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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 MARCH 31, 1999
[ ] 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 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 22ND FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-3000
(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 [ ]
The number of shares of the registrant's Common Stock, no par value,
outstanding as of March 31, 1999, was 22,442,108
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
ASSETS 1999 (UNAUDITED) 1998 (AUDITED)
---------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,800 $ 48,010
Short-term investments 20,787 10,187
Accounts receivable, net 5,467 5,711
Deferred tax asset 4,398 3,245
Other current assets 1,082 1,676
-------- --------
Total current assets 71,534 68,829
Property and equipment, net 7,907 5,342
Purchased software and related assets, net 1,325 1,374
Other assets 483 492
-------- --------
Total assets $ 81,249 $ 76,037
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,150 $ 1,954
Accrued liabilities 3,488 1,979
Accrued compensation 873 960
Deferred revenue 5,930 4,994
-------- --------
Total current liabilities 13,441 9,887
-------- --------
Long-term liabilities:
Convertible debentures -- 7,572
Other long-term liabilities 68 42
-------- --------
Total long-term liabilities 68 7,614
-------- --------
Shareholders' equity:
Convertible preferred stock, $0.025 par value, 520 shares
authorized, 0 and 7 shares issued and outstanding, respectively -- --
Common stock, no par value, 100,000 shares authorized,
22,442 and 21,103 shares issued and outstanding, respectively 1 1
Additional paid-in capital 79,871 65,675
Common stock to be issued, 175 shares -- 3,352
Accumulated deficit (12,096) (10,532)
Cumulative other comprehensive income (loss) (36) 40
-------- --------
Total shareholders' equity 67,740 58,536
-------- --------
Total liabilities and shareholders' equity $ 81,249 $ 76,037
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
ENDED MARCH 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Revenues:
Licenses $ 8,315 $ 4,384
Services 3,570 1,456
------- -------
Total revenues 11,885 5,840
------- -------
Cost of revenues:
Cost of licenses 251 208
Cost of services 441 215
------- -------
Total cost of revenues 692 423
------- -------
Gross profit 11,193 5,417
------- -------
Costs and expenses:
Sales and marketing 5,335 3,171
Research and development 3,420 1,932
General and administrative 1,276 909
Transaction and restructuring 2,286 --
------- -------
Operating loss (1,124) (595)
Other income, net 617 46
------- -------
Loss before income tax provision (507) (549)
Provision for income tax 1,057 122
------- -------
Net loss (1,564) (671)
Other comprehensive income, net of tax:
Loss from foreign currency translation (76) --
------- -------
Comprehensive loss $(1,640) $ (671)
======= =======
Loss per common share:
Basic $ (0.07) $ (0.08)
Diluted $ (0.07) $ (0.08)
Shares used in computing loss per common share:
Basic 21,730 8,833
Diluted 21,730 8,833
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,564) $ (671)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 630 211
Deferred income taxes 1,109 122
Changes in assets and liabilities:
Decrease in accounts receivable 244 1,564
Decrease in other assets 594 --
Increase in accounts payable 1,196 --
Increase (decrease) in accrued liabilities 1,508 (70)
Increase in deferred revenues 936 458
-------- --------
Net cash provided by operating activities 4,653 1,614
-------- --------
Cash flows from investing activities:
Purchase of property and equipment (3,164) (608)
Purchase of investments, net (10,600) --
Other (33) (21)
-------- --------
Net cash used by investing activities (13,797) (629)
-------- --------
Cash flows from financing activities:
Interest accrued on convertible debentures 86 75
Proceeds from issuance of convertible debentures -- 42
Proceeds from exercise of stock options 924 --
-------- --------
Net cash provided by financing activities 1,010 117
Effect of exchange rate changes on cash (76) --
-------- --------
Net increase (decrease) in cash and cash equivalents (8,210) 1,102
Cash and cash equivalents at beginning of period 48,010 9,197
-------- --------
Cash and cash equivalents at end of period $ 39,800 $ 10,299
======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK ADDITIONAL COMMON OTHER TOTAL
------------------- PAID-IN STOCK ACCUMULATED COMPREHENSIVE SHAREHOLDERS'
SHARES AMOUNT CAPITAL TO BE ISSUED DEFICIT INCOME (LOSS) EQUITY
------ -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 21,103 $ 1 $ 65,675 $ 3,352 $(10,532) $ 40 $ 58,536
Exercise of stock options 682 -- 924 -- -- -- 924
Tax benefit related to exercise
of employee stock options -- -- 2,262 -- -- -- 2,262
Issuance pursuant to business acquired 175 -- 3,352 (3,352) -- -- --
Conversion of convertible debentures and
preferred stock into common stock 482 -- 7,658 -- -- -- 7,658
Foreign currency translation adjustment -- -- -- -- -- (76) (76)
Net (loss) for the three months ended
March 31, 1999 -- -- -- -- (1,564) -- (1,564)
-------- -------- -------- -------- -------- -------- --------
Balance at March 31, 1999 22,442 $ 1 $ 79,871 $ -- $(12,096) $ (36) $ 67,740
======== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
BindView Development Corporation, a Texas corporation (the "Company" or
"BindView"), reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
These financial statements should be read in conjunction with the Company's
annual audited financial statements and the supplemental financial statements
for the year ended December 31, 1998, which are included in the Annual Report
on Form 10-K and Amendment No. 1 to the Company's Form 8-K filed with the
Securities and Exchange Commission (the "Commission") on March 1, 1999,
respectively.
Operating results for the three month period ended March 31, 1999 are not
necessarily indicative of the results that may be expected for the full year
ending December 31, 1999.
NOTE 2 - DESCRIPTION OF BUSINESS
The Company was incorporated in May 1990. Previous to 1995, the Company was
known as The LAN Support Group, Inc. The Company develops, markets and supports
a suite of systems and security management software products that manage the
security and integrity of complex, distributed client/server networks operating
on Microsoft Windows NT and Novell NetWare environments.
NOTE 3 - ACQUISITIONS
In December of 1998, the Company committed to deliver 175 shares of its common
stock in exchange for all of the outstanding equity interests of Curasoft, Inc.
in a transaction accounted for as a purchase. In February of 1999, the Company
issued 175 shares of common stock to satisfy this obligation.
On March 1, 1999, the Company merged with Netect, Ltd. ("Netect") in a
stock-for-stock transaction accounted for as a pooling of interests. Netect
develops and markets corporate security solutions for Internet/Intranet
networks. In connection with the merger, the Company issued 1,161 shares of
common stock, based upon an exchange ratio of 0.400022101 shares of BindView
common stock for each share of Netect common stock. As a result of this merger,
all of the outstanding convertible preferred stock and convertible debentures of
Netect converted into the Company's common stock. Merger and restructuring
related costs of $2,286 were incurred as a result of this transaction.
The financial data included herein has been restated to reflect the merger with
Netect. There were no material transactions between BindView and Netect during
the periods prior to the merger.
NOTE 4 - INCOME TAX
As of March 31, 1999, the Company's remaining net operating loss carryforwards
approximate $16,000 for federal tax purposes, which may be utilized to reduce
future taxable income. This carryforward expires between 2010 - 2012. The
Company's ability to utilize the net operating loss carryforwards related to
its acquisitions may be subject to certain limitations. Based on the historical
earnings generated by the Company, management believes it is more likely than
not that the tax benefits related to the net operating loss carryforward will
be realized and has, therefore, provided no valuation allowance for the related
deferred tax asset, with the exception of $6,860 provided at March 31, 1999 for
the net operating loss generated from Netect and certain foreign subsidiaries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in the "Risk
Factors" set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. The following discussion should be read in conjunction
with the unaudited condensed consolidated financial statements and the
accompanying notes.
In connection with the merger with Netect on March 1, 1999, accounted for as a
pooling of interests, the financial data included herein has been restated to
reflect this merger.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
selected items in the Condensed Consolidated Statement of Operations and
Comprehensive Income (Loss) to total revenues:
<TABLE>
<CAPTION>
PERCENT OF TOTAL NET REVENUES
QUARTER
ENDED MARCH 31,
------------------
1999 1998
------ ------
<S> <C> <C>
Revenues:
Licenses 70.0 75.1
Services 30.0 24.9
------ ------
Total revenues 100.0 100.0
------ ------
Cost of revenues:
Cost of licenses 2.1 3.6
Cost of services 3.7 3.6
------ ------
Total cost of revenues 5.8 7.2
------ ------
Gross profit 94.2 92.8
------ ------
Costs and expenses
Sales and Marketing 44.9 54.3
Research and Development 28.8 33.1
General and Administrative 10.7 15.6
Transaction and Restructuring(1) 19.2 --
------ ------
Operating loss (9.4) (10.2)
Other income,net 5.1 0.8
------ ------
Loss before income tax provision (4.3) (9.4)
Provision for income tax 8.9 2.1
------ ------
Net loss (13.2) (11.5)
====== ======
</TABLE>
Notes:
(1) Represents a $2,286 non-recurring, non-tax deductible charge related to
costs associated with the Netect merger and restructuring.
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $6.0 million or 104% in the first quarter of 1999 over the comparable
quarter of the prior year.
The Company's license revenues increased $3.9 million or 90% in the first
quarter of 1999 over the comparable quarter of the prior year. The increase in
the Company's license revenues over these periods is a result of continued
market acceptance of the BindView EMS product family.
The Company's service revenues increased $2.1 million or 145% in the first
quarter of 1999 over the comparable quarter of the prior year. The increase in
the Company's service revenues over these periods is a result of increase in
purchases and renewals of subscription contracts by
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the Company's growing installed customer base. As subscription contracts are
recognized ratably over the contract term, an increase in such revenues as a
percentage of total revenues would result in greater deferred revenue
recognition. This may, in turn, impact the Company's operating margins.
COST OF REVENUES
Cost of licenses includes product manuals, packaging, distribution and media
costs for the Company's software products. The Company's cost of licenses
increased $43,000 or 21% in the first quarter of 1999 over the comparable
quarter of the prior year. The cost of licenses has increased primarily due to
increases in product shipments. The Company believes these costs will remain
relatively constant as a percentage of total revenue, although there will
continue to be quarterly fluctuations due to the timing of certain expenses.
Cost of services includes personnel and other costs related to technical
support and professional services. The Company's cost of services increased
$226,000 or 105% in the first quarter of 1999 over the comparable quarter of
the prior year. The cost of services has increased primarily due to increases
in the cost of technical support staff providing support to the Company's
growing customer base and increases in the cost of professional services staff
providing customer training and implementation services.
COSTS AND EXPENSES
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, general office expenses, travel
and entertainment and promotional expenses. The Company's sales and marketing
expenses increased $2.2 million or 68% in the first quarter of 1999 over the
comparable quarter of the prior year. Sales and marketing expenses decreased to
44.9% of revenues for the first quarter of 1999 compared to 54.3% in the
corresponding period of 1998. The decrease in sales and marketing expenses as a
percentage of revenues is related to the decrease in the sales and marketing
expenses associated with Netect over these periods, the start-up costs incurred
with the launch of the Company's direct telesales organization in Germany during
the first quarter of 1998 and the ongoing efforts of the Company to manage
operating expenses. Due to the seasonal nature of revenues, the Company
anticipates that for the remaining fiscal quarters of 1999, sales and marketing
expenses will decrease as a percentage of revenues but increase in absolute
dollars as the Company continues to invest in marketing campaigns relative to
the sales growth and increase its expansion of domestic and international sales
efforts.
Research and development expenses consist primarily of salaries and benefits of
product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $1.5 million or 77% in the
first quarter of 1999 over the comparable quarter of the prior year. Research
and development expenses decreased to 28.8% of revenues in the first quarter of
1999 compared to 33.1% in the corresponding period of 1998. This decline in
research and development expenses as a percentage of revenue is a result of
certain product lines reaching a stage in their product life cycle requiring
less research and development effort relative to the respective license revenue
generated by these products and the Company's ongoing efforts to manage
operating expenses. However, the Company believes that a significant research
and development investment is essential for it to maintain market leadership and
continue to expand its product line. Accordingly, the Company anticipates it
will continue to devote substantial resources to product research and
development for the foreseeable future, and that research and development
expenses will increase in absolute dollars for the remaining fiscal quarters of
1999.
General and administrative expenses consist primarily of salaries, personnel and
related costs for the Company's executive, administrative, finance and
information services staff. The Company's general and administrative expenses
increased $367,000 or 40% in the first quarter of 1999 over the comparable
quarter of the prior year. General and administrative expenses declined to 10.7%
of revenues in the first quarter of 1999 compared to 15.6% in the corresponding
period of 1998. This decline in general and administrative expenses as a
percentage of revenue is a result of the reduction of duplicative staff
associated with the Netect acquisition and the Company's ongoing efforts to
manage operating expenses. The Company expects that for the remainder of 1999
general and administrative expenses will decline as a percentage of total
revenue.
OTHER INCOME, NET
The Company had other income of $617,000 in the first quarter of 1999 compared
to $46,000 in the corresponding period of 1998. This increase is primarily due
to an increase in interest income related to higher cash, cash equivalents and
investment balances as a result of the Company's initial public offering in July
1998, secondary offering in December 1998 and positive cash flow from operating
activities.
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PROVISION FOR INCOME TAXES
The Company has recognized tax expense for its income generated in the U.S. A
tax benefit has not been recognized for certain losses of the Company generated
by Netect due to limitations on the Company's ability to realize such benefits
given the former structure of Netect and the Company's plans for Netect's
future operations. These factors, and the non-deductibility of the transaction
expenses incurred in connection with the company's merger with Netect have
resulted in the Company's effective tax rate exceeding 35% for the periods
presented. The Company expects that its effective tax rate will stabilize near
35% for each of the remaining fiscal quarters of 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased to $58.1 million at March 31, 1999 from
$58.9 million at December 31, 1998. The Company's cash, cash equivalent and
short-term investments balance increased to $60.6 million at March 31, 1999
from $58.2 million at December 31, 1998 due primarily to positive cash flow
operating activities and the exercise of stock options.
The Company believes that the net proceeds of its initial and secondary
offerings, together with existing cash, cash equivalents, short-term
investments and cash flow from operations will be sufficient to meet its normal
working capital requirements for at least the next 12 months. Thereafter, the
Company may require additional funds to support its working capital
requirements or for other purposes and may seek to raise such additional funds
through public or private equity financing or from other sources. There can be
no assurance that additional financing will be available at all or that, if
available, such financing will be obtainable on terms favorable to the Company
or that any additional financing would not be dilutive.
The Company currently intends to use the net proceeds of its initial and
secondary public offerings for working capital and general corporate purposes,
including financing accounts receivable and capital expenditures made in the
ordinary course of business, as well as for possible acquisitions of
businesses, products and technologies that are complementary to those of the
Company. There can be no assurance that the Company will be able to identify any
acquisitions of businesses, products or technology that are complimentary to
those of the Company or are on terms that are acceptable to the Company.
Pending such uses, the net proceeds will continue to be invested in government
securities and other short-term, investment-grade, interest-bearing instruments.
YEAR 2000 ISSUES
Background. Some computers, software and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to
operate or fail to produce correct results if "00" is interpreted to mean 1900
or some other default condition, rather than 2000. These problems are widely
expected to increase in frequency and severity as the year 2000 approaches and
are commonly referred to as the "Millennium Bug" or "Year 2000 Problem".
Assessment. The Year 2000 Problem could affect computers, software and
other equipment that we and our customers and suppliers use. Accordingly, we
are reviewing our internal computer programs and systems to ensure that they
will be Year 2000 compliant. We presently believe that our computer systems
will be Year 2000 compliant in a timely manner. However, while the estimated
cost of these efforts is not expected to be material to our financial position
or any year's results of operations, there can be no assurance to this effect.
Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a have not been tested for Year 2000 compliance and/or are not Year 2000
compliant. Customers of BindView EMS before version 5.2a under subscription
contracts have been provided upgrades to versions of BindView EMS that are
designed to be Year 2000 compliant. Customers that have not upgraded to Year
2000 compliant versions of BindView EMS will have to either i) enter into a
subscription agreement with the Company and upgrade to a compliant version or
ii) purchase the latest Year 2000 compliant version of BindView EMS. In
addition, we believe that it is not possible to determine with complete accuracy
that all Year 2000 Problems affecting our software products have been identified
or corrected due to the complexity of our products and the fact that these
products interact with other third party vendor products and operate on computer
systems that are not under our control.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We commenced the process of modifying, upgrading and replacing the systems that
have been identified as potentially being adversely affected and completed this
process during the first quarter of 1999. The costs associated with modifying,
upgrading and replacing these systems did not exceed $1.0 million and
substantially all of these costs have been capitalized.
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Systems Other Than Information Technology Systems. In addition to computers
and related systems, the operation of office and facilities equipment, such as
fax machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We are currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on our office and facilities equipment. We have recently replaced our
primary telephone switch with equipment that provides additional capacity to
meet the Company's growth needs and is believed to be Year 2000 compliant.
We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.
Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment
used, operated or maintained by us to identify and, to the extent possible,
resolve issues involving the Year 2000 Problem. However, we have limited or no
control over the actions of such third-party suppliers. Thus, while we expect
that we will be able to resolve any significant Year 2000 Problems with such
systems, there can be no assurance that our suppliers will resolve any or all
Year 2000 Problems with such systems before the occurrence of a material
disruption to our business or any of our suppliers. Any failure of these
third-parties to resolve Year 2000 problems with their systems in a timely
manner could have a material adverse effect on our business, financial
condition or results of operation.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe
that it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related
to the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:
- a significant number of operational inconveniences and inefficiencies
for us and our customers that may divert our time and attention and
financial and human resources from our ordinary business activities;
and
- a lesser number of serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material
business disruptions.
Should these possibilities actually occur, we could experience operating
expense levels higher then currently budgeted or reductions in our expected
growth rates.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the second quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches.
If we are required to implement any of these contingency plans, such plans
could have a material adverse effect on our business, financial condition or
results of operations. However, based on the activities described above, the
Company does not believe that the Year 2000 Problem will have a material
adverse effect on the Company's business, financial condition or results of
operations.
The discussion of the Company's efforts and expectations relating to Year
2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software and unanticipated problems identified in the Company's
ongoing compliance review.
The foregoing statements are intended to be and are hereby designated "Year
2000 Readiness Disclosure" within the meaning of the Year 2000 Information and
Readiness Act.
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PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's financial position,
business strategy, products, products under development, markets, budgets and
plans and objectives of management for future operations, are forward-looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations are
disclosed in statements set forth under "Cautionary Statements" and elsewhere
in this Report, including, without limitation, in conjunction with the
forward-looking statements included in this Report. All subsequent written and
oral forward-looking statements attributable to the Company, or persons on its
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements. For purposes of this Item 5, references to the
"Company", "BindView", "we", "us" and "our" refer to BindView Development
Corporation and its subsidiaries.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS
Our quarterly revenues, expenses and operating results may fluctuate
significantly due to a number of factors, including:
- demand for our products;
- size and timing of significant orders and their fulfillment;
- our ability to develop and upgrade our technology;
- changes in our level of operating expenses;
- our ability to compete in a highly competitive market;
- undetected software errors and other product quality problems;
- changes in our sales incentive plans and staffing of sales territories;
and
- changes in the mix of domestic and international revenues and the level
of international expansion.
Generally, we do not operate with a backlog because we ship our products and
recognize revenue shortly after orders are received. At the time we ship our
products we have satisfied all of the criteria of Statement of Position No. 97-2
"Software Revenue Recognition," and therefore we recognize the related license
revenue. As a result, orders booked throughout a quarter substantially impact
product revenues in that quarter. Our sales also fluctuate throughout the
quarter as a result of customer buying patterns. We base our expenses to a
significant extent on our expectations of future revenues. Most of our expenses
are fixed in the short term and we may not be able to quickly reduce spending if
our revenues are lower than we had projected. If our revenue levels do not meet
our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that these seasonal trends may cause first quarter
revenues to be significantly lower than the level achieved in the preceding
fourth quarter.
Prior to January 1, 1998, we provided telephone support free of charge and sold
product upgrades separately or through subscription contracts. We now require
our customers to purchase a subscription policy in order to receive product
upgrades and technical support. Unlike software license revenues that we
generally recognize upon shipment of the product, we recognize subscription
contract revenues ratably over the life of the contract term. As a result, if we
derive a larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our business, operating results and financial condition.
As a result, we believe quarter-to-quarter comparisons of our revenues, expenses
and results of operations are not necessarily meaningful. You should not rely on
our quarterly revenues, expenses and results of operations to predict our future
performance.
CAUTIONARY STATEMENTS
We Have a Limited Operating History. Although BindView was founded in 1990, we
have derived substantially all of our revenues since 1995 from sales of
BindView NCS, replaced in 1996 by BindView EMS. We therefore have a limited
operating history based on our primary products. An investor in our Company
must consider the risks and uncertainties frequently encountered by software
companies in the early stages of development, particularly those faced by
companies in the highly competitive and rapidly evolving systems management
software market. To compete in this market, we believe that we must devote
substantial resources to expanding our sales and marketing organization and to
continue product development. As a result, we will need to recognize
significant quarterly revenues to remain profitable. Our revenues have
increased in recent years, and revenues for recent quarters have exceeded
revenues for the same quarter for the prior year. However, we cannot be certain
that we can sustain these growth rates or that we will remain profitable on a
quarterly or annual basis in the future.
Our Markets are Highly Competitive. We face competition from different sources.
Currently, we compete principally with providers of the following products:
- security analysis and audit products from Axent Technologies, Inc.
Security Dynamics Technologies, Inc., ISS Group, Inc. and Network
Associates Inc.
- stand-alone inventory and asset management products from Tally Systems
Corp.;
- LAN desktop management suites from Intel Corporation, Hewlett-Packard
Company and Microsoft Corporation; and
- Year 2000 assessment products from Greenwich Mean Time--UTA, L.C.
- event notification and response technology such as Attention Software,
Inc.
- In addition, certain management features included in our products
compete with the native tools from Novell, Inc. and third-party tools
from certain vendors, such as Computer Associates, Inc. and other
companies.
We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are
likely to enjoy substantial competitive advantages, including:
- greater resources that can be devoted to the development, promotion and
sale of their products;
- more established sales channels;
- greater software development experience; and
- greater name recognition.
11
<PAGE> 12
We also believe that operating system software vendors, particularly Microsoft
and Novell, could enhance their products to include functionality that we
currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours, there is a
substantial risk that a significant number of customers would elect to keep
this limited functionality rather than purchase additional software.
To be competitive, we must respond promptly and effectively to the challenges
of technological change, evolving standards and our competitors' innovations by
continuing to enhance our products, services and sales channels. Any pricing
pressures, reduced margins or loss of market share resulting from our failure
to compete effectively could materially adversely affect our business.
Our Products are Subject to Rapid Technological Change. The market for our
products is characterized by rapid technological change, frequent new product
introductions and enhancements, uncertain product life cycles, changes in
customer demands and evolving industry standards. Our products could be
rendered obsolete if new products based on new technologies are introduced or
new industry standards emerge. We rely heavily on our relationships with
Microsoft and Novell and attempt to coordinate our product offerings with the
future releases of their operating systems. These companies may not notify us
of feature enhancements prior to new releases of their operating systems in the
future. In that case, we may not be able to introduce products on a timely
basis that capitalize on new operating system releases and feature
enhancements.
Client/server computing environments are inherently complex. As a result, we
cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.
Our future success will depend, in part, upon our ability to enhance existing
products, develop and introduce new products, satisfy customer requirements and
achieve market acceptance. We cannot be certain that we will successfully
identify new product opportunities and develop and bring new products to market
in a timely and cost-effective manner. Further, the products, capabilities or
technologies developed by others may render our products or technologies
obsolete or shorten their life cycles.
We are Dependent upon Continued Growth of the Market for Windows NT and Novell
NetWare Operating Systems. We depend upon the success of Microsoft's Windows NT
and Novell's NetWare operating systems. In particular, market acceptance of our
products depends on the increasing complexity of these operating systems and
the lack of effective tools to simplify system administration and security
management for these environments. Although demand for Windows NT and NetWare
operating systems has grown in recent years, this market is still emerging and
we cannot be certain that it will continue to grow. If the market does continue
to grow, we cannot be certain that the market for our products will continue to
develop or that our products will be widely accepted. If the markets for our
products fail to develop or develop more slowly than we anticipate, our
business could be materially adversely affected.
The percentages of our revenues attributable to software licenses for
particular operating system platforms can change from time to time. A number of
factors outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms.
Product Concentration. Substantially all of our revenues are from the sale of
our NOSadmin and NETinventory products. We anticipate that these products along
with products additions as a result of the Curasoft and Netect acquisitions will
account for majority all of our revenues for the foreseeable future. Our future
operating results will depend on continued market acceptance of NOSadmin
and NETinventory, introduction of new products from the Curasoft and Netect
acquisitions, enhancements to these products and the continued development of
additional snap-in modules for our Enterprise Console product. Competition,
technological change or other factors could reduce demand for, or market
acceptance of any or all of our products and could substantially damage our
business. Although we currently plan to broaden our product line, we cannot be
certain that we will be able to reduce our product concentration or that we will
be able to generate material revenues from products acquired as a result of the
Curasoft and Netect acquisitions.
Risks Associated with Length of Sales Cycle. We have sold our products to
customer workgroups and corporate divisions. As a result, our sales cycle has
ranged from three to six months. Recently, we have focused more of our selling
effort on products for the customer's entire enterprise and have found that our
sales cycle to enterprises has ranged from six to twelve months. The sales
cycle to enterprises is typically longer for a number of reasons, including:
12
<PAGE> 13
- the significant resources committed to an evaluation of network
management software by an enterprise require us to expend substantial
time, effort and money educating them on the value of our products and
services; and
- decisions to license and deploy enterprise-wide software generally
involve an evaluation of our software by a significant number of
personnel of the enterprise in various functional and geographic areas,
each often having specific and conflicting requirements.
As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and could cause
our operating results to vary significantly from quarter to quarter. For more
information, see "-- Our Quarterly Financial Results are Subject to Significant
Fluctuations".
Need to Manage Changing Operations. We have expanded our operations rapidly in
recent years. We intend to continue to expand in the foreseeable future to
pursue existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
growth effectively, we must implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems, our business, operating results and financial condition will be
materially adversely affected. In addition, we are moving a portion of our
operations to new facilities in Houston, Texas in the first half of 1999, which
we expect will be a disruptive, time consuming and expensive process.
Dependence on Key Personnel. Our success depends largely on the efforts of our
executive officers, particularly Eric J. Pulaski, the President and Chief
Executive Officer of BindView. We do not have an employment contract requiring
Mr. Pulaski to continue his employment for any period of time. We do not
maintain key man life insurance policies on any of our executive officers.
We believe that our future success will depend in large part upon our ability
to attract and retain highly skilled research and development, technical
support and sales and marketing personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or more of our key individuals or the failure to attract and
retain additional qualified personnel could substantially damage our business.
Risks Associated with International Sales and Operations. During 1998, 1997 and
1996, we derived approximately 10%, 13% and 10% of our revenues, respectively,
from sales outside North America. We only recently opened direct telesales
offices outside the United States. We have historically generated revenues
outside North America through indirect channels, including VARs and other
distributors. We are in the early stages of developing our indirect
distribution channels in certain markets outside the United States. We cannot
be certain that we will be able to attract third parties that will be able to
market our products effectively or to provide timely and cost-effective
customer support and service. Our reseller arrangements generally provide that
resellers may carry competing product offerings. We cannot be certain that any
distributor or reseller will continue to represent our products. The inability
to recruit, or the loss of, important sales personnel, distributors or
resellers could materially and adversely affect our business.
As we expand our sales and support operations internationally, we anticipate
that international revenues will grow as a percentage of our total revenues. To
successfully expand international sales, we must:
- establish additional international direct telesales offices;
- expand the management and support organizations for our international
sales channel;
- hire additional personnel;
- customize our products for local markets;
- recruit additional international resellers where appropriate; and
- expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales model,
we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United
States, which may reduce our flexibility in managing headcount and, in turn,
managing personnel-related expenses. If we do not address the risks associated
with international sales in a cost-effective and timely manner, our
international sales growth will be limited, operating margins could be reduced
and our business could be materially adversely affected. However, even if we
are able to successfully expand our international operations, we cannot be
certain that we will be able to maintain or increase international market
demand for our products.
13
<PAGE> 14
Limited Protection of Proprietary Technology; Risks of Infringement. Our
success depends to a significant degree upon our software and other proprietary
technology. The software industry has experienced widespread unauthorized
reproduction of software products. We rely on a combination of trademark, trade
secret, and copyright law and contractual restrictions to protect our
technology. These legal protections provide only limited protection. The steps
we have taken may deter competitors from misappropriating our proprietary
information. However, we may not be able to detect unauthorized use or take
appropriate steps to enforce our intellectual property rights. If we litigated
to enforce our rights, litigation would be expensive, would divert management
resources and may not be adequate to protect our business. We also could be
subject to claims alleging infringement of third-party intellectual property
rights. In addition, we may be required to indemnify our distribution partners
and end-users for similar claims made against them. Any claims against us could
require us to spend significant time and money in litigation, pay damages,
develop non-infringing intellectual property or acquire licenses to
intellectual property that is the subject of the infringement claims. As a
result, claims against us could materially adversely affect our business.
Risks Associated with Potential Acquisitions. We may make investments in
complementary companies, technologies, services or products if we find
appropriate opportunities. If we buy a company, we could have difficulty
assimilating the personnel and operations of the acquired company. If we make
other types of acquisitions, assimilating the technology, services or products
into our operations could be difficult. Acquisitions can disrupt our ongoing
business, distract management and other resources and make it difficult to
maintain our standards, controls and procedures. We may not succeed in
overcoming these risks or in any other problems we might encounter in
connection with any future acquisitions. We may be required to incur debt or
issue equity securities to pay for any future acquisitions. In addition, there
can be no assurance that we will be able to successfully integrate our recent
acquisitions of Curasoft and Netect.
Risks of Undetected Software Errors. Our software products are complex and may
contain certain undetected errors, particularly when first introduced or when
new versions or enhancements are released. We have previously discovered
software errors in certain of our new products after their introduction. We
cannot be certain that, despite our testing, such errors will not be found in
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Such undetected errors could result in
adverse publicity, loss of revenues, delay in market acceptance or claims
against us by customers, all of which could materially adversely affect our
business.
Year 2000 Risks. Background. Some computers, software and other equipment
include programming code in which calendar year data is abbreviated to only two
digits. As a result of this design decision, some of these systems could fail
to operate or fail to produce correct results if "00" is interpreted to mean
1900 or some other default condition, rather than 2000. These problems are
widely expected to increase in frequency and severity as the year 2000
approaches and are commonly referred to as the "Millennium Bug" or "Year 2000
Problem".
Assessment. The Year 2000 Problem could affect computers, software and other
equipment that we and our customers and suppliers use. Accordingly, we are
reviewing our internal computer programs and systems to ensure that they will
be Year 2000 compliant. We presently believe that our computer systems will be
Year 2000 compliant in a timely manner. However, while the estimated cost of
these efforts is not expected to be material to our financial position or any
year's results of operations, there can be no assurance to this effect.
Software Sold to Consumers. Although the latest versions of BindView EMS
are designed to be Year 2000 compliant, releases of BindView EMS before version
5.2a have not been tested for Year 2000 compliance and/or are not Year 2000
compliant. Customers of BindView EMS before version 5.2a under subscription
contracts have been provided upgrades to versions of BindView EMS that are
designed to be Year 2000 compliant. Customers that have not upgraded to Year
2000 compliant versions of BindView EMS will have to either i) enter into a
subscription agreement with the Company and upgrade to a compliant version or
ii) purchase the latest Year 2000 compliant version of BindView EMS. In
addition, we believe that it is not possible to determine with complete accuracy
that all Year 2000 Problems affecting our software products have been identified
or corrected due to the complexity of our products and the fact that these
products interact with other third party vendor products and operate on computer
systems that are not under our control.
Internal Infrastructure. We believe that we have identified substantially
all of the major computers, software applications and related equipment used in
connection with our internal operations that must be modified, upgraded or
replaced to minimize the possibility of a material disruption to our business.
We commenced the process of modifying, upgrading and replacing the systems that
have been identified as potentially being adversely affected and completed this
process during the first quarter of 1999. The costs associated with modifying,
upgrading and replacing these systems did not exceed $1.0 million and
substantially all of these costs have been capitalized.
Systems Other Than Information Technology Systems. In addition to computers and
related systems, the operation of office and facilities equipment, such as fax
machines, photocopiers, telephone switches, security systems, elevators and
other common devices may be affected by the Year 2000 Problem. We are currently
assessing the potential effect of, and costs of remediating, the Year 2000
Problem on our office and facilities equipment. We have recently replaced our
primary telephone switch with equipment that provides additional capacity to
meet the Company's growth needs and is believed to be Year 2000 compliant.
14
<PAGE> 15
We estimate that our total cost of completing any required modifications,
upgrades or replacements of these internal systems will not have a material
effect on our business, financial condition or results of operations.
Suppliers. We have been gathering information from vendor web sites and
available compliance statements and have initiated communications with
third-party suppliers of our major computers, software and other equipment
used, operated or maintained by us to identify and, to the extent possible,
resolve issues involving the Year 2000 Problem. However, we have limited or no
control over the actions of such third-party suppliers. Thus, while we expect
that we will be able to resolve any significant Year 2000 Problems with such
systems, there can be no assurance that our suppliers will resolve any or all
Year 2000 Problems with such systems before the occurrence of a material
disruption to our business or any of our suppliers. Any failure of these
third-parties to resolve Year 2000 problems with their systems in a timely
manner could have a material adverse effect on our business, financial
condition or results of operation.
Most Likely Consequences of Year 2000 Problems. We expect to identify and
resolve all Year 2000 Problems that could materially adversely affect our
business, financial condition or results of operations. However, we believe
that it is not possible to determine with complete certainty that all Year 2000
Problems affecting us have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. In addition, we cannot accurately predict how many failures related
to the Year 2000 Problem will occur or the severity, duration or financial
consequences of such failures. As a result, we expect that we could possibly
suffer the following consequences:
- a significant number of operational inconveniences and inefficiencies
for us and our customers that may divert our time and attention and
financial and human resources from our ordinary business activities; and
- a lesser number of serious system failures that may require significant
efforts by us or our customers to prevent or alleviate material business
disruptions.
Should these possibilities actually occur, we could experience operating
expense levels higher then currently budgeted or reductions in our expected
growth rates.
Contingency Plans. We are currently developing contingency plans to be
implemented as part of our efforts to identify and correct Year 2000 Problems
affecting our internal systems. We expect to complete our contingency plans by
the end of the second quarter of 1999. Depending on the systems affected, these
plans could include (i) accelerated replacement of affected equipment or
software, (ii) short to medium-term use of backup equipment and software, (iii)
increased work hours for our personnel or use of contract personnel to correct
on an accelerated schedule any Year 2000 Problems which arise or to provide
manual workarounds for information systems (iv) and other similar approaches.
If we are required to implement any of these contingency plans, such plans
could have a material adverse effect on our business, financial condition or
results of operations.
Risk of Product Liability Claims. Because our product design provides critical
network management services, we may receive significant liability claims. Our
agreements with customers typically contain provisions intended to limit our
exposure to liability claims. These limitations may not, however, preclude all
potential claims. Liability claims could require us to spend significant time
and money in litigation or to pay significant damages. As a result, any such
claims, whether or not successful, could seriously damage our reputation and
our business.
Anti-Takeover Provisions. Incumbent management and our Board of Directors could
use certain provisions of our certificate of incorporation to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could
discourage potential takeover attempts and could adversely affect the market
price of our common stock.
15
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this Quarterly Report.
11 -- Statement Regarding Computation of Loss Per Common Share
27 -- Financial Data Schedule.
(b) Reports on Form 8-K:
The Company filed a Form 8-K dated March 1, 1999 and Form 8-K/A dated May
7, 1999 to report its merger with Netect, Ltd.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ ERIC J. PULASKI
------------------------------------------
Eric J. Pulaski
President and Chief Executive Officer
May 17, 1999
By: /s/ SCOTT R. PLANTOWSKY
------------------------------------------
Scott R. Plantowsky
Vice-President and Chief Financial Officer
May 17, 1999
17
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<S> <C>
11 -- Statement Regarding Computation of Loss Per Common Share
27 -- Financial Data Schedule.
</TABLE>
18
<PAGE> 1
EXHIBIT 11
BINDVIEW DEVELOPMENT CORPORATION
STATEMENT REGARDING COMPUTATION OF LOSS PER COMMON SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER
ENDED MARCH 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Net loss $ (1,564) $ (671)
======== ========
Shares used in basis calculation
Total basic shares 21,730 8,833
Additional shares for diluted computation:
Effect of stock options 2,786 1,611
Effect of warrants 83 28
Effect of convertible preferred stock and debentures 333 6,544
Exclusion of share equivalents that are anti-dilutive
because a loss was incurred (3,202) (8,183)
-------- --------
Total diluted shares 21,730 8,833
======== ========
Loss per common share
Basic $ (0.07) $ (0.08)
Diluted $ (0.07) $ (0.08)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 39,800
<SECURITIES> 20,787
<RECEIVABLES> 5,671
<ALLOWANCES> 204
<INVENTORY> 0
<CURRENT-ASSETS> 71,534
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 81,249
<CURRENT-LIABILITIES> 13,441
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 67,739
<TOTAL-LIABILITY-AND-EQUITY> 81,249
<SALES> 11,885
<TOTAL-REVENUES> 11,885
<CGS> 692
<TOTAL-COSTS> 12,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (507)
<INCOME-TAX> 1,057
<INCOME-CONTINUING> (1,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,564)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
