UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[ü] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
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 0-22158
NetManage, Inc.
| Delaware | 77-0252226 | |
| (State or other jurisdiction of | (IRS employer | |
| Incorporation or organization) | identification no.) |
10725 North De Anza Boulevard
Cupertino, California 95014
(Address of principal executive offices, including zip code)
(408) 973-7171
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES [ ] NO [ü]
Number of shares of registrant’s common stock outstanding as of November 15, 2002: 8,882,231
NETMANAGE, INC.
Table of Contents
| Page | ||||||||
PART I |
FINANCIAL INFORMATION | |||||||
Item 1 |
Financial Statements | |||||||
| Condensed
Consolidated Balance Sheets at September 30, 2002 and December 31,
2001 (As restated) |
3 | |||||||
| Condensed
Consolidated Statements of Operations for the three and nine months
ended September 30, 2002 and September 30, 2001 (As restated) |
4 | |||||||
| Condensed
Consolidated Statements of Comprehensive Loss for the three and
nine months ended September 30, 2002 and September 30, 2001 (As restated) |
5 | |||||||
| Condensed
Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and September 30, 2001 (As restated) |
6 | |||||||
| Notes to Condensed Consolidated Financial Statements | 7 | |||||||
Item 2 |
Management’s discussion and analysis of financial condition and results of operations | 19 | ||||||
Item 3 |
Quantitative and qualitative disclosures about market risk | 41 | ||||||
Item 4 |
Controls and procedures | 42 | ||||||
PART II |
OTHER INFORMATION | |||||||
Item 1 |
Legal proceedings | 42 | ||||||
Item 2 |
Changes in securities and use of proceeds | 42 | ||||||
Item 3 |
Defaults upon senior securities | 43 | ||||||
Item 4 |
Submission of matters to a vote of security holders | 43 | ||||||
Item 5 |
Other information | 43 | ||||||
Item 6 |
Exhibits and reports on Form 8-K | 43 | ||||||
| Signatures | 44 | |||||||
| Certifications | 45 | |||||||
2
NETMANAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| September 30, 2002 |
December 31, 2001 |
||||||||||||
| (As restated, See Note 12) |
|||||||||||||
ASSETS |
|||||||||||||
Current assets: |
|||||||||||||
Cash and cash equivalents |
$ | 28,536 | $ | 32,766 | |||||||||
Short-term investments |
33 | 792 | |||||||||||
Accounts
receivable, net of allowances of $2,111 and $2,448, respectively |
6,912 | 17,801 | |||||||||||
Prepaid expenses and other current assets |
3,387 | 3,487 | |||||||||||
Total current assets |
38,868 | 54,846 | |||||||||||
Property and equipment, at cost: |
|||||||||||||
Computer software and equipment |
1,364 | 9,259 | |||||||||||
Furniture and fixtures |
5,458 | 6,138 | |||||||||||
Leasehold improvements |
1,523 | 2,805 | |||||||||||
| 8,345 | 18,202 | ||||||||||||
Less — Accumulated depreciation |
(5,955 | ) | (14,319 | ) | |||||||||
Net property and equipment |
2,390 | 3,883 | |||||||||||
Goodwill, net |
6,701 | 6,701 | |||||||||||
Other intangibles, net |
5,153 | 7,530 | |||||||||||
Other assets |
1,548 | 3,133 | |||||||||||
Total assets |
$ | 54,660 | $ | 76,093 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|||||||||||||
Current liabilities: |
|||||||||||||
Accounts payable |
$ | 1,811 | $ | 2,691 | |||||||||
Accrued liabilities |
10,321 | 7,261 | |||||||||||
Accrued payroll and payroll-related expenses |
2,972 | 3,279 | |||||||||||
Deferred revenue |
14,171 | 21,627 | |||||||||||
Income taxes payable |
1,493 | 1,861 | |||||||||||
Total current liabilities |
30,768 | 36,719 | |||||||||||
Long-term
liabilities |
160 | 286 | |||||||||||
Total liabilities |
30,928 | 37,005 | |||||||||||
Commitments and contingencies (Note 9) |
|||||||||||||
Stockholders’ equity: |
|||||||||||||
Common stock, $0.01 par value |
|||||||||||||
Authorized -125,000,000 shares |
|||||||||||||
Issued
- - 10,614,346 and 10,528,631 shares, respectively |
|||||||||||||
Outstanding - 8,847,340 and 9,140,115 shares, respectively |
106 | 105 | |||||||||||
Treasury stock, at cost - 1,767,006 and 1,388,516 shares, respectively |
(20,221 | ) | (18,267 | ) | |||||||||
Additional paid-in capital |
177,762 | 177,421 | |||||||||||
Accumulated deficit |
(131,326 | ) | (115,799 | ) | |||||||||
Accumulated comprehensive loss |
(2,589 | ) | (4,372 | ) | |||||||||
Total stockholders’ equity |
23,732 | 39,088 | |||||||||||
Total liabilities and stockholders’ equity |
$ | 54,660 | $ | 76,093 | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
NETMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||||
| (As restated, see Note 12) |
(As restated, see Note 12) |
|||||||||||||||||||
Net revenues: |
||||||||||||||||||||
License fees |
$ | 5,477 | $ | 7,873 | $ | 23,588 | $ | 28,681 | ||||||||||||
Services |
8,616 | 9,795 | 25,777 | 31,045 | ||||||||||||||||
Total net revenues |
14,093 | 17,668 | 49,365 | 59,726 | ||||||||||||||||
Cost of revenues: |
||||||||||||||||||||
License fees |
379 | 791 | 1,761 | 2,598 | ||||||||||||||||
Services |
1,561 | 1,948 | 4,877 | 6,211 | ||||||||||||||||
Total cost of revenues |
1,940 | 2,739 | 6,638 | 8,809 | ||||||||||||||||
Gross margin |
12,153 | 14,929 | 42,727 | 50,917 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
3,130 | 3,817 | 10,319 | 14,317 | ||||||||||||||||
Sales and marketing |
8,448 | 9,713 | 28,234 | 34,850 | ||||||||||||||||
General and administrative |
3,729 | 2,065 | 8,699 | 8,747 | ||||||||||||||||
Restructuring charge |
4,614 | — | 4,614 | — | ||||||||||||||||
Amortization of intangible assets |
793 | 1,445 | 2,378 | 4,333 | ||||||||||||||||
Total operating expenses |
20,714 | 17,040 | 54,244 | 62,247 | ||||||||||||||||
Loss from operations |
(8,561 | ) | (2,111 | ) | (11,517 | ) | (11,330 | ) | ||||||||||||
Loss on investments |
(2,534 | ) | — | (2,534 | ) | (1,824 | ) | |||||||||||||
Interest income and other, net |
69 | 237 | 272 | 2,082 | ||||||||||||||||
Foreign
currency transaction losses |
(79 | ) | (231 | ) | (1,387 | ) | (429 | ) | ||||||||||||
Loss before provision for income taxes |
(11,105 | ) | (2,105 | ) | (15,166 | ) | (11,501 | ) | ||||||||||||
Provision for income taxes |
160 | 132 | 361 | 719 | ||||||||||||||||
Net loss |
$ | (11,265 | ) | $ | (2,237 | ) | $ | (15,527 | ) | $ | (12,220 | ) | ||||||||
Net loss per share: |
||||||||||||||||||||
Basic and diluted |
$ | (1.27 | ) | $ | (0.24 | ) | $ | (1.73 | ) | $ | (1.31 | ) | ||||||||
Weighted average common shares and equivalents: |
||||||||||||||||||||
Basic and diluted |
8,878 | 9,281 | 8,980 | 9,317 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
NETMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | |||||||||||||||
| (As
restated, see Note 12) |
(As
restated see Note 12) |
|||||||||||||||||
Net loss |
$ | (11,265 | ) | $ | (2,237 | ) | $ | (15,527 | ) | $ | (12,220 | ) | ||||||
Other
comprehensive income (loss): |
||||||||||||||||||
Unrealized loss on investments, net |
— | (684 | ) | — | (617 | ) | ||||||||||||
Foreign currency translation adjustments, net |
(235 | ) | 38 | 1,784 | 435 | |||||||||||||
Comprehensive loss |
$ | (11,500 | ) | $ | (2,883 | ) | $ | (13,743 | ) | $ | (12,402 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
NETMANAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine months ended | ||||||||||||
| September 30, | ||||||||||||
| 2002 | 2001 | |||||||||||
| (As restated, see note 12) | ||||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (15,527 | ) | $ | (12,220 | ) | ||||||
Adjustments
to reconcile net loss to net cash used in operating activities: |
||||||||||||
Depreciation and amortization |
3,796 | 7,229 | ||||||||||
Write-off
of prepaid royalty, patents and copyrights |
— | 23 | ||||||||||
Provision for doubtful accounts and returns |
24 | (43 | ) | |||||||||
Loss on disposal of property, plant & equipment |
526 | — | ||||||||||
Loss on exchange of marketable securities |
758 | 1,824 | ||||||||||
Loss of investments |
1,773 | — | ||||||||||
Changes in assets and liabilities: |
||||||||||||
Accounts receivable |
10,896 | 11,682 | ||||||||||
Prepaids and other current assets |
233 | 328 | ||||||||||
Refundable
income taxes |
— | 7,467 | ||||||||||
Other assets |
(15) | 381 | ||||||||||
Accounts payable |
(779 | ) | (1,674 | ) | ||||||||
Accrued liabilities, payroll and payroll-related expenses |
3,321 | (9,373 | ) | |||||||||
Deferred revenue |
(7,214 | ) | (4,844 | ) | ||||||||
Income taxes payable |
(98 | ) | 290 | |||||||||
Long-term liabilities |
(126 | ) | (1,336 | ) | ||||||||
Net cash used in operating activities |
(2,432 | ) | (266 | ) | ||||||||
Cash flows from investing activities: |
||||||||||||
Purchases of short-term investments |
( | |||||||||||