<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended September 30, 1997 Commission File Number 0-21860
DATAWARE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1232140
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE CANAL PARK 02142
CAMBRIDGE, MA (Zip Code)
(Address of principal executive offices)
617-621-0820
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be file 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
--- ---
Number of shares outstanding of the issuer's classes of common stock as of
October 31, 1997:
Class Number of Shares Outstanding
- -------------------------------------- ----------------------------
Common Stock, par value $.01 per share 9,267,217
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DATAWARE TECHNOLOGIES, INC.
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30,
1997 and 1996 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1997 and 1996 5
Notes to 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 13
Item 6. Exhibits and Reports Filed on Form 8-K 13
SIGNATURE 14
EXHIBIT INDEX 15
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Part I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Dataware Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
<TABLE>
<CAPTION>
September 30,
1997 December 31,
(unaudited) 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,579 $ 2,368
Accounts receivable, less allowance for doubtful
accounts of $817 and $934 at September 30, 1997
and December 31, 1996, respectively 5,714 9,271
Prepaid expenses and other current assets 3,389 1,968
-------- --------
Total current assets 21,682 13,607
Property and equipment, net 4,102 7,298
Computer software costs, net 2,232 2,239
Goodwill and non-current assets 512 2,232
-------- --------
Total assets $ 28,528 $ 25,376
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ -- $ 45
Accounts payable 3,599 3,232
Accrued expenses 2,587 1,377
Accrued litigation and non-recurring charges 656 982
Accrued compensation 1,013 2,046
Income taxes payable 1,144 1,140
Deferred revenue 2,072 2,136
-------- --------
Total current liabilities 11,071 10,958
Series B convertible preferred stock, $.01 par value: 3,000 shares
authorized and issued; no shares outstanding at -- --
September 30, 1997
Stockholders' equity:
Common stock, $.01 par value: 14,000,000 shares authorized;
9,227,326 and 6,640,597 shares issued and outstanding at
September 30, 1997 and December 31, 1996, respectively 93 66
Additional paid-in capital 45,909 38,473
Accumulated deficit (28,276) (23,756)
Cumulative translation adjustment (269) (365)
-------- --------
Total stockholders' equity 17,457 14,418
-------- --------
Total liabilities and stockholders' equity $ 28,528 $ 25,376
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
3
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Dataware Technologies, Inc.
Consolidated Statements of Operations
(In thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software license fees $ 5,404 $ 4,905 $ 14,621 $ 11,408
Services 4,252 5,115 14,896 15,417
-------- -------- -------- --------
Total revenues 9,656 10,020 29,517 26,825
Cost of revenues:
Software license fees 714 896 2,053 2,576
Write down of intangible assets -- -- -- 1,926
Services 3,217 3,400 9,136 9,776
-------- -------- -------- --------
Total cost of revenues 3,931 4,296 11,189 14,278
-------- -------- -------- --------
Gross margin 5,725 5,724 18,328 12,547
Operating expenses:
Sales and marketing 4,743 4,752 13,664 12,752
Product development 1,726 2,181 5,362 5,953
General and administrative 2,087 1,736 4,825 5,172
Write down of goodwill
and other non-recurring charges -- -- -- 1,889
In-process research and development -- 668 -- 1,861
-------- -------- -------- --------
Total operating expenses 8,556 9,337 23,851 27,627
-------- -------- -------- --------
Loss from operations (2,831) (3,613) (5,523) (15,080)
Interest income 7 67 36 373
Interest expense (145) (3) (276) (13)
Settlement of litigation -- -- -- (4,073)
Gain on sale of portion of service business 2,197 -- 2,197 --
Other income (expenses), net (77) 2 (277) (29)
-------- -------- -------- --------
Loss before benefit from income taxes (849) (3,547) (3,843) (18,822)
Benefit from income taxes -- (864) -- (3,867)
-------- -------- -------- --------
Net loss (849) (2,683) (3,843) (14,955)
Dividends and accretion of preferred stock -- -- 677 --
-------- -------- -------- --------
Net loss to common stockholders $ (849) $ (2,683) $ (4,520) $(14,955)
======== ======== ======== ========
Net loss per common share $ (0.11) $ (0.41) $ (0.64) $ (2.35)
======== ======== ======== ========
Weighted average number
of common shares 7,565 6,466 7,108 6,358
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
4
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Dataware Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands, unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
-------- --------
<S> <C> <C>
Cash flows used in operating activities:
Net loss $ (3,843) $(14,955)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,189 2,785
Provision for doubtful accounts 579 --
Loss on foreign currency transactions 277 51
Gain on sale of portion of service business (2,197) --
Deferred taxes -- (3,867)
Non-cash portion of write-down of intangible assets -- 3,180
Charge for in-process research and development -- 1,861
Stock options and warrants to consultants and bank 65 195
Changes in operating assets and liabilities, net of effects from
acquisitions and dispositions of businesses:
Accounts receivable (1,478) 1,691
Prepaid expenses and other current assets (310) (960)
Accounts payable (80) 677
Accrued expenses and compensation 230 528
Accrued litigation and non-recurring charges (326) 4,394
Income taxes payable 107 (53)
Deferred revenue 589 (435)
-------- --------
Net cash used in operating activities (3,198) (4,908)
-------- --------
Cash flows provided by investing activities:
Purchase of marketable securities -- (9,874)
Proceeds from sales and maturities of marketable securities -- 16,719
Additions to property and equipment (914) (3,507)
Proceeds from sale of portions of service business, including cash acquired 8,546
Acquisition of businesses, net of cash acquired -- (1,553)
Additions to capitalized software costs (1,379) (1,496)
-------- --------
Net cash provided by investing activities (6,253) 289
-------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock and exercise of stock options 3,946 382
Principal payments on notes, software license payable and capital leases -- (236)
Proceeds from issuance of preferred stock 3,000 --
Dividends and issuance costs related to preferred stock (255) --
Increase in short-term borrowings, net 403 --
-------- --------
Net cash provided by financing activities 7,094 146
-------- --------
Effect of exchange rate changes on cash (84) (57)
-------- --------
Net change in cash and cash equivalents 10,211 (4,530)
Cash and cash equivalents at beginning of period 2,368 7,734
-------- --------
Cash and cash equivalents at end of period $12,579 $ 3,204
======== ========
Supplemental disclosure of non-cash financing transactions:
Conversion of preferred stock into common stock $ 3,355 $ --
======== ========
Accretion of preferred stock $ 650 $ --
======== ========
Warrants issued in connection with issuance of preferred stock $ 83 $ --
======== ========
Investment in Northern Light LLC in exchange for assets $ 512 $ --
======== ========
Stock and stock warrants issued in connection with acquisitions $ -- $ 761
======== ========
Note payable assumed in connection with acquisition of business $ -- $ 101
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements
5
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DATAWARE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
These consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1996 and the financial statements and footnotes included therein. In the
opinion of management, the accompanying unaudited financial statements include
all adjustments, consisting of only normal recurring accruals, necessary to
present fairly the consolidated financial position, results of operations and
cash flows of Dataware Technologies, Inc. The year-end balance sheet was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. 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 Securities and Exchange Commission rules and regulations.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current presentation.
B. DISPOSAL OF PRODUCT DEVELOPMENT PROJECT
On April 7, 1997 the Company completed a funding arrangement involving its
subsidiary, Northern Light Technology Corporation, which had been developing the
next-generation Internet search and guide service for consumers. In the
transaction, Northern Light Technology Corporation dissolved, sold substantially
all of its assets to a newly formed limited liability company, and terminated
operations. The Company received, as a liquidating distribution from Northern
Light Technology Corporation, an equity interest in the buyer representing
approximately 34% of the buyer in the form of preferred units and a secured
note. The Company's equity interest has since been reduced as a result of the
buyer's obtaining additional equity financing. The Company has a 15% voting
interest in the buyer and is therefore accounting for its $512,000 investment in
the buyer using the cost method. Northern Light Technology Corporation
accounted for $1.5 and $1.0 million of the Company's operating expenses in the
nine months ended September 30, 1996 and 1997, respectively.
C. SALE AND EXCHANGE OF SERVICES BUSINESSES
On September 30, 1997, the Company sold a portion of its data services
business, consisting of the stock of five foreign subsidiaries and certain other
assets of the Company, to Information Handling Services ("IHS") and acquired
100% of the stock of Creative Multimedia Corporation ("CMC") from IHS. The
Company also entered into distribution, software license and service agreements
with IHS, and revenues for the third quarter of 1997 include $1.8 million
attributable to the distribution and licensing agreements. The third quarter
results include a $2.2 million gain on this transaction; however, the Company's
agreement with IHS provides for a final settlement of assets sold on February
27, 1998, at which time the Company will determine the ultimate gain on the
transaction.
The results of the continuing operations of CMC for the nine month periods
ended September 30, 1997, and September 30, 1996, are immaterial in the context
of the results of the Company. As a result, proforma financial information has
not been presented.
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D. CAPITAL STOCK
In the quarter ended September 30, 1997, the Company issued 1,085,000
shares of common stock to two investors in a private placement for gross
proceeds of $3,770,375. A financial investor purchased 865,000 of these shares
and the remaining 220,000 shares were issued to an affiliate of IHS in
connection with the sale and exchange of services businesses transaction
described in Note C above.
E. CONVERTIBLE PREFERRED STOCK
On April 14, 1997, the Company closed $3 million of new financing through
the private placement of Series B Convertible Preferred Stock. As of September
30, 1997, all shares of preferred stock had been converted into common stock.
F. LINE OF CREDIT
On June 23, 1997, the Company entered into a secured, one-year line of
credit agreement in the amount of $2,000,000 with a major U.S. bank. Interest
was payable at 1% over the prime rate of interest, or 9 1/2 % during the period
ended September 30, 1997. On September 10, 1997, the agreement was amended to
include an overadvance facility in the amount of $750,000. Interest during the
overadvance period was payable at 3% over the prime rate of interest, or 11
1/2%. As of September 30, 1997, the Company had paid down all amounts borrowed
against this line of credit and had terminated the line. In connection with the
line of credit, on June 23, 1997, the Company issued a seven-year warrant to
purchase shares of the Company's common stock at $3.42 per share. Based on the
amount of the Company's borrowings under the line of credit, this warrant is now
exercisable for 46,783 shares. An additional seven-year warrant, for the
purchase of 24,767 shares of common stock at $3.23 per share, was issued to the
bank on September 10, 1997, in connection with the overadvance facility.
G. NET LOSS PER SHARE
Net loss per share was computed on the basis of weighted average common
shares outstanding. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share", which is effective for fiscal years ending after December 15, 1997.
This Statement replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, which excludes dilutive securities. It also
requires a reconciliation of the basic EPS to diluted EPS and dual presentation
on the face of the income statement.
The impact of the new standard on net loss per common share as reported
would be immaterial as the Company sustained losses in all periods reported.
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DATAWARE TECHNOLOGIES, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
On September 30, 1997, Dataware sold a portion of its data services
business to Information Handling Services Group, Inc. ("IHS") in exchange for
cash and the stock of IHS's subsidiary, Creative Multimedia Corporation. The
portion of the business sold included certain contracts and other assets of
Dataware, as well as the stock of the Company's Australian, Canadian, German,
Italian, and Swedish subsidiaries. The activities of the data service business
sold consisted of processing customer text and data and using it to create
information-distribution products.
At the same time, the Company entered into a distribution agreement with
IHS under which IHS will take over the software distribution activities formerly
performed by the five divested foreign subsidiaries. In addition, the Company
entered into agreements with IHS under which it will provide software and
multimedia services for use by IHS in its publishing activities. Following this
transaction, the Company is a leaner organization, having reduced headcount from
329 immediately before the transaction to 215 as of October 31, 1997. Expenses
are expected to be commensurately lower going forward. It is anticipated that
the IHS transaction will have an effect on other aspects of the Company's
financial performance, too. For example, because the Company will be focused on
its software and multimedia businesses, services revenues are anticipated to be
substantially lower in the future.
The foregoing, as well as other statements concerning the Company's
anticipated performance made throughout this Item, may be deemed forward-looking
statements. Such statements are based on the current assumptions of Dataware
management, which are believed to be reasonable. However, they are subject to
significant risks and uncertainties, including but not limited to the important
factors described under "Important Factors" below, in Exhibit 99.1 to the
Company's Form 10-Q for the third quarter of 1996, and in each of the Company's
other 10-Q and 10-K filings, that could cause actual results to differ
materially from those described in the forward-looking statements.
RESULTS OF OPERATIONS:
- ---------------------
REVENUES
The Company's total revenues decreased slightly from $10.0 million for the
third quarter of 1996 to $9.7 million in the third quarter of 1997. The
Company's total revenues increased 10% from $26.8 million in the first nine
months of 1996 to $29.5 million in the first nine months of 1997. Quarter over
quarter, software license fees increased 10% from $4.9 million to $5.4 million
and services revenues decreased 16% from $5.1 to $4.3 million. For the first
nine months of 1997, software license fees increased 28% from $11.4 million to
$14.6 million, and services revenues decreased 3% from $15.4 million to $14.9
million. Software license revenue growth in the first nine months of 1997 was
primarily due to increased unit volumes, including $1.8 million in software
revenues under the new agreements with IHS.
Software revenues increased to 56% of total revenues in the third quarter
of 1997, up from 49% in the third quarter of 1996, and services revenues
decreased to 44% of total revenues in the third quarter of 1997, down from 51%
in the third quarter of 1996. For the first nine months of 1997, software
license fees increased to 50% of total revenues from 43% in the first nine
months of 1996, and services revenues decreased to 50% of total revenues from
57% in the first nine months of 1996. While this continuing shift in revenue mix
is primarily the result of marketing programs initiated by the Company during
1996, a part of the decline in services revenues in the third quarter may be
attributed to Company-wide distraction caused by the IHS transaction.
Minimum guaranteed revenues under the IHS agreements are $10.8 million over
three years under the distribution agreement and $8.4 million over five years
for the software license agreement. However, the Company expects that, as a
result of the IHS transaction, its services revenues (which will relate
primarily to multimedia activities) will be reduced going forward. Accordingly,
overall quarterly revenues will be reduced significantly in the near term.
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<PAGE>
Revenue growth in the software and multimedia services portions of the
business will depend in part on the Company's ability to improve the
productivity of its sales force while keeping expenses at sustainable levels.
Also, consistent with past experience, a higher percentage of the Company's
revenues are expected to be realized in the third month of each fiscal quarter
and tend to be concentrated in the latter half of that month. The Company's
orders early in a quarter will not generally be large enough to assure that it
will meet its revenue targets for any particular quarter. Accordingly, the
Company's quarterly results will be difficult to predict until the end of the
quarter, and a shortfall in shipments or contract orders at the end of any
particular quarter may cause the results for that quarter to fall short of
anticipated levels.
COST OF REVENUES
Cost of revenues decreased 8% from $4.3 million in the third quarter of
1996 to $3.9 million during the same period in 1997. Cost of revenues decreased
22% from $14.3 million for the nine month period ended September 30, 1996 to
$11.2 million during the nine month period ended September 30, 1997. As a
percent of revenues, total cost of revenues decreased from 43% of total revenues
for the three months ended September 30, 1996 to 41% for the three months ended
September 30, 1997 and from 53% to 38% for the first nine months of 1996
compared to the same period in 1997. This decrease is largely due to a $1.9
million one-time charge that was recorded in the second quarter of 1996 for the
write-down of less productive software assets to their net realizable value. A
continuing shift in product mix to software license fees from the higher-cost
services business also contributed to the decrease in total cost of revenues as
a percent of revenues.
The cost of software licenses as a percentage of software license fees
decreased from 18% during the third quarter of 1996 to 13% during the same
period in 1997, and from 23% for the first nine months of 1996 to 14% for the
first nine months of 1997. This decrease was due to the increase in sales
volume while fixed costs decreased quarter over quarter and year over year. The
decrease in fixed costs is in large part related to the completion of a
contractual royalty commitment with a third party in the second quarter of 1996.
The cost of services as a percentage of service revenues increased from 66%
for the third quarter of 1996 to 76% during the third quarter of 1997 and
decreased slightly from 63% for the first nine months of 1996 to 61% for the
first nine months of 1997. The increase quarter over quarter is caused by
decreased revenue volume while fixed costs decreased at a lower rate. The
decrease year over year is primarily due to containing costs as a result of our
revitalization programs which began in the third quarter of 1996. As noted
above, the IHS transaction resulted in a significant change in the nature and
extent of the services that will be provided by Dataware going forward.
GROSS MARGIN
Total gross margin was $5.7 million for the third quarter of 1996 and 1997,
or 57% and 59% of total revenues, respectively. Software gross margins improved
as a result of having a lower portion of third-party software sales in the mix
(and, thus, lower third-party license fee payments), but this was offset by the
lower services gross margins resulting from lower services revenues. For the
nine month period ended September 30, 1996, total gross margin amounted to $12.5
million as compared with $18.3 million for the same period in 1997, representing
47% and 62% of total revenues, respectively. In addition to the one-time charge
mentioned under "Cost of Revenues," the increase in total gross margin from year
to year has resulted from increased total revenue volume, lower costs within
each revenue category, and a continuing shift in product mix to higher margin
software products from relatively lower margin services.
Management anticipates that gross margin as a percentage of revenues will
continue to improve in the long run because the IHS transaction has greatly
reduced the portion of lower margin
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services in the Company's product mix as compared with higher margin software.
However there are a number of important factors that could adversely affect the
Company's future gross margins, resulting in higher than anticipated costs
and/or lower than anticipated revenues. These factors include: the existence
of strong competition for the Company's products and services, including the
introduction of new products from competitors, the timing of which cannot be
foreseen by the Company; the inherent risks of new product introductions,
including uncertainty of customer acceptance; and the Company's reliance on
third parties for supply of certain product components.
SALES AND MARKETING EXPENSES
Sales and marketing expenses remained flat at $4.8 million during the third
quarters of 1996 and 1997. During the nine month period ended September 30,
1997, sales and marketing expenses increased 7% to $13.7 million from $12.8
million during the same period a year ago. Sales and marketing expenses
increased slightly as a percentage of revenues from 47% to 49% on a quarter to
quarter basis and decreased slightly from 48% to 46% year over year. The
increase in sales and marketing expenses year over year reflects the Company's
continuing investment in its distribution channels and strengthening the
Company's marketing capabilities. Since the IHS transaction included divesting
the Company of five foreign subsidiaries that had been principally involved in
distributing Dataware products, it is anticipated that sales and marketing
expenses will decrease in the near term.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses, which excludes capitalized software costs,
decreased 21% from $2.2 million in the third quarter of 1996 to $1.7 million in
the third quarter of 1997, and decreased 10% from $6.0 million during the first
nine months of 1996 to $5.4 million during the same period in 1997. The Company
capitalized software development costs in the amount of $543,000 in the third
quarter of 1997 as compared to $551,000 in the third quarter of 1996. During
the first nine months of 1997, the Company capitalized $1,379,000 in software
development expenses as compared with $1,496,000 during the same period in 1996.
Product development expenses as a percentage of total revenues decreased from
22% to 18% on a quarter to quarter and year to year basis.
The decreased product development expenses quarter over quarter and year
over year is due in part to expenses related to Northern Light Technology
Corporation, a subsidiary whose assets were sold on April 7, 1997, as described
in "Liquidity and Capital Resources" below. These expenses amounted to $645,000
in the quarter ended September 30, 1996 while there were no related expenses in
the quarter ended September 30, 1997. For the first nine months of 1996, these
costs amounted to $1,374,000 as compared to $735,000 in the first nine months of
1997. Product development expenses other than those related to Northern Light
Technology Corporation increased 12% from the third quarter of 1996 to the same
quarter in 1997 and remained relatively flat from the first nine months of 1996
to the first nine months of 1997.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 20% from $1.7 million in the
third quarter of 1996 to $2.1 million in the third quarter of 1997, and
decreased 7% from $5.2 million during the first nine months of 1996 to $4.8
million during the first nine months of 1997. General and administrative
expenses as a percent of total revenues increased from 17% in the third quarter
of 1996 to 22% in that same period in 1997 and decreased from 19% for the nine
months ended September 30, 1996 to 16% for the nine months ended September 30,
1997. The increase in general and administrative expenses quarter over quarter
is caused in part by increased consulting and professional costs, the cost of
closing a foreign sales office, a provision for bad debts related to foreign
accounts receivable, and increased facilities costs, including a move to new
offices.
OTHER
For the nine months ended September 30, 1997, the Company recorded $277,000
in other
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expenses compared with $29,000 in the same period in 1996. These amounts
consist primarily of foreign exchange losses caused by the effect of declining
exchange rates on intercompany balances with the Company's foreign subsidiaries.
PROVISION FOR INCOME TAXES
The Company did not record a provision for income taxes for the quarter or
nine months ended September 30, 1997 as compared with a $864,000 benefit
recorded for the third quarter and a $3.9 million benefit recorded for the first
nine month period a year ago. A tax provision was not recorded in 1997 because
of the losses incurred during the first nine months of 1997 and the year ended
1996, and the substantial net operating loss carryforward from prior periods.
At September 30, 1997, the Company had a net operating loss carryforward of
$12.4 million. Use of the Company's net operating loss carryforwards is limited
due to changes in ownership of the Company's stock before its initial public
offering of stock in July 1993.
GAIN ON SALE
In consideration for the sale of a portion of its data services business to
IHS, the Company received $6.8 million and 100% of the stock of IHS's
subsidiary, Creative Multimedia Corporation. The results for the third quarter
of 1997 include a $2.2 million gain on this transaction; however, the Company's
agreement with IHS provides for a final settlement of assets sold on February
27, 1998, at which time the Company will determine the ultimate gain on the
transaction.
LOSS PER SHARE
Net loss per share was computed on the basis of weighted average common
shares outstanding. In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings per
Share," which is effective for fiscal years ending after December 15, 1997.
This Statement replaces the presentation of primary earnings per share ("EPS")
with a presentation of basic EPS, which excludes dilutive securities. It also
requires a reconciliation of the basic EPS to diluted EPS and dual presentation
on the face of the income statement.
The impact of the new standard on net loss per common share as reported
would be immaterial as the Company sustained losses in all periods reported.
IMPORTANT FACTORS
The transactions with IHS described above will necessarily result in
significant changes in the Company's manner and results of operations, not all
of which can be anticipated at this time. Factors that cannot be predicted but
that may significantly affect results include, but are not limited to, the
extent to which IHS will be able to perform the same types of services as the
Company had been providing and the quality of such services, the ability of IHS
to distribute the Company's software effectively, increased competition that may
result from the access that IHS now has to the Company's customers and former
employees, and the extent of changes that the Company must make internally to
adjust to its new configuration. Any of these factors could cause actual
results to differ materially from those anticipated in any forward-looking
statements in this Form 10-Q or in any other written or oral statements made by
the Company or its officers.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Aggregating the proceeds of the sale of its data services business, the
initial payments under its distribution and licensing agreements with IHS, and
the private placement of its common stock described below, the Company received
an aggregate of $14.3 million in cash on September 30, 1997. The Company used
$2.2 million in the third quarter to repay indebtedness under its bank line of
credit. As of September 30, 1997, the Company had cash and cash equivalents of
approximately $12.6 million and working capital of $10.6 million. Operating
activities used $3.2 million of the Company's cash during the first nine months
of 1997. Days sales outstanding
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<PAGE>
decreased from 86 days at June 30, 1997 to 76 days at September 30, 1997. The
decrease was primarily due to an increased focus on collections in the third
quarter, collecting the initial payments under the distribution and licensing
agreements with IHS, the sale of foreign accounts receivable associated with the
IHS transactions and a provision for doubtful accounts recorded in the quarter
ended September 30, 1997.
The Company's investing activities generated cash of $6.3 million during
the first nine months of 1997, principally from the IHS transactions.
The Company's financing activities provided cash of $7.1 million during the
first nine months of 1997. The cash consisted primarily of proceeds from the
issuance of common and preferred stock.
Several events took place during the nine months ending September 30, 1997
which had an important impact on the Company's liquidity. On April 7, 1997 the
Company completed a funding arrangement involving its subsidiary, Northern Light
Technology Corporation, which had been developing the next-generation Internet
search and guide service for consumers. In the transaction, Northern Light
Technology Corporation dissolved, sold substantially all of its assets to a
newly formed limited liability company, and terminated operations. The Company
received, as a liquidating distribution from Northern Light Technology
Corporation, an equity interest in the buyer representing approximately 34% of
the buyer in the form of preferred units and a secured note. The Company's
equity interest has since been reduced as a result of the buyer's obtaining
additional equity financing. The Company has a 15% voting interest in the buyer
and is therefore accounting for its $512,000 investment in the buyer using the
cost method. Northern Light Technology Corporation accounted for $1.5 million
and $1.0 million of the Company's operating expenses in the nine months ended
September 30, 1996 and 1997, respectively.
On April 14, 1997, the Company closed $3 million of new financing through
the private placement of Series B Convertible Preferred Stock. As of September
30, 1997, all shares of preferred stock had been converted into common stock on
the terms described in the Company's Form 8-K filed April 17, 1997.
On June 23, 1997, the Company entered into a secured, one-year line of
credit agreement in the amount of $2,000,000 with a major U.S. bank. Interest
was payable at 1% over the prime rate of interest, or 9 1/2 % during the period
ended September 30, 1997. On September 10, 1997, the agreement was amended to
include an overadvance facility in the amount of $750,000. Interest during the
overadvance period was payable at 3% over the prime rate of interest, or 11
1/2%. As of September 30, 1997, the Company had paid down all amounts borrowed
against this line of credit and had terminated the line.
On September 30, 1997, the Company sold an aggregate of 1,085,000 shares of
its common stock to two private investment funds in a private placement for
gross proceeds of $3,770,375, as further described in Part II, Item 2(c) of this
Form 10-Q.
The Company continues to implement and refine its revitalization programs
which are intended to minimize future losses from continuing operations. These
programs include cost reductions, higher employee productivity, repositioning of
product lines and intensified asset management. The Company believes that its
cash, cash equivalents, and marketable securities, together with anticipated
cash from operations, will be sufficient to meet its liquidity needs for the
foreseeable future. However, working capital and other capital requirements may
change because of unanticipated changes in business conditions or delays in
market acceptance of new products, in addition to such other considerations as
expansion of operations or research and development activities, competitive and
technological developments and possible future acquisitions of businesses and/or
product rights. There can be no assurance that the Company may not experience
liquidity problems because of adverse market conditions or other unfavorable
events.
-12-
<PAGE>
DATAWARE TECHNOLOGIES, INC.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
---------------------
(c)(1) On September 10, 1997, in connection with the establishment of an
overadvance facility for its line of credit agreement with a major U.S. bank,
the Company issued a seven-year warrant to purchase 24,767 shares of Common
Stock at a purchase price of $3.23 per share in a transaction exempt from
registration under Section 4(2) of the Securities Act of 1933 based on the non-
public nature of the issuance and the qualifications of the recipient. The
Company and the bank also entered into a Securities Purchase Agreement under
which the company agreed to repurchase the two warrants held by the bank
(exercisable for a total of 71,550 shares) or any shares issued upon exercise
thereof, at a price of $4.50 per share, net of the unpaid warrant exercise
price, on the earlier of December 31, 1998, or a change in control of the
Company.
(2) On September 30, 1997, the Company issued a total of 1,085,000 shares
of its common stock to two private investment funds for gross proceeds of
$3,770,375 in a transaction exempt from registration under Section 4(2) of the
Securities Act based on the nonpublic nature of the transaction and the
qualifications of the investors.
ITEM 6. EXHIBITS AND REPORTS FILED ON FORM 8-K
- ----------------------------------------------
(a) Exhibits. See exhibit list on page 15.
(b) Reports on Form 8-K. None.
-13-
<PAGE>
DATAWARE TECHNOLOGIES, INC.
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.
DATAWARE TECHNOLOGIES, INC.
(REGISTRANT)
Date: November 14, 1997 By: /s/ Michael Gonnerman
______________________________
Michael Gonnerman
Acting Chief Financial Officer
(Principal Financial and Principal
Accounting Officer)
-14-
<PAGE>
EXHIBIT INDEX
2.1 Agreement dated September 26, 1997 between Dataware Technologies, Inc.
and Information Handling Services Group, Inc. (Exhibit 2 to Form 8-K
dated October 10, 1997)./*/
4.1 Warrant Agreement, dated as of September 10, 1997, between the Company
and Imperial Bank.
27.1 Financial Data Schedule.
* Incorporated by reference to the filing indicated in parentheses.
-15-
<PAGE>
EXHIBIT 4.1
THIS WARRANT MAY NOT BE TRANSFERRED EXCEPT IN THE LIMITED CIRCUMSTANCES SET
FORTH HEREIN OR WITH THE PRIOR
WRITTEN CONSENT OF THE COMPANY
- --------------------------------------------------------------------------------
COMMON STOCK PURCHASE WARRANT
FOR THE PURCHASE OF
COMMON STOCK
OF
DATAWARE TECHNOLOGIES, INC.
(A DELAWARE CORPORATION)
ORIGINAL ISSUE DATE: SEPTEMBER 10, 1997
DATAWARE TECHNOLOGIES, INC., a Delaware corporation (the "Company"), for
-------
good and valuable consideration received, hereby certifies that IMPERIAL BANK, a
California banking corporation, or registered assigns permitted hereunder (the
"Holder"), is entitled to purchase from the Company, at any time or from time to
- -------
time during the Warrant Exercise Period (as hereinafter defined), that number of
shares of the Company's Common Stock, $.01 par value per share ("Common Stock"),
------------
as shall be equal to the Purchase Price (as hereinafter defined).
1. DEFINITIONS.
-----------
For the purposes of this Warrant:
"Fair Market Value" means the average of the closing sale prices (if listed
-----------------
on a stock exchange or quoted on the Nasdaq National Market System or any
successor thereto) or the average of the mean between the closing bid and asked
prices (if quoted on NASDAQ or otherwise publicly traded), of the Common Stock
on each of the five (5) trading days prior to the date of exercise.
"Purchase Price" means, initially $3.23, subject to adjustment in
--------------
accordance with Section 3.
---------
<PAGE>
2
"Termination Date" is defined in Section 7.
---------------- ---------
"Warrant Exercise Period" means the period commencing with the original
-----------------------
issue date of this Warrant and ending on the Termination Date.
"Warrant Number" means, initially, 24,767.8, subject to automatic
--------------
adjustment from time to time in accordance with Section 3.
---------
2. EXERCISE.
--------
(a) This Warrant may be exercised by the Holder, in whole or in part, by
surrendering this Warrant, with the purchase form appended hereto as Exhibit A,
---------
duly executed by such Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, accompanied by payment in
full by bank or certified check in lawful money of the United States, of the
aggregate Purchase Price payable in respect of the total number of shares of
Common Stock purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which this Warrant
shall have been surrendered to the Company as provided in Subsection 2(a)
---------------
hereof. At such time, the person or persons in whose name or names any
certificates for or other instruments evidencing shares of Common Stock shall be
issuable upon such exercise as provided in Subsection 2(d) below shall be deemed
---------------
to have become the holder or holders of record of the Common Stock represented
by such certificates or other instruments.
(c) (i) The Holder may at its sole option, and in lieu of paying the
Purchase Price pursuant to Subsection 2(a) hereof, exchange this
---------------
Warrant in whole or in part for a number of shares of Common Stock as
determined below. Such shares of Common Stock shall be issued by the
Company to the Holder without payment by the Holder of any exercise
price or any cash or other consideration. The number of shares of
Common Stock to be so issued to the Holder shall be equal to the
quotient obtained by dividing (A) the Surrendered Value (as defined
below) on the date of surrender of this Warrant pursuant to Subsection
----------
2(a), by (B) the Fair Market Value on the Exchange Date of one share
----
of Common Stock.
(ii) For the purposes of this Subsection 2(c), the "Surrendered
--------------- -----------
Value" of a portion of this Warrant on a given date shall be deemed to
-----
be the difference between (A) the aggregate Fair Market Value on such
date of the total number of shares of Common Stock otherwise issuable
upon exercise of such
<PAGE>
3
portion of the Warrant, minus (B) the aggregate Purchase Price of such
-----
number of shares of Common Stock.
(d) As soon as practicable after the exercise of this Warrant in full or in
part, and in any event within three (3) business days thereafter, the Company,
at its expense will cause to be issued in the name of, and delivered to, the
Holder, or, subject to the terms and conditions hereof, as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full shares
of Common Stock to which such Holder shall be entitled upon such
exercise, plus, in lieu of any fractional share to which such Holder
----
would otherwise be entitled, cash in an amount determined pursuant to
Section 3 hereof, and
---------
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the
aggregate on the face or faces thereof for the number of shares of
Common Stock equal (without giving effect to any adjustment therein)
to the Warrant Number minus the number of such shares of Common Stock
purchased by the Holder upon such exercise.
3. ADJUSTMENTS, FRACTIONAL SECURITIES.
----------------------------------
(a) If, at any time after the original issue date of this Warrant, the
outstanding Common Stock shall be subdivided into a greater number of shares or
a dividend in Common Stock shall be paid in respect of Common Stock, the
Purchase Price in effect immediately prior to such subdivision or at the record
date of such dividend shall simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend be immediately
and automatically proportionately and equitably reduced. If, at any time after
the original issue date of this Warrant, the outstanding Common Stock shall be
combined into a smaller number of shares, the Purchase Price in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be immediately and automatically
proportionately and equitably increased. When any adjustment is required to be
made in the Purchase Price, the number of shares of Common Stock purchasable
upon the exercise of this Warrant shall be changed to the number determined by
dividing (i) an amount equal to the number of shares of Common Stock issuable
upon the exercise of this Warrant immediately prior to such adjustment,
multiplied by the Purchase Price in effect immediately prior to such adjustment,
by (ii) the Purchase Price in effect immediately after such adjustment.
<PAGE>
4
(b) If, at any time after the original issue date of this Warrant, there
shall occur any capital reorganization or reclassification of the Common Stock
(other than a change in par value or a subdivision or combination as provided
for in Subsection 3(a) above), or any consolidation or merger of the Company
---------------
with or into another corporation, or a transfer of all or substantially all of
the assets of the Company, or the payment of a liquidating distribution, then,
as part of any such reorganization, reclassification, consolidation, merger,
sale, automatic conversion or liquidating distribution, lawful provision shall
be made so that the Holder of this Warrant shall have the right thereafter to
receive upon the exercise hereof (to the extent, if any, still exercisable) the
kind and amount of shares of stock or other securities or property which such
Holder would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger, sale, automatic
conversion or liquidating distribution, as the case may be, such Holder had held
the number of shares of Common Stock which were then purchasable upon the
exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made in
the application of the provisions set forth herein with respect to the rights
and interests thereafter of the Holder of this Warrant such that the provisions
set forth in this Section 3 (including provisions with respect to adjustment of
---------
the Purchase Price) shall thereafter be applicable, as nearly as is reasonably
practicable, in relation to any shares of stock or other securities or property
thereafter deliverable upon the exercise of this Warrant.
(c) In any case in which this Section 3 shall require that any adjustment
---------
in the number of shares of Common Stock or other property for which this Warrant
may be exercised be made effective as of a record date for a specified event,
the Company may elect to defer until the occurrence of such event the issuing to
the Holder with respect to the exercise of this Warrant after that record date
the Common Stock and other property, if any, issuable upon exercise over and
above the Common Stock and other property, if any, issuable upon exercise of
this Warrant as in effect prior to such adjustment; provided, however, that upon
-------- -------
request, the Company shall deliver to the Holder a due bill or other appropriate
instrument evidencing the Holder's right to receive such additional shares or
property upon the occurrence of the event requiring such adjustment.
(d) When any adjustment is required to be made in the Purchase Price or the
Warrant Number, the Company shall promptly mail to the Holder a certificate
setting forth the Purchase Price and the Warrant Number after such adjustment,
and setting forth a brief statement of the facts requiring such adjustment.
Such certificate shall also set forth the kind and amount of stock or other
securities or property into which this Warrant shall be exercisable following
the occurrence of any of the events specified in Subsection 3(a), (b) or (c)
--------------- --- ---
above.
<PAGE>
5
(e) The Company shall not be required, upon the exercise of this Warrant,
to issue any fractional shares, but shall make an adjustment therefore in cash
on the basis of the Fair Market Value of the Common Stock at the time of
exercise.
4. LIMITATION ON SALES, ETC.
-------------------------
The Holder, and each subsequent holder of this Warrant, if any,
acknowledges that this Warrant and the underlying shares of Common Stock have
not been registered under the Securities Act of 1933, as now in force or
hereafter amended, or any successor legislation (the "Act"), and agrees not to
sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this
Warrant or any Common Stock issued upon its exercise in the absence of (a) an
effective registration statement under the Act as to this Warrant or such
underlying shares of Common Stock and registration or qualification of this
Warrant or such underlying shares of Common Stock under any applicable Blue Sky
or state securities laws then in effect, or (b) an opinion of counsel,
satisfactory to the Company, that such registration and qualification are not
required.
Without limiting the generality of the foregoing, unless the offering and
sale of the Common Stock to be issued upon the particular exercise of the
Warrant shall have been effectively registered under the Act, the Company shall
be under no obligation to issue the shares covered by such exercise unless and
until the registered Holder shall have executed an investment letter in form and
substance reasonably satisfactory to the Company, including a warranty at the
time of such exercise that it is acquiring such shares for its own account, for
investment, and not with a view to, or for sale in connection with, the
distribution of any such shares, in which event the registered Holder shall be
bound by the provisions of a legend to such effect on the certificate(s)
representing the Common Stock.
In addition, without limiting the generality of the foregoing, the Company
may delay issuance of the Common Stock hereunder until completion of any action
or obtaining of any consent, which the Company deems necessary under any
applicable law (including without limitation state securities or "blue sky"
laws), provided that the Company shall use all reasonable efforts in good faith
--------
to diligently pursue completion of such action or the receipt of such consent.
5. NOTICES OF RECORD DATE, ETC.
----------------------------
In case:
(a) the Company shall take a record of the holders of Common Stock for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to
<PAGE>
6
receive any right to subscribe for or purchase any shares of stock of any class
or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation, or any transfer of all or substantially all of
the assets of the Company, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up
of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder of this Warrant a notice specifying, as the case may be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least twenty (20) days prior to the
record date or effective date for the event specified in such notice, provided
--------
that the failure to so mail such notice shall not affect the legality or
validity of any such action.
6. RESERVATION OF STOCK, ETC.
--------------------------
(a) The Company will at all times reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant, such stock and other
property as from time to time shall be issuable upon the exercise of this
Warrant.
(b) The Company further covenants that it will, at its expense, prior to
the issuance of any Common Stock upon exercise of this Warrant, procure the
listing on all stock exchanges (if any) on which the Common Stock is then listed
of all such shares of Common Stock.
(c) The Company will not, by amendment of its Certificate of Incorporation
or through reorganization, consolidation, merger, dissolution, issuance of
capital stock or sale of treasury stock (otherwise than upon exercise of this
Warrant) or sale of assets, or by any other act or deed, avoid or seek to avoid
the material performance or observance of any of the covenants, stipulations or
conditions in this Warrant to be observed or performed by the Company. The
Company will at all times in good faith assist, insofar as it is able, in the
<PAGE>
7
carrying out of all of the provisions of this Warrant in a reasonable manner and
in the taking of all other action which may be necessary in order to protect the
rights hereunder of the Holder of this Warrant.
(d) The Company will maintain an office where presentations and demands to
or upon the Company in respect of this Warrant may be made. The Company will
give notice in writing to the Holder, at the address of the Holder appearing on
the books of the Company, of each change in the location of such office.
7. TERMINATION.
-----------
THIS WARRANT SHALL TERMINATE AND NO LONGER BE EXERCISABLE FROM AND AFTER
5:00 P.M., BOSTON TIME, ON SEPTEMBER 10, 2004 (THE "TERMINATION DATE").
----------------
8. TRANSFERS, ETC.
--------------
(a) The Company will maintain a register containing the names and addresses
of the Holders of this Warrant. The Holder may change its, his or her address
as shown on the warrant register by written notice to the Company requesting
such change.
(b) Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Holder of this Warrant as the absolute owner hereof for
all purposes.
9. REPLACEMENT OF WARRANTS.
-----------------------
Upon receipt of evidence reasonably satisfactory to the Company of the
loss, theft, destruction or mutilation of this Warrant, and (in the case of
loss, theft or destruction) upon delivery of an indemnity agreement (with surety
if reasonably required) in an amount reasonably satisfactory to the Company, or
(in the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will issue, in lieu thereof, a new Warrant of like tenor.
10. MAILING OF NOTICES, ETC.
------------------------
All notices and other communications from the Company to the Holder of this
Warrant shall be mailed by first-class certified or registered mail, postage
prepaid, to the address furnished to the Company in writing by the last Holder
of this Warrant who shall have furnished an address to the Company in writing.
All notices and other communications from the Holder of this Warrant or in
connection herewith to the Company shall be mailed by first-class certified or
registered mail, postage prepaid, to the Company at its principal
<PAGE>
8
executive offices or at such other address as the Company shall so notify the
Holder.
11. NO RIGHTS AS STOCKHOLDER.
------------------------
Until the exercise of this Warrant, the Holder shall not have or exercise
any rights by virtue hereof as a stockholder of the Company.
12. CHANGE OR WAIVER.
----------------
Any term of this Warrant may be changed or waived only by an instrument in
writing signed by the party against which enforcement of the change or waiver is
sought.
13. HEADINGS.
--------
The headings in this Warrant are for purposes of reference only and shall
not limit or otherwise affect the meaning of any provision of this Warrant.
14. GOVERNING LAW.
-------------
The validity, construction and performance of this Warrant will be governed
by and construed in accordance with the laws of The State of Delaware applicable
to contracts executed in and performed entirely within such State, without
reference to any choice of law principles of such State. With respect to any
suit, action or other proceeding arising out of this Warrant, or any other
transaction contemplated thereby, the parties hereto expressly waive any right
they may have to a jury trial and agree that any proceeding hereunder shall be
tried by a judge without a jury.
<PAGE>
9
IN WITNESS WHEREOF, DATAWARE TECHNOLOGIES, INC. has caused this COMMON
STOCK PURCHASE WARRANT to be signed in its corporate name and its corporate seal
to be impressed hereon by its duly authorized officers on and as of September
10, 1997.
The Company:
-----------
DATAWARE TECHNOLOGIES, INC.
[Corporate Seal] By: /s/ Kurt Mueller
-------------------------
Title: President & CEO
Attest: /s/ Matthew C. Dallett
------------------------
Assistant Secretary
<PAGE>
EXHIBIT A
---------
PURCHASE FORM
-------------
To:
The undersigned, pursuant to the provisions set forth in the attached
COMMON STOCK PURCHASE WARRANT, hereby irrevocably elects either (a) to purchase
______________ shares of Common Stock covered by such Warrant and herewith makes
payment of $____________, representing the full purchase price for such shares
at the Purchase Price per share provided for in such Warrant, or (b) to
surrender _____________ number of shares of such Warrant in exchange for the
number of shares of Common Stock determined pursuant to Section 2(c) thereof.
------------
Dated: By:
-------------------------------
<PAGE>
EXHIBIT B
---------
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto: _________________________ the right to purchase Common Stock represented
by this Warrant to the extent of ___________________ shares, and does hereby
irrevocably constitute and appoint _______________________, attorney-in-fact to
transfer the same on the books of the Company with power of substitution in the
premises.
Dated: By:
-------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<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> 12,579
<SECURITIES> 0
<RECEIVABLES> 6,531
<ALLOWANCES> 817
<INVENTORY> 18
<CURRENT-ASSETS> 3,342
<PP&E> 10,206
<DEPRECIATION> 6,104
<TOTAL-ASSETS> 28,528
<CURRENT-LIABILITIES> 11,071
<BONDS> 0
0
0
<COMMON> 46,002
<OTHER-SE> (28,545)
<TOTAL-LIABILITY-AND-EQUITY> 28,528
<SALES> 29,517
<TOTAL-REVENUES> 29,517
<CGS> 11,189
<TOTAL-COSTS> 11,189
<OTHER-EXPENSES> 23,851
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276
<INCOME-PRETAX> (3,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,843)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
