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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[MARK ONE]
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------ ------------
COMMISSION FILE NUMBER 0-26298
HARBINGER CORPORATION
(Exact name of registrant as specified in Its charter)
<TABLE>
<S> <C>
GEORGIA 58-1817306
(State or other Jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
1055 LENOX PARK BOULEVARD 30319
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 841-4334
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 issuer's class of capital stock outstanding as of
October 31, 1996, the latest practicable date, is as follows: 10,837,251
shares of Common Stock, $.0001 par value.
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<PAGE> 2
HARBINGER CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (unaudited) September 30, 1996
and December 31, 1995. 3
Consolidated Statements of Operations (unaudited) - Three
months and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows (unaudited) -
Nine months ended September 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
PART III. SIGNATURES 17
</TABLE>
FORM 10-Q
PAGE 2 OF 18
<PAGE> 3
Item 1. Financial Statements
HARBINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
------------- ------------
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,106,000 $11,918,000
Accounts receivable, less allowances for returns and
doubtful accounts of $826,000 at September 30, 1996 and
$537,000 at December 31, 1995 8,964,000 5,624,000
Royalty receivable 4,087,000 1,382,000
Deferred income taxes 999,000 999,000
Due from joint ventures 321,000 566,000
Other current assets 832,000 283,000
----------- -----------
Total current assets 19,309,000 20,772,000
----------- -----------
Property and equipment, less accumulated depreciation and amortization 6,461,000 3,772,000
Investments in joint ventures 2,506,000 7,480,000
Intangible assets, less accumulated amortization 11,971,000 6,298,000
Deferred income taxes 1,969,000 1,938,000
----------- -----------
$42,216,000 $40,260,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,484,000 $ 1,335,000
Accrued expenses 5,784,000 2,759,000
Deferred revenues 3,346,000 2,358,000
Line of Credit 211,000 -
Note payable 557,000 -
----------- -----------
Total current liabilities 11,382,000 6,452,000
----------- -----------
Redeemable preferred stock:
Zero Coupon, $1.00 redemption value; 4,000,000 shares issued
and outstanding at September 30, 1996 and December 31, 1995 - -
----------- -----------
Total redeemable preferred stock
- -
----------- -----------
Puttable common stock $0.0001 par value; 275,000 shares and
550,000 shares issued and outstanding at September 30, 1996 2,337,000 4,675,000
and December 31, 1995
Shareholders' equity:
Preferred stock, including redeemable preferred stock;
20,000,000 shares authorized --
Series C, $10.00 par value; 250,000 shares issued and
outstanding at December 31, 1995 - 2,485,000
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 10,552,177 shares and 9,690,684 shares issued
and outstanding at September 30, 1996 and December 31, 1995 1,000 1,000
Additional paid-in capital 42,776,000 32,201,000
Accumulated deficit (14,280,000) (5,554,000)
----------- -----------
Total shareholders' equity 28,497,000 29,133,000
----------- -----------
$42,216,000 $40,260,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 3 OF 18
<PAGE> 4
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
September 30, September 30,
------------------------------ -----------------------------
1996 1995 1996 1995
------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Revenues:
Services $ 7,263,000 $ 4,395,000 $19,463,000 $11,655,000
Software 3,891,000 1,707,000 8,934,000 4,277,000
------------ ------------ ----------- -----------
Total revenues 11,154,000 6,102,000 28,397,000 15,932,000
------------ ------------ ----------- -----------
Direct costs:
Services 2,454,000 1,179,000 5,844,000 3,061,000
Software 472,000 418,000 1,478,000 893,000
------------ ------------ ----------- -----------
Total direct costs 2,926,000 1,597,000 7,322,000 3,954,000
------------ ------------ ----------- -----------
Gross margin 8,228,000 4,505,000 21,075,000 11,978,000
------------ ------------ ----------- -----------
Operating costs:
Selling and marketing 2,068,000 1,264,000 5,751,000 3,444,000
General and administrative 2,202,000 1,373,000 5,603,000 3,575,000
Depreciation and amortization 548,000 196,000 1,313,000 518,000
Product development 1,617,000 932,000 3,868,000 2,613,000
Charge for purchased in-process
product development - - 8,350,000 -
------------ ------------ ----------- -----------
Total operating costs 6,435,000 3,765,000 24,885,000 10,150,000
------------ ------------ ----------- -----------
Operating income (loss) 1,793,000 740,000 (3,810,000) 1,828,000
Interest expense (income), net (9,000) 48,000 (193,000) 44,000
Equity in losses of joint ventures 2,144,000 387,000 4,973,000 713,000
Foreign currency adjustment (2,000) - (2,000) -
------------ ------------ ----------- -----------
Income (loss) before income tax expense (340,000) 305,000 (8,588,000) 1,071,000
Income tax expense (benefit) (94,000) 108,000 38,000 399,000
------------ ------------ ----------- -----------
Net income (loss) (246,000) 197,000 (8,626,000) 672,000
Preferred stock dividends - (51,000) (28,000) (150,000)
------------ ------------ ----------- -----------
Net income (loss) applicable to common
shareholders $ (246,000) $ 146,000 $(8,654,000) $ 522,000
============ ============ =========== ===========
Net income (loss) per share of common stock $ (0.02) $ 0.02 $ (0.81) $ 0.06
============ ============ =========== ===========
Weighted average common and
common equivalent shares outstanding 10,798,000 9,425,000 10,664,000 8,533,000
============ ============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 4 OF 18
<PAGE> 5
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------
September 30,
-------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities: $ 1,909,000 $ 2,104,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (3,164,000) (1,809,000)
Additions to software development costs (1,828,000) (327,000)
Investment in acquisitions (4,605,000) -
Investment in joint ventures - (8,364,000)
------------ ------------
Net cash used in investing activities (9,597,000) (10,500,000)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of common stock - 19,541,000
Repayments under credit arrangements (1,156,000) -
Dividends paid on preferred stock (28,000) (150,000)
Exercise of stock options and warrants 747,000 -
Proceeds from (repayment of) note payable - (3,325,000)
------------ ------------
Net cash provided by (used in) financing activities (437,000) 16,066,000
------------ ------------
Net decrease in cash and cash equivalents (8,125,000) (7,670,000)
Cash and cash equivalents at beginning of period 11,918,000 4,642,000
Effect of exchange rates on cash (61,000) -
Cash received from acquisitions 374,000 -
------------ ------------
Cash and cash equivalents at end of period $ 4,106,000 $ 12,312,000
============ ============
Supplemental disclosure of cash paid for interest $ 30,000 $ 118,000
============ ============
Supplemental disclosure of noncash investing activities:
Acquisition of technology and distribution agreement in exchange
for common stock $ - $ 4,675,000
============ ============
Conversion of Series C preferred stock to common stock $ 2,485,000 $ -
============ ============
$ -
============ ============
Acquisition of businesses in exchange for common stock, notes and
assumption of liabilities $ 11,216,000 $ -
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
FORM 10-Q
PAGE 5 OF 18
<PAGE> 6
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary to a fair
presentation of the financial position, results of operations, and cash flows
for the interim periods. Operating results for the three and nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer
to the financial statements and footnotes thereto included in Harbinger
Corporation's ("Harbinger" or the "Company") Form 10-K for the year ended
December 31, 1995.
2. ACQUISITIONS
Effective March 31, 1996, the Company acquired all of the common stock
of NTEX Holding, B.V. ("NTEX"), a Dutch corporation based in Rotterdam, The
Netherlands for $3,195,000 in cash, the issuance of 71,852 shares of the
Company's common stock and warrants to purchase up to 12,500 shares of the
Company's stock at $17.25 per share. The Company recorded the acquisition,
which was completed on April 4, 1996, using the purchase method of accounting
with $4,449,000 of the purchase price allocated to in-process product
development and charged to the consolidated statement of operations on March
31, 1996 and $2,960,000 allocated to goodwill and other intangibles.
Effective March 31, 1996, the Company acquired all of the common stock
of INOVIS GmbH & Co. ("INOVIS"), a German corporation based in Karlsruhe,
Germany for $1,409,000 in cash, the issuance of 140,184 shares of the
Company's common stock and warrants to purchase up to 20,000 shares of the
Company's stock at $15.25 per share. The Company recorded the acquisition,
which was completed on April 19, 1996, using the purchase method of
accounting with $3,400,000 of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
March 31, 1996 and $1,723,000 allocated to goodwill and other intangibles.
FORM 10-Q
PAGE 6 OF 18
<PAGE> 7
Effective March 31, 1996, the Company acquired the remaining
outstanding common stock of Harbinger N.V., a Dutch corporation based in
Hoofddorp, the Netherlands for the issuance of 38,710 shares of the Company's
common stock through a B type reorganization. The Company recorded the
acquisition, which was completed on April 20, 1996, using the purchase method
of accounting with $300,000 of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
March 31, 1996 and $492,000 allocated to goodwill and other intangibles.
Effective August 1, 1996, the Company acquired all of the common stock
of Comtech Management Systems, Inc. ("Comtech"), a Texas corporation based in
Amarillo, Texas, in exchange for 16,374 shares of the Company's common stock at
$25.75 per share. The Company recorded the acquisition, which was completed
August 19, 1996, using the purchase method of accounting with $383,000 of the
purchase price allocated to goodwill and other intangibles.
The balance sheets of the above companies have been included in the
Company's consolidated balance sheet as of September 30, 1996 and the results
of operations of the acquired companies have been included in the Company's
consolidated statements of operations as of April 1, 1996, except for Comtech,
which has been included as of August 1, 1996.
The pro-forma amounts presented below represent the results of
operations for the three and nine months ended September 30, 1996 and 1995
adjusted to give effect to the acquisitions described above as if each of the
acquisitions had been completed as of January 1, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------- ----------------------------------
September 30, September 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
------------ -------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 11,154,000 $ 7,493,000 $ 29,789,000 $ 18,713,000
Net income applicable to
common shareholders (246,000) (587,000) (9,386,000) (944,000)
Net income per share of
common stock $ (0.02) $ (0.07) $ (0.88) $ (0.12)
Weighted average outstanding
common shares and
common share equivalents 10,798,000 9,000,000 10,664,000 8,109,000
</TABLE>
The unaudited pro-forma consolidated results of operations included
above do not necessarily represent results which would have occurred if the
acquisitions had taken place on the dates indicated nor are they necessarily
indicative of the results of future operations.
FORM 10-Q
PAGE 7 OF 18
<PAGE> 8
3. SIGNIFICANT SUBSIDIARY
In December 1994, the Company founded Harbinger NET Services, LLC
("HNS") to develop products and services to facilitate electronic commerce
using the Internet. This investment is being accounted for using the equity
method.
Presented below is summarized income statement information relating to
HNS:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
September 30, September 30,
-------------------------- -------------------------
1996 1995 1996 1995
----------- ----------- ----------- ----------
(in $000's) (in $000's) (in $000's) (in $000's)
<S> <C> <C> <C> <C>
Revenues 49 -0- 53 -0-
Net Loss 2,311 359 5,285 657
Harbinger's Share of Net Loss 2,144 327 4,904 490
</TABLE>
4. SHAREHOLDERS' EQUITY
On March 1, 1996 the Company issued 140,692 shares of its common stock
in exchange for all outstanding shares of the Company's Series C preferred
stock.
In April 1996 the Company issued 250,746 shares of the Company's
common stock as partial consideration related to the Company's (i) acquisition
of NTEX, (ii) the acquisition of INOVIS and (iii) the acquisition and plan of
reorganization of HNV. (See Note 2.)
In August 1996 the Company issued 16,374 shares of the Company's
common stock as consideration related to the Company's acquisition of Comtech.
(See Note 2.)
In September 1996, the Company registered 550,000 shares of puttable
common stock held by a shareholder. As of September 30, 1996, the shareholder
had sold 275,000 of such shares and waived their right to put the shares of
common stock back to the Company. Therefore, approximately $2.3 million of
puttable common stock has been reclassified to shareholder's equity.
FORM 10-Q
PAGE 8 OF 18
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the financial statements and notes thereto included elsewhere herein and
the Company's Form 10-K for the year ending December 31, 1995.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased 78% from $15.9 million in the nine months
ended September 30, 1995 to $28.4 million in the same period in 1996. Revenues
for services increased 67% from $11.7 million in the nine months ended
September 30, 1995 to $19.5 million in the same period in 1996, reflecting the
revenues from the acquisitions completed at the end of the first quarter 1996,
an increase in the number of subscribers utilizing the Company's Value Added
Network ("VAN"), and increases in the average volume of transmissions by
subscribers. Revenues from software maintenance and implementation also
increased, reflecting primarily an increase in the number of customers.
Revenue from software sales increased 109% from $4.3 million in the nine months
ended September 30, 1995 to $8.9 million in the same period in 1996. This
increase primarily reflects the effect of $3.2 million in incremental royalties
for software products licensed through the System Software Associates, Inc.
("SSA") agreement during the nine months ended September 30, 1996, as well as
increases in business to business software sales, offset by decreases in
Financial EDI software sales and certain other one-time license fees which
occurred in the prior year.
Total revenues increased 83% from $6.1 million in the three months
ended September 30, 1995 to $11.2 million in the same period in 1996. Revenues
for services increased 65% from $4.4 million in the three months ended
September 30, 1995 to $7.3 million in the same period in 1996, reflecting the
revenues from the acquisitions completed at the end of the first quarter 1996,
an increase in the number of subscribers utilizing the Company's Value Added
Network ("VAN"), and increases in the average volume of transmissions by
subscribers. Revenues from software maintenance and implementation also
increased, reflecting primarily an increase in the number of customers.
Revenue from software sales increased 128% from $1.7 million in the three
months ended September 30, 1995 to $3.9 million in the same period in 1996.
This increase primarily reflects the effect of $1.0 million in incremental
royalties for software products licensed through the SSA agreement during the
three months ended September 30, 1996, as well as increases in revenues from
the acquisitions completed at the end of the first quarter 1996 and certain
other one-time license fees.
FORM 10-Q
PAGE 9 OF 18
<PAGE> 10
DIRECT COSTS
Direct costs for services increased from $3.1 million, or 26% of
services revenues, in the nine months ended September 30, 1995, to $5.8
million, or 30% of services revenues, in the nine months ended September 30,
1996. The increase in direct costs for services as a percentage of services
revenues reflects a higher mix of lower margin consulting revenue, increased
direct costs for services related costs associated with the Company's European
operations and increased customer service and operations costs to provide a
higher level of support to our customers related to the introduction of a new
version of the Company's Windows product. Direct costs for software increased
from $893,000, or 21% of software revenues, in the nine months ended September
30, 1995, to $1.5 million, or 17% of software revenues, in the nine months
ended September 30, 1996. The decrease in direct costs for software as a
percentage of software revenues is primarily due to higher gross margins in our
European operations.
Direct costs for services increased from $1.2 million, or 27% of
services revenues, in the three months ended September 30, 1995, to $2.5
million, or 34% of services revenues, in the three months ended September 30,
1996. The increase in direct costs for services, as a percentage of services
revenues reflects a higher mix of lower margin consulting revenue, increased
direct costs for services related costs associated with the Company's European
operations and increased customer service and operations costs to provide a
higher level of support to our customers related to the introduction of a new
version of the Company's Windows product. Direct costs for software increased
from $418,000, or 24% of software revenues, in the three months ended September
30, 1995, to $472,000, or 12% of software revenues, in the three months ended
September 30, 1996. The decrease in direct costs for software as a percentage
of software revenues is primarily due to higher gross margins in our European
operations.
SELLING AND MARKETING
Selling and marketing expenses increased 67% from $3.4 million, or 22%
of revenues in the nine months ended September 30, 1995 to $5.8 million, or 20%
of revenues in the nine months ended September 30, 1996. This decrease in
marketing and selling expenses as a percentage of revenues is primarily due to
the effect of increased services revenue and efficiencies associated with other
costs to support increased sales activity.
Selling and marketing expenses increased 64% from $1.3 million, or 21%
of revenues in the three months ended September 30, 1995 to $2.1 million, or
19% of revenues in the three months ended September 30, 1996. This decrease in
marketing and selling expenses as a percentage of revenues is primarily due to
the effect of increased services revenue and efficiencies associated with other
costs to support increased sales activity.
FORM 10-Q
PAGE 10 OF 18
<PAGE> 11
Management anticipates that selling and marketing expenses as a
percentage of revenue will increase in 1997 due to an increased focus on
selling the Company's software and services domestically and internationally
and the incorporation of Harbinger NET Services products into the Company's
product lines. (See Subsequent Event.)
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 57% from $3.6 million in
the nine months ended September 30, 1995 to $5.6 million in the nine months
ended September 30, 1996. As a percentage of revenues, these expenses
decreased from 22% of revenues in the nine months ended September 30, 1995 to
20% of revenues in the nine months ended September 30, 1996. The decrease as a
percentage of revenues reflects efficiencies associated with expanding the
Company's operations and the effect of increases in software and services
revenue.
General and administrative expenses increased 60% from $1.4 million in
the three months ended September 30, 1995 to $2.2 million in the three months
ended September 30, 1996. As a percentage of revenues, these expenses
decreased from 22% of revenues in the three months ended September 30, 1995 to
20% of revenues in the three months ended September 30, 1996. The decrease as
a percentage of revenues reflects efficiencies associated with expanding the
Company's operations and the effect of increases in software and services
revenue.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 153% from $518,000 in the nine
months ended September 30, 1995 to $1.3 million in the nine months ended
September 30, 1996. As a percentage of revenues, these expenses increased from
3.2% of revenues in the nine months ended September 30, 1995 to 4.6% of
revenues in the nine months ended September 30, 1996. The increase as a
percentage of revenues is primarily the result of the amortization of the
intangible assets related to the acquisitions completed at the end of the first
quarter 1996.
Depreciation and amortization increased 180% from $196,000 in the
three months ended September 30, 1995 to $548,000 in the three months ended
September 30, 1996. As a percentage of revenues, these expenses increased from
3.2% of revenues in the three months ended September 30, 1995 to 4.9% of
revenues in the three months ended September 30, 1996. The increase as a
percentage of revenues is primarily the result of the amortization of the
intangible assets related to the acquisitions completed at the end of the first
quarter 1996.
FORM 10-Q
PAGE 11 OF 18
<PAGE> 12
PRODUCT DEVELOPMENT
Total expenditures for product development, including capitalized
software development costs, increased from $2.9 million in the nine months
ended September 30, 1995 to $5.6 million in the same period in 1996. This
increase reflects the hiring of additional development personnel, increased
product development resources associated with the SSA Agreement and additional
product development personnel related costs associated with the acquisitions.
The Company capitalized product development costs of $327,000 and $1.8 million,
respectively, in the nine months ended September 30, 1995 and the nine months
ended September 30, 1996, which represented 11% and 31% of total expenditures
for product development in these respective periods. As a percentage of total
revenues, product development costs decreased from 16% of revenues in the nine
months ended September 30, 1995 to 14% of revenues in the nine months ended
September 30, 1996. The increase in capitalized development costs between the
nine months of 1995 and 1996 and the related decrease in software development
costs as a percentage of revenue reflects a higher level of capitalized product
development costs due to development activities on products which had reached
technological feasibility. Amortization of capitalized product development
costs is charged to direct costs of software revenues and totaled $544,000 and
$1.1 million, respectively, in the nine months ended September 30, 1995 and the
nine months ended September 30, 1996.
Total expenditures for product development, including capitalized
software development costs, increased from $1.2 million in the three months
ended September 30, 1995 to $2.0 million in the same period in 1996 reflecting
the reasons mentioned above. The Company capitalized product development costs
of $233,000 and $430,000, respectively, in the three months ended September 30,
1995 and the three months ended September 30, 1996, which represented 20% and
21% of total expenditures for product development in these respective periods.
As a percentage of total revenues, product development costs were 15% of
revenues in the three months ended September 30, 1995 and September 30, 1996.
Amortization of capitalized product development cost is charged to direct cost
of software revenues and totaled $298,000 and $342,000, respectively, in the
three months ended September 30, 1995 and the three months ended September 30,
1996.
CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT
The Company incurred a $8,350,000 charge for acquired research and
development costs during the nine months ended September 30, 1996. In
connection with the acquisitions described above, the Company acquired
in-process product development for several software products. Since the
Company determined that certain of the acquired technologies had not reached
technological feasibility, the Company expensed the portion of the purchase
price allocable to such in-process product development. (See Note 2.)
FORM 10-Q
PAGE 12 OF 18
<PAGE> 13
EQUITY IN LOSSES OF JOINT VENTURES
The Company recognized equity in losses of Harbinger NV of $223,000 in
the nine months ended September 30, 1995, as compared to a corresponding loss
of $69,000 from its investment in Harbinger NV in the nine months ended
September 30, 1996. Effective March 31, 1996, the Company acquired the
remaining outstanding stock of Harbinger NV and now consolidates the results of
its operations. (See Note 2.) The equity in losses of Harbinger NET Services,
LLC ("HNS") for the nine months ended September 30, 1995 totaled $490,000 as
compared to a corresponding loss of $4.9 million in the nine months ended
September 30, 1996. This increase primarily reflects increased expenditures by
HNS related to additional personnel to support product development and product
marketing activities.
The Company recognized equity in losses of Harbinger NV of $60,000 in
the three months ended September 30, 1995. Effective March 31, 1996, the
Company acquired the remaining outstanding stock of Harbinger NV and now
consolidates the results of its operations. (See Note 2.) The equity in
losses of HNS for the three months ended September 30, 1995 totaled $327,000 as
compared to a corresponding loss of $2.1 million in the three months ended
September 30, 1996. This increase primarily reflects increased expenditures by
HNS related to additional personnel to support product development and product
marketing activities.
INTEREST INCOME
The Company recorded net interest income of $193,000 for the nine
months ended September 30, 1996 as compared to interest expense of $44,000 for
the nine months ended September 30, 1995. This increase is primarily due to
the interest earned on the funds received from the Company's initial public
offering in August 1995.
The Company recorded net interest income of $9,000 for the three
months ended September 30, 1996 as compared to interest expense of $48,000 for
the three months ended September 30, 1995. This increase is primarily due to
the interest earned on the funds received from the Company's initial public
offering in August 1995.
INCOME TAXES
The Company recorded income tax expense of $38,000 for the nine months
ended September 30, 1996 as compared to income tax expense of $399,000 for the
nine months ended September 30, 1995. The Company has not recorded an income
tax benefit on the $8,350,000 charge for purchased in process product
development related to the acquisitions described above.
The Company recorded an income tax benefit of $94,000 for the three
months ended September 30, 1996 as compared to income tax expense of $108,000
for the three months ended September 30, 1995.
FORM 10-Q
PAGE 13 OF 18
<PAGE> 14
NET INCOME (LOSS) AND EARNINGS PER SHARE
The Company realized a net loss of $8,654,000 for the nine months
ended September 30, 1996 as compared to net income of $522,000 for the nine
months ended September 30, 1995. The net loss in the period ended September
30, 1996 reflects the effect of the charge for purchased in-process product
development of $8,350,000 in connection with the acquisitions described above
and the equity in losses of joint ventures of $4,973,000. The Company realized
a loss per share of $.81 for the nine months ended September 30, 1996 as
compared to earnings per share of $.06 for the nine months ended September 30,
1995. The charge for purchased in-process product development described above
had approximately an $.78 loss impact on the Company's earnings for the nine
months ended September 30, 1996.
The Company realized a net loss of $246,000 for the three months ended
September 30, 1996 as compared to net income of $146,000 for the three months
ended September 30, 1995. The net loss in the three months ended September 30,
1996 reflects the equity in losses of joint ventures of $2,144,000. The
Company realized a loss per share of $.02 for the three months ended September
30, 1996 as compared to earnings per share of $.02 for the three months ended
September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $6.4 million from $14.3
million as of December 31, 1995 to $7.9 million as of September 30, 1996. This
decrease principally reflects the liabilities assumed and the consideration
given related to the acquisitions described above. (See Note 2.) In the nine
months ended September 30, 1996 the Company generated cash from operating
activities of $1,909,000 as compared to $2,104,000 for the nine months ended
September 30, 1995. This decrease is due primarily to payment terms under the
Company's relationship with SSA discussed below. The Company used net cash in
investing activities of $9,597,000 for the nine months ended September 30, 1996
as compared to $10,500,000 for the nine months ended September 30, 1995. Cash
used in investing activities for the period ended September 30, 1996 included
cash used to acquire the European Operations (see Note 2), purchases of
property and equipment and additions to software development. The Company used
net cash from financing activities of $437,000 in order to pay off debt of
approximately $1.2 million acquired from the acquisitions completed at the end
of the first quarter 1996 offset somewhat by proceeds received from the
exercise of Harbinger stock options in the nine months ended September 30, 1996
as compared to providing $16,066,000 by financing activities for the nine
months ended September 30, 1995 which related primarily to the proceeds
received from the issuance of common stock in connection with the Company's
initial public offering in August 1995.
The Company has announced its intent to acquire the remaining 30%
equity of HNS effective January 1, 1997 for approximately $7.2 million
consideration, of which approximately $3.0 million is in cash and $4.2 million
is in the Company's common stock. (See Subsequent Event.)
FORM 10-Q
PAGE 14 OF 18
<PAGE> 15
The Company is investing in a new telephone system which commits the
Company to a capital expenditure of approximately $1.0 million during the next
three months. The Company currently has no other material commitments for
capital expenditures.
The accompanying balance sheet reflects a $4.1 million royalty
receivable from SSA relating to certain minimum royalties under a distribution
arrangement. It is possible that underlying EDI sales from SSA might not be
sufficient to justify the Company's recognition of the entire fourth quarter
minimum royalties of $1.7 million. In this case, there is a possibility that
the Company could experience a shortfall in reported software revenue.
Nevertheless, in October 1996, SSA remitted the entire 1996 minimum royalty
payment of $5.8 million.
Management expects that the Company will continue to be able to fund
its acquisitions, operations, investment needs and capital expenditures through
cash flows generated from operations, cash on hand, debt borrowings and
additional equity capital. Management believes that outside sources for debt
and additional equity capital, if needed, will be available to finance
expansion projects and any possible large acquisitions. The form of any
financing will vary depending upon prevailing market and other conditions and
may include short- or long-term borrowings from financial institutions, or the
issuance of additional equity securities. However, there can be no assurances
that funds will be available on terms acceptable to the Company.
SUBSEQUENT EVENT
On October 28, 1996, the Company announced its intent to purchase the
remaining 30% equity in HNS from BellSouth Telecommunications ("BellSouth") and
other minority shareholders for approximately $7.2 million in consideration.
The Company will pay BellSouth $1.5 million in cash and approximately $4.2
million in Harbinger common stock and approximately $1.5 million in cash to the
other minority shareholders. Management announced that it anticipates a first
quarter 1997 charge of between $6.0 million and $7.5 million as a result of the
combination related to in-process R&D charges and associated integration costs.
This Form 10-Q includes "forward looking" statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934
related to the Company that involve risks and uncertainties including, but not
limited to, quarterly fluctuations in results, the management of growth, market
acceptance of certain products and other risks. For further information about
these and other factors that could affect the Company's future results, please
see the Company's reports filed with the Securities and Exchange Commission,
including the Company's Form 10-K for the year ended December 31, 1995.
Investors are cautioned that any forward looking statements are not guarantees
of future performance and involve risks and uncertainties and that actual
results may differ materially from those contemplated by such forward looking
statements.
FORM 10-Q
PAGE 15 OF 18
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Computation of earnings per share
Exhibit 27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1996.
FORM 10-Q
PAGE 16 OF 18
<PAGE> 17
S I G N A T U R E S
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.
HARBINGER CORPORATION
Date: 11/12/96 /s/ C. Tycho Howle
------------------------------- -----------------------------------
C. Tycho Howle
Chairman & CEO
(Principal Executive Officer)
Date: 11/12/96 /s/ Joel G. Katz
------------------------------- ----------------------------------
Joel G. Katz
Vice President, Finance
(Principal Financial Officer;
Principal Accounting Officer)
FORM 10-Q
PAGE 17 OF 18
<PAGE> 1
EXHIBIT 11
HARBINGER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- --------------------------------
September 30, September 30,
------------------------------- --------------------------------
PRIMARY 1996 1995 1996 1995
----------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Weighted average common
stock outstanding
10,798,000 8,750,000 10,664,000 7,858,000
Net effect of dilutive stock options
and warrants
- based on the treasury method - 675,000 - 675,000
---------- ------------ ----------- ------------
Total 10,798,000 9,425,000 10,664,000 8,533,000
========== ============ =========== ============
Net income (loss) applicable to
common stockholders $ (246,000) $ 146,000 $(8,654,000) $ 522,000
========== ============ =========== ============
Net income (loss) per share applicable
to common stockholders $ (0.02) $ 0.02 $ (0.81) $ 0.06
========== ============ =========== ============
</TABLE>
Computational note:
In connection with the computations for 1996, all common share
equivalents have been excluded because their impact on the Company's
net loss per share is antidilutive. In connection with the
computations for 1995, the Company has included the effect of dilutive
stock options and warrants pursuant to the rules of Securities and
Exchange Commission.
FORM 10-Q
PAGE 18 OF 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,106
<SECURITIES> 0
<RECEIVABLES> 9,790
<ALLOWANCES> 826
<INVENTORY> 0
<CURRENT-ASSETS> 19,309
<PP&E> 9,959
<DEPRECIATION> 3,498
<TOTAL-ASSETS> 42,216
<CURRENT-LIABILITIES> 11,382
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 28,496
<TOTAL-LIABILITY-AND-EQUITY> 42,216
<SALES> 8,934
<TOTAL-REVENUES> 28,397
<CGS> 1,478
<TOTAL-COSTS> 7,322
<OTHER-EXPENSES> 24,885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (193)
<INCOME-PRETAX> (8,588)
<INCOME-TAX> 38
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,654)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> 0
</TABLE>
