<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 0-19155
STATE OF THE ART, INC.
(Exact name of registrant as specified in its charter)
California 95-3664592
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
56 Technology Drive
Irvine, California 92618-2301
(Address of principal executive offices) (Zip Code)
(714) 753-1222
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No[_]
As of August 1, 1997 the issuer had 11,101,413 shares of common stock, no par
value, outstanding.
Page 1 of 13
<PAGE>
STATE OF THE ART, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets at
June 30, 1997 and December 31, 1996..............................3
Condensed consolidated statements of income for the
three and six months ended June 30, 1997
and June 30, 1996................................................4
Condensed consolidated statements of cash flows for the
six months ended June 30, 1997
and June 30, 1996................................................5
Notes to condensed consolidated financial statements................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................7-10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................11
Item 4. Submission of Matters to a Vote of Security Holders ........11-12
Item 6(a). Exhibits....................................................12
Item 6(b). Reports on Form 8-K.........................................12
SIGNATURES...............................................................13
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STATE OF THE ART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,565 $22,029
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,976 15,064
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,244 5,407
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,151 1,494
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,691 1,180
Income taxes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 109
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 84
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $44,679 $45,367
------- -------
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,372 5,334
Capitalized software development costs, net . . . . . . . . . . . . . . . . . . . 1,239 1,441
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,663 189
------- -------
$53,953 $52,331
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,833 $ 2,481
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,296 1,544
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,609 1,046
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 -
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 4
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 5,821 5,075
------- -------
Accrued rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236 244
------- -------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,057 5,319
------- -------
Shareholders' equity:
Preferred stock, 1,000,000 shares authorized, none issued and outstanding. . . . - -
Common stock, no par value; 25,000,000 shares authorized; 11,098,646
and 11,157,477 shares issued and outstanding at June 30, 1997 and
December 31, 1996, respectively. . . . . . . . . . . . . . . . . . . . . . . . 17,885 18,330
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,011 28,682
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 47,896 47,012
------- -------
$53,953 $52,331
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
STATE OF THE ART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues . . . . . . . . . . . . . . $13,936 $14,203 $26,618 $25,385
Cost of revenues . . . . . . . . . . . . 2,813 2,742 5,181 5,010
------- ------- ------- -------
Gross profit . . . . . . . . . . . . . . 11,123 11,461 21,437 20,375
Operating expenses:
Sales and marketing . . . . . . . . 5,870 5,062 11,614 9,450
Research and development . . . . . . 3,014 3,139 5,844 5,923
General and administrative . . . . . 1,369 1,106 2,963 2,386
------- ------- ------- -------
Total operating expenses . . . . . . . . 10,253 9,307 20,421 17,759
------- ------- ------- -------
Operating income . . . . . . . . . . . . 870 2,154 1,016 2,616
Interest income . . . . . . . . . . . . 442 345 902 691
------- ------- ------- -------
Income before income taxes . . . . . . . 1,312 2,499 1,918 3,307
Provision for income taxes . . . . . . . 418 874 589 1,157
------- ------- ------- -------
Net income . . . . . . . . . . . . . . . $ 894 $ 1,625 $ 1,329 $ 2,150
======= ======= ======= =======
Net income per share (note 2). . . . . . $ 0.08 $ 0.14 $ 0.12 $ 0.19
======= ======= ======= =======
Weighted average common shares
and equivalents (note 2) . . . . . . . 11,431 11,791 11,552 11,621
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
STATE OF THE ART, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-------------------------
1997 1996
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................................ $ 1,329 $ 2,150
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.................................... 1,412 1,177
Provision for deferred income taxes.............................. 7 (46)
Loss (gain) on sale of property and equipment.................... 5 (11)
Changes in assets and liabilities:
Accounts receivable........................................... (2,837) (2,187)
Inventories................................................... 343 (195)
Prepaid expenses.............................................. (511) (258)
Other assets.................................................. 169 36
Accounts payable.............................................. (648) 717
Accrued expenses.............................................. (248) 255
Deferred revenue.............................................. 1,563 159
Income taxes payable.......................................... 452 (402)
Notes payable................................................. (4) (1)
Accrued rent.................................................. (8) 24
Other noncurrent liabilities.................................. - (7)
-------- -------
Net cash provided by operating activities................ 1,024 1,411
Cash flows from investing activities:
Purchase of short-term investments.................................... (2,912) (375)
Acquisition of subsidiaries........................................... (2,618) -
Proceeds from sale of property and equipment.......................... 20 11
Capital expenditures -- property and equipment........................ (1,152) (1,632)
Capital expenditures -- software development costs.................... (121) (238)
-------- -------
Net cash used in investing activities.................... (6,783) (2,234)
Cash flows from financing activities:
Repurchase of common stock............................................ (1,764) -
Proceeds from sale of common stock under stock option plan............ 1,059 532
-------- -------
Net cash (used in) provided by financing activities...... (705) 532
-------- -------
Net decrease in cash and cash equivalents................................. (6,464) (291)
Cash and cash equivalents at beginning of period.......................... 22,029 16,681
-------- -------
Cash and cash equivalents at end of period................................ $15,565 $16,390
======== =======
Supplemental disclosures of cash flow information:
Interest paid......................................................... $ 1 $ 7
======== =======
Income taxes paid..................................................... $ 153 $ 1,605
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
STATE OF THE ART, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles and
with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
consolidated financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included. The operating results for the three
and six month periods ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997. For further
information, refer to the consolidated financial statements and related notes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1996.
2. Net Income Per Share:
Net income per share was computed based on the weighted average number of
common shares and equivalents outstanding during the three and six month periods
ended June 30, 1997, as well as the similar periods ended June 30, 1996.
Primary and fully diluted net income per share are approximately the same. The
numbers of shares used in the calculations for these periods were 11,431,000,
11,552,000, 11,791,000 and 11,621,000, respectively, which include incremental
shares related to stock options granted of 271,000, 356,000, 794,000 and
642,000, respectively. Under a stock repurchase plan, the Company repurchased
182,000 shares of its common stock in the second quarter of 1997. The Company
has granted certain stock options which have been treated as common share
equivalents in computing net income per share.
3. Acquisition:
On May 15, 1997, the Company completed the purchase of two sister
corporations based in Markham, Ontario, Canada. The acquisition was accounted
for as a purchase. The purchase price for the stock and related assets was a
cash payment of approximately $2,618,000. The effect of the acquisition is
considered immaterial to the operations and financial position of the Company;
therefore pro forma financial information has not been presented.
6
<PAGE>
STATE OF THE ART, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Overview:
Net income was $894,000 or $0.08 per share on net revenues of $13,936,000 for
the second quarter ended June 30, 1997, as compared to net income of $1,625,000
or $0.14 per share on net revenues of $14,203,000 for the corresponding quarter
of the prior year. For the six month period ended June 30, 1997, the Company's
net income was $1,329,000 or $0.12 per share on net revenues of $26,618,000 as
compared to $2,150,000 or $0.19 per share on net revenues of $25,385,000 for the
six month period ended June 30, 1996.
Forward Looking Information:
This Quarterly Report on Form 10-Q contains certain forward-looking statements,
including, without limitation, statements concerning the Company's product
development, future revenue patterns and future research and development, sales
and marketing and other expenditures. These forward-looking statements involve
risks and uncertainties, which include technological risks involved in the
development and testing of new products, the impact of competitive products and
pricing, and the uncertainties of which operating systems and hardware platforms
will dominate, and which emerging technologies could impact the demand for the
Company's products.
Results of Operations:
Net revenues for the second quarter and six month period ended June 30, 1997
were $13,936,000 and $26,618,000, respectively. This constituted a $267,000 or
2% decrease for the second quarter of 1997 versus the second quarter of 1996,
and a $1,233,000 or 5% increase for the six month period over the same six month
period of the prior year. Total revenue for the second quarter when compared to
the same quarter of the prior year decreased as a result of a one time $3.5
million revenue contribution in the earlier period from the initial sales of MAS
90 for Windows reference library accounting software to the Company's resellers.
Revenues for the six month period increased as a result of increased sales of
software licenses, support services and business forms.
Revenues from the Company's Acuity Financials product line contributed
$1,020,000 in the second quarter of 1997 and accounted for 7% of the Company's
revenue. For the six month period, Acuity Financials contributed $1,617,000 or
6% of the Company's revenue. This product line, which features graphical user
interface, was introduced in 1996.
7
<PAGE>
Software license revenues from the Company's MAS 90 product line decreased
$844,000 or 8% in the second quarter versus the second quarter of 1996 and
accounted for 67% of the Company's total revenues for the quarter as compared to
71% of the Company's total revenues in the same quarter of the previous year.
For the six month period, MAS 90 license revenues increased $232,000 or 1% over
the same six month period of the prior year and accounted for 65% of the total
Company's revenues for the six month period, as compared to 67% of the Company's
revenues for the same six month period in the prior year. The quarter to
quarter decrease was principally due to the release of the MAS 90 for Windows
product, which features graphical user interface, in June 1996, which yielded
significant revenue from the purchase of demonstration reference libraries by
resellers. There was not a similar event in the second quarter of 1997 that had
this same level of revenue impact. The increase for the six month period is
principally due to the continued upgrade of the existing MAS 90 DOS installed
base to MAS 90 for Windows. For the second quarter and six month period of
1997, the MAS 90 for Windows product line increased $2,014,000 or 41% and
$6,571,000 or 135%, respectively. These increases were offset by decreases of
$2,858,000 or 54% for the second quarter of 1997 and $6,339,000 or 52% for the
six month period in the Company's MAS 90 character based product line. The
Company believes that the new generation graphical user interface product lines
of Acuity Financials and MAS 90 for Windows will grow at a rate that will
outpace the anticipated decline from the older MAS 90 for DOS product line.
BusinessWorks(R) software license revenues decreased 30% or $447,000 for the
second quarter as compared to the second quarter of 1996, and decreased 25% or
$838,000 for the six month period versus the comparable six month period in the
prior year. The Company attributes the decline in the BusinessWorks revenue to
reduced upgrade sales. The Company had a major enhancement to the product in the
second quarter of 1995 and there has been no similar enhancement since then.
Revenue from the Company's Apple(R) based product lines decreased $210,000 or
100% for the second quarter in comparison to the second quarter of 1996 and
decreased $364,000 or 100% for the initial six months of 1997 versus the same
six month period of the prior year, since the Company sold these Apple product
lines in the second quarter of 1996 and therefore, no revenue from this product
line was earned in 1997.
The Company's support services experienced revenue gains of 18% or $239,000 in
the second quarter and 24% or $587,000 for the six month period of 1997 as
compared to similar periods of the prior year. The Company attributes this
increase to the implementation of a new MAS 90 software maintenance and support
program that was released in March of 1997. Business forms revenue grew 15% or
$136,000 in the second quarter of 1997 and 8% or $160,000 for the six month
period ended June 30, 1997 as compared to the same periods of the prior year.
Quarterly revenues can fluctuate significantly when compared to similar periods
of the prior year due to the timing of product introductions, enhancements,
upgrades, commencement of sales and marketing promotions and general economic
conditions.
8
<PAGE>
The Company has historically operated with minimal backlog because orders are
generally shipped on an immediate basis. As a result, the Company's quarterly
revenues and operating results are difficult to forecast because they are
dependent upon the volume and timing of orders received during any period.
Historically, the revenue volume for the first, second and third quarters of the
year have been lower than the fourth quarter. The historically higher revenue
volume in the fourth quarter has been largely due to two factors: higher end-
user demand for the Company's software products and the release of the Company's
annual payroll tax update program. Management believes this pattern will
continue into the fourth quarter of 1997.
Cost of revenues in the second quarter of 1997 was 20% as a percentage of
revenue, in comparison to 19% in the second quarter of the prior year. For the
six month period ended June 30, 1997, cost of revenues was 19% as a percentage
of revenue, as compared to 20% for the same period of the previous year. The
increase in cost of revenues in the second quarter of 1997 is primarily due to
the shipment of maintenance releases in order to satisfy the MAS 90 software
maintenance and support program. The decrease in cost of revenues for the six
month period ended June 30, 1997 is primarily due to higher prices for the
Acuity Financials and MAS 90 for Windows product lines. The Company continues
to pursue cost reduction opportunities whenever practicable; however, there can
be no assurance that the Company will be able to maintain its current level of
cost of revenues, expressed as a percentage of revenues, for the remainder of
1997.
Operating expenses, when expressed as a percentage of net revenues, increased in
the second quarter of 1997 by eight percentage points to 74%, as compared to 66%
for the second quarter of the prior year, and increased seven percentage points
to 77% for the six month period ended June 30, 1997 in comparison to the same
period of the prior year. Total operating expenses for the second quarter and
six month period ended June 30, 1997 increased 10% or $946,000 and 15% or
$2,662,000, respectively, over comparable periods of the prior year. The
increase in operating expenses as compared with the comparable periods of the
prior year consisted of sales and marketing expense increases of 16% or $808,000
for the quarter and 23% or $2,164,000 for the six month period; research and
development expense decreases of 4% or $125,000 for the quarter and 1% or
$79,000 for the six month period; and general and administrative expense
increases of 24% or $263,000 for the quarter and 24% or $577,000 for the six
month period.
The increase in sales and marketing expenses can be attributed to higher
personnel related costs in addition to increased direct marketing, advertising
and lead generation activities as a result of the Company's launch of two major
product lines, Acuity Financials and MAS 90 for Windows, both of which began to
ship in 1996.
The decrease in research and development expenses is because of lower outside
contractor related costs as a result of the Company's release of the two new
major product lines noted above. The research and development efforts currently
are more in the maintenance phase rather than the development phase, thus
requiring less outside contractor expense.
9
<PAGE>
The increase in general and administrative expense is primarily the result of
increased costs related to amortization and depreciation as a result of the
Company's capital expenditures in the areas of computer, telephone and
management information systems.
The Company continues to project a trend toward higher personnel and related
costs in future quarters. The Company's introduction of Acuity Financials and
MAS 90 for Windows will result in additional expenditures in future quarters in
the areas of product support, sales and marketing and research and development.
In addition, the Company plans to increase advertising and marketing plans
aggressively in future periods to promote the Company's new products. If the
Company is not able to increase its revenue over the second quarter 1997 level,
the projected increase in expenditures could result in lower profitability.
Interest income for the second quarter of 1997 increased $97,000 or 28% to
$442,000 or 3% of net revenues as compared to $345,000 or 2% of net revenues in
the second quarter of 1996. For the six month period ended June 30, 1997,
interest income increased $211,000 or 31% to $902,000 or 3% of net revenues
versus $691,000 or 3% of net revenues for the comparable period of the prior
year. These increases were primarily due to higher interest rates earned on the
short-term investments.
Liquidity and Capital Resources:
Working capital at June 30, 1997, totaled $38.9 million, a decrease of $1.4
million or 3% as compared to $40.3 million as of December 31, 1996. In the
second quarter of 1997 the Company repurchased in open market purchases 182,000
shares of its outstanding common stock at a cost of approximately $1,764,000,
and on May 15, 1997, the Company completed the purchase of two sister
corporations based in Markham, Ontario, Canada. The acquisition was accounted
for as a purchase. The purchase price was approximately $2,618,000.
In March, 1997, the Company entered into an agreement whereby it may borrow, on
a revolving credit line basis, up to $10,000,000. The revolving line is
unsecured. The Company has the option to pay interest on the revolving credit
line at the bank's prime interest rate, or LIBO rate plus 1.5 percent. The
agreement requires the Company to maintain certain compensating balances and has
certain restrictive covenants. The agreement expires in April, 1998. As of
June 30, 1997, there were no outstanding balances on this revolving credit line.
The Company has historically funded its operations primarily through cash flows
from operations. The Company believes that funds generated from operations and
existing cash balances and the available bank credit line will be sufficient to
finance the Company's operations for at least the next twelve months.
10
<PAGE>
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings.
See the Company's Annual Report on Form 10-K for the year ended December 31,
1996, for a description of certain litigation.
As discussed in detail in the Company's Form 10-K for the year ended December
31, 1996, the Company is engaged in litigation with the Company's former
president, Charles Milden, and his wife, Susan Milden. As of the end of 1996,
all parties to the Mildens' bankruptcy had settled all claims with the
bankruptcy trustee. The bankruptcy court had confirmed the settlement and made
related orders. The Mildens had appealed the settlement and orders to the
United States District Court for the Central District of California, which
affirmed the settlement and orders. The Mildens had then appealed to the United
States Court of Appeals for the Ninth Circuit. In April, 1997, a unanimous
panel of that court also affirmed the settlement and orders. Later in April,
1997, the Mildens petitioned that court for a rehearing. In June of 1997, the
Ninth Circuit denied the Milden's petition for a rehearing.
The state court had also approved the settlement; in March, 1994, that superior
court dismissed both of the pending state court actions with prejudice. The
Mildens have appealed from these dismissals. The parties have completed
briefing of this state court appeal. In June of 1997, the California Court of
Appeal, Fourth Appellate District, Division Three, set oral arguments on this
appeal for July 21, 1997. On July 16, 1997, that Court of Appeal continued
these oral arguments until January 1998.
As discussed in more detail in the Company's Form 10-K for the year ended
December 31, 1996, the Company is engaged in litigation with RapidForms, Inc.
In May of 1997, all parties to that litigation agreed in writing to settle the
litigation in exchange for a payment by the Company to RapidForms. The
settlement agreement requires the parties to keep the amount of this payment
confidential, but the payment will not have a material effect on the Company's
results of operations. All parties stipulated to a dismissal with prejudice of
all claims in the lawsuit.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Shareholders on May 29, 1997. Proxies
for the Annual Meeting were solicited pursuant to Regulation 14A under the
Securities Exchange Act of 1934. The first matter voted upon was the election
of the Company's Board of Directors. The terms of office of all incumbent
members of the Board expired at the Annual Meeting. There was no solicitation
in opposition to management's nominees as listed in the proxy statement, and all
of management's nominees were elected. The following is a tabulation of the
votes received by each nominee:
11
<PAGE>
<TABLE>
<CAPTION>
Nominee Votes For Against Withheld Abstentions Broker Non-Votes
------------------------ --------- ------- -------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
James H. Clement, Jr 9,071,422 -0- 8,996 -0- 2,192,017
W. Frank King 9,070,902 -0- 9,516 -0- 2,192,017
Susan L. Rasinski 9,039,869 -0- 40,549 -0- 2,192,017
David W. Hanna 9,071,122 -0- 9,296 -0- 2,192,017
George Riviere 9,071,422 -0- 8,996 -0- 2,192,017
</TABLE>
The second matter voted upon was the approval of the State Of The Art, Inc.,
1997 Employee Stock Purchase Plan. The following is a tabulation of the votes
received:
<TABLE>
<CAPTION>
# Votes For Votes Against Withheld Abstentions Broker Non-Votes
----------- ------------- -------- ----------- ----------------
<S> <C> <C> <C> <C>
6,035,239 174,318 -0- 7,562 5,055,316
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits: None filed with this report.
(b) Reports on Form 8-K: The Company has not filed any reports on Form
8-K during the quarter for which this report is filed.
</TABLE>
12
<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.
STATE OF THE ART, INC.
----------------------
Registrant
Date: August 12, 1997 By: /s/ JAMES R. ECKSTAEDT
--------------- ----------------------
James R. Eckstaedt
Vice President, Finance and
Chief Financial Officer
(Principal Financial Officer)
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 15,565
<SECURITIES> 17,976
<RECEIVABLES> 8,244
<ALLOWANCES> 78
<INVENTORY> 1,151
<CURRENT-ASSETS> 44,679
<PP&E> 11,952
<DEPRECIATION> 6,580
<TOTAL-ASSETS> 53,953
<CURRENT-LIABILITIES> 5,821
<BONDS> 0
0
0
<COMMON> 17,885
<OTHER-SE> 30,011
<TOTAL-LIABILITY-AND-EQUITY> 53,953
<SALES> 13,936
<TOTAL-REVENUES> 13,936
<CGS> 2,813
<TOTAL-COSTS> 2,813
<OTHER-EXPENSES> 10,253
<LOSS-PROVISION> 5
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 1,312
<INCOME-TAX> 418
<INCOME-CONTINUING> 894
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 894
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
