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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 MARCH 31, 2000
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)
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<S> <C>
GEORGIA 58-1817306
(State or other Jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
1277 LENOX PARK BOULEVARD
ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 467-3000
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
April 28, 2000, the latest practicable date, is as follows: 40,069,849 shares of
Common Stock, $.0001 par value.
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HARBINGER CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (Unaudited) March 31, 2000
and December 31, 1999.................................................
Consolidated Statements of Operations (Unaudited) - Three
Months Ended March 31, 2000 and 1999....................................
Consolidated Statements of Comprehensive Income (Unaudited) -
Three Months Ended March 31, 2000 and 1999...........................
Consolidated Statements of Cash Flows (Unaudited) -
Three Months Ended March 31, 2000 and 1999...........................
Notes to Consolidated Financial Statements (Unaudited)......................
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..............................
Item 6. Exhibits and Reports on Form 8-K.................................................
PART III. SIGNATURES.....................................................................
</TABLE>
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ITEM 1. FINANCIAL STATEMENTS
HARBINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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<CAPTION>
March 31, December 31,
2000 1999
---------- ------------
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ASSETS
------
Current assets:
Cash and cash equivalents .................................. $ 21,049 $ 12,934
Short-term investments ..................................... 58,149 60,086
Accounts receivable, less allowances for returns and
doubtful accounts of $8,102 at March 31, 2000
and $8,455 at December 31, 1999 .......................... 48,289 43,975
Royalties receivable ....................................... -- 1,200
Deferred income taxes ...................................... 2,103 2,103
Other current assets ....................................... 5,393 5,130
--------- ---------
Total current assets ................................... 134,983 125,428
--------- ---------
Property and equipment, less accumulated depreciation
and amortization .......................................... 25,903 26,339
Intangible assets, less accumulated amortization .............. 17,302 16,863
Deferred income taxes ......................................... 698 698
Other non-current assets ...................................... 4,327 131
--------- ---------
$ 183,213 $ 169,459
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable ........................................... $ 5,452 $ 7,478
Accrued expenses ........................................... 19,859 15,995
Deferred revenues .......................................... 23,448 21,212
--------- ---------
Total current liabilities .............................. 48,759 44,685
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 20,000,000 shares authorized;
none issued and outstanding .............................. _ _
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 44,380,419 shares and 43,404,247 shares issued
as of March 31, 2000 and December 31, 1999 .............. 4 4
Additional paid-in capital ................................. 216,678 208,226
Accumulated deficit ........................................ (55,596) (56,968)
Accumulated other comprehensive loss ...................... (1,588) (1,444)
Treasury stock, 4,323,050 shares as of March 31, 2000 and
December 31, 1999 ...................................... (25,044) (25,044)
--------- ---------
Total shareholders' equity ...................... 134,454 124,774
--------- ---------
$ 183,213 $ 169,459
========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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Three Months Ended
March 31,
----------------------
2000 1999
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Revenues:
Services ................................................. $ 27,236 $25,372
Software ................................................. 11,171 8,131
-------- -------
Total revenues ......................................... 38,407 33,503
-------- -------
Direct costs:
Services ................................................. 10,738 10,626
Software ................................................. 1,058 1,131
-------- -------
Total direct costs ..................................... 11,796 11,757
-------- -------
Gross margin ....................................... 26,611 21,746
-------- -------
Operating costs:
Selling and marketing .................................... 12,504 8,386
General and administrative ............................... 8,684 6,560
Depreciation and amortization ............................ 2,866 2,233
Product development ...................................... 2,193 3,011
-------- -------
Total operating costs ................................ 26,247 20,190
-------- -------
Operating income ................................... 364 1,556
-------- -------
Interest income, net ........................................ 1,391 898
Equity in losses of joint ventures .......................... (241) --
-------- -------
Income before income taxes ......................... 1,514 2,454
Income tax expense .......................................... 142 113
-------- -------
Net income ......................................... $ 1,372 $ 2,341
======== =======
Basic earnings per share .................................... $ 0.03 $ 0.06
======== =======
Weighted average number of common shares outstanding ........ 39,439 39,879
======== =======
Earnings per share assuming dilution ........................ $ 0.03 $ 0.06
======== =======
Weighted average number of common shares outstanding assuming
dilution ................................................. 42,246 40,451
======== =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
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Three Months Ended
March 31,
---------------------
2000 1999
------- -------
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Net income ....................................... $ 1,372 $ 2,341
Other comprehensive loss, net of tax:
Foreign currency translation adjustments ....... (144) (635)
------- -------
Comprehensive income ......................... $ 1,228 $ 1,706
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
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Three Months Ended
March 31,
-----------------------
2000 1999
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Cash flows provided by operating activities .................... $ 3,670 $ 454
Cash flows from investing activities:
Net redemptions (purchases) of short-term investments ....... 1,937 (653)
Purchases of property and equipment ......................... (2,216) (2,378)
Additions to software development costs ..................... (1,503) (887)
Investments in joint ventures, net .......................... (1,855) --
-------- --------
Net cash used in investing activities ................. (3,637) (3,918)
-------- --------
Cash flows from financing activities:
Exercises of stock options and warrants and issuance of
stock under employee stock purchase plan .................. 8,452 486
Purchases of common stock ................................... -- (15,778)
-------- --------
Net cash provided by (used in) financing activities ... 8,452 (15,292)
-------- --------
Net increase (decrease) in cash and cash equivalents ........... 8,485 (18,756)
Cash and cash equivalents at beginning of period ............... 12,934 33,059
Effect of exchange rates on cash held in foreign currencies .... (370) (194)
======== ========
Cash and cash equivalents at end of period ..................... $ 21,049 $ 14,109
======== ========
Supplemental disclosures:
Cash paid for income taxes .................................. $ -- $ 45
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited 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, comprehensive income, and cash flows for the
interim periods. Operating results for the three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. 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, 1999
and the Company's current reports on Form 8-K dated January 24, 2000, April 6,
2000 and April 17, 2000.
RECLASSIFICATIONS
Certain reclassifications have been made to the quarter ended March 31,
1999 unaudited and the December 31, 1999 audited consolidated financial
statements to conform to the presentation of the quarter ended March 31, 2000.
REVENUE RECOGNITION
On January 1, 2000 the Company adopted Statement of Position 98-9,
Software Revenue Recognition with Respect to Certain Transactions, which did not
have a material impact on accounting for revenues.
2. INVESTMENTS IN JOINT VENTURES
During the three months ended March 31, 2000 the Company acquired
equity positions in two privately-held ventures and issued a letter of intent to
invest in a third privately-held venture, fundamentally exchanging the Company's
technologies and services for equity positions in the ventures. Each investment
will be accounted for using the equity method of accounting, which requires the
Company to record its share of income or loss to the consolidated statements of
operations under "Equity in losses of joint ventures" in the period they occur.
The Company has chosen to use the equity method for these investments due to its
belief that it has the ability to exercise significant influence over the
entities. More specifically, the Company invested $2.0 million in
FactorWorks.com Inc. ("FactorWorks") for a 7.8% ownership position and recorded
approximately $1.4 million in services revenues net of $117,000 of revenue
eliminated in consolidation; invested $3.0 million for a 7.4% ownership of
Edaflow Corporation and recorded $1.4 million in software revenue net of
$117,000 of revenue eliminated in consolidation; and committed to an estimated
$4 million investment for an estimated 20% ownership of a joint venture in the
golf and hospitality industry and recognized $1.9 million of software revenue,
net of $476,000 of revenue eliminated in consolidation. The Company's share of
income or loss in these investments for the three months ended March 31, 2000
was not material. These ventures are early-stage enterprises which therefore may
be financially volatile, with no assurances on the ultimate value of the
Company's investments. The Company's investments are recorded as "Other
non-current assets" on the consolidated balance sheets.
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3. ACCRUED LIABILITIES
At March 31, 2000 the Company had a remaining reserve of $2.4 million
related to charges for purchased in-process product development, write-off of
software developed costs, restructuring, acquisition related and other charges,
compared to $3.0 million at December 31, 1999. The reduction to the reserve in
2000 was due to cash payments made for $600,000. The liabilities at March 31,
2000 consist primarily of reserves for lease terminations, severance costs and
legal fees. The remaining liabilities are based on management estimates and the
actual results could vary from these estimates.
4. DISCONTINUED OPERATIONS
The Company discontinued its TrustedLink Procurement business ("TLP")
in September 30, 1998 and established a $6.4 million reserve for an estimated
loss on disposal of TLP, including anticipated losses during the phase-out
period. The Company sold the business in 1999 and wrote off certain additional
assets in 2000, resulting in a $2.3 million loss on disposal. The Company
presently has an $800,000 note receivable from the purchaser of TLP. Repayment
of this note will occur at the earlier of the buyer achieving certain sales
targets or December 31, 2000.
At March 31, 2000 the remaining balance in the loss reserve was $ 2.9
million, available for certain remaining contingencies associated with TLP. Such
contingencies relate to lease termination costs, customer transition issues and
collection risks associated with notes and accounts receivables. At present,
management is not able to estimate specific time frames during which these
contingencies will be resolved. The operating loss during the phase-out period
from the measurement date of September 30, 1998 to March 31, 2000 was $ 1.2
million. The net assets and liabilities of TLP included in the Company's
consolidated balance sheets were $5,228 at March 31, 2000 and $452,000,
primarily consisting of account receivables, at December 31, 1999.
5. SEGMENT INFORMATION
The Company operates in a single industry segment: the development,
marketing and support of software products and the providing of network and
professional services to enable businesses to engage in business-to-business
e-commerce. The Company manages its business along geographical lines, thus
resulting in three reportable segments: North America, Europe, and Asia Pacific
and Latin America. The accounting policies of each segment are the same as those
described in the summary of significant accounting policies. Revenues are
attributed to a reportable segment based on the location of the customer.
Management evaluates the performance of each segment on the basis of operating
income, excluding certain general and administrative charges and credits.
Intersegment royalties are calculated based upon revenues, as defined, derived
from the sales of certain software products and services at agreed upon
percentages between the segments.
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A summary of the Company's reportable segments as of March 31, 2000 and
March 31, 1999 is presented below (in thousands):
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Asia Pacific and
North America Europe Latin America Total
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Revenues:
2000 $34,697 $ 3,976 $1,206 $39,879
1999 $28,413 $ 5,729 $ 511 $34,653
Intersegment Royalties:
2000 $ 1,472 $ - $ - $ 1,472
1999 $ 1,150 $ - $ - $ 1,150
Operating Income (as defined):
2000 $ 1,915 $(1,654) $ 103 $ 364
1999 $ 54 $ 833 $ (81) $ 806
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2000 1999
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Revenues:
Total gross revenues for reportable segments $ 39,879 $ 34,653
Elimination of intersegment royalties (1,472) (1,150)
-------- --------
Total consolidated revenues $ 38,407 $ 33,503
======== ========
2000 1999
-------- --------
Operating Income:
Total operating income for reportable segments, as defined $ 364 $ 806
Certain general and administrative credits -- 750
-------- --------
Total consolidated operating income, as reported $ 364 $ 1,556
======== ========
</TABLE>
6. CONTINGENCIES
The Company is involved in claims and other legal actions arising out
of the ordinary course of business, including discontinued operations and the
phase-out of certain non-strategic software products. Additionally, a
shareholder class action lawsuit was filed against the Company in September 1999
(see Part I, Item 3 of the Company's December 31, 1999 Form 10-K). While the
ultimate results of such claims and legal actions cannot be determined,
management does not expect that they will have a material adverse effect on the
Company's results of operations or financial position.
7. SUBSEQUENT EVENT
PENDING MERGER
On April 5, 2000 the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") with Peregrine Systems, Inc.
("Peregrine"), a Delaware corporation, and Soda Acquisition Company, a Delaware
Corporation and a wholly-owned subsidiary of subsidiary of Peregrine, in which
each
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outstanding share of Harbinger common stock will be converted into the right to
receive 0.75 of a share of Peregrine common stock (the "Merger").
The Merger is intended to constitute a reorganization under Section 368
(a) of the Internal Revenue Code of 1986, as amended, and is to be accounted for
as a purchase transaction. Consummation of the Merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
the stockholders of Peregrine, shareholders of Harbinger and certain regulatory
bodies.
In connection with the proposed merger, Peregrine will file a proxy
statement and Registration Statement on Form S-4 with the Securities and
Exchange Commission ("SEC"), and Harbinger will file a proxy statement with the
SEC. Harbinger and Peregrine will mail a Joint Proxy Statement/Prospectus to
stockholders of Harbinger and Peregrine containing additional information about
the proposed merger after approval from the SEC. Depending on whether the SEC
reviews the proposed merger, the transaction is expected to close in summer or
early fall of 2000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
ABOUT THE COMPANY
Harbinger Corporation (the Company) generates revenues from e-commerce
enablement services and from licensing software that facilitates the exchange of
electronic data between businesses. Service revenues principally include
transaction fees on harbinger.net, the Company's e-commerce portal; subscription
fees for access to applications hosted on harbinger.net (ASP); software
maintenance; and professional service fees for operations management
(outsourcing), business community integration (BCI), training, consulting and
project management. Transaction and subscription fees are a combination of
access and usage charges and are recognized as incurred each month. Software
maintenance is billed in advance with revenue deferred and recognized ratably
over the service period, generally one year. Revenues for professional services
are based on actual services rendered and are recognized as the services are
performed. License fees for software are generally recognized upon shipment, net
of estimated returns. Software revenues also include royalties due the Company
under distribution agreements with third parties which are recognized either on
shipment of software to a distributor, or upon sales to end users by a
distributor, depending on the terms of the respective distribution agreement.
The Company also analyzes its mix of revenues in terms of the recurring
versus nonrecurring nature of the revenue streams. The Company includes revenues
from ongoing software maintenance and transactions on harbinger.net, together
with operations management certain ASP services in its definition of recurring
revenues. Recurring revenues are recognized ratably over the contract period as
services are provided or may be billed and recognized on monthly subscription
terms generally over a two- to three-year period. The Company defines
nonrecurring revenues to include one-time professional service enablement
contracts, typically for consulting, project management or implementation
services, and software licenses.
The Company seeks to maximize its recurring revenue streams in order to
promote customer retention, provide long-term revenue and cash flow generating
capabilities, and decrease the revenue and cash flow risk associated with
singular professional service and software license contracts. The Company also
seeks to maximize the use of the public Internet as a means of conducting
business-to-business e-commerce. Since 1994, the Company has continually
invested in enabling its products and services to the Internet and is actively
encouraging its current customer base to migrate to Internet-capable
technologies.
PENDING MERGER
On April 5, 2000 the Company entered into an Agreement and Plan of
Merger and Reorganization (the "Merger Agreement") with Peregrine Systems, Inc.
("Peregrine"), a Delaware corporation, and Soda Acquisition Company, a Delaware
Corporation and a wholly-owned subsidiary of subsidiary of Peregrine, in which
each
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outstanding share of Harbinger common stock will be converted into the right to
receive 0.75 of a share of Peregrine common stock (the "Merger").
The Merger is intended to constitute a reorganization under Section 368
(a) of the Internal Revenue Code of 1986, as amended, and is to be accounted for
as a purchase transaction. Consummation of the Merger is subject to various
conditions, including, among other things, receipt of the necessary approvals of
the stockholders of Peregrine, shareholders of Harbinger and certain regulatory
bodies.
In connection with the proposed merger, Peregrine will file a proxy
statement and Registration Statement on Form S-4 with the Securities and
Exchange Commission ("SEC"), and Harbinger will file a proxy statement with the
SEC. Harbinger and Peregrine will mail a Joint Proxy Statement/Prospectus to
stockholders of Harbinger and Peregrine containing additional information about
the proposed merger after approval from the SEC. Depending on whether the SEC
reviews the proposed merger, the transaction is expected to close in summer or
early fall of 2000.
INVESTMENTS
In the fourth quarter of 1999 the Company announced its intention to
invest approximately $25 million in new and existing ventures that utilize the
Company's technology and services to conduct business-to-business e-commerce. In
the first quarter of 2000 the Company invested $5.0 million in two
privately-held ventures, informally committed to an equity position in a third
privately-held venture and recorded software and services revenues totaling $4.6
million from these three transactions. These revenues excluded $749,000 of
revenues and deferred revenues corresponding to the Company's percentage
ownership in the ventures which were eliminated in consolidation, per the equity
method of accounting. The Company has determined that it will use the equity
method of accounting for these ventures since it believes that it has the
ability to exercise significant influence over each entity. These ventures are
early-stage enterprises which therefore may be financially volatile, with no
assurances on the ultimate value of the Company's investments. (See Footnote 2
to the unaudited consolidated financial statements.)
RESULTS OF OPERATIONS
Revenues. Total revenues increased 15% to $38.4 million in the first
quarter of 2000 from $33.5 million in the first quarter of 1999. Revenues for
services increased 7% to $27.2 million in the first quarter of 2000 from $25.4
million in the first quarter of 1999. The increase in service revenues is
primarily attributable to an increase in software maintenance revenues for the
first quarter of 2000 compared to 1999. Traditional professional services
revenues in enablement, training and consulting declined commensurate with the
Company's deemphasis on large electronic e-commerce enablement contracts as a
source of professional services revenues. ASP services revenues increased $1.9
million over the first quarter of 1999 primarily due to approximately $1.4
million in nonrecurring ASP enablement service revenue from FactorWorks.com
("FactorWorks"), a venture in which the Company maintains an equity position.
Of the service revenues from FactorWorks recognized by the Company in
the three-month period ended March 31, 2000, about $1.1 million was for services
previously billed at cost by the Company in prior periods. The Company had
previously agreed to these reduced rates in exchange for a higher percentage of
revenue sharing over the life of the multi-year arrangement. During the first
quarter of 2000 the Company and FactorWorks renegotiated the arrangement such
that the Company received retroactive services revenues at market rates, an
extension of the contract term and certain volume commitments in exchange for a
commensurate reduction in the revenue sharing participation.
Revenues from software sales increased 37% to $11.2 million in the
first quarter of 2000 from $8.1 million in the first quarter of 1999. This
increase is primarily attributable to an increase in software revenues from the
Company's recently introduced portal service offerings (see Footnote 2 to the
unaudited consolidated financial statements). Software revenues from the
Company's desktop and AS400 products on a combined basis were consistent in the
first quarter of 2000 compared to 1999. During 1999 the Company announced plans
to migrate the majority of its existing customer base to new internet enabled
products and focused primarily on the desktop
<PAGE> 12
customers during its 1999 migration initiative. The Company intends to focus on
migrating its enterprise customers in 2000. Accordingly, the software revenue
from desktop products declined in the first quarter of 2000, and software
revenue from AS400 products correspondingly increased over the first quarter of
1999.
In the fourth quarter of 1998, the Company phased out about 40% of its
product lines (collectively referred to as Sunset Products) and discontinued
relationships with certain third-party resellers of the Company's software
products. On a pro forma basis, core revenues, defined as revenues excluding
Sunset Products and discontinued third-party resellers, increased to $34.3
million or 89% of total revenues in the first quarter of 2000 compared to $27.1
million or 80.9% of total revenue in the first quarter of 1999.
Direct Costs. Direct costs for services increased to $10.7 million in
the first quarter of 2000 from $10.6 million in the first quarter of 1999. As a
percentage of service revenues, these costs were 39.4% in the first quarter of
2000 and 41.9% in the first quarter of 1999. Excluding $1.4 million of
nonrecurring ASP revenues in the first quarter of 2000 for work substantially
performed in prior periods (see Revenues in Item 2 and Note 2 to the unaudited
consolidated financial statements), the Company's cost of services for 2000
would have been 41.5%. The decrease in the adjusted percentage of cost of
services compared to the percentage in the first quarter of 1999 is primarily
attributable to an increase in higher-margin software maintenance in the first
quarter of 2000. Direct software costs were $1.1 million in the first quarters
of both 2000 and 1999 as software amortization and royalties increased and
charge-offs of outdated collateral materials decreased in the first quarter of
2000.
Selling and Marketing. Selling and marketing expenses increased 49% to
$12.5 million in the first quarter of 2000 from $8.4 million in the first
quarter of 1999. As a percentage of revenues these expenses were 32.6% in 2000
and 25.0% in 1999. In the fourth quarter of 1999 the Company announced its
intention to spend up to $25 million in marketing, sales and technology
development. The increase in selling and marketing expenses is primarily
attributable to first quarter 2000 increases in marketing and brand awareness,
commissions associated with increased revenues and an accrual for estimated
sales taxes.
General and Administrative. General and administrative expenses
increased 32% to $8.7 million in the first quarter of 2000 from $6.6 million in
the first quarter of 1999. As a percentage of revenues these expenses were 22.6%
in 2000 and 19.6% in 1999. Included in 1999 is a $750,000 credit for recovery of
an outstanding royalty receivable from a specific customer that had been
reserved for in 1998. Excluding this credit, general and administrative expenses
would have been $7.3 million or 21.8% of revenues in 1999. The increase in
general and administrative expenses in the first quarter of 2000 is primarily
attributable to the Company's ongoing investment in information technology,
including personnel costs, and increases to the Company's allowance for doubtful
accounts.
Depreciation and Amortization. Depreciation and amortization increased
28% to $2.9 million in the first quarter of 2000 from $2.2 million in the first
quarter of 1999. The increase in depreciation and amortization is due to the
purchase of computer hardware and software associated with the Company's ongoing
investments in its information technology infrastructure.
Product Development. Total expenditures for product development,
including capitalized software development costs, decreased 5% to $3.7 million
in the first quarter of 2000 from $3.9 million in the first quarter of 1999.
Total expenses for product development decreased 27% to $2.2 million in 2000
from $3.0 million in 1999. As a percentage of revenues, product development
expenses decreased to 5.7% in 2000 from 9.0% in 1999. The decrease in overall
product development expenditures in the first quarter of 2000 compared to 1999
is primarily attributable to a reduction in contract labor. The Company
capitalized software development costs of $1.5 million and $887,000 in the first
quarters of 2000 and 1999, respectively. Capitalization increased in 2000 as
products reached technological feasibility at Harbinger Labs, the Company's
development group devoted to next generation product development. Amortization
of capitalized software development costs included in direct costs of software
totaled $633,000 and $510,000 in the first quarters of 2000 and 1999,
respectively.
Equity in Losses of Joint Ventures. The total equity in losses of joint
ventures for the first quarter of 2000 is attributable to the Company's
one-third ownership in GLink LLC, an electronic marketplace for the grocery
industry. The Company has also recently acquired equity positions in joint
ventures created to establish electronic
<PAGE> 13
marketplaces for banking, apparel and the golf and hospitality industries. The
Company anticipates continued losses from these start-up ventures for the
remainder of 2000.
Income Taxes. The Company recorded income tax expense of $142,000 and
$113,000 in the first quarters of 2000 and 1999, respectively. The increase in
taxes for the first quarter of 2000 is due primarily to the earnings in certain
foreign countries that cannot be offset by losses in other jurisdictions. The
effective tax rates of 9.4% and 4.6% for the first quarters of 2000 and 1999
differ from the expected rate of 39% due to reductions in the deferred tax
valuation allowance.
Net Income and Earnings Per Share. The Company realized net income of
$1.4 million or $0.03 per diluted share in the quarter ended March 31, 2000 and
$2.3 million or $0.06 per diluted share in the quarter ended March 31, 1999. In
order to facilitate comparison of operating results year over year, the Company
also presents its earnings adjusted for certain charges and credits and
tax-affects the results at a 39% effective rate (core earnings). A comparison of
the quarters ended March 31, 2000 and 1999 is as follows:
Supplemental Information:
<TABLE>
<CAPTION>
(In thousands, except per share data) 2000 1999
------- --------
<S> <C> <C>
Operating income ............................. $ 364 $ 1,556
Certain general and administrative credits
for recoveries ........................... -- (750)
------- --------
Adjusted operating income .................... 364 806
Interest income, net ......................... 1,391 898
------- --------
Core earnings before income taxes ............ 1,755 1,704
------- --------
Core earnings net of income taxes at 39% ..... 1,071 1,039
------- --------
Core earnings per share ...................... $ 0.03 $ 0.03
======= ========
Weighted average number of diluted
shares outstanding ....................... 42,246 40,451
======= ========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments increased $6.2 million to $79.2 million
at March 31, 2000 compared to $73.0 million at December 31, 1999, primarily due
to an inflow of cash from operations and stock option exercises in 2000, offset
partially by outflows for property and equipment, software development and
investments in joint ventures.
Management expects the Company will continue to fund its operations,
investment needs and capital expenditures through cash flows generated from
operations, cash on hand, and additional equity and debt capital if necessary.
Several factors could have an impact on the Company's cash flow in the future,
including the effects of the Company's strategic investments in marketing, sales
and technology development and acquiring equity positions in joint ventures. The
Company also anticipates continued liquidation of liabilities incurred due to
charges for purchased in-process product development, write-off of software
development costs, restructuring, acquisition-related and other charges,
discontinued operations and continuing operations. Liquidity could also be
negatively impacted as a result of a shareholder class action lawsuit filed
against the Company in 1999. Although the outcome of this action cannot be
determined at this time, management does not believe the outcome will have a
material adverse effect on the Company's financial position.
The Company does not believe that inflation has had a material impact
on its business, however, there can be no assurance that the Company's business
will not be affected by inflation in the future.
<PAGE> 14
YEAR 2000 READINESS
The Company spent considerable internal and external resources from
1997 through 1999 preparing for the "Year 2000" computer issue. The Year 2000
issue relates to the ability of a computer system to properly process data
beginning on January 1, 2000. The Company's efforts were spent to ensure that
its computer products were "Year 2000 Ready," as defined, and that its internal
core information technology (IT) and non-IT systems were Year 2000 Ready.
The Company believes it successfully implemented its Year 2000 program,
as evidenced by the continued successful operation of its computer products and
core internal IT and non-IT systems. The Company has not encountered any
significant problems with its third-party customers, financial institutions,
vendors and others with whom it conducts business. The Company will continue to
monitor its product performance and core IT and non-IT systems throughout 2000
to ensure ongoing performance. While there can be no assurance that no Year 2000
related issues will arise, as of March 31, 2000, the Company believes, based on
information currently available, that Year 2000-related events are not likely to
have a material effect on its results of operation, financial condition or
liquidity.
FORWARD LOOKING STATEMENTS
Other than historical information contained herein, certain statements
included in this report may constitute "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, the potential decline in software revenues as the Company
transitions to a business model that emphasizes recurring services revenues,
quarterly fluctuations in results, the management of growth, market acceptance
of the Company's recently introduced BCI, ASP, portal and operations management
products and services, loss of customers due to the Company's migration efforts
from legacy technologies to Internet- and Windows-enabled products and services,
uncertainty related to the announced merger with Peregrine Systems, Inc.,
potential losses from the Company's equity positions in early-stage enterprises,
potential service disruptions associated with network enhancements and upgrades
of harbinger.net, liability for disruption of data traffic due to unauthorized
intervention and access into harbinger.net, the impact of Year 2000 readiness
and other risks. For further information about these and other factors that
could affect the Company's future results, please see Exhibit 99.1 in the
Company's December 31, 1999 Form 10-K. 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. The Company undertakes no
obligation to update or revise forward looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future
operating results.
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Shareholders (the "Annual Meeting") of Harbinger
Corporation (the "Company") was held on April 25, 2000. There were present
at said meeting in person or by proxy, shareholders of the Corporation who
were the holders of 33,327,940 shares or 84.2% of the Common Stock entitled
to vote.
b) The following directors were elected to hold office for a term as
designated below or until their successors are elected and qualified, with
the vote for each director being reflected below:
<TABLE>
<CAPTION>
VOTES FOR VOTES WITHHELD
--------- --------------
<S> <C> <C>
Elected to hold office until the 2003 Annual Meeting:
Stuart L. Bell 33,266,620 61,320
William B. King 33,267,520 60,420
Klaus Neugebauer 33,266,820 61,120
James M. Travers 33,267,453 60,487
</TABLE>
The affirmative vote of the holders of a plurality of the outstanding
shares of Common Stock represented at the Annual Meeting was required to
elect each director.
The Directors of the Company continuing in office until the 2001 Annual
Meeting are as follows: David T. Leach, Ad Nederlof, and David Hildes. The
directors of the Company continuing in office until the 2002 Annual Meeting
are as follows: Benn R. Konsynski, John D. Lowenberg and William D. Savoy.
c) The proposal to amend the Company's 1996 Stock Option Plan was approved
with 27,164,024 affirmative votes, 5,940,674 negative votes cast and
223,242 abstentions. An affirmative vote of the holders of a majority of
the outstanding shares of Common Stock represented at the Annual Meeting
was required to approve the amendment.
d) The proposal to amend the Company's Employee Stock Purchase Plan was
approved with 32,606,155 affirmative votes, 608,146 negative votes cast and
113,639 abstentions. An affirmative vote of the holders of a majority of
the outstanding shares of Common Stock represented at the Annual Meeting
was required to approve the amendment.
e) The proposal to amend the Company's Amended and Restated 1993 Stock Option
Plan for Nonemployee Directors was approved with 31,317,992 affirmative
votes, 1,888,948 negative votes cast and 121,000 abstentions. An
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock represented at the Annual Meeting was required to approve the
amendment.
f) The appointment of KPMG LLP as independent public accountants to audit the
accounts of the Company and its subsidiaries for the year ending December
31, 2000, was approval with 33,258,407 affirmative votes, 49,567 negative
votes cast and 19,966 abstentions. An affirmative vote of the holders of a
majority of the outstanding shares of Common Stock represented at the
Annual Meeting was required to ratify the appointment of KPMG LLP.
<PAGE> 16
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 Fifth Amendment to the Harbinger Corporation
1996 Stock Option Plan
Exhibit 10.2 Fourth Amendment to the Amended and Restated
Harbinger Corporation Employee Stock
Purchase Plan
Exhibit 10.3 Sixth Amendment to the Harbinger Corporation
Amended and Restated 1993 Stock Option Plan
for Nonemployee Directors
Exhibit 11.1 Computation of Earnings per Share
Exhibit 27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Form 8-K dated January 24, 2000 reporting under Item 5 and
Item 7 (c) the text of a press release dated January 19, 2000
concerning the promotion of James M. Travers to Chief
Executive Officer and the resignation of C. Tycho Howle,
Chairman of the Board of Directors and Chief Executive
Officer.
Form 8-K dated April 6, 2000 reporting under Item 5 and Item
7(c) the text of a press release dated April 5, 2000
concerning an announcement that Harbinger Corporation,
Peregrine Systems, Inc., and Soda Acquisition Corporation, a
wholly owned subsidiary of Peregrine, entered into an
Agreement and Plan of Reorganization.
Form 8-K dated April 17, 2000 reporting under Item 5 and Items
7(c) four exhibits associated with proposed merger of
Harbinger Corporation and Peregrine Systems, Inc., and Soda
Acquisition Corporation, a wholly owned subsidiary of
Peregrine.
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBINGER CORPORATION
Date: May 3, 2000 /s/ James M. Travers
-------------------------- -----------------------------------
James M. Travers
Chief Executive Officer;
President, Director
(Principal Executive Officer)
Date: May 3, 2000 /s/ James K. McCormick
--------------------------- ------------------------------------
James K. McCormick
Chief Financial Officer
(Principal Financial Officer;
Principal Accounting Officer)
<PAGE> 1
EXHIBIT 10.1
FIFTH AMENDMENT TO THE HARBINGER CORPORATION
1996 STOCK OPTION PLAN
THIS FIFTH AMENDMENT TO THE HARBINGER CORPORATION 1996 STOCK OPTION
PLAN (the "Amendment") is made effective as of the 25th day of April, 2000 (the
"Effective Date"), by HARBINGER CORPORATION, a corporation organized and doing
business under the laws of the State of Georgia (the "Company"). All capitalized
terms in this Amendment have the meaning ascribed to such term as in the
Harbinger Corporation 1996 Stock Option Plan (the "Plan"), unless otherwise
stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to increase the number of shares that may be granted under the Plan.
NOW, THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
SECTION 1. Section 3.1 of the Plan is hereby amended by deleting
the first sentence of Section 3.1 of the Plan in its entirety and substituting
in lieu thereof the following:
"3.1 Shares Reserved for Issuance. Subject to any
antidilution adjustment pursuant to Section 3.2, the maximum
number of Shares that may be subject to Options granted
hereunder shall not exceed 9,737,500, plus the number of Prior
Plan Shares; provided, however, the maximum number of Shares
with respect to which Options may be granted to any individual
grantee in any calendar year shall be 1,000,000."
SECTION 2. Except as specifically amended by this Fifth
Amendment, the Plan shall remain in full force and effect as prior to this Fifth
Amendment.
IN WITNESS WHEREOF, the Company has caused this FIFTH AMENDMENT TO THE
HARBINGER CORPORATION 1996 STOCK OPTION PLAN to be executed on the Effective
Date.
HARBINGER CORPORATION
By:
--------------------------------
James M. Travers
CEO
ATTEST:
By:
-----------------------
Loren B. Wimpfheimer
SECRETARY
<PAGE> 1
EXHIBIT 10.2
FOURTH AMENDMENT TO THE AMENDED AND RESTATED
HARBINGER CORPORATION EMPLOYEE STOCK PURCHASE PLAN
THIS FOURTH AMENDMENT TO THE AMENDED AND RESTATED HARBINGER CORPORATION
EMPLOYEE STOCK PURCHASE PLAN (the "Amendment") is made effective as of the 25th
day of April, 2000 (the "Effective Date"), by HARBINGER CORPORATION, a
corporation organized and doing business under the laws of the State of Georgia
(the "Company"). All capitalized terms in this Amendment have the meaning
ascribed to such term as in the Amended and Restated Harbinger Corporation
Employee Stock Purchase Plan (the "Plan"), unless otherwise stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to increase the number of shares that may be granted under the Plan;
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
SECTION 1. Section 4(a) of the Plan is hereby amended by deleting the
first sentence of Section 4(a) of the Plan in its entirety and substituting in
lieu thereof the following:
"(a) The maximum number of shares which may be granted and
purchased under the Plan may not exceed 587,000 shares of Common Stock
(subject to adjustment as provided in Section 15), which may be
authorized but unissued shares, re-acquired shares or shares bought on
the open market."
SECTION 2. Except as specifically amended by this Fourth
Amendment, the Plan shall remain in full force and effect as prior to this
Fourth Amendment.
IN WITNESS WHEREOF, the Company has caused this FOURTH AMENDMENT TO THE
AMENDED AND RESTATED HARBINGER CORPORATION EMPLOYEE STOCK PURCHASE PLAN to be
executed on the Effective Date.
HARBINGER CORPORATION
By:
-------------------------------
James M. Travers
CEO
ATTEST:
By:
--------------------
Loren B. Wimpfheimer
Secretary
<PAGE> 1
EXHIBIT 10.3
SIXTH AMENDMENT TO THE HARBINGER CORPORATION
AMENDED AND RESTATED 1993 STOCK OPTION PLAN
FOR NON-EMPLOYEE DIRECTORS
THIS SIXTH AMENDMENT TO THE HARBINGER CORPORATION AMENDED AND RESTATED
1993 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS (the "Amendment") is made
effective as of the 25th day of April, 2000 (the "Effective Date"), by HARBINGER
CORPORATION, a corporation organized and doing business under the laws of the
State of Georgia (the "Company"). All capitalized terms in this Amendment have
the meaning ascribed to such term as in the Harbinger Corporation Amended and
Restated 1993 Stock Option Plan for Non-Employee Directors (the "Plan"), unless
otherwise stated herein.
W I T N E S S E T H:
WHEREAS, the Board of Directors of the Company desires to amend the
Plan to increase the number of shares that may be granted under the Plan.
NOW THEREFORE, in consideration of the premises and mutual promises
contained herein, the Plan is hereby amended as follows:
SECTION 1. Section 2 of the Plan is hereby amended by deleting the
first sentence of Section 2 of the Plan in its entirety and substituting in lieu
thereof the following:
2. SHARES SUBJECT TO THE PLAN. Subject to
adjustment as provided in Section 6, the total number of shares of
$.0001 par value common stock (the "Common Stock") of the Company for
which options may be granted under the Plan (the "Shares") shall be
875,000 less the number of Shares of Common Stock issuable pursuant to
options granted under the Restated 1992 Stock Option Plan for
Non-employee Directors."
SECTION 2. Except as specifically amended by this Sixth Amendment, the
Plan shall remain in full force and effect as prior to this Sixth Amendment.
IN WITNESS WHEREOF, the Company has caused this Sixth Amendment to the
Harbinger Corporation Amended and Restated 1993 Stock Option Plan for
Non-Employee Directors to be executed on the Effective Date.
HARBINGER CORPORATION
By:
------------------------------
James M. Travers
Title: CEO
ATTEST:
By:
--------------------------
Loren B. Wimpfheimer
Title: Secretary
<PAGE> 1
EXHIBIT 11.1
HARBINGER CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31
--------------------
2000 1999
------- -------
<S> <C> <C>
Basic:
Net income ................................. $ 1,372 $ 2,341
======= =======
Weighted average number of common
shares outstanding
39,439 39,879
======= =======
Basic earnings per share ................... $ 0.03 $ 0.06
======= =======
Diluted :
Net income ................................. $ 1,372 $ 2,341
======= =======
Weighted average number of common
shares outstanding ....................... 39,439 39,879
Effect of potentially dilutive stock options 2,764 567
Effect of potentially dilutive warrants .... 43 5
------- -------
Weighted average number of common
shares outstanding assuming dilution...... 42,246 40,451
======= =======
Diluted earnings per share ................. $ 0.03 $ 0.06
======= =======
</TABLE>
Computational Note:
In connection with the computation of diluted earnings per share for
the quarters ended March 31, 2000 and 1999 options to purchase 129,000 and
6,000,000 shares of common stock were excluded because the options' exercise
price exceeded the average market price of the common shares, and therefore, the
effect would be antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF HARBINGER CORPORATION FOR THE QUARTER ENDED
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 21,049
<SECURITIES> 58,149
<RECEIVABLES> 56,391
<ALLOWANCES> 8,102
<INVENTORY> 0
<CURRENT-ASSETS> 134,983
<PP&E> 58,797
<DEPRECIATION> (32,894)
<TOTAL-ASSETS> 183,213
<CURRENT-LIABILITIES> 48,759
<BONDS> 0
0
0
<COMMON> 4
<OTHER-SE> 134,450
<TOTAL-LIABILITY-AND-EQUITY> 183,213
<SALES> 11,171
<TOTAL-REVENUES> 38,407
<CGS> 1,058
<TOTAL-COSTS> 11,796
<OTHER-EXPENSES> 26,247
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,514
<INCOME-TAX> 142
<INCOME-CONTINUING> 1,372
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,372
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
