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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For 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: 0-21127
VISIGENIC SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3173927
(State or other jurisdiction of (I.R.S. Employee
incorporation or organization) Identification No.)
951 Mariner's Island Blvd.
Suite 120
San Mateo, CA 94404
(Address of principal executive offices including zip code)
(415) 286-1900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-- --
Number of shares of registrant's common stock outstanding as of October 31,
1997: 14,517,530
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VISIGENIC SOFTWARE, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets at September 30,
1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations for the
three months and six months ended September 30, 1997 and
September 30, 1996 4
Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1997 and September 30, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 18
Item 3 Defaults upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 19
Signatures 19
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISIGENIC SOFTWARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
(UNAUDITED)
------------------------------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 17,971 $ 19,679
Accounts receivable, net 5,664 8,324
Prepaid compensation 496 709
------------------------------------------
Total current assets 24,131 28,712
------------------------------------------
PROPERTY AND EQUIPMENT, NET 3,207 3,143
OTHER ASSETS, NET:
Excess of purchase price over net assets acquired 465 1,078
Other 106 110
------------------------------------------
TOTAL ASSETS $ 27,909 $ 33,043
==========================================
CURRENT LIABILITIES:
Accounts payable $ 651 $ 846
Accrued liabilities -
Payroll and related benefits 1,754 1,458
Other 1,455 1,222
Deferred revenue 2,604 2,519
------------------------------------------
Total current liabilities 6,464 6,045
------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock 14 14
Additional paid-in-capital 59,286 58,723
Accumulated deficit (37,838) (31,742)
Accumulated translation adjustment (17) 3
------------------------------------------
Total stockholders' equity 21,445 26,998
------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,909 $ 33,043
==========================================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VISIGENIC SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
------------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUE:
Software licenses $ 3,674 $ 3,455 $ 8,086 $ 6,166
Consulting services, maintenance and other 1,890 951 3,688 1,644
------------------------- -------------------------
Total revenue 5,564 4,406 11,774 7,810
------------------------- -------------------------
COST OF REVENUE:
Software licenses 600 270 1,030 531
Consulting services, maintenance and other 1,460 633 2,777 1,133
------------------------- -------------------------
Total cost of revenue 2,060 903 3,807 1,664
------------------------- -------------------------
GROSS PROFIT 3,504 3,503 7,967 6,146
------------------------- -------------------------
OPERATING EXPENSES:
Product development 2,541 2,481 5,382 4,138
Sales & marketing 3,051 2,511 6,163 4,607
General & administrative 1,349 656 2,252 1,163
Purchased in process product development - - - 12,014
Amortization of excess of purchase price over net assets
acquired 306 129 612 172
------------------------- -------------------------
Total operating expenses 7,247 5,777 14,409 22,094
Loss from operations (3,743) (2,274) (6,442) (15,948)
------------------------- -------------------------
INTEREST AND OTHER INCOME, NET 197 42 431 48
PROVISION FOR TAXES (70) (39) (211) (39)
------------------------- -------------------------
NET LOSS ($3,616) ($2,271) ($6,222) ($15,939)
========================= =========================
NET LOSS PER SHARE ($0.25) ($0.43)
=========== ============
PRO FORMA NET LOSS PER SHARE ($0.18) ($1.30)
============== =============
SHARES USED IN PER SHARE CALCULATION 14,457 12,919 14,411 12,254
========================= =========================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VISIGENIC SOFTWARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($ 6,222) ($15,939)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,094 502
Purchased in process product development - 12,014
Provision for allowance of doubtful accounts 250 37
Adjustment to conform year-end of pooled company 126 -
Changes in assets and liabilities, net of acquisition of PostModern
and CustomWare:
Decrease (increase) in accounts receivable 2,390 (1,611)
Decrease (increase) in prepaid expenses and other current assets 213 (1,269)
Increase (decrease) in accounts payable (195) 188
Increase in accrued liabilities 529 1,064
Increase in deferred revenue 85 57
Net cash used in operating activities (1,730) (4,957)
-------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment for purchase of PostModern, net of cash acquired - (2,182)
Purchases of property and equipment (545) (1,074)
Organizational costs and other assets 4 (31)
-------------- ----------------
Net cash used in investing activities (541) (3,287)
-------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes - 2,000
Net proceeds from preferred stock - 4,000
Net proceeds from issuance of common stock 563 13,458
-------------- ----------------
Net cash provided by financing activities 563 19,458
-------------- ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,708) 11,214
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,679 2,433
-------------- ----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 17,971 $ 13,647
============== ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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VISIGENIC SOFTWARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Visigenic Software, Inc. (the "Company") without audit pursuant to
the rules and regulations of the Securities and Exchange Commission. 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. These condensed
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997.
The unaudited condensed consolidated financial statements included herein
reflect all adjustments (which include only normal, recurring adjustments) which
are, in the opinion of management, necessary to state fairly the results for the
six-month period ended September 30, 1997. The results for the six-month period
ended September 30, 1997 are not necessarily indicative of the results expected
for the full fiscal year.
2. BUSINESS COMBINATION
On September 5, 1997 the Company merged with Interactive Objects Software
GmbH ("iO"), a leading German consulting company that specializes in distributed
object computing, which resulted in iO becoming a wholly-owned subsidiary of the
Company. In connection therewith, the Company issued 353,767 shares of the
Company's common stock.
The merger was accounted for as a pooling of interests. Accordingly, the
Company's consolidated financial statements for all periods presented have been
restated to include the financial statements of iO. iO's year end was December
31. In accordance with Securities and Exchange Commission rules and
regulations, iO's year end of December 31, 1996 was combined with the
consolidated financial statements of the Company for the year ended March 31,
1997. iO's financial statements for the years ended December 31, 1994 and
December 31, 1995 were combined with the Company's financial statements for the
years ended March 31, 1995 and March 31, 1996, respectively.
The net revenue and net income of iO for the quarter ended March 31, 1997 of
$951,000 and $126,000, respectively, have been excluded from the Condensed
Consolidated Statement of Operations for the six month period ended September
30, 1997 as a result of the combination referred to above. Adjustments to
account for the exclusion of the income have been made to retained earnings in
fiscal 1998.
Net revenue and net income of the separate companies for the periods
preceding the merger were (in thousands):
<TABLE>
<CAPTION>
VISIGENIC INTERACTIVE OBJECTS
SOFTWARE, INC. SOFTWARE GMBH COMBINED
----------------- ------------------- --------
<S> <C> <C> <C>
SIX MONTHS ENDED SEPTEMBER 30, 1997:
TOTAL REVENUE $ 10,297 $1,477 $ 11,774
NET INCOME (LOSS) (6,400) 178 (6,222)
SIX MONTHS ENDED SEPTEMBER 30, 1996:
TOTAL REVENUE 6,783 1,027 7,810
NET INCOME (LOSS) (15,962) 23 (15,939)
</TABLE>
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Costs associated with the merger have been expensed in the quarter ended
September 30, 1997. The expenses associated with the merger were approximately
$300,000.
3. NET LOSS PER SHARE AND PRO FORMA NET LOSS PER SHARE
Net loss per share has been computed using the weighted average number of
common shares outstanding. Common equivalent shares have not been included as
their effect would be antidilutive.
Pro forma net loss per share is computed using the weighted average number
of common and common equivalent shares outstanding during the period. Common
equivalent shares consist of convertible preferred stock (using the if converted
method) and stock options (using the treasury stock method). As the Company has
incurred losses since inception, common equivalent shares have been excluded
from the computation, as their effect is antidilutive; however, pursuant to
Securities and Exchange Commission requirements, such computations include all
common and common equivalent shares issued within the twelve months preceding
the filing date as if they were outstanding for all periods presented using the
treasury stock method. Convertible preferred stock outstanding during the
period are included (using the "if converted" method) in the computation as
common equivalent shares, even though the effect is antidilutive.
4. CONTINGENCIES
On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against the Company and Corel Corporation ("Corel"), a licensee of the Company,
alleging breach of contract, intentional and negligent misrepresentation,
copyright infringement, trademark infringement, misappropriation of trade
secrets and other related claims.
The lawsuit claims that in a May 1994 agreement with Western Imaging, the
Company sold to Western Imaging all right, title and interest not only to its
Lumena product, but also to its Color Tools, Creative License, Oasis and
Signature products as well. As a result, Western Imaging asserts that the
Company breached the terms of the agreement with Western Imaging when, among
other things, it licensed Creative License, Color Tools, Oasis and Signature to
Corel. Western Imaging is seeking injunctive relief, unspecified damages,
impoundment of the disputed software during the pendency of the litigation, and
punitive damages.
The Company has not sold or marketed the disputed software products since
January 1995. The Company does not utilize this technology in any current
product offering.
The Company has agreed to defend Corel pursuant to the terms of its license
to Corel. The Company and Corel have filed an answer to the complaint denying
Western Imaging's allegations. The Company is currently investigating the
allegations and believes it has meritorious defenses to such claims and intends
to defend the litigation vigorously. However, due to the nature of the
litigation and because the lawsuit is at an early stage, the Company cannot
determine the total expense or possible loss, if any, that may ultimately be
incurred either in the context of a trial or as a result of a negotiated
settlement. Regardless of the ultimate outcome of the litigation, it could
result in significant diversion of time by the Company's technical and
managerial personnel. Because the results of the litigation, including any
potential settlement, are uncertain, there can be no assurance that they will
not have a material adverse effect on the Company's business, operating results
and financial condition.
5. LINE OF CREDIT AND EQUIPMENT TERM LOAN
The Company has a $5.0 million revolving line of credit agreement which
expires on July 14, 1998, and a $2.0 million equipment term loan with a draw
down period ending April 15, 1998 and equipment borrowings to be amortized over
thirty-six months thereafter. Both the line of credit and the equipment term
loan are incorporated in a loan agreement (the "Agreement") dated July 15, 1997.
Advances under the Agreement bear interest at the bank's prime lending rate.
Line of credit advances are limited to 80% of eligible
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accounts receivable. All advances are secured by substantially all of the assets
and contractual rights of the Company. The Agreement also contains certain
financial restrictions and covenants which require, among other things, for the
line of credit, that the Company maintain a minimum monthly tangible net worth
and a minimum quick ratio; and for the equipment term loan, a minimum liquidity
ratio or debt service coverage. There were no borrowings outstanding under the
Agreement as of September 30, 1997.
6. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS No. 128 will become effective for the
Company's year ending March 31, 1998. SFAS No. 128 will not have a material
impact on the Company's historical reported results of operations, as the
Company has reported operating losses to date.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which will be adopted by the Company in the fourth
quarter of 1998. SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 will not have a
material impact on the Company's financial statement disclosures.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
In addition to historical information, this discussion contains forward-looking
statements. Readers are cautioned not to place undue reliance on these forward-
looking statements. Due to risks and uncertainties, the Company's actual results
could differ materially from those discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed below in Factors That May Affect Future Results.
---------------------------------------
The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with management's
discussion and analysis of financial condition and results of operations
included in the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1997.
OVERVIEW
The Company commenced operations in February 1993 and was engaged principally
in product and market research and product development until the launch of its
initial products in November 1994. The Company first recognized material
revenue in the fourth quarter of fiscal 1995. The Company shipped version 1.0 of
the VisiODBC Software Development Kit ("SDK") and the VisiODBC Drivers in
November 1994, version 1.0 of its VisiChannel for ODBC product in March 1996 and
version 2.0 of its VisiODBC product line in June 1996. In May 1996, the Company
acquired PostModern Computing Technologies Inc. ("PostModern"), a supplier of
distributed object technology, and began selling VisiBroker for C++ and
VisiBroker for Java, distributed object products based on technology acquired
from PostModern. On September 5, 1997 the Company merged with Interactive
Objects Software GmbH ("iO"), a leading German consulting company that
specializes in distributed object computing, which resulted in iO becoming a
wholly-owned subsidiary of the Company. See Note 2 of Notes to Condensed
Consolidated Financial Statements. On October 21, 1997 the Company announced
that in order to focus its efforts on the increasing demand for its ORB
technology, the Company would not be further enhancing its ODBC data access
products, which include VisiODBC SDKs, VisiODBC Drivers and VisiChannel for
ODBC.
The Company's revenue is derived from license fees from licensing its
products, royalties from value added resellers ("VARs"), independent software
vendors ("ISVs") and distributors, and fees for services related to its
products, including software maintenance, development contracts, consulting and
training. License fees for the Company's products vary according to the specific
products licensed.
The Company licenses its products to VARs and ISVs, who include the Company's
products in their own products, and to end users, who deploy the Company's
products in their own computing environments. A substantial portion of the
Company's license revenue to date is attributable to licenses to VARs and ISVs.
A relatively small number of VAR and ISV customers have accounted for a
significant percentage of the Company's license revenue. Licenses to end users
have been increasing and for the first six months of fiscal 1998 accounted for
approximately 36% of the Company's total license revenue. The Company's VAR and
ISV sales have generally reflected a relatively high amount of revenue per
order. For fiscal 1997, licenses to the Company's ten largest customers
accounted for approximately 55% of the Company's total revenue. However, as the
Company's end user base grows, the number of orders has increased and the amount
of revenue per order has significantly decreased. For the first six months of
fiscal 1998, licenses to the Company's ten largest customers accounted for
approximately 34% of the Company's total revenue.
The Company markets its products in North America through its direct sales and
telesales organizations and through VARs and ISVs. Throughout the rest of the
world, the Company markets its products through distributors, VARs, ISVs and
direct sales in western Europe. In September 1997, the Company acquired
Interactive Objects Software GmbH ("iO"), a leading German consulting company
that specializes in distributed object computing. See Note 2 of Notes to
Condensed Consolidated Financial Statements.
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RESULTS OF OPERATIONS
REVENUE
Revenue for the second quarter of fiscal 1998 was $5.6 million, representing
a 26% increase over revenue of $4.4 million recorded during the comparable
period of fiscal 1997. For the six months ended September 30, 1997, Visigenic's
revenue grew 51% to $11.8 million from $7.8 million reported for the comparable
period of the prior fiscal year.
Revenue from software licenses increased during the three and six month
periods ended September 30, 1997 over the comparable periods of fiscal 1997
primarily due to an increased volume of licensing of the Company's products,
resulting from the expansion of the Company's direct sales and telesales
organizations. However the average transaction size declined from the second
quarter of fiscal 1997 to the same period in fiscal 1998 and from the first half
of fiscal 1997 to the same period in fiscal 1998, mainly due to the transition
of the Company's sales and marketing strategy to grow the end-user business.
License revenue for the first quarter of fiscal 1998 was adversely impacted by a
one-time charge of $753,000 for certain client-side ODBC driver products and a
discontinued version of VisiChannel based on SmartSockets/TM/ middleware, which
PLATINUM technology, Inc. returned during the quarter. PLATINUM technology
remains a customer of the Company's distributed object technology and a
stockholder of the Company. On October 21, 1997 the Company announced that in
order to focus its efforts on the increasing demand for it's ORB technology, the
Company would not be further enhancing its ODBC data access products, which
include VisiODBC SDKs, VisiODBC Drivers and VisiChannel for ODBC.
Consulting, maintenance and other revenue increased 99% in the second quarter
of fiscal 1998 over the comparable period of the prior year and accounted for
34% and 22% of total revenue for the second quarter of fiscal 1998 and fiscal
1997, respectively. For the six month period ended September 30, 1997, the
increase was 124% over the comparable period of the prior fiscal year. The
increase in revenue was primarily due to the greater licensing of products to
customers under agreements with maintenance components and growth in training
and consulting activities including the results from the acquisition of iO in
September 1997. See Note 2 of Notes to Condensed Consolidated Financial
Statements.
COST OF REVENUE
Cost of software license revenue includes product packaging, documentation,
production and shipping. Cost of software license revenue increased from
$270,000 in the second quarter of fiscal 1997 to $600,000 in the second quarter
of fiscal 1998 and from $531,000 for the six months ended September 30, 1996 to
$1,030,000 for the six months ended September 30, 1997. The increases resulted
from increased volume of licensing of the Company's products as well as
additional technology and products licensed from third parties for inclusion in
the Company's product line.
Cost of consulting, maintenance and other revenue consists primarily of
personnel and personnel-related overhead allocation, facility and systems costs
incurred in providing consulting, training, customer support and engineering
development services. Cost of consulting, maintenance and other revenue
increased from $633,000 in the second quarter of fiscal 1997 to $1.5 million in
the second quarter of fiscal 1998 and from $1.1 million for the six months ended
September 30, 1996 to $2.8 million for the six months ended September 30, 1997.
These increases reflect the effect of fixed costs resulting from the Company's
investment during the first half of fiscal 1998 in a larger professional
services organization
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including the acquisition of iO in Germany, which was accounted for as a pooling
of interests. See Note 2 of Notes to Condensed Consolidated Financial
Statements. The Company intends to continue investing resources in its
professional services organization.
OPERATING EXPENSES
Product Development. Product development expenses include expenses associated
with the development of new products, enhancements of existing products and
quality assurance activities, and consist primarily of employee salaries,
personnel-related overhead allocation, benefits, consulting costs, the cost of
technology licensed from other software companies and the cost of software
development tools. Product development expenses increased by 2% from $2.48
million the second quarter of fiscal 1997 to $2.54 million in the second quarter
of fiscal 1998 and by 30% from $4.1 million for the six months ended September
30, 1996 to $5.4 million for the six months ended September 30, 1997. The
increase in the dollar amount of product development expenses was primarily
attributable to costs of additional personnel and full-time contractors in the
Company's product development operations and, to a lesser extent, the licensing
of technology from third parties which has been or will be incorporated into the
Company's products.
In accordance with Statement of Financial Accounting Standards No. 86, the
Company has charged all software development costs to product development
expense as incurred because expenditures which were eligible for capitalization
were insignificant.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, commissions and bonuses earned by sales and marketing personnel,
personnel-related overhead allocation, field office rent and related expenses,
travel and entertainment, advertising and promotional expenses. Sales and
marketing expenses increased by 22% from $2.5 million in the second quarter of
fiscal 1997 to $3.1 million in the second quarter of fiscal 1998 and by 34% from
$4.6 million for the six months ended September 30, 1996 to $6.2 million for the
six months ended September 30, 1997. The increase in sales and marketing
expenditures reflects primarily the hiring of additional sales and marketing
personnel, costs associated with expanded advertising and promotional
activities, increased sales commissions and increased costs associated with
field sales offices. The Company expects that sales and marketing expenses will
continue to increase in absolute dollar amounts as the Company continues to
expand its sales and marketing efforts domestically, and internationally
establishes additional sales offices and increases advertising and promotional
activities.
General and Administrative. General and administrative expenses consist
primarily of salaries and occupancy costs for administrative, executive and
finance personnel and personnel related overhead allocation. General and
administrative expenses increased by 106% from $656,000 in the second quarter of
fiscal 1997 to $1.3 million in the second quarter of fiscal 1998 and by 94% from
$1.2 million for the six months ended September 30, 1996 to $2.3 million for the
six months ended September 30, 1997. The increase in general and administrative
expenses was primarily due to increased staffing and associated expenses
necessary to manage and support the Company's increased scale of operations,
costs associated with the merger of iO and an increase in reserves associated
with the Company's decision to discontinue enhancement of the ODBC data access
product line.
Purchased In Process Product Development and Amortization. In May 1996, the
Company completed the acquisition of PostModern which was accounted for as a
purchase in the quarter ended June 30, 1996. In December 1996, the Company
completed the acquisition of CustomWare, Inc. ("CustomWare") which was accounted
for as a purchase in the quarter ended December 31, 1996. In connection with
the acquisition of PostModern, the Company recorded a write-off in the quarter
ended June 30, 1996 of approximately $12.0 million related to in process product
development which had not reached technological feasibility and, in the opinion
of management, had no alternative future use. The remaining excess of purchase
price over net assets
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acquired of approximately $1.1 million will be amortized over two years. In
connection with the acquisition of CustomWare, the Company recorded a write-off
in the quarter ended December 31, 1996 of approximately $350,000 related to in
process product development which had not reached technological feasibility and,
in the opinion of management, had no alternative future use. The remaining
excess of purchase price over net assets acquired of approximately $700,000 will
be amortized over one year.
PROVISION FOR TAXES
Provision for taxes consists of foreign withholding taxes on sales to Japanese
customers and German income taxes related to the acquisition of iO. See Note 2
of Notes to Condensed Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity include cash and cash
equivalents of $18.0 million, a $5.0 million revolving line of credit which
expires on July 14, 1998, and a $2.0 million equipment term loan with a draw
down period ending April 15, 1998 with equipment borrowings to be amortized over
thirty-six months thereafter. Advances under the revolving line of credit and
term loan bear interest at the bank's prime lending rate (8.5% at September 30,
1997). Line of credit advances are limited to 80% of eligible accounts
receivable. All advances are secured by substantially all of the assets and
contractual rights of the Company. Both the line of credit and the equipment
term loan contain certain financial restrictions and covenants when borrowings
are outstanding. As of September 30, 1997, the Company was in compliance with
these financial restrictions and covenants. There were no borrowings
outstanding under the line of credit or equipment term loan as of September 30,
1997. See Note 5 of Notes to Condensed Consolidated Financial Statements.
Deferred revenue consists primarily of the unrecognized portion of revenue
under maintenance and support contracts (which revenue is deferred and
recognized ratably over the term of such contracts) and advance payment of
software development fees and software license fees. Capital expenditures were
primarily for computers, furniture and equipment. The Company expects that its
capital expenditures will increase as the Company's employee base grows. As of
September 30, 1997, the Company did not have any material commitments for
capital expenditures.
The Company believes that its existing sources of liquidity and cash
generated from operations will satisfy the Company's projected working capital
and other cash requirements for at least the next twelve months. Although
operating activities may provide cash in certain periods, to the extent the
Company experiences growth in the future, the Company anticipates that its
operating and investing activities will use cash. Any such future growth and any
acquisitions of other technologies, products or companies may require the
Company to obtain additional equity or debt financing, which may not be
available or may be dilutive. If adequate funds are not available to satisfy
either short or long-term capital requirements, the Company may be required to
limit its operations significantly.
FACTORS THAT MAY AFFECT FUTURE RESULTS:
The Company operates in a rapidly changing environment that involves numerous
risks, a number of which are beyond the Company's control. The following
discussion highlights some of those risks. A comprehensive summary of the risks
can be found in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997.
Limited Operating History and History of Losses. The Company was incorporated
in 1993 and commenced shipment of its initial products in November 1994. In May
1996, the Company acquired PostModern. PostModern was founded in 1991, commenced
shipment of its initial products in 1992 and had very limited product sales
prior to the acquisition. In December 1996, the Company acquired Customware.
CustomWare was founded in 1994 and had very limited operations prior to the
acquisition. In September 1997, the Company
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acquired iO. Accordingly, the Company has only a limited operating history upon
which an evaluation of the Company and its future operating results can be
based.
Since inception, the Company has incurred significant losses and negative cash
flow. At September 30, 1997, the Company had cumulative operating losses of
$37.8 million, with net losses of $2.4 million, $4.6 million, $4.4 million ,
$20.3 million, and $6.2 million for fiscal 1994, fiscal 1995, fiscal 1996,
fiscal 1997, and the six-months ended September, 30, 1997, respectively. A
substantial portion of the accumulated deficit is due to the significant
commitment of resources to the Company's product development and sales and
marketing activities and the write-off of approximately $12.0 million of in
process product development in the quarter ended June 30, 1996 in connection
with the acquisition of PostModern. The Company expects to continue to devote
substantial resources in these areas and as a result will need to generate
significant revenue in order to achieve profitability. The Company currently
anticipates that it will operate at a loss through at least the middle of 1998.
The Company experienced substantial growth in revenue in fiscal 1997. The
Company expects that prior growth rates of the Company's software product
revenue will not be sustainable in the future. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Potential Fluctuations in Operating Results. The Company's revenue and results
of operations have varied on a quarterly basis in the past and are expected to
vary significantly in the future. Accordingly, the Company believes that period
to period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
The Company's revenue and results of operations are difficult to forecast and
could be adversely affected by many factors including, among others, the size,
timing and terms of individual license transactions, the relatively long sales
and implementation cycles for the Company's products; the delay or deferral of
customer implementations; changes in the Company's operating expenses; the
ability of the Company to develop and market new products and control costs;
market acceptance of new products; timing of introduction or enhancement of
products by the Company or its competitors; the level of product and price
competition; the ability of the Company to expand its direct sales and
telesales forces, its indirect distribution channels and its customer support
capabilities; activities of and acquisitions by competitors; changes in database
access and distributed object software, database technology and industry
standards; changes in the mix of products and services sold; changes in the mix
of channels through which products and services are sold; levels of
international sales; personnel changes and difficulties in attracting and
retaining qualified sales, marketing and technical personnel; changes in
customers' budgeting cycles; foreign currency exchange rates; quality control of
products sold; and general economic conditions. In particular, the ability of
the Company to achieve revenue growth in the future will depend on its success
in adding a substantial number of sales and sales support personnel in 1998 and
the release of a number of new products that have been under development.
Competition for such personnel is intense and there can be no assurance the
Company will be able to attract and retain these personnel.
Licensing of the Company's software products historically has accounted for
the substantial majority of the Company's revenue, and the Company anticipates
that this trend will continue for the foreseeable future. The Company's
software products revenue is difficult to forecast for a number of reasons. The
Company typically does not have a material backlog of unfilled orders, and
revenue in any quarter is substantially dependent on contracts received in that
quarter. A significant portion of the Company's revenue in prior periods has
been derived from relatively large sales to a limited number of customers, and
the Company currently anticipates that future quarters will continue to reflect
this trend. Accordingly, the cancellation or deferral of even a small number of
purchases of the Company's products has in the past and could in the future have
a material adverse effect on the Company's business, results of operations and
financial condition in any particular quarter. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Overview."
A significant portion of the Company's revenue has been and is expected in the
future to continue to be based upon sales to third party vendors, who will
incorporate the Company's products in their own products. This revenue depends
upon the success of third parties, and as a result is difficult for the Company
to predict and may be subject to extreme fluctuation.
13
<PAGE>
The Company's expense levels are based, in part, on its expectations as to
future revenue and to a large extent are fixed in the short term. The Company
may be unable to adjust spending in a timely manner to compensate for any
unexpected revenue shortfall. Accordingly, any significant shortfall of revenue
in relation to the Company's expectations would have an almost immediate adverse
effect on the Company's business, financial condition and results of operations.
Further, the Company intends to continue to expand its sales and marketing force
and professional services organization. The timing of such expansion and the
rate at which new professional services and sales and marketing personnel become
productive could cause material fluctuations in quarterly results of operations.
Dependence on Emerging Markets and Evolving Standards; Acceptance of the
Company's Products. The Company's future financial performance will depend on
the growth in demand for distributed computing software products. This market is
new and emerging, rapidly evolving, and characterized by an increasing number of
market entrants and will be subject to frequent and continuing changes in
customers' preferences and technology. As is typical in new and evolving
markets, demand and market acceptance for products are subject to a high level
of uncertainty.
With the acquisition of PostModern in May 1996, the Company began to offer
standards-based distributed object products. The Company's current distributed
object products are based on several standards, including the Common Object
Request Broker Architecture and the Internet Inter-ORB Protocol. These
standards are intended to facilitate the management and communication of
applications created in object-oriented programming languages such as C++ and
Java. These standards are new, are just beginning to gain widespread acceptance
and compete with proprietary solutions such as Microsoft's ActiveX and
Distributed Component Object Model. The distributed object software market is
relatively young and there are few proven products. Further, some of the
Company's distributed object products are designed specifically for use in
applications for the Internet and Intranets. Because critical issues concerning
the Internet and Intranets -- including security, reliability, cost, ease of use
and access and quality of service -- remain unresolved, the growth of
applications targeted at the Internet and Intranets is uncertain and difficult
to predict.
Because the markets for the Company's products are new and evolving, it is
difficult to assess or predict with any assurance the size or growth rate, if
any, of these markets. There can be no assurance that the markets for the
Company's products will develop, or that the Company's products will be adopted.
If these markets fail to develop, develop more slowly than expected, or attract
new competitors, or if the Company's products do not achieve market acceptance,
the Company's business, results of operations and financial condition could be
materially adversely affected.
Reliance on VARs and ISVs. A significant element of the Company's strategy is
to embed its technology in products offered by the Company's VAR and ISV
customers, such as Borland, Cisco, Compuware, Healtheon, Hewlett-Packard,
Informix, Netscape, Novell, Oracle and Sybase, Inc. A relatively small number of
VAR and ISV customers have accounted for a significant percentage of the
Company's revenue. The Company intends to seek similar distribution
arrangements with other VARs and ISVs to embed the Company's technology in their
products and expects that these arrangements will account for a significant
portion of the Company's revenue in future periods. If the Company is
unsuccessful in securing license agreements with additional VARs and ISVs on
commercially reasonable terms or at all, or if the Company's VAR and ISV
customers are unsuccessful in selling their products, this would have a material
adverse effect on the Company's business, results of operations and financial
condition.
Product Concentration. Prior to the acquisition of PostModern in May 1996, the
Company derived substantially all of its revenue from the licensing of its
database access products, particularly its Open Database Connectivity ("ODBC")
product line, and fees from related services. In October 1997 the Company
announced that in order to focus its efforts on the increasing demand for its
ORB technology, the Company would not be further enhancing its ODBC data access
products, which include VisiODBC SDKs, VisiODBC Drivers and VisiChannel for
ODBC. Since the acquisition of PostModern, the Company has also derived a
significant portion of its revenue from its distributed object products. The
Company's distributed computing products and related services are expected to
continue to account for a significant portion of the Company's revenue for the
foreseeable future. As a result, a reduction in demand or increase in
competition for these distributed object
14
<PAGE>
products, or a decline in sales of such products, would have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on the Internet and Intranets. The Company believes that sales of
its products, particularly its distributed object products, will depend in
large part upon the adoption by businesses and end-users of the Internet and
Intranets for commerce and communications. Critical issues concerning the
Internet and Intranets, including security, reliability, cost, ease of use and
access and quality of service, remain unresolved at this time, inhibiting
adoption by many enterprises and end-users. If the Internet and Intranets are
not widely used by businesses and end-users, this will have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Java; Risks Associated with Encryption Technology. Certain of
the Company's products are based on Java, an object-oriented programming
language developed by JavaSoft, a subsidiary of Sun Microsystems. Java was
developed primarily for Internet and Intranet applications. Java was only
recently introduced and does not yet have sufficient history to establish its
reliability, thereby inhibiting adoption of Java. To date, there have been only
a limited number of commercially significant Java-based products, and it is too
early to determine whether Java will become a significant technology.
Alternatives to Java have been announced by several companies, including
Microsoft. To the extent that Java is not adopted or is adopted more slowly than
anticipated, this could have a material adverse effect on the Company's
business, results of operations and financial condition. The Company plans to
use encryption technology in certain of its future products to provide the
security required for the exchange of confidential information. There can be no
assurance that there will not be a compromise or breach of the security
technology used by the Company.
Need to Develop New Software Products and Enhancements. The markets for the
Company's products are characterized by rapid technological developments,
evolving industry standards, swift changes in customer requirements, computer
operating environments and software applications, and frequent new product
introductions and enhancements. As a result, the Company's success depends
substantially upon its ability to anticipate changes and continue to enhance its
existing products, develop and introduce in a timely manner new products
incorporating technological advances, comply with emerging industry standards
and meet increasing customer expectations. There can be no assurance that the
Company will be successful in developing and marketing new products or
enhancements to its existing products on a timely basis or at all or that any
new or enhanced products will adequately address the changing needs of the
marketplace.
The Company has in the past incurred product development expenses and sales
and marketing expenses in connection with product development activities that
did not result in commercially introduced products. Some of the Company's
products are based on technology from third parties and the Company therefore
has limited control over whether and when these technologies are enhanced. The
failure or delay in enhancements of technology from third parties used in the
Company's products could have a material adverse effect on the Company's ability
to develop and enhance its own products. The Company has in the past
experienced delays in the development of new products and product versions. If
the Company is unable to develop and introduce new products or enhancements to
existing products in a timely manner in response to changing market conditions
or customer requirements, the Company's business, results of operations and
financial condition would be materially and adversely affected.
Dependence on Key Personnel. The Company's future performance depends to a
significant extent upon the continued service of its key technical, development,
sales and marketing and management personnel. The loss of the services of any
of these individuals would have a material adverse effect on the Company. The
Company's future success also depends on its continuing ability to attract,
train and retain highly qualified technical, sales and marketing and managerial
personnel.
Potential Acquisitions. If appropriate opportunities present themselves, the
Company intends to acquire businesses, products or technology that the Company
believes are strategic. There can be no assurance that the Company will be able
to successfully identify, negotiate or finance such acquisitions, or to
integrate such acquisitions with its current business. The process of
integrating an acquired business, product or technology into the Company may
result in unforeseen operating difficulties and expenditures and may absorb
15
<PAGE>
significant management attention that would otherwise be available for ongoing
development of the Company's business. Moreover, there can be no assurance that
the anticipated benefits of any acquisition will be realized. Acquisitions could
result in potentially dilutive issuances of equity securities, the incurrence of
debt and contingent liabilities and amortization expenses related to goodwill
and other intangible assets, which could materially adversely affect the
Company's business, results of operations and financial condition. Any such
future growth and any acquisitions of other technologies, products or companies
may require the Company to obtain additional equity or debt financing, which may
not be available or may be dilutive.
Intense Competition. The Company's products are targeted at the emerging
market for standards-based distributed computing software. The market for the
Company's products are intensely competitive, subject to rapid change and
significantly affected by new product introductions and other market activities
of industry participants. The Company believes that the principal competitive
factors in these markets are product quality, performance and price, vendor and
product reputation, product architecture and quality of support.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. Increased price competition may
result in price reductions, reduced gross margins and loss of market share, any
of which could materially adversely affect the Company's business, financial
condition or results of operations. There can be no assurance that the Company
will be able to compete successfully against current and future competitors or
that competitive pressures will not materially and adversely affect its
business, results of operations and financial condition.
International Sales. The Company's international sales accounted for
approximately 26%, 23% and 22% of the Company's total revenue in fiscal 1996,
fiscal 1997, and the first six months of fiscal 1998, respectively. The Company
has increased its emphasis on international sales. Revenue derived from
international sales may account for a growing percentage of the Company's
revenue in future periods, although there can be no assurance that the Company
will achieve significant penetration in any international market. Through the
first quarter of fiscal 1998, the Company had only one international sales
office, located in Paris, France. In July 1997, the Company terminated its
distribution agreement with Valtech-iO, a European consultancy and software
distributor. In September 1997, the Company entered into a new distributor
agreement with Valtech and merged with iO, a leading German consulting company
that specializes in distributed object computing, which resulted in iO becoming
a wholly-owned subsidiary of the Company. See Note 2 of Notes to Condensed
Consolidated Financial Statements. The Company believes that its continued
growth will require expansion of its international operations. To successfully
expand international sales, the Company must establish additional foreign sales
offices, hire additional personnel and recruit additional international
distributors and resellers. To the extent the Company is unable to do so in a
timely manner, the Company's growth in international sales, if any, will be
limited, and the Company's business, results of operations and financial
condition could be materially adversely affected.
There are a number of risks inherent in the Company's international business
activities, including unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and risks of localizing and internationalizing
products for foreign countries, longer accounts receivable payment cycles,
potentially adverse tax consequences, repatriation of earnings and the burdens
of complying with a wide variety of foreign laws. None of the Company's products
is currently a "double byte" product, which is required to localize these
products in certain non-English character set markets such as Asia. The Company
believes that it will be required to develop double byte versions of its
products and engage in other internationalization and localization activities.
There can be no assurance the Company will successfully complete these
activities in a timely manner. All of the Company's sales are currently
denominated in U.S. dollars and, therefore, increases in the value of the U.S.
dollar relative to foreign currencies could make the Company's products less
competitive in foreign markets. In addition, revenue of the Company earned in
various countries where the Company does business may be subject to taxation by
more than one jurisdiction, thereby adversely affecting the Company's earnings.
There can be no assurance that such factors will not have an adverse effect on
the revenue from the Company's future international sales and, consequently, on
the Company's financial condition or results of operations.
Dependence on Company and Third Party Proprietary Technology. The Company's
success is dependent in part upon its proprietary technology. While the Company
relies on a combination of copyright and trademark laws, trade secrets,
confidentiality procedures and contractual provisions to protect its proprietary
rights, the
16
<PAGE>
Company believes that factors such as the technical and creative skills of
its personnel, new product developments, frequent product enhancements, name
recognition and reliable products and product support are more essential to
establishing and maintaining a technology leadership position, particularly
because the Company is supplying standards-based products. The Company seeks to
protect its software, published data, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. The
Company has granted limited access to its source code to third parties under
confidentiality obligations. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of the
Company's products or to obtain and use information that the Company regards as
proprietary.
In addition, the Company relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that such third parties will remain in business, that they will
continue to support their technology or that their technology will otherwise
continue to be available to the Company on commercially reasonable terms.
Possible Volatility of Stock. The market price of the Company's Common Stock
has been, and is likely to continue to be, volatile. Factors such as new
product announcements or changes in product pricing policies by the Company or
its competitors, quarterly fluctuations in the Company's operating results,
announcements of technical innovations, announcements relating to strategic
relationships or acquisitions, changes in earnings estimates by analysts and
general conditions in the software development tools market, among other
factors, may have a significant impact on the market price of the Company's
Common Stock. Should the Company fail to introduce products on the schedule
expected, the Company's stock price could be adversely affected. In addition,
in recent years the stock market in general, and the shares of technology
companies in particular, have experienced extreme price fluctuations. This
volatility has had a substantial effect on the market prices of securities
issued by many companies for reasons unrelated to the operating performance of
the specific companies. These broad market fluctuations may adversely affect
the market price of the Company's Common Stock.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against the Company and Corel Corporation ("Corel"), a licensee of the Company,
alleging breach of contract, intentional and negligent misrepresentation,
copyright infringement, trademark infringement, misappropriation of trade
secrets and other related claims.
The lawsuit claims that in a May 1994 agreement with Western Imaging, the
Company sold to Western Imaging all right, title and interest not only to its
Lumena product, but also to its Color Tools, Creative License, Oasis and
Signature products as well. As a result, Western Imaging asserts that the
Company breached the terms of the agreement with Western Imaging when, among
other things, it licensed Creative License, Color Tools, Oasis and Signature to
Corel. Western Imaging is seeking injunctive relief, unspecified damages,
impoundment of the disputed software during the pendency of the litigation, and
punitive damages.
The Company has not sold or marketed the disputed software products since
January 1995. The Company does not utilize this technology in any current
product offering.
The Company has agreed to defend Corel pursuant to the terms of its license to
Corel. The Company and Corel have filed an answer to the complaint denying
Western Imaging's allegations. The Company is currently investigating the
allegations and believes it has meritorious defenses to such claims and intends
to defend the litigation vigorously. However, due to the nature of the
litigation and because the lawsuit is at an early stage, the Company cannot
determine the total expense or possible loss, if any, that may ultimately be
incurred either in the context of a trial or as a result of a negotiated
settlement. Regardless of the ultimate outcome of the litigation, it could
result in significant diversion of time by the Company's technical and
17
<PAGE>
managerial personnel. Because the results of the litigation, including any
potential settlement, are uncertain, there can be no assurance that they will
not have a material adverse effect on the Company's business, operating results
and financial condition.
ITEM 2. CHANGES IN SECURITIES
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its 1997 Annual Meeting of Stockholders (the "Annual
Meeting") on July 30, 1997. At the Annual meeting, the Company's stockholders
elected Howard H. Grahm and J. Sidney Webb to the Company's Board of Directors
and approved certain proposals described more fully below. Proxies were
solicited by the Company pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended. As of June 20, 1997, the record date for the
Annual Meeting, there were approximately 14,023,160 shares of the Company's
Common Stock outstanding, of which 11,003,628 shares, or 78% were present in
person or by proxy at the Annual Meeting.
The following matters were brought before the Annual Meeting:
1. Election of Directors. Each of the following persons was elected as a
director of the Company, to serve a three year term, until the Company's
Annual Meeting of Stockholders in 2000, and until their successors are
elected and qualified or until his earlier resignation and removal:
SHARES IN FAVOR SHARES WITHHELD
-------------------------- ------------------------
Howard H. Grahm 10,907,725 95,903
J. Sidney Webb 10,907,725 95,903
2. Amendment of 1995 Stock Option Plan. The amendment of the Company's 1995
Stock Option Plan to increase the aggregate maximum number of shares
issuable thereunder by 1,500,000 shares from 2,500,000 to 4,000,000 shares
and to approve Section 162(m) grant limit of 300,000 shares per employee
per fiscal year, was voted on and approved by the Company's stockholders as
follows:
SHARES IN FAVOR SHARES AGAINST SHARES ABSTAINING BROKER NON-VOTES
--------------- -------------- ----------------- ----------------
7,937,983 1,014,707 173,937 1,877,001
3. Ratification of Selection of Independent Auditors. The selection of Arthur
Andersen LLP as the Company's independent auditors for the fiscal year
ended March 31, 1998 was voted on and ratified by the Company's
stockholders as follows:
SHARES IN FAVOR SHARES AGAINST SHARES ABSTAINING BROKER NON-VOTES
--------------- -------------- ----------------- ----------------
10,901,482 49,700 52,466 0
ITEM 5. OTHER INFORMATION
Not applicable
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
The following exhibits have been filed with this report:
27.1 Financial Data Schedule (EDGAR version only)
b. No reports on Form 8-K were filed during the quarter to which this
report relates.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Visigenic
Software, Inc. has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISIGENIC SOFTWARE, INC.
Dated: November 14, 1997 By: /s/ Kevin C. Eichler
------------------------------
KEVIN C. EICHLER
Vice President, Finance, Chief
Financial Officer, Treasurer and
Secretary
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VISIGENIC
SOFTWARE INC. CONSOLIDATED BALANCE SHEET, SEPTEMBER 30, 1997 AND MARCH 31, 1997.
VISIGENIC SOFTWARE INC. CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE
THREE MONTHS AND 6 MONTHS ENDED SEPTEMBER 30, 1997 AND SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> JUL-01-1997 APR-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 17,971 17,971
<SECURITIES> 0 0
<RECEIVABLES> 6,058 6,058
<ALLOWANCES> 394 394
<INVENTORY> 23 23
<CURRENT-ASSETS> 24,131 24,131
<PP&E> 5,124 5,124
<DEPRECIATION> (1,917) (1,917)
<TOTAL-ASSETS> 27,909 27,909
<CURRENT-LIABILITIES> 6,464 6,464
<BONDS> 0 0
0 0
0 0
<COMMON> 14 14
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 27,909 27,909
<SALES> 5,564 11,774
<TOTAL-REVENUES> 5,564 11,774
<CGS> 2,060 3,807
<TOTAL-COSTS> 9,307 18,216
<OTHER-EXPENSES> 70 211
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 197 431
<INCOME-PRETAX> (3,616) (6,222)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,616) (6,222)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (0.25) (0.43)
</TABLE>
