<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 0-26074
SPYGLASS, INC.
(Exact name of registrant as specified in its charter)
Delaware 37-1258139
- ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1240 E. Diehl Road, 4th Floor, Naperville, IL 60563 (708)505-1010
-----------------------------------------------------------------
(Address of principal executive offices, zip code, registrant's telephone
number, including area code)
-------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 5, 1998
- --------------------------------------- -------------------------------
Common Stock (par value $.01 per share) 13,085,458
<PAGE> 2
INDEX
Page
----
No.
---
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Operations
Three Months Ended December 31, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended December 31, 1997 5
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1997 and 1996 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE> 3
SPYGLASS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
DECEMBER 31, SEPTEMBER 30,
(In thousands) 1997 1997
- ------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 24,924 $ 22,841
Short-term investments -- 4,929
Accounts receivable, net of allowance for
doubtful accounts of $350 3,565 3,792
Prepaid expenses and other current assets 2,750 2,195
-------- --------
Total current assets 31,239 33,757
Properties, net 4,890 5,037
Long-term accounts receivable 150 250
Other assets 916 1,536
-------- --------
Total Assets $ 37,195 $ 40,580
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,934 $ 2,162
Deferred revenues 1,656 1,256
Accrued compensation and related benefits 1,105 1,322
Accrued expenses and other liabilities 243 173
-------- --------
Total current liabilities 4,938 4,913
Long-term deferred revenues 100 100
-------- --------
Total liabilities 5,038 5,013
Stockholders' equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized,
none issued -- --
Common stock, $.01 par value, 50,000,000 shares
authorized, 13,030,096 and 12,362,823 shares
issued and outstanding, respectively 130 124
Additional paid-in capital 41,016 40,746
Accumulated deficit (8,989) (5,303)
-------- --------
Total stockholders' equity 32,157 35,567
-------- --------
Total Liabilities and Stockholders' Equity $ 37,195 $ 40,580
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
3
<PAGE> 4
SPYGLASS, INC.
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(In thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net revenues:
Internet technology revenues $ 2,590 $ 3,014
Service revenues 1,664 871
--------- --------
Total net revenues 4,254 3,885
Cost of revenues:
Cost of internet technology revenues 331 279
Cost of service revenues 545 180
--------- --------
Total cost of revenues 876 459
--------- --------
Gross profit 3,378 3,426
Operating expenses :
Sales and marketing 2,295 1,814
Research and development 3,118 2,925
General and administrative 1,459 1,618
One-time acquisition costs 496 --
--------- --------
Total operating expenses 7,368 6,357
--------- --------
Loss from operations (3,990) (2,931)
Interest income 342 439
--------- --------
Loss before income taxes (3,648) (2,492)
Income tax benefit -- (947)
--------- --------
Net loss $ (3,648) $ (1,545)
========= =========
Loss per common share-basic and diluted $ (0.28) $ (0.12)
Weighted average number of common
shares outstanding 13,018 12,694
========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
4
<PAGE> 5
SPYGLASS, INC.
Consolidated Statements of Changes in Stockholder's Equity
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED
(IN THOUSANDS, EXCEPT SHARE AMOUNTS) SHARES AMOUNT CAPITAL DEFICIT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at September 30, 1997 12,362,823 $ 124 $ 40,746 $ (5,303)
Adjustment for acquisition accounted
for as a pooling of interest 639,246 6 204 (38)
Exercise of stock options 28,027 66
Net loss (3,648)
----------- -------- ---------- -----------
Balance at December 31, 1997 13,030,096 $ 130 $ 41,016 $ (8,989)
=========== ======== ========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
5
<PAGE> 6
SPYGLASS, INC.
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
(IN THOUSANDS) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,648) $ (1,545)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 809 447
Bad debt provision 178 246
Deferred income taxes -- (1,039)
Incentive stock option compensation -- 20
Changes in operating assets and liabilities:
Accounts and long-term receivables 587 2,945
Prepaid expenses and other current assets (185) (333)
Accounts payable (231) (30)
Deferred revenues 26 109
Accrued compensation and related benefits (902) (390)
Accrued expenses and other liabilities 57 129
---------- ---------
Net cash provided by (used in) operating activities: (3,309) 559
---------- ---------
Cash flows from investing activities
Cash acquired 574 --
Short-term investments, net activity 4,929 1,499
Proceeds from sale of fixed assets 25 --
Capital expenditures (202) (1,194)
---------- ---------
Net cash provided by investing activities 5,326 305
---------- ---------
Cash flows from investing activities:
Proceeds from exercise of stock options, including
tax related benefits 66 84
---------- ---------
Net cash provided by financing activities 66 84
---------- ---------
Net increase in cash and cash equivalents 2,083 948
Cash and cash equivalents at beginning of period 22,841 16,490
---------- ---------
Cash and cash equivalents at end of period $ 24,924 $ 17,438
========== =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements
6
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
NOTE 1. BASIS OF PRESENTATION
The accompanying financial statements have been
prepared by the Company in accordance with generally accepted
accounting principles, although certain information and
footnote disclosures normally included in the Company's
audited annual financial statements have been condensed or
omitted. In the opinion of management, the accompanying
unaudited financial statements include all adjustments
(consisting only of normal recurring items) necessary for a
fair presentation of the Company's financial position, results
of operations and cash flows at the dates and for the periods
indicated. These interim financial statements should be read
in connection with the audited financial statements for the
fiscal years ended September 30, 1997, 1996 and 1995 which are
included in the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1997.
The results of operations for the three months ended
December 31, 1997 are not necessarily indicative of the
results of operations to be expected for the full fiscal year.
NOTE 2. EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard No. 128,
Earnings per Share ("SFAS No. 128"), which became effective
for the Company's fiscal year ending September 30, 1998. SFAS
No. 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effect of options, warrants and
convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have
been presented and, where necessary, restated to conform to
SFAS No. 128 requirements.
Options to purchase 2,479,548 shares of common stock
were outstanding as of December 31, 1997 but were not included
in the computation of diluted earnings per share because the
Company incurred a loss from operating activities and,
therefore, the effect of including such options in the
computation would be antidilutive. Had the Company earned
income from operating activities during the quarter, common
stock equivalents would have increased only by 608,195 shares
because the option exercise price was greater than the average
market price of common shares for most of the outstanding
options.
NOTE 3. ACQUISITION
On November 14, 1997, the Company acquired AllPen
Software ("AllPen"). AllPen, located in Los Gatos, California,
develops software solutions and technologies and provides
professional services for the Internet device marketplace.
These solutions have been successfully applied in television,
screenphone, handheld PC, mobile and wireless products. This
transaction was effected through the exchange of 639,246
shares of common stock of the Company for all of the issued
and outstanding shares of Allpen.
7
<PAGE> 8
This transaction was accounted for under the pooling
of interests method of accounting. Because the effect of this
transaction on prior year financial statements is considered
immaterial, such financial statements have not been restated
but rather the Company's equity accounts have been adjusted
for the effect of the pooling.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Spyglass, Inc. ("Spyglass" or the "Company") was organized as an
Illinois corporation in February 1990 and reincorporated in Delaware in May
1995. Spyglass entered the Internet market during fiscal 1994 and from fiscal
1994 through fiscal 1996, focused its efforts on developing, marketing and
distributing Internet client and server technologies for incorporation into a
variety of Internet-based software products and services. Beginning in fiscal
1997, the Company focused on the development, marketing and distribution of its
technologies and services to the non-PC Internet device marketplace. Spyglass
markets embedded solutions to a variety of companies such as the real time
operating system (RTOS) vendors, consumer and industrial electronics
manufacturers, and office equipment suppliers. Spyglass also provides
infrastructure solutions to a variety of companies such as the Regional Bell
Operating Companies (RBOCs), telephone companies, cable companies, Internet
Service Providers (ISPs) and internetworking hardware providers. These
technologies enable Internet connectivity through highly scalable embedded
browsers and servers, and provide performance enhancements and content filtering
and conversion through an integrated suite of infrastructure servers. Spyglass
Professional Services offers custom engineering for defining, developing and
delivering complete, end-to-end project solutions. Spyglass provides its
customers with expertise, software and services that enable them to rapidly
deploy cost-effective Internet-enabled devices. Spyglass solutions have been
integrated into a variety of products, including but not limited to televisions,
office equipment, television set-top boxes, network computers and screen and
cellular phones. In addition, several major corporations have deployed
SurfWatch, a leading content filtering software designed to block unwanted
material from the Internet.
On November 14, 1997, the Company acquired AllPen Software ("AllPen").
AllPen, located in Los Gatos, California, develops software solutions and
technologies and provides professional services for the Internet device
marketplace. This transaction was accounted for under the pooling of interests
method of accounting. Because the effect of this transaction on prior year
financial statements is considered immaterial, such financial statements have
not been restated but rather the Company's equity accounts have been adjusted
for the effect of the pooling.
The Company licenses technology from a number of third party vendors
for incorporation into the Company's products. Among these, the Company pays
royalties to the University of Illinois with respect to licenses of Spyglass
Device Mosaic, to RSA Data Security, Inc. with respect to licenses of the
Company's technologies containing certain RSA code and to Sun Microsystems, Inc.
with respect to licenses of the Company's technologies containing certain Java
code. These royalties, among others, are reflected in cost of technology
revenues.
QUARTER ENDED DECEMBER 31, 1997 COMPARED WITH QUARTER ENDED DECEMBER 31, 1996
Internet technology revenues for the quarter ended December 31, 1997
decreased $424,000, or 14%, to $2,590,000 compared to $3,014,000 for the quarter
ended December 31, 1996. This decrease in Internet technology revenues was due
primarily to a significant decline in revenues from vendors of desktop software
applications as the Company has directed its strategic focus to the Internet
device market. Specifically, Internet technology revenues from vendors of
desktop software applications, which includes SurfWatch software revenues,
decreased to $747,000 from $2,282,000 while revenues from device manufacturers
increased to $1,843,000 from $732,000. During this period of strategic
redirection, initial Internet technology revenues on a given contract will
typically comprise a smaller component of total expected Internet technology
revenues than in the past, until such time as customer devices utilizing the
Company's technology are introduced commercially and the contractual royalty
revenue stream commences.
Service revenues, which include revenues from both customer support
agreements and professional services agreements, increased $793,000, or 91%, to
$1,664,000 for the quarter ended December 31,
9
<PAGE> 10
1997 compared to $871,000 for the quarter ended December 31, 1996. The increase
in service revenues was due primarily to the increase in professional services
revenues. Revenues from professional services were $1,326,000 in the first
quarter of fiscal 1998 compared to $303,000 for the first quarter of fiscal
1997. The Company expects professional services revenues to increase both in
absolute dollars and as a percentage of revenues during fiscal 1998, while
service revenues from customer support agreements are expected to remain
relatively constant, as a percentage of revenues, during the same period.
Gross profit as a percentage of revenues was 79.4% for the quarter
ended December 31, 1997 compared to 88.2% for the quarter ended December 31,
1996. This decrease in gross profit percentage resulted primarily from an
increase in professional services revenues as a percentage of both total
Internet technology revenues and service revenues, which have significantly
higher costs as a percentage of revenues than Internet technology revenues.
Additionally, the cost of service revenues increased, as a percentage of service
revenues, to 32.8% for the first quarter of fiscal 1998 from 20.7% for the first
quarter of fiscal 1997 due to the increase in professional service revenues as a
percentage of service revenues. In addition, the cost of technology revenues
increased due to the use of third party products, increasing the Company's
royalty costs.
Sales and marketing expenses for the quarter ended December 31, 1997
increased $481,000, or 27%, to $2,295,000 from $1,814,000 for the quarter ended
December 31, 1996, and increased as a percentage of revenues to 53.9% from
46.7%. The increased expenses reflected staff additions in sales, particularly
in international locations, and marketing, specifically at its SurfWatch
Software division, which increased the cost of salary and related personnel
expenses by $277,000 during the first quarter of fiscal 1998 as compared to the
first quarter of fiscal 1997. Additionally, during the first quarter of fiscal
1998, the Company increased its marketing efforts including a direct marketing
campaign targeted at consumer electronic, wireless, telecom and office equipment
companies as well as increased marketing relating to its SurfWatch Software
division, which increased marketing costs by $144,000.
Research and development expenses for the quarter ended December 31,
1997 increased by $193,000, or 7%, to $3,118,000 compared to $2,925,000 for the
quarter ended December 31, 1996, but decreased as a percentage of revenues to
73.3% from 75.3%. The increase in research and development costs was due
primarily to costs of personnel in geographic areas in which higher salaries are
required as the Company consolidated its Champaign, Illinois research and
development operations into its Naperville, Illinois and Cambridge,
Massachusetts operations in March 1997 which increased the costs of salary and
related personnel expenses by $296,000 for the first quarter of fiscal 1998
compared to the first quarter of fiscal 1997. Facility costs decreased $85,000
between these periods due to the facilities consolidation. The Company believes
that it has been necessary to make significant investments in research and
development and acquisitions of new technologies to remain competitive and
establish a leadership position in the emerging Internet device market.
General and administrative expenses decreased $159,000, or 10%, to
$1,459,000 for the quarter ended December 31, 1997 from $1,618,000 for the
quarter ended December 31, 1996 and decreased as a percentage of revenues to
34.3% from 41.6%. In the first quarter of fiscal 1997, in order to effectively
and rapidly transition the focus of the Company from the desktop market to the
Internet device market, it was necessary to incur significantly more conference,
travel and meeting expenses than was typical for the Company, resulting in a
decrease in general and administrative expenses of $280,000 for the first
quarter of fiscal 1998 compared to the first quarter of fiscal 1997. This
decrease was offset by an increase in salary and related personnel expense of
$58,000.
10
<PAGE> 11
In connection with the acquisition of AllPen Software on November 14,
1997, the Company recorded in the first quarter a charge to operating expenses
of $496,000 or $0.04 per share for direct acquisition related costs. These costs
consisted primarily of professional fees.
The Company recorded no income tax benefit for the quarter ended
December 31, 1997 and a provision for income tax benefit of $947,000 for the
quarter ended December 31, 1996. The Company believes that it is appropriate to
defer recognition of potential tax benefits until such time when its return to
profitability can provide assurances that these tax benefits will be realized.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1997, the Company had no debt and had cash and cash
equivalents of $24,924,000 and working capital of $26,301,000. The Company's
operating activities used cash of $3,309,000 and provided cash of $559,000 for
the quarters ended December 31, 1997 and 1996, respectively.
The Company's net accounts receivable decreased to $3,565,000 at
December 31, 1997 from $3,792,000 at December 31, 1996. This decrease was
primarily due to a shift in revenues from technology revenues to service
revenues, which are collected as the services are performed, and increased
collection efforts.
The Company's capital expenditures totaled $202,000 and $1,194,000 for
the quarters ended December 31, 1997 and 1996, respectively, and consisted
primarily of computer hardware and software purchases. During the first quarter
of fiscal 1997, the Company made a significant investment in its finance, human
resources and customer support information systems. The Company had no material
commitments for capital expenditures at December 31, 1997.
The Company believes that its current cash and cash equivalents will be
sufficient to finance the Company's cash flow needs through at least the quarter
ending December 31, 1998.
FUTURE OPERATING RESULTS
This Form 10-Q contains a number of forward-looking statements. Any
statements contained herein (including without limitation statements to the
effect that the Company or its management "believes", "expects", "anticipates",
"plans" and similar expressions) that are not statements of historical fact
should be considered forward-looking statements. There are a number of important
factors that could cause the Company's actual results to differ materially from
those indicated by such forward-looking statements. These factors include,
without limitation, those set forth below.
During fiscal 1997, the Company announced an increased strategic focus
on the Internet device market. The Company is focused on the development,
marketing and distribution of its technologies and services to the non-PC
Internet device marketplace. Because this is a new and undeveloped market, there
can be no assurance as to the extent of the demand for product offerings similar
to those of the Company, or the extent to which the Company will be successful
in penetrating this market. Moreover, the Company expects that its revenue
growth may be limited during fiscal 1998 as the Company continues to direct its
business strategy to the Internet device market, rather than vendors of desktop
software applications. Moreover, the Company expects gross profit as a
percentage of revenues to decline slightly throughout fiscal 1998 as
professional services revenues, as a percentage of total revenues, increase.
Research and development and general and administrative costs, as a percentage
of revenues, are expected to decline throughout the remainder of fiscal 1998
while sales and marketing expenses are expected to remain approximately the
same as a percentage of revenues as in the first quarter of fiscal 1998.
11
<PAGE> 12
The Company's future results of operations will also be largely
dependent upon a number of factors relating to development and acceptance of the
Internet as a commercial market. In particular, commercial use of the Internet
continues to be constrained by the need for reliable processes such as security
measures for electronic commerce as well as the need for regularly available
customer support and a supporting infrastructure providing widespread Internet
accessibility and high-speed communications capabilities. In addition, the
market for Internet software products is characterized by rapidly changing
technology, evolving industry standards and customer demands, and frequent
product introductions and enhancements, which make it difficult to predict
whether any initial commercial acceptance of the Company's products can be
sustained over a period of time.
The market for Internet technologies and services is extremely
competitive, and competition is likely to increase in the future. The Company
currently faces competition from other Internet device technology and software
vendors such as Oracle, Sun Microsystems, Microsoft, on-line service companies,
Internet access providers and networking software companies. In licensing its
Internet technologies, the Company considers a significant source of competition
to be the prospect company's internal software development resources.
The Company licenses its products to a variety of companies such as
RTOS vendors, consumer and industrial device manufacturers, RBOCs, ISPs and
internetworking hardware providers that incorporate the Company's technology
into their products and services. The success of the Company is therefore
dependent in large part on the performance of its customers, which is outside of
the Company's control.
The Company from time to time receives notices alleging that its
products infringe third party proprietary rights. For example, the Company has a
pending dispute with Unisys Corporation regarding the Graphics Interchange
Format. Spyglass has also received a notice form Elk Industries Inc. alleging
that one or more products of Spyglass infringe a patent owned by Elk Industries
Inc. Patent and similar litigation frequently is complex and expensive and its
outcome can be difficult to predict. If, as a result of proprietary rights
infringements by any of the Company's products, the Company is required to
discontinue sales of certain products, eliminate certain features on its
products, or pay royalties to another party, the Company's future operating
results could be materially adversely affected.
The Company's quarterly operating results have varied and they may
continue to vary significantly depending on factors such as the timing of
significant license agreements, the terms of the Company's licensing
arrangements with its customers, the timing and success of product introductions
by its customers and the timing of new product introductions and upgrades by the
Company and its competitors. The Company typically structures its license
agreements with customers to require an initial payment of a source code access
fee or binary access fee and, at times, initial commitments for a minimum number
of licenses. License revenues for those minimum commitments are recognized as
the committed licenses are purchased. Additional license revenues from a
customer will not be earned unless and until the initial committed levels are
exceeded. The Company's revenues in any quarter will depend in significant part
on its ability to sell source and binary fees as well as licenses to new
customers in that quarter, the timing of product deployment by its customers and
the ability to sell professional services. The Company typically structures its
professional service agreements with customers to recognize revenue on the
percentage of completion method of accounting. The Company's expense levels are
based in part on expectations of future revenue levels and any shortfall in
expected revenue could therefore result in a disproportionate decrease in the
Company's net income in any given fiscal period.
IMPACT OF YEAR 2000
12
<PAGE> 13
The Company has assembled a cross department task force ("task force") to
address the Year 2000 issue. The task force is diligently investigating the
associated issues and has a mid-summer 1998 target date to complete its
assessment efforts. Upon completion of the assessment phase of the Year 2000
compliance process, the task force will implement any required software
modifications and/or replacements so that internal systems of the Company and
software sold by the Company will function properly with respect to dates in the
year 2000. At this time the Company is unable to estimate the cost of the above
efforts, however, the cost is not expected to have a material impact on the
financial results of the Company.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The exhibits are listed in the accompanying Index to Exhibits immediately
following the signature page.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on November 24, 1997 and a report on Form
8-K/A on December 23, 1997 relating to the acquisition of AllPen Software.
14
<PAGE> 15
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.
Spyglass, Inc.
--------------
Registrant
Date: February 12, 1998 /s/ Gary Vilchick
----------------------------
Gary Vilchick
Executive Vice President,
Finance, Administration and
Operations and Chief
Financial Officer
15
<PAGE> 16
INDEX TO EXHIBITS
Sequential
Page
Exhibit No. Description Number
- ----------- ----------- ------
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,924
<SECURITIES> 0<F1>
<RECEIVABLES> 3,915<F2>
<ALLOWANCES> 350<F2>
<INVENTORY> 0<F1>
<CURRENT-ASSETS> 31,239
<PP&E> 4,890
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 37,195
<CURRENT-LIABILITIES> 4,938
<BONDS> 0<F1>
0<F1>
0<F1>
<COMMON> 130
<OTHER-SE> 32,027
<TOTAL-LIABILITY-AND-EQUITY> 37,195
<SALES> 2,590
<TOTAL-REVENUES> 4,254
<CGS> 331
<TOTAL-COSTS> 876
<OTHER-EXPENSES> 7,368
<LOSS-PROVISION> 178
<INTEREST-EXPENSE> 0<F1>
<INCOME-PRETAX> (3,648)
<INCOME-TAX> 0<F1>
<INCOME-CONTINUING> (3,648)
<DISCONTINUED> 0<F1>
<EXTRAORDINARY> 0<F1>
<CHANGES> 0<F1>
<NET-INCOME> (3,648)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
<FN>
<F1> - Amounts inapplicable or not disclosed as a separate line on the
Consolidated Balance Sheets or Consolidated Statement of Operations are
reported as 0 herein.
<F2> - Notes and accounts receivable-trade are reported net of allowances for
doubtful accounts in the Consolidated Balance Sheets.
</FN>
</TABLE>
