UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2003 | ||
| o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ________ to _________ |
Commission File Number 0-25361
ONYX SOFTWARE CORPORATION
| Washington (State or other jurisdiction of incorporation or organization) |
91-1629814 (IRS Employer Identification No.) |
1100 – 112th Avenue NE
Suite 100
Bellevue, Washington 98004
(Address of principal executive offices) (Zip code)
(425) 451-8060
(Registrant’s telephone number)
Indicate by check whether the registrant (1) 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 o
Indicate by check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o
The number of shares of common stock, par value $0.01 per share, outstanding on November 3, 2003 was 13,913,563.
ONYX SOFTWARE CORPORATION
CONTENTS
| PART I—FINANCIAL INFORMATION | 3 | |||||
| Item 1. | Condensed Consolidated Financial Statements (Unaudited) | 3 | ||||
Condensed Consolidated Balance Sheets as of December 31, 2002 and September 30, 2003.
|
3 | |||||
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30,
2002 and 2003.
|
4 | |||||
Condensed Consolidated Statement of Shareholders’ Equity for the
Three and Nine Months Ended September 30, 2003.
|
5 | |||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2003
|
6 | |||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 41 | ||||
| Item 4. | Controls and Procedures | 42 | ||||
| PART II—OTHER INFORMATION | 43 | |||||
| Item 4. | Submission of Matters to a Vote of Security Holders | 43 | ||||
| Item 5. | Other Information | 44 | ||||
| Item 6. | Exhibits and Reports on Form 8-K | 44 | ||||
| SIGNATURES | 45 | |||||
2
PART I—FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
| December 31, | September 30, | |||||||||||
| 2002 | 2003 | |||||||||||
ASSETS |
||||||||||||
Current assets: |
||||||||||||
Cash and cash equivalents |
$ | 17,041 | $ | 8,950 | ||||||||
Restricted cash |
2,238 | 3,033 | ||||||||||
Accounts receivable, less allowances of $1,039 in 2002 and
$500 in 2003 |
14,408 | 12,419 | ||||||||||
Current deferred tax asset |
273 | 272 | ||||||||||
Prepaid expenses and other |
3,374 | 2,912 | ||||||||||
Total current assets |
37,334 | 27,586 | ||||||||||
Property and equipment, net |
6,474 | 4,501 | ||||||||||
Purchased technology, net |
253 | 3 | ||||||||||
Other intangibles, net |
1,461 | 835 | ||||||||||
Goodwill, net |
8,180 | 8,180 | ||||||||||
Other assets |
1,085 | 830 | ||||||||||
Total assets |
$ | 54,787 | $ | 41,935 | ||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current liabilities: |
||||||||||||
Accounts payable |
$ | 1,484 | $ | 1,026 | ||||||||
Salary and benefits payable |
1,675 | 1,531 | ||||||||||
Accrued liabilities |
3,147 | 2,489 | ||||||||||
Income taxes payable |
660 | 1,003 | ||||||||||
Current portion of capital-lease obligations |
180 | — | ||||||||||
Current portion of restructuring-related liabilities |
10,224 | 4,055 | ||||||||||
Deferred revenue |
16,258 | 14,287 | ||||||||||
Total current liabilities |
33,628 | 24,391 | ||||||||||
Capital-lease obligations, less current portion |
77 | — | ||||||||||
Long-term restructuring-related liabilities, less current portion |
2,600 | 567 | ||||||||||
Long-term restructuring-related liabilities—warrants |
920 | 786 | ||||||||||
Deferred tax liabilities |
497 | 284 | ||||||||||
Minority interest in joint venture |
237 | 35 | ||||||||||
Commitments and contingencies
|
||||||||||||
Shareholders’ equity: |
||||||||||||
Preferred stock, $0.01 par value: |
||||||||||||
Authorized shares — 20,000,000; Issued and outstanding
shares — none |
— | — | ||||||||||
Common stock, $0.01 par value: |
||||||||||||
Authorized shares — 80,000,000; Issued and outstanding
shares — 12,696,739 in 2002 and 13,907,284 in 2003 |
139,459 | 142,445 | ||||||||||
Deferred stock-based compensation |
(84 | ) | — | |||||||||
Accumulated deficit |
(122,061 | ) | (126,619 | ) | ||||||||
Accumulated other comprehensive income (loss) |
(486 | ) | 46 | |||||||||
Total shareholders’ equity |
16,828 | 15,872 | ||||||||||
Total liabilities and shareholders’ equity |
$ | 54,787 | $ | 41,935 | ||||||||
See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2003 | 2002 | 2003 | |||||||||||||||
Revenue: |
||||||||||||||||||
License |
$ | 7,265 | $ | 3,633 | $ | 16,828 | $ | 9,374 | ||||||||||
Support and service |
11,763 | 11,767 | 35,325 | 36,043 | ||||||||||||||
Total revenue |
19,028 | 15,400 | 52,153 | 45,417 | ||||||||||||||
Cost of revenue: |
||||||||||||||||||
License |
270 | 175 | 667 | 657 | ||||||||||||||
Amortization of acquired technology |
138 | 84 | 414 | 252 | ||||||||||||||
Support and service |
4,922 | 5,251 | 15,181 | 16,129 | ||||||||||||||
Total cost of revenue |
5,330 | 5,510 | 16,262 | 17,038 | ||||||||||||||
Gross margin |
13,698 | 9,890 | 35,891 | 28,379 | ||||||||||||||
Operating expenses: |
||||||||||||||||||
Sales and marketing |
7,882 | 4,460 | 20,941 | 16,025 | ||||||||||||||
Research and development |
3,530 | 2,798 | 11,506 | 9,074 | ||||||||||||||
General and administrative |
2,382 | 2,158 | 7,358 | 6,253 | ||||||||||||||
Restructuring and other related charges |
1,171 | 162 | 7,729 | 1,256 | ||||||||||||||
Amortization of acquisition-related intangibles |
209 | 209 | 627 | 627 | ||||||||||||||
Amortization of stock-based compensation |
51 | 4 | 203 | 32 | ||||||||||||||
Total operating expenses |
15,225 | 9,791 | 48,364 | 33,267 | ||||||||||||||
Income (loss) from operations |
(1,527 | ) | 99 | (12,473 | ) | (4,888 | ) | |||||||||||
Other income (expense), net |
269 | (117 | ) | (73 | ) | 3 | ||||||||||||
Change in fair value of outstanding warrants |
— | (123 | ) | — | 134 | |||||||||||||
Loss before income taxes |
(1,258 | ) | (141 | ) | (12,546 | ) | (4,751 | ) | ||||||||||
Income tax provision (benefit) |
(29 | ) | 86 | 383 | 7 | |||||||||||||
Minority interest in consolidated subsidiary |
(345 | ) | 32 | (817 | ) | (200 | ) | |||||||||||
Net loss |
$ | (884 | ) | $ | (259 | ) | $ | (12,112 | ) | $ | (4,558 | ) | ||||||
Net loss per share: |
||||||||||||||||||
Basic and diluted |
$ | (0.07 | ) | $ | (0.02 | ) | $ | (0.97 | ) | $ | (0.34 | ) | ||||||
Shares used in calculation of net loss per share: |
||||||||||||||||||
Basic and diluted |
12,641 | 13,902 | 12,427 | 13,284 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
(In thousands, except share data)
(Unaudited)
| Common Stock | Deferred | Accumulated Other | ||||||||||||||||||||||||
| Stock-Based | Accumulated | Comprehensive | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | Compensation | Deficit | Income (Loss) | Equity | |||||||||||||||||||||
Balance at December 31, 2002 |
12,696,739 | $ | 139,459 | $ | (84 | ) | $ | (122,061 | ) | $ | (486 | ) | $ | 16,828 | ||||||||||||
Amortization of deferred
stock-based compensation |
— | — | 13 | — | — | 13 | ||||||||||||||||||||
Exercise of stock options |
3,698 | 5 | — | — | — | 5 | ||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||
Cumulative translation gain |
— | — | — | — | 129 | |||||||||||||||||||||
Net loss |
— | — | — | (3,402 | ) | — | ||||||||||||||||||||
Total comprehensive loss |
(3,273 | ) | ||||||||||||||||||||||||
Balance at March 31, 2003 |
12,700,437 | 139,464 | (71 | ) | (125,463 | ) | (357 | ) | 13,573 | |||||||||||||||||
Amortization of deferred
stock-based compensation |
— | — | 13 | — | — | 13 | ||||||||||||||||||||
Stock-based compensation |
— | 2 | — | — | — | 2 | ||||||||||||||||||||
Proceeds from private
offering, net of offering
costs |
1,135,697 | 2,815 | — | — | — | 2,815 | ||||||||||||||||||||
Exercise of stock options |
1,125 | 3 | — | — | — | 3 | ||||||||||||||||||||
Issuance of common stock
under ESPP |
60,596 | 201 | — | — | — | 201 | ||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||
Cumulative translation gain |
— | — | — | — | 292 | |||||||||||||||||||||
Net loss |
— | — | — | (897 | ) | — | ||||||||||||||||||||
Total comprehensive loss |
(605 | ) | ||||||||||||||||||||||||
Balance at June 30, 2003 |
13,897,855 | 142,485 | (58 | ) | (126,360 | ) | (65 | ) | 16,002 | |||||||||||||||||
Reversal of deferred
stock-based compensation |
— | (54 | ) | 54 | — | — | — | |||||||||||||||||||
Stock-based compensation |
— | — | 4 | — | — | 4 | ||||||||||||||||||||
Exercise of stock options |
9,429 | 14 | — | — | — | 14 | ||||||||||||||||||||
Comprehensive income (loss): |
||||||||||||||||||||||||||
Cumulative translation gain |
— | — | — | — | 111 | |||||||||||||||||||||
Net loss |
— | — | — | (259 | ) | — | ||||||||||||||||||||
Total comprehensive loss |
(148 | ) | ||||||||||||||||||||||||
Balance at September 30, 2003 |
13,907,284 | $ | 142,445 | $ | — | $ | (126,619 | ) | $ | 46 | $ | 15,872 | ||||||||||||||
See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | &n | |||||||||||