<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) MARCH 18, 1997
FRACTAL DESIGN CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
CALIFORNIA 0-26822 77-0276903
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
5550 SCOTTS VALLEY DRIVE, SCOTTS VALLEY, CA 95066
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (408) 430-4300
--------------------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
-1-
<PAGE> 2
ITEM 5. OTHER EVENTS.
On May 24, 1996, Fractal Design Corporation ("Fractal") acquired Ray
Dream, Inc. ("Ray Dream") as reported on Forms 8-K and 8-K/A filed on May 6,
1996 and August 7, 1996, respectively, and issued 3,165,660 shares of Common
Stock of Fractal pursuant to a Registration Statement on Form S-4, declared
effective by the Commission on April 26, 1996. The transaction was accounted for
as a pooling of interests. The audited restated Fractal consolidated financial
statements as of March 31, 1996 and 1995, and for each of three years in the
period ended March 31, 1996 are included herein.
-2-
<PAGE> 3
FRACTAL DESIGN CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Balance Sheets as of March 31, 1996 and 1995.................................................. F-3
Consolidated Statements of Operations for the Years Ended March 31, 1996, 1995 and 1994.................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended March 31, 1996, 1995 and 1994.......... F-5
Consolidated Statements of Cash Flows for the Years Ended March 31, 1996, 1995 and 1994.................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
Schedule II - Valuation and Qualifying Accounts for the Years Ended March 31, 1996, 1995 and 1994.......... S-1
</TABLE>
F-1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Fractal Design Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Fractal Design Corporation and its subsidiaries at March 31, 1996
and 1995, and the results of their operations and their cash flows for each of
the three years in the period ended March 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
April 22, 1996,
except as to the pooling of interests with Ray Dream, Inc. which is as of May
24, 1996 and Note 11, which is as of February 11, 1997.
F-2
<PAGE> 5
FRACTAL DESIGN CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
March 31,
------------------
1996 1995
------- -------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................................... $ 7,153 $ 5,562
Short-term investments....................................................... 23,683 488
Accounts receivable, less allowance for doubtful accounts of $343 and $174 .. 7,320 2,282
Inventories.................................................................. 1,220 320
Deferred income taxes........................................................ 1,446 863
Other current assets......................................................... 2,155 653
------- -------
Total current assets..................................................... 42,977 10,168
Property and equipment, net..................................................... 958 611
------- -------
$43,935 $10,779
======= =======
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings.............................................................. $ 167 $ 440
Accounts payable............................................................. 3,680 1,098
Accrued liabilities.......................................................... 6,955 2,763
Income taxes payable......................................................... 155 1,045
------- -------
Total current liabilities................................................ 10,957 5,346
------- -------
Long-term debt ................................................................ 250 -
------- ------
Mandatorily redeemable convertible preferred stock (Note 9)..................... - 2,140
------- -------
Commitments and Contingencies (Note 5)
Shareholders' equity:
Preferred Stock: $.001 par value, 5,000,000 shares authorized; none
issued and outstanding.................................................... - -
Common Stock: $.001 par value, 50,000,000 shares authorized;
11,679,156 and 7,934,400 shares issued and outstanding................... 12 8
Additional paid-in capital................................................... 32,571 5,469
Cumulative translation adjustment............................................ (50) (36)
Retained earnings (accumulated deficit)...................................... 195 (2,148)
------- -------
Total shareholders' equity............................................... 32,728 3,293
------- -------
$43,935 $10,779
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 6
FRACTAL DESIGN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net revenues.................................................. $29,529 $18,476 $10,002
Cost of net revenues.......................................... 5,146 3,124 2,524
------- ------- -------
Gross profit.................................................. 24,383 15,352 7,478
------- ------- -------
Operating expenses:
Research and development................................... 4,073 2,509 1,372
Sales and marketing........................................ 13,512 8,992 6,038
General and administrative................................. 2,612 1,684 1,166
------- ------- -------
Total operating expenses............................... 20,197 13,185 8,576
------- ------- -------
Income (loss) from operations................................. 4,186 2,167 (1,098)
Interest income (expense), net................................ 567 65 (64)
------- ------- -------
Income (loss) before income taxes............................. 4,753 2,232 (1,162)
Provision for income taxes.................................... (1,827) (473) -
------- ------- ------
Net income (loss)............................................. $ 2,926 $ 1,759 $(1,162)
======= ======= =======
Net income (loss) per share................................... $ 0.25 $ 0.17
======= =======
Number of shares used to compute net
income (loss) per share.................................... 11,603 10,485
======= =======
Pro forma data (Note 7):
Loss before income taxes................................... $(1,162)
Provision for income taxes................................. (15)
-------
Net loss .................................................. $(1,177)
=======
Net loss per share......................................... $ (0.14)
=======
Number of shares used to compute net loss per share........ 8,240
=======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 7
FRACTAL DESIGN CORPORATION
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Cumulative Earnings
---------------- Paid-in Translation (Accumulated
Shares Amount Capital Adjustment Deficit) Total
------ ------ ------- ---------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 ....................... 7,006 $ 7 $ 2,485 $ -- $(1,177) $ 1,315
Exercise of stock options ..................... 3 -- 1 -- -- 1
Issuance of common stock ...................... 913 1 2,976 -- -- 2,977
Cash and notes payable distributed to
shareholders prior to the termination of the
Company's Subchapter S Corporation
status (Note 4) ............................. -- -- -- -- (1,500) (1,500)
Translation adjustment ........................ -- -- -- (18) -- (18)
Net loss ...................................... -- -- -- -- (1,162) (1,162)
------ --- ------- ---- ------- --------
Balance at March 31, 1994 ....................... 7,922 8 5,462 (18) (3,839) 1,613
Exercise of stock options ..................... 12 -- 7 -- -- 7
Accretion to redemption value of
mandatorily redeemable convertible
preferred stock ............................. -- -- -- -- (68) (68)
Translation adjustment ........................ -- -- -- (18) -- (18)
Net income .................................... -- -- -- -- 1,759 1,759
------ --- ------- ---- ------- --------
Balance at March 31, 1995 ....................... 7,934 8 5,469 (36) (2,148) 3,293
Accretion to redemption value of
mandatorily redeemable convertible
preferred stock ............................. -- -- -- -- (64) (64)
Issuance of common stock, net of issuance costs
of $2,598 ................................... 2,579 3 24,774 -- -- 24,777
Conversion of mandatorily redeemable
convertible preferred stock ................. 1,057 1 2,203 -- -- 2,204
Exercise of stock options and warrants ........ 109 -- 125 -- -- 125
Translation adjustment ........................ -- -- -- (14) -- (14)
Adjustment to retained earnings as a
result of business combination (Note 1) ..... -- -- -- -- (519) (519)
Net income .................................... -- -- -- -- 2,926 2,926
------ --- ------- ---- ------- --------
Balance at March 31, 1996 ....................... 11,679 $12 $32,571 $(50) $ 195 $ 32,728
====== === ======= ==== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 8
FRACTAL DESIGN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................................. $ 2,926 $ 1,759 $(1,162)
Adjustment to retained earnings as a result of business combination
(see Note 1) ................................................................ (519) -- --
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization ............................................. 448 229 101
Deferred taxes ............................................................ (583) (863) --
Changes in assets and liabilities:
Accounts receivable, net ................................................ (5,038) (1,083) (39)
Inventories ............................................................. (900) (205) (36)
Other current assets .................................................... (1,502) (288) (55)
Accounts payable ........................................................ 2,582 416 442
Accrued liabilities ..................................................... 4,192 1,460 469
Income taxes payable .................................................... (890) 1,045 --
-------- ------- -------
Net cash provided by (used in) operating activities ............................ 716 2,470 (280)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ........................................................... (795) (501) (172)
Purchases of short-term investments ............................................ (23,195) (488) --
-------- ------- -------
Net cash used in investing activities .......................................... (23,990) (989) (172)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock, net of issuance costs ................................ 24,777 -- 2,977
Issuance of common stock upon exercise of warrants and stock options ........... 125 7 1
Proceeds from issuance of note payable ......................................... 500 -- 440
Repayments on notes payable .................................................... (523) -- --
Repayment of notes payable to shareholders ..................................... -- (972) (188)
Issuance of mandatorily redeemable convertible preferred stock, net ............ -- 2,072 --
Cash distribution to shareholders prior to the termination of Subchapter S
Corporation Status .......................................................... -- -- (600)
-------- ------- -------
Net cash provided by financing activities ...................................... 24,879 1,107 2,630
-------- ------- -------
Effect of exchange rates on cash ............................................... (14) (18) (18)
-------- ------- -------
Net increase in cash and cash equivalents ...................................... 1,591 2,570 2,160
Cash and cash equivalents at beginning of period ............................... 5,562 2,992 832
-------- ------- -------
Cash and cash equivalents at end of period ..................................... $ 7,153 $ 5,562 $ 2,992
======== ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest .................................................................... $ 79 $ 126 $ 38
Income taxes ................................................................ $ 3,119 $ 293 $ --
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS:
Accretion of Mandatorily redeemable convertible preferred stock ............. $ 64 $ 68 $ --
Conversion of Mandatorily redeemable convertible preferred stock ............ $ 2,204 $ -- $ --
Issuance of notes payable to Shareholders prior to the termination of
Subchapter S Corporation Status ........................................... $ -- $ -- $ 900
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 9
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fractal Design Corporation ("Fractal" or the "Company") is a leading
provider of software tools for the creation, editing and manipulation of
computer graphics images and digital art. The Company operates in one business
segment.
On May 24, 1996, Fractal acquired Ray Dream, Inc. ("Ray Dream"), a
California corporation which designs, develops and markets graphics software
application tools emphasizing three-dimensional effects for the personal
computer market. As a result of the acquisition, Ray Dream has become a
wholly-owned subsidiary of Fractal. As consideration for 100% of the outstanding
shares of Ray Dream capital stock, Fractal issued an aggregate of 3,165,660
shares of Fractal common stock and reserved 219,459 shares of Fractal common
stock for issuance upon the exercise of previously outstanding options to
purchase Ray Dream common stock. Fractal also assumed an outstanding warrant to
purchase Ray Dream common stock which, when vested, will be exercisable for up
to 437,604 shares of Fractal common stock. The acquisition of Ray Dream was
accounted for as a pooling-of-interests and accordingly, the Company's
consolidated financial statements have been restated for all periods prior to
the acquisition to include the financial statements of Ray Dream. Transaction
fees of approximately $1.9 million were recorded in the first quarter of fiscal
1997.
The Company reports its financial results on a March 31 fiscal year-end
basis, whereas Ray Dream reported its financial results on a December 31
calendar year-end basis. For the purposes of pooling-of-interests accounting,
revenues and net income of Fractal for the years ended March 31, 1996, 1995 and
1994 have been combined with those of Ray Dream for the years ended December 31,
1995, 1994 and 1993. Ray Dream's net loss of $519,000 for the three months ended
March 31, 1996 has been reflected as an adjustment to retained earnings. The
results of operations of Ray Dream for such three month period include net
revenues of $2,980,000.
Separate results of operations for the periods presented are as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Net revenues
Fractal ....... $21,780 $ 13,133 $ 7,680
Ray Dream ..... 7,749 5,343 2,322
------- -------- --------
$29,529 $ 18,476 $ 10,002
======= ======== ========
Net income (loss)
Fractal ....... $ 2,924 $ 1,832 $ 35
Ray Dream ..... 2 (73) (1,197)
------- -------- --------
$ 2,926 $ 1,759 $ (1,162)
======= ======== ========
</TABLE>
F-7
<PAGE> 10
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the Company's significant accounting
policies.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Ray Dream, Inc., Ray Dream Europe, Fractal
Design Foreign Sales Corporation and Fractal Design International. All
significant intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company sells its products worldwide through distributors and mail
order catalogs, to hardware and software manufacturers for bundling with other
products, and directly to end users. Revenue from the sale of software products,
including sales to distributors, is recognized when the software has been
shipped, collection of the receivable is probable and there are no significant
obligations remaining. Allowances for estimated future returns and exchanges are
provided at the time of sale based on the Company's return policies and
historical returns experience. The Company periodically offers customers free
upgrades to new product releases for a limited period of time after the
announcement of a new product. The Company's policy is to defer revenue based on
its estimate of the number of users expected to upgrade, if and when a free
upgrade is offered, in accordance with SOP 91-1 and FAS 48. This estimate is
based on the Company's historical experience. The per unit amount of revenue
that is deferred is equal to the objective price to be charged by the Company to
its existing installed user base. The Company recognizes the revenue related to
free upgrades when the customer has requested the upgrade and the new product is
shipped. At March 31, 1996 and 1995 there were no material obligations to
provide free upgrades. The Company provides a limited amount of free telephone
technical support to customers. These activities are generally considered
insignificant post-contract customer support obligations. Estimated costs of
these activities are accrued at the time revenue is recognized.
Revenues from significant customers which represented 10% or more of net
revenues for the respective periods were as follows:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Customer A ............. 16% 23% 18%
Customer B ............. 12% -- --
Customer C ............. -- -- 15%
</TABLE>
Revenue from foreign customers (principally export sales) was 44%, 27% and
16% of the Company's net revenues in fiscal 1996, 1995 and 1994, respectively.
Net revenues from customers in Europe and Asia accounted for 16% and 27% of net
revenues, respectively, in fiscal 1996, 14% and 13% of net revenues,
respectively, in fiscal 1995 and 11% and 5% of net revenues, respectively, in
fiscal 1994.
F-8
<PAGE> 11
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency of each of the Company's foreign subsidiaries is
its local currency. Assets and liabilities of foreign operations are translated
into U.S. dollars using current exchange rates, and revenues and expenses are
translated into U.S. dollars using average exchange rates. The effects of
foreign currency translation adjustments are included as a component of
shareholders' equity.
ADVERTISING
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was $1,735,000, $802,000, and
$630,000 for the years ended March 31, 1996, 1995, and 1994, respectively.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company invests certain of its excess cash in commercial paper and debt
instruments of the U.S. Government and various municipalities. All highly liquid
debt instruments with an original maturity of three months or less are
considered cash equivalents; those with original maturities greater than three
months, consisting entirely of municipal obligations, are considered short-term
investments.
The Company accounts for short-term investments in accordance with the
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires
investment securities to be classified as either held to maturity, trading or
available for sale. The Company has classified all short-term investments as
available for sale. At March 31, 1996, short-term investments consisted
primarily of municipal obligations with maturities of less than one year from
their date of purchase. At that date, the fair value of the investments
approximated cost.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out
method, or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are computed using the straight-line method based upon the estimated useful
lives of the assets ranging from one to five years.
STOCK COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). FAS 123 requires companies that elect not to adopt
the fair value based method of accounting for stock compensation plans to make
pro forma disclosures of net income and earnings per share as if they had
adopted the fair value accounting method. Upon adopting FAS 123 in fiscal 1997,
the Company plans to present the required pro forma disclosures rather than
change its present method of accounting, under APB 25, for employee stock
options.
F-9
<PAGE> 12
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash, cash equivalents,
short-term investments and accounts receivable. The Company invests primarily in
U.S. Government and municipal obligations and holds deposits in money market
accounts of high quality financial institutions. The Company's accounts
receivable are derived from sales to distributors, resellers and end-users,
serving a variety of industries located primarily in the United States, Europe
and Asia. At March 31, 1996, two customers accounted for 27% and 10% of accounts
receivable, respectively, and at March 31, 1995, one customer accounted for 35%
of accounts receivable. The Company performs ongoing credit evaluations of its
customers and to date has not experienced any material losses.
SOFTWARE DEVELOPMENT COSTS
Costs related to the conceptual formation and design of internally
developed software are expensed as research and development as incurred. It is
the Company's policy that certain internal software development costs incurred
after technological feasibility has been demonstrated and which meet
recoverability tests are capitalized and amortized over the estimated economic
life of the product. To date, the Company has incurred no significant internal
software development costs which meet the criteria for capitalization.
INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using currently enacted tax
rates and laws.
The Company elected to be taxed as a Subchapter S Corporation from its
inception through September 30, 1993, whereby the tax effects of the Company's
activities accrued directly to its shareholders. Effective October 1, 1993, the
Company elected to terminate its status as a Subchapter S Corporation for income
tax purposes. As a result, deferred income taxes were established on the date
the Subchapter S Corporation status was terminated.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted-average number
of shares of common stock and common equivalent shares, when dilutive, from
mandatorily redeemable convertible preferred stock (using the if-converted
method) and from stock options and warrants (using the treasury stock method).
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83,
common stock and common equivalent shares, options and warrants issued by the
Company during the 12-month period prior to the Company's initial public
offering have been included in the calculation as if they were outstanding for
all periods through the effective date of the initial public offering.
For the years ended March 31, 1996 and 1995, accretion to the redemption
value of mandatorily redeemable convertible preferred stocks was $64,000 and
$68,000, respectively, resulting in net income attributable to common
shareholders of $2,862,000 and $1,691,000, respectively.
F-10
<PAGE> 13
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SHAREHOLDERS' EQUITY
In addition to the shares of Fractal common stock issued to the former
shareholders of Ray Dream (see Note 1), common stock as of March 31, 1996
reflects the sale of 2,375,000 shares of common stock issued in the Company's
initial public offering completed November 9, 1995. Aggregate net proceeds to
the Company were $23,540,000. In addition, common stock also reflects (i) the
conversion of all the Mandatorily Redeemable Convertible Preferred Stock
outstanding into an aggregate of 1,057,505 shares of common stock, (ii) the
exercise of warrants to purchase 52,873 shares of the Company's common stock at
an exercise price of $2.00 per share and (iii) the termination of the redemption
rights on the 204,082 shares of Mandatorily Redeemable common stock.
NOTE 2 - BALANCE SHEET COMPONENTS
A summary of balance sheet components follows (in thousands):
<TABLE>
<CAPTION>
March 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Inventories:
Raw materials .................................. $ 756 $ 179
Finished goods ................................. 464 141
------- -------
$ 1,220 $ 320
======= =======
Property and equipment:
Furniture and fixtures ......................... $ 327 $ 213
Equipment and software ......................... 1,566 885
------- -------
1,893 1,098
Less: Accumulated depreciation and amortization (935) (487)
------- -------
$ 958 $ 611
======= =======
Accrued liabilities:
Reserve for returns and exchanges .............. $ 2,459 $ 1,140
Deferred revenue ............................... 868 63
Payroll and related ............................ 1,839 829
Marketing and advertising ...................... 849 414
Other .......................................... 940 317
------- -------
$ 6,955 $ 2,763
======= =======
</TABLE>
NOTE 3 - BANK BORROWINGS
The Company had a $900,000 line of credit with a bank bearing interest at
2% per annum above the bank's prime rate, of which $440,000 was outstanding at
March 31, 1995. On August 23, 1995, the Company converted the outstanding
balance of $440,000 under its existing line of credit to a demand loan with a
bank. Interest accrued on the loan at a rate equal to the bank's reference rate
plus 1.5%. The remaining outstanding balance of $421,000 was paid in full on
November 16, 1995. In addition, on September 1, 1995, the Company entered into a
line of credit agreement which provided for borrowings of up to $600,000 at
variable interest rates equal to the bank's reference rate (8.25% as of March
31, 1996) plus 1%. No amounts were outstanding under this line at March 31,
1996. The line of credit agreement expires on August 1, 1996, is unsecured and
includes restrictive covenants
F-11
<PAGE> 14
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
which requires the Company to maintain certain financial ratios and minimum net
worth, as defined. The line of credit agreement is to be renewed in August 1996
providing for borrowings of up to $500,000 and expiring on August 1, 1997.
The Company also had a $750,000 bank line of credit under which advances
are available through August 15, 1996. Interest on the line of credit is at the
bank's prime rate plus 0.5%. Borrowings are limited to and secured by eligible
trade receivables. The line is subject to certain financial covenants. As of
March 31, 1996, no amounts were outstanding under the line of credit.
In September 1995, the Company borrowed $500,000 from a commercial bank.
Borrowings mature over three years and bear interest at the bank's prime rate
plus 0.75% per annum (9.50% as of March 31, 1996). Aggregate principal payments
of $167,000, $167,000 and $83,000 are due in fiscal years 1997, 1998 and 1999,
respectively.
NOTE 4 - RELATED PARTY TRANSACTIONS
DISTRIBUTION AND NOTES PAYABLE TO SHAREHOLDERS
In September 1993, in connection with the termination of the Company's
Subchapter S Corporation status (see Note 1), the Company distributed to its
shareholders undistributed tax basis Subchapter S Corporation profits of
$1,500,000. The distribution to shareholders consisted of $600,000 of cash and
the issuance of $900,000 of 7% unsecured notes payable. The Company repaid the
notes payable during fiscal 1995.
OTHER RELATED PARTY TRANSACTIONS
Businesses owned by two shareholders have provided technical and
administrative services to the Company. Amounts paid to these two firms totaled
$214,000, $129,000 and $91,000 for the years ended March 31, 1996, 1995 and
1994, respectively. Amounts due to the firms for services rendered totaled
$24,000 and $10,000 at March 31, 1996 and 1995, respectively. The Company
believes that the terms of the agreements for these services are no less
favorable than could be obtained from third-party suppliers.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company leases its office facilities and certain office equipment under
various operating leases. Total rent expense under the leases was $434,000,
$274,000 and $208,000 for the years ended March 31, 1996, 1995 and 1994,
respectively.
Aggregate future minimum lease payments under noncancelable operating
leases with initial terms of one year or more are as follows at March 31, 1996:
<TABLE>
<CAPTION>
Years Ending March 31,
<S> <C>
1997..................... $238
1998..................... 66
1999..................... 55
----
$359
====
</TABLE>
F-12
<PAGE> 15
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In June 1995, the Company entered into a Software Development and
Purchasing Agreement (the "Agreement") with a software development company (the
"Contractor") pursuant to which the Contractor would develop a software product
defined in the Agreement. The Company agreed to pay a total of $400,000 in
advances against product purchases of which $120,000 is included in other assets
as of March 31, 1996. The Company will pay for product purchases at a rate of
14% of net revenues (as defined) subject to adjustments for certain events. Such
payments may be offset against advances at a rate of 50%. In addition, the
Company granted a warrant to the Contractor to purchase 437,604 shares of the
Company's common stock at $7.08 per share. The exercise of the warrants is
subject to the Contractor meeting certain milestones in the Agreement and
provides for reductions in the royalty payments to the Contractor as the
warrants are exercised (see Note 9).
In the normal course of business, the Company from time to time receives
inquiries with regard to possible patent infringement. Management believes that
it is unlikely that the outcome of the inquiries received thus far will have a
material adverse effect on the Company's financial position or results of
operations.
NOTE 6 - INCOME TAXES
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
CURRENT:
Federal ............. $ 1,867 $ 846 $ --
State ............... 527 472 --
Foreign ............. 16 18 --
------- ------- --------
2,410 1,336 --
------- ------- --------
DEFERRED:
Federal ............. (513) (679) --
State ............... (70) (184) --
------- ------- --------
(583) (863) --
------- ------- --------
$ 1,827 $ 473 $ --
======= ======= ========
</TABLE>
As of March 31, 1996, the Company had a federal net operating loss
carryforward as well as federal and state tax credit carryforwards from its
acquired subsidiary, Ray Dream, of approximately $600,000, $150,000 and $80,000,
respectively. These carryforward items can only be used to offset future taxable
income of Ray Dream. The federal net operating loss and tax credit carryforwards
will expire in 2008 and 2009. The state tax credit carryforward may be carried
forward indefinitely. Management believes sufficient uncertainty exists with
regard to realization of Ray Dream's net operating loss and tax credit
carryforwards and certain other temporary differences that are expected to
reverse prior to the acquisition of Ray Dream. Accordingly, a valuation
allowance of $1,041,000 has been provided at March 31, 1996.
In fiscal 1995, management evaluated the realizability of deferred tax
assets and released approximately $600,000 of previously established valuation
allowance, based on income earned in 1995, which created available tax
carrybacks.
F-13
<PAGE> 16
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Reserves and accruals .......... $ 1,365 $ 730
Deferred revenue ............... 366 25
Tax credit carryforwards ....... 234 151
Net operating loss carryforwards 227 911
Other .......................... 295 168
------- -------
Deferred tax assets ............ 2,487 1,985
Valuation allowance ............ (1,041) (1,122)
------- -------
Net deferred tax asset ......... $ 1,446 $ 863
======= =======
</TABLE>
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory rate ............................... 34.0% 34.0% (34.0)%
State income taxes, net of federal tax benefit 6.4 9.2 --
Change in valuation allowance ................ (0.8) (27.2) 34.8
Research and development credits ............. (1.3) (8.7) (0.6)
Foreign income taxes ......................... 1.1 4.2 --
Other, net ................................... (1.0) 9.7 (0.2)
---- ---- ----
Effective tax rate ......................... 38.4% 21.2% --
==== ==== ====
</TABLE>
NOTE 7 - PRO FORMA PROVISION FOR INCOME TAXES FOR THE YEAR ENDED MARCH 31, 1994
Effective October 1, 1993, the Company elected to terminate its status as a
Subchapter S Corporation for income tax purposes. Accordingly, the statement of
operations for the year ended March 31, 1994 reflects a pro forma adjustment for
income taxes, which would have been recorded if the Company had been a C
Corporation during the year ended March 31, 1994, based on the tax laws in
effect during the period using the asset and liability method of accounting for
income taxes.
The provision for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
March 31,
1994
------
<S> <C>
Current:
Federal..................... $ 13
State....................... 2
------
$ 15
======
</TABLE>
F-14
<PAGE> 17
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's pro forma effective tax rate differs from the statutory rate
primarily due to the Company's inability to record a pro forma tax benefit for
deductible temporary differences due to the uncertainty of their realization.
Significant components of the Company's pro forma gross deferred tax assets
at October 1, 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Reserves and accruals........................ $ 385
Net operating loss carryforwards............. 906
Tax credit carryforwards..................... 81
Other........................................ 10
-------
1,382
Valuation allowance.......................... (1,382)
-------
$ --
=======
</TABLE>
NOTE 8 - COMMON STOCK
In May 1996, in connection with the Company's acquisition of Ray Dream, the
Company assumed the options outstanding under the Ray Dream 1992 Stock Option
Plan. The 1992 Stock Option Plan assumed from Ray Dream and the 1993 Stock
Option Plan, as amended (the "Plans"), authorize the Board of Directors to grant
incentive stock options and nonstatutory stock options to employees, officers,
directors and consultants for up to 2,223,996 shares of common stock. Under the
Plans, incentive stock options are granted at a price that is not less than 100%
of the fair value of the stock at the date of grant, as determined by the Board
of Directors. Nonqualified stock options are to be granted at a price that is
not less than 85% of the fair value of the stock at the date of grant, as
determined by the Board of Directors. Options generally vest over a four year
period and are exercisable for a period of ten years after the date of grant.
Options granted to a shareholder who owns more than 10% of the outstanding stock
of the Company at the time of grant must be at a price not less than 110% of the
fair value of the stock on the date of grant, and are exercisable for a period
not to exceed five years. The Company will not issue new options under the
Plans.
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Board of Directors on August 29, 1995, approved by the Company's
shareholders on September 5, 1995 and replaced the 1993 Plan. The maximum
aggregate number of shares that may be optioned and sold under the 1995 Option
Plan is the sum of (i) 1,180,420 shares plus (ii) such number of shares as are
subject to outstanding and unexercised stock options under the Company's 1993
Option Plan, as of the date of adoption of the 1995 Option Plan by the
shareholders, and which options are canceled or otherwise terminated without
exercise; provided that the total number of shares available under the 1995
Option Plan shall in no event exceed 2,291,344. The 1995 Option Plan provides
for (i) the granting to employees (including officers and employee directors) of
"incentive stock options" within the meaning of Section 422 of the Code and (ii)
the granting to employees and consultants of nonstatutory stock options. The
exercise price of all incentive stock options granted under the 1995 Option Plan
must be at least equal to the fair market value of the common stock of the
Company on the date of grant. The exercise price of any incentive stock option
granted to an optionee who owns stock representing more than 10% of the voting
power of all classes of stock of the Company must equal at least 110% of the
fair market value of the common stock on the date of grant. The exercise price
of nonstatutory stock options generally must equal at least 85% of the fair
market value of the common stock on the date of grant.
F-15
<PAGE> 18
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the Company's stock options plan activity is as follows:
<TABLE>
<CAPTION>
OPTIONS OPTIONS
AVAILABLE OUTSTANDING PRICE
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1993................... 62,336 76,874 -
Additional shares reserved.............. 390,000 - -
Options granted......................... (421,373) 21,373 $0.21-$2.20
Options exercised....................... - (2,600) $0.21
Options canceled........................ 38,694 (38,694) $0.21-$2.20
------------ -----------
BALANCE AT MARCH 31, 1994................... 69,657 456,953 -
Additional shares reserved.............. 1,694,787 - -
Options granted......................... (1,183,229) 1,183,229 $0.35-$2.20
Options exercised....................... - (12,618) $0.35
Options canceled........................ 729,008 (729,008) $0.35-$2.20
------------ -----------
BALANCE AT MARCH 31, 1995................... 1,310,223 898,556 -
Additional shares reserved.............. 362,177 - -
Options granted......................... (716,054) 716,054 $0.35-$13.89
Options exercised....................... - (55,560) $0.21-$0.75
Options canceled........................ 45,556 (45,556) $0.21-$2.00
------------ -----------
BALANCE AT MARCH 31, 1996................... 1,001,902 1,513,494
============ ===========
</TABLE>
Options to purchase 350,422 and 96,170 shares were exercisable at March 31,
1996 and March 31, 1995, respectively, at prices ranging from $0.21 to $13.89.
In September 1994, each nonemployee director of the Company received an
option to purchase 50,000 shares of the Company's common stock at an exercise
price of $0.75 per share ($0.825 per share in the case of one director). In May
1995, each non-employee director received an option to purchase 10,000 shares of
common stock at an exercise price of $2.00 per share ($2.20 per share in the
case of one director). Each such option has a term of ten years, and vests over
four years from the date of grant.
In September 1994, the Board of Directors approved a proposal under which
option holders could elect to cancel certain options in exchange for grants of
new options with exercise prices equal to the fair market value of the Company's
common stock on the date of the Board's approval. Options for the purchase of a
total of 698,561 shares were canceled in exchange for newly issued options for
the purchase of 698,561 shares.
During fiscal 1996, the Company granted to employees stock options for the
purchase of shares of common stock at exercise prices less than the fair market
value of the Company's common stock on the grant date. Management will recognize
approximately $759,000 of compensation expense over the four-year vesting
periods relating to these options. Such compensation expense was $159,000 during
fiscal 1996.
On August 29, 1995, the Company's Board of Directors adopted the 1995
Director Stock Option Plan. The plan was approved by the Company's shareholders
on September 5, 1995. A total of 175,000 shares of common stock were reserved
for issuance under the 1995 Director Stock Option Plan, which provides that each
person who becomes a non-employee director of the Company after the date of the
Company's initial public offering will be granted a nonstatutory stock option to
purchase 20,000 shares of common stock (the "First Option") on the date on which
the optionee first becomes a non-employee director of the Company. Thereafter,
on the date of each annual meeting of the Company's shareholders at which each
non-employee director is elected, each such non-employee
F-16
<PAGE> 19
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
director shall be granted an additional option to purchase 5,000 shares of
common stock (a "Subsequent Option") if, on such date, he or she shall have
served on the Company's Board of Directors for at least six months. The options
generally become exercisable in installments of 25% of the total number of
shares subject to the First Option on each of the first, second, third and
fourth anniversaries of the date of grant of the First Option, and each
Subsequent Option becomes exercisable as to 50% on the first and second
anniversaries of the date of grant of that Subsequent Option. The exercise price
of all stock options granted under the Directors' Plan is equal to the fair
market value of a share of the Company's common stock on the date of grant of
the option. Options granted under the Directors' Plan have a term of ten years.
NOTE 9 - MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, MANDATORILY
REDEEMABLE COMMON STOCK AND WARRANTS
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In September and November 1994, the Company issued 1,057,505 shares of
Series A Mandatorily Redeemable Convertible Preferred Stock (the "Series A
Stock") for $2.00 per share. Proceeds to the Company totaled $2,072,000, net of
issuance costs. The Series A Stock was redeemable at the option of the holders
of at least two thirds of the outstanding Series A Stock in three annual
installments at a price equal to the sum of $2.00 per share plus $0.12 per annum
from the date of issuance subject to adjustment for antidilution.
The excess of the redemption price over the original issuance price of the
Series A Stock was charged to retained earnings as an accretion to redemption
value with a corresponding increase in the value of the Series A Stock. The
cumulative accretion for the Series A Stock was $68,000 at March 31, 1995 and
$132,000 at November 9, 1995. Upon the closing of the Company's initial public
offering on November 9, 1995, the Mandatorily Redeemable Convertible Preferred
Stock was converted into common stock and the aggregate balance of the
Mandatorily Redeemable Convertible Preferred Stock of $2,204,000 at that date
was credited to additional paid-in capital.
MANDATORILY REDEEMABLE COMMON STOCK
On July 21, 1995, the Company and certain shareholders entered into an
agreement (the "Agreement") to sell 204,082 and 122,449 shares, respectively, of
common stock to Adobe Ventures, L.P. ("Adobe"), a subsidiary of Adobe Systems,
Inc., for $6.125 per share. Aggregate net proceeds to the Company were
$1,237,000. Upon the closing of the Company's initial public offering, the
mandatory redemption rights of this stock were automatically terminated.
WARRANTS
In connection with the issuance of Series A Stock, the Company issued
warrants to purchase 52,873 shares of common stock at an exercise price of $2.00
per share. The warrants were exercisable for a period of five years after date
of issuance. The warrants expired upon the consummation of the Company's initial
public offering. A total of 52,873 shares of common stock were issued upon
conversion of the warrants.
In May 1995, the Company granted warrants to a vendor to purchase 437,604
shares of common stock at $7.08 per share in connection with a software
development agreement. Of the total recorded value of these warrants of
F-17
<PAGE> 20
FRACTAL DESIGN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
$348,000, $163,000 was recognized as research and development expense in 1996
and the remaining amount of $185,000 is expected to be recognized in fiscal
1997.
NOTE 10 - 401(K) PLAN AMENDMENT
Effective March 1, 1995, the Company implemented an employee savings and
retirement plan (the "401(k) Plan") covering substantially all of the Company's
employees. Pursuant to the 401(k) Plan, eligible employees may elect to reduce
their current compensation by up to the statutory prescribed limit and have the
amount of such reduction contributed to the 401(k) Plan. The Company may make
contributions to the 401(k) Plan on behalf of eligible employees. Employees
become 25% vested in the Company contributions after two years of service, and
increase their vested percentages by an additional 25 percent for each year of
service thereafter. The Company had not made any contribution to the 401(k) Plan
as of March 31, 1996.
On August 29, 1995, the Board of Directors approved an amendment to the
Company's 401(k) Plan which provides for matching contributions to be made by
the Company in the form of Company common stock. A total of 100,000 shares of
the Company's common stock has been reserved for matching contributions under
the 401(k) Plan.
NOTE 11 - SUBSEQUENT EVENTS
In conjunction with the acquisition of Ray Dream, Fractal assumed an
outstanding warrant, held by a third party software developer, to purchase Ray
Dream common stock. This warrant vested in the quarter ended December 31, 1996
upon completion of certain development milestones, and was fully exercised, on a
net basis, for 178,256 shares of Fractal common stock.
On July 19, 1996, the Company signed an agreement for approximately 29,600
square feet, increasing to approximately 41,000 square feet on December 1, 1998,
of office and warehouse space in Scotts Valley, California. The Company
relocated its operations in fiscal 1997. The initial term of the lease is for
seven years with two three-year renewal options. It also gives the Company the
right of first refusal on any of the remaining approximately 14,000 square feet
in the building. Minimum lease payments under the seven-year lease total
$4,563,000.
Ray Dream, Inc. leased approximately 8,000 square feet of office space in
Mountain View, California. Ray Dream's leases expired on various dates between
June 30, 1996 and September 30, 1996. The Company relocated Ray Dream's
operations to the Company's new location in Scotts Valley in September 1996.
In August 1996, the Company renewed its line of credit which provides for
borrowings of up to $500,000 at variable interest rates equal to the bank's
reference rate. The line of credit agreement expires on August 1, 1997, is
secured and includes restrictive covenants.
On February 11, 1997, the Company entered into an Agreement and Plan of
Reorganization ("Agreement") with MetaTools Inc. ("MetaTools"), a publicly-held
company, pursuant to which the Company would become a wholly owned subsidiary of
MetaTools. Under the terms of the Agreement, MetaTools will issue approximately
0.749 shares of its stock in exchange for each preferred and common share
outstanding of the Company, as well as assume the stock options of the Company
at the exchange rate. The merger is intended to qualify as a pooling-of-
interests for accounting and financial reporting purposes.
F-18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Fractal Design Corporation
(Registrant)
Dated: March 18, 1997 By: /s/ LESLIE WRIGHT
----------------------------------
Leslie Wright
Chief Operating Officer, Chief
Financial Officer and Assistant Secretary
<PAGE> 22
FRACTAL DESIGN CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
FOR THE YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT
BEGINNING CHARGED TO FROM END OF
OF PERIOD OPERATIONS RESERVES PERIOD
<S> <C> <C> <C> <C>
Year ended March 31, 1996
Allowance for doubtful accounts................ $ 174 $ 285 $ 116 $ 343
Inventory reserves............................. $ 140 $ 437 $ 240 $ 337
Reserves for returns and exchanges............. $ 1,140 $ 3,644 $ 2,325 $ 2,459
Year ended March 31, 1995
Allowance for doubtful accounts................ $ 99 $ 98 $ 23 $ 174
Inventory reserves............................. $ 125 $ 15 $ - $ 140
Reserves for returns and exchanges............. $ 780 $ 1,640 $ 1,280 $ 1,140
Year ended March 31, 1994
Allowance for doubtful accounts................ $ 54 $ 45 $ - $ 99
Inventory reserves............................. $ 93 $ 32 $ - $ 125
Reserves for returns and exchanges............. $ 467 $ 1,366 $ 1,053 $ 780
</TABLE>
S-1
<PAGE> 23
EXHIBIT INDEX
Exhibit
No. Document
11.1 Fractual Design Corporation Computation of Net
Income (Loss) Per Share (In thousands,
except per share amounts)
27.1 Financial Data Schedule
<PAGE> 1
EXHIBIT 11.1
FRACTAL DESIGN CORPORATION
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
1996 1995 1994
<S> <C> <C> <C>
Weighted average common shares outstanding.................... 9,428 7,926 5,805
Dilutive effect of stock options (1).......................... 1,298 1,245 1,121
Mandatorily redeemable common stock issued to
Adobe Ventures, L.P. on July 21, 1995 (1).................. 119 204 204
Mandatorily redeemable convertible preferred stock (1)........ 617 1,057 1,057
Dilutive effect of warrants (1)............................... 141 53 53
------- ------- --------
Number of shares used to compute net income per share......... 11,603 10,485 8,240
======= ======= ========
Net income (loss)............................................. $ 2,926 $ 1,759 $ (1,162)
======= ======= ========
Net income per share.......................................... $ 0.25 $ 0.17
======= =======
Pro forma net (loss) (2)...................................... $(1,177)
=======
Pro forma net (loss) per share................................ $ (0.14)
=======
</TABLE>
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, common and common equivalent shares, options and warrants issued by
the Company during the twelve-month period prior to the effectiveness of
the offering regardless of their dilutive effect, have been included as if
they were outstanding for all periods presented.
(2) Amounts reflect a pro forma adjustment for income taxes which would have
been recorded if the Company had been a C corporation during the year ended
March 31, 1994. The pro forma provision for income taxes for this year was
$15.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1993
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 7,153
<SECURITIES> 23,683
<RECEIVABLES> 7,663
<ALLOWANCES> 343
<INVENTORY> 1,220
<CURRENT-ASSETS> 42,977
<PP&E> 1,893
<DEPRECIATION> 935
<TOTAL-ASSETS> 43,935
<CURRENT-LIABILITIES> 10,957
<BONDS> 250
0
0
<COMMON> 12
<OTHER-SE> 32,716
<TOTAL-LIABILITY-AND-EQUITY> 43,935
<SALES> 29,529
<TOTAL-REVENUES> 29,529
<CGS> 5,146
<TOTAL-COSTS> 5,146
<OTHER-EXPENSES> 19,912
<LOSS-PROVISION> 285
<INTEREST-EXPENSE> (567)
<INCOME-PRETAX> 4,753
<INCOME-TAX> 1,827
<INCOME-CONTINUING> 2,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,926
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
