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 September 30, 2003 | ||
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 0-20634
SAFENET, INC.
(Exact name of registrant as specified in its charter)
__________________
| Delaware | 52-1287752 | |
| (State or other jurisdiction of | (IRS Employer Identification No.) | |
| incorporation or organization) |
8029 Corporate Drive, Baltimore, MD 21236
(Address of principal executive offices)
410-931-7500
(Registrant’s telephone number)
Indicate by a 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 twelve 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 ___
Indicate by a check mark whether the registrant is an accelerated filed (as defined in Rule 12b-2 of the Exchange Act). Yes X No ___
APPLICABLE ONLY TO CORPORATE ISSUERS
1
INDEX TO FINANCIAL STATEMENTS
| PART I: FINANCIAL INFORMATION | Page | |||||
Item 1: Financial Statements (Unaudited) |
||||||
Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 |
3 | |||||
Consolidated Statements of Operations for the three and nine months ended September 30, 2003 and 2002 |
4 | |||||
Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2003 and 2002 |
5 | |||||
Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2003 |
6 | |||||
Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 |
7 | |||||
Notes to Consolidated Financial Statements – September 30, 2003 |
8 | |||||
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations |
19 | |||||
Item 3: Quantitative and Qualitative Disclosures About Market Risk |
25 | |||||
Item 4: Controls and Procedures |
26 | |||||
PART II: OTHER INFORMATION |
||||||
Item 1: Legal Proceedings |
27 | |||||
Item 6: Exhibits and Reports on Form 8-K |
28 | |||||
SIGNATURES |
29 | |||||
2
PART I: FINANCIAL INFORMATION
Item 1: Financial Statements
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
| September 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
| (unaudited) | ||||||||||||
Assets |
||||||||||||
Current
assets: |
||||||||||||
Cash
and cash equivalents |
$ | 108,180 | $ | 3,399 | ||||||||
Short-term
investments |
16,800 | 28,763 | ||||||||||
Accounts
receivable, net of allowance for doubtful accounts of $840 and $224 |
10,791 | 4,534 | ||||||||||
Inventories,
net of reserve of $1,338 and $958 |
1,414 | 1,008 | ||||||||||
Other
current assets |
1,503 | 1,002 | ||||||||||
Current
assets of discontinued operations |
— | 93 | ||||||||||
Total
current assets |
138,688 | 38,799 | ||||||||||
Equipment
and leasehold improvements, net of accumulated depreciation of $6,441
and $4,734 |
2,998 | 1,246 | ||||||||||
Computer
software development costs, net of accumulated amortization of $1,724
and $1,513 |
1,388 | 479 | ||||||||||
Goodwill |
38,470 | 12,826 | ||||||||||
Other
intangible assets, net of accumulated amortization of $6,857 and $1,640 |
14,087 | 595 | ||||||||||
Other
assets |
889 | 1,374 | ||||||||||
Total
assets |
$ | 196,520 | $ | 55,319 | ||||||||
Liabilities
and Stockholders’ Equity |
||||||||||||
Current
liabilities: |
||||||||||||
Accounts
payable |
$ | 2,491 | $ | 1,456 | ||||||||
Accrued
salaries and commissions |
3,460 | 2,162 | ||||||||||
Income
taxes payable |
1,038 | — | ||||||||||
Other
accrued expenses |
3,702 | 1,424 | ||||||||||
Advance
payments and deferred revenue |
3,120 | 1,393 | ||||||||||
Deferred
income taxes |
2,607 | — | ||||||||||
Current
liabilities of discontinued operations |
— | 377 | ||||||||||
Total
current liabilities |
16,418 | 6,812 | ||||||||||
Deferred
income taxes |
2,677 | 129 | ||||||||||
Unfavorable
lease liability |
4,353 | — | ||||||||||
Total
liabilities |
23,448 | 6,941 | ||||||||||
Commitments
and contingencies |
— | — | ||||||||||
Stockholders’
equity: |
||||||||||||
Preferred
stock, $.01 par value per share Authorized 500 shares, none issued and outstanding |
— | — | ||||||||||
Common
stock, $.01 par value per share Authorized 50,000 shares, issued 13,259 and 7,894 shares |
133 | 79 | ||||||||||
Additional
paid-in capital |
199,498 | 65,665 | ||||||||||
Accumulated
other comprehensive income |
3,846 | 2,859 | ||||||||||
Accumulated
deficit |
(30,405 | ) | (20,225 | ) | ||||||||
Total
stockholders’ equity |
173,072 | 48,378 | ||||||||||
Total
liabilities and stockholders’ equity |
$ | 196,520 | $ | 55,319 | ||||||||
See accompanying notes to consolidated financial statements.
3
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited — In thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | |||||||||||||||||
| September 30, | September 30, | |||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||
Revenues |
||||||||||||||||||
Licenses and royalties |
$ | 3,304 | $ | 1,277 | $ | 7,702 | $ | 4,622 | ||||||||||
Products |
11,085 | 6,916 | 31,922 | 15,784 | ||||||||||||||
Service and maintenance |
3,204 | 634 | 7,408 | 2,003 | ||||||||||||||
| 17,593 | 8,827 | 47,032 | 22,409 | |||||||||||||||
Cost of revenues |
||||||||||||||||||
Licenses and royalties |
48 | 151 | 292 | 577 | ||||||||||||||
Products |
3,723 | 2,261 | 9,649 | 5,675 | ||||||||||||||
Service and maintenance |
320 | 168 | 958 | 342 | ||||||||||||||
Amortization of intangible assets |
337 | — | 2,227 | — | ||||||||||||||
| 4,428 | 2,580 | 13,126 | 6,594 | |||||||||||||||
Gross profit |
13,165 | 6,247 | 33,906 | 15,815 | ||||||||||||||
Research and development expenses |
3,905 | 2,273 | 11,310 | 6,546 | ||||||||||||||
Sales and marketing expenses |
3,956 | 1,820 | 10,571 | 5,198 | ||||||||||||||
General and administrative expenses |
1,758 | 1,000 | 4,857 | 2,634 | ||||||||||||||
Write-off of acquired in-process research and development costs |
— | — | 9,681 | 3,375 | ||||||||||||||
Costs of integration of acquired companies |
138 | — | 3,127 | — | ||||||||||||||
Amortization of intangible assets |
1,313 | 400 | 3,349 | 1,102 | ||||||||||||||
Total operating expenses |
11,070 | 5,493 | 42,895 | 18,855 | ||||||||||||||
Operating income (loss) |
2,095 | 754 | (8,989 | ) | (3,040 | ) | ||||||||||||
Interest and other income, net |
193 | 123 | 416 | 421 | ||||||||||||||
Income (loss) from continuing operations before income taxes |
2,288 | 877 | (8,573 | ) | (2,619 | ) | ||||||||||||
Income tax expense |
(569 | ) | — | (1,607 | ) | — | ||||||||||||
Income (loss) from continuing operations |
1,719 | 877 | (10,180 | ) | (2,619 | ) | ||||||||||||
Income (loss) from operations of discontinued GDS business
(including loss on disposal of $0, $0, $0 and $3,506) |
— | 116 | — | (4,066 | ) | |||||||||||||
Net income (loss) |
$ | 1,719 | $ | 993 | $ | (10,180 | ) | $ | (6,685 | ) | ||||||||
Income (loss) per common share: |
||||||||||||||||||
Basic |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.13 | $ | 0.11 | $ | (0.95 | ) | $ | (0.34 | ) | ||||||||
Income (loss) from discontinued operations (GDS) |
— | 0.02 | — | (0.53 | ) | |||||||||||||
Net income (loss) per share |
$ | 0.13 | $ | 0.13 | $ | (0.95 | ) | $ | (0.87 | ) | ||||||||
Diluted |
||||||||||||||||||
Income (loss) from continuing operations |
$ | 0.13 | $ | 0.11 | $ | (0.95 | ) | $ | (0.34 | ) | ||||||||
Income (loss) from discontinued operations (GDS) |
— | 0.01 | — | (0.53 | ) | |||||||||||||
Net income (loss) per share |
$ | 0.13 | $ | 0.12 | $ | (0.95 | ) | $ | (0.87 | ) | ||||||||
Shares used in computation: |
||||||||||||||||||
Basic |
12,769 | 7,736 | 10,700 | 7,701 | ||||||||||||||
Diluted |
13,546 | 8,062 | 10,700 | 7,701 | ||||||||||||||
See accompanying notes to consolidated financial statements.
4
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited — in thousands)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income (loss) |
$ | 1,719 | $ | 993 | $ | (10,180 | ) | $ | (6,685 | ) | ||||||
Other comprehensive income (loss): |
||||||||||||||||
Unrealized loss from available-for-sale
securities |
— | (56 | ) | — | (268 | ) | ||||||||||
Foreign currency translation adjustment |
248 | 383 | 987 | 1,828 | ||||||||||||
Reclassification adjustment — realization of
foreign currency translation adjustment
upon disposal of GDS business |
— | — | — | 1,526 | ||||||||||||
Comprehensive income (loss) |
$ | 1,967 | $ | 1,320 | $ | (9,193 | ) | $ | (3,599 | ) | ||||||
See accompanying notes to consolidated financial statements.
5
SAFENET, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Nine months ended September 30, 2003
(Unaudited — in thousands)
| Accumulated | ||||||||||||||||||||||||
| Additional | other | Total | ||||||||||||||||||||||
| Common stock | paid-in | comprehensive | Accumulated | stockholders' | ||||||||||||||||||||
| Shares | Amount | capital | income | deficit | equity | |||||||||||||||||||
Balance at January 1, 2003 |
7,894 | $ | 79 | $ | 65,665 | $ | 2,859 | $ | (20,225 | ) | $ | 48,378 | ||||||||||||
Issuance of common stock in connection with
secondary offering |
2,698 | 27 | 83,893 | — | — | 83,920 | ||||||||||||||||||
Issuance of common stock in connection with
the acquisition of Cylink Corporation |
1,680 | 17 | 31,067 | — | — | 31,084 | ||||||||||||||||||
Assumption of stock options in connection
with the acquisition of Cylink Corporation |
— | — | 1,399 | — | — | 1,399 | ||||||||||||||||||
Assumption of warrants in connection with the
acquisition of Cylink Corporation |
— | — | 292 | — | — | 292 | ||||||||||||||||||
Issuance of common stock in connection with the
asset acquisition of Raqia Networks |
354 | 4 | 6,094 | — | — | 6,098 | ||||||||||||||||||
Income tax benefit related to stock option exercises |
— | — | 2,458 | — | — | 2,458 | ||||||||||||||||||
Issuance of common stock under Employee
Stock Purchase Plan |
7 | — | 162 | — | — | 162 | ||||||||||||||||||
Issuance of common stock for option exercises |
626 | 6 | 8,468 | — | — | 8,474 | ||||||||||||||||||
Net loss for the nine months ended September 30,
2003 |
— | — | — | — | (10,180 | ) | (10,180 | ) | ||||||||||||||||
Foreign currency translation adjustment |
— | — | — | 987 | — | 987 | ||||||||||||||||||
Balance at September 30, 2003 |
13,259 | $ | 133 | $ | 199,498 | $ | 3,846 | $ | (30,405 | ) | $ | 173,072 | ||||||||||||
See accompanying notes to consolidated financial statements.
6
SAFENET, INC.
ANS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited — in thousands)
| Nine Months Ended | ||||||||||||
| September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Cash
flows from operating activities: |
||||||||||||
Net
loss |
$ | (10,180 | ) | $ | (6,685 | ) | ||||||