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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 Quarter Ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-28252
BROADVISION, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3184303
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
585 Broadway, Redwood City, California 94063
(Address of principal executive offices) (Zip code)
(650) 261-5100
(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 ___
As of October 31, 1998 there were 24,566,393 shares of the Registrant's
Common Stock issued and outstanding.
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<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Operations -
Three and nine months ended September 30, 1998 and 1997 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 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 18
SIGNATURES 18
2
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
September 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 61,914 $ 8,277
Restricted cash -- 1,400
Short-term investments, restricted -- 796
Accounts receivable, less allowance for doubtful accounts and returns
of $628 and $671, for 1998 and 1997, respectively 11,625 9,586
Prepaids and other 1,876 566
-------- --------
Total current assets 75,415 20,625
Property and equipment, net 7,572 6,467
Long-term investments, at cost 5,525 --
Prepaids and other 1,161 250
-------- --------
Total assets $ 89,673 $ 27,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,812 $ 1,863
Accrued expenses 3,237 2,168
Unearned revenue 2,182 1,335
Deferred maintenance 4,300 2,552
Current portion of capital lease obligations 844 773
Current portion of long-term debt 548 449
-------- --------
Total current liabilities 12,923 9,140
Capital lease obligations 346 803
Long-term debt 3,061 2,202
Other 58 76
-------- --------
Total liabilities 16,388 12,221
Commitments
Stockholders' equity:
Convertible preferred stock, $0.0001 par value; 5,000 shares
authorized; none issued and outstanding -- --
Common stock, $0.0001 par value; 50,000 shares authorized; 24,334 and
20,343 shares issued and outstanding for 1998 and 1997, respectively
2 2
Additional paid-in capital 95,620 40,366
Deferred compensation (643) (1,605)
Accumulated deficit (21,694) (23,642)
-------- --------
Total stockholders' equity 73,285 15,121
-------- --------
Total liabilities and stockholders' equity $ 89,673 $ 27,342
======== ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
3
<PAGE>
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Software licenses $ 9,158 $ 5,513 $ 24,455 $ 12,759
Services 4,273 1,641 10,439 5,713
-------- -------- -------- --------
Total revenues 13,431 7,154 34,894 18,472
Cost of revenues:
Cost of software licenses 237 460 637 1,099
Cost of services 2,553 1,010 6,264 3,154
-------- -------- -------- --------
Total cost of revenues 2,790 1,470 6,901 4,253
-------- -------- -------- --------
Gross profit 10,641 5,684 27,993 14,219
Operating expenses:
Research and development 2,394 2,113 6,476 5,595
Sales and marketing 6,285 4,630 18,389 13,091
General and administrative 977 763 2,562 2,209
-------- -------- -------- --------
Total operating expenses 9,656 7,506 27,427 20,895
-------- -------- -------- --------
Operating income (loss) 985 (1,822) 566 (6,676)
Interest and other income 837 133 1,751 541
Interest and other expense (68) (2) (369) (152)
-------- -------- -------- --------
Net income (loss) $ 1,754 $ (1,691) $ 1,948 $ (6,287)
======== ======== ======== ========
Basic and diluted
earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31)
======== ======== ======== ========
Shares used in computing
basic earnings (loss) per share 24,264 20,284 22,924 20,169
======== ======== ======== ========
Shares used in computing
diluted earnings (loss) per share 26,722 20,284 25,214 20,169
======== ======== ======== ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
4
<PAGE>
<TABLE>
BROADVISION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,948 $ (6,287)
Adjustments to reconcile net income (loss) to net cash used for
operating activities:
Depreciation and amortization 2,074 1,148
Amortization of deferred compensation 269 331
Allowance for doubtful accounts and returns 403 345
Revenue resulting from nonmonetary transactions (2,917) --
Amortization of prepaid royalties 167 --
Changes in operating assets and liabilities:
Accounts receivable (2,442) (4,084)
Prepaids and other (995) (281)
Accounts payable and accrued expenses 1,018 (266)
Unearned revenue and deferred maintenance 237 (301)
-------- --------
Net cash used for operating activities (238) (9,395)
Cash flows from investing activities:
Additions to property and equipment (2,932) (2,004)
Purchase of long-term investment (1,500) --
Other assets (161) --
Purchase of short-term investments -- (1,532)
Maturity of short-term investments 796 3,644
-------- --------
Net cash provided by (used for) investing activities (3,797) 108
Cash flows from financing activities:
Net change in restricted cash 1,400 --
Proceeds from issuance of common stock 55,947 730
Proceeds from borrowings, net 958 238
Capital lease payments (633) (288)
-------- --------
Net cash provided by financing activities 57,672 680
Net increase (decrease) in cash and cash equivalents 53,637 (8,607)
Cash and cash equivalents at beginning of period 8,277 17,608
-------- --------
Cash and cash equivalents at end of period $ 61,914 $ 9,001
======== ========
Supplemental disclosures of cash flow information:
Prepaids and investment acquired in nonmonetary transactions $ 5,275 $ --
======== ========
Unearned revenue and deferred maintenance from nonmonetary transactions $ 2,358 $ --
======== ========
Cash paid for interest $ 294 $ 82
======== ========
Non-cash investing and financing activities:
Equipment acquired under capital leases $ 247 $ 178
======== ========
Deferred compensation forfeited due to voluntary terminations $ 693 $ --
======== ========
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
5
<PAGE>
BROADVISION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Summary of Significant Accounting Policies
Nature of Business - BroadVision, Inc. ("BroadVision" or the "Company")
develops, markets and supports fully integrated application software solutions
exclusively designed to manage one-to-one relationships for the extended
enterprise. These total end-to-end solutions enable a business to capitalize on
the Internet as a unique platform, which empowers businesses to enhance
commerce, provide critical self-service functions or deliver targeted
personalized information to customers, suppliers, distributors, employees, or
any other constituent of their extended enterprise on a real-time interactive
basis.
Basis of Presentation - The accompanying consolidated financial statements
include the accounts of BroadVision and its wholly owned subsidiaries. They have
been prepared in accordance with the established guidelines for interim
financial information as provided by the instructions to Form 10-Q and Article
10 of Regulation S-X. All significant intercompany transactions have been
eliminated in consolidation. The financial results and related information as of
September 30, 1998, and for the three and nine months ended September 30, 1998,
and 1997 are unaudited. The balance sheet at December 31, 1997, has been derived
from the audited financial statements at that date but does not necessarily
reflect all informational disclosures previously reported in accordance with
Generally Accepted Accounting Principles. In the Company's opinion, the
financial statements presented herein include all necessary adjustments,
consisting of normal recurring adjustments, to fairly state the Company's
financial position, results of operations, and cash flows for the periods
indicated. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included with the Company's
annual report on Form 10-K and other documents filed with the Securities and
Exchange Commission. The results of the Company's operations for the interim
periods presented are not necessarily indicative of operating results for the
full fiscal year or any future interim periods.
Prepaid Royalties - Prepaid royalties relating to purchased software to be
incorporated and sold with the Company's software products are amortized as a
cost of revenue either on a straight-line basis over the remaining term of the
royalty agreement or on the basis of projected product revenues, whichever
results in greater amortization.
Long-term Investments - The Company accounts for nonmarketable equity
investments (consisting of less than 20% of an investee's outstanding voting
stock) based on the cost method; given the Company does not have the ability to
significantly influence the operating and financial policies of the investee.
Any impairment in value, which is other than a temporary decline, is charged to
the period in which such loss occurs.
Non-monetary Transactions - During the quarter ended June 30, 1998, the Company
renegotiated an existing royalty arrangement with a vendor. Concurrently, the
Company sold this vendor an end-use software license totaling $1,250,000,
inclusive of maintenance and support. As a result of the renegotiation, the
Company paid the vendor a fixed fee of $1,250,000 for royalties through 2001 and
certain internal development rights through 1999. Previously the Company had an
existing arrangement with this vendor whereby the Company made quarterly royalty
payments based on a percentage of product revenues. The sale to this vendor
resulted in software license revenues of approximately $1,031,000 during the
quarter ended June 30, 1998.
6
<PAGE>
On July 22, 1998, the Company finalized a strategic alliance with Security
First Technologies (S1), a publicly traded company. In conjunction with the
strategic alliance, the Company received restricted shares of S1 common stock
with a fair value of approximately $4,025,000 and, in return, licensed software
to S1 for S1's internal use in its data centers, entered into a license and
joint development agreement with S1 involving the integration of S1's suite of
Internet-based products and BroadVision's One-to-One Financial (combined
solution), entered into a reseller agreement with S1 allowing S1 to resell the
combined solution to its customers, and entered into a joint marketing agreement
for the marketing of products to the financial services industry. During the
quarter ended September 30, 1998, the Company recognized license revenue of
approximately $1,886,000 or 14% of total revenue for the quarter ended September
30, 1998 related to the licensing of software to S1 for internal use. In
conjunction with the agreement with S1, the Company recorded deferred revenue of
approximately $2,139,000, which includes maintenance obligations to be
recognized ratably over three years, license revenues and joint development
costs to be recognized as the joint development services are provided, and
training to be recognized as the services are performed. In addition, subsequent
to September 30, 1998, the Company issued 123,000 shares of common stock with a
value of $1,322,000 in exchange for 129,700 shares of common stock of S1.
Comprehensive Income - Effective January 1, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 130,
Reporting of Comprehensive Income. Comprehensive income includes all changes in
equity during a period except those resulting from the issuance of shares of
stock and distributions to stockholders. There were no material differences
between net income (loss) and comprehensive income (loss) during the three and
nine month periods ended September 30, 1998 and 1997.
Net Loss Per Share - SFAS No. 128, Earnings Per Share, requires the presentation
of basic and diluted earnings per share. Earnings per share are calculated by
dividing net income applicable to common stockholders by a weighted average
number of shares outstanding for the period. Basic earnings per share are
determined solely on common shares, whereas, diluted earnings per share includes
common equivalent shares, as determined under the treasury stock method.
<TABLE>
The following table sets forth the basic and diluted earnings (loss) per
share computational data for the periods presented.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
(In thousands, except per share amounts) 1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,754 $ (1,691) $ 1,948 $ (6,287)
======== ======== ======== ========
Weighted average common shares outstanding
utilized for basic earnings (loss) per share 24,264 20,284 22,924 20,169
Weighted average common equivalent shares
outstanding:
Employee common stock options 2,436 -- [1] 2,272 -- [1]
Common stock warrant 22 -- [1] 18 -- [1]
-------- -------- -------- --------
Total weighted average common and common
equivalent shares outstanding utilized for
diluted earnings (loss) per share 26,722 20,284 25,214 20,169
======== ======== ======== ========
Basic earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31)
======== ======== ======== ========
Diluted earnings (loss) per share $ 0.07 $ (0.08) $ 0.08 $ (0.31)
======== ======== ======== ========
<FN>
[1] The Company incurred a net loss for the indicated period. Accordingly,
common equivalent shares are excluded from the diluted loss per share
calculation because they are antidilutive.
</FN>
</TABLE>
7
<PAGE>
New Accounting Pronouncements - The Financial Accounting Standards Board
("FASB") recently issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS No. 133 addresses the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under SFAS No. 133, entities are required to carry all derivative
instruments in the balance sheet at fair value. The accounting for changes in
the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. The Company must adopt SFAS No. 133 by
January 1, 2000. The Company has not determined the impact that SFAS No. 133
will have on its financial statements.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires that certain
costs related to the development or purchase of internal-use software be
capitalized and amortized over the estimated useful life of the software. SOP
98-1 is effective for financial statements issued for fiscal years beginning
after December 15, 1998. The Company does not expect the adoption of SOP 98-1 to
have a material impact on its results of operations.
Note 2. Selective Balance Sheet Detail
Property and Equipment consisted of the following (in thousands):
September 30, December 31,
1998 1997
-------- --------
Furniture and fixtures $ 963 $ 636
Computers and software 7,615 5,458
Leasehold improvements 3,475 2,780
-------- --------
12,053 8,874
Less accumulated depreciation and amortization (4,481) (2,407)
-------- --------
$ 7,572 $ 6,467
======== ========
Accrued expenses consisted of the following (in thousands):
September 30, December 31,
1998 1997
-------- --------
Employee benefits $ 589 $ 420
Commissions and bonuses 1,364 833
Taxes payable 446 366
Contractors fees 180 162
Other 658 387
-------- --------
$ 3,237 $ 2,168
======== ========
Note 3. Commercial Credit Facilities
As of September 30, 1998, the Company has a credit facility with a
commercial lender which includes outstanding borrowings of $3.6 million under a
note payable, an available term debt credit facility of $1.0 million and a
revolving line of credit that provides for up to $2.3 million of total
borrowings (based on eligible accounts receivable). As of September 30, 1998,
the Company has outstanding commitments totaling $2.2 million in the form of
standby letters of credit under its revolving line of credit.
8
<PAGE>
The Company's credit facilities include covenants that impose certain
restrictions on the payment of dividends and other distributions and require the
Company to maintain monthly financial covenants, including a minimum quick
ratio, tangible net worth ratio and minimum cash reserves. The minimum cash
reserves covenant is replaced with a minimum debt service coverage ratio upon
six consecutive quarters of profitability. Borrowings are collateralized by a
security interest in substantially all of the Company's owned assets. As of
September 30, 1998 the Company was in compliance with its commercial credit
facility covenants.
Note 4. Common Stock
In March 1998, the Company completed a successful secondary public stock
offering and issued 3,000,000 shares of common stock for net proceeds of
approximately $46.6 million. In April 1998, the Company's Underwriters exercised
their over-allotment option and the Company issued an additional 455,850 shares
of common stock for net proceeds of approximately $7.1 million.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER SIGNIFICANTLY FROM
THOSE DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED HEREIN WITH THIS
QUARTERLY REPORT ON FORM 10-Q, THE COMPANY'S ANNUAL REPORT ON FORM 10-K, AND
OTHER DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ANY SUCH
FORWARD-LOOKING STATEMENTS SPEAK ONLY AS OF THE DATE SUCH STATEMENTS ARE MADE.
OVERVIEW
BroadVision develops, markets and supports real time interactive fully
integrated application software solutions exclusively designed to manage
one-to-one relationships for the extended enterprise. These total end-to-end
solutions allow a business to capitalize on the Internet as a unique platform,
which empowers businesses to enhance commerce, provide critical self-service
functions, and deliver targeted personalized information to their customers,
suppliers, distributors, employees, or any other constituent of their extended
enterprise.
BroadVision's product line provides a competitive advantage for businesses
by allowing them to specifically tailor Web site content to the personalized
needs and interests of individual visitors on a real-time interactive basis. The
BroadVision One-To-One applications accomplish this by capturing Web site
visitor profiles, dynamically organizing enterprise information, targeting
content to each individual visitor based on easily constructed business rules,
and by providing the means to facilitate the execution of secure transactions.
The Company believes the competitive advantages of these applications include,
among other things, enhanced customer satisfaction and loyalty, increased
business volumes, lower costs to service customers and execute transactions, as
well as significantly enhanced employee productivity.
The Company's core product, the BroadVision One-To-One Application System,
was first made commercially available in December 1995. The Company's latest
commercially available version, Version 4.0, was made available for general
release on September 30, 1998 and supports five languages (English, German,
Japanese, Chinese, and Korean) and four major client server databases (Oracle,
Sybase, Informix, and Microsoft SQL Server). A complementary family of three
packaged application products based on the BroadVision One-To-One Application
System, One-To-One Commerce, One-To-One Financial, and One-To-One Knowledge were
first made commercial available in 1997. The WebApp products are built upon and
tightly integrated with the Company's core technology and provide specifically
enhanced functionality for the distinct customer requirements involved in
managing one-to-one relationships within product merchandising, financial
services, and knowledge management.
The Company sells its products and services worldwide through direct sales
forces, independent distributors, value-added resellers, and system integrators.
It also has a global network of strategic business relationships with key
industry platform and Web developer partners.
To date the Company has achieved good market acceptance for its products.
However, the Company has a relatively limited operating history, and its
prospects must be evaluated in light of the risks and uncertainties frequently
encountered by a company within its early stages of development. Some of the
risks and uncertainties associated with the Company's stage of development
relate to the new and rapidly evolving markets in which it operates. These
related market risks include, among other things, the early stage of development
for online commerce, the dependence of online commerce on the continued
development of the Internet and its related infrastructure, the uncertainty of
widespread adoption of online commerce and the risk of government regulation of
the Internet. Other risks and uncertainties facing the Company relate to the
Company's ability to continue to, among other things, successfully implement its
marketing strategies, respond to competitive developments, develop and upgrade
its products and technologies more rapidly than its competitors, and
commercialize its products and services by incorporating these enhanced
technologies. There can be no assurance that the Company will succeed in
addressing any or all of these risks. A more complete description of these and
other risks relating to the Company's business is set forth herein under the
caption "Factors Affecting Quarterly Operating Results"; in the Company's annual
report on Form 10-K under the caption "Risk Factors" and elsewhere therein; and
in other documents filed with the Securities and Exchange Commission.
10
<PAGE>
RESULTS OF OPERATIONS
Revenues
The Company's revenues are derived from software license fees and fees
charged for its services. The Company recognizes software license revenues when
a non-cancelable license agreement has been signed, the software product has
been shipped, there are no uncertainties surrounding product acceptance, the
fees are fixed and determinable, and collection is considered probable. Revenues
allocated to software license fees, in general, are recognized upon consummation
of the sale and the portion allocated to maintenance and support is recognized
over the contracted period, which is typically one year. Professional services
revenues, in general, are recognized as services are performed.
<TABLE>
Total Company revenues increased 88% during the current quarter ended
September 30, 1998 to $13.4 million as compared to $7.2 million for the quarter
ended September 30, 1997. For the nine months ended September 30, 1998, total
Company revenues increased 89% to $34.9 million as compared to $18.5 million for
the comparable period during 1997. A summary of the Company's revenues by
geographic region is as follows:
<CAPTION>
(In thousands) Software % Services % Total %
-------------- --------- ------------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended:
September 30, 1998
North America $ 4,777 52% $ 3,013 71% $ 7,790 58%
Europe 3,897 43 771 18 4,668 35
Asia/Pacific 484 5 489 11 973 7
- ----------------------------------------------------------------------------------------------------------------------
Total $ 9,158 100% $ 4,273 100% $ 13,431 100%
======================================================================================================================
September 30, 1997
North America $ 2,628 48% $ 721 44% $ 3,349 47%
Europe 2,584 47 662 40 3,246 45
Asia/Pacific 301 5 258 16 559 8
- ----------------------------------------------------------------------------------------------------------------------
Total $ 5,513 100% $ 1,641 100% $ 7,154 100%
======================================================================================================================
Nine Months Ended:
September 30, 1998
North America $ 12,278 50% $ 7,327 70% $ 19,605 56%
Europe 9,628 39 1,843 18 11,471 33
Asia/Pacific 2,549 11 1,269 12 3,818 11
- ----------------------------------------------------------------------------------------------------------------------
Total $ 24,455 100% $ 10,439 100% $ 34,894 100%
======================================================================================================================
September 30, 1997
North America $ 5,221 41% $ 2,709 47% $ 7,930 43%
Europe 6,237 49 1,456 26 7,693 42
Asia/Pacific 1,301 10 1,548 27 2,849 15
- ----------------------------------------------------------------------------------------------------------------------
Total $ 12,759 100% $ 5,713 100% $ 18,472 100%
======================================================================================================================
</TABLE>
Software product license revenues increased 66% during the current quarter
ended September 30, 1998 to $9.2 million as compared to $5.5 million for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998,
license revenues increased 92% to $24.5 million as compared to $12.8 million for
the comparable period during 1997.
The increases in software license revenues are primarily attributable to
continued strong market acceptance for the Company's core technology,
BroadVision One-To-One, and its three complementary WebApp packaged solutions,
"BroadVision One-To-One Commerce", "BroadVision One-To-One Financial", and
"BroadVision One-To-One Knowledge". During the nine months ended September 30,
1998, the Company licensed approximately 85 new customers (including system
integration / distributor partners) which compares with approximately 70 during
the nine months ended September 30, 1997. The WebApp packaged solutions were
first introduced in 1997 and have become an integral part of the Company's total
applications solution, which has proven to be a successful strategy for the
Company in today's highly evolving and competitive marketplace.
11
<PAGE>
Nonmonetary transactions. During the quarter ended June 30, 1998, the Company
renegotiated an existing royalty arrangement with a vendor. Concurrently, the
Company sold this vendor an end-use software license totaling $1,250,000,
inclusive of maintenance and support. As a result of the renegotiation, the
Company paid the vendor a fixed fee of $1,250,000 for royalties through 2001 and
certain internal development rights through 1999. Previously, the Company had an
existing arrangement with this vendor whereby the Company made quarterly royalty
payments based on a percentage of product revenues. The sale to this vendor
resulted in software license revenues of approximately $1,031,000 during the
quarter ended June 30, 1998.
On July 22, 1998, the Company finalized a strategic alliance with Security
First Technologies (S1), a publicly traded company. In conjunction with the
strategic alliance, the Company received restricted shares of S1 common stock
with a fair value of approximately $4,025,000 and, in return, licensed software
to S1 for S1's internal use in its data centers, entered into a license and
joint development agreement with S1 involving the integration of S1's suite of
Internet-based products and BroadVision's One-to-One Financial (combined
solution), entered into a reseller agreement with S1 allowing S1 to resell the
combined solution to its customers, and entered into a joint marketing agreement
for the marketing of products to the financial services industry. During the
quarter ended September 30, 1998, the Company recognized license revenue of
approximately $1,886,000 or 14% of total revenue for the quarter ended September
30, 1998 related to the licensing of software to S1 for internal use. In
conjunction with the agreement with S1, the Company recorded deferred revenue of
approximately $2,139,000, which includes maintenance obligations to be
recognized ratably over three years, license revenues and joint development
costs to be recognized as the joint development services are provided, and
training to be recognized as the services are performed. In addition, subsequent
to September 30, 1998, the Company issued 123,000 shares of common stock with a
value of $1,320,000 in exchange for 129,700 shares of common stock of S1.
Total services revenues increased 160% during the current quarter ended
September 30, 1998 to $4.3 million as compared to $1.6 million for the quarter
ended September 30, 1997. For the nine months ended September 30, 1998, services
revenues increased 83% to $10.4 million as compared to $5.7 million for the
comparable period during 1997.
Services revenues consist primarily of professional services and
maintenance. The Company's professional services include application design and
implementation of BroadVision One-To-One technology, project management, custom
development of application objects and templates, and product education and
training. Professional services are generally offered on a time and materials
basis. Maintenance revenue is derived from annual service agreements and is
recognized ratably over the period of the agreement, typically one year.
Maintenance fees are based on a percentage of the related software list price.
Professional services revenues increased 164% during the current quarter
ended September 30, 1998 to $2.9 million as compared to $1.1 million for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998,
professional services revenues increased 65% to $7.1 million as compared to $4.3
million for the comparable period during 1997.
Professional services revenues increased as a result of higher business
volumes as evidenced by the increase in license revenues. The Company continues
to pursue a strategy of utilizing partners to maximize deployments. This allows
the Company to achieve higher product sales volumes without corresponding
increases in its services organization. As the Company's strategy of developing
business alliances with third parties continues to expand, professional services
revenues in relative percentage terms may vary depending on the degree to which
the Company leverages its professional services.
Maintenance revenues increased 154% during the current quarter ended
September 30, 1998 to $1.4 million as compared to $500,000 for the quarter ended
September 30, 1997. For the nine months ended September 30, 1998, maintenance
revenues increased 139% to $3.3 million as compared to $1.4 million for the
comparable period during 1997.
12
<PAGE>
<TABLE>
Maintenance revenues increased as a direct result of expanding software
sales and a correspondingly larger installed base of software licenses. As of
September 30, 1998, the Company had licensed its products to approximately 235
customers. This compares with approximately 150 customers as of December 31,
1997, and approximately 120 customers as of September 30, 1997. As the Company's
installed license base grows, its maintenance revenues in relative percentage
terms may increase.
<CAPTION>
Cost of Revenues
Three Months Ended September 30, Nine months ended September 30,
----------------------------------------- -----------------------------------------
(in thousands) 1998 % 1997 % 1998 % 1997 %
--------- ----- --------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cost of software licenses[1] $ 237 2.6% $ 460 8.3% $ 637 2.6% $ 1,099 8.6%
Cost of services[2] 2,553 59.7 1,010 61.5 6,264 60.0 3,154 55.2
--------- --------- --------- --------
Total cost of revenues[3] $ 2,790 20.8 $ 1,470 20.5 $ 6,901 19.8 $ 4,253 23.0
========= ========= ========= ========
<FN>
[1] -- Percentage is calculated based on total software license revenues for
the period indicated
[2] -- Percentage is calculated based on total services revenues for the period
indicated
[3] -- Percentage is calculated based on total revenues for the period
indicated
</FN>
</TABLE>
Cost of software licenses includes royalties payable to third parties for
software that is either embedded in, or bundled and sold with, the Company's
products; commissioned agent fees paid to distributors; and the costs of product
media, duplication, packaging and other associated manufacturing costs.
Cost of software licenses decreased 48% during the current quarter ended
September 30, 1998 to $237,000 as compared to $460,000 for the quarter ended
September 30, 1997. For the nine months ended September 30, 1998, cost of
software licenses decreased 42% to $637,000 as compared to $1.1 million for the
comparable period during 1997.
The decrease in cost of software licenses, in both absolute dollar and
relative percentage terms, was principally a result of lower commissioned agent
sales and third party royalty rates. The Company continues to expand its
in-house sales force, and during the current periods, Company generated sales
were higher and commissioned agent sales were lower in relation to the
comparable prior-year periods. In addition, royalty costs relative to total
license revenues decreased as a result of the Company renegotiating a previously
existing percentage based royalty arrangement into a prepaid fixed fee royalty
for the period through 2001.
Cost of services consists primarily of employee-related costs, third-party
consultant fees incurred on consulting projects, postcontract customer support,
and instructional training services.
Cost of services increased 153% during the current quarter ended September
30, 1998 to $2.6 million as compared to $1.0 million for the quarter ended
September 30, 1997. For the nine months ended September 30, 1998, cost of
services increased 99% to $6.3 million as compared to $3.2 million for the
comparable period during 1997.
The increase in cost of services in absolute dollar terms during 1998 as
compared to 1997 is a result of expanded business volumes as evidenced by
increased services revenues. Overall costs increased as a result of additions to
the Company's professional services staff and the employment of outside
consultants to meet short-term consulting arrangements. The increase in cost of
services as a percentage of services revenues for the nine months ended
September 30, 1998 is a result of higher utilization of outside consultants in
relation to the extent previously utilized during the prior period. The Company
expects that services costs will continue to increase in absolute dollars as the
Company continues to expand its services organization to support higher business
volumes.
13
<PAGE>
<TABLE>
Operating Expenses
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------- -----------------------------------------
(in thousands) 1998 % [1] 1997 % [1] 1998 % [1] 1997 % [1]
--------- ----- --------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Research and Development $ 2,394 17.8% $ 2,113 29.5% $ 6,476 18.6% $ 5,595 30.3%
Sales and Marketing 6,285 46.8 4,630 64.7 18,389 52.7 13,091 70.9
General and Administrative 977 7.3 763 10.7 2,562 7.3 2,209 11.9
--------- ----- --------- ----- --------- ----- -------- -----
Total Operating Expenses $ 9,656 71.9% $ 7,506 104.9% $ 27,427 78.6% $ 20,895 113.1%
========= ===== ========= ===== ========= ===== ======== =====
<FN>
[1] -- Expressed as a percent of total revenues for the period indicated
</FN>
</TABLE>
Research and development expenses consist primarily of salaries,
employee-related benefit costs, and consulting fees incurred in association with
the development of the Company's products. Costs incurred for the research and
development of new software products are expensed as incurred until such time
that technological feasibility, in the form of a working model, is established
at which time such costs are capitalized subject to recoverability. To date, the
amount of costs incurred by the Company subsequent to the establishment of a
working model but prior to the general release of a product have not been
significant. As of September 30, 1998, the Company has no capitalized software
development costs.
Research and development expenses increased 13% during the current quarter
ended September 30, 1998 to $2.4 million as compared to $2.1 million for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998,
research and development expenses increased 16% to $6.5 as compared to $5.6
million for the comparable period during 1997.
The increase in research and development expenses in absolute dollars terms
is primarily attributable to personnel costs for added headcount within those
operations involved in the enhancement of existing applications and the
development of the Company's next generation of products. Research and
development expenses, as a percentage of total revenues, decreased because
revenues have increased at a higher rate relative to expenses. The Company
expects research and development expenses will continue to increase in absolute
dollars terms.
Sales and marketing expenses consist primarily of salaries,
employee-related benefit costs, commissions and other incentive compensation,
travel and entertainment, and marketing program related expenditures such as
collateral materials, trade shows, public relations, and creative services.
Sales and marketing expenses increased 36% during the current quarter ended
September 30, 1998 to $6.3 million as compared to $4.6 million for the quarter
ended September 30, 1997. For the nine months ended September 30, 1998, sales
and marketing expenses increased 40% to $18.4 million as compared to $13.1
million for the comparable period during 1997.
The increases in sales and marketing expenses in absolute dollar terms
reflect the cost of hiring additional sales and marketing personnel, developing
and expanding its sales distribution channels, and expanding promotional
activities and marketing related programs. Sales and marketing expenses, as a
percentage of total revenues, decreased because revenues have increased at a
higher rate relative to expenses. The Company expects sales and marketing
expenses will continue to increase in absolute dollar terms.
General and administrative expenses consist primarily of salaries,
employee-related benefit costs, and professional service fees.
General and administrative expenses increased 28% during the current
quarter ended September 30, 1998 to $977,000 as compared to $763,000 for the
quarter ended September 30, 1997. For the nine months ended September 30, 1998,
general and administrative expenses increased 16% to $2.6 million as compared to
$2.2 million for the comparable period during 1997.
14
<PAGE>
The increase in general and administrative expenses in absolute dollar
terms is attributable to additional administrative and management personnel,
higher professional fees and additional infrastructure to support the expansion
of the Company's operations. General and administrative expenses, as a
percentage of total revenues, decreased because revenues have increased at a
higher rate relative to expenses. The Company expects general and administrative
expenses will continue to increase in absolute dollar terms.
The Company recorded deferred compensation relating to the difference
between the exercise price and the fair value of the Company's Common Stock
concerning shares issueable upon the exercise of options granted prior to its
initial public stock offering in June of 1996. As of September 30, 1998 the
Company had total deferred compensation of $643,000, which is being amortized to
cost of services, research and development, selling and marketing, and general
and administrative expenses over the vesting periods of the respective options,
generally 60 months. Deferred compensation expense for the quarters ended
September 30, 1998 and 1997 was $89,000 and $104,000, respectively; and for the
nine months ended September 30, 1998 and 1997 it was $269,000 and $331,000,
respectively. During the quarter ended June 30, 1998, the Company reversed
$693,000 of paid-in capital along with an equal amount of unamortized deferred
compensation as a result of unexercised stock options that were forfeited by
employees due to voluntary terminations.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had $61.9 million of cash and cash
equivalents as compared to $10.4 million of cash, cash equivalents, restricted
cash and short-term investments as of December 31, 1997, which represents an
increase of $51.5 million. The overall increase is principally a result of
proceeds from the issuance of common stock. During March 1998, the Company
issued 3,000,000 shares of common stock in connection with a secondary public
stock offering that netted the Company total proceeds of approximately $46.6
million. During April 1998, the underwriters for the Company's secondary stock
offering exercised their over-allotment option and the Company issued an
additional 455,850 shares of common stock for net proceeds of approximately $7.1
million.
For the nine months ended September 30, 1998, the Company used
approximately $2.9 million for capital expenditures, approximately $1.5 million
for the purchase of an equity investment in a partner and approximately $200,000
was used for operating activities; and the Company raised approximately $55.9
million from the issuance of common stock and approximately $300,000 from
additional borrowings, net of capital lease and principal repayments. The
Company currently has no significant capital commitments other than its
obligations under equipment and operating leases, outstanding borrowings of $3.6
million under a note payable and commitments of $2.2 million relating to standby
letters of credit. The Company's existing commercial credit facility provides
for up to total additional borrowings of $3.3 million ($1.1 million of available
credit as of September 30, 1998).
The Company believes that its available cash resources, cash generated from
operations and amounts available under its commercial credit facilities will be
sufficient to meet its expected working capital and capital expenditure
requirements for more than the next 12 months.
FACTORS AFFECTING QUARTERLY OPERATING RESULTS
The Company expects to experience significant fluctuations in quarterly
operating results that may be caused by many factors including, but not limited
to, those discussed below and herein with this quarterly report on Form 10-Q, as
contained in the Company's annual report on Form 10-K under the caption "Risk
Factors" and elsewhere therein, and as disclosed in other documents filed with
the Securities and Exchange Commission.
Significant fluctuations in future quarterly operating results that may be
caused by many factors including, among others, the timing of introductions or
enhancements of products and services by the Company or its competitors, the
length of the Company's sales cycle, market acceptance of new products, the pace
of development of the market for online commerce, the mix of the Company's
products sold, the size and timing of significant orders and the timing of
customer production or deployment, demand for the Company's products, changes in
pricing policies by the Company or its
15
<PAGE>
competitors, changes in the Company's sales incentive plans, budgeting cycles of
its customers, customer order deferrals in anticipation of new products or
enhancements by the Company or its competitors, nonrenewal of maintenance
agreements, product life cycles, software defects and other product quality
problems, changes in strategy, changes in key personnel, the extent of
international expansion, seasonal trends, the mix of distribution channels
through which the Company's products are sold, the mix of international and
domestic sales, changes in the level of operating expenses to support projected
growth, and general economic conditions. The Company anticipates that a
significant portion of its revenues will be derived from a limited number of
orders, and the timing of receipt and fulfillment of any such orders is expected
to cause material fluctuations in the Company's operating results, particularly
on a quarterly basis. As with many software companies, the Company anticipates
that it will make the major portion of each quarter's deliveries near the end of
each quarter and, as a result, short delays in delivery of products at the end
of a quarter could adversely affect operating results for that quarter. In
addition, the Company intends, in the near term, to increase significantly its
personnel, including its domestic and international direct sales force. The
timing of such expansion and the rate at which new sales people become
productive could also cause material fluctuations in the Company's quarterly
operating results.
Due to the foregoing factors, quarterly revenues and operating results are
difficult to forecast, and the Company believes that period-to-period
comparisons of its operating results will not necessarily be meaningful and
should not be relied upon as any indication of future performance. It is likely
that the Company's future quarterly operating results from time to time will not
meet the expectations of market analysts or investors, which may have an adverse
effect on the price of the Company's Common Stock. The Company anticipates that
its operating expenses will continue to be substantial in relation to total
revenues as it continues the development of its technology, increases its sales
and marketing activities, and creates and expands its distribution channels. In
addition, the Company's limited operating history makes the prediction of future
results of operations difficult and, accordingly, there can be no assurance that
the Company will be able to sustain its revenue growth or profitability.
The Company's limited operating history also requires that its prospects be
evaluated in light of the risks and uncertainties frequently encountered by a
company in its early stages of development. Some of these risks and
uncertainties relate to the new and rapidly evolving nature of the markets in
which the Company operates. These related market risks include, among other
things, the early stage of the developing online commerce market, the dependence
of online commerce on the development of the Internet and its related
infrastructure, the uncertainty pertaining to widespread adoption of online
commerce, and the risk of government regulation of the Internet. Other risks and
uncertainties facing the Company relate to the Company's ability to, among other
things, successfully implement its marketing strategies, respond to competitive
developments, continue to develop and upgrade its products and technologies more
rapidly than its competitors, and commercialize its products and services by
incorporating these enhanced technologies. There can be no assurance that the
Company will succeed in addressing any or all of these risks. A more complete
description of these and other risks relating to the Company's business is set
forth in the Company's annual report on Form 10-K under the caption "Risk
Factors" and elsewhere therein and other documents filed with the Securities and
Exchange Commission. It is also likely that the Company's future quarterly
operating results from time to time will not meet the expectations of market
analysts or investors, which may have an adverse effect on the price of the
Company's Common Stock.
Year 2000 Compliance
Background and Risks - Many currently installed computer systems and software
and devices with imbedded technology are coded to two digits for time sensitive
dating purposes. Beginning with the year 2000, these date code fields will need
to be four digit functional in order to distinguish between 21st century dates
and 20th century dates. For example, computer programs that have date sensitive
software may incorrectly recognize a date using "00" as the year 1900 rather
than the year 2000. As a result, in less than two years, computer systems,
software products and devices with imbedded technology used by many companies
may need to be upgraded to comply with such "Year 2000" requirements. This type
of Year 2000 error could potentially cause system failures or miscalculations
that could disrupt operations, including among other things a temporary
inability to process transactions, issue invoices or engage in similar normal
business activities. The most likely worst case scenarios could include hardware
failure and the failure of infrastructure services provided by government
agencies and other third parties (e.g., electricity, telephone service, water
transport, Internet services, etc.).
16
<PAGE>
Although the Company's products are Year 2000 compliant, the Company
believes that the purchasing patterns of customers could potentially be affected
by Year 2000 issues as companies expend significant resources to correct or
patch their current software systems for Year 2000 compliance. These
expenditures may result in reduced funds available to purchase software products
such as those offered by the Company, which could have a material adverse effect
on the Company's business, financial condition, and operating results. In
addition, even if the Company's products are Year 2000 compliant, other systems
or software used by the Company's customers may not be Year 2000 compliant. The
failure of such noncompliant third-party software or systems could affect the
perceived performance of the Company's products, which could have a material
adverse effect on the Company's business, financial condition, and operating
results.
State of Readiness - The Company utilizes various financial and managerial
information systems within its operations in the United States, Europe and Asia
which the Company believes to be or will be Year 2000 compliant. As part of its
normal course of business, the Company analyses its information system
requirements in relation to its business operating goals and strategic
objectives and expects to implement new systems during 1999 that will be Year
2000 compliant. The Company is also analyzing its other systems to identify any
potential Year 2000 issues and will take appropriate corrective action based on
the results of such analysis. Such other systems include non-information
technology systems and services utilized by the Company in its business
operations, such as power, telecommunications, security and general facilities.
The Company is in the process of assessing whether its material suppliers and
vendors are Year 2000 compliant. The Company expects to complete its analysis of
these other systems and the assessment of its third party vendor readiness by
June 30, 1999.
Costs for Year 2000 Compliance - Costs that may be incurred by the Company
pertaining to Year 2000 compliance issues include identification, assessment,
remediation and testing efforts, as well as potential costs to be incurred by
the Company with respect to Year 2000 issues of third parties. To date, the
costs incurred by the Company directly related to Year 2000 issues have been
minimal, even in cases where non-compliant information technology systems were
redeployed or replaced. Although the Company has not completed its assessment of
all specific costs, if any, related to achieving complete Year 2000 compliance,
management believes such costs would not be material to the Company's financial
condition or results of operations based on its analysis to date.
Contingency Plans - The Company continues to assess certain of its Year 2000
exposure areas in order to determine what additional steps, beyond those
identified by the Company's internal review to date, are advisable. The Company
is currently in the process of developing a contingency plan for handling Year
2000 problems that are not detected and corrected prior to their occurrence. The
Company expects to complete its plan by June 30, 1999.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, any failure of the
Company to adequately address any unforeseen Year 2000 issue could adversely
affect the Company's business, financial condition, and results of operations.
In addition, if all of the Year 2000 issues are not properly identified, or
adequate assessment, remediation and testing are not effected timely with
respect to Year 2000 problems that are identified, there can be no assurance
that the Year 2000 issue would not have a material adverse impact the Company's
results of operations or adversely affect the Company's relationships with
customers, vendors, partners or others. Additionally, there can be no assurance
that the Year 2000 issues of other entities will not have a material adverse
impact on the Company's systems or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Item Description
---- -----------
27 Financial Data Schedule
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.
BROADVISION, INC
Date: November 13, 1998 /s/ Pehong Chen
----------------- ------------------------------------
Pehong Chen
President and Chief Executive
Officer (Principal Executive
Officer)
Date: November 13, 1998 /s/ Randall C. Bolten
----------------- ------------------------------------
Randall C. Bolten
Vice President, Operations and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
18
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
--- -----------
27 Financial Data Schedule
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
BROADVISION INC.'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER
30, 1998 AS REPORTED IN ITS FORM 10-Q FOR THE PERIOD THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. EPS PRIMARY REPRESENTS BASIC NET INCOME
(LOSS) PER SHARE. THE COMPANY HAS NOT FILED A RESTATED FINANCIAL DATA
SCHEDULE RELATING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 BECAUSE
AMOUNTS PREVIOUSLY REPORTED FOR EPS-PRIMARY AND EPS-DILUTED DO NOT DIFFER
FROM THE AMOUNTS THAT WOULD BE REPORTED UNDER CURRENT GUIDELINES FOR BASIC
AND DILUTED EARNINGS PER SHARE, RESPECTIVELY.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 61,914
<SECURITIES> 0
<RECEIVABLES> 12,253
<ALLOWANCES> (628)
<INVENTORY> 0
<CURRENT-ASSETS> 75,415
<PP&E> 12,053
<DEPRECIATION> (4,481)
<TOTAL-ASSETS> 89,673
<CURRENT-LIABILITIES> 12,923
<BONDS> 0
0
0
<COMMON> 95,622
<OTHER-SE> (22,337)
<TOTAL-LIABILITY-AND-EQUITY> 89,673
<SALES> 24,455
<TOTAL-REVENUES> 34,894
<CGS> 637
<TOTAL-COSTS> 6,901
<OTHER-EXPENSES> 27,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 369
<INCOME-PRETAX> 1,948
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,948
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
