UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 0-28540
VERSANT OBJECT TECHNOLOGY CORPORATION
(Exact name of Small Business Issuer as specified in its charter)
California 94-3079392
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
6539 Dumbarton Circle
Fremont, California 94555
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (510) 789-1500
Check whether the Issuer (1) filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---
The number of shares of common stock, no par value, outstanding
as of November 4, 1997: 8,969,049
Transitional Small Business Disclosure Format (check one):
Yes No X
---
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VERSANT OBJECT TECHNOLOGY CORPORATION
FORM 10-QSB
Period Ended September 30, 1997
Table of Contents
Part I. Financial Information
Item 1. Financial Statements Page No.
<S> <C>
Condensed Consolidated Balance Sheets -
September 30, 1997 and December 31, 1996. . . . . . . . 3
Condensed Consolidated Statements of Operations -
Three and Nine Months Ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 . . . . . 5
Notes to Condensed Consolidated Financial Statements. . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds . . . . . 18
Item 6. Exhibits and Reports on form 8-K. . . . . . . . . . 19
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
<TABLE>
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VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
1997 1996
--------------- --------------
(unaudited) *
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 4,089 $ 5,267
Short-term investments. . . . . . . . . . . . . . 8,439 14,716
Accounts receivable, net. . . . . . . . . . . . . 8,135 4,747
Other current assets. . . . . . . . . . . . . . . 2,312 198
--------------- --------------
Total current assets. . . . . . . . . . . 22,975 24,928
Property and equipment, net . . . . . . . . . . . 5,903 675
Other assets. . . . . . . . . . . . . . . . . . . 407 85
Excess of cost of investment over fair value of
net assets acquired, net. . . . . . . . . . . 3,094 -
--------------- --------------
$ 32,379 $ 25,688
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt . . . . . . . . . . . . . . . . . $ 595 $ -
Current portion of capitalized lease obligations. 380 226
Notes payable . . . . . . . . . . . . . . . . . . 106 -
Accounts payable. . . . . . . . . . . . . . . . . 1,504 475
Accrued liabilities and other . . . . . . . . . . 2,839 2,489
Deferred revenue. . . . . . . . . . . . . . . . . 4,185 2,811
--------------- --------------
Total current liabilities . . . . . . . . 9,609 6,001
Long-term liabilities, net of current portion:
Long term note debt . . . . . . . . . . . . . . . 1,222 -
Capitalized lease obligations . . . . . . . . . . 656 413
Shareholders' equity:
Common stock. . . . . . . . . . . . . . . . . . . 42,841 40,889
Accumulated deficit . . . . . . . . . . . . . . . (21,949) (21,615)
--------------- --------------
Total shareholders' equity. . . . . . . . 20,892 19,274
--------------- --------------
$ 32,379 $ 25,688
=============== ==============
<FN>
* Derived from audited financial statements
See Accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS), EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- -----------------
1997 1996 1997 1996
------ ------ -------- -------
<S> <C> <C> <C> <C>
Revenue:
License . . . . . . . . . . . . . . . . . $7,241 $3,053 $14,740 $ 8,024
Services. . . . . . . . . . . . . . . . . 2,159 1,929 5,809 4,752
Total revenue . . . . . . . . . . . . 9,400 4,982 20,549 12,776
Cost of revenue:
License . . . . . . . . . . . . . . . . . 619 278 971 769
Services. . . . . . . . . . . . . . . . . 1,205 965 3,169 2,155
------ ------ -------- -------
Total cost of revenue . . . . . . . 1,824 1,243 4,140 2,924
------ ------ -------- -------
Gross profit . . . . . . . . . . . . . . . . . 7,576 3,739 16,409 9,852
Operating expenses:
Marketing and sales . . . . . . . . . . . 4,726 1,987 11,231 5,842
Research and development. . . . . . . . . 1,467 928 3,625 2,450
General and administrative. . . . . . . . 756 409 2,039 995
Amortization of cost of investment over
fair value of net assets acquired, net. 121 - 250 -
------ ------ -------- -------
Total operating expenses. . . . . . 7,070 3,324 17,145 9,287
------ ------ -------- -------
Income (loss) from operations. . . . . . . . . 506 415 (736) 565
Interest income and other, net. . . . . . 96 256 491 238
Currency translation gain (loss). . . . . 25 - (13) -
------ ------ -------- -------
Income (loss) before taxes . . . . . . . . . . 627 671 (258) 803
Provision for taxes . . . . . . . . . . . 2 65 25 88
------ ------ -------- -------
Net income (loss). . . . . . . . . . . . . . . $ 625 $ 606 $ (283) $ 715
====== ====== ======== =======
Net income (loss) per share. . . . . . . . . . $ 0.07 $ 0.07 $ (0.03)
====== ====== ========
Pro forma net income per share $ 0.10
=======
Shares used in earnings per share calculation. 9,335 8,831 8,732 7,273
====== ====== ======== =======
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
Nine months Ended
September 30,
--------------------
1997 1996
--------- ---------
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OPERATING ACTIVITIES:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . $ (283) $ 715
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . 596 266
Amortization . . . . . . . . . . . . . . . . . . . . . . 250 -
Deferred rent. . . . . . . . . . . . . . . . . . . . . . (11) (10)
Changes in current assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . (2,701) (2,506)
Other assets . . . . . . . . . . . . . . . . . . . . . (1,265) 261
Short term bank debt . . . . . . . . . . . . . . . . . (304) -
Accounts payable . . . . . . . . . . . . . . . . . . . 731 87
Accrued liabilities and taxes payable. . . . . . . . . (152) (194)
Deferred revenue . . . . . . . . . . . . . . . . . . . 1,234 (326)
--------- ---------
Net cash used in operating activities. . . . . . . (1,905) (1,707)
--------- ---------
INVESTING ACTIVITIES:
Purchase of property and equipment . . . . . . . . . . . . . (5,818) (454)
Purchases of short-term investments. . . . . . . . . . . . . (11,877) (12,741)
Proceeds from sale and maturities of short-term investments. 18,229 -
Purchase of Versant Europe, net of cash acquired . . . . . . (1,987) -
Deposits and other assets. . . . . . . . . . . . . . . . . . (216) (17)
--------- ---------
Net cash used in investing activities. . . . . . . . . (1,669) (13,212)
--------- ---------
FINANCING ACTIVITIES:
Proceeds from sale of common stock . . . . . . . . . . . . . 808 15,940
Principal payments under capital lease obligations . . . . . (41) -
Proceeds from capital lease financing. . . . . . . . . . . . 302 174
Proceeds from long-term bank borrowings. . . . . . . . . . . 1,222 -
--------- ---------
Net cash provided by financing activities. . . . . . . 2,291 16,114
--------- ---------
Effect of exchange rate changes on cash. . . . . . . . . . . . 105 -
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . (1,178) 1,195
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD . . . . . . . 5,267 1,281
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . $ 4,089 $ 2,476
========= =========
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by Versant Object Technology Corporation ("Versant" or the
"Company"), without audit, pursuant to rules and regulations of the Securities
and Exchange Commission (the "SEC"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not misleading.
These condensed financial statements and the notes thereto should be read in
conjunction with the Company's audited financial statements included in the
Company's Form SB-2 Registration Statement declared effective by the SEC on
July 17, 1996, the audited financial statements in the Company's Form 10-KSB
for the year ending December 31, 1996 and the unaudited financial statements
in the Forms 10-QSB for the quarters ended March 31 and June 30, 1997. The
unaudited information has been prepared on the same basis as the audited
annual financial statements and, in the opinion of the Company's management,
reflects all normal recurring adjustments necessary for a fair presentation of
the information for the periods presented. 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, 1997 or any other future
period.
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and it's wholly owned
subsidiary, Versant Object Technology GmbH ("Versant Europe") All intercompany
accounts and transactions have been eliminated.
REVENUE RECOGNITION
Revenue consists mainly of revenue earned under software license
agreements and consulting, maintenance agreements and training services.
Revenue from software license agreements is recognized as revenue upon
shipment of the software if no significant vendor obligations remain, payments
are due within the Company's normal payment terms, and collection of the
resulting receivable is probable. In instances where a significant vendor
obligation exists, revenue recognition is delayed until such obligation is
satisfied. If an acceptance period is required, revenue is recognized upon
the earlier of customer acceptance or the expiration of the acceptance
period.
Maintenance revenue is recognized ratably over the term of the
maintenance contract. Consulting and training revenue is recognized when a
customer's purchase order or prepayment is received and the services are
performed.
NET INCOME (LOSS) PER SHARE
Except as noted below, net income (loss) per share is computed using the
weighted average number of outstanding shares of common and common equivalents
from outstanding stock options (using the treasury stock method when
dilutive). Common equivalent shares were excluded from the computation for the
nine months ended September 30, 1997, as their effect was antidilutive.
Pursuant to the SEC Staff Accounting Bulletin and Staff policy, the weighted
average common and common equivalent shares computations for the three and
nine months ended September 30, 1996 include all common and common stock
equivalent shares issued within 12 months preceding the filing date of the
registration statement for the Company's initial public offering as if they
were outstanding. Shares of mandatorily redeemable convertible preferred stock
outstanding during the three and nine months ended September 30, 1996 were
included (using the if converted method) in the computation as common
equivalent shares. Primary and fully diluted net income (loss) per common
share was substantially the same in all periods presented.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128) which is effective for fiscal years ending after December 15, 1997.
Early application is not permitted. The Company will adopt SFAS 128 for its
year ending December 31, 1997. The pro forma effect of SFAS No. 128 for the
three and nine months ended September 30, 1997 and 1996 would be as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTH ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------ --------------
1997 1996 1997 1996
----- ----- ------- -----
<S> <C> <C> <C> <C>
Reported earnings (loss) per share $0.07 $0.07 $(0.03) $0.10
Basic earnings (loss) per share. . $0.07 $0.08 $(0.03) $0.14
Diluted earnings (loss) per share. $0.07 $0.07 $(0.03) $0.10
</TABLE>
SOFTWARE DEVELOPMENT COST
The Company capitalizes eligible software development costs upon the
establishment of technological feasibility, which the Company has defined as
completion of a working model. For the periods presented, costs eligible for
capitalization were insignificant and, thus, the Company charged all software
development costs to research and development expense as incurred.
3. Acquisition
On March 26, 1997, the Company acquired Versant Object Technology GmbH
(Versant Europe), an independently owned distributor of the Company's
products in Europe. The Company paid $3.6 million to the shareholder of
Versant Europe consisting of $2.0 million in cash and 167,545 shares of common
stock valued at $9.75 per share. The shares of common stock paid to the
shareholder of Versant Europe were issued in a transaction exempt from
registration under the Securities Act of 1933, as amended, by virtue of
Section 4(2), thereof. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the results of operations of Versant Europe
are reflected in the condensed consolidated financial statements commencing on
the date of the acquisition.
The acquisition of Versant Europe resulted in the Company recording an
intangible asset representing the cost in excess of fair value of the net
assets acquired in the amount of $3.3 million, which is being amortized over
a seven-year period. Consolidated operations for the nine months ended
September 30 1997 include total revenue and operating expenses from Versant
Europe of approximately $4.0 million and $3.1 million, respectively, for the
period from the date of acquisition to September 30, 1997.
The table below presents the pro forma results (in thousands) for the nine
months ended September 30, 1997 and 1996 had the Company's acquisition of
Versant Europe occurred at the beginning of 1997 and 1996.
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996
-------------------- -------------------
<S> <C> <C>
Revenue. . . . . . . . . . . $ 20,939 $ 13,655
Net income (loss). . . . . . $ (397) $ 38
Net income (loss) per share. $ (0.05) $ .01
</TABLE>
4. Long Term Bank Note
In May 1997, the Company entered into a variable rate note with a bank
that only requires interest payments until maturity and that converts at
maturity on March 1, 1998 to a fixed rate, term loan with principal and
interest payable over 36 months. The maximum amount that can be borrowed
under the note is $3.0 million. Borrowings under the note are secured by a
lien on all of assets acquired using the proceeds from the note. As of
September 30, 1997, $1.2 million was outstanding on the note resulting from
the acquisition of equipment and leasehold improvements. These borrowings bear
interest at the bank's base lending rate (currently at 8.5 percent) plus 0.5
percent. The note agreement contains certain financial covenants and also
prohibits cash dividends and mergers and acquisitions without the bank's prior
approval. The Company is currently in compliance with these covenants.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, which reflect the
Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below and in the Company's Form SB-2
Registration Statement, declared effective by the SEC on July 17, 1996, the
Form 10-KSB for the year ended December 31, 1996 and the Forms 10-QSB for the
quarters ended March 31, 1997 and June 30, 1997 that could cause actual
results to differ materially from historical results or those anticipated in
the forward-looking statements. The Company has identified with a preceding
asterisk ("*") various sentences within this Form 10-QSB which contain such
forward-looking statements, and words such as "believes," "anticipates,"
"expects," "may," "future," "intends" and similar expressions are intended to
identify forward-looking statements. In addition, the remainder of this
"Overview" section, which has no asterisks for improved readability, includes
a substantial number of forward-looking statements. The Company undertakes no
obligation to revise any forward-looking statements in order to reflect events
or circumstances that may arise after the date of this report.
Substantially all of Versant's revenue has been derived from (i) sales of
development and deployment licenses for the Versant Object Database Management
System (the "Versant ODBMS") and related products, (ii) related maintenance
and support, training, consulting and nonrecurring engineering fees (the
"Associated Services") and (iii) the resale of licenses, maintenance, training
and consulting for third-party products that complement the Versant ODBMS
("Third-Party Products"). The Company released version 5.0 of the Versant
ODBMS, an enhanced version of the core ODBMS engine, in the first quarter of
1997. Included with the release of version 5.0 were two Internet products,
Versant Web and Versant Internet Adapter. In the second quarter of 1997, the
Company released and shipped another Internet product, the Versant Java
Language Interface. In addition, the Company has developed a product that
allows access to data stored in a Versant database via the Internet or
corporate Intranets. In the third quarter of 1997, the Company shipped
Versant Multimedia Access (Versant/VMA) which enables multimedia files to be
automatically loaded onto the Versant ODBMS, an Object Data Management Group
JAVA compliant language interface and a version of the Versant ODBMS that can
support the Microsoft NT Wolfpack product. The Company currently expects that
the sales of licenses of the Versant ODBMS and related products and Associated
Services will be the Company's principal sources of revenue for the
foreseeable future. In addition, the Company continues to invest in the
development, marketing and sale of new ODBMS-related products dedicated to
Internet, extranet and e-commerce customers. The success of these new
products, and, to some extent, the Company's future operating results in
general will depend upon its ability to expand market acceptance of the
Versant ODBMS in the Internet, extranet and e-commerce markets.
The Company's operating results have varied significantly in the past and
are expected to vary significantly in the future, on a quarterly and annual
basis, as a result of a number of factors, many of which are outside the
Company's control. These factors include demand for the Company's products and
services and the size, timing and structure of significant licenses by
customers. The Company's license revenue is substantially dependent on orders
booked and shipped in that quarter, and historically a majority of the
Company's revenue in any quarter has been recorded in the third month of that
quarter, with a concentration of such revenue in the last few days of the
quarter. Due to these and other factors, the Company's revenue for any future
period will likely vary significantly from any prior period, and it is
impossible to predict revenue for any period prior to its end.
The Company has experienced a seasonal pattern in its operating results,
with the fourth quarter typically having higher total revenue and income from
operations than the first quarter, and often-subsequent quarters, of the
following year. The Company believes that the seasonal pattern of its revenue
has resulted primarily from the budgeting cycles of its customers and the
structure of the Company's sales commission program. The Company believes that
this pattern is likely to continue for the foreseeable future. However, there
can be no assurance that this pattern will continue.
A significant portion of the Company's total revenue has been, and the
Company believes will continue to be, derived from a limited number of orders
placed by large organizations. The timing of such orders and their fulfillment
has caused, and likely will continue to cause, material fluctuations in the
Company's operating results, particularly on a quarterly basis. In the third
quarter of 1997, three customers accounted for approximately 42% of total
revenue. The Company's sales cycle, which varies substantially from customer
to customer, often exceeds six months and can extend to a year or more.
Because of this lengthy sales cycle and the relatively large average dollar
size of individual licenses, lost or delayed sales can have a significant
impact on the Company's operating results for a particular period. Further, in
the third quarter of 1997, approximately 45% of the Company's license revenue
were derived from customers in the telecommunications industry. There can be
no assurance that the Company will earn comparable revenue from these
customers or this industry in future periods.
Although Versant was profitable in the second and third quarters of
1997, there can be no assurance that the Company will be profitable on a
quarterly or annual basis in the future. The Company's limited operating
history and the relative immaturity of its market make the prediction of
future operating results impossible. The market for the Company's products is
highly competitive, and the Company may experience increasing pricing
pressures from both its current competitors and new market entrants,
particularly as other database vendors enter the object-oriented and
object-relational database markets. In particular, in June 1997, Oracle
Corporation ("Oracle") introduced its Oracle8 database product that was
designed, in part, to address the object-oriented database market with its
object-relational capabilities. In November 1997, Oracle began beta testing
its Object Database Designer product, which was designed to allow users of
Oracle8 to take advantage of the object features of Oracle8. There can be no
assurance that the Company's products will compete successfully with Oracle8
or similar products introduced by the Company's competitors. Many of the
Company's competitors, including Oracle, have significantly greater resources,
market penetration and name recognition than the Company. Any material
reduction in the price of the Company's products or inability to compete
successfully against competitor's products would materially adversely affect
the Company's operating results.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement
items bear to total revenue for the three and nine months ended September 30,
1997 and 1996.
<TABLE>
<CAPTION>
VERSANT OBJECT TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------- --------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenue:
- ----------------------------------------------
License . . . . . . . . . . . . . . . . . 77.0% 61.3% 71.7% 62.8%
Services. . . . . . . . . . . . . . . . . 23.0% 38.7% 28.3% 37.2%
------ ------ ------ ------
Total revenue . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Cost of revenue:
License . . . . . . . . . . . . . . . . . 6.6% 5.6% 4.7% 6.0%
Services. . . . . . . . . . . . . . . . . 12.8% 19.4% 15.4% 16.9%
------ ------ ------ ------
Total cost of revenue . . . . . . . 20.4% 24.9% 20.1% 22.9%
Gross profit . . . . . . . . . . . . . . . . . 80.6% 75.1% 79.9% 77.1%
Operating expenses:
Marketing and sales . . . . . . . . . . . 50.3% 39.9% 54.7% 45.7%
Research and development. . . . . . . . . 15.6% 18.6% 17.6% 19.2%
General and administrative. . . . . . . . 8.0% 8.2% 9.9% 7.8%
Amortization of cost of investment over
fair value of net assets acquired, net. 1.3% - 1.2% -
------ ------ ------ ------
Total operating expenses. . . . . . 75.2% 66.7% 83.4% 72.7%
------ ------ ------ ------
Income (loss) from operations. . . . . . . . . 5.4% 8.3% -3.6% 4.4%
Interest income and other, net. . . . . . 1.0% 5.1% 2.4% 1.9%
Currency translation gain (loss). . . . . 0.3% - -0.1% -
------ ------ ------ ------
Income (loss) before taxes . . . . . . . . . . 6.7% 13.5% -1.3% 6.3%
Provision for taxes . . . . . . . . . . . - 1.3% 0.1% 0.7%
------ ------ ------ ------
Net income (loss). . . . . . . . . . . . . . . 6.7% 12.2% -1.4% 5.6%
====== ====== ====== ======
</TABLE>
Revenue
The Company's total revenue increased 89% from $5.0 million in the third
quarter of 1996 to $9.4 million in the third quarter of 1997. The Company's
total revenue increased 61% from $12.8 million for the nine months ended
September 30, 1996 to $20.5 million in the corresponding period of 1997. The
increases in both the three and nine months ended September 30, 1997 compared
to the year-earlier periods were principally due to a substantial increase in
domestic and international sales of the Company's products and services to new
and existing customers in the telecommunications, Internet and financial
industries including further deployments by existing telecommunications
customers.
The Company's license revenue increased 137% from $3.1 million in the
third quarter of 1996 to $7.2 million in the third quarter of 1997. The
increase in license revenue was primarily due to sales to new domestic and
international telecommunication, Internet and finance customers including
those sales made through Versant Europe, deployments by existing
telecommunications customers and royalty revenue. As a result of
the acquisition of Versant Europe in March 1997, the Company recognized
approximately $1.3 million of license revenue in the third quarter of 1997
that would have been recognized only at a 40 percent royalty rate had Versant
Europe not been acquired. The Company's license revenue increased 84% from
$8.0 million for the nine months ended September 30, 1996 to $14.7 million in
the corresponding period of 1997. The increase in license revenue was
primarily due to increased domestic and international license revenue
resulting from sales to new customers, including a large sale to the U.S.
Government, deployments by existing customers and the acquisition of Versant
Europe in March 1997 which resulted in the Company recognizing approximately
$3.0 million of license revenue for the nine month period ended September 30,
1997, that would have been recognized only at a 40 percent royalty rate had
Versant Europe not been acquired. The Company's license revenue as a
percentage of total revenue increased from 61% to 77% from the third quarter
of 1996 to the third quarter of 1997, and from 63% to 72% for the nine months
ended September 30, 1996 to the corresponding period of 1997 due to license
revenue increasing at a significantly faster rate than service revenue.
The Company's services revenue increased 12% from $1.9 million in the
third quarter of 1996 to $2.2 million in the third quarter of 1997. The
increase in services revenue were primarily due to increased domestic and
international consulting business and increased maintenance revenue from
customer renewals and an increase in the installed base. In addition, as a
result of the acquisition of Versant Europe, the Company recognized
approximately $622,000 of service revenue in the third quarter of 1997 that
would have been recognized only at a 25 percent royalty rate had Versant
Europe not been acquired. The Company's services revenue increased 22% from
$4.8 million for the nine months ended September 30, 1996 to $5.8 million in
the corresponding period of 1997. The increase in services revenue was
primarily due to increased domestic and international consulting business,
including approximately $1.0 million of services revenue resulting from the
acquisition of Versant Europe that would have been recognized only at a 25%
royalty rate had Versant Europe not been acquired, increased maintenance
revenue from customer renewals and an increase in the installed base and to a
lesser extent, increased customer training revenue.
International sales decreased from 46% of the Company's total revenue in
the third quarter of 1996 to 33% in the third quarter of 1997. International
sales increased from 23% of the Company's total revenue for the nine months
ended September 30, 1996 to 29% in the corresponding period of 1997. The
primary sources of the Company's international sales are direct sales in
Australia, Asia, Canada and, since March 1997, direct sales by Versant Europe
in the United Kingdom, France and Germany. Prior to the acquisition of
Versant Europe by the Company in March 1997, the Company received a 40%
royalty on sales of licenses and a 25% royalty on service revenue from Versant
Europe. The increase in international sales in the third quarter in absolute
dollars and for the nine months ended September 30, 1997 in dollars and as a
percentage of total revenue was principally due to sales to telecommunication
and finance customers located in the United Kingdom, France and Germany which
resulted in approximately $3.1 million and $6.0 million in combined license
and services revenue, respectively, and a large sale in the third quarter to a
Canadian telecommunications customer. The decrease in international sales as a
percentage of total revenue in the third quarter of 1997 compared to the same
period in 1996 was primarily due to significantly higher domestic sales while
international sales in absolute dollars in the third quarter of 1997 where
essentially equal for the same period in 1996. *The Company intends to expand
its sales, marketing and business development activities outside the United
States, including but not limited to Europe, Hong Kong, mainland China,
Malaysia, Japan and other Asia/Pacific countries, which will require
significant management attention and financial resources which may increase
cost and impact margins unless and until sufficient revenue is achieved. *As a
result of the Versant Europe acquisition and the continued emphasis on
expanding internationally, the Company expects international sales as a
percentage of total consolidated revenue to gradually increase; however, there
is no assurance of such an increase of international sales. The Company's
international operations are subject to a number of risks. Such risks include
but are not limited to longer receivable collection periods, changes in
regulatory requirements, dependence on independent resellers, multiple and
conflicting regulations and technology standards, import and export
restrictions and tariffs, difficulties and costs of staffing and managing
foreign operations, potentially adverse tax consequences, foreign exchange
fluctuations, the burdens of complying with a variety of foreign laws and the
impact of business cycles and economic instability outside the United States.
Cost of Revenue
The Company's total cost of revenue increased 47% from $1.2 million in
the third quarter of 1996 to $1.8 million in the third quarter of 1997
principally resulting from increases in domestic and international product
cost and the continued expansion of the consulting, support and training
organizations. Total cost of revenue as a percentage of total revenue
decreased from 25% in the third quarter of 1996 to 20% in the third quarter of
1997. Total cost of revenue increased 42% from $2.9 million for the nine
months ended September 30, 1996 to $4.1 million in the corresponding period of
1997 due to substantial increases in the cost of services and product revenue.
Total cost of revenue as a percentage of total revenue declined from 23% for
the nine months ended September 30, 1996 to 20% in the corresponding period of
1997.
The Company's cost of license revenue consists primarily of royalty
obligations accrued by the Company when it sub-licenses Third-Party Products,
deferred license costs associated with the acquisition of Versant Europe
recognized as a cost of license revenue, adjustments to bad debt reserves,
costs of product media, freight, user manuals, product packaging and
production labor costs. Cost of license revenue increased 123% from
$278,000 or 9% of license revenue in the third quarter of 1996 to $619,000 or
9% of license revenue in the third quarter of 1997, primarily due to incurring
higher costs that vary with the increased level of license revenue such as the
recognition of $100,000 of deferred license costs associated with the
acquisition of Versant Europe, valuation adjustments to bad debt reserves,
royalty expense accruals, higher production labor, domestic and international
freight, product duplication, packaging services and publication cost for
product manuals and technical updates. The cost of license revenue increased
26% from $769,000 or 10% of license revenue for the nine months ended
September 30, 1996 to $971,000 or 7% in the corresponding period of 1997
primarily due to incurring higher product cost in absolute dollars due to
increased sales. *As part of the March 1997 acquisition of Versant Europe, the
Company allocated $1.4 million of the purchase price to deferred license
costs. For the three and nine months ended September 30, 1997, the Company has
recognized approximately $100,000 and $130,000, respectively, of these
deferred license costs as a cost of license revenue. *The Company expects to
recognize the remaining $1.2 million in deferred license cost as a cost of
license revenue during the next six quarters. *The Company expects margins on
license revenue to be adversely impacted as a result of recognizing the
remaining deferred cost as a cost of license revenue.
The Company's cost of services revenue consists principally of personnel
costs associated with providing consulting, customer technical support,
product training and, to a lesser extent, nonrecurring engineering and
integration services. These costs increased 25% from $965,000 or 50% of
services revenue in the third quarter of 1996 to $1.2 million or 56% of
service revenue in the third quarter of 1997. The increase was primarily due
to higher compensation and operating costs resulting from additions in
domestic and international management, consulting professionals and software
engineers. Cost of services revenue increased 47% from $2.2 million or 45% of
services revenue for the nine months ended September 30,1996 to $3.2 million
or 55% of services revenue in the corresponding period of 1997. The increase
was primarily due to an increase in management, engineers and administrative
staff in the consulting, customer technical support and training
organizations. Cost of services revenue as a percentage of services revenue
has increased due to staff additions in the consulting, training and support
organizations without an immediate corresponding increase in consulting and
training revenue resulting from factors including but not limited to the mix
of full price and reduced price services committed and provided to customers,
customer scheduling conflicts that may create delays in beginning or
continuing consulting services, the inability to attain sufficient paid
attendee levels to generate a profitable margin on training services and the
employee training time required prior to their assignment to billable
consulting engagements and training courses as instructors. There can be no
assurance that the Company will be able to adequately anticipate and plan for
the factors above to minimize the impact on services revenue and margins. *
The cost of services as a percentage of services revenues may vary between
periods due to the mix of services provided by the Company and the resources
used to provide these services. * The Company anticipates that cost of
services revenue will increase in absolute dollar terms and may increase as a
percentage of services revenue. *To the extent that services revenue increases
relative to license revenue, overall gross margins would decline, which could
have a material adverse effect on the Company's operating results and
financial condition.
Operating Expenses
The Company's marketing and sales expenses consist primarily of
marketing, sales and business development personnel costs, including salaries,
sales commissions, bonuses, travel, recruiting, sales office rent and
services, sales training, lead generation services, public relations fees,
production of product literature, seminars and trade shows activities,
advertising and direct mailings. Marketing and sales expenses increased 138%
from $2.0 million in the third quarter of 1996 to $4.7 million in the third
quarter of 1997. Marketing and sales expenses increased 92% from $5.8 million
for the nine months ended September 30, 1996 to $11.2 million for the
corresponding period of 1997. The increases in marketing and sales expenses
for both periods were due to the addition of marketing employees in the
Internet, product management, communications and partnering areas, the
addition of employees in sales, higher compensation including bonuses and
commission expenses associated with higher revenue, increased marketing
activities to support product sales in the US and Australia, participation at
a European telecommunication tradeshow and increased public relations and
promotional costs associated with the announcement of two significant new
products and one new platform port. In addition, Versant Europe hired
additional sales representatives, moved the Germany sales offices to a larger
facility and increased marketing activities, thereby adding expenses of
approximately $1.1 million in the third quarter of 1997 and $2.2 million for
the nine months ended September 30, 1997. Marketing and sales expenses as a
percentage of total revenue increased from 40% in the third quarter of 1996 to
50% in the third quarter of 1997. Marketing and sales expenses as a percentage
of total revenue increased from 46% for the nine months ended September 30,
1996 to 55% for the corresponding period of 1997. The increase in marketing
and sales expenses as a percentage of total revenue was due to a higher growth
in marketing and sales expenses, specifically increased salaries, commissions,
bonuses and travel expenses incurred to support the expansion of products and
services to existing and new sales territories, when compared to total revenue
growth. *The Company expects to continue hiring additional marketing, sales
and business development personnel domestically and internationally,
specifically in Europe, and to continue substantial marketing and sales
activities and accordingly, profitability will be adversely affected if such
additional expenditures do not result in increased revenue.
The Company's research and development expenses consist primarily of
salaries, bonuses, recruiting and personnel-related expenses, travel, the
costs of an ISO 9001 quality program, the depreciation or expensing of
engineering computer workstations and related supplies. Research and
development expenses increased 58% from $928,000 or 19% of total revenue in
the third quarter of 1996 to $1.5 million or 16% of total revenue in the third
quarter of 1997. Research and development expenses increased 48% from $2.5
million or 19% of total revenue for the nine months ended September 30, 1996
to $3.6 million or 18% for the corresponding period of 1997. The increases in
research and development expenses in the third quarter were due to the
addition of software engineers for product development, quality assurance and
porting, development of the JAVA language interface product, the Versant
Multimedia Access product, and the NT product to support Microsoft's Wolfpack
product, the acceleration of on going product quality assurance programs
including maintenance of the ISO 9001 certification and the cost of expanding
the Company's India engineering and porting organization. The increases in
research and development expenses for both periods were primarily attributable
to higher compensation and other personnel expenses resulting from an increase
in the number of software engineers employed for new product development and
quality assurance programs, as well as the costs of funding ongoing
engineering activities in India, the expense of completing the ISO 9001
quality certification program and increased depreciation or expensing of
engineering computer workstations, components or related supplies. Research
and development expenditures are expensed as incurred. *The Company
anticipates that it will continue to devote substantial resources to research
and development to design, produce, and increase the quality, competitiveness,
and acceptance of its current and future ODBMS and Internet related products.
The Company's general and administrative expenses consist primarily of
salaries, recruiting and other personnel-related expenses for the Company's
accounting, human resources, management information systems, legal and general
management functions. In addition, general and administrative expenses include
investor relations, insurance, legal and audit costs. General and
administrative expenses increased 85% from $409,000 in the third quarter of
1996 to $756,000 in the third quarter of 1997. General and administrative
expenses increased 105% from $995,000 for the nine months ended September 30,
1996 to $2.0 million expenses for the corresponding period of 1997. This
increase was due to the inclusion of $100,000 for the third quarter of 1997
and $250,000 for the nine months ended September 30, 1997 in general and
administration expenses related to Versant Europe, increased employees in the
information systems, human resources and accounting areas, increased
relocation and ongoing facility costs resulting from the occupancy of a
significantly larger facility as well as legal, accounting and investor
relation costs associated with being a public company with significant
international operations. General and administrative expenses as a percentage
of revenue were stable at 8% in the third quarter of 1996 and 8% in the third
quarter of 1997. General and administrative expenses as a percentage of
revenue increased from 7.8% for the nine months ended September 30, 1996
to 9.9% for the nine months ended September 30, 1997. This increase was due to
the inclusion of general and administration expenses related to Versant
Europe, increased employees in the information systems, human resources and
accounting areas, increased relocation and ongoing facility costs resulting
from the occupancy of a significantly larger facility as well as legal,
accounting and investor relation costs associated with being a public company
with significant international operations. * The Company believes that the
dollar amount of its general and administrative expenses will increase through
most of 1997 due to the cost associated with the ongoing operation of the
larger corporate headquarters, inclusion of the general and administration
expenses of Versant Europe and the additional costs related to being a public
company.
The Company's interest income and other, net includes interest earned on
the Company's cash balances invested in a bank money market account, U.S.
T-bills and U.S. Government Agency notes, interest expense related principally
to capital leases, short-term European bank debt, and to a lesser extent,
long-term US bank borrowings and the net loss on the write-off of the
leaseholds in the old headquarters facility. The decrease in interest income
and other, net from $256,000 in the third quarter of 1996 to interest income
and other, net of $96,000 in the third quarter of 1997 was principally due to
lower average cash balances available for investment as cash was used for
capital expenditures and to fund operations pending collection of outstanding
receivables. The increase in interest income and other, net from $238,000 for
the nine months ended September 30,1996 to $491,000 for the corresponding
period of 1997 was principally due to the interest earned on the proceeds
received from the Company's July 1996 initial public offering during the full
nine months ended September 30, 1997 net of capital lease and bank interest
expense
Net Income (Loss) Per Share
The Company's net income (loss) per share for the third quarter of 1997
was $0.07 and ($0.03) for the nine months ended September 30, 1997. The net
income per share computation for the third quarter of 1997 was based on
9,335,000 weighted average common and common equivalent shares outstanding
which was calculated using the treasury stock method. The net loss per share
for the nine months ended September 30, 1997 was based on 8,732,000
common shares outstanding. These share numbers reflect the shares issued in
the Company's initial public offering in July 1996, shares of Common Stock
issued to the shareholder of Versant Europe in March 1997 in connection with
the acquisition of Versant Europe, the sale of shares of Common Stock to
employees participating under the Employee Stock Purchase Plan and Common
Stock options exercised, net of repurchases.
Liquidity and Capital Resources
The Company's consolidated cash and cash equivalents decreased $1.2
million from $5.3 million at December 31, 1996 to $4.1 million at September
30, 1997. For the nine months ended September 30, 1997, the Company's
operating activities used $1.9 million primarily as a result of increases in
receivable balances on higher license and consulting sales volume, the funding
of the net loss for the period, an increase in other assets and a decrease in
short-term bank debt and accrued liabilities which were partially offset by
substantial increases in deferred revenue from higher maintenance sales and
accounts payable as well as increased depreciation and amortization. Investing
activities used cash of $1.7 million primarily as a result of the purchase of
$11.9 million in short-term investments, payment of the $2.0 million cash
portion of the acquisition of Versant Europe, the $5.8 million acquisition of
network and computer equipment, associated services, leasehold
improvements, furnishings and fixtures for the Company's new headquarters and
payment of the cash portion of the lease security deposit on the new
headquarters offset in part by $18.2 million in proceeds from the maturity or
sale of short term investments. Financing activities provided cash of $2.3
million primarily due to proceeds from long-term bank financing, the sale of
common stock to employees and capital lease financing offset by the principal
payments on capital leases.
Short-term investments decreased by $6.3 million from $14.7 million at
December 31, 1996 to $8.4 million at September 30, 1997. The decrease in
short-term investments resulted from the maturity and sale of $18.2 million
in short-term investments offset by the purchase $11.9 million in short-term
investments. The Company's short-term investments consist of United States
Treasury Bills and Federal National Mortgage Association Agency Discount
Notes. *Management expects that, in the future, cash in excess of current
requirements will be invested in short-term, interest-bearing, investment
grade securities.
The Company's total assets increased by 26% from $25.7 million at
December 31, 1996 to $32.4 million at September 30, 1997. The increase in
Total assets was primarily due to an increase in the accounts receivable
ending balance due to significantly higher sales volume, the cash and stock
acquisition of Versant Europe resulting in a $3.1 million balance (net) in
excess of cost over fair value of the assets acquired and the purchase of $5.8
million in network and computer equipment and associated services as well as
leasehold improvements, furnishings and fixtures for the new headquarters.
The Company's total current liabilities increased 60% from $6.0 million
at December 31, 1996 to $9.6 million at September 30, 1997. This increase was
primarily due to increases in deferred maintenance and consulting revenue,
short-term borrowings assumed as a result of the acquisition of Versant
Europe, accounts payable, accrued liabilities and issuance of a note payable
to secure the lease on the new corporate headquarters facility.
The Company's total shareholders' equity increased 8% from $19.3 million
at December 31, 1996 to $20.9 million at September 30, 1997. This increase
primarily results from the issuance of 167,545 shares of common stock valued
at $1.6 million, exclusive of a valuation adjustment, to the shareholder of
Versant Europe in connection with the acquisition of that company and the sale
of common stock to employees participating in the employee stock purchase plan
offset by a net loss of $283,000 for the nine months ended September 30, 1997.
The Company maintains a revolving credit line with a bank that expires
June 1, 1998. The maximum amount that can be borrowed under the revolving
credit line is $5.0 million. As of September 30, 1997, no borrowings were
outstanding however; a standby letter of credit issued on behalf of Versant
Europe in the amount of $1.0 million has reduced the amount available to $4.0
million. Borrowings under the revolving credit line are limited to 80 % of
eligible accounts receivable and are secured by a lien on substantially all of
the Company's assets (which lien shall be released at such time and for so
long as the Company meets certain net profit and tangible net worth tests.)
These borrowings bear interest at the bank's base lending rate (currently at
8.5 percent.) The loan agreement contains certain financial covenants and also
prohibits cash dividends and mergers and acquisitions without the bank's prior
approval. The Company is currently in compliance with these covenants.
The Company entered into a variable rate note with a bank that only
requires interest payments until maturity and converts at maturity on March 1,
1998 to a fixed rate, term loan with principal and interest payable over 36
months. The maximum amount that can be borrowed under the note is $3.0
million. Borrowings under the note are secured by a lien on all of assets
acquired using the proceeds from the note. As of September 30, 1997, $1.2
million was outstanding on the note resulting from the acquisition of
equipment and leasehold improvements. These borrowings bear interest at the
bank's base lending rate currently at 8.5 percent plus 0.5 percent
(currently at 8.5 percent) The note agreement contains certain financial
covenants and also prohibits cash dividends and mergers and acquisitions
without the bank's prior approval. The Company is currently in compliance with
these covenants. *The Company believes its available cash, cash equivalents
and short-term investments and the bank credit line and note will satisfy
the Company's projected working capital and capital expenditure requirements
at least for the next 12 months.
<PAGE>
PART II OTHER INFORMATION
Item 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
Use of Proceeds from Sales of Registered Securities.
On August 13, 1996, the Company completed an initial public offering of
its Common Stock, no par value (the "Offering"). The managing underwriters in
the Offering were Cowen & Company, Volpe, Welty & Company and SoundView
Financial Group, Inc. (the "Underwriters"). The shares of Common Stock sold
in the Offering were registered under the Securities Act of 1933, as amended,
on a Registration Statement on Form SB-2 (the "Registration Statement")
(Registration Number 333-4910-LA). The Registration Statement was declared
effective by the Securities and Exchange Commission (the "SEC") on July 17,
1996.
On July 17, 1996, the Company commenced the Offering. The Offering
terminated on August 13, 1996 after the Company had sold all 2,380,500; shares
of Common Stock offered in the Offering; the Company had initially registered
2,610,500 shares of Common Stock under the Registration Statement. Of the
amount sold, 2,136,842 shares were sold by the Company (including 239,207
shares sold pursuant to the exercise of the Underwriters' over-allotment
option) (the "Company Shares"), and 243,658 shares were sold by eight selling
shareholders (including 71,293 shares sold pursuant to the exercise of the
Underwriters' over-allotment option) (the "Secondary Shares"). The aggregate
price of the offering amount registered, based on an initial registration of
2,610,500 shares at an assumed offering price of $12.00 per share, was
$31,326,000. With respect to the Company Shares, the shares were sold at a
price to the public of $8.00 per share for an aggregate offering price of
$17,094,736. With respect to the Secondary Shares, the shares were sold at a
price to the public of $8.00 per share for an aggregate offering price of
$1,949,264.
From the effective date of the Registration Statement to August 13, 1997,
the Company paid an aggregate of $1,196,632 in underwriting discounts and
commissions. In addition, the following table sets forth an estimate of all
expenses incurred in connection with the Offering, other than underwriting
discounts and commissions. All of the amounts shown are estimated except for
the registration fees of the SEC, the National Association of Securities
Dealers, Inc. (the "NASD") and the Nasdaq National Market. None of the
amounts shown were paid directly or indirectly to any director, officer,
general partner of the Company or their associates, persons owning 10 percent
or more of any class of equity securities of the Company, or an affiliate of
the Company, except that $51,773 in miscellaneous expenses were paid, directly
or indirectly, to directors, officers or persons owning ten percent or more of
any class of equity securities of the Company.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee . . . . . . . . . . . . . . . . . . . . . . $ 10,802
NASD filing fee. . . . . . . . . . . . . . . . . . . . . . . . . 3,633
Nasdaq National Market filing fee. . . . . . . . . . . . . . . . 36,723
Accounting fees and expenses . . . . . . . . . . . . . . . . . . 225,000
Legal fees and expenses. . . . . . . . . . . . . . . . . . . . . 350,000
Printing fees and expenses . . . . . . . . . . . . . . . . . . . 115,000
Road Show expenses . . . . . . . . . . . . . . . . . . . . . . . 50,000
Printing and engraving stock certificates. . . . . . . . . . . . 2,500
Blue sky fees and expenses . . . . . . . . . . . . . . . . . . . 10,000
Transfer agent, registrar and custodian fees and expenses. . . . 7,500
Directors' and officers' liability insurance fees and
expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 186,000
Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . 54,615
----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,052,080
==========
</TABLE>
After deducting the underwriting discounts and commissions and the
Offering expenses described above, net proceeds to the Company from the
Offering were approximately $14,846,024. Of this amount, the Company has used
$300,000 to repay indebtedness of the Company, $2,000,000 to acquire Versant
Europe and $5.8 million to acquire network and computer equipment and
associated services as well as leasehold improvements, furnishings and
fixtures for the Company's new headquarters, $1,946,024 has been allocated to
working capital to support the Company's operations, and the remaining amount
of approximately $4.8 million has been invested in United States government
securities. None of the net proceeds of the Offering were paid directly or
indirectly to any director, officer, general partner of the Company or their
associates, persons owning 10 percent or more of any class of equity
securities of the Company, or an affiliate of the Company.
Item 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are filed herewith.
(b) No report on Form 8-K was filed during the quarter ended September 30,
1997.
<PAGE>
SIGNATURE
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.
VERSANT OBJECT TECHNOLOGY CORPORATION
Date: November 14, 1997 /s/ Gary Rhea
--------------
Gary Rhea
Vice President Finance and Administration.
Chief Financial Officer, Treasurer and Secretary
(Duly Authorized Officer and Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE NINE MONTHS ENDED
SEPTEMBR 30, 1997 AND THE CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE ON FORM 10-QSB.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4089
<SECURITIES> 0
<RECEIVABLES> 8135
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22975
<PP&E> 5903
<DEPRECIATION> 0
<TOTAL-ASSETS> 32379
<CURRENT-LIABILITIES> 9609
<BONDS> 0
0
0
<COMMON> 42841
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 32379
<SALES> 9400
<TOTAL-REVENUES> 9400
<CGS> 1824
<TOTAL-COSTS> 1824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 627
<INCOME-TAX> 2
<INCOME-CONTINUING> 625
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 625
<EPS-PRIMARY> 0.07
<EPS-DILUTED> 0.07
</TABLE>
