<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 31 March 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 0-26376
ON TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3162846
(State of incorporation) (IRS Employer Identification Number)
One Cambridge Center
Cambridge Massachusetts 02142
(617) 374-1400
(Address and telephone of principal executive offices)
___________
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days.
YES [X] NO [_]
12,080,791 shares of the registrant's Common stock, $0.01 par value, were
outstanding as of April 30, 1997.
THIS DOCUMENT CONTAINS 21 PAGES.
THE EXHIBIT INDEX IS ON PAGE 19.
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 1997
CONTENTS
<TABLE>
<CAPTION>
Item Number Page
- ------------- --------
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Balance sheets:
March 31, 1997 and December 31, 1996 3
Statements of operations:
Three months ended March 31, 1997 and 1996 4
Statements of cash flows:
Three months ended March 31, 1997 and 1996 5
Notes to condensed consolidated financial statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations; Certain
Factors that May Affect Future Results 8-16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Default Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
</TABLE>
2
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
---------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,007 $ 20,774
Accounts receivable, net of allowance for doubtful accounts and
sales returns of $1,509 and $1,057, respectively 10,837 9,852
Inventories, net 2,553 2,323
Deferred tax asset 1,543 481
Prepaid expenses and other current assets 2,151 2,056
----------- -----------
Total current assets 30,091 35,486
----------- -----------
Property and equipment, at cost:
Computers and equipment 6,524 6,226
Equipment acquired under capital leases 3,895 3,895
Furniture and fixtures 923 247
----------- -----------
Less - Accumulated depreciation 5,344 4,527
----------- -----------
5,998 5,841
----------- -----------
Direct marketing costs 1,093 1,067
Other assets and deposits 87 86
Purchased intangibles, net of $1,541 and $1,115 of accumulated
amortization, respectively 3,187 1,662
----------- -----------
$ 40,456 $ 44,142
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of capital lease obligations $ 981 $ 1,063
Accounts payable 7,864 5,619
Accrued expenses 1,539 2,252
Reserve for distributor inventories 100 204
Deferred revenue 3,515 1,001
----------- -----------
Total current liabilities 13,999 10,139
----------- -----------
Capital lease obligations, net of current portion 315 510
----------- -----------
Stockholders' Equity:
Common stock, $.01 par value - Authorized - 20,000,000 shares
Issued and outstanding -12,094,767 shares and 11,008,243
shares, respectively 121 110
Additional paid in capital 62,566 55,637
Accumulated deficit (36,210) (20,354)
Accumulated deficit of S corporation (354) (354)
Cumulative translation adjustment 19 88
Treasury stock (0 and 257,867 shares at cost, respectively) 0 (1,634)
----------- -----------
Total stockholders' equity 26,142 33,493
----------- -----------
$ 40,456 $ 44,142
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
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ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
- -------
Net product revenue $ 11,460 $ 10,967
Other revenue 1,033 342
------------ ------------
Total revenue 12,493 11,309
------------ ------------
Operating expenses:
- ------------------
Cost of product revenue 2,068 2,770
Sales and marketing 6,301 5,471
Research and development 3,136 1,965
General and administrative 1,114 947
Charge for purchased research and development 15,898 13,285
------------ ------------
Loss from operations (16,024) (13,129)
------------ ------------
Interest income, net 133 342
------------ ------------
Loss before provision
for income taxes (15,891) (12,787)
------------ ------------
Provision for income taxes 0 (327)
------------ ------------
Net loss $ (15,891) $ (13,114)
============ ============
Net loss per common share $ (1.35) $ (1.23)
============ ============
Weighted average number of common shares
outstanding 11,766,920 10,675,043
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
4
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------
MARCH 31,
1997 1996
-------- ---------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $ (15,891) $ (13,114)
Adjustments to reconcile net loss to net cash
provided by operating activities
Charge for purchased research and development 15,898 13,285
Depreciation and amortization 1,078 719
Change in direct marketing costs (26) 15
Changes in assets and liabilities:
Accounts receivable 318 370
Inventories (185) (432)
Prepaid expenses and other current assets (46) (223)
Accounts payable 1,852 932
Accrued expenses (2,096) 323
Reserve for distributor inventory (104) (175)
Deferred revenue (757) (46)
-------- ---------
Net cash provided by operating activities 41 1,654
-------- ---------
Cash Flows From Investing Activities
Change in other assets and deposits (1) 37
Purchase of property and equipment, net (540) (1,538)
Purchase of neTrend Corporation, net 0 (2,260)
Purchase of Leprechaun Software International, Ltd.,
net of cash acquired 0 (786)
Purchase of Technocom plc, net 0 (1,963)
Purchase of Purview Technologies, Inc., net of
cash acquired (1,228) 0
Purchase of csd Software GmbH, net of cash
acquired (5,770) 0
-------- ---------
Net cash used in investing activities (7,539) (6,510)
-------- ---------
Cash Flows From Financing Activities
Exercise of stock options 38 88
Stock purchase through ESPP 4 33
Principal repayments on obligation under capital lease (277) (287)
-------- ---------
Net cash used in financing activities (235) (166)
-------- ---------
Net effect of exchange rates on cash & cash equivalents (34) 0
Net decrease in cash and cash equivalents (7,767) (5,022)
Cash and cash equivalents, beginning of period 20,774 33,338
--------- ---------
Cash and cash equivalents, end of period $ 13,007 $ 28,316
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for -
Interest paid $ 40 $ 417
========= =========
Income taxes paid $ 326 $ 534
========= =========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements
5
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q, March 31, 1997
(dollars in thousands, except per share amount)
(unaudited)
1. Interim Financial Statements
----------------------------
The accompanying consolidated financial statements have been presented
by ON Technology Corporation (together with its consolidated subsidiaries, the
"Company") without audit (except for the balance sheet information as of
December 31, 1996) in accordance with generally accepted accounting principles
for interim financial statements and with the instructions to Form-10Q and
Regulation S-X pertaining to interim financial statements. Accordingly, these
interim financial statements do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements reflect all adjustments and accruals which
management considers necessary for a fair presentation of financial position as
of March 31, 1997 and results of operations for the three months ended March 31,
1997 and March 31, 1996. The results for the interim periods presented are not
necessarily indicative of results to be expected for any future period. The
financial statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Registration
Statement on Form 10-K.
2. Net Loss Per Common Share
-------------------------
Net loss per common share is computed using the weighted average
number of common shares outstanding during each period in accordance with the
treasury stock method.
3. Direct Marketing Costs
----------------------
The Company sells its products through various channels, including
free trial direct marketing. The Company incurs substantial costs in advance of
a free trial campaign, including the rental of mailing lists, postage and
printing. In 1994, the Company began capitalizing such costs in accordance with
the American Institute of Certified Public Accountants' (AICPA) Statement of
Position 93-7, Reporting on Advertising Costs. The Company amortizes such costs
over a three month period, which approximates the period of expected revenues.
The Company has recorded approximately $1,093 and $1,067 of capitalized direct
marketing costs in the accompanying condensed consolidated balance sheets at
March 31, 1997 and December 31, 1996, respectively.
4. Acquisitions
------------
During the period ended March 31, 1997, the Company completed two
acquisitions. The Company acquired all of the capital stock of Purview
Technologies, Inc. and csd Software GmbH. Each acquisition was accounted for as
a purchase and as part of each transaction, certain in-process research and
development costs were expensed as a charge for purchased research and
development.
A. Purview Technologies, Inc.
--------------------------
On January 24, 1997, the Company acquired all of the capital stock of
Purview Technologies, Inc., a company engaged in Internet access monitoring and
management software. The aggregate purchase price of $2,379 was allocated based
on the fair market value of the tangible and intangible assets acquired as
follows:
<TABLE>
<S> <C>
Current Assets........................................................... 51
Purchased intangible assets, including acquired technology............... 210
Purchased incomplete research and development............................ 2,118
-------
$ 2,379
=======
</TABLE>
As consideration, the Company paid $1,000 in cash and issued 205,251 shares of
Common Stock with a fair market value of $5.55 per share, assumed $107 in
liabilities, and incurred $133 in direct acquisition costs. This transaction
was accounted for as a purchase, and accordingly, the results since January 24,
1997, are included in the accompanying condensed consolidated financial
statements.
B. csd Software GmbH
-----------------
On January 28, 1997, Wilma 96 Vermogensverwaltungs GmbH ("Wilma GmbH")
a wholly-owned subsidiary of the Company purchased all of the capital stock of
csd Software GmbH, a German corporation
6
<PAGE>
engaged in the development of PC desktop software management tool products. The
aggregate purchase price of $15,400 was allocated based on the fair market value
of the tangible and intangible assets acquired as follows:
<TABLE>
<S> <C>
Purchased intangible assets, including acquired technology............... $ 1,620
Purchased incomplete research and development............................ 13,780
---------
$ 15,400
=========
</TABLE>
Unaudited pro forma operating results for the Company, assuming the acquisition
of csd occurred on January 1, 1996 is as follows:
December 31,
1996
--------------
Net sales $ 57,640
Net loss (18,068)
Net loss per share $ (1.48)
For purposes of these pro forma operating results, the in-process R&D
was assumed to have been written off prior to January 1, 1996, so that the
operating results presented include only recurring costs.
As consideration, the Company paid $5,000 in cash and issued 1,315,790 shares of
Common Stock of the Company with a fair market value of $5.62, assumed $5,100 in
liabilities, and incurred $734 in direct acquisition costs. This transaction
was accounted for as a purchase, and accordingly, the results since January 28,
1997, are included in the accompany condensed consolidated financial statements.
With respect to each of the foregoing two acquisitions, purchased
intangible assets consist of amounts related to acquired technology including
acquired software products and assembled workforce. These intangible assets
will be amortized on a straight-line basis over their estimated useful life's
not to exceed three years. The portion of the purchase price allocated to
incomplete research and development projects that had not yet reached
technological feasibility and did not have future alternative use was expensed
as purchased research and development as of the respective acquisition dates.
The amounts allocated to incomplete research and development projects
represents the estimated fair value related to these projects determined by an
independent appraisal. Proven valuation procedures and techniques were utilized
in determining the fair value of the purchased intangible assets. To bring
these projects to technological feasibility, high risk development and testing
issues needed to be resolved which required substantial additional effort and
testing.
5. New Accounting Standards
------------------------
In February 1997, the Financial Standards Board (FASB) issued SFAS No.
128, Earnings Per Share which is effective for the fiscal year ending December
15, 1997 and early adoption is not permitted. The Company does not expect the
adoption of these standards to have a material effect on its financial position
or results of operations.
7
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
Management Discussion and Analysis of Financial Condition
and Results of Operations
FORM 10-Q, March 31, 1997
(unaudited)
OVERVIEW
ON Technology Corporation is a leading provider of network security,
network management and network scheduling software and services that help people
work together on networks and across the Internet. ON Technology product brand
names include ON Guard, an award winning Internet firewall; VirusTrack,
innovative technology for preventing the spread of macro viruses; SofTrack, a
market-leading software metering solution for both NetWare and Windows NT
networks; Meeting Maker, a leading calendaring and scheduling solution; and
DaVinci and Notework, two best-selling e-mail packages specifically for NetWare
LANs. ON Technology products operate on NetWare, Windows NT, LAN Manager and
Internet networks that include combinations of Windows, Windows 95, Windows NT,
Macintosh, Power Mac, OS/2, Unix, and DOS/Windows workstations using IP, IPX,
Net BIOS and Apple Talk protocols.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as percentages of the Company's total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenue:
Net product revenue 91.7% 97.0%
Other revenue 8.3% 3.0%
-----------------------
Total revenue 100.0% 100%
-----------------------
Operating expenses:
Cost of product revenue 16.6% 24.5%
Sales and marketing 50.4% 48.4%
Research and development 25.1% 17.4%
General and administrative 8.9% 8.3%
Charge for purchased R&D 127.3% 117.5%
-----------------------
Loss from operations (128.3%) (116.1%)
-----------------------
Interest income, net 1.0% 3.0%
-----------------------
Net loss before provision for income
taxes (127.3%) (113.1%)
-----------------------
Provision for income taxes 0.0% (2.9%)
-----------------------
Net loss (127.3%) (116.0%)
=======================
</TABLE>
PRODUCT REVENUE. The Company's net product revenue is derived
primarily from the licensing of software products. Net product revenue also
includes revenue from catalog sales of third party products and catalog
advertising space. For the three months ended March 31, net product revenue
increased $493,000 (4.5%) from 1996 to 1997. The increase was primarily the
result of the licensing of communications and network management software to new
customers and to customers upgrading existing licenses.
OTHER REVENUE. The Company's other revenue consists of rentals of
portions of the Company's customer lists, royalties received in connection with
licensing ON's software to third parties and maintenance revenue. For the three
months ended March 31, other revenue increased $691,000 (202%) from 1996 to
1997. This increase is primarily attributed to an increase in revenue from
maintenance contracts for existing customers as well as those obtained as part
of the csd Software GmbH ("csd") acquisition.
COST OF PRODUCT REVENUE. Cost of product revenue primarily consists
of expenses associated with product documentation, production and fulfillment
costs and royalty fees associated with products that are licensed from third
party developers. In addition, cost of product revenue includes the cost of
third party products resold through the Company's catalog, the cost of producing
the catalog and amortization of purchased intangibles. For the three months
ended March 31, cost of product revenue decreased $702,000 (25%) from 1996 to
1997. This decrease was primarily the result of a $571,000 inventory write-down
in 1996 and an increase in product sales with higher margins.
8
<PAGE>
SALES AND MARKETING EXPENSE. Sales and marketing expense primarily
consists of compensation and benefits paid to sales and marketing personnel and
the costs of direct mail and telemarketing campaigns including the costs of
product trials requested by potential customers. Sales and marketing expense
also includes the costs of administering the catalog operation, the costs of
public relations, trade shows and conferences, and the telephone and information
technology costs associated with sales activities. For the three months ended
March 31, sales and marketing expenses increased $830,000 (15%) from 1996 to
1997. The increase in absolute dollars was primarily the result of the csd
acquisition, and the costs associated with marketing a larger portfolio of
products. The Company anticipates that sales and marketing expense will
continue to increase in absolute dollars as the Company continues to expand
direct marketing efforts, but that sales and marketing expense will continue to
remain approximately the same as a percentage of total revenue from year to
year.
RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense
includes costs associated with the development of new products, the enhancement
of existing products, and the provision of technical support. For the three
months ended March 31, research and development expense increased by $1.2
million (60%) from 1996 to 1997. The increase was primarily related to the
increase in the size of the product portfolio, and the associated costs of
product development, enhancements and maintenance relating to products acquired
in the acquisition of csd and Purview Technologies, Inc. The Company plans to
continue to make significant investments in research and development.
GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense
includes executive compensation, executive support costs, accounting operations,
planning, and business development operations. For the three months ended March
31, general and administrative expense increased $167,000 from 1996 to 1997;
however, this increase was approximately the same as a percentage of total
revenue from 1996 to 1997. The increase in absolute dollars reflects personnel
growth and associated costs in general support areas, offset by continued
efficiency in core administrative operations.
CHARGE FOR PURCHASED RESEARCH AND DEVELOPMENT. In connection with the
acquisitions of Purview Technologies, Inc. and csd for the three months ended
March 31, 1997, and acquisitions of neTrend Corporation, Leprechaun Software
International, Ltd. and the LAN software business of Technocom Plc for the three
months ended March 31, 1996, the Company allocated an aggregate of $15.9 million
and $13.3 million, respectively, of the purchase prices for such acquisitions to
incomplete research and development projects. Accordingly, these costs were
expensed as of the acquisition dates. These allocated costs represent the
estimated fair market value related to the incomplete projects determined by an
independent appraisal. The development of these projects had not reached
technological feasibility and the technology had no alternative future use. The
technology acquired in these acquisitions has required, and will require,
substantial additional development by the Company.
INTEREST INCOME (EXPENSE). Interest income (expense) consists
primarily of interest expense associated with equipment leases and interest
income earned on cash and cash equivalents. For the three months ended March
31, interest income (expense) decreased $209,000 (61%) from 1996 to 1997. The
decrease is the result of the change in the Company's cash position, primarily
effected by cash used in acquisitions.
INCOME TAXES. The tax provision for the three months ended March 31,
1997 and 1996 was calculated based upon the Company's expected 1997 and 1996
effective tax rate of 0% in 1997 and 30.6% in 1996, giving benefit to available
net operating loss carryforwards and research and development credits.
Historically, revenues in the first quarter have been lower than in
the preceding fourth quarter due to customer budgeting and purchasing patterns.
The Company's results of operations have been and may in the future be subject
to significant quarterly fluctuations. These fluctuations may be due to a
variety of factors, including the timing of significant orders, the timing of
the introduction or announcement of new or enhanced products by the Company or
its competitors, variations in net revenue by product and distribution channel,
increased price and other competition, capital spending patterns of end-users,
delays in shipping new or existing products, conditions within the software and
networking industries, and economic conditions generally.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through cash
flow from operations and public and private placements of capital stock. At
March 31, 1997, the Company had available cash and cash equivalents of $13.0
million. The Company has an unused and available line of credit of
$10.0 million with a commercial bank. The Company can borrow under this line of
credit up to the greater of $10.0 million or 80% of eligible accounts
receivable, as defined in the line of credit agreement. Advances pursuant to the
line of credit are secured by liens granted on the Company's accounts
receivable. At March 31, 1997, the Company did not have an outstanding balance
under the line of credit agreement.
9
<PAGE>
Net cash provided by operating activities for the three months ended March 31,
1996 and March 31, 1997, was $1.7 million and $41,000, respectively. For the
three months ended March 31, 1996, net cash provided by operating activities
consisted primarily of a net loss of ($13.1 million) which was offset by a
charge for purchased research and development of $13.3 million. Other additional
factors contributing to net cash provided by operating activities were a
decrease in depreciation and amortization of $719,000, accounts receivable of
$370,000 and reserve for distributor inventory of $175,000, an increase in
inventories of $432,000, prepaid expenses and other current assets of $223,000,
accounts payable of $932,000 and accrued expenses of $323,000. For the three
months ended March 31, 1997, net cash provided by operating activities consisted
primarily of a net loss of ($15.9 million) offset by a charge for purchased
research and development of $15.9 million. Additional factors contributing to
net cash provided by operating activities included depreciation and amortization
of $1.1 million, a decrease in accounts receivable of $318,000 and accrued
expenses of $2 million and an increase in accounts payable of $1.9 million.
These changes primarily are the result of the acquisitions of Purview
Technologies, Inc., and csd.
Net cash used in investing activities for the three months ended March 31, 1996
and March 31, 1997 was $6.5 million and $7.5 million, respectively. For the
three months ended March 31, 1996, net cash used in investing activities
primarily reflects purchases of property and equipment of $1.5 million and
direct costs of the acquisitions of neTrend Corporation, Leprechaun Software
International Ltd., and the LAN Software business of Technocom plc of $2.3
million, $786,000 and $2.0 million, respectively. For the three months ended
March 31, 1997, net cash used in investing activities primarily reflects
purchases of property and equipment of $540,000, and direct costs of the
acquisitions of Purview Technologies, Inc. and csd of $1.2 million and $5.8
million, respectively.
Net cash used in financing activities for the three months ended March 31, 1996
and March 31, 1997 was $166,000 and $235,000, respectively. For the three
months ended March 31, 1996, net cash used in financing activities consisted of
principle repayment on obligations under capital lease of $287,000, partially
offset by exercises of stock options and stock purchases through the Company's
Employee Stock Purchase Plan ("ESPP") of $121,000. For the three months
ended March 31, 1997, net cash used in financing activities consisted of
principle repayment on obligations under capital lease of $277,000, partially
offset by exercises of stock options and stock purchases through the ESPP of
$42,000.
The Company believes that its existing cash balances, funds generated from
operations, borrowings under its line of credit will be sufficient to finance
the Company's operations for the next twelve months. In the event the Company
acquires one or more businesses of products, the Company's capital requirements
could increase substantially, and there can be no assurance that additional
capital will be available on terms acceptable to the Company, if at all.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The risk factors discussed below, among other factors (including the accuracy of
the Company's internal estimates of revenue and operating expense levels), may
cause the Company's actual results to differ materially from the results stated
in the forward-looking statements contained in this Form 10-Q. The following
discussion of the Company's risk factors should be read in conjunction with the
Company's financial statements and related notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's licensing activity and results of operations can fluctuate
significantly on a quarterly basis. Causes of such fluctuations may include,
among other factors the volume and timing of new and repeat orders, the
introduction or announcement of new products or product enhancements by ON or
third parties, failure to ship trials, changes in response rates to the
Company's mailings and telemarketing programs, interruption in the Company's
overnight delivery, telephone or internal networks and databases, work
stoppages, changes in product prices, changes in operating expenses, changes in
product mix, increase in international sales as a percentage of total revenue,
seasonality, trends in the computer industry, unavailability of product,
potential software viruses and perceived threats thereof, customer order
deferrals, general economic conditions, extraordinary events such as
acquisitions or litigation and the occurrence of unexpected events. While to
date, the Company has not experienced any significant failure to ship trials,
work stoppages or unavailability of products, there can be no assurance any of
such events will not occur in the future. The occurrence of any such event
could have a material adverse effect on the Company's business, financial
condition or results of operations. Because of the nature of its distribution
methods, the Company has virtually no backlog and generally cannot predict when
users will license products. Historically, repeat orders have accounted for a
significant portion of the Company's total revenue; however, there can be no
assurance that the Company will be able to sustain current repeat order rates in
the future. Furthermore, since the Company's cost of total revenue is
relatively low and its operating expenses are relatively fixed, any revenue
shortfall in a quarter will result in a substantially similar shortfall in net
income. In
10
<PAGE>
addition, significant quarterly fluctuations in licensing activity will cause
significant fluctuations in the Company's cash flows and the cash and cash
equivalents, accounts receivable and deferred revenue accounts on the Company's
balance sheet.
The Company's business has experienced and is expected to continue to
experience seasonality, due in part to customer buying patterns. In recent
years, the Company generally has had greater demand for its products in the
fourth quarter and has had weaker demand for its products during the first
quarter. These fluctuations are caused primarily by customer budgeting and
purchasing patterns. The Company believes this pattern will continue.
The Company believes that period-to-period comparisons of its financial
results should not be relied upon as an indication of future performance.
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
The communications and network management software markets are
characterized by rapid technological developments, changes in customer
requirements, evolving industry standards and frequent new product
introductions. The Company's future success will depend, in part, upon its
ability to enhance its existing applications, develop and introduce new products
that take advantage of technological advances, and respond promptly to new
customer requirements and evolving industry standards. While the Company
believes that it currently offers a broad product line in the communications and
network management software markets, these markets are continuing to evolve and
customer requirements are continuing to change. In response to these changes
the Company believes that it will need to continue to expand its product
offerings. The Company has identified a number of enhancements to its existing
products offerings which it believes are important to its continued success in
the communications and network management software markets, including products
for Windows 95 and Windows NT and Internet-enabling products. There can be no
assurance that the Company will be successful in developing and marketing, on a
timely basis, enhancements to its existing products or new products, or that its
new products will adequately address the changing needs of the marketplace.
Failure by the Company in any of these areas could materially and adversely
affect the Company's business, financial condition or results of operations. In
addition, from time to time the Company or its competitors may announce new
products with capabilities or technologies that could have a potential to
replace or shorten the life cycles of the Company's existing products or render
such products obsolete. There can be no assurance that announcements by the
Company or its competitors of new products will not cause customers to defer
purchasing the Company's existing products. In addition, there can be no
assurance that future changes in DOS, Windows, NetWare or other popular
operating systems would not result in incompatibility with the Company's
products. The Company's failure to introduce new products on a timely basis
that are compatible with operating systems and environments preferred by desktop
computer users would have a material adverse effect on the Company's business,
financial condition and results of operations.
COMPETITIVE RISKS
The market for the Company's products is highly competitive, and the
Company expects competition to increase in the future. The Company believes
that the principal competitive factors affecting the market for its products
include performance, functionality, ease of use, ease of installation, quality,
customer support, breadth of product line, speed of product delivery, frequency
of upgrades and updates, brand name recognition, company reputation and price.
Certain of the criteria upon which the performance and quality of the Company's
communications and network management software compete include speed of
response, ease of use, ease of installation, interoperability with other
messaging systems and simplicity of administration. The Company believes that
it generally competes favorably with respect to each of these factors; however,
there can be no assurance that the Company will be able to continue to compete
successfully against current and future competitors. Certain of the Company's
competitors have been in the market longer than the Company, and other
competitors are larger and may have greater name recognition than the Company.
As is the case in many segments of the software industry, the Company may
encounter increasing price competition in the future. This could reduce average
selling prices and, therefore, profit margins. Competitive pressures could
result not only in sustained price reductions but also in a decline in sales
volume, which could adversely affect the Company's business, financial condition
or results of operations. There can be no assurance that the Company will
continue to compete effectively against existing and potential competitors in
the communications and network management software markets, many of whom have
substantially greater financial, technical, marketing and support resources and
name recognition than the Company. In addition, there can be no assurance that
software vendors who currently use traditional distribution methods will not in
the future decide to compete more directly with the Company by utilizing free
trial marketing. See "--Risks Associated with Free Trial Marketing."
11
<PAGE>
Both the communications software market and the network management
software market are highly fragmented, with products offered by many vendors.
The Company's products compete with offerings from software, shareware and
freeware developers. Shareware is software that is made available electronically
on bulletin board systems. Shareware users are encouraged to evaluate the
software for a short period of time and then either cease using it or pay a
license fee. In the group scheduling market, the Company also competes with
personal information manager products ("PIMs") that have been enhanced to
include some group scheduling features. Certain competitors have in the past
bundled communications and network management software with their operating
system products or software application suite offerings and have publicly
announced, or the Company believes are likely to provide, such bundles with
future offerings. There can be no assurance that the Company can continue to
compete effectively against communications software which is included free with
the operating system, as these bundled products are improved in the future. In
addition, the trend toward enterprise-wide communications software solutions may
result in a consolidation of the communications software market around a smaller
number of vendors who are able to provide all of the necessary software and
support capabilities.
Historically, the Company's international revenue has been generated
primarily through independent distributors in Europe, Australia, Israel, South
Africa and South America, certain of which are bound by contracts with the
Company but which generally do not represent the Company exclusively. The
competitive environment for communications software tools internationally is
similar to that in North America. The Company has only recently begun to
compete in Asian markets, which have significantly lagged behind North America
and Europe in their adoption of LAN technology. There can be no assurance that
the Company will be able to continue to compete successfully in international
markets.
The widespread inclusion of the functionality of the Company's products
as standard features of operating systems software could render the Company's
products obsolete and unmarketable, particularly if the quality of such
functionality were comparable to that of the Company's products. If the Company
were unable to develop new communications and network management software to
further enhance operating systems and to replace successfully any obsolete
products, the Company's business, financial condition and results of operations
would be materially and adversely affected.
RISKS ASSOCIATED WITH PRODUCT DEVELOPMENT
The Company has in the past experienced delays in software development,
and there can be no assurance that it will not experience further delays in
connection with its current or future product development activities. The
Company puts all of its products through alpha and beta test cycles and makes
significant efforts to debug all products before commercial release. The Company
makes well-marked alpha and beta versions of its software available for
evaluation and testing and solicits and responds to input from evaluators.
However, there can be no assurance that the Company's products will not contain
undetected errors or version compatibility issues, particularly when first
introduced or when new versions are released, resulting in loss of or delay in
market acceptance. Delays and difficulties associated with new product
introductions or product enhancements could have a material adverse effect on
the Company's business, financial condition or results of operations.
In addition to developing new products, the Company's internal
development staff is focused on developing upgrades and updates to existing
products and modifying, enhancing and completing any acquired products and
incomplete projects. Future enhancements may, among other things, include
additional functionality, respond to user problems or address issues of
compatibility with changing operating systems and environments. The Company
believes that the ability to provide these enhancements to users frequently and
at a low cost is key to its success. Failure to release such enhancements on a
timely basis could have a material adverse effect on the Company's business,
financial condition or results of operation. There can be no assurance that the
Company will be successful in these efforts.
The Company licenses SofTrack from a third party. The license expires
December 1999. If the Company believes that this licensed product continues to
be valuable after the expiration of the initial license term, it will seek to
extend the term of the license. There can be no assurance that the Company will
be able to extend the term of the expiring license, or that the economic
arrangements for such extensions would be comparable to the arrangements in
effect during the initial license term.
12
<PAGE>
RISKS OF INCLUSION OF COMMUNICATIONS SOFTWARE AND NETWORK MANAGEMENT SOFTWARE IN
SYSTEM SOFTWARE AND APPLICATION SUITES
In the future, vendors of operating system software and groups of
applications sold for a single price (generally referred to as application
suites) may continue to enhance their products to include certain functions that
are currently provided most often by communications and network management
software. These vendors may also bundle these products in their application
suites at no additional charge. The widespread inclusion of the functions
provided by the Company's products as standard features of operating system
software could, particularly if the quality of such functions were comparable to
that of the Company's products, render the Company's products obsolete and
unmarketable. Furthermore, even if the communications and network management
software functions provided as standard features by operating systems are more
limited than that of the Company's products, there is no assurance that a
significant number of customers would not elect to accept such functions in lieu
of purchasing additional software. If the Company were unable to develop new
communications software and network management software products to further
enhance operating systems and to replace successfully any obsolete products, the
Company's business, financial condition and results of operations would be
materially and adversely affected.
DEPENDENCE ON EMERGENCE OF NETWORK MANAGEMENT SOFTWARE
The market for the Company's network management software is new and
evolving, and its growth depends upon the broader market acceptance of network
management software. In addition, there are a number of potential approaches to
the market, including incorporating network management software into network
operating systems. Therefore, even if network management software products gain
broader market acceptance, there can be no assurance that the Company's products
will be chosen by organizations which acquire network management software.
Moreover, a change in the licensing policies of Microsoft or other software
vendors which changes the basis on which concurrent users are measured or priced
could adversely effect the Company's network management software products.
Furthermore, to the extent that the network management software market does
develop, the Company expects that competition will increase. See "- Competitive
Risks," and "-- Risks of Inclusion of Communications Software and Network
Management Software in System Software and Application Suites."
RISKS ASSOCIATED WITH FREE TRIAL MARKETING
The Company provides its customers with 30-day free trials of all of
the Company's principal products ("Free Trial Marketing"). The trials are full
featured versions of the product that are internally designed to cease operation
in 30 days. The Company uses Free Trial Marketing as its primary sales channel.
The Company depends on direct mail, trade shows and telemarketing to find
prospects and install trials. This model represents a significant departure from
marketing strategies relying on a direct sales force, exclusive distributor
relationships and magazine space advertising. While to date this marketing
strategy has successfully resulted in the licensing of the Company's products by
corporate, government and institutional users, given the relatively unproven
nature of this form of marketing, there can be no assurance that this strategy
will continue to be effective in the future for either current or new products.
The failure of this strategy to continue to effectively generate license revenue
would have a material adverse effect on the Company's business, financial
condition and results of operations. While the Company has experienced
significant growth over the past years, the Company's distribution strategy may
make its products less attractive to customers who prefer to purchase through
traditional channels and, as a result, may have the effect of limiting the
Company's potential market. In addition, as mailings are mailed repeatedly to
the same customers, responsiveness to particular offers and products declines.
There can be no assurance that the Company will be able to sustain current
response rates to its mailings in the future. In addition, there can be no
assurance that the Company can continue to create sufficient attractive offers
and to introduce interesting products at a rate sufficient to support the
Company's growth plan or even current revenue. The Company's growth depends
both on its ability to select names from rented lists and to grow its "house
list." The availability and relevance of rentable names to the Company's
products are not certain. In addition, since the ability of the Company to grow
its house list is dependent on the supply of rentable names, house list growth
cannot be assured.
The Company depends on the distribution of Free Trial Marketing disks
to accomplish much of its marketing. If some of the Company's Free Trial
Marketing disks were to become infected with a computer virus, they would cause
difficulties for prospects and could damage the Company's reputation. The
Company does extensive testing for viruses. The Company's use of outside
fulfillment contractors increases the risk that a virus could be shipped
undetected on disks bearing the Company's label. There can be no assurance that
ON would be able to collect adequate compensation from such fulfillment
contractors if such a virus infected disks bearing the Company's label.
The Company fulfills orders received directly from customers through a
third-party fulfillment contractor, which warehouses the Company's products and
ships them directly to ON's customers. In the event that either the
13
<PAGE>
customer fulfillment contractor or the private use database firm experience a
substantial business interruption, whether through business failure or
interruption or some natural calamity, or the Company's relationship with either
of such parties is terminated for any reason, the Company's ability to continue
to mail free trial offers to prospective customers and to fulfill orders placed
by customers would be adversely affected.
In both the domestic and international markets, increases in postal
rates (including modifications in the classification of mail) or telephone
rates, or changes in postage or telephone regulations which prohibit unsolicited
direct mail or unsolicited telephone calls, could significantly impact the
economics of the Company's Free Trial Marketing strategy. In addition, it is
possible that other software vendors could adopt all or parts of the Company's
strategy and compete more directly or effectively with the Company.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
The Company may in the future undertake additional acquisitions that
could present challenges to the Company's management, such as integrating and
incorporating new operations, product lines, technologies and personnel. If the
Company's management is unable to manage these challenges, the Company's
business, financial condition or results of operations could be materially
adversely affected. Any acquisition, depending on its size, could result in
significant dilution to the Company's stockholders. Furthermore, there can be no
assurance that any acquired products will gain acceptance in the Company's
markets.
RISKS ASSOCIATED WITH PAST ACQUISITIONS
The Company has in the past made a number of acquisitions that have
and are being integrated and incorporated into the Company's operations, along
with the acquired product lines, technologies and personnel. If the Company's
management is unable to continue to manage these challenges, the Company's
business, financial condition or results of operations could be materially
adversely affected. There can be no assurance that any acquired products will
gain acceptance in the Company' markets.
RISKS OF INDIRECT CHANNELS OF DISTRIBUTION
The Company markets its products through distributors and resellers in
addition to its Free Trial Marketing strategy. These distributors and resellers
also sell other products that are complementary to, or compete with, those of
ON. There can be no assurance that these distributors and resellers will not
give greater priority to products of other suppliers. They have no long-term
obligation to purchase products from the Company. Since the Company's
agreements with its distributors provide for a right of return, revenue
recognized upon sales to distributors is subject to a reserve for returns.
Although management believes that the current reserve balance is adequate to
cover this exposure, there can be no assurance that any future period reserves
for returns will be adequate. In addition, the Company may be unaware of the
nature and scope of the representations made to customers by these distributors
and resellers. For example, they could make representations to customers about
the Company's current and future products which are inaccurate or incomplete.
This could result in the products not meeting the customers' expectations or
requirements. Although the Company's agreements with its distributors generally
provide the Company with recourse against unauthorized action taken by the
distributors, there can be no assurance that the Company could recover adequate
compensation to cover the damage caused by an inaccurate representation. See "-
Risks Associated with International Revenue."
RISKS ASSOCIATED WITH PROTECTION OF PROPRIETARY TECHNOLOGY
The Company's success is heavily dependent upon its proprietary software
technology. The Company relies on a combination of contractual rights,
trademarks, trade secrets and copyrights to establish and protect its
proprietary rights in its software. The Company has not to date registered any
of its copyrights. The Company has obtained registrations in the United States
for the following trademarks: ON Technology, Notework, Meeting Maker, ON
Technology & Design, ON Location, Instant Update and Da Vinci Systems. The
Company uses a printed "shrink-wrap" license for users of its products
distributed through traditional distribution channels in order to protect its
copyrights and trade secrets in those products. Since these shrink-wrap
licenses are not signed by the licensee, many authorities believe that they may
not be enforceable under many state laws and the laws of many foreign
jurisdictions. If such licenses are not enforceable, the user would not be
bound by the terms thereof, including the terms which seek to protect the
Company's proprietary technology.
14
<PAGE>
There can be no assurance that the Company's proprietary technology
will be protected by the use of the printed shrink-wrap licenses. If the printed
shrink-wrap licenses prove to be unenforceable, this may have a material adverse
effect on the Company's business, financial condition and results of operations.
In addition, the laws of some foreign countries either do not protect
the Company's proprietary rights or offer only limited protection for those
rights. Furthermore, the Company has obtained only four foreign registrations of
its Notework mark, two foreign registrations of its Meeting Maker mark, due to
the significant costs involved in obtaining foreign registrations. As a result,
the Company may not be able to prevent a third party from using its trademarks
in many foreign jurisdictions. If such licenses are not enforceable, the user
would not be bound by the terms thereof, including the terms which seek to
protect the Company's proprietary technology.
There can be no assurance that the steps taken by the Company to
protect its proprietary software technology will be adequate to deter
misappropriation of this technology. In addition, the Company does provide
customer support to unlicensed users during the Free Trial Marketing period.
Lesser sensitivity by corporate, government or institutional users to avoiding
copyright infringement could have a material adverse effect on the Company's
business, financial condition and results of operation. While the Company to
date has not taken any legal action to enforce its intellectual property rights
against infringing users, it believes, based upon current interpretations of
law, that its use of Free Trial Marketing and the widespread availability of its
trials do not significantly impact its ability to enforce its intellectual
property rights against infringing users, including corporate, institutional and
government entities. However, there is no assurance that a court or other
authority may not rule otherwise in the future. Such a ruling would have a
material adverse effect on the Company's business, financial condition and
results of operations.
There has been substantial litigation in the software industry involving
intellectual property rights of technology companies, although, to date, the
Company has not been subject to any such litigation. Although the Company does
not believe that it is infringing the intellectual property rights of others,
there can be no assurance that such claims, if asserted, would not have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, as the Company may acquire or license a
portion of the software included in its future products from third parties, its
exposure to infringement actions may increase because the Company must rely upon
such third parties for information as to the origin and ownership of any
software being acquired. The Company generally obtains representations as to
the origin and ownership of such acquired or licensed software and generally
obtains indemnification to cover any breach of such representations. However,
there can be no assurance that such representations are accurate or that such
indemnification will provide adequate compensation for a breach of such
representations. In the future, litigation may be necessary to enforce and
protect trade secrets and other intellectual property rights owned by the
Company. The Company may also be subject to litigation to defend against
claimed infringement of the rights of others or to determine the scope and
validity of the proprietary rights of others. Any such litigation could be
costly and cause diversion of management's attention, either of which could have
a material adverse effect on the Company's business, financial condition or
results of operations. Adverse determinations in such litigation could result
in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third parties
or prevent the Company from manufacturing or selling its products, any one of
which could have a material adverse effect on the Company's business, financial
condition or results of operations. Furthermore, there can be no assurance that
any necessary licenses will be available on reasonable terms, or at all.
RISKS ASSOCIATED WITH INTERNATIONAL REVENUE
In 1996 and in the three months ended March 31, 1997, total revenue from
international licenses (license revenue from outside the United States)
represented approximately 18% and 33%, respectively, of the Company's total
revenue. The Company expects that total revenue from international licenses
will increase in future years; however, there can be no assurance that the
Company will be successful in penetrating international markets. Substantially
all of the Company's license fees are in United States dollars. Risks inherent
in the Company's international sales generally include the impact of fluctuating
exchange rates or demand for its products, longer payment cycles, greater
difficulty in protecting intellectual property, greater difficulty in accounts
receivable collection, unexpected changes in regulatory requirements,
seasonality due to the slowdown in European business activity during the third
quarter, and tariffs and other trade barriers. There can be no assurance that
these factors will not have a material adverse effect on the Company's future
international license revenue. Further, in countries with a high incidence of
software piracy, the Company may experience a higher rate of piracy of its
products.
In addition, a significant portion of the Company's international
revenue is generated through independent distributors and resellers. Since these
distributors and resellers are not employees of the Company and are not required
to offer the Company's products exclusively, there can be no assurance that they
will continue to market the Company's products. Also, despite the Company's
substantial dependence in the international market upon the marketing, sales and
customer support of its distributors and resellers, the Company currently has
limited control over its distributors and resellers, and the Company may be
unaware of the nature and scope of the representations made to customers by
these agents. For example, independent agents could make representations to
customers about the Company's current and future products which are inaccurate
or incomplete, which could result in the products not meeting customers'
expectations or requirements.
15
<PAGE>
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends to a significant extent upon a number of key
technical and management employees. While the Company's employees are required
to sign standard agreements concerning confidentiality and ownership of
inventions, the employees, with the exception of Messrs. Risley, Platzman,
Batson, Bogdan, Rizzi, O'Sullivan and Green are generally not otherwise subject
to employment agreements or noncompetition covenants. The loss of the services
of any of the Company's key employees could have a material adverse effect on
the Company's business, financial condition or results of operation. The Company
does not maintain life insurance policies on key employees. The Company's
success also depends in large part upon its ability to attract and retain highly
skilled technical, managerial, sales and marketing personnel. Competition in the
software industry for such personnel is intense. There can be no assurance that
the Company will be successful in retaining its existing key personnel and in
attracting and retaining the personnel it requires.
VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and in the
future may be, subject to wide fluctuations in response to actual or anticipated
quarterly operating results of the Company, announcements of technological
innovations or new applications by the Company or its competitors and general
market conditions in the software industry, as well as other events or factors.
In addition, stock markets have experienced extreme price and volume trading
volatility in recent years. This volatility has had a substantial effect on the
market price of many technology companies and has often been unrelated to the
operating performance of those companies. This volatility may adversely effect
the market price of the Company's Common Stock.
16
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 1997
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
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
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed in the accompanying Exhibit Index on page 19 are
filed or incorporated by reference as part of this Report.
(b) Reports on Form 8-K
The Company filed a Current report on Form 8-K dated February 6, 1997
in relation to the acquisition of csd Software GmbH. This Form 8-K was
amended by Form 8-K/A-1 filed on April 14, 1997.
The Company also filed a Current report on Form 8-K dated February 5,
1997 in relation to the acquisition of Purview Technologies, Inc.
17
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 1997
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.
ON TECHNOLOGY CORPORATION
/s/ Christopher A. Risley
-------------------------
Date: May 13, 1997 Name: Christopher A. Risley
Title: Chief Executive Officer
/s/ John M. Bogdan
------------------
Date: May 13, 1997 Name: John M. Bogdan
Title: Vice President of Finance
and Chief Financial Officer
18
<PAGE>
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
FORM 10-Q, March 31, 1997
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
11.0 Computation of Net Loss per share
27.0 Financial Data Schedule
19
<PAGE>
EXHIBIT 11.0
ON TECHNOLOGY CORPORATION AND SUBSIDIARIES
Computation of Net Loss Per Share (1)
FORM 10-Q, March 31, 1997
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net Loss $ (15,891) $ (13,114)
Weighted Average Common Shares
Outstanding During Period............ 11,766,920 10,675,043
Weighted Average Common Equivalent
Shares Outstanding During Period....... --- ---
11,766,920 10,675,043
============ ============
Net Loss Per Share..................... $ (1.35) $ (1.23)
============ ============
</TABLE>
- -----------------
(1) Primary and fully diluted net loss per share has not been separately
presented, as the amounts would not be meaningful.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 13,007
<SECURITIES> 0
<RECEIVABLES> 12,346
<ALLOWANCES> 1,509
<INVENTORY> 2,553
<CURRENT-ASSETS> 30,091
<PP&E> 11,342
<DEPRECIATION> 5,344
<TOTAL-ASSETS> 40,456
<CURRENT-LIABILITIES> 13,999
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 26,142
<TOTAL-LIABILITY-AND-EQUITY> 40,456
<SALES> 11,460
<TOTAL-REVENUES> 12,493
<CGS> 2,068
<TOTAL-COSTS> 12,619
<OTHER-EXPENSES> 15,898
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> (15,891)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,891)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,891)
<EPS-PRIMARY> (1.35)
<EPS-DILUTED> (1.35)
</TABLE>
