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Table of Contents
 
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 June 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 0-33387
 
 
NETSCREEN TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
 
Delaware
(State or other jurisdiction of
incorporation or organization)
  
77-0469208
(I.R.S. Employer
Identification Number)
 
350 Oakmead Parkway
Sunnyvale, California 94085
(Address of principal executive office and zip code)
 
(408) 730-6000
(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  x    NO  ¨
 
As of July 31, 2002, 74,266,370 shares of the Registrant’s common stock, $0.001 par value per share, were outstanding.
 

Table of Contents
 
NETSCREEN TECHNOLOGIES, INC.
 
FORM 10-Q
 
June 30, 2002
 
INDEX
 
              
Page
PART I — FINANCIAL INFORMATION
Item 1.
   
Financial Statements:
    
    
a.
      
3
    
b.
      
4
    
c.
      
5
    
d.
      
6
Item 2.
      
10
Item 3.
      
25
PART II — OTHER INFORMATION
Item 1.
      
26
Item 2.
      
26
Item 3.
      
26
Item 4.
      
26
Item 5.
      
26
Item 6.
      
26
  
27

2

Table of Contents
 
PART I — FINANCIAL INFORMATION
 
Item 1.    Financial Statements
 
NETSCREEN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
 
    
Jun. 30,
2002
     
Sep. 30, 2001*
  
    
(Unaudited)
         
ASSETS
                  
Current assets:
                  
Cash and cash equivalents
   
$
33,099
 
   
$
11,505
 
Short-term investments
   
 
206,189
 
   
 
6,150
 
Restricted cash
   
 
2,671
 
   
 
3,236
 
Accounts receivable, net
   
 
14,018
 
   
 
16,355
 
Inventories
   
 
1,690
 
   
 
1,877
 
Other current assets
   
 
3,866
 
   
 
2,814
 
    
  
Total current assets
   
 
261,533
 
   
 
41,937
 
Property and equipment
   
 
5,232
 
   
 
6,186
 
Restricted cash
   
 
—
 
   
 
1,377
 
Other assets
   
 
607
 
   
 
701
 
    
  
Total assets
   
$
267,372
 
   
$
50,201
 
    
  
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (NET CAPITAL DEFICIENCY)
                  
Current liabilities:
                  
Accounts payable
   
$
3,124
 
   
$
4,586
 
Accrued expenses
   
 
10,082
 
   
 
6,977
 
Accrued compensation
   
 
5,772
 
   
 
4,632
 
Accrued income taxes
   
 
1,628
 
   
 
164
 
Deferred revenue
   
 
22,101
 
   
 
15,737
 
Current portion of debt and capital lease obligations
   
 
1,745
 
   
 
1,511
 
    
  
Total current liabilities
   
 
44,452
 
   
 
33,607
 
    
  
Long-term portion of debt and capital lease obligations
   
 
1,947
 
   
 
2,663
 
Commitments
                  
Redeemable convertible preferred stock, $0.001 par value, issuable in series:
                  
Authorized shares — none at June 30, 2002; 33,600,000 at September 30, 2001
                  
Issued and outstanding shares — none at June 30, 2002; 32,473,082 at September 30, 2001
   
 
—
 
   
 
56,542
 
Stockholders’ equity (net capital deficiency):
                  
Convertible preferred stock, $0.001 par value:
                  
Authorized shares — 10,000,000 at June 30, 2002; none at September 30, 2001
                  
Issued and outstanding — none at June 30, 2002 and September 30, 2001
   
 
—
 
   
 
—
 
Common stock, $0.001 par value:
                  
Authorized shares — 500,000,000 at June 30, 2002; 100,000,000 at September 30, 2001
                  
Issued and outstanding shares — 73,938,399 at June 30, 2002; 23,780,742 at September 30, 2001
   
 
74
 
   
 
24
 
Additional paid-in capital
   
 
369,856
 
   
 
105,267
 
Accumulated deficit
   
 
(99,260
)
   
 
(91,436
)
Accumulated other comprehensive gain
   
 
240
 
   
 
—
 
Deferred stock compensation
   
 
(48,385
)
   
 
(54,895
)
Stockholders’ notes receivable
   
 
(1,552
)
   
 
(1,571
)
    
  
Total stockholders’ equity (net capital deficiency)
   
 
220,973
 
   
 
(42,611
)
    
  
Total liabilities, redeemable convertible preferred stock and stockholders’ equity (net capital deficiency)
   
$
267,372
 
   
$
50,201
 
    
  
*
 
Derived from audited financial statements. Reclassified for comparative purposes.
 
See accompanying notes.

3

Table of Contents
 
NETSCREEN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)
 
    
Three Months Ended
June 30,
     
Nine Months Ended
June 30,
  
    
2002
     
2001
     
2002
     
2001
  
Revenues:
                                    
Product
   
$
30,091
 
   
$
19,107
 
   
$
80,684
 
   
$
49,456
 
Maintenance and service
   
 
6,320
 
   
 
3,896
 
   
 
16,737
 
   
 
9,771
 
    
  
  
  
Total revenues
   
 
36,411
 
   
 
23,003
 
   
 
97,421
 
   
 
59,227
 
    
  
  
  
Cost of revenues:
                                    
Product*
   
 
7,292
 
   
 
5,950
 
   
 
21,148
 
   
 
15,230
 
Maintenance and service*
   
 
2,129
 
   
 
1,023
 
   
 
5,294
 
   
 
2,799
 
    
  
  
  
Total cost of revenues
   
 
9,421
 
   
 
6,973
 
   
 
26,442
 
   
 
18,029
 
    
  
  
  
Gross margin
   
 
26,990
 
   
 
16,030
 
   
 
70,979
 
   
 
41,198
 
    
  
  
  
Operating expenses:
                                    
Research and development*
   
 
8,324
 
   
 
6,970
 
   
 
23,702
 
   
 
18,487
 
Sales and marketing*
   
 
16,592
 
   
 
14,573
 
   
 
46,419
 
   
 
40,628
 
General and administrative*
   
 
4,214
 
   
 
3,486
 
   
 
12,648
 
   
 
7,979
 
    
  
  
  
Total operating expenses
   
 
29,130
 
   
 
25,029
 
   
 
82,769
 
   
 
67,094
 
    
  
  
  
Loss from operations
   
 
(2,140
)
   
 
(8,999
)
   
 
(11,790
)
   
 
(25,896
)
Interest and other income, net
   
 
948
 
   
 
179
 
   
 
2,233
 
   
 
1,029
 
    
  
  
  
Loss before taxes
   
 
(1,192
)
   
 
(8,820
)
   
 
(9,557
)
   
 
(24,867
)
Provision for income taxes
   
 
(1,250
)
   
 
—
 
   
 
(1,889
)
   
 
—
 
    
  
  
  
Net loss
   
 
(2,442
)
   
 
(8,820
)
   
 
(11,446
)
   
 
(24,867
)
Deemed dividend on Series E and F redeemable convertible preferred stock
   
 
—
 
   
 
(730
)
   
 
(28,743
)
   
 
(2,192
)
    
  
  
  
Net loss applicable to common stockholders
   
$
(2,442
)
   
$
(9,550
)
   
$
(40,189
)
   
$
(27,059
)
    
  
  
  
Basic and diluted net loss per share applicable to common stockholders
   
$
(0.03
)
   
$
(0.55
)
   
$
(0.71
)
   
$
(1.70
)
    
  
  
  
Shares used in computing basic and diluted net loss per share applicable to common stockholders
   
 
71,317
 
   
 
17,316
 
   
 
56,486
 
   
 
15,953
 
    
  
  
  
* Includes stock-based compensation of the following:
                                    
Cost of product revenues
   
$
411
 
   
$
359
 
   
$
1,232
 
   
$
1,029
 
Cost of maintenance and service revenues
   
 
274
 
   
 
359
 
   
 
742
 
   
 
1,090