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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 JANUARY 31, 2004

 

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 000-28139

 

 

BLUE COAT SYSTEMS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

DELAWARE

(STATE OR OTHER JURISDICTION OF

INCORPORATION OR ORGANIZATION)

  

91-1715963

(IRS EMPLOYER IDENTIFICATION)

650 ALMANOR AVENUE

SUNNYVALE, CALIFORNIA

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

  

94085

(ZIP CODE)

 

REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 220-2200

 

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 ¨

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

 

Indicate the number of shares outstanding of the issuer’s class of common stock, as of the latest practicable date.

 

CLASS

  

OUTSTANDING AT

February 27, 2004

Common Stock, par value $.0001   10,706,831

 

Table of Contents

TABLE OF CONTENTS

 

          PAGE
PART I. FINANCIAL INFORMATION     
Item 1.    Condensed Consolidated Financial Statements (Unaudited)     
     Condensed Consolidated Balance Sheets as of January 31, 2004 and April 30, 2003      1
     Condensed Consolidated Statements of Operations for the three and nine months ended January 31, 2004 and 2003      2
     Condensed Consolidated Statements of Cash Flows for the nine months ended January 31, 2004 and 2003      3
     Notes to Condensed Consolidated Financial Statements    4–18
Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations    19–44
Item 3.    Quantitative and Qualitative Disclosures About Market Risk    44
Item 4.    Controls and Procedures    44
PART II. OTHER INFORMATION     
Item 1.    Legal Proceedings    44–45
Item 2.    Changes in Securities and Use of Proceeds    45
Item 6.    Exhibits and Reports on Form 8-K    46
     Signatures    47

 

 

 

i

Table of Contents

ITEM 1.    CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

BLUE COAT SYSTEMS, INC.

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

 

     January 31,
     April 30,
  
     2004
     2003
  
     (Unaudited)     (Note 1)  
ASSETS                 

Current assets:

                 

Cash and cash equivalents

    $ 35,137     $ 12,784  

Short-term investments

      80       10,538  

Accounts receivable, net

      7,806       8,080  

Inventories

      1,390       1,594  

Prepaid expenses and other current assets

      1,719       922  
    
 

Total current assets

      46,132       33,918  

Property and equipment, net

      2,203       3,024  

Restricted investments

      1,991       1,991  

Goodwill

      7,712       —    

Identifiable intangible assets, net

      2,001       —    

Other assets

      1,021       1,059  
    
 

Total assets

    $ 61,060     $ 39,992  
    
 

LIABILITIES AND STOCKHOLDERS’ EQUITY

                 

Current liabilities:

                 

Accounts payable

    $ 2,531     $ 616  

Accrued payroll and related benefits

      2,484       1,905  

Deferred revenue

      8,905       8,711  

Accrued acquisition costs

      5,673       —    

Other accrued liabilities

      5,334       5,767  
    
 

Total current liabilities

      24,927       16,999  

Accrued restructuring

      3,775       5,116  

Deferred revenue

      1,769       1,100  

Accrued acquisition costs, less current portion

      212       —    
    
 

Total liabilities

      30,683       23,215  

Commitments

                 

Stockholders’ equity:

                 

Common stock

      1       1  

Additional paid-in capital

      899,244       883,352  

Treasury stock

      (903 )     (903 )

Notes receivable from stockholders

      (37 )     (28 )

Deferred stock compensation

      (1,141 )     (607 )

Accumulated deficit

      (866,789 )     (865,051 )

Accumulated other comprehensive income

      2       13  
    
 

Total stockholders’ equity

      30,377       16,777  
    
 

Total liabilities and stockholders’ equity

    $ 61,060     $ 39,992  
    
 

 

See notes to condensed consolidated financial statements

 

1

Table of Contents

BLUE COAT SYSTEMS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
January 31,
     Nine Months Ended
January 31,
  
     2004
     2003
     2004
     2003
  

Net sales:

                                 

Products

    $ 15,589     $ 9,200     $ 34,969     $ 27,062  

Services

      3,525       2,520       9,973       6,911  
    
 
 
 

Total net sales

      19,114       11,720       44,942       33,973  

Cost of goods sold

      5,577       4,119       14,272       13,177  
    
 
 
 

Gross profit

      13,537       7,601       30,670       20,796  

Operating expenses:

                                 

Research and development

      3,082       2,712       8,092       9,109  

Sales and marketing

      6,314       6,202       17,606       19,743  

General and administrative

      1,480       1,177       3,670       3,862  

Legal settlement fees

      —         —         1,100       —    

Write-off of in-process technology

      151       —         151       —    

Amortization of intangible assets

      152       —         152       —    

Restructuring expense

      —         1,273       856       1,273  

Stock compensation

      403       599       811       2,505  
    
 
 
 

Total operating expenses

      11,582       11,963       32,438       36,492  
    
 
 
 

Operating income (loss)

      1,955       (4,362 )     (1,768 )     (15,696 )

Interest income

      90       122       262       418  

Other expense

      (55 )     (60 )     (112 )     (73 )
    
 
 
 

Net income (loss) before income taxes

      1,990       (4,300 )     (1,618 )     (15,351 )

Provision for income taxes

      (28 )     (52 )     (120 )     (137 )
    
 
 
 

Net income (loss)

    $ 1,962     $ (4,352 )   $ (1,738 )   $ (15,488 )
    
 
 
 

Basic net income (loss) per common share

    $ 0.19     $ (0.50 )   $ (0.18 )   $ (1.77 )
    
 
 
 

Diluted net income (loss) per common share

    $ 0.16     $ (0.50 )   $ (0.18 )   $ (1.77 )
    
 
 
 

Shares used in computing basic net income (loss) per common share

      10,455       8,790       9,668       8,745  
    
 
 
 

Shares used in computing diluted net income (loss) per common share

      12,286       8,790       9,668       8,745  
    
 
 
 

 

See notes to condensed consolidated financial statements

 

2

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BLUE COAT SYSTEMS, INC.

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

 

     Nine Months Ended
January 31,
  
     2004
     2003
  
Operating Activities                 

Net loss

    $ (1,738 )   $ (15,488 )

Adjustments to reconcile net loss to net cash (provided by) used in operating activities:

                 

Depreciation and amortization

      1,806       2,227  

Amortization of intangible assets

      152       —    

Write-off of in-process technology

      151       —    

Gain on disposition of equipment

      (29 )     —    

Stock compensation

      811       2,505  

Restructuring expense

      856       —    

Interest on notes receivable from stockholders

      (9 )     (11 )

Changes in operating assets and liabilities:

                 

Accounts receivable

      307       (2,905 )

Inventories

      204       325  

Prepaid expenses and other current assets

      (556 )     642  

Other assets

      44       (4 )

Deferred revenue

      689       2,459  

Accounts payable

      1,920       (1,146 )

Accrued liabilities

      (2,517 )     (3,688 )
    
 

Net cash provided by (used in) operating activities

      2,091       (15,084 )

Investing Activities

                 

Sales of investment securities, net

      10,447       11,981  

Proceeds from sales of equipment

      39       —    

Purchases of property and equipment

      (875 )     (738 )

Acquisition of Ositis, net of cash acquired

      (3,078 )     —    
    
 

Net cash provided by investing activities

      6,533       11,243