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 March 31, 2003
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: 0-30863
NETWORK ENGINES, INC.
(Exact name of registrant as specified in its charter)
| Delaware |
04-3064173 | |
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) | |
| 25 Dan Road, Canton, MA |
02021 | |
| (Address of principal executive offices) |
(Zip Code) |
(781) 332-1000
(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 than 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)
Yes ¨ No x
As of April 30, 2003, there were 33,711,354 shares of the registrant’s Common Stock, par value $.01 per share, outstanding.
NETWORK ENGINES, INC.
| Page Number | ||||
| PART I. FINANCIAL INFORMATION |
||||
| ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) |
||||
| 1 | ||||
| 2 | ||||
| 3 | ||||
| 4 | ||||
| ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
13 | |||
| ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
30 | |||
| 30 | ||||
| PART II. OTHER INFORMATION |
||||
| 31 | ||||
| 31 | ||||
| 32 | ||||
| 32 | ||||
| 33 | ||||
| 34 | ||||
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NETWORK ENGINES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| March 31, 2003 |
September 30, 2002 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
38,846 |
|
$ |
46,552 |
| ||
| Short-term investments |
|
— |
|
|
8,546 |
| ||
| Restricted cash |
|
47 |
|
|
1,098 |
| ||
| Accounts receivable, net of allowances |
|
12,707 |
|
|
2,729 |
| ||
| Inventories |
|
5,876 |
|
|
1,956 |
| ||
| Prepaid expenses and other current assets |
|
1,077 |
|
|
1,065 |
| ||
| Total current assets |
|
58,553 |
|
|
61,946 |
| ||
| Property and equipment, net |
|
2,038 |
|
|
2,236 |
| ||
| Goodwill |
|
7,753 |
|
|
— |
| ||
| Intangible assets, net |
|
4,817 |
|
|
— |
| ||
| Other assets |
|
54 |
|
|
28 |
| ||
| Total assets |
$ |
73,215 |
|
$ |
64,210 |
| ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
7,945 |
|
$ |
1,474 |
| ||
| Accrued compensation and other related benefits |
|
1,156 |
|
|
683 |
| ||
| Other accrued expenses |
|
1,192 |
|
|
785 |
| ||
| Current portion of accrued restructuring and other charges |
|
569 |
|
|
355 |
| ||
| Deferred revenue |
|
314 |
|
|
23 |
| ||
| Current portion of capital lease obligations and notes payable |
|
3 |
|
|
14 |
| ||
| Total current liabilities |
|
11,179 |
|
|
3,334 |
| ||
| Long-term portion of accrued restructuring and other charges |
|
434 |
|
|
— |
| ||
| Contingencies (Note 6) |
||||||||
| Stockholders’ equity: |
||||||||
| Preferred stock |
|
— |
|
|
— |
| ||
| Common stock |
|
363 |
|
|
357 |
| ||
| Additional paid-in capital |
|
175,431 |
|
|
174,252 |
| ||
| Accumulated deficit |
|
(110,426 |
) |
|
(107,563 |
) | ||
| Notes receivable from stockholders |
|
— |
|
|
(281 |
) | ||
| Deferred stock compensation |
|
(928 |
) |
|
(1,185 |
) | ||
| Treasury stock, at cost |
|
(2,838 |
) |
|
(4,707 |
) | ||
| Accumulated other comprehensive income |
|
— |
|
|
3 |
| ||
| Total stockholders’ equity |
|
61,602 |
|
|
60,876 |
| ||
| Total liabilities and stockholders’ equity |
$ |
73,215 |
|
$ |
64,210 |
| ||
The accompanying notes are an integral part of the condensed consolidated financial statements.
1
NETWORK ENGINES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
| Three months ended March 31, |
Six months ended March 31, |
|||||||||||||||
| 2003 |
2002 |
2003 |
2002 |
|||||||||||||
| Net revenues |
$ |
19,427 |
|
$ |
3,034 |
|
$ |
25,415 |
|
$ |
5,135 |
| ||||
| Cost of revenues: |
||||||||||||||||
| Cost of revenues |
|
15,352 |
|
|
2,708 |
|
|
19,974 |
|
|
4,780 |
| ||||
| Cost of revenues stock compensation |
|
14 |
|
|
59 |
|
|
28 |
|
|
132 |
| ||||
| Total cost of revenues |
|
15,366 |
|
|
2,767 |
|
|
20,002 |
|
|
4,912 |
| ||||
| Gross profit |
|
4,061 |
|
|
267 |
|
|
5,413 |
|
|
223 |
| ||||
| Operating expenses: |
||||||||||||||||
| Research and development |
|
917 |
|
|
1,258 |
|
|
1,711 |
|
|
2,803 |
| ||||
| Selling and marketing |
|
1,564 |
|
|
790 |
|
|
2,439 |
|
|
1,972 |
| ||||
| General and administrative |
|
1,899 |
|
|
1,469 |
|
|
2,882 |
|
|
2,646 |
| ||||
| Stock compensation |
|
279 |
|
|
168 |
|
|
471 |
|
|
3,835 |
| ||||
| Amortization of intangible assets |
|
254 |
|
|
— |
|
|
254 |
|
|
— |
| ||||
| Restructuring and other charges, net |
|
(30 |
) |
|
— |
|
|
884 |
|
|
— |
| ||||
| Total operating expenses |
|
4,883 |
|
|
3,685 |
|
|
8,641 |
|
|
11,256 |
| ||||
| Loss from operations |
|
(822 |
) |
|
(3,418 |
) |
|
(3,228 |
) |
|
(11,033 |
) | ||||
| Interest and other income, net |
|
138 |
|
|
522 |
|
|
365 |
|
|
946 |
| ||||
| Net loss |
$ |
(684 |
) |
$ |
(2,896 |
) |
$ |
(2,863 |
) |
$ |
(10,087 |
) | ||||
| Net loss per share – basic and diluted |
$ |
(0.02 |
) |
$ |
(0.09 |
) |
$ |
(0.09 |
) |
$ |
(0.30 |
) | ||||
| Shares used in computing basic and diluted net loss per share |
|
33,524 |
|
|
32,847 |
|
|
32,050 |
|
|
33,180 |
| ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
2
NETWORK ENGINES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Six months ended March 31, |
||||||||
| 2003 |
2002 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ |
(2,863 |
) |
$ |
(10,087 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||