<PAGE> 1
================================================================================
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 SEPTEMBER 30, 2000
[ ] 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, 21st FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(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 September 30, 2000, 52,624,096
================================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 65,636 $ 72,150
Short-term investments 2,506 4,834
Accounts receivable, net of allowance of $638 and $623 17,693 15,701
Deferred tax asset 11,610 3,069
Other current assets 1,162 1,142
--------- ---------
Total current assets 98,607 96,896
--------- ---------
Property and equipment, net 14,012 8,485
Long-term investments 6,879 6,120
Other assets 2,089 1,741
--------- ---------
Total assets $ 121,587 $ 113,242
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,142 $ 3,077
Accrued liabilities 2,581 2,721
Accrued compensation 3,751 3,757
Deferred revenue 9,876 10,311
Current maturities of indebtedness -- 176
---------- ---------
Total current liabilities 18,350 20,042
---------- ---------
Long-term liabilities:
Deferred revenue 1,725 --
Indebtedness and other long-term liabilities -- 144
---------- ---------
Total long-term liabilities 1,725 144
---------- ---------
Shareholders' equity:
Convertible preferred stock, $0.025 par value, 520
shares Authorized, 0 and 7 shares issued and
outstanding, respectively -- --
Series A convertible preferred stock, $0.0001 par value,
5,000 shares Authorized, 0 and 5,000 shares issued &
outstanding, respectively -- 5
Series B convertible preferred stock, no par value, 8,000
shares Authorized, 0 and 7,689 shares issued &
outstanding, respectively -- 8
Series C convertible preferred stock, no par value,
10,030 shares Authorized, 0 and 10,000 shares issued &
outstanding -- 10
Common stock, no par value, 100,000 shares authorized,
52,624 and 47,535 shares issued and outstanding,
respectively 1 1
Additional paid-in capital 122,376 109,471
Accumulated deficit (20,337) (15,975)
Notes receivable, shareholders (144) (202)
Accumulated other comprehensive loss (384) (262)
---------- ---------
Total shareholders' equity 101,512 93,056
---------- ---------
Total liabilities and shareholders' equity $ 121,587 $ 113,242
========== =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
2
<PAGE> 3
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEMPTEMBER 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Licenses $ 16,546 $ 14,461 $ 40,083 $ 34,767
Services 6,987 5,142 19,825 13,079
-------- -------- -------- --------
Total revenues 23,533 19,603 59,908 47,846
-------- -------- -------- --------
Cost of revenues:
Cost of licenses 487 427 1,615 1,047
Cost of services 1,002 651 2,632 1,753
-------- -------- -------- --------
Total cost of revenues 1,489 1,078 4,247 2,800
-------- -------- -------- --------
Gross profit 22,044 18,525 55,661 45,046
-------- -------- -------- --------
Costs and expenses:
Sales and Marketing 11,977 9,101 31,320 23,207
Research and Development 6,479 5,220 19,310 13,631
General and Administrative 2,227 1,926 7,374 5,261
Transaction and Restructuring 0 0 5,581 2,524
-------- -------- -------- --------
Operating income (loss) 1,361 2,278 (7,924) 423
Other income, net 1,088 818 3,441 2,204
-------- -------- -------- --------
Income (loss) before income tax provision 2,449 3,096 (4,483) 2,627
Provision for income tax 662 1,720 (124) 3,814
-------- -------- --------- --------
Net income (loss) 1,787 1,376 (4,359) (1,187)
Other comprehensive income, net of tax:
Gain (loss) from foreign currency
translation 93 (1) (122) (96)
-------- --------- -------- --------
Comprehensive income (loss) $ 1,880 $ 1,375 $ (4,481) $ (1,283)
======== ======== ======== ========
Earnings (loss) per common share:
Basic $ 0.03 $ 0.03 $ (0.08) $ (0.03)
Diluted $ 0.03 $ 0.03 $ (0.08) $ (0.03)
Shares used in computing earnings per common
share:
Basic 52,021 49,027 51,538 47,404
Diluted 55,027 53,489 51,538 47,404
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE> 4
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (4,359) $ (1,187)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization expense 3,693 2,250
Deferred income taxes (201) 3,867
Changes in assets and liabilities:
Increase in accounts receivable (2,139) (5,739)
Decrease (increase) in other assets (86) 829
Decrease in accounts payable (423) (210)
Increase (decrease) in accrued
liabilities (129) 890
Increase in deferred revenues 1,350 1,913
--------- ---------
Net cash provided (used) by
operating activities (2,294) 2,613
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment (9,146) (4,382)
Purchase of investments, net 1,568 (11,742)
Other (608) 180
--------- ---------
Net cash used by investing
activities (8,186) (15,944)
--------- ---------
Cash flows from financing activities:
Notes payable and long-term debt (260) (7,416)
Proceeds from issuance of stock for employee stock
Purchase 462 11,863
Conversion of convertible debenture and preferred
stock Into common stock --- 7,658
Proceeds from sale of Preferred Stock --- 8
Proceeds from exercise of stock options & warrants 4,078 2,354
--------- ---------
Net cash provided by financing
activities 4,280 14,467
Effect of exchange rate changes on cash (314) (265)
--------- ---------
Net increase (decrease) in cash and cash equivalents (6,514) 871
Cash and cash equivalents at beginning of period 72,150 51,718
--------- ---------
Cash and cash equivalents at end of period $ 65,636 $ 52,589
========= =========
Non cash financing and investing activities:
Issuance of 350 shares of common stock related to
the acquisition of Curasoft $ --- $ 3,352
Tax benefit related to the exercise of employee
stock options $ 8,340 $ 5,177
Conversion of convertible debentures and preferred
stock into common stock $ 23 $ 7,658
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE> 5
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED PREFERRED
COMMON STOCK SERIES A SERIES B SERIES C
------------------ ------------------- ------------------ -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ ------ ------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1999 47,535 $ 1 5,000 $ 5 7,689 $ 8 10,000 $ 10
Exercise of stock options and
warrants 1,151 -- -- -- -- -- -- --
Payment on Note -- -- -- -- -- -- -- --
Tax benefit related to exercise
of employee stock options -- -- -- -- -- -- -- --
ESPP 48 -- -- -- -- -- -- --
Conversion of preferred A, B & C
stock into common stock 3,251 -- (5,000) (5) (7,689) (8) (10,000) (10)
Foreign currency translation
adjustment -- -- -- -- -- -- -- --
Net loss for the nine months
ended December 30, 2000 -- -- -- -- -- -- -- --
----- ------ ------ ------- ------ ------- ------- ------
Balance at September 30, 2000 51,985 $ 1 -- $ -- -- $ -- -- $ --
====== ====== ====== ======= ====== ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE
ADDITIONAL NOTES OTHER TOTAL
PAID-IN ACCUMULATED RECEIVABLE COMPREHENSIVE SHAREHOLDERS'
CAPITAL DEFICIT SHAREHOLDERS INCOME (LOSS) EQUITY
---------- ----------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 $ 109,471 $ (15,975) $ (202) $ (262) $ 93,056
Exercise of stock options and
warrants 4,080 -- -- -- 4,080
Payment on Note -- -- 58 -- 58
Tax benefit related to exercise
of employee stock options 8,340 -- -- -- 8,340
ESPP 462 -- -- -- 462
Conversion of preferred A, B & C
stock into common stock 23 -- -- -- --
Foreign currency translation
adjustment -- -- -- (122) (122)
Net loss for the nine months
ended December 30, 2000 -- (4,362) -- -- (4,362)
--------- --------- ------ ------ ----------
Balance at September 30, 2000
$ 122,376 $ (20,337) $ (144) $ (384) $ 101,512
========= ========= ====== ====== ==========
</TABLE>
5
<PAGE> 6
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 Item 5 of this
report and the Company's annual audited financial statements and the
supplemental financial statements for the year ended December 31, 1999, which
are included in the Annual Report on Form 10-K and Amendment No. 1 to the
Company's Form 8-K dated April 21, 2000.
Operating results for the three month period and nine month period ended
September 30, 2000 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2000 or for other periods.
NOTE 2 - DESCRIPTION OF BUSINESS
BindView Corporation, based in Houston Texas, was founded in 1990. The Company
currently employs more than 750 people in offices throughout the United States
as well as in Germany, France, Mexico, India, Australia, and Great Britain.
As a leading provider of administration and security management solutions,
BindView offers comprehensive software to secure and simplify network operating
systems, directories and related applications. These solutions enhance the
customer's business performance by ensuring the integrity of the IT
infrastructure. BindView's bv-Admin product suite provides a complete
administration solution before, during and after Windows 2000 and Exchange 2000
migrations. The Company's bv-Control product suite dramatically reduces costs by
pinpointing and correcting the security and configuration issues of the network
and its associated business critical applications. When used in combination, the
two product families can offer the highest level of integrity across the global
enterprise.
By enabling corporate IT professionals to effectively leverage their existing
technologies, BindView's award-winning products play a key role in achieving
business goals. More than 10 million licenses of BindView's solutions have been
shipped worldwide to more than 5,000 companies, including over 80 of the Fortune
100. To ensure the reliability of their IT infrastructure, 23 of the nation's
largest banks look to BindView as their trusted security partner.
NOTE 3 - RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("FAS 133"), Accounting for Derivative
Instruments and Hedging Activities. In June 2000, the FASB issued Statement of
Financial Accounting Standards No. 137 ("FAS 137"), Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement 133. FAS 137 delays the implementation of FAS 133 to fiscal years
beginning after June 15, 2000. In June, 2000 the FASB issued FAS 138 "Accounting
for Certain Derivative Instruments and Certain Hedging Activities - an amendment
of FASB Statement No. 133." The Company will adopt FAS 133, FAS 137 and FAS 138
effective January 1, 2001 and is evaluating the effect that such adoption may
have on its consolidated results of operations and financial position. The
Company does not expect that these pronouncements will have a significant impact
to the Company's consolidated results of operations and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. In June 2000,
the SEC issued Staff Accounting Bulletin No. 101B ("SAB 101B"), Amendment:
Revenue Recognition in Financial Statements. SAB 101B delays the implementation
date of SAB 101 until no later than the fourth quarter fiscal quarter of fiscal
years beginning after December 15, 1999. In October, 2000 the SEC issued
additional guidance on its views regarding the application of SAB 101. The
Company will adopt SAB 101 as required in the fourth quarter of 2000 and is
evaluating the effect that such adoption may have on its consolidated results of
operations and financial position.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is computed using the
weighted average number of shares outstanding, adjusted for the incremental
shares attributed to outstanding shares of convertible preferred stock,
convertible debentures and outstanding stock options and warrants to purchase
common stock unless such inclusion would be anti-dilutive. Incremental shares of
4,462 and 3,006 in the third quarter of 1999 and 2000, respectively, were used
in the calculation of diluted earnings per common share. As the Company reported
a net loss for the nine months ended September 30, 1999, and September 30, 2000,
diluted earnings per common share does not differ from basic earnings per common
share. In the third quarter of 1999 and 2000, options and warrants to acquire
426 and 5,563 shares of common
6
<PAGE> 7
stock at a weighted average exercise price of $12.55 and $10.82, respectively,
were not included in the computation of earnings per share as the options'
exercise price is greater than the average market price of the common shares for
the period. For the nine months ended September 30, 1999, and September 30,
2000, options to acquire 554 and 12 shares of common stock at a weighted average
exercise price of $12.51 and $24.17, respectively, were not included in the
computation of earnings per share as the options' exercise price is greater than
the average market price of the common shares for the period.
NOTE 5 - SHORT-TERM AND LONG-TERM INVESTMENTS
The Company's short-term investments include commercial paper, corporate bonds
or certificates of deposit that have original maturities of more than three
months and a remaining maturity of less than one year. The Company's long-term
investments include corporate bonds, certificates of deposit and an investment
in redeemable preferred stock and have original maturities of more than twelve
months. In April 2000 the Company established a partnership with an
international software distribution and consulting firm and as a result invested
in $5,000 of redeemable preferred stock in the firm. These investments are
stated at cost, which approximates market, as it is the intent of the Company to
hold these securities until maturity.
NOTE 6 - RECENT ACQUISITIONS/TRANSACTION AND RESTRUCTURING EXPENSES
Acquisition of Netect, Ltd
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 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 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 were exchanged for the Company's common stock. Transaction costs of
$1,533 and restructuring costs of $991 were incurred as a result of this merger.
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment was recognized in the second quarter of 1999
and relates to additional costs to close Netect's Israeli operations that
exceeded management's initial estimate. The Company has completed the actions
related to the restructuring plans. The transaction costs related to the
acquisition include investment banking fees of $590, accounting and legal
expenses of $565, transfer fees of $138, and other miscellaneous transaction
expenses of $240.
The accrued restructuring expenses and amounts charged against the provision as
of September 30, 2000, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT SEPTEMBER 30, 2000
--------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Employee severance and
related costs $ 575 $ (813) $ 238 $ --
Israeli office closing 119 (119) -- --
Other restructuring costs 59 (59) -- --
------ ------- ------ -----
TOTAL $ 753 $ (991) $ 238 $ --
====== ======= ====== =====
</TABLE>
Acquisition of Entevo Corporation
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") in a
stock-for-stock transaction accounted for as a pooling of interests. Entevo
provides directory management solutions that help organizations deploy,
integrate, administer and maintain enterprise directory services, in Windows NT
and Windows 2000 environments. In connection with the merger, the Company issued
4,181 shares of common stock, based upon an exchange ratio of 0.1205909 shares
of BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo was exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger. The historical financial data included herein has been restated to
reflect the merger with Entevo by combining the historical results for the
Company
7
<PAGE> 8
and Entevo for all periods presented. There were no material transactions
between BindView and Entevo during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
The restructuring plans were based on management's best estimate of those costs
based on the information available at that time. The restructuring expenses
related to this plan include involuntary employee separation and relocation
expenses, contract cancellation provisions, product reorganization, integration
related expenses and other miscellaneous restructuring expenses. The transaction
costs related to the acquisition include investment banking fees of $2,473,
professional expenses of $929, product due diligence and transfer fees of $181,
and other miscellaneous transaction expenses of $217. The Company believes the
remaining reserve is sufficient to complete these remaining actions under the
plan.
The accrued restructuring expenses and amounts charged against the provision as
of September 30, 2000, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES SEPTEMBER 30, 2000
--------- ------------ -------------------
<S> <C> <C> <C>
Employee severance and
relocation costs $ 1,520 $ (1,504) $ 16
Elimination of duplicative
operating expense 93 (73) 20
Product reorganization 82 (37) 45
Integration and other
restructuring costs 86 (86) --
-------- -------- -----
TOTAL $ 1,781 $ (1,700) $ 81
======== ======== =====
</TABLE>
NOTE 7 - INCOME TAX
The Company's effective tax rate was approximately 27% on the quarter ended
September 30, 2000 income and was approximately 56% on the quarter ended
September 30, 1999 income. The Company's generation of a research and
development tax credit for federal income tax purposes during 2000 is the
primary reason for the Company's effective tax rate approximating 27% for the
current period. Valuation allowances booked on foreign net operating losses and
Entevo's U.S. losses adversely impacted the quarter ended September 30, 1999
rate. A portion of the transaction and restructuring expenses related to the
acquisition of Entevo in the first quarter of 2000 are non-deductible for income
tax purposes. The non-deductibility of these expenses resulted in an effective
tax rate of approximately 13% on the first quarter 2000 loss. The Company
expects that its effective tax rate will approximate 27% for the remaining
fiscal quarter of 2000.
The Company has net operating loss carryforwards at September 30, 2000 of
approximately $58,296 available to offset future taxable income that expire
between 2003 and 2020 resulting in a deferred tax asset of approximately
$20,065. Based on the historical earnings generated by the Company and certain
limitations that may limit the utilization of net operating loss carryforwards,
management has provided a valuation allowance of $9,492 at September 30, 2000
against the net operating loss carryforwards. The valuation allowance is
primarily related to pre-acquisition net operating losses of Netect and Entevo.
NOTE 8 - SEGMENT REPORTING
During 1999, the Company adopted Statement of Financial Accounting Standard No.
131 "Disclosures About Segments of an Enterprise and Related Information". The
Company currently operates in one segment as defined by this standard. The
adoption of this standard did not have a material impact on disclosures with
respect to the Company's financial condition or results of operations.
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 those discussed in the "Risk Factors" set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 and
those discussed herein under the heading "Cautionary Statements". The following
discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the accompanying notes.
The mergers with Netect on March 1, 1999, and with Entevo Corporation on
February 9, 2000, have been accounted for as a pooling of interests. The
historical financial data included herein has been restated to reflect these
mergers.
8
<PAGE> 9
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>
QUARTER ENDED NINE MONTHS
SEPTEMBER 30, ENDED SEPTEMBER 30,
---------------- -------------------
2000 1999 2000 1999
----- ----- ----- -----
(PERCENT OF TOTAL NET REVENUES)
<S> <C> <C> <C> <C>
Revenues:
Licenses 70.3 73.8 66.9 72.7
Services 29.7 26.2 33.1 27.3
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of revenues:
Cost of licenses 2.1 2.2 2.7 2.2
Cost of services 4.3 3.3 4.4 3.7
----- ----- ----- -----
Total cost of revenues 6.3 5.5 7.1 5.9
----- ----- ----- -----
Gross profit 93.7 94.5 92.9 94.1
----- ----- ----- -----
Costs and expenses:
Sales and Marketing 50.9 46.5 52.3 48.5
Research and Development 27.5 26.6 32.2 28.5
General and Administrative 9.5 9.8 12.3 11.0
Transaction and Restructuring (1) 0.0 0.0 9.3 5.2
----- ----- ----- -----
Operating income (loss) 5.8 11.6 (13.2) 0.9
Other income, net 4.6 4.2 5.7 4.6
----- ----- ----- -----
Income (loss) before income tax
provision 10.4 15.8 (7.5) 5.5
Provision for income tax 2.8 8.8 (0.2) 8.0
----- ----- ----- -----
Net income (loss) 7.6 7.0 (7.3) (2.5)
===== ----- ----- -----
</TABLE>
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $3.9 million or 20% in the third quarter of 2000 over the comparable
quarter of the prior year and $12.1 million or 25% over the comparable nine
months of the prior year.
The Company's license revenues increased $2.1 million or 14% in the third
quarter of 2000 over the comparable quarter of the prior year and $5.3 million
or 15% over the comparable nine months 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 bv-Control product family and revenues generated from
new product acquisitions and introductions. The results of the quarter may not
be indicative of results for the full year. No assurances can be made that
revenues will continue to increase at the rates reflected in quarter-to-quarter
and year-to-year comparisons.
The Company's service revenues increased $1.8 million or 36% in the third
quarter of 2000 over the comparable quarter of the prior year and $6.7 million
or 52% over the comparable nine months of the prior year. The increase in the
Company's service revenues over these periods is a result of an increase in
purchases and renewals of subscription contracts by the Company's growing
installed customer base as well as increased revenue from professional services
activities. Because revenues from subscription contracts are recognized ratably
over the contract term, this increase in these revenues as a percentage of total
revenues results in greater deferred revenue recognition. The costs associated
with these services, are recognized as they are incurred. This may negatively
impact the Company's operating margins during periods in which the Company
incurs infrastructure ramp-up costs in response to increases in purchases and
renewals of subscription contacts. As revenues from professional services are
recognized when the services have been completed, quarter to quarter service
revenue could fluctuate materially as larger service contracts are completed.
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 $60,000 or 14% in the third quarter of 2000 over the comparable
quarter of the prior year and $568,000 or 54% over the comparable nine months of
the prior year. The cost of licenses has increased primarily due to increases in
product shipments and the cost of product packaging and documentation. 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 $351,000 or
54% in the third quarter of 2000 over the comparable quarter of the prior year
and $879,000 or 50%
9
<PAGE> 10
over the comparable nine months 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
customization 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 $2.9 million or 32% in the third quarter of 2000 over the
comparable quarter of the prior year and $8.1 million or 35% over the comparable
nine months of the prior year. The increase in the sales and marketing expenses
is related to the hiring of additional personnel in connection with the building
of the Company's telesales and field sales force and the additional facilities
and computer systems required by these additional personnel. Sales and marketing
expenses increased to 51% of revenues in the third quarter of 2000 compared to
46% in the corresponding period of 1999 and increased to 52% of revenues from
49% of revenues for the nine months ended September 30, 2000 and 1999,
respectively. The increase in sales and marketing expenses as a percentage of
revenues is related to (1) the Company's efforts to recruit, train, and deploy
sales representatives with a higher level of experience, and thus with a higher
associated compensation level; (2) the Company's attempt to increase the ratio
of sales related software engineers to sales representatives; and (3) the
incurrence of more travel and remote deployment of sales representatives in an
effort to secure larger orders. Due to the seasonal nature of revenues, the
Company anticipates that for the remaining fiscal quarter of 2000, 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 for
product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $1.3 million or 24% in the
third quarter of 2000 over the comparable quarter of the prior year and $5.7
million or 42% over the comparable nine months of the prior year. The increase
in the research and development expenses is related to increased personnel,
additional facilities and an increase in the computer systems and software
development tools required by the additional personnel. Research and development
expenses increased to 28% of revenues in the third quarter of 2000 compared to
27% in the corresponding period of 1999 and increased to 32% of revenues from
29% of revenues for the nine months ended September 30, 2000 and 1999,
respectively. This increase in research and development expenses as a percentage
of revenue is related to the ramp up of research and development expenses for
new product lines requiring additional research and development effort relative
to the respective license revenue generated by these products in the periods.
The Company believes that a significant research and development investment is
essential for it to maintain and grow its market position 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.
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 $301,000 or 16% in the third quarter of 2000 over the comparable
quarter of the prior year and $2.1 million or 40% over the comparable nine
months of the prior year. The increase in the general and administrative
expenses is related to the increase in the allowance for doubtful accounts over
this period and increased staffing, facilities costs and associated expenses
necessary to manage and support the Company's increased scale of operations.
General and administrative expenses remained stable at 10% of revenues in the
third quarter of 2000 and the corresponding period of 1999 and increased to 12%
of revenues from 11% of revenues for the nine months ended September 30, 2000
and 1999, respectively. This increase in general and administrative expenses as
a percentage of revenue is a result of duplicative staff associated with the
Entevo acquisition and the increase in staff to support the Company's growing
scale of worldwide operations. The Company expects the remainder of 2000 general
and administrative expenses to decline as a percentage of total revenue.
10
<PAGE> 11
TRANSACTION AND RESTRUCTURING EXPENSES
Acquisition of Netect, Ltd
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 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 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 were exchanged for the Company's common stock. Transaction costs of
$1,533 and restructuring cost of $991 were incurred as a result of this merger.
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment was recognized in the second quarter of 1999
and relates to additional costs to close Netect's Israeli operations that
exceeded management's initial estimate. The Company has completed the actions
related to the restructuring plans. The transaction costs related to the
acquisition include investment banking fees of $590, accounting and legal
expenses of $565, transfer fees of $138, and other miscellaneous transaction
expenses of $240.
The accrued restructuring expenses and amounts charged against the provision as
of September 30, 2000, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT SEPTEMBER 30, 2000
---------- ------------ ---------- -------------------
<S> <C> <C> <C> <C>
Employee severance and
related costs $ 575 $ (813) $ 238 $ --
Israeli office closing 119 (119) -- --
Other restructuring
costs 59 (59) -- --
----- ------ -----
TOTAL $ 753 $ (991) $ 238 $ --
====== ===== =====
</TABLE>
Acquisition of Entevo Corporation
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") in a
stock-for-stock transaction accounted for as a pooling of interests. Entevo
provides directory management solutions that help organizations deploy,
integrate, administer and maintain enterprise directory services, in Windows NT
and Windows 2000 environments. In connection with the merger, the Company issued
4,181 shares of common stock, based upon an exchange ratio of 0.1205909 shares
of BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo was exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger. The historical financial data included herein has been restated to
reflect the merger with Entevo by combining the historical results for the
Company and Entevo for all periods presented. There were no material
transactions between BindView and Entevo during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
The restructuring plans were based on management's best estimate of those costs
based on the information available at that time. The restructuring expenses
related to this plan include involuntary employee separation and relocation
expenses, contract cancellation provisions, product reorganization, integration
related expenses and other miscellaneous restructuring expenses. The transaction
costs related to the acquisition include investment banking fees of $2,473,
professional expenses of $929, product due diligence and transfer fees of $181,
and other miscellaneous transaction expenses of $217. The Company believes the
remaining reserve is sufficient to complete these remaining actions under the
plan.
11
<PAGE> 12
The accrued restructuring expenses and amounts charged against the provision as
of September 30, 2000, were as follows:
<TABLE>
<CAPTION>
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES SEPTEMBER 30, 2000
--------- ------------ -------------------
<S> <C> <C> <C>
Employee severance and
relocation costs $ 1,520 $ (1,504) $ 16
Elimination of duplicative
operating expense 93 (73) 20
Product reorganization 82 (37) 45
Integration and other
restructuring costs 86 (86) --
------- -------- ----
TOTAL $ 1,781 $ (1,700) $ 81
======= ======== ====
</TABLE>
OTHER INCOME, NET
The Company had other income of $1.1 million in the third quarter of 2000
compared to $818,000 in the corresponding period of 1999. 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 proceeds from Company's
initial public offering in July 1998, secondary offering in December 1998 and
positive cash flow from operating activities.
PROVISION FOR INCOME TAXES
The effective tax rate was approximately 2.8% on the nine months ended September
30, 2000 loss and 145.2% on the nine months ended September 30, 1999 income. The
Company's generation of a research and development tax credit positively
impacted both periods' rates. Valuation allowances booked on foreign net
operating losses and Entevo's U.S. losses adversely impacted the period ended
September 30, 1999 effective tax rate. A portion of the transaction and
restructuring expenses related to the acquisition of Entevo in the first quarter
of 2000 are non-deductible for income tax purposes. The non-deductibility of the
expenses resulted in an effective tax rate of approximately 13% on the first
quarter 2000 loss. The Company expects that its effective tax rate will
approximate 27% for the remaining fiscal quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $80.3 million at September 30, 2000
from $76.9 million at December 31, 1999. The Company's cash, cash equivalents,
short-term and long-term investments balance decreased to $70.0 million at
September 30, 2000 from $83.1 million at December 31, 1999. This decrease is
related to the Company's purchase of $5.0 million of redeemable preferred stock
in an international software distribution and consulting firm, the payment of
transaction and restructuring costs and the company's continued investment in
property and equipment during the period.
The Company believes that its 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
exchange rate fluctuations and changes in the market value of its investments.
Foreign Currency Exchange Rates
The Company operates globally and the functional currency for most of its
non-U.S. enterprises is the local currency. For the fiscal years 1999, 1998 and
1997, approximately 17%, 10% and 13% of the Company's consolidated revenues were
derived from customers outside of North America, substantially all of which were
billed and collected in foreign currencies. Similarly, substantially all of the
expenses of operating the Company's foreign subsidiaries are incurred in foreign
currencies. As a result, the Company's U.S. dollar earnings and net cash flows
from international operations may be adversely affected by changes in foreign
currency exchange rates. Based on the Company's foreign currency exchange
instruments outstanding at September 30, 2000, the Company estimates that a
near-term change in foreign currency rates would not materially affect its
financial position, results of operations or net cash flows for the year,
quarter and nine months ended September 30, 2000. The Company used a
value-at-risk (VAR) model to measure potential fair value losses due to foreign
currency exchange rate fluctuations. The VAR model estimates were made assuming
normal market conditions and a 95% confidence level. The VAR model is a risk
estimation tool, and as such, is not intended to represent actual losses in fair
value that will be incurred by the Company.
12
<PAGE> 13
Interest Rate Risk
The Company adheres to a conservative investment policy, whereby its
principle concern is the preservation of liquid funds while maximizing its yield
on such assets. Cash, cash equivalents, short-term investments and long-term
investments approximated $70.0 million and $83.1 million at September 30, 2000
and December 31, 1999, respectively. Such amounts were invested in different
types of investment-grade securities with the intent of holding these securities
to maturity. Although the Company's portfolio is subject to fluctuations in
interest rates and market conditions, no gain or loss on any security would
actually be recognized in earnings unless the instrument was sold. The Company
estimates that a near-term change in interest rates would not materially affect
its financial position, results of operations or net cash flows for the quarter
and nine months ended September 30, 2000. The Company used a value-at-risk
("VAR") model to measure potential market risk on its marketable securities due
to interest rate fluctuations. The VAR model estimates were made assuming normal
market conditions and a 95% confidence level. The VAR model is a risk estimation
tool, and as such, is not intended to represent actual losses in fair value that
will be incurred by the Company.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING 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 future financial
position, business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for future operations,
are forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that those 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 us, or persons acting on our
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.
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
the following factors should be considered carefully in evaluating the Company.
OUR QUARTERLY AND ANNUAL REVENUES, EXPENSES AND OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY. These fluctuations may be due to a number of factors,
including:
o demand for our products;
o size and timing of significant orders and their fulfillment;
o our ability to develop and upgrade our technology;
o changes in our level of operating expenses;
o our ability to compete in a highly competitive market;
o undetected software errors and other product quality problems;
o changes in our sales incentive plans and staffing of sales territories;
and
o 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. The Company recognizes
revenue in accordance with the Statement of Position No. 97-2 "Software Revenue
Recognition" (SOP 97-2) or Statement of Position No. 98-9 "Modification of SOP
97-2, Software Revenue Recognition, with respect to certain transactions" (SOP
98-9), as applicable. As the Company's sales transactions and product mix
becomes more complex, revenue recognition under SOP 97-2 or SOP 98-9 could
require the Company to defer a significant portion of the total contract and
recognize this deferred revenue in future periods.
Orders booked throughout a quarter may substantially impact product revenues
in that quarter. Our sales also fluctuate throughout the quarter as a result of
customer buying patterns. We generally record a significant portion for our
revenue in the later portion of each quarter. In addition, 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 reduce spending
quickly 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.
14
<PAGE> 15
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. However, first quarter revenues in any given fiscal year are not
necessarily indicative of, and should not be used as a basis for prediction of
higher revenues in any future quarter.
Before 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 to receive product upgrades and
technical support. Unlike software license revenues, which 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 operating results and financial condition.
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.
WE HAVE A LIMITED OPERATING HISTORY IN CERTAIN RESPECTS. We have extensive
experience in developing, marketing, and supporting our flagship products,
bv-Control for Windows 2000/NT, bv-Control for NetWare, and bv-Control for NDS
(formerly branded as NOSadmin for Windows NT and NOSadmin for NetWare). We have
a more-limited operating history with certain new and acquired products. An
investor in our Company must consider the risks and uncertainties frequently
encountered by software companies working with early-stage products,
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 AND RAPIDLY CHANGING. We face competition
from small companies with niche offerings as well as public companies with a
breadth of offerings. In addition, as discussed below under the heading, "Our
Products are Subject to Rapid Technological Change," new competitors have arisen
and can be expected to continue to arise in a rapidly-evolving market.
Currently, our products compete with products from the following organizations:
o providers of security analysis and audit products, such as Axent
Technologies, Inc., ODS Networks, Inc., ISS Group, Inc., PentaSafe,
Inc., Network Associates Inc. and Symantec Corporation;
o providers of stand-alone inventory and asset management products, such
as Tally Systems Corp.;
o providers of LAN desktop management suites, such as Intel Corporation,
Hewlett-Packard Company and Microsoft Corporation;
o providers of event notification and response technology, such as
Attention Software, Inc.;
o providers of Windows NT management and migration tools, such as NetIQ
Corporation and Quest Software;
o 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;
o providers of enterprise resource planning application add-ons for SAP
security administration and vulnerability assessment, such as CSI
International and KPMG Consulting; and
o providers of network security scanning technology, such as Network
Associates, ISS Group, Inc. and Axent Technologies.
In addition, companies such as Novell and Microsoft also offer native tools
with their products that provide a basic set of management tools. While these
tools provide help in certain administrative tasks for their own platform, they
do not help large
15
<PAGE> 16
administrators cope with the day-to-day management tasks that they are
challenged with. BindView solutions not only provide a easy to use interface,
but scales to the largest of the heterogeneous environments. Moreover Novell and
Microsoft do not have any incentive to make their platforms easier to use or
deploy. BindView is in a unique position to help address the growing demand for
cross-platform security and administration in such installations.
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. In addition, we have noted what appears to be
a recent trend of consolidation in that market through mergers and acquisitions.
Three recent examples are Mission Critical Software's merger with NetIQ,
Symantec's acquisition of Axent Technologies, Quest Software's acquisition of
FastLane Technologies Inc., and Braintree Software's announced acquisition by
PentaSafe. If such consolidation continues, it could result in the creation of
new competitors and/or enhancement of the competitive capabilities of existing
competitors. Many of these existing and potential competitors are likely to
enjoy substantial competitive advantages, including:
o greater resources that can be devoted to the development, promotion and
sale of their products;
o more established sales channels;
o greater software development experience; and
o greater name recognition.
Our competitors compete with us not only for sales, but also for employees.
We have noted that from time to time, certain competitors seem to target our
sales force, and (to a lesser extent) our software development staff, in their
recruiting efforts. In some respects this is a consequence of our growth in
headcount, because we have succeeded in building up a pool of talent that has
become an attractive target for "raiding" by recruiters. We have taken steps
that we deem appropriate to remind departing employees and certain competitors
of our employees' confidentiality- and noncompetition obligations. If we
continue to increase the size of our talent pool as we intend, we expect that we
will become an even more attractive target for employee raiding.
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.
In addition, we have and may continue to bundle and offer discounts to our
customers. Bundling or discounting our products may result in reduced operating
margins, reduced profitability and increase the complexity of revenue
recognition. 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.
16
<PAGE> 17
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, 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.
WE ARE AFFECTED BY THE MIGRATION RATE TO WINDOWS 2000. Our ability to sell
licenses for some of our bv-Admin migration products will depend in part on the
rate at which customers and potential customers elect to migrate their networks
to Microsoft's Windows 2000 operating system. Some observers have noted that
this migration rate has been slower than expected. If the migration rate
continues to remain comparatively slow, it could materially and adversely affect
our revenues from such migration products.
PRODUCT CONCENTRATION. A majority of our revenues are from the sale of our
bv-Control product. We anticipate that these products, along with product
additions as a result of the Curasoft, Netect and Entevo acquisitions, will
account for majority or all of all of our revenues for the foreseeable future.
Our future operating results will depend on continued market acceptance of our
bv-Control product family, introduction of new products from the Curasoft,
Netect and Entevo 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, Netect and Entevo 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 increased our product
offerings and have also focused more of our selling effort on products for the
customer's entire enterprise and as a result, have found that our sales cycle to
enterprises has ranged from six to beyond twelve months. In addition, we are
currently transitioning our telesales force into a direct sales model. Our
ability to effectively transition our sales force to this model can directly
impact the length of our sales cycle. The sales cycle to enterprises is
typically longer for a number of reasons, including:
o 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
o 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.
17
<PAGE> 18
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.
DEPENDENCE ON KEY PERSONNEL. Our success depends largely on the efforts of
our senior executive officers, particularly Eric J. Pulaski, Chairman of the
Board and Chief Technology Officer of BindView, Richard P. Gardner, President
and Chief Executive Officer, Scott R. Plantowsky, Vice-President and Chief
Financial Officer, and William D. Miller, Vice-President of Worldwide Sales at
BindView. We do not maintain key man life insurance policies on any of our
senior 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 1999, 1998
and 1997, we derived approximately 16%, 10% and 13% of our revenues,
respectively, from sales outside North America. Over the last 24 months, we have
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:
o establish additional international direct telesales offices;
o expand the management and support organizations for our international
sales channel;
o hire additional personnel;
o customize our products for local markets;
o recruit additional international resellers where appropriate; and
o 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.
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
18
<PAGE> 19
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 COMPLETED AND POTENTIAL ACQUISITIONS. We have made and
may continue to 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 Netect and Entevo or that we
will be able to integrate the products and technology we acquired into our sales
model or product offerings.
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.
RISK OF PRODUCT LIABILITY CLAIMS. Because our product design provides
important 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.
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 Earnings (Loss) Per Common
Share
27 -- Financial Data Schedule.
(b) Reports on Form 8-K.
In a Report on Form 8-K dated April 3, 2000, under Item 5, the Company reported
that it had issued a press release relating to its financial results for the
quarter ended March 31, 2000.
19
<PAGE> 20
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/ RICHARD P. GARDNER
-----------------------------------
Richard P. Gardner
President and Chief Executive Officer
(duly authorized officer)
NOVEMBER 14, 2000
By: /s/ SCOTT R. PLANTOWSKY
-----------------------------------
Scott R. Plantowsky
Vice-President and Chief Financial
Officer
(principal financial officer)
NOVEMBER 14, 2000
20
<PAGE> 21
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
------- -----------
11 -- Statement Regarding Computation of Earnings (Loss) Per Common Share
27 -- Financial Data Schedule.
21
