UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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: 0-23384
INSO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
04-3216243
(I.R.S. Employer Identification No.)
31 St. James Avenue, Boston, MA 02116
(Address of principal executive offices) (Zip Code)
(617) 753 - 6500
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter 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
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at May 12, 1998
Common Stock (par value $.01 per share) 14,889,141
INSO CORPORATION
FORM 10-Q INDEX
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Exhibit Index
INSO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 and DECEMBER 31, 1997
(Unaudited, in thousands except share amounts)
<TABLE>
<CAPTION>
March 31 December 31
ASSETS 1998 1997
------ ---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,431 $ 18,512
Marketable securities 67,084 61,945
Accounts receivable, net 28,721 25,889
Other current assets 3,408 1,817
--------- ---------
Total current assets 104,644 108,163
Property and equipment, net 8,081 7,073
Product development costs, net 8,934 9,015
Intangible assets, net 4,767 4,714
Other assets, net 3,272 3,201
Deferred income tax benefit, net 5,917 5,917
--------- ---------
TOTAL ASSETS $ 135,615 $ 138,083
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued liabilities $ 4,770 $ 3,899
Accrued salaries, commissions
and bonuses 3,683 5,478
Acquisition related liabilities 0 1,482
Unearned revenue 4,246 3,522
Royalties payable 1,075 1,266
Due to Houghton Mifflin Company 506 396
Current income taxes payable 655 575
Deferred income taxes 5,987 5,987
--------- ---------
Total current liabilities 20,922 22,605
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized;
none issued
Common stock, $.01 par value;
50,000,000 shares authorized;
14,743,389 and 14,645,611 shares
issued in 1998 and 1997,
respectively 147 146
Capital in excess of par value 129,309 128,187
Accumulated deficit (12,014) (10,063)
--------- ----------
117,442 118,270
Unamortized value of
restricted shares (197) (240)
Notes Receivable from Stock
Purchase Agreements (2,494) (2,494)
Treasury stock, at cost (58) (58)
---------- ----------
Total stockholders' equity 114,693 115,478
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 135,615 $ 138,083
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 and 1997
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net revenues 17,632 19,062
Cost of revenues 2,270 1,575
--------- ----------
Gross profit 15,362 17,487
Operating expenses
Sales and marketing 5,916 4,364
Product development 5,646 4,605
General and administrative 4,480 2,733
Purchased in-process research
and development 2,100 1,800
---------- ----------
Total operating expenses 18,142 13,502
---------- ---------
Operating income (loss) (2,780) 3,985
Net investment income 917 1,082
---------- ---------
Income (loss) before provision
for income taxes (1,863) 5,067
Provision for income taxes 88 2,559
---------- ---------
Net income (loss) (1,951) 2,508
---------- ---------
---------- ---------
Basic Earnings (loss) per share (0.13) 0.18
--------- ---------
--------- ---------
Diluted Earnings (loss) per share (0.13) 0.17
--------- ---------
--------- ---------
Weighted Average Shares Outstanding:
Basic 14,701 14,313
Diluted 14,701 14,831
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
INSO CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 and 1997
(Unaudited, in thousands of dollars)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from (used in) operating
activities:
Net loss $ (1,951) $ 2,508
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 2,078 2,663
Purchased in-process research
and development 2,100 1,800
---------- -----------
2,227 6,971
Changes in operating assets
and liabilities:
Accounts receivable (2,786) 1,112
Accounts payable and accrued
liabilities (807) (2,091)
Current income taxes 9 1,782
Royalties payable (191) (312)
Net due to affiliates 110 (405)
Other assets and liabilities (970) (595)
---------- ----------
Net cash provided by operating
activities (2,408) 6,462
Cash flows from (used in) investing
activities:
Property and equipment expenditures (1,721) (1,025)
Capitalized product development costs (940) (2,237)
Acquisitions, net of cash acquired (3,893) (4,240)
Net purchase of marketable securities (5,139) (3,857)
----------- ----------
Net cash used in investing
activities (11,693) (11,359)
Cash flows from (used in) financing
activities:
Net proceeds from issuance of common
stock 1,020 630
---------- ---------
Net cash provided by (used in)
financing activities 1,020 630
---------- ---------
Net decrease in cash and cash
equivalents (13,081) (4,267)
Cash and cash equivalents at beginning
of period 18,512 34,280
---------- ---------
Cash and cash equivalents at end
of period $ 5,431 $ 30,013
---------- ---------
---------- ---------
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
INSO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1998
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. All normal and recurring adjustments that are,
in the opinion of management, necessary for a fair presentation of the
results for the interim periods have been included. Operating results
for the three-month period ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1998.
For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission for
the fiscal year ended December 31, 1997.
Note 2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (SFAS 128). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share with basic
and diluted earnings per share. All earnings per share amounts for all
periods have been presented, and where appropriate, restated to
conform to the SFAS 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share.
<TABLE>
<CAPTION>
For the three months
ended March 31,
1998 1997
-------------------
<S> <C> <C>
Numerator:
Numerator for basic and diluted earnings
per share:
Net (loss) income ($1,951) $2,508
Denominator:
Denominator for basic earnings per
share-weighted average shares 14,701 14,313
Effect of dilutive securities:
Employee stock options 518
------- ------
Denominator for diluted earnings per share-
adjusted weighted-average shares 14,701 14,831
Basic (loss) earnings per share ($0.13) $0.18
------- ------
------- ------
(Loss) earnings per share - assuming dilution ($0.13) $0.17
------- ------
------- ------
</TABLE>
Note 3. Recent Accounting Pronouncements
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130 "Reporting Comprehensive Income" (SFAS 130).
SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its compenents in a full set of general
purpose financial statements. The adoption of SFAS 130 did not
have a material impact on the Company's financial position or results
of operations for the quarter ended March 31, 1998.
In March 1998, The Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants (AcSEC)
issued Statement of Position 98-1 (SOP 98-1) "Accouting for the
Costs of Computer Software Developed or Obtained for Internal
Use". SOP 98-1 requires the capitalization of certain costs related to
the development of software for internal use. The adoption of SOP
98-1 did not have a material impact on the Company's financial
position or results of operations for the quarter ended March 31,
1998.
Note 4. Acquisitions
ViewPort Development AB
On March 12, 1998, the Company acquired all of the outstanding
capital stock of ViewPort Development AB for $2,500,000 using
available cash. ViewPort, through its wholly owned subsidiary Synex
Information AB, is a developer of browser engines and application
development toolkits for viewing Standard Generalized Markup
Language information. The transaction was accounted for as a
purchase and has been included in the consolidated financial
statements since the date of acquisition. The purchase price has been
allocated on the basis of the estimated fair market value of the assets
acquired and the liabilities assumed. The acquisition included the
purchase of certain technology under research and development,
which resulted in a charge to the Company's consolidated results for
the quarter ended March 31, 1998 of $2,100,000, or $0.14 per share.
Intangible assets of $130,000 were recorded at the time of the
acquisition and are being amortized on a straight-line basis over their
estimated useful lives of five years.
Henderson Software, Inc.
On November 24, 1997, the Company acquired all of the outstanding
capital stock of privately held Henderson Software, Inc. for $750,000
using available cash. Henderson Software is a provider of Computer
Graphics Metafile viewing and filtering solutions. The transaction
was accounted for as a purchase and has been included in the
consolidated financial statements since the date of acquisition. The
acquisition included the purchase of certain technology under
research and development, which resulted in a charge to the
Company's consolidated results for the quarter ended December 31,
1997 of $700,000, or $0.05 per share.
Level Five Research, Inc.
On April 22, 1997, the Company acquired all of the outstanding
capital stock of Level Five Research, Inc. from Information Builders,
Inc. for $5,000,000 using available cash. The Company also caused,
at the time of acquisition, Level Five Research, Inc. to enter into
noncompetition agreements with key executives and made aggregate
payments of $300,000 in cash under those agreements. Level Five Research,
Inc., which operated as Inso Florida Corporation prior to
the sale of its assets to Lernout & Hauspie Speech Products N.V.
(Lernout & Hauspie) (See Note 6 below), is a developer of software
and systems that apply intelligent technologies to data access
management. The transaction was accounted for as a purchase and
has been included in the consolidated financial statements since the
date of acquisition. The acquisition included the purchase of certain
technology under research and development, which resulted in a
charge to the Company's consolidated results for the quarter ended
June 30, 1997 of $3,600,000, or $0.25 per share.
Mastersoft
On February 6, 1997, the Company acquired the intellectual property
and certain other assets of Adobe Systems Incorporated's document
access and conversion business, formerly known as Mastersoft, for
$2,965,000 using available cash. The transaction was accounted for
as a purchase and has been included in the consolidated financial
statements since the date of acquisition. The acquisition included the
purchase of certain technology under research and development,
which resulted in a charge to the Company's consolidated results for
the quarter ended March 31, 1997 of $1,800,000, or $0.13 per share.
Unaudited pro forma net revenues, net loss and net loss per share
shown below for the three months ended March 31, 1998 assumes the
acquisitions of ViewPort AB occurred on January 1, 1998 and for the
three months ended March 31, 1997, assumes the acquisitions of
ViewPort AB, Mastersoft, Level Five Research, Inc., and Henderson
Software, Inc. occurred on January 1, 1997. Therefore, the three
months ended March 31, 1997, presented below, includes the write-
off of certain purchased technology under research and development
of $2,100,000 relating to ViewPort AB, $3,600,000 relating to Level
Five Research, Inc., and $700,000 relating to Henderson Software,
Inc.
<TABLE>
<CAPTION>
Three months ended Three months ended
March 31, 1998 March 31, 1997
------------------ -------------------
<S> <C> <C>
Net Revenues $17,749,000 $19,767,000
Net loss $(1,936,000) $(4,153,000)
Net loss per share $ (0.13) $ (0.29)
</TABLE>
Note 5. Accounting Policies
The Company adopted the straight-line depreciation method for all
property placed in service on or after January 1, 1998. Management
believes that the straight-line method of depreciation provides a
preferable matching between expected productivity and cost
allocation since the equipment's operating capacity and consumption
generally remains consistent over time. The change was not material
to operating results or the financial position of the Company.
Note 6. Subsequent Events
On April 23 1998, the Company sold its linguistic software assets to
Lernout & Hauspie Speech Products N.V. for $19,500,000, plus an
additional amount for certain receivables net of certain liabilities.
The purchase price was paid 50% in cash and 50% in the form of a
note, due June 30, 1998, bearing interest at 5.5% and secured by a
letter of credit issued by Banque Paribas. The note will be converted
into shares of Lernout & Hauspie common stock having a market
value equal to $9,750,000 plus accrued interest assuming shares
having such a value are delivered to the Company and are available
for public resale before June 30, 1998. The additional consideration
for the other net assets was paid in cash. Included in the assets
transferred to Lernout & Hauspie are all of Inso's linguistic software
products, including its proofing tools, reference works, and
information management tools, the Quest database search technology
acquired with the Level Five Research, Inc. acquisition (see Note 3),
and all customer and supplier agreements related to those products.
The Company expects to report in the quarter ended June 30, 1998, a
net after-tax gain of approximately $12 million to $13 million as a
result of the transaction.
On May 7, 1998, the Company's stockholders voted to increase the
number of shares authorized to be issued under the 1993 Stock
Purchase Plan from 200,000 to 450,000 shares.
On May 7, 1998, the Company's stockholders voted to increase the
number of shares authorized to be issued under the 1996 Stock
Incentive Plan from 2,000,000 to 5,000,000 shares.
On May 7, 1998, the Company's stockholders voted to increase the
number of shares authorized to be issued under the 1996 Non-
employee Director Plan from 250,000 to 415,000.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March
31, 1997
Revenues for the three months ended March 31, 1998 decreased $1,430,000, or
8%, to $17,632,000 compared to $19,062,000 for the three months ended March
31, 1997. Net revenues for the quarter ended March 31, 1997, of $19,062,000
included certain revenues from Microsoft Corporation, which are no longer
recurring. Excluding the 1997 Microsoft revenues which are no longer
recurring, net revenues for the quarter ended March 31, 1998 increased
approximately 40% over net revenues for the quarter ended March 31, 1997. Of
the total revenues in 1998, less than 5% were revenues from the acquisitions
of ViewPort, Mastersoft, Level Five Research, Inc., and Henderson Software,
Inc. Direct and distribution revenues, led by Dynamic Document Exchange and
Electronic Publishing Solutions products grew by nearly 40% over the quarter
ended March 31, 1997. On April 23, 1998, the Company sold its linguistic
software assets to Lernout & Hauspie Speech Products N.V. (Lernout &
Hauspie) for $19,500,000, plus an additional amount for certain receivables
net of certain liabilities. Included in the assets transferred to Lernout
& Hauspie are all of Inso's linguistic software products, including its
proofing tools, reference works, and information management tools, the Quest
database search technology, and all customer and supplier agreements related
to those products. Excluding the revenues associated with the assets sold
to Lernout & Hauspie, net revenues for the three months ended March 31, 1998
and 1997 were $10,784,000 and $9,084,000, respectively.
Gross profit decreased $2,125,000, or 12%, from $17,487,000 for the three
months ended March 31, 1998 to $15,362,000 for the three months ended March
31, 1997. Gross profit as a percentage of revenues for the three months ended
March 31, 1998 was 87% compared to 92% for the three months ended March
31, 1997. The decrease in gross profit percentage was primarily attributable
to higher revenues from International CorrectSpell(TM), International
Electronic Thesaurus, and bilingual electronic dictionaries, which carry
higher royalty burdens.
Total operating expenses increased $4,640,000 to $18,142,000 for the three
months ended March 31, 1998 from $13,502,000 for the three months ended
March 31, 1997. Included in total operating expenses for the three months
ended March 31, 1998 was an acquisition charge of $2,100,000 for certain
purchased technology under research and development by ViewPort
Development AB at the time of the March 12, 1998 acquisition. Included in
total operating expenses for the three months ended March 31, 1997 was an
acquisition charge of $1,800,000 for certain purchased technology under
research and development by Mastersoft at the time of the 1997 acquisition.
Excluding the 1998 and 1997 aforementioned acquisition charges as well as the
operating expenses associated with the assets sold to Lernout & Hauspie,
operating expenses increased $4,875,000 or 54% for the three months ended
March 31, 1998 compared to the three months ended March 31, 1997.
Sales and marketing expenses increased $1,552,000 to $5,916,000 for the three
months ended March 31, 1998 from $4,364,000 for the three months ended
March 31, 1997. The increase reflects increased costs for the reorganization
of sales and marketing departments. Sales and marketing expenses were 34% of
revenues for the three months ended March 31, 1998 compared to 23% for the
three months ended March 31, 1997. Product development expenses increased
$1,041,000 from $4,605,000 for the three months ended March 31, 1997 to
$5,646,000 for the three months ended March 31, 1998. The increase in product
development costs was primarily due to the lower capitalized costs for the
three months ended March 31, 1998 compared to the three months ended March 31,
1997. The Company's total product development costs, including capitalized
costs, were $6,586,000, or 37% of revenues, for the three months ended March
31, 1998 compared to $6,842,000, or 36% of revenues, for the three months
ended March 31, 1997. General and administrative expenses increased
$1,747,000 to $4,480,000 for the three months ended March 31, 1998 compared
to $2,733,000 for the three months ended March 31, 1997. General and
administrative expenses were 25% of revenues for the three months ended
March 31, 1998 compared to 14% for the three months ended March 31, 1997.
The increase in general and administrative expenses was primarily due to
goodwill amortization related to the Company's acquisitions as well as
increases in personnel, facilities costs, and general expenses required to
support the changes in the Company's operations.
The Company's effective tax rate was influenced by the purchased in-process
research and development charges discussed above. Excluding these charges,
the Company's effective tax rate for the three months ended March 31, 1998
and 1997 was 37%.
Excluding the $2,100,000 ($0.14 per share) ViewPort purchased in-process
research and development charge, net income and earnings per share for the
quarter ending March 31, 1998 would have been $149,000 and $0.01,
respectively. Excluding the 1997 $1,800,000 ($0.13 per share) Mastersoft
purchased in-process research and development charge, net income and earnings
per share for the quarter ended March 31, 1997 would have been $4,308,000
and $0.29, respectively.
Liquidity and Capital Resources
The Company's operating activities used cash of $2,408,000 for the three months
ended March 31, 1998 compared to providing cash of $6,462,000 for the three
months ended March 31, 1997. The decreased contribution from operating
activities of $8,870,000 was primarily due to an increase in accounts
receivable in 1998 as well as timing of payments on accounts payable,
accrued liabilities, and income taxes in 1998.
The Company's investing activities used cash of $11,693,000 for the three
months ended March 31, 1998 compared to $11,359,000 for the three months
ended March 31, 1997. The increase of $334,000 was due to the 1998 increase
in investment activity for marketable securities of $1,282,000; an increase of
$696,000 in property and equipment expenditures in 1998; offset by a decrease
in capitalized product development costs and acquisition activity. The
investing activity in 1998 also included the payment of $1,467,000 to the
former principal stockholder of Inso Providence.
The Company's financing activities provided cash of $1,020,000 for the three
months ended March 31, 1998 compared to $630,000 for the three months ended
March 31, 1997. The increase of $390,000 primarily relates to an increase in
the proceeds received from stock option exercises.
As of March 31, 1997, the Company had working capital of $83,722,000. Total
cash, cash equivalents, and marketable securities at March 31, 1998 were
$72,515,000. The Company believes that funds available, together with funds
expected to be generated from operations, will be sufficient to finance the
Company's operations through the foreseeable future.
Future Operating Results
This report, and other reports, proxy statements and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income or earnings per
share. Please refer to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997 for a description of certain factors
which may cause the Company's actual results to vary materially from those
forecasted or projected in any such forward-looking statements. Among the
factors which may cause the Company's actual results to differ materially
from historical results are the following: competitive pressures including
price pressures; declining royalty revenues from Microsoft Corporation which
decrease substantially in 1998 and thereafter; increased reliance on
corporate and direct distribution channels which results in lower operating
margins; increased personnel costs and competition for
experienced personnel; market acceptance of products based on eXtensible
Markup Language and Standard Generalized Markup Language; consolidation in
the OEM business and potential competition from OEM customers; adverse
economic changes in the markets in which the Company does business;
difficulties integrating operations and personnel of acquired businesses; and
increasing reliance on international markets. As a result of the sale of the
linguistic software assets to Lernout & Hauspie Speech Products N.V., the
Company does not expect to receive significant revenues from Microsoft
Corporation in future periods.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following are filed as exhibits to this Form 10-Q
Exhibit 18 Letter re Change in Accounting Principle
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
Registrant filed no reports on Form 8-K during the
quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Inso Corporation
Registrant
Date: May 12, 1998 /s/ Betty J.Savage
------------------
Betty J. Savage
Vice President and
Chief Financial Officer
Date: May 12, 1998 /s/ Patricia A. Michaels
------------------------
Patricia A. Michaels
Corporate Controller
(Chief Accounting Officer)
May 5, 1998
Patricia Michaels
Corporate Controller and Chief Accounting Officer
INSO Corporation
31 St. James Avenue
Boston, MA 02116
Dear Ms. Michaels,
Note 5 of Notes to the condensed consolidated financial statements of INSO
Corporation included in its Form 10Q for the period ended March 31, 1998
describes a change in the method of accounting for the depreciation of
Property and Equipment acquired beginning in January, 1998. The Company is
changing from the double-declining balance method of depreciating Property
and Equipment to the straight-line method. You have advised us that you
believe that the change is to a preferable method in your circumstances
because the straight-line method provides a preferable matching between
expected productivity and cost allocation, since the equipment's operating
capacity and consumption remains consistent over time.
There are no authoritative criteria for determining a "preferable"
depreciation method based on the particular circumstances, however, we
conclude that the change in the method of accounting for depreciation of
Property and Equipment is to an acceptable alternative method which, based
on your business judgment to make this change for the reasons cited above,
is preferable in your circumstances. We have not conducted an audit in
accordance with generally accepted auditing standards of any financial
statements of the Company as of any date or for any period subsequent to
December 31, 1997, and therefore we do not express any opinion on
any financial statements of INSO Corporation subsequent to that date.
Very truly yours,
Ernst & Young LLP
-----------------
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND THE CONSOLIDATED STATEMENTS OF
INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFED
IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,431
<SECURITIES> 67,084
<RECEIVABLES> 28,721
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 104,644
<PP&E> 8,081
<DEPRECIATION> 0
<TOTAL-ASSETS> 135,615
<CURRENT-LIABILITIES> 20,922
<BONDS> 0
0
0
<COMMON> 147
<OTHER-SE> 114,546
<TOTAL-LIABILITY-AND-EQUITY> 135,615
<SALES> 17,632
<TOTAL-REVENUES> 17,632
<CGS> 0
<TOTAL-COSTS> 2,270
<OTHER-EXPENSES> 18,142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,863)
<INCOME-TAX> 88
<INCOME-CONTINUING> (1,951)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,951)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
