on the Company's business, financial
condition and results of operations. Any failure by the Company to anticipate
or to respond adequately to changing market conditions, or any significant
delays in product
Page 13
<PAGE>
development or introduction, could cause customers to delay or decide against
purchases of the Company's products and would have a material adverse effect on
the Company's business, financial condition and results of operations.
Software products as complex as those offered by the Company may contain
defects or failures when introduced or when new versions are released. The
Company has in the past discovered software defects in certain of its products
and may experience delays or lost revenue correcting such defects in the future.
Although the Company has corrected known material defects and has not
experienced material adverse effects resulting from any such defects to date,
there can be no assurance that, despite testing by the Company, errors will not
be found in new products or releases after commencement of commercial shipments.
Any such occurrence could result in loss of market share or failure to achieve
market acceptance and could have a material adverse effect upon the Company's
business, financial condition and results of operations.
The Company's future operating results are significantly dependent upon
continued enhancement and market acceptance of its SPECCTRA product line and
successful market acceptance of its IC Craftsman product line. There can be no
assurance that the SPECCTRA product line will continue to be adequately enhanced
to achieve continued market acceptance or that the Company will be successful in
marketing the IC Craftsman product line or any other new or enhanced products.
In particular, the Company believes that its future operating results are
significantly dependent upon market acceptance in Japan of the Company's IC
Craftsman products. The Company believes that a number of factors will be
necessary for its IC Craftsman products to achieve, and its SPECCTRA products to
continue to achieve, broad market acceptance. These factors include
performance, price, interoperability with existing systems and the customer's
assessment of the Company's technical, managerial, service and support expertise
and capability. Failure to succeed with respect to any of these factors could
result in the Company's failure to achieve market acceptance of its products,
which would have a material adverse effect on the Company's business, financial
condition and results of operations. A decline in demand for any of the
Company's products as a result of competition, technological change or other
factors would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, factors adversely
affecting the EDA market generally could have a material adverse effect on the
Company's business, financial condition and results of operations.
The sales cycle for the Company's products is relatively lengthy. In
particular, orders for licenses of the Company's IC Craftsman products in a
given quarter are typically made by relatively fewer customers and in larger
amounts as compared to orders for licenses of the Company's SPECCTRA products.
Accordingly, because IC Craftsman revenues have increased as a percentage of the
Company's total revenues, such licenses ordered by a single customer can account
for a significant portion of a quarter's revenues. Because the Company's
expenses are relatively fixed in the short term, the loss or delay of such
orders by a single customer or multiple customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the Company believes that its quarterly and annual operating
results have in the past and may in the future vary significantly depending on
factors such as variations in product development or operating expenditures,
increased competition, the purchasing patterns of its customers, the timing of
customer design and development projects, the timing of customer evaluation and
acceptance, the timing of expenditures by the Company in anticipation of product
releases or increased revenue, the timing of product enhancements and product
introductions by the Company and its competitors, market acceptance of new and
enhanced versions of the Company's products, the size, timing and structure of
significant licenses, changes in pricing policies of the Company and its
competitors, variations in the mix of products the Company licenses, delays in
processing orders, the mix of direct and indirect sales, changes in Company
strategy, personnel changes and general economic factors. Any unfavorable
changes in these or other factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
The outcome of pending litigation may also affect the Company's business,
financial condition and results of operations. See Part II, Item 1, "Legal
Proceedings" below.
PART II
ITEM 1. LEGAL PROCEEDINGS
On July 29, 1996, the Company was sued by Cadence Design Systems, Inc.
("Cadence") in the Superior Court of Santa Clara County (Case No. CV759629) in
California. The complaint seeks to enjoin the Company from selling a translator
that was created by a third party that allows the Company's integrated circuit
routing software (IC
Page 14
<PAGE>
Craftsman) to connect to Cadence's software. The complaint alleges that the
product was not authorized by Cadence's license agreements with the third party
or the Company. The Company has sold the translator with a limited number of IC
Craftsman products over the last 11 months. The complaint also seeks damages
from the Company.
The Company believes that the lawsuit is completely without merit and
intends to fight it vigorously. The Company is also considering possible
counterclaims against Cadence. A hearing on the preliminary injunction is
scheduled for August 22, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on June 10, 1996.
There were two proposals submitted to a vote of Security Holders, through the
solicitation of proxies, during the second quarter ended June 30, 1996.
Proposal 1: The nominees for election for the Board of Directors and the
number of votes cast for, against or withheld, as well as the number of
abstentions and broker non-votes were as follows:
<TABLE>
<CAPTION>
Nominee For Against Abstain Non-Votes
------- --- ------- ------- ---------
<S> <C> <C> <C> <C>
David Chyan 9,791,326 865 0 2,288,957
John F. Cooper 9,791,326 865 0 2,288,957
Mary I. Cooper 9,791,326 865 0 2,288,957
James R. Fiebiger 9,791,126 1,065 0 2,288,957
John R. Harding 9,791,326 865 0 2,288,957
Yoshikazu Hori 9,791,326 865 0 2,288,957
</TABLE>
Proposal 2: The votes cast for, against or withheld, as well as the number
of abstentions and broker non-votes for the ratification of the selection of
Ernst & Young LLP as independent accountants for the Company for the current
fiscal year were as follows:
<TABLE>
<CAPTION>
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
9,791,416 200 575 2,288,957
- ------------
</TABLE>
ITEM 5. OTHER INFORMATION
On July 22, 1996, the Company entered into a definitive agreement to
acquire UniCAD, Inc. ("UniCAD"), a privately held company engaged in the
development, marketing and support of electrical integrity, analysis and
optimization software tools for PCB design. Under the terms of the agreement,
the Company will issue shares of its common stock to the stockholders of UniCAD
according to a conversion ratio subject to adjustment based on changes in the
market price of the Company's common stock. At the July 22 closing price, the
Company would issue approximately 365,000 shares of its common stock in exchange
all shares of UniCAD stock currently outstanding. In accordance with the same
conversion ratio as applicable to UniCAD's common stock, the Company will also
assume all outstanding options under the UniCAD stock option plan which, after
the acquisition, will result in the issuance of approximately 69,000 additional
shares of the the Company's common stock (also as of the July 22, 1996 closing
price for the Company's stock) as the options are vested and exercised.
The transaction is intended to be a tax-free reorganization and will be
accounted for as a pooling of interests. Subject to approval by UniCAD's
stockholders, and to normal closing conditions, the transaction is currently
scheduled to close in late August 1996. Upon completion of the transaction (the
"Merger") UniCAD will become a wholly-owned subsidiary of the Company.
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<PAGE>
The anticipated benefits of the Merger will not be achieved unless UniCAD
and the Company are successfully combined in an efficient and timely manner. It
is possible that the process of combining the two organizations, integrating
their product offerings and coordinating their research and development,
production, administrative and sales and marketing efforts, will cause an
interruption of, or a loss of momentum in, the activities of either or both of
the companies' businesses, which could have a material adverse effect on their
combined operations, at least in the near term. The difficulties of integration
may be increased by the necessity of coordinating geographically separated
organizations and integrating personnel with disparate business backgrounds.
Furthermore, the process of combining the companies could have a material
adverse effect on employee morale and on the ability of the combined company to
retain the key management, technical and sales and marketing personnel who are
critical to the combined company's future operations. In addition, the
announcement and consummation of the Merger could cause customers or potential
customers to delay or cancel orders for products as a result of uncertainty over
the integration and support of the combined company's products. Finally, the
transaction costs of the Merger, including the fees of financial advisors,
attorneys and accountants, and severance and other restructuring charges, will
be substantial and could adversely affect the combined company's business and
operations.
Dependence on Key Personnel. There can be no assurances that the
Company's current management will be capable of managing the combined
operations, or UniCAD's existing strategic relationships with its customers,
effectively. There can be no assurance that after the Merger the combined
company will be able to retain and continue to attract key technical and other
employees. In addition, it is possible that the business and management changes
brought by the Merger may cause key employees to leave UniCAD or cause the
Company to terminate key employees of UniCAD. Any failure by UniCAD or the
Company to retain and attract key employees, could have a material adverse
effect on their respective product development, marketing and other efforts,
results of operations and business prospects.
See also "Other Factors That May Affect Future Operating Results."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are filed herewith or incorporated by reference:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
(a) See attached Exhibit Index.
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the quarter ended June 30, 1996.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 9, 1996 COOPER & CHYAN TECHNOLOGY, INC.
By: /s/ Robert D. Selvi
----------------------
Robert D. Selvi
Chief Financial Officer
(Duly Authorized Officer and Chief
Accounting Officer)
Page 17
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER EXHIBIT TITLE NUMBER
- ------ ------------- ------
11.01 Statement of Computation of Net Income Per Share. 20
27.01 Financial Data Schedule, which is submitted
electronically to the Securities and Exchange
Commission for information only and is not filed. 21
Page 19
<PAGE>
Exhibit 11.01
COOPER AND CHYAN TECHNOLOGY, INC.
COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 1,198,273 $ 12,522 $ 2,155,090 $ 44,522
Weighted average common shares 12,230,655 7,535,352 12,112,545 7,246,802
outstanding
Weighted average common share 1,663,410 1,049,527 1,714,220 1,249,660
equivalents related to stock
options using the Treasury
stock method)
Shares relating to SAB No 64 and 83 - 1,494,598 1,494,598
Convertible preferred stock - 1,480,000 - 1,480,000
----------- ---------- ----------- -----------
Shares used in per share 13,894,065 11,559,477 13,826,765 11,471,060
computation
----------- ---------- ----------- -----------
Net income per share $ 0.09 $ 0.00 $ 0.16 $ 0.00
=========== ========== =========== ===========
</TABLE>
Page 20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,692,886
<SECURITIES> 23,144,006
<RECEIVABLES> 5,422,958
<ALLOWANCES> 526,950
<INVENTORY> 0
<CURRENT-ASSETS> 36,274,105
<PP&E> 4,826,298
<DEPRECIATION> 1,982,143
<TOTAL-ASSETS> 39,422,978
<CURRENT-LIABILITIES> 5,345,276
<BONDS> 0
0
0
<COMMON> 124,610
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 39,422,978
<SALES> 6,981,008
<TOTAL-REVENUES> 6,981,008
<CGS> 338,822
<TOTAL-COSTS> 5,425,655
<OTHER-EXPENSES> (45,097)
<LOSS-PROVISION> 134,466
<INTEREST-EXPENSE> 213,473
<INCOME-PRETAX> 1,814,872
<INCOME-TAX> 616,599
<INCOME-CONTINUING> 1,198,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,198,273
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
