SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 2004
Commission file number 0-20008
FORGENT NETWORKS, INC.
| A DELAWARE CORPORATION | IRS EMPLOYER ID NO. 74-2415696 |
108 WILD BASIN ROAD
AUSTIN, TEXAS 78746
(512) 437-2700
The registrant 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 has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
At December 15, 2004 the registrant had outstanding 24,905,855 shares of its Common Stock, $0.01 par value.
| Page Number | ||||
| PART I - FINANCIAL INFORMATION |
||||
| Item 1 |
- Unaudited Consolidated Financial Statements | |||
| Consolidated Balance Sheets as of October 31, 2004 (unaudited) and July 31, 2004 | 3 | |||
| Unaudited Consolidated Statements of Operations for the Three Months Ended October 31, 2004 and 2003 | 4 | |||
| Unaudited Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2004 and 2003 | 5 | |||
| Notes to the Unaudited Consolidated Financial Statements | 6 | |||
| Item 2 |
- Management’s Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||
| Item 3 |
- Quantitative and Qualitative Disclosures About Market Risk | 21 | ||
| Item 4 |
- Controls and Procedures | 21 | ||
| Item 1 |
22 | |||
| Item 2 |
- Unregistered Sales of Equity Securities and Use of Proceeds |
23 | ||
| Item 3 |
23 | |||
| Item 4 |
23 | |||
| Item 5 |
23 | |||
| Item 6 |
23 | |||
| 24 | ||||
| 25 | ||||
2
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
| OCTOBER 31, 2004 |
JULY 31, 2004 |
|||||||
| (UNAUDITED) | ||||||||
| ASSETS |
||||||||
| Current Assets: |
||||||||
| Cash and equivalents, including restricted cash of $650 at October 31, 2004 and July 31, 2004 |
$ | 20,157 | $ | 19,051 | ||||
| Short-term investments |
1,558 | 2,490 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $34 and $26 at October 31, 2004 and July 31, 2004, respectively |
340 | 398 | ||||||
| Notes receivable, net of reserve of $848 at October 31, 2004 and July 31, 2004 |
— | — | ||||||
| Prepaid expenses and other current assets |
528 | 386 | ||||||
| Total Current Assets |
22,583 | 22,325 | ||||||
| Property and equipment, net |
3,514 | 3,165 | ||||||
| Intangible assets, net |
208 | 258 | ||||||
| Other assets |
168 | 267 | ||||||
| $ | 26,473 | $ | 26,015 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 1,753 | $ | 1,509 | ||||
| Accrued compensation and benefits |
238 | 290 | ||||||
| Other accrued liabilities |
1,045 | 1,060 | ||||||
| Notes payable, current position |
336 | 348 | ||||||
| Deferred revenue |
487 | 525 | ||||||
| Total Current Liabilities |
3,859 | 3,732 | ||||||
| Long-Term Liabilities: |
||||||||
| Deferred revenue |
8 | 14 | ||||||
| Other long-term obligations |
2,669 | 2,769 | ||||||
| Total Long-Term Liabilities |
2,677 | 2,783 | ||||||
| Stockholders’ Equity: |
||||||||
| Preferred stock, $.01 par value; 10,000 authorized; none issued or outstanding |
— | — | ||||||
| Common stock, $.01 par value; 40,000 authorized; 26,660 and 26,625 shares issued; 24,906 and 24,871 shares outstanding at October 31, 2004 and July 31, 2004, respectively |
266 | 266 | ||||||
| Treasury stock, 1,754 issued at October 31, 2004 and July 31, 2004 |
(4,726 | ) | (4,726 | ) | ||||
| Additional paid-in capital |
264,621 | 264,582 | ||||||
| Accumulated deficit |
(240,243 | ) | (240,631 | ) | ||||
| Accumulated other comprehensive income |
19 | 9 | ||||||
| Total Stockholders’ Equity |
19,937 | 19,500 | ||||||
| $ | 26,473 | $ | 26,015 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
| FOR THE THREE OCTOBER 31, |
||||||||
| 2004 |
2003 |
|||||||
| (UNAUDITED) | ||||||||
| REVENUES: |
||||||||
| Intellectual property licensing |
$ | 5,856 | $ | 2,850 | ||||
| Software & services |
599 | 999 | ||||||
| Other |
— | 22 | ||||||
| Total Revenues |
6,455 | 3,871 | ||||||
| COST OF SALES: |
||||||||
| Intellectual property licensing |
2,928 | 1,425 | ||||||
| Software & services |
205 | 851 | ||||||
| Other |
— | 24 | ||||||
| Total Cost of Sales |
3,133 | 2,300 | ||||||
| GROSS MARGIN |
3,322 | 1,571 | ||||||
| OPERATING EXPENSES: |
||||||||
| Selling, general and administrative |
2,599 | 3,033 | ||||||
| Research and development |
365 | 1,084 | ||||||
| Amortization of intangible assets |
12 | 4 | ||||||
| Total Operating Expenses |
2,976 | 4,121 | ||||||
| INCOME (LOSS) FROM OPERATIONS |
346 | (2,550 | ) | |||||
| OTHER INCOME AND (EXPENSES): |
||||||||
| Interest income |
68 | 62 | ||||||
| Other |
(12 | ) | (45 | ) | ||||
| Total Other Income and (Expenses) |
56 | 17 | ||||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS, BEFORE INCOME TAXES |
402 | (2,533 | ) | |||||
| Provision for income taxes |
(14 | ) | — | |||||
| INCOME (LOSS) FROM CONTINUING OPERATIONS |
388 | (2,533 | ) | |||||
| Income from discontinued operations, net of income taxes |
— | 10 | ||||||
| NET INCOME (LOSS) |
$ | 388 | $ | (2,523 | ) | |||
| BASIC AND DILUTED INCOME (LOSS) PER SHARE: |
||||||||
| Income (loss) per share from continuing operations - basic and diluted |
$ | 0.02 | $ | (0.10 | ) | |||
| Income (loss) per share from discontinued operations - basic and diluted |
$ | 0.00 | $ | 0.00 | ||||
| Net income (loss) per share - basic and diluted |
$ | 0.02 | $ | (0.10 | ) | |||
| WEIGHTED AVERAGE SHARE OUTSTANDING: |
||||||||
| Basic |
24,893 | 24,600 | ||||||
| Diluted |
24,933 | 24,600 | ||||||
The accompanying notes are integral part of these consolidated financial statements.
4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
| FOR THE THREE MONTHS ENDED OCTOBER 31, |
||||||||
| 2004 |
2003 |
|||||||
| (UNAUDITED) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Income (loss) from continuing operations |
$ | 388 | $ | (2,533 | ) | |||
| Adjustments to reconcile net income (loss) to net cash provided by operations: |
||||||||
| Depreciation and amortization |
379 | 835 | ||||||
| Amortization of leasehold advance and lease impairment |
(146 | ) | (284 | ) | ||||
| Provision for doubtful accounts |
— | (5 | ) | |||||
| Amortization of unearned compensation |
— | 15 | ||||||
| Foreign currency translation gain |
2 | — | ||||||
| Sale of accounts receivable |
— | 1,746 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
57 | 6,676 | ||||||
| Prepaid expenses and other current assets |
(142 | ) | (223 | ) | ||||
| Accounts payable |
(331 | ) | (1,478 | ) | ||||
| Accrued expenses and other long-term obligations |
(28 | ) | (53 | ) | ||||
| Deferred revenue |
(46 | ) | 130 | |||||
| Net cash provided by operating activities |
133 | 4,826 | ||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Net sales (purchases) of short-term investments |
932 | (3,187 | ) | |||||
| Net purchases of property and equipment |
— | (464 | ) | |||||
| Issuance of notes receivable |
(1 | ) | (4 | ) | ||||
| Increase in capitalized software |
— | (522 | ) | |||||
| Increase in other assets |
— | (200 | ) | |||||
| Purchase of Network Simplicity Software Inc. |
— | (1,965 | ) | |||||
| Net cash provided by (used in) investing activities |
931 | (6,342 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Net proceeds from issuance of stock |
39 | 278 | ||||||
| Purchase of treasury stock |
— | (454 | ) | |||||
| Proceeds from notes payable |
112 | 84 | ||||||
| Payments on notes payable and capital leases |
(117 | ) | (166 | ) | ||||
| Net cash provided by (used in) financing activities |
34 | (258 | ) | |||||
| CASH FLOWS FROM DISCONTINUED OPERATIONS: |
||||||||
| Net cash provided by discontinued operations |
— | 10 | ||||||
| Effect of translation exchange rates on cash |
8 | 2 | ||||||
| Net increase (decrease) in cash and equivalents |
1,106 | (1,762 | ) | |||||
| Cash and equivalents at beginning of period |
19,051 | 21,201 | ||||||
| Cash and equivalents at end of period |
$ | 20,157 | $ | 19,439 | ||||
Certain reclassifications have been made to prior year’s financial statement to conform with current year presentation.
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share and employee data unless otherwise noted)
NOTE 1 - GENERAL AND BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accordingly, do not include all information and footnotes required under accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, these interim financial statements contain all adjustments, consisting of normal, recurring adjustments, necessary for a fair presentation of the financial position of Forgent Networks, Inc. (“Forgent” or the “Company”) as of October 31, 2004 and July 31, 2004, and the results of operations and cash flows for the three months ended October 31, 2004 and 2003. The results for interim periods are not necessarily indicative of results for a full fiscal year.
NOTE 2 - ACQUISITIONS
During the first fiscal quarter of 2004, Forgent acquired substantially all of the assets and operations of Network Simplicity Software Inc., a privately held provider of web-based scheduling solutions. The acquired software products, targeted for small to medium sized businesses and departments or divisions of large enterprises, are sold under the Company’s “NetSimplicity” software product line. This strategic acquisition allowed the Company to expand its market opportunities into the small to medium sized business market.
Forgent purchased Network Simplicity Software Inc. for approximately $3,315, consisting of $2,115 in cash and assumed liabilities, and approximately $1,200 in potential future cash considerations. The $2,115 was the amount recorded as the purchase price of the acquisition, which was accounted for as a purchase of assets. Accordingly, the purchase price was allocated to the tangible and identifiable intangible assets acquired based on their estimated fair values at the date of acquisition. The intangible assets are being amortized over their estimated lives of two to three years. The following table shows the amounts assigned to each major asset and liability class as of the date of acquisition:
| Cash |
$ | 55 | |
| Accounts receivable, net |
137 | ||
| Prepaid expenses |
3 | ||
| Fixed assets |
37 | ||
| Intangible assets |
425 | ||
| Acquired software |
1,570 | ||
| Total Assets |
$ | 2,227 | |
| Accounts payable |
$ | 15 | |
| Accrued liabilities |
64 | ||
| Deferred revenue |
33 | ||
| Total Liabilities |
$ |