<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended
Commission File number 0-27196
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SQA, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 04-3079083
- -------------------------- ----------
(State of Incorporation) (IRS Employer Identification No.)
1 Burlington Woods Dr. Burlington MA 01803
----------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(617) 229-3500
--------------
Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
During the preceding 12 months (or for such shorter period that registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
As of October 28, 1996 there were 8,088,644 shares of Common Stock, $.01 par
value, outstanding.
<PAGE>
SQA, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I - FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Condensed Consolidated Statements of Operations for the
three and nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II - OTHER INFORMATION
- ---------------------------
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 13
</TABLE>
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
SQA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $40,382 $36,444
Accounts receivable, net 4,572 2,635
Prepaid expenses and other current
assets 909 476
------- -------
Total current assets 45,863 39,555
------- -------
Property and equipment, net 3,307 865
Other assets 192 45
------- -------
Total assets $49,362 $40,465
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,307 $ 819
Accrued expenses 1,808 1,646
Deferred revenue 2,679 2,279
------- -------
Total current liabilities 5,794 4,744
------- -------
Stockholders' equity:
Preferred Stock, $.01 par
value:
5,000,000 shares authorized,
none issued and outstanding -- --
Common Stock, $.01 par value: 80 77
18,000,000 shares
authorized, 8,041,189
shares issued and
outstanding at September
30, 1996 and 7,660,699
shares issued and
outstanding at December 31,
1995
Additional paid-in
capital 46,102 41,554
Accumulated deficit (2,614) (5,910)
------- -------
Total stockholders'
equity 43,568 35,721
------- -------
Total liabilities and
stockholders' equity $49,362 $40,465
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
SQA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------
1996 1995 1996 1995
---------- --------- --------- --------
Revenue:
<S> <C> <C> <C> <C>
License fees $4,807 $2,318 $11,335 $5,964
Services 1,995 1,123 5,417 2,722
------ ------ ------- ------
Total revenue 6,802 3,441 16,752 8,686
------ ------ ------- ------
Cost of revenue:
License fees 293 144 603 366
Services 632 416 1,704 1,079
------ ------ ------- ------
Total cost of revenue 925 560 2,307 1,445
------ ------ ------- ------
Gross profit 5,877 2,881 14,445 7,241
------ ------ ------- ------
Operating expenses:
Sales and marketing 2,809 1,531 7,233 4,272
Research and development 1,219 565 2,956 1,742
General and administrative 838 573 1,936 1,539
------ ------ ------- ------
Total operating expenses 4,866 2,669 12,125 7,553
------ ------ ------- ------
Income (loss) from operations 1,011 212 2,320 (312)
Other income, net 464 77 1,315 162
------ ------ ------- ------
Income (loss) before provision for
income taxes 1,475 289 3,635 (150)
Provision for income taxes 148 -- 338 --
------ ------ ------- ------
Net income (loss) $1,327 $ 289 $ 3,297 $ (150)
====== ====== ======= ======
Net income (loss) per share $0.15 $0.05 $0.38 $(0.03)
====== ====== ======= ======
Shares used in computing net income
(loss) per share 8,858 5,980 8,786 5,875
====== ====== ======= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 4 -
<PAGE>
SQA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------- ---------
1996 1995
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by
operating activities $ 2,301 $ 45
INVESTING ACTIVITIES:
Purchases of property and equipment (2,762) (412)
Additions to other assets (147) (8)
------- ------
Net cash used by investing activities (2,909) (420)
FINANCING ACTIVITIES:
Proceeds from sale of stock, net of
issuance costs 4,372 4,435
Proceeds from employee stock plans 179 50
Borrowings (payments) on capital lease
obligations (5) 5
Net cash provided by investing
activities 4,546 4,490
------- ------
Net increase in cash and cash
equivalents 3,938 4,115
Cash and cash equivalents, beginning of
period 36,444 2,806
------- ------
Cash and cash equivalents, end of period $40,382 $6,921
======= ======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 5 -
<PAGE>
SQA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements presented have been prepared by
the Company without audit but, in the opinion of management, reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
interim periods presented. The results of operations for the interim periods
shown on this report are not necessarily indicative of results for any future
interim period or for the entire year. Certain information and footnote
disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been omitted,
although the Company believes that the disclosures included are adequate to make
the information presented not misleading. The condensed consolidated financial
statements and the notes included herein should be read in conjunction with the
financial statements and notes for the year ended December 31, 1995, included in
the Company's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
2. ACCOUNTING CHANGES
In the first quarter of 1996, The Company adopted the Financial Accounting
Standards Board Statement No. 121. "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amounts. Statement No. 121
also addresses the accounting for long-lived assets that are expected to be
disposed. The effect of adoption did not have a material impact on the Company's
financial position or results of operations.
3. LEASE AGREEMENT
In February 1996, the Company entered into a four year sublease agreement for
approximately 43,000 square feet of office space to be used as the Company's
corporate headquarters.
As of September 30, 1996, the future minimum rental payments under the lease are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED AMOUNT
(in thousands)
<S> <C>
1996 $ 189
1997 755
1998 755
1999 755
2000 440
------
$2,894
======
</TABLE>
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<PAGE>
4. SUBSEQUENT EVENT
On November 12, 1996, the Company and Rational Software Corporation of Santa
Clara, California (Rational) announced a definitive merger agreement to create a
worldwide company providing a comprehensive solution for component-based
software development. Under the terms of the merger agreement, all outstanding
shares of the Company's common stock will be exchanged for shares of Rational on
the basis of 0.86 shares of Rational for each share of the Company. The
transaction is expected to be accounted for as a pooling of interest and to
qualify as a tax-free reorganization. Completion of the transaction is subject
to customary conditions, including approval by the stockholders of the Company
and Rational and HSR review. The merger is expected to close in the first
quarter of fiscal 1997. There can be no assurances that the merger will be
completed as scheduled, or at all, or that the Company and Rational will be able
to successfully integrate.
- 7 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Revenue
- -------
License fees revenue increased 107.4% from $2,318,000 for the three months ended
September 30, 1995 to $4,807,000 for the three months ended September 30, 1996
and increased 90.1% from $5,964,000 for the nine months ended September 30, 1995
to $11,335,000 for the nine months ended September 30, 1996. These increases are
primarily attributable to: (i) increased unit shipments as a result of expanded
market acceptance of the Company's products and continued growth in the market
for automated testing of Windows client/server applications, (ii) the
introduction of new products and product upgrades, (iii) expanded sales and
marketing activities, including an increase in the number of resellers of the
Company's products, and (iv) increases in the list prices of the Company's
products.
The Company has historically derived substantially all of its license fees
revenue from SQA Robot and SQA Suite. The increase in license fees revenue for
the three and nine month periods ended September 30, 1996 was more specifically
attributable to SQA Suite 5.0, which operates in both the 16-bit and 32-bit
Microsoft Windows environment. The Company anticipates that SQA Suite 5.0 will
be its principal source of license fees revenue for the foreseeable future.
There can be no assurance, however, that this version of the product will
continue to increase revenue in future quarters. The Company's future financial
performance will depend in part on the continued market dominance of the Windows
operating system, and the successful development, introduction and customer
acceptance of the Company's existing and new or enhanced products. There can be
no assurance that the Company will continue to be successful in marketing its
existing or any new or enhanced products. The market in which the Company
operates is characterized by intense competition and many of the Company's
current and prospective competitors have significantly greater financial,
technical, manufacturing and marketing resources than the Company. These
companies may introduce products that are competitive with those of the Company,
and there can be no assurance that the Company's products would compete
effectively with such products.
Service revenue increased 77.6% from $1,123,000 for the three months ended
September 30, 1995 to $1,995,000 for the three months ended September 30, 1996
and increased 99.0% from $2,722,000 for the nine months ended September 30, 1995
to $5,417,000 for the nine months ended September 30, 1996. These increases are
primarily attributable to the expansion of the Company's customer base, renewals
of annual service contracts by existing customers, and the Company's continued
emphasis on the sale and marketing of services. To date, a substantial majority
of the Company's customers have purchased annual service contracts and/or
training and consulting services at the time of purchasing the Company's
products. The Company's success to date has depended to a significant extent
upon a number of key management and technical employees, and the Company's
ability to manage growth will require it to continue to recruit and retain
senior management personnel and to motivate and effectively manage an increasing
number of employees providing services related to the Company's products.
International revenue accounted for 21.9% and 22.2% of total revenue for the
three and nine month periods ended September 30, 1996, respectively, versus
20.7% and 21.1% of total revenues in the comparable periods of 1995. These
increases are attributable to the Company's increasing focus on international
markets. The Company expects that international revenue will continue to
represent a significant portion of total revenue. However, the percentage of
total revenue derived internationally may fluctuate on a quarterly basis in the
future based on the timing of orders from international distributors and end
users, the addition of new international distributors, and the development of
new features designed to address the needs of users in international markets.
In general, revenues are difficult to forecast because the market for software
testing products is evolving rapidly and the Company's sales cycle, from the
customer's initial evaluation through purchase of product and related support
services, varies substantially from customer to customer. License fees revenue
from quarter to quarter is difficult to forecast, as no significant order
backlog exists at the end of any quarter, since the Company's products are
typically
- 8 -
<PAGE>
shipped and revenues recognized upon receipt of customers' orders. Accordingly,
license fees revenue in any quarter is dependent substantially on orders
received, booked and shipped in that quarter. In addition, the Company has
historically derived a substantial portion of its license fees revenue from
direct sales activities, including telesales activities, for which forecasts are
inherently difficult. There can be no assurance that these sales efforts will
continue to be successful in future quarters.
Gross Profit
- ------------
Gross profit for the three and nine month periods ended September 30, 1996
increased to 86.4% and 86.2%, respectively, from 83.7% and 83.4% for the
comparable periods of 1995. These increases are primarily attributable to: (i) a
higher percentage of revenues derived from license fees, as the cost of such
revenues continues to be nominal, and (ii) operating efficiencies in the service
organization associated with the increased revenue levels.
A substantial portion of the Company's cost of services revenue is related to
personnel, facilities, support and service programs. These expenditures
cannot be adjusted quickly and are therefore fixed in the short term. The level
of these expenses is based largely on the Company's expectations of future
revenue levels. Accordingly, future gross profit levels are highly dependent on
future revenue levels being sufficient to cover service costs. If actual revenue
levels on a quarterly basis are below management's expectations, gross profit
levels, as well as overall results of operations, would likely be adversely
affected.
Sales and Marketing Expenses
- ----------------------------
Sales and marketing expenses increased to $2,809,000 (41.3% of total revenue)
for the three months ended September 30, 1996 from $1,531,000 (44.5% of total
revenue) in the comparable period of 1995 and increased to $7,233,000 (43.2% of
total revenue) for the nine months ended September 30, 1996 from $4,272,000
(49.2% of total revenue) in the comparable period of 1995. The increases in
dollar amount are due to: (i) the hiring of additional sales and marketing
personnel, (ii) increased commissions due to the higher revenue levels, and
(iii) increases in the number of marketing seminars and other promotional
activities. Sales and marketing expenses as a percentage of total revenue
decreased due to enhanced productivity and efficiencies associated with higher
revenue levels.
The Company intends to continue to invest in its sales and marketing
organization in the future. There can be no assurance that such investments will
result in increased revenues. A substantial portion of sales and marketing
expenses is related to personnel, facilities, and marketing programs. These
expenditures cannot be adjusted quickly and are therefore fixed in the short
term. The level of these expenses is based largely on the Company's expectations
of future revenue levels. Accordingly, future operating results are highly
dependent on future revenue levels being sufficient to cover these expenses. If
actual future revenue levels are below management's expectations, operating
results would likely be adversely affected.
Research and Development Expenses
- ---------------------------------
Research and development expenses increased to $1,219,000 (17.9% of total
revenue) for the three months ended September 30, 1996 from $565,000 (16.4% of
total revenue) in the comparable period of 1995 and increased to $2,956,000
(17.6% of total revenue) for the nine months ended September 30, 1996 from
$1,742,000 (20.1% of total revenue) in the comparable period of 1995. The
increases in dollar amount are due to increases in the number of software
engineers and technical personnel for both the development of new products, as
well as the enhancement and support of existing products.
The increase in research and development expenses as a percentage of total
revenue for the three months ended September 30, 1996, and the lower than
expected decline in this percentage for the nine months then ended, is due
primarily to increased spending in the third quarter of 1996 related to hiring
of engineers and technical personnel
- 9 -
<PAGE>
earlier in the quarter than originally planned. This was necessitated by the
Company's desire to advance the development effort related to future product
deliverables. While research and development personnel levels as of September
30, 1996 are in line with the Company's plan, the fact that certain hires were
made sooner than planned resulted in the increase in research and development
expenses as a percentage of total revenue. The Company does not presently expect
research and development expenses as a percentage of total revenue to increase
in the future.
The Company intends to continue to invest in research and development for the
continued development of new products as well as the continued enhancement and
support of existing products. There can be no assurance that such investments
will result in increased revenues. A substantial portion of research and
development expenses is related to personnel and facilities. These expenditures
cannot be adjusted quickly and are therefore fixed in the short term. The level
of these expenses is based largely on the Company's expectations of future
revenue levels. Accordingly, future operating results are highly dependent on
future revenue levels being sufficient to cover these expenses. If actual future
revenue levels are below management's expectations, operating results would
likely be adversely affected.
General and Administrative
- --------------------------
General and administrative expenses increased to $838,000 (12.3% of total
revenue) for the three months ended September 30, 1996 from $573,000 (16.7% of
total revenue) in the comparable period of 1995 and increased to $1,936,000
(11.6% of total revenue) for the nine months ended September 30, 1996 from
$1,539,000 (17.7% of total revenue) in the comparable period of 1995. The
increases in dollar amount are due to an increase in administrative personnel
and related costs associated with the need to support the Company's growth. The
decreases in general and administrative expenses as a percentage of total
revenue are due to operating efficiencies associated with higher revenue levels.
The Company intends to continue to invest in the development of its
administrative infrastructure necessary to support the Company's growth. A
substantial portion of general and administrative expenses is related to
personnel and facilities. These expenditures cannot be adjusted quickly and are
therefore fixed in the short term. The level of these expenses is based largely
on the Company's expectations of future revenue levels. Accordingly, future
operating results are highly dependent on future revenue levels being sufficient
to cover these expenses. If actual future revenue levels are below management's
expectations, operating results would likely be adversely affected.
Other Income
- ------------
Other income, which consists primarily of interest income generated from the
Company's short-term investments, increased to $464,000 and $1,315,000 for the
three and nine month periods ended September 30, 1996, respectively, from
$77,000 and $162,000 in the comparable periods of 1995. These increases are due
to an increase in the level of short-term investments as a result of: (i) the
Company's initial public offering in December 1995 and (ii) an increase in cash
generated from operations in 1996 compared to 1995.
Provision for Income Taxes
- --------------------------
As a result of the utilization of net operating loss carryforwards in accordance
with Statement of Financial Accounting Standards No. 109, the Company expects
that its effective tax rate for 1996 will approximate 9 - 10%. Accordingly, for
the nine months ended September 30, 1996, the Company has provided $338,000 for
income taxes.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has satisfied its cash requirements principally with the
proceeds of equity financings and cash provided from operations. Cash and cash
equivalents totaled $40,382,000 at September 30, 1996 compared to $36,444,000 at
December 31, 1995.
Net cash provided by operations was $2,301,000 for the nine months ended
September 30, 1996 compared to $45,000 in the comparable period of 1995. The
increase in cash provided by operations is attributable to the increased
operating income in 1996 versus 1995, and the timing of changes in working
capital in 1996 compared to 1995. Net cash used in the Company's investing
activities was $2,909,000 and $420,000 for the nine months ended September 30,
1996 and 1995, respectively. The increase in cash used in investing activities
in 1996 was due to the expansion of the Company's employee base, in addition to
the Company's relocation to a larger corporate headquarters. The Company
anticipates that additional purchases of equipment will need to be made as the
Company's employee base continues to grow.
As of September 30, 1996 the Company had working capital of $40,069,000 compared
with $34,811,000 at December 31, 1995. The Company does not have a bank line of
credit. The Company believes that as of September 30, 1996, its cash and cash
equivalents, together with its cash flows from operations will be sufficient to
meet its working capital and capital expenditure requirements for the
foreseeable future.
FUTURE OPERATING RESULTS
The Company does not provide forecasts of its future financial performance.
Certain information provided by the Company or statements made by its employees
may contain "forward-looking" information which include substantial risks and
uncertainties concerning the Company's future results of operations. The Company
makes such forward-looking statements under the provisions of the "safe harbor"
section of the Private Securities Litigation Reform Act of 1995. Depending on a
variety of factors, the Company's actual future results may differ materially
from those which could be inferred from certain forward-looking statements
contained herein. Such factors include, but are not limited to, the following:
limited history of profitability, fluctuations in quarterly results, dependence
on the client/server environment, an emerging market for software testing tools,
dependence on Microsoft's Windows operating system, dependence on principal
products, dependence on third parties for compatibility with development tool
architecture, competition, rapid technological change, potential for new product
delays and defects, dependence on proprietary technology, management of change,
international operations, and fluctuations in economic and market conditions.
The market price of the Company's common shares could be subject to significant
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, announcements of technological innovations or new products by
the Company or its competitors and other events or factors. In addition, the
stock market in recent years has experienced extreme price and volume
fluctuations that have particularly affected the market prices of many
technology companies. These fluctuations, as well as general economic and market
conditions, may materially and adversely affect the market price of the
Company's common shares. Because of these and other factors, past financial
performance should not be considered an indicator of future performance.
On November 12, 1996, the Company and Rational Software Corporation of Santa
Clara, California (Rational) announced a definitive merger agreement to create a
worldwide company providing a comprehensive solution for component-based
software development. Under the terms of the merger agreement, all outstanding
shares of the Company's common stock will be exchanged for shares of Rational on
the basis of 0.86 shares of Rational for each share of the Company. The
transaction is expected to be accounted for as a pooling of interest and to
qualify as a tax-free reorganization. Completion of the transaction is subject
to customary conditions, including approval by the stockholders of the Company
and Rational and HSR review. The merger is expected to close in the first
quarter of fiscal 1997. There can be no assurances that the merger will be
completed as scheduled, or at all, or that the Company and Rational will be able
to successfully integrate.
- 11 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
11.1 Statement Regarding Computation of Pro
Forma Net Income (Loss) Per Share
27 Financial Data Schedule
b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
- 12 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
No.
------
11.1 Statement Regarding Computation of Pro Forma Net Income (Loss) Per Share
27 Financial Data Schedule
- 13 -
<PAGE>
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.
SQA, Inc.
Date: November 13, 1996 /s/ Thomas F. Bogan
-------------------------
By: Thomas F. Bogan
Senior Vice President - Finance, Chief
Financial Officer, and Assistant Secretary
(Principal Financial and Accounting Officer)
- 14 -
<PAGE>
SQA, INC.
EXHIBIT 11.1
SHARES USED IN COMPUTING EARNINGS (LOSS) PER SHARE
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995 1996 1995
-----------------------------------------------------
<S> <C> <C> <C> <C>
Weighted average Convertible Preferred
Stock outstanding during the period
assuming conversion to Common Stock ---- 5,320 ---- 5,320
Weighted average Common Stock
outstanding during the period 8,036 327 7,964 222
Dilutive effect of Common Stock
equivalents outstanding during the
period 822 ---- 822 ----
Dilutive effect of Common Stock
equivalents issued subsequent to
October 15, 1994 (1) ---- 333 ---- 333
----- ----- ----- -----
8,858 5,980 8,786 5,875
===== ===== ===== =====
</TABLE>
(1) Options issued at prices below the initial public offering price of $16 per
share during the twelve month period immediately prior to the filing of the
initial public offering have been included as outstanding for the six month
and three month periods ended September 30, 1995. The dilutive effect of
the common and common share equivalents was computed in accordance with the
treasury stock method.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> JUL-01-1996 JAN-01-1996
<PERIOD-END> SEP-30-1996 SEP-30-1996
<CASH> 40,382 40,382
<SECURITIES> 0 0
<RECEIVABLES> 4,572 4,572
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 45,863 45,863
<PP&E> 3,307 3,307
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 49,362 49,362
<CURRENT-LIABILITIES> 5,794 5,794
<BONDS> 0 0
0 0
0 0
<COMMON> 80 80
<OTHER-SE> 43,488 43,488
<TOTAL-LIABILITY-AND-EQUITY> 49,362 49,362
<SALES> 6,802 16,752
<TOTAL-REVENUES> 6,802 16,752
<CGS> 925 2,307
<TOTAL-COSTS> 925 2,307
<OTHER-EXPENSES> 4,866 12,125
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 464 1,315
<INCOME-PRETAX> 1,475 3,635
<INCOME-TAX> 148 338
<INCOME-CONTINUING> 1,327 3,297
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,327 3,297
<EPS-PRIMARY> 0.15 0.38
<EPS-DILUTED> 0.15 0.38
</TABLE>
