<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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: 0-26592
THE VANTIVE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0266662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2455 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 982-5700
(Address and telephone number of principal executive offices)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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
----- -----
The number of shares of the Registrant's $0.001 par value Common Stock
outstanding on May 2, 1997, was 24,257,367.
This report consists of 20 pages.
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THE VANTIVE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
March 31, 1997 and December 31, 1996
Condensed Consolidated Statements of Operations 4
for the Three Months Ended March 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows 5
for the Three Months Ended March 31, 1997 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults upon Senior Securities 18
Item 4: Submissions of Matters to a Vote of Security Holders 18
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
2
<PAGE> 3
Part I: Financial Information
Item I: Financial Statements
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
(unaudited)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ..................... $26,659 $26,017
Short-term investments ........................ 6,863 6,853
Accounts receivable, net ...................... 16,805 13,775
Prepaid expenses and other current assets ..... 4,299 4,492
------- -------
Total current assets ....................... 54,626 51,137
Property and equipment, net ................... 8,389 6,764
Other assets .................................. 527 463
======= =======
TOTAL ASSETS ..................................... $63,542 $58,364
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities ...... $13,899 $11,367
Deferred revenues ............................. 6,652 6,811
------- -------
Total current liabilities .................. 20,551 18,178
Long-term liabilities ......................... 725 755
STOCKHOLDERS' EQUITY
Common stock .................................. 24 24
Additional paid-in-capital .................... 33,671 33,385
Retained earnings ............................. 8,571 6,022
------- -------
Total stockholders' equity ................. 42,266 39,431
======= =======
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ....... $63,542 $58,364
======= =======
</TABLE>
See accompanying notes
3
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THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
License ....................................... $ 15,026 $ 7,088
Service ....................................... 7,497 3,725
-------- --------
Total revenues .............................. 22,523 10,813
COST OF REVENUES:
License ....................................... 120 56
Service ....................................... 4,044 2,322
-------- --------
Total cost of revenues ...................... 4,164 2,378
-------- --------
GROSS MARGIN ..................................... 18,359 8,435
OPERATING EXPENSES:
Sales and marketing ........................... 9,662 4,826
Research and development ...................... 3,299 1,102
General and administrative .................... 1,719 1,079
-------- --------
Total operating expenses .................... 14,680 7,007
-------- --------
OPERATING INCOME ................................. 3,679 1,428
OTHER INCOME ..................................... 367 272
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES ......... 4,046 1,700
PROVISION FOR INCOME TAXES ....................... 1,497 340
======== ========
NET INCOME ....................................... $ 2,549 $ 1,360
======== ========
NET INCOME PER SHARE ............................. $ 0.10 $ 0.05
======== ========
SHARES USED IN PER SHARE COMPUTATION ............. 26,215 25,466
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 5
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
-------- --------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 2,549 $ 1,360
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ................................ 454 249
Provision for sales allowances and doubtful accounts ......... 124 200
Changes in net assets and liabilities -
Increase in accounts receivable ........................... (3,154) (1,689)
Decrease in prepaid expenses and other current assets ..... 193 64
Increase in other assets .................................. (64) (101)
Increase in accounts payable/accrued liabilities .......... 2,490 681
Increase/(decrease) in deferred revenues .................. (159) 636
Increase in long-term liabilities ......................... 132 33
-------- --------
Net cash provided by operating activities .............. 2,565 1,433
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short-term investments .............................. (10) (85)
Purchase of property and equipment .............................. (2,079) (868)
-------- --------
Net cash used in investing activities .................. (2,089) (953)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock .......................... 318 8
Repurchase of common stock ...................................... -- (9)
Payments on capital lease obligations ........................... (120) (137)
-------- --------
Net cash provided by (used in) financing activities .... 198 (138)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS .......................... 674 342
EFFECT OF EXCHANGE RATE CHANGES ON CASH ............................ (32) (15)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................... 26,017 26,429
======== ========
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................... $ 26,659 $ 26,756
======== ========
</TABLE>
See accompanying notes
5
<PAGE> 6
THE VANTIVE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company believes
that the disclosures are adequate to make the information presented not
misleading. These condensed consolidated financial statements should be read in
conjunction with the financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
The unaudited information has been prepared on the same basis as the
annual financial statements, and in the opinion of the Company's management,
reflects all normal recurring adjustments necessary for a fair presentation of
the information for the periods presented. Operating results for any quarter are
not necessarily indicative of the results for any future periods.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
REVENUES
The Company generates revenues from licensing the rights to use its
software products directly to end-users and indirectly through sublicense fees
from resellers. The Company also generates revenues from sales of post-contract
support, consulting and training services performed for customers who license
its products.
Revenues from perpetual software license agreements are recognized upon
shipment of the software if there are no significant post-delivery obligations,
if collection is probable and if payment is due within one year. If an
acceptance period is required, revenues are recognized upon the earlier of
customer acceptance or the expiration of the acceptance period. The Company
enters into reseller arrangements that typically provide for sublicense fees
payable to the Company based on a percent of the Company's list price.
Sublicense fees are generally recognized as reported by the reseller in
relicensing the Company's products to end-users.
Revenues from post-contract support services are recognized ratably
over the term of the support period. If post-contract support services are
included free or at a discount in a license agreement, such amounts are
allocated out of the license fee at their fair market value based on the value
established by independent sale of such post-contract support services to
customers. Consulting revenues are primarily related to implementation services
performed on a time and materials basis under separate service arrangements
related to the installation of the Company's software products. Revenues from
consulting and training services are recognized as services are performed. If a
transaction includes both license and service elements, license fee revenue is
recognized upon shipment of the software, provided services do not include
significant customization or modification of the base product and the payment
term for licenses are not subject to acceptance criteria. In cases where license
fee payments are contingent upon the acceptance of services, revenues from both
the license and the service elements are deferred until the acceptance criteria
are met.
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NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
outstanding shares of common stock and common stock equivalents from outstanding
stock options (when dilutive using the treasury stock method). In March 1997,
the Financial Accounting Standards Board issued Statement No. 128 (SFAS No.
128), "Earnings per Share," which the Company will be required to adopt on a
retroactive basis in the fourth quarter of 1997. The pro forma effect of SFAS
No. 128 for the first quarter would be as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Reported earnings per share .......... $ 0.10 $ 0.05
Basic earnings per share (pro forma) . $ 0.11 $ 0.06
Diluted earnings per share (pro forma) $ 0.10 $ 0.05
</TABLE>
SOFTWARE DEVELOPMENT COSTS
The Company capitalizes eligible computer software development costs
upon the establishment of technological feasibility, which the Company has
defined as completion of a working model. For the periods presented, costs
eligible for capitalization were insignificant and, thus, the Company has
charged its software development costs to research and development expense in
the accompanying condensed consolidated statements of operations.
INVESTMENTS
The Company accounts for its investments under the provisions of
Statement of Financial Accounting Standards (SFAS) No. 115 "Accounting for
Certain Investments in Debt and Equity Securities." The Company classifies its
investments as held to maturity investments as defined under the provisions of
SFAS 115 and carries such investments at amortized cost in the accompanying
financial statements.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE VANTIVE CORPORATION
The Company was founded in October 1990 to develop software to enable
businesses to improve their customer service. The Company was engaged
principally in research and development from inception through December 31,
1992. The Company introduced its first product, Vantive Support, in July 1992,
and introduced Vantive Quality and the Oracle version of Vantive Support in the
fall of 1993. The Company introduced Vantive HelpDesk in August 1994, Vantive
Sales in early 1995, and Vantive FieldService in early 1996. License fees for
the Company's software products consist of (i) a per server fee based on the
specific Vantive Enterprise application(s) licensed and (ii) a fee based on the
maximum number of concurrent or named users allowed to access those
applications. Most of the Company's revenues to date have resulted from
non-recurring license fees based on sales of concurrent user licenses. The
remaining revenues are primarily attributable to service revenues, which include
post-contract support, consulting and training revenue. Of these service
revenues, only post-contract support revenues are expected to be recurring.
Post-contract support revenues accounted for approximately 12.5% and 12.9% of
total revenues, in the quarters ended March 31, 1997 and 1996, respectively.
Because concurrent user fees are not application specific, the breakdown of
revenues attributable to specific applications for customers that have purchased
more than one application cannot be precisely determined by the Company.
However, the Company believes that most of its revenues have been derived from
fees associated with Vantive Support and, to a lesser degree, Vantive HelpDesk.
In any period, a significant portion of the Company's revenues may be derived
from large sales to a limited number of customers. However, during the quarter
ended March 31, 1997 and 1996, no customer accounted for 10% or more of total
revenues. As significant sales to a particular customer are typically
non-recurring, the Company does not believe its future results are dependent on
recurring revenues from any particular customer.
The Company's revenues are derived from software license fees and fees
for its services. License revenues consist of license fees for the Company's
products as well as fees from sublicensing third-party software products. The
Company generally recognizes license fees upon shipment of software products if
there are no significant post-delivery obligations, if collection is probable
and if the license agreement requires payment within one year. If significant
post-delivery obligations exist or if a product is subject to customer
acceptance, revenues are deferred until no significant obligations remain or
acceptance has occurred. Revenues from services have to date consisted primarily
of consulting revenues, post-contract support revenues and, to a lesser extent,
training revenues. Consulting and training revenues generally are recognized as
services are performed. Post-contract support revenues are recognized ratably
over the term of the support period, which is typically one year. If
post-contract support services are included free or at a discount in a license
agreement, such amounts are allocated out of the license fee at their fair
market value based on the value established by independent sale of such
post-contract support services to customers. If a transaction includes both
license and service elements, license fee revenue is recognized upon shipment of
the software, provided services do not include significant customization or
modification of the base product and the payment terms for licenses are not
subject to acceptance criteria. In cases where licenses fee payments are
contingent upon the acceptance of services, revenues from both the license and
the service elements are deferred until the acceptance criteria are met. See
Note 2 of Notes to Condensed Consolidated Financial Statements.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "future," "intends," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
8
<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth the percentages that income statement
items are to total revenues for the quarters ended March 31, 1997 and 1996.
THE VANTIVE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
----- -----
(unaudited) (unaudited)
<S> <C> <C>
REVENUES:
License ............................. 66.7% 65.6%
Service ............................. 33.3% 34.4%
----- -----
Total revenues ................... 100.0% 100.0%
COST OF REVENUES:
License ............................. 0.5% 0.5%
Service ............................. 18.0% 21.5%
----- -----
Total cost of revenues ........... 18.5% 22.0%
----- -----
GROSS MARGIN ........................... 81.5% 78.0%
OPERATING EXPENSES:
Sales and marketing ................. 42.9% 44.6%
Research and development ............ 14.7% 10.2%
General and administrative .......... 7.6% 10.0%
----- -----
Total operating expenses ......... 65.2% 64.8%
----- -----
OPERATING INCOME ....................... 16.3% 13.2%
OTHER INCOME ........................... 1.6% 2.5%
----- -----
INCOME BEFORE PROVISION FOR INCOME TAXES 17.9% 15.7%
PROVISION FOR INCOME TAXES ............. 6.6% 3.1%
===== =====
NET INCOME ............................. 11.3% 12.6%
===== =====
</TABLE>
REVENUES
LICENSE. License revenues increased by 112% from $7.1 million to $15.0
million, in the quarters ended March 31, 1996 and 1997, respectively. The
increase in license revenues was primarily due to the market's growing
acceptance of the Company's products, in particular Vantive Support and Vantive
HelpDesk, introduction of Vantive Sales, Vantive FieldService, the
introduction of the Company's products using the Microsoft SQL server relational
database management system and the Microsoft NT operating system, and increased
sales as a result of the expansion of the Company's direct sales force. The
Company does not believe that the historical growth rates of license revenues
will be sustainable or are indicative of future results.
9
<PAGE> 10
SERVICE. Service revenues are primarily comprised of fees from
consulting, post-contract support and, to a lesser extent, training services.
Service revenues increased by 101% from $3.7 million to $7.5 million, in the
quarters ended March 31, 1996 and 1997, respectively. The increase in service
revenues was primarily due to the increase in consulting, post-contract support
and, to a lesser extent, training services associated with increased sales of
the Company's applications. As the Company implements its strategy of
encouraging third-party organizations such as systems integrators to become
proficient in implementing the Company's products, consulting revenues as a
percentage of total revenues may decrease.
COST OF REVENUE
LICENSE. Cost of license revenues includes the cost of product media,
sublicensing fees for third-party software when bundled with the Company's
products, product duplication and manuals. Cost of license revenues increased
from approximately $56,000, or 0.8% of the related license revenues in the
quarter ended March 31, 1996, to $120,000, or 0.8% of the related license
revenues in the quarter ended March 31, 1997. The increase in absolute dollars
in cost of license revenues was primarily due to the increases in volume
shipments of the Company's software applications and the cost of sublicensing
third-party software.
SERVICE. Cost of service revenues is primarily comprised of
employee-related costs and fees for third-party consultants incurred in
providing consulting, post-contract support and training services. Cost of
service revenues increased from $2.3 million, or 62.3% of the related service
revenues in the quarter ended March 31, 1996, to $4.0 million, or 53.9% of the
related service revenues in the quarter ended March 31, 1997. The increase in
absolute dollars was due primarily to increases in consulting, support and
training personnel, and third-party service providers during these periods. The
decrease in cost of service revenues as a percentage of the related service
revenues was primarily due to economies of scale realized as a result of a
higher level of service activity and due to post-contract support revenues,
which has a higher margin than other services, constituting a higher
proportion of total service revenues. The cost of service revenues may vary
between periods due to the mix of services provided by the Company and the
resources used to provide these services.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses increased from $4.8
million, or 44.6% of revenues, to $9.7 million, or 42.9% of revenues, in the
quarters ended March 31, 1996 and 1997, respectively. The increase in absolute
dollars was primarily related to the expansion of the Company's sales and
marketing resources, increased commissions expense as a result of higher sales
levels and increased marketing activities, including direct mail, trade shows
and promotional expenses. The Company plans to continue to invest heavily in
expanding its sales and marketing activities. Accordingly, sales and marketing
expenses are anticipated to increase both in absolute dollars and as a percent
of revenues over the coming quarters.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
from $1.1 million, or 10.2% of revenues to $3.3 million, or 14.7% of revenues,
in the quarters ended March 31, 1996 and 1997, respectively. Research and
development expenses increased in absolute dollars and as a percentage of total
revenues primarily as a result of an increase in personnel and outside
contractors to support the Company's product development activities. Over the
coming quarters, the Company plans to continue to invest heavily in research and
development. As a result, research and development expenses are anticipated to
increase both in absolute dollars and as a percent of revenues.
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<PAGE> 11
Research and development expenses are generally charged to operations
as incurred. In accordance with Statement of Financial Accounting Standards No.
86, costs which were eligible for capitalization for these periods were
insignificant, and the Company charged all software development costs to
research and development expense.
GENERAL AND ADMINISTRATIVE. General and administrative expenses
increased from $1.1 million, or 10.0% of revenues, to $1.7 million, or 7.6% of
revenues, in the quarters ended March 31, 1996 and 1997, respectively. General
and administrative expenses increased in absolute dollars during these periods
primarily due to the addition of staff and information system investments to
support the growth of the Company's business during these periods. The Company
expects general and administrative expenses will increase in absolute dollars.
The decrease as a percentage of total revenues reflects, in part, the increase
in revenues and the Company's ongoing efforts to reduce certain general and
administrative expenses through improvements in business processes.
PROVISION FOR INCOME TAXES. The Company's provision for state, federal
and foreign income taxes was $340,000 and $1.5 million for the quarters
ended March 31, 1996 and 1997, based upon an estimated effective tax rate of
approximately 20% and 37%, respectively. The primary reason for the increase in
the effective tax rate is that the Company utilized its remaining domestic net
operating loss carryforward during 1996 and had no such net operating loss
carryforwards remaining to benefit the 1997 tax rate.
BUSINESS RISKS
This report includes a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties, including those discussed below that could cause actual results
to differ materially from historical results or those anticipated. In this
report, the words "anticipates," "believes," "expects," "intends," "future," and
similar expressions identify forward-looking statements. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof.
FUTURE OPERATING RESULTS UNCERTAIN. The Company has experienced
significant growth in revenues in recent periods. The Company does not believe
that the historical growth rates of revenues, or the corresponding general
declines of operating expenses as a percentage of revenues, will be sustainable
or are indicative of future results. In addition, the Company's limited
operating history makes the prediction of future operating results difficult or
impossible. The Company's future operating results will depend on many factors,
including demand for the Company's products, the level of product and price
competition, the ability of the Company to develop and market new products and
to control costs, the ability of the Company to expand its direct sales force
and indirect distribution channels and the ability to attract and retain key
personnel. The Company is currently investing, and intends to continue to
invest, significant resources to develop its sales strategy, which could
adversely affect the Company's operating margins. In this regard, the Company
has recently hired and continues to hire significant numbers of direct sales
personnel and has developed relationships with several high-end integrators and
resellers, including EDS, Deloitte & Touche, Price Waterhouse, KPMG Peat Marwick
and HBO and Company. Competition for sales personnel is intense, and there can
be no assurance that the Company can retain its existing sales personnel or that
it can attract, assimilate and retain additional highly qualified sales
personnel in the future. The strategy also depends, in large part, on attracting
and retaining appropriate third party relationships. There also can be no
assurance that the Company will be able to attract and retain appropriate
high-end integrators, resellers and other third party distributors to market the
Company's products effectively. Further, the Company believes, based on
interactions with its customers and potential customers, that the purchase of
its products is relatively discretionary and generally involves a significant
commitment of capital. As a result, in the event of any downturn in any
potential customer's business or the economy in general, purchases of the
Company's products may be deferred or canceled, which could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company was not profitable prior to 1995, and there can be no
assurance that the Company will remain profitable on a quarterly or annual
basis.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS. The Company's quarterly
operating results have in the past varied and may in the future vary
significantly depending on factors such as the size, timing and recognition of
revenue from significant orders, increased competition, the timing of new
product releases by the Company and its competitors, market acceptance of the
Company's products, changes in the Company's and its competitors' pricing
policies, the mix of license and service revenue, budgeting cycles of its
customers, seasonality, the mix of direct and indirect sales,
11
<PAGE> 12
changes in operating expenses, changes in Company strategy, personnel changes,
foreign currency exchange rates and general economic factors. The Company is
currently investing, and intends to continue to invest, significant resources to
develop its sales strategy, which could adversely affect the Company's operating
margins. In this regard, the Company has recently hired and continues to hire
significant numbers of direct sales personnel and has developed relationships
with several high-end integrators and resellers, including EDS, Deloitte &
Touche, Price Waterhouse, KPMG Peat Marwick and HBO and Company. Competition for
sales personnel is intense, and there can be no assurance that the Company can
retain its existing sales personnel or that it can attract, assimilate and
retain additional highly qualified sales personnel in the future. The strategy
also depends, in large part, on attracting and retaining appropriate third party
relationships. There also can be no assurance that the Company will be able to
attract and retain appropriate high-end integrators, resellers and other third
party distributors to market the Company's products effectively. Further, the
Company believes, based on interactions with its customers and potential
customers, that the purchase of its products is relatively discretionary and
generally involves a significant commitment of capital. As a result, in the
event of any downturn in any potential customer's business or the economy in
general, purchases of the Company's products may be deferred or canceled.
A significant portion of the Company's revenues in any quarter are
typically derived from non-recurring sales to a limited number of customers.
Accordingly, revenues in any one quarter are not indicative of revenues in any
future period. In addition, like many software applications businesses, the
Company has generally recognized a substantial portion of its revenues in the
last month of each quarter, with these revenues concentrated in the last weeks
of the quarter. Any significant deferral of purchases of the Company's products
could have a material adverse effect on the Company's business, results of
operations and financial condition in any particular quarter, and to the extent
that significant sales occur earlier than expected, operating results for
subsequent quarters may be adversely affected. Product revenues are also
difficult to forecast because the market for Customer Asset Management software
products is rapidly evolving. The Company's sales cycle is typically six to nine
months and varies substantially from customer to customer. The Company expects
that sales derived through indirect channels, which are harder to predict and
may have lower margins than direct sales, will increase as a percentage of total
revenues. The Company operates with little order backlog because its products
are typically shipped shortly after orders are received. As a result of these
factors, quarterly revenues for any future quarter are not predictable with any
significant degree of certainty. The Company's expense levels are based, in
part, on its expectations as to future revenues. In particular, the Company is
currently investing, and intends to continue to invest, significant resources to
develop its sales strategy, which includes hiring significant numbers of direct
sales personnel, and developing relationships with high-end integrators and
resellers. If revenues are below expectations, operating results are likely to
be adversely affected. Net income may be disproportionately affected by a
reduction in revenues, because a significant portion of the Company's expenses
do not vary with revenues. The Company may also choose to reduce prices or
increase spending in response to competition or to pursue new market
opportunities. In particular, if new competitors, technological advances by
existing competitors, or other competitive factors require the Company to invest
significantly greater resources in research and development efforts, the
Company's operating margins in the future may be adversely affected. The
foregoing statements regarding the Company's future revenues and net income are
forward-looking statements, and actual results may vary substantially depending
upon a variety of factors described in this paragraph and elsewhere in this
report.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.
Due to all of the foregoing factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially adversely affected.
RAPID TECHNOLOGICAL CHANGE AND PRODUCT DEVELOPMENT RISKS. The customer
asset management market is subject to rapid technological change, changing
customer needs, frequent new product introductions and evolving industry
standards that may render existing products and services obsolete. As a result,
the Company's position in its existing markets or other markets that it may
enter could be eroded rapidly by product advances. The life cycles of the
Company's products are difficult to estimate. The Company's growth and future
financial performance will depend in part upon its ability to enhance existing
applications, develop and introduce new applications that keep pace with
technological advances, meet changing customer requirements, respond to
competitive products and achieve market acceptance. For example, the Company's
customers have adopted a wide variety of hardware, software, database,
12
<PAGE> 13
Internet-based and networking platforms, and as a result, to gain broad market
acceptance, the Company must continue to support and maintain its products on a
variety of such platforms. The Company's future success will depend on its
ability to address the increasingly sophisticated needs of its customers by
supporting existing and emerging hardware, software, database, Internet-based
and networking platforms and by developing and introducing enhancements to its
products and new products on a timely basis that keep pace with technological
developments, evolving industry standards and changing customer requirements.
The success of the Company's products may also depend, in part, on the ability
of the Company to effectively distribute its products through the Internet.
There can be no assurance that the Company will be able to successfully change
other aspects of its business, such as its distribution channels or cost
structure, if technological changes in its market require such change. The
Company's product development efforts are expected to require, from time to
time, substantial investments by the Company in product development and testing.
There can be no assurance that the Company will have sufficient resources to
make the necessary investments. The Company has in the past experienced
development delays, and there can be no assurance that the Company will not
experience such delays in the future. There can be no assurance that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced products, including
but not limited to, Vantive Version 7.0, Vantive Version 7.1 and VanWeb 3.0. In
addition, there can be no assurance that such products will meet the
requirements of the marketplace and achieve market acceptance or that the
Company's current or future products will conform to industry requirements. If
the Company is unable, for technological reasons, to develop and introduce new
and enhanced products in a timely manner, the Company's business, results of
operations and financial condition could be materially adversely affected.
Software products as complex as those offered by the Company may
contain errors that may be detected at any point in the products' life cycles.
The Company has in the past discovered software errors in certain of its
products and has experienced delays in shipment of products during the period
required to correct these errors. There can be no assurance that, despite
testing by the Company and by current and potential customers, errors will not
be found, resulting in loss of, or delay in, market acceptance and sales,
diversion of development resources, injury to the Company's reputation, or
increased service and warranty costs, any of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business-Product Development" on page 8 of this report.
INTERNATIONAL OPERATIONS, FOREIGN CURRENCY FLUCTUATIONS. The Company
believes that its continued growth and profitability will require further
expansion of its international operations. To successfully expand international
sales, the Company must establish additional foreign operations, hire additional
personnel and recruit additional international resellers. To the extent that the
Company is unable to do so in a timely manner, the Company's growth in
international sales, if any, will be limited, and the Company's business,
results of operations and financial condition could be materially adversely
affected. As the Company continues to expand its international operations,
significant costs may be incurred ahead of any anticipated international
revenues, which could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, future increases in
the value of the U.S. dollar could make the Company's products less competitive
in foreign markets. As the Company increases its foreign sales, it may be
materially and adversely affected by fluctuations in currency exchange rates,
increases in duty rates, exchange or price controls or other restrictions on
foreign currencies. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of localizing products for
foreign countries, lack of acceptance of localized products in foreign
countries, longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences including
restrictions on the repatriation of earnings and the burdens of complying with a
wide variety of foreign laws. There can be no assurance that such factors will
not have a material adverse effect on the Company's future international sales
and, consequently, the Company's business, results of operations and financial
condition.
COMPETITION. The Customer Asset Management software market is intensely
competitive, highly fragmented and subject to rapid change. Because the Company
offers multiple software applications which can be purchased separately or
integrated as part of Vantive Enterprise, the Company competes with a variety of
other businesses depending on the target market for their applications software
products. These competitors include a select number of businesses targeting the
enterprise level and department level Customer Asset Management markets, such as
Aurum Software, Inc., Clarify, Inc., Onyx Software, Scopus Technology and Siebel
Systems, Inc. some of which have only recently entered these markets. The
Company also competes with a substantial number of small private businesses and
13
<PAGE> 14
certain public businesses which offer products targeted at one or more specific
markets, including the customer support market, the help desk market, the
quality assurance market and the sales and marketing automation market, such as
Remedy Corporation and Software Artistry, Inc. In addition, the Company believes
that existing competitors and new market entrants will attempt to develop fully
integrated customer asset management information systems. The Company also
competes with third party professional service organizations that develop custom
software and with internal information technology departments of customers which
develop customer interaction applications. Among the Company's current and
potential competitors are also a number of large hardware and software
businesses that may develop or acquire products that compete with the Company's
products. In this regard, SAP AG, the Baan Company and Oracle have each
introduced a customer support module as part of their application suites. In
addition, Oracle has recently announced the creation of a network of third party
dealers that will sell Oracle's application suites exclusively to medium-sized
businesses. The Company expects large software vendors in the ERP market may
enter the Customer Asset Management market. These competitors have significantly
greater financial, technical, marketing and other resources than the Company.
The Company also expects that competition will increase as a result of
software industry consolidations. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that competition may increase
as a result of both new software start ups entering the market as well as
existing software industry vendors which may be planning to enter the market for
Customer Asset Management applications. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any of which could materially adversely affect the Company's business, results
of operations and financial condition. Many of the Company's current and
potential competitors have significantly greater financial, technical, marketing
and other resources than the Company. As a result, they may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than can the Company. There can be no assurance that the
Company will be able to compete successfully against current and future
competitors or that competitive pressures faced by the Company will not
materially adversely affect its business, results of operations and financial
condition.
The Company believes that the principal competitive factors affecting
its market include product features such as adaptability, scalability, ability
to integrate with products produced by other vendors, functionality, ease of
use, product reputation, quality, performance, price, customer service and
support, the effectiveness of sales and marketing efforts and company
reputation. Although the Company believes that its products currently compete
favorably with respect to such factors, there can be no assurance that the
Company can maintain its competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, support, technical and other resources.
MANAGEMENT OF EXPANDING OPERATIONS; DEPENDENCE UPON KEY PERSONNEL. The
Company's ability to compete effectively and to manage future growth, if any,
will require the Company to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis and expand, train
and manage its employee workforce. There can be no assurance that the Company
will be able to do so successfully. The Company's failure to do so could have a
material adverse effect upon the Company's business, results of operations and
financial condition. The Company has recently hired a significant number of
employees, including senior sales, marketing, research and development, and
finance personnel, and in order to maintain its ability to grow in the future,
the Company will be required to significantly increase its total headcount. In
addition, the Company's future performance depends in significant part upon
attracting and retaining key technical, sales, senior management and financial
personnel. In particular, delays in hiring sales or research and development
personnel may have a material adverse effect on the Company's business, results
of operations and financial condition. The loss of the services of one or more
of the Company's executive officers or the inability to recruit other additional
senior management could have a material adverse effect on the Company's
business, results of operations and financial condition. Competition for such
personnel is intense, and the inability to retain its key technical, sales,
senior management and financial personnel or to attract, assimilate or retain
other highly qualified technical, sales, senior management, and financial
personnel in the future on a
14
<PAGE> 15
timely basis could have a material adverse effect on the Company's business,
results of operations and financial condition.
INCREASED USE OF THIRD-PARTY SOFTWARE. The Company currently markets a
proprietary application development environment for its customers to tailor its
applications. This application development environment is also used by the
Company to build and modify its applications products. While the Company
believes, based on interactions with its customers and potential customers, that
it currently derives significant competitive advantage from this proprietary
application development environment, it believes that competitive pressures,
technological changes demanded by customers, and significant advances in the
sophistication of third party application development tools such as Visual Basic
for Applications will require the Company to make greater use of third party
software in the future. In particular, the Company has recently announced that
Vantive Encyclopedia, a Web-based marketing encyclopedia based on FirstFloor's
Java-based server, and configuration capabilities, based on Calico Technology's
configuration engine, will be available with Vantive Version 7.0. The Company
has also announced that it has entered into a development partnership with
PeopleSoft with the goal of developing joint applications. Vantive is currently
integrating manufacturing and distribution applications available from
PeopleSoft with the Vantive FieldService application. The greater use of third
party software could require the Company to invest significant resources in
rewriting some or all of its software applications products utilizing third
party software and/or to enter into license arrangements with third parties
which could result in higher royalty payments and a loss of product
differentiation. There can be no assurance that the Company would be able to
successfully rewrite its applications or enter into commercially reasonable
licenses, and the costs of, or inability or delays in, doing so could have a
material adverse effect on the Company's business, results of operations and
financial condition. A recently defeated ballot initiative in California would
have subjected corporations and their directors and officers to increased risk
of suit and may prohibit corporations from indemnifying officers and directors
and expose directors and officers of corporations to increased risk of personal
liability. Such a law could increase litigation expenses and the cost of related
insurance and adversely affect the financial position and results of operations
of the Company. In addition, the increased risk of personal liability could
interfere with the ability of the Company to attract and retain directors and
officers, which in turn could adversely effect the Company's competitive
position.
DEPENDENCE ON EMERGING MARKETS FOR CUSTOMER ASSET MANAGEMENT SOFTWARE;
PRODUCT CONCENTRATION. The Company's future financial performance will depend in
large part on the growth in demand for individual Customer Asset Management
applications as well as the number of organizations adopting comprehensive
Customer Asset Management software information systems for their client/server
and Web computing environments. To date, much of the Company's license revenues
have resulted from sales of individual applications, particularly Vantive
Support and Vantive HelpDesk. The markets for these applications are relatively
new and undeveloped, and failure of these markets to develop would have a
material adverse effect on the Company's business, results of operations and
financial condition. Additionally, the Company is investing in the sales, field
service and quality automation markets. Should these markets fail to develop,
not accept the Company's products, or cause the company to lose new business and
or customers in its traditional markets, the Company would experience an adverse
effect on the Company's business, results of operations and financial condition.
The Company believes that an important competitive advantage for its
software applications is their ability to be integrated with one another and
with other back office applications software into a Customer Asset Management
information system. If the demand for integrated suites of Customer Asset
Management applications fails to develop, or develops more slowly than the
Company currently anticipates, it could have a material adverse effect on the
demand for the Company's applications and on its business, results of operations
and financial condition. In addition, any other factor adversely affecting the
demand for the Company's existing applications, particularly Vantive Support,
Vantive HelpDesk and Vantive Quality, or newer applications such as
Vantive-On-The-Go, Vantive Sales or Vantive FieldService could have a material
adverse effect on the Company's business, results of operations and financial
condition.
15
<PAGE> 16
NEED TO EXPAND DISTRIBUTION CHANNELS AND SUCCESSFULLY LEVERAGE
THIRD-PARTY RELATIONSHIPS. An important element of the Company's distribution
strategy is to expand its direct sales force, to create additional relationships
with third parties and to dedicate certain direct sales resources and leverage
third party relationships toward key vertical markets. An important element of
the Company's product development strategy is to integrate with applications
from ERP vendors. The Company is currently investing, and intends to continue to
invest, significant resources toward these strategies, which could adversely
affect the Company's operating margins. In this regard, the Company has recently
hired and continues to hire significant numbers of direct sales personnel.
Competition for sales personnel is intense, and there can be no assurance that
the Company can retain its existing sales personnel or that it can attract,
assimilate and retain additional highly qualified sales personnel in the future.
The strategy also depends, in large part, on attracting and retaining beneficial
third party relationships. In this regard, the Company has developed
relationships with several high-end integrators and resellers, including EDS,
Deloitte & Touche, Price Waterhouse, KPMG Peat Marwick and HBO and Company, and
announced a partnership with PeopleSoft, an ERP vendor. There also can be no
assurance that the Company will be able to attract and retain appropriate
high-end integrators, resellers, other third party distributors or ERP vendors.
The Company's agreements with these third parties are not exclusive and, in many
cases, may be terminated by either party without cause. In addition, many of
these third parties sell or co-market competing product lines. Therefore, there
can be no assurance that any of these parties will continue to represent or
recommend the Company's products. There also can be no assurance that the
Company will effectively identify key vertical markets. The inability to
recruit, or the loss of, important direct sales personnel, high-end integrators,
resellers, other third party distributors or ERP vendors, or the failure to
effectively identify key vertical markets, could have a material adverse effect
on the Company's business, results of operations and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE. Future announcements concerning the
Company or its competitors, quarterly variations in operating results,
announcements of technological innovations, the introduction of new products or
changes in product pricing policies by the Company or its competitors,
proprietary rights or other litigation, changes in earnings estimates by
analysts or other factors could cause the market price of the Common Stock to
fluctuate substantially, particularly on a quarterly basis. In addition, stock
prices for many technology companies fluctuate widely for reasons which may be
unrelated to operating results of such companies. These fluctuations, as well as
general economic, market and political conditions such as recessions or military
conflicts, may materially and adversely affect the market price of the Company's
Common Stock. In the past, following periods of volatility in the market price
of a company's securities, securities class action litigation has often been
instituted against such companies. Such litigation could result in substantial
costs and a diversion of management's attention and resources, which could have
a material adverse effect on the Company's business, results of operations and
financial condition.
In addition to the "Business Risks" mentioned above, the Company's
business entails a variety of additional risks, which are set forth in the
"Business Risks" section of the Company's 1996 Report on Form 10-K filed with
the Securities and Exchange Commission.
FINANCIAL CONDITION
Total assets as of March 31, 1997, increased $5.2 million from December
31, 1996. The increase was primarily due to increases in cash from operations,
accounts receivable and property and equipment. The combined balance of cash and
short-term investments increased by $0.7 million, primarily due to increased net
income. Net accounts receivable increased $3.0 million primarily due to
increased sales revenues. Net property and equipment increased $1.6 million,
primarily due to equipment purchases to support the growth of the Company's
business.
Current liabilities as of March 31, 1997, increased $2.4 million from
December 31, 1996. The increase was primarily due to increases in accounts
payable and accrued liabilities. These increases were primarily due to increased
expense levels and accruals associated with higher revenues.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided cash of $2.6 million, in the quarter
ended March 31, 1997. The primary source of these funds was net income and an
increase in accounts payable and accrued liabilities, partially offset by an
increase in accounts receivable. Operating activities provided cash of $1.4
million in the quarter ended March 31, 1996. The primary sources of these funds
were net income and increases in deferred revenues and in accounts payable and
accrued liabilities, partially offset by an increase in accounts receivable.
Investing activities used cash of $2.1 million, in the quarter ended
March 31, 1997, primarily for the purchase of capital equipment. Investing
activities used cash of $1.0 million, in the quarter ended March 31, 1996,
primarily for the purchase of capital equipment and, to a lesser extent,
purchase of short-term, interest-bearing, investment-grade securities. The
Company does not currently have any material commitments for capital equipment
acquisitions.
Financing activities provided cash of $198,000 in the quarter ended
March 31, 1997. The primary source of these funds was proceeds from the issuance
of common stock pursuant to the exercise of outstanding stock options, partially
offset by payments on capital lease obligations. Financing activities used cash
of $138,000 in the quarter ended March 31, 1996, primarily for payments on
capital lease obligations.
At March 31, 1997, the Company's principal sources of liquidity were
its cash, cash equivalents and short-term investments of $33.5 million. The
Company believes that existing cash and short-term investment balances and
potential cash flow from operations will be sufficient to meet its cash
requirements for the next twelve months. While operating activities may provide
cash in certain periods to the extent the Company experiences growth in the
future, operating and investing activities may use cash, and consequently, such
growth may require the Company to obtain additional sources of financing.
17
<PAGE> 18
PART II: OTHER INFORMATION
Item 1: Legal Proceedings:
Not Applicable.
Item 2: Changes in Securities:
Not Applicable.
Item 3: Defaults upon Senior Securities:
Not Applicable.
Item 4: Submission of Matters to a Vote of Security Holders:
Not Applicable.
Item 5: Other Information:
Not Applicable.
18
<PAGE> 19
Item 6: Exhibits and Reports on Form 8-K:
A. Exhibits
* 3.1 Form of Agreement and Plan of Merger between The Vantive
Corporation, a California corporation, and The Vantive
Corporation, a Delaware corporation.
* 3.2 Bylaws.
* 10.1 Form of Indemnity Agreement for officers and directors.
* 10.2 1991 Stock Option Plan, as amended.
* 10.3 1995 Outside Directors Stock Option Plan.
* 10.4 1995 Employee Stock Purchase Plan.
* 10.5 Offer Letter dated May 21, 1993 between the Company and John
R. Luongo.
* 10.6 Offer Letter dated April 6, 1995 between the Company and John
M. Jack.
*+ 10.7 Value Added Reseller License Agreement dated October 5, 1993
by and between Inference Corporation and the Company.
*+ 10.8 Basicscript License Agreement dated October 4, 1994 by
and between Henneberry Hill Technologies Corporation doing
business as Summit Software Company and the Company.
*+ 10.9 International VAR Agreement dated March 26, 1992 between
Oracle Corporation and the Company, as amended.
10.9.1 International VAR Agreement dated June 28, 1996 between Oracle
Corporation and the Company, as amended.
*+ 10.10 Value Added Remarketer Agreement dated December 20, 1991
between Sybase, Inc. and the Company, as amended.
* 10.11 Security and Loan Agreement dated May 12, 1995 between the
Company and Imperial Bank. *+ 10.12 Application Bridge API VAR
License Agreement dated January 22, 1993 between the Company
and Prospect Software, Inc.
*+ 10.13 Compensation Letter dated May 10, 1995 between the Company and
John R. Luongo.
*+ 10.14 Compensation Letter dated May 10, 1995 between the Company and
Steven M. Goldsworthy.
10.15 Lease Agreement dated January 13, 1995 between John Arrillaga,
Trustee, or his Successor Trustee, UTA dated July 20, 1977
(John Arrillaga Separate Property Trust) as amended, and
Richard T. Peery, Trustee, or his Successor Trustee, UTA
dated July 20, 1977 (Richard T. Peery Separate Property Trust)
as amended, and the Company.
# 10.16 Lease Agreement dated September 4, 1996 between John
Arrillaga, Trustee, or his Successor Trustee, UTA dated July
20, 1977 (Arrillaga Family Trust) as amended, and Richard T.
Peery, Trustee, or his Successor Trustee, UTA dated July 20,
1977 (Richard T. Peery Separate Property Trust) as amended,
and the Company.
27.1 Financial Summary Table
* Incorporated by reference from the Company's Registration Statement (No.
33-94244), declared effective on August 14, 1995.
+ Confidential Treatment has been granted for portions of this exhibit.
# This exhibit has only been included in the 1996 Report on Form 10-K filed
with the Securities and Exchange Commission.
B. Reports of Form 8-K
No report of Form 8-K was filed by the Company during the
three month period ended March 31, 1997.
19
<PAGE> 20
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.
THE VANTIVE CORPORATION
Dated: May 11, 1996 By: /s/ Kathleen Murphy
------------------------------
Kathleen Murphy
Chief Financial Officer
(Principal Financial Officer)
Dated: May 11, 1996 By: /s/ Michael M. Loo
------------------------------
Michael M. Loo
Vice President, Finance
(Principal Accounting Officer)
20
<PAGE> 21
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT # DESCRIPTION
- --------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 26,659,000
<SECURITIES> 6,863,000
<RECEIVABLES> 16,805,000
<ALLOWANCES> 904,000
<INVENTORY> 0
<CURRENT-ASSETS> 54,626,000
<PP&E> 11,229,000
<DEPRECIATION> 2,840,000
<TOTAL-ASSETS> 63,542,000
<CURRENT-LIABILITIES> 20,551,000
<BONDS> 0
0
0
<COMMON> 24,000
<OTHER-SE> 33,671,000
<TOTAL-LIABILITY-AND-EQUITY> 63,542,000
<SALES> 15,026,000
<TOTAL-REVENUES> 22,523,000
<CGS> 120,000
<TOTAL-COSTS> 4,164,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 124,000
<INTEREST-EXPENSE> 29,000
<INCOME-PRETAX> 3,679,000
<INCOME-TAX> 1,497,000
<INCOME-CONTINUING> 2,549,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,549,000
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
