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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

     
[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
    For the quarterly period ended December 31, 2003
 
[   ]   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 000-26867

PIVOTAL CORPORATION

(Exact name of registrant as specified in its charter)
     
BRITISH COLUMBIA, CANADA
   98-0366456
(State or other Jurisdiction of incorporation)   (I.R.S. Employer Identification No.)

SUITE 700 — 858 BEATTY STREET
VANCOUVER, BRITISH COLUMBIA, V6B 1C1
CANADA
(Address of principal executive offices and zip code)

Telephone (604) 699-8000
(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 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 by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

             
Yes     No   X
 
   

Common shares outstanding at January 30, 2004: 26,649,783

-1-

 

PIVOTAL CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2003

TABLE OF CONTENTS

             
          Page No.
         
PART I—FINANCIAL INFORMATION
        
 
ITEM 1.
Financial Statements     3  
   
Condensed Consolidated Balance Sheets as of December 31, 2003 and June 30, 2003
     3  
   
Condensed Consolidated Statements of Operations for the Three Months Ended and the Six Months Ended December 31, 2003 and 2002
     4  
   
Condensed Consolidated Statements of Shareholders’ Equity for the Six Months ended December 31, 2003
     5  
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2003 and 2002
     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     36  
 
ITEM 4.
Controls and Procedures     37  
PART II—OTHER INFORMATION
        
 
ITEM 4.
Submission of Matters to a Vote of Securityholders     37  
 
ITEM 6.
Exhibits and Reports On Form 8-K     39  
SIGNATURES
     45  

-2-

 

PART I — ITEM 1: FINANCIAL STATEMENTS

PIVOTAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Expressed in United States dollars; all amounts in thousands)

                     
        December 31,   June 30,
        2003   2003
       
 
        (unaudited)        
ASSETS
                
Current assets:
                
 
Cash and cash equivalents
   $ 5,136     $ 8,227  
 
Short-term investments
     305       10,663  
 
Restricted cash
     5,873       —  
 
Accounts receivable, net
     7,277       8,248  
 
Prepaid expenses and other
     2,285       3,526  
 
 
    
     
 
Total current assets
     20,876       30,664  
Property and equipment, net
     2,148       3,083  
Goodwill
     9,484       9,941  
Acquired intangibles, net
     437       655  
Other assets
     979       973  
 
 
    
     
 
Total assets
   $ 33,924     $ 45,316  
 
 
    
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                
Current liabilities:
                
 
Accounts payable and accrued liabilities
   $ 13,222     $ 14,929  
 
Current portion of accrued restructuring costs
     2,046       3,554  
 
Current portion of restructuring costs assumed on acquisition
     921       1,270  
 
Deferred revenue
     9,803       13,275  
 
Note payable
     2,000       —  
 
Current portion of obligations under capital leases and long-term debt
     214       481  
 
 
    
     
 
Total current liabilities
     28,206       33,509  
Non-current portion of accrued restructuring costs
     2,423       3,105  
Non-current portion of restructuring costs assumed on acquisition
     354       567  
Non-current portion of obligations under capital leases and long-term debt
     —       37  
 
 
    
     
 
Total liabilities
     30,983       37,218  
Commitments and contingencies (Note 8)
                
Liquidity (Note 11)
                
Shareholders’ equity:
                
 
Preferred shares, undesignated, no par value: authorized shares — 20,000; no shares issued and outstanding
     —       —  
 
Common shares and additional paid-in capital, no par value:
                
   
authorized shares — 200,000; issued and outstanding shares — 26,425 and 25,717 at December 31, 2003 and June 30, 2003, respectively
     180,362       179,932  
 
Accumulated other comprehensive income
     11       —  
 
Accumulated deficit
     (177,432 )     (171,834 )
 
 
    
     
 
Total shareholders’ equity
     2,941       8,098  
 
 
    
     
 
Total liabilities and shareholders’ equity
   $ 33,924     $ 45,316  
 
 
    
     
 

See notes to condensed consolidated financial statements.

-3-

 

PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed In United States Dollars, all amounts in thousands except per share data)
(Unaudited)

                                   
      Three months ended   Six months ended
      December 31,   December 31,
     
 
      2003   2002   2003   2002
     
 
 
 
Revenues:
                                
 
License
   $ 4,305     $ 7,017     $ 8,277     $ 10,232  
 
Services and maintenance
     10,010       9,078       19,340       18,170  
 
 
    
     
     
     
 
Total revenues
     14,315       16,095       27,617       28,402  
 
 
    
     
     
     
 
Cost of revenues:
                                
 
License
     239       906       404       1,153  
 
Services and maintenance
     4,238       4,719       8,054       10,065  
 
 
    
     
     
     
 
Total cost of revenues
     4,477       5,625       8,458       11,218  
 
 
    
     
     
     
 
Gross profit
     9,838       10,470       19,159       17,184  
 
 
    
     
     
     
 
Operating expenses:
                                
 
Sales and marketing
     4,654       7,080       9,564       16,136  
 
Research and development
     2,867       4,126       5,854       8,029  
 
General and administrative
     2,086       2,395       4,190       4,425  
 
Restructuring costs and other charges
     —       8,596       1,851       8,596  
 
Acquisition transaction costs
     2,617       —       2,836       —  
 
Amortization of acquired intangibles
     109       24       218       48  
 
 
    
     
     
     
 
Total operating expenses
     12,333       22,221       24,513       37,234  
 
 
    
     
     
     
 
Loss from operations
     (2,495 )     (11,751 )     (5,354 )     (20,050 )
Interest and other income (loss)
     (69 )     16       (64 )     (273 )
 
 
    
     
     
     
 
Loss before income taxes
     (2,564 )     (11,735 )     (5,418 )     (20,323 )
Income taxes
     83       16       180       179  
 
 
    
     
     
     
 
Net loss
   $ (2,647 )   $ (11,751 )   $ (5,598 )   $ (20,502 )
 
 
    
     
     
     
 
Loss per share
                                
 
Basic and diluted
   $ (0.10 )   $ (0.47 )   $ (0.21 )   $ (0.83 )
 
 
    
     
     
     
 
Weighted average number of shares used to calculated loss per share
                                
Basic and diluted
     26,340       25,161       26,264       24,737  
 
 
    
     
     
     
 

See notes to condensed consolidated financial statements.

-4-

 

PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2003
(Expressed In United States Dollars; all amounts in thousands)
(Unaudited)

                                             
        Common Shares and   Accumulated            
        Additional Paid-in   Other           Total
        Capital   Comprehensive   Accumulated   Shareholders'
        Shares   Amount   Income   Deficit   Equity (Deficit)
       
 
 
 
 
Balance, June 30, 2003
     25,717     $ 179,932     $ —     $ (171,834 )   $ 8,098  
Comprehensive loss:
                                        
   
Net loss
     —       —       —       (2,951 )     (2,951 )
   
Cumulative translation adjustment
     —       —       10       —       10  
 
                                    
 
 
Total comprehensive loss
                                     (2,941 )
 
                                    
 
Issuance of common shares on exercise of stock options
     196       101       —       —       101  
Issuance of common shares related to Employee Stock Purchase Plan
     362       231       —       —       231  
 
    
     
     
     
     
 
Balance, September 30, 2003
     26,275     $ 180,264     $ 10     $ (174,785 )   $ 5,489  
Comprehensive loss:
                                        
   
Net loss
     —       —       —       (2,647 )     (2,647 )
   
Cumulative translation adjustment
     —       —       1       —       1  
 
                                    
 
 
Total comprehensive loss
                                     (2,646 )
 
                                    
 
Issuance of common shares on exercise of stock options
     150       98       —       —       98  
 
    
     
     
     
     
 
Balance, December 31, 2003
     26,425     $ 180,362     $ 11     $ (177,432 )   $ 2,941  
 
    
     
     
     
     
 

See notes to condensed consolidated financial statements.

-5-

 

PIVOTAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed In United States Dollars; all amounts in thousands)
(Unaudited)

                       
          Six months ended December 31,
         
          2003   2002
         
 
Cash flows from operating activities:
                
   
Net loss
   $ (5,598 )   $ (20,502 )
   
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
                
 
Depreciation of property and equipment
     611       1,001  
 
Amortization of acquired intangibles
     218       48  
 
Amortization of deferred share-based compensation
     —       12  
 
Non-cash restructuring costs
     160       844  
 
(Gain) loss on disposal of other assets
     (1 )     78  
Change in operating assets and liabilities
                
 
Accounts receivable
     971       4,016  
 
Prepaid expenses and other
     1,081       228  
 
Accounts payable and accrued liabilities
     (1,418 )     (1,612 )
 
Accrued restructuring costs
     (2,769 )     3,616  
 
Deferred revenue
     (3,472 )     (821 )
   
 
    
     
 
   
Net cash used in operating activities
     (10,217 )     (13,092 )
   
 
    
     
 
Cash flows from investing activities:
                
   
Change in restricted cash
     (5,873 )     (1,240 )
   
Sales and maturities of short-term investments
     10,358       66,605  
   
Purchases of short-term investments
     —       (56,942 )
   
Receipt of earn out payment
     465       —  
   
Recovery of acquired receivables
     107       —  
   
Purchase of property and equipment
     (75 )     (1,132 )
   
Proceeds on disposal of property and equipment
     13       16  
   
Net cash acquired on acquisition of MarketFirst Software, Inc.
     —       2,515  
   
Sale of long-term investments
     —       410  
   
Other non-operating assets
     5       26  
   
 
    
     
 
Net cash provided by investing activities
     5,000       10,258  
   
 
    
     
 
Cash flows from financing activities:
                
   
Note payable
     2,000       —  
   
Repayment of obligations under capital lease
     (304 )     (295 )
   
Proceeds from issuance of common shares
     430       199  
   
 
    
     
 
Net cash provided by (used in) financing activities