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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO __________
COMMISSION FILE NUMBER 000-24677
BINDVIEW DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 76-0306721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5151 SAN FELIPE, 21st FLOOR, HOUSTON, TX 77056
(Address of principal executive offices) (Zip code)
(713) 561-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the registrant's Common Stock, no par value, outstanding
as of June 30, 2000, was 51,985,105.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(IN THOUSANDS, EXCEPT PAR VALUE)
ASSETS JUNE 30, DECEMBER 31,
2000 1999
------------- -------------
Current assets:
Cash and cash equivalents $ 61,737 $ 72,150
Short-term investments 5,498 4,834
Accounts receivable, net of allowance of $818 and $623 13,036 15,701
Deferred tax asset 12,851 3,069
Other current assets 1,389 1,142
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Total current assets 94,511 96,896
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Property and equipment, net 12,448 8,485
Long-term investments 7,785 6,120
Other assets 2,311 1,741
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Total assets $ 117,055 $ 113,242
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,134 $ 3,077
Accrued liabilities 2,404 2,721
Accrued compensation 2,372 3,757
Deferred revenue 9,866 10,311
Current maturities of indebtedness -- 176
------------- -------------
Total current liabilities 16,776 20,042
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Long-term liabilities:
Indebtedness and other long-term liabilities -- 144
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Total long-term liabilities -- 144
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Shareholders' equity:
Convertible preferred stock, $0.025 par value, 520 shares
Authorized, 0 and 7 shares issued and outstanding, respectively -- --
Series A convertible preferred stock, $0.0001 par value, 5,000 shares
Authorized, 0 and 5,000 shares issued & outstanding, respectively -- 5
Series B convertible preferred stock, no par value, 8,000 shares
Authorized, 0 and 7,689 shares issued & outstanding, respectively -- 8
Series C convertible preferred stock, no par value, 10,030 shares
Authorized, 0 and 10,000 shares issued & outstanding -- 10
Common stock, no par value, 100,000 shares authorized,
51,985 and 47,535 shares issued and outstanding, respectively 1 1
Additional paid-in capital 123,020 109,471
Accumulated deficit (22,121) (15,975)
Notes receivable, shareholders (144) (202)
Accumulated other comprehensive loss (477) (262)
------------- -------------
Total shareholders' equity 100,279 93,056
------------- -------------
Total liabilities and shareholders' equity $ 117,055 $ 113,242
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See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------ ------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Revenues:
Licenses $ 13,376 $ 11,209 $ 23,537 $ 20,306
Services 6,974 4,323 12,838 7,937
---------- ---------- ---------- ----------
Total revenues 20,350 15,532 36,375 28,243
---------- ---------- ---------- ----------
Cost of revenues:
Cost of licenses 575 359 1,128 620
Cost of services 995 571 1,630 1,102
---------- ---------- ---------- ----------
Total cost of revenues 1,570 930 2,758 1,722
---------- ---------- ---------- ----------
Gross profit 18,780 14,602 33,617 26,521
---------- ---------- ---------- ----------
Costs and expenses:
Sales and Marketing 9,984 7,657 19,343 14,106
Research and Development 6,571 4,554 12,831 8,411
General and Administrative 2,720 1,809 5,147 3,335
Transaction and Restructuring -- 238 5,581 2,524
---------- ---------- ---------- ----------
Operating income (loss) (495) 344 (9,285) (1,855)
Other income, net 1,271 741 2,353 1,386
---------- ---------- ---------- ----------
Income (loss) before income tax provision 776 1,085 (6,932) (469)
Provision for income tax 247 1,037 (786) 2,094
---------- ---------- ---------- ----------
Net income (loss) 529 48 (6,146) (2,563)
Other comprehensive income, net of tax:
Loss from foreign currency translation (209) (20) (215) (84)
---------- ---------- ---------- ----------
Comprehensive income (loss) $ 320 $ 28 $ (6,361) $ (2,647)
========== ========== ========== ==========
Earnings (loss) per common share:
Basic $ 0.01 $ 0.00 $ (0.12) $ (0.06)
Diluted $ 0.01 $ 0.00 $ (0.12) $ (0.06)
Shares used in computing earnings per common share:
Basic 51,882 47,748 50,893 46,558
Diluted 54,866 52,572 50,893 46,558
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
SIX MONTHS ENDED
JUNE 30,
------------------------
2000 1999
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Cash flows from operating activities:
Net (loss) $ (6,146) $ (2,563)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 2,397 1,577
Deferred income taxes (873) (2,267)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 2,602 (1,449)
Decrease (increase) in other assets (272) 583
Increase (decrease) in accounts payable (698) 1,487
Increase (decrease) in accrued liabilities (1,770) 410
Increase (decrease) in deferred revenues (419) 1,774
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Net cash used by operating activities (5,179) (448)
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Cash flows from investing activities:
Purchase of property and equipment (6,324) (4,784)
Purchase of investments, net (2,329) (8,386)
Other (780) (532)
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Net cash used by investing activities (9,433) (13,702)
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Cash flows from financing activities:
Notes payable and long-term debt (262) (7,366)
Proceeds from issuance of stock for employee stock
purchase 2,672 10,965
Proceeds from exercise of stock options & warrants 1,945 3,176
---------- ----------
Net cash provided by financing activities 4,355 6,775
Effect of exchange rate changes on cash (156) 414
---------- ----------
Net decrease in cash and cash equivalents (10,413) (6,961)
Cash and cash equivalents at beginning of period 72,150 51,718
---------- ----------
Cash and cash equivalents at end of period $ 61,737 $ 44,757
========== ==========
Non cash financing and investing activities:
Issuance of 350 shares of common stock related to the
acquisition of Curasoft $ -- $ 3,352
Tax benefit related to the exercise of employee
stock options $ 8,910 $ 4,415
Conversion of convertible debentures and preferred
stock into common stock $ 23 $ 7,658
See notes to unaudited condensed consolidated financial statements.
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BINDVIEW DEVELOPMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED
COMMON STOCK SERIES A SERIES B
----------------- ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------- ------- ------- -------
Balance at December 31, 1999 47,535 $ 1 5,000 $ 5 7,689 $ 8
Exercise of stock options and warrants 1,151 -- -- -- -- --
Payment on Note -- -- -- -- -- --
Tax benefit related to exercise
of employee stock options -- -- -- -- -- --
ESPP 48 -- -- -- -- --
Conversion of preferred A, B & C stock
into common stock 3,251 -- (5,000) (5) (7,689) (8)
Foreign currency translation adjustment -- -- -- -- -- --
Net loss for the six months ended
June 30, 2000 -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Balance at June 30, 2000 51,985 $ 1 -- $ -- -- $ --
======= ======= ======= ======= ======= =======
CONVERTIBLE
PREFERRED
SERIES C ADDITIONAL NOTES
----------------- PAID-IN ACCUMULATED RECEIVABLE
SHARES AMOUNT CAPITAL DEFICIT SHAREHOLDERS
------- ------- ---------- ------------ ------------
Balance at December 31, 1999 10,000 $ 10 $109,471 $ (15,975) $ (202)
Exercise of stock options and warrants -- -- 4,154 -- --
Payment on Note -- -- -- -- 58
Tax benefit related to exercise
of employee stock options -- -- 8,910 -- --
ESPP -- -- 462 -- --
Conversion of preferred A, B & C stock
into common stock (10,000) (10) 23 -- --
Foreign currency translation adjustment -- -- -- -- --
Net loss for the six months ended
June 30, 2000 -- -- -- (6,146) --
------- ------- --------- ----------- ----------
Balance at June 30, 2000 -- $ -- $123,020 $ (22,121) $ (144)
======= ======= ========= =========== ==========
CUMULATIVE
OTHER TOTAL
COMPREHENSIVE SHAREHOLDERS'
INCOME (LOSS) EQUITY
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Balance at December 31, 1999 $ (262) $ 93,056
Exercise of stock options and warrants -- 4,154
Payment on Note -- 58
Tax benefit related to exercise
of employee stock options -- 8,910
ESPP -- 462
Conversion of preferred A, B & C stock
into common stock -- --
Foreign currency translation adjustment (215) (215)
Net loss for the six months ended
June 30, 2000 -- (6,146)
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Balance at June 30, 2000 $ (477) $ 100,279
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BINDVIEW DEVELOPMENT CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
BindView Development Corporation, a Texas corporation (the "Company" or
"BindView"), reflect all adjustments (consisting of normal recurring accruals)
which, in the opinion of management, are necessary for a fair presentation of
the results for the interim periods presented. These financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
These financial statements should be read in conjunction with Item 5 of this
report and the Company's annual audited financial statements and the
supplemental financial statements for the year ended December 31, 1999, which
are included in the Annual Report on Form 10-K and Amendment No. 1 to the
Company's Form 8-K dated April 21, 2000.
Operating results for the three month period and six month period ended June 30,
2000 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 2000 or for other periods.
NOTE 2 - DESCRIPTION OF BUSINESS
The Company was incorporated in May 1990. Prior to 1995, the Company was known
as The LAN Support Group, Inc. The Company develops, markets and supports a
suite of systems and security management software products that manage the
security and integrity of complex, distributed client/server networks operating
on Microsoft Windows NT and Novell NetWare environments.
NOTE 3 - RECENT PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133 ("FAS 133"), Accounting for Derivative
Instruments and Hedging Activities. In June 2000, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
137 ("FAS 137"), Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement 133. FAS 137 delays the
implementation of FAS 133 to fiscal years beginning after June 15, 2000. The
Company will adopt FAS 137 effective January 1, 2001 and is evaluating the
effect that such adoption may have on its consolidated results of operations
and financial position.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance on applying generally accepted accounting
principles to revenue recognition issues in financial statements. In June 2000,
the SEC issued Staff Accounting Bulletin No. 101B ("SAB 101B"), Amendment:
Revenue Recognition in Financial Statements. SAB 101B delays the implementation
date of SAB 101 until no later than the fourth quarter fiscal quarter of fiscal
years beginning after December 15, 1999. The Company will adopt SAB 101 as
required in the fourth quarter of 2000 and is evaluating the effect that such
adoption may have on its consolidated results of operations and financial
position.
NOTE 4 - EARNINGS PER SHARE
Basic earnings per common share is computed using the weighted average number of
shares outstanding. Diluted earnings per common share is computed using the
weighted average number of shares outstanding, adjusted for the incremental
shares attributed to outstanding shares of convertible preferred stock,
convertible debentures and outstanding stock options and warrants to purchase
common stock unless such inclusion would be anti-dilutive. Incremental shares of
4,824 and 2,984 in the second quarter of 1999 and 2000, respectively, were used
in the calculation of diluted earnings per common share. As the Company reported
a net loss for the six months ended June 30, 1999, and June 30, 2000, diluted
earnings per common share does not differ from basic earnings per common share.
In the second quarter of 1999 and 2000, options and warrants to acquire 2,212
and 5,855 shares of common stock at a weighted average exercise price of $11.46
and $10.69, respectively, were not included in the computation of earnings per
share as the options' exercise price is greater than the average market price of
the common shares for the period. For the six months ended June 30, 1999, and
June 30, 2000, options to acquire 691 and 20 shares of common stock at a
weighted average exercise price of $12.03 and $24.43, respectively, were not
included in the computation of earnings per share as the options' exercise price
is greater than the average market price of the common shares for the period.
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NOTE 5 - SHORT-TERM AND LONG-TERM INVESTMENTS
The Company's short-term investments include commercial paper, corporate bonds
or certificates of deposit that have original maturities of more than three
months and a remaining maturity of less than one year. The Company's long-term
investments include corporate bonds, certificates of deposit and an investment
in redeemable preferred stock and have original maturities of more than twelve
months. In April 2000 the Company established a partnership with an
international software distribution and consulting firm and as a result invested
in $5,000 of redeemable preferred stock in the firm. These investments are
stated at cost, which approximates market, as it is the intent of the Company to
hold these securities until maturity.
NOTE 6 - RECENT ACQUISITIONS/TRANSACTION AND RESTRUCTURING EXPENSES
Acquisition of Netect, Ltd
On March 1, 1999, the Company merged with Netect, Ltd. ("Netect") in a
stock-for-stock transaction accounted for as a pooling of interests. Netect
develops and markets corporate security solutions for Internet/Intranet
networks. In connection with the merger, the Company issued 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 shares of BindView
common stock for each share of Netect common stock. As a result of this merger,
all of the outstanding convertible preferred stock and convertible debentures of
Netect were exchanged for the Company's common stock. Transaction costs of
$1,533 and restructuring costs of $991 were incurred as a result of this merger.
The historical financial data included herein has been restated to reflect the
merger with Netect by combining the historical results for the Company and
Netect for all periods presented. There were no material transactions between
BindView and Netect during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment relates to additional costs to close Netect's
Israeli operations that exceeded management's initial estimate. The Company has
completed the actions related to the restructuring plans. The transaction costs
related to the acquisition include investment banking fees of $590, accounting
and legal expenses of $565, transfer fees of $138, and other miscellaneous
transaction expenses of $240.
The accrued restructuring expenses and amounts charged against the provision as
of June 30, 2000, were as follows:
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT JUNE 30, 2000
--------------- --------------- --------------- ---------------
Employee severance and $ 575 $ (813) $ 238 $ --
related costs
Israeli office closing 119 (119) -- --
Other restructuring costs 59 (59) -- --
--------------- --------------- --------------- ---------------
TOTAL $ 753 $ (991) $ 238 $ --
=============== =============== =============== ===============
Acquisition of Entevo Corporation
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") in a
stock-for-stock transaction accounted for as a pooling of interests. Entevo
provides directory management solutions that help organizations deploy,
integrate, administer and maintain enterprise directory services, in Windows NT
and Windows 2000 environments. In connection with the merger, the Company issued
4,181 shares of common stock, based upon an exchange ratio of 0.1205909 shares
of BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo was exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger. The historical financial data included herein has been restated to
reflect the merger with Entevo by combining the historical results for the
Company and Entevo for all periods presented. There were no material
transactions between BindView and Entevo during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
The restructuring plans were based on management's best estimate of those costs
based on the information available at that time. The restructuring expenses
related to this plan include involuntary employee separation and
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relocation expenses, contract cancellation provisions, product reorganization,
integration related expenses and other miscellaneous restructuring expenses. The
transaction costs related to the acquisition include investment banking fees of
$2,473, professional expenses of $929, product due diligence and transfer fees
of $181, and other miscellaneous transaction expenses of $217. The Company
believes the remaining reserve is sufficient to complete these remaining actions
under the plan.
The accrued restructuring expenses and amounts charged against the provision as
of June 30, 2000, were as follows:
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES JUNE 30, 2000
--------------- --------------- ---------------
Employee severance and $ 1,520 $ (1,504) $ 16
relocation costs
Elimination of duplicative 93 (73) 20
operating expense
Product reorganization 82 (37) 45
Integration and other 86 (86) --
restructuring costs
--------------- --------------- ---------------
TOTAL $ 1,781 $ (1,700) $ 81
=============== =============== ===============
NOTE 7 - INCOME TAX
The effective tax rate was approximately 32% for the quarter ended June 30, 2000
and was approximately 96% for the quarter ended June 30, 1999. The Company's
generation of a research and development tax credit for federal income tax
purposes during 2000 is the primary reason for the Company's effective tax rate
of approximately 32% for the current period. Valuation allowances booked on
foreign net operating losses and Entevo's U.S. losses adversely impacted the
rate for the quarter ended June 30, 1999. A portion of the transaction and
restructuring expenses related to the acquisition of Entevo in the first quarter
of 2000 are non-deductible for income tax purposes. The non-deductible nature of
these expenses resulted in the Company's tax benefit approximating 13% for the
first quarter of 2000. The Company expects that its effective tax rate will be
approximately 32% for each of the remaining fiscal quarters of 2000.
The Company has net operating loss carryforwards at June 30, 2000 of
approximately $42,178 available to offset future taxable income that expire
between 2003 and 2020 resulting in a deferred tax asset of approximately
$14,593. Based on the historical earnings generated by the Company and certain
limitations that may limit the utilization of net operating loss carryforwards,
management has provided a valuation allowance of $9,492 at June 30, 2000 against
the net operating loss carryforwards. The valuation allowance is primarily
related to pre-acquisition net operating losses of Netect and Entevo.
NOTE 8 - SEGMENT REPORTING
During 1999, the Company adopted Statement of Financial Accounting Standard No.
131 "Disclosures About Segments of an Enterprise and Related Information". The
Company currently operates in one segment as defined by this standard. The
adoption of this standard did not have a material impact on disclosures with
respect to the Company's financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include those discussed in the "Risk Factors" set forth in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999 and
those discussed herein under the heading "Cautionary Statements". The following
discussion should be read in conjunction with the unaudited condensed
consolidated financial statements and the accompanying notes.
The mergers with Netect on March 1, 1999, and with Entevo Corporation on
February 9, 2000, have been accounted for as a pooling of interests. The
historical financial data included herein has been restated to reflect these
mergers.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage of
selected items in the Condensed Consolidated Statement of Operations and
Comprehensive Income (Loss) to total revenues:
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(PERCENT OF TOTAL NET REVENUES)
Revenues:
Licenses 65.7 72.2 64.7 71.9
Services 34.3 27.8 35.3 28.1
------------ ------------ ------------ ------------
Total revenues 100.0 100.0 100.0 100.0
------------ ------------ ------------ ------------
Cost of revenues:
Cost of licenses 2.8 2.3 3.1 2.2
Cost of services 4.9 3.7 4.5 3.9
------------ ------------ ------------ ------------
Total cost of revenues 7.7 6.0 7.6 6.1
------------ ------------ ------------ ------------
Gross profit 92.3 94.0 92.4 93.9
------------ ------------ ------------ ------------
Costs and expenses:
Sales and Marketing 49.0 49.3 53.2 49.9
Research and Development 32.3 29.3 35.3 29.8
General and Administrative 13.4 11.7 14.1 11.8
Transaction and Restructuring (1) 0.0 1.5 15.3 9.0
------------ ------------ ------------ ------------
Operating income (loss) (2.4) 2.2 (25.5) (6.6)
Other income, net 6.2 4.8 6.4 4.9
------------ ------------ ------------ ------------
Income (loss) before income tax provision 3.8 7.0 (19.1) (1.7)
Provision for income tax 1.2 6.7 (2.2) 7.4
------------ ------------ ------------ ------------
Net income (loss) 2.6 0.3 (16.9) (9.1)
============ ============ ============ ============
REVENUES
The Company's revenues are derived from the sale of software products and
related services including subscription contracts. The Company's revenues
increased $4.8 million or 31% in the second quarter of 2000 over the comparable
quarter of the prior year and $8.1 million or 29% over the comparable six months
of the prior year.
The Company's license revenues increased $2.2 million or 19% in the second
quarter of 2000 over the comparable quarter of the prior year and $3.2 million
or 16% over the comparable six months of the prior year. The increase in the
Company's license revenues over these periods is a result of continued market
acceptance of the BindView EMS product family and revenues generated from new
product acquisitions and introductions. The results of the quarter may not be
indicative of results for the full year. No assurances can be made that revenues
will continue to increase at the rates reflected in quarter-to-quarter and
year-to-year comparisons.
The Company's service revenues increased $2.7 million or 61% in the second
quarter of 2000 over the comparable quarter of the prior year and $4.9 million
or 62% over the comparable six months of the prior year. The increase in the
Company's service revenues over these periods is a result of an increase in
purchases and renewals of subscription contracts by the Company's growing
installed customer base. Because revenues from subscription contracts are
recognized ratably over the contract term, this increase in these revenues as a
percentage of total revenues results in greater deferred revenue recognition.
The costs associated with these services, are recognized as they are incurred.
This may negatively impact the Company's operating margins during periods in
which the Company incurs infrastructure ramp-up costs in response to increases
in purchases and renewals of subscription contacts.
COST OF REVENUES
Cost of licenses includes product manuals, packaging, distribution and media
costs for the Company's software products. The Company's cost of licenses
increased $216,000 or 60% in the second quarter of 2000 over the comparable
quarter of the prior year and $508,000 or 82% over the comparable six months of
the prior year. The cost of licenses has increased primarily due to increases in
product shipments and the cost of product packaging and documentation. The
Company believes these costs will remain relatively constant as a percentage of
total revenue, although there will continue to be quarterly fluctuations due to
the timing of certain expenses.
Cost of services includes personnel and other costs related to technical support
and professional services. The Company's cost of services increased $424,000 or
74% in the second quarter of 2000 over the comparable quarter of the prior year
and $528,000 or 48% over the comparable six months of the prior year. The cost
of services has increased primarily due to increases in the cost of technical
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support staff providing support to the Company's growing customer base and
increases in the cost of professional services staff providing customer training
and implementation services.
COSTS AND EXPENSES
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses earned by sales and marketing personnel, general office expenses, travel
and entertainment and promotional expenses. The Company's sales and marketing
expenses increased $2.3 million or 30% in the second quarter of 2000 over the
comparable quarter of the prior year and $5.2 million or 37% over the comparable
six months of the prior year. The increase in the sales and marketing expenses
is related to the hiring of additional personnel in connection with the building
of the Company's telesales and field sales force and the additional facilities
and computer systems required by these additional personnel. Sales and marketing
expenses remained stable at 49% of revenues for the second quarter of 2000 and
in the corresponding period of 1999 and increased to 53% of revenues from 50% of
revenues for the six months ended June 30, 2000 and 1999, respectively. The
increase in sales and marketing expenses as a percentage of revenues is related
to (1) the Company's efforts to recruit, train, and deploy sales representatives
with a higher level of experience, and thus with a higher associated
compensation level; (2) the Company's attempt to increase the ratio of sales
related software engineers to sales representatives; and (3) the incurrence of
more travel and remote deployment of sales representatives in an effort to
secure larger orders. Due to the seasonal nature of revenues, the Company
anticipates that for the remaining fiscal quarters of 2000, sales and marketing
expenses will decrease as a percentage of revenues but increase in absolute
dollars as the Company continues to invest in marketing campaigns relative to
the sales growth and increase its expansion of domestic and international sales
efforts.
Research and development expenses consist primarily of salaries and benefits for
product development, product management and quality assurance personnel,
payments to contract programmers and expendable equipment purchases. The
Company's research and development expenses increased $2.0 million or 44% in the
second quarter of 2000 over the comparable quarter of the prior year and $4.4
million or 53% over the comparable six months of the prior year. The increase in
the research and development expenses is related to increased personnel,
additional facilities and an increase in the computer systems and software
development tools required by the additional personnel. Research and development
expenses increased to 32% of revenues in the second quarter of 2000 compared to
29% in the corresponding period of 1999 and increased to 35% of revenues from
30% of revenues for the six months ended June 30, 2000 and 1999, respectively.
This increase in research and development expenses as a percentage of revenue is
related to the ramp up of research and development expenses associated with
Entevo over these periods and new product lines requiring additional research
and development effort relative to the respective license revenue generated by
these products in the periods. The Company believes that a significant research
and development investment is essential for it to maintain and grow its market
position and continue to expand its product line. Accordingly, the Company
anticipates it will continue to devote substantial resources to product research
and development for the foreseeable future, and that research and development
expenses will increase in absolute dollars.
General and administrative expenses consist primarily of salaries, personnel and
related costs for the Company's executive, administrative, finance and
information services staff. The Company's general and administrative expenses
increased $911,000 or 50% in the second quarter of 2000 over the comparable
quarter of the prior year and $1.8 million or 54% over the comparable six months
of the prior year. The increase in the general and administrative expenses is
related to the increase in the allowance for doubtful accounts over this period
and increased staffing, facilities costs and associated expenses necessary to
manage and support the Company's increased scale of operations. General and
administrative expenses increased to 13% of revenues in the second quarter of
2000 compared to 12% in the corresponding period of 1999 and increased to 14% of
revenues from 12% of revenues for the six months ended June 30, 2000 and 1999,
respectively. This increase in general and administrative expenses as a
percentage of revenue is a result of duplicative staff associated with the
Entevo acquisition and the increase in staff to support the Company's growing
scale of worldwide operations. The Company expects the remainder of 2000 general
and administrative expenses to decline as a percentage of total revenue.
TRANSACTION AND RESTRUCTURING EXPENSES
Acquisition of Netect, Ltd
On March 1, 1999, the Company merged with Netect, Ltd. ("Netect") in a
stock-for-stock transaction accounted for as a pooling of interests. Netect
develops and markets corporate security solutions for Internet/Intranet
networks. In connection with the merger, the Company issued 2,322 shares of
common stock, based upon an exchange ratio of 0.800044202 shares of BindView
common stock for each share of Netect common stock. As a result of this merger,
all of the outstanding convertible preferred stock and convertible debentures of
Netect were exchanged for the Company's common stock. Transaction costs of
$1,533 and restructuring cost of $991 were incurred as a result of this merger.
The historical financial data included herein has been restated to reflect the
merger with
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Netect by combining the historical results for the Company and Netect for all
periods presented. There were no material transactions between BindView and
Netect during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate senior management positions and to close the Israeli operations of
Netect. The restructuring plans were based on management's best estimate of
those costs based on the information available at that time. The restructuring
expenses related to this plan include involuntary employee separation expenses
for approximately 15 former Netect employees, the costs to close Netect's
Israeli operations and other miscellaneous restructuring expenses. The
restructuring expense adjustment relates to additional costs to close Netect's
Israeli operations that exceeded management's initial estimate. The Company has
completed the actions related to the restructuring plans. The transaction costs
related to the acquisition include investment banking fees of $590, accounting
and legal expenses of $565, transfer fees of $138, and other miscellaneous
transaction expenses of $240.
The accrued restructuring expenses and amounts charged against the provision as
of June 30, 2000, were as follows:
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES ADJUSTMENT JUNE 30, 2000
---------------- ---------------- ---------------- ----------------
Employee severance and $ 575 $ (813) $ 238 $ --
related costs
Israeli office closing 119 (119) -- --
Other restructuring costs 59 (59) -- --
---------------- ---------------- ---------------- ----------------
TOTAL $ 753 $ (991) $ 238 $ --
================ ================ ================ ================
Acquisition of Entevo Corporation
On February 9, 2000 the Company merged with Entevo Corporation ("Entevo") in a
stock-for-stock transaction accounted for as a pooling of interests. Entevo
provides directory management solutions that help organizations deploy,
integrate, administer and maintain enterprise directory services, in Windows NT
and Windows 2000 environments. In connection with the merger, the Company issued
4,181 shares of common stock, based upon an exchange ratio of 0.1205909 shares
of BindView common stock for each share of Entevo common stock and 0.17210298
shares of BindView common stock for each share of Entevo Series C Preferred
Stock. As a result of this merger, all of the outstanding convertible preferred
stock of Entevo was exchanged for the Company's common stock. Transaction costs
of $3,800 and restructuring costs of $1,781 were incurred as a result of this
merger. The historical financial data included herein has been restated to
reflect the merger with Entevo by combining the historical results for the
Company and Entevo for all periods presented. There were no material
transactions between BindView and Entevo during the periods prior to the merger.
At the time of the merger, management approved restructuring plans to eliminate
duplicate positions and integrate Entevo's and BindView's worldwide operations.
The restructuring plans were based on management's best estimate of those costs
based on the information available at that time. The restructuring expenses
related to this plan include involuntary employee separation and relocation
expenses, contract cancellation provisions, product reorganization, integration
related expenses and other miscellaneous restructuring expenses. The transaction
costs related to the acquisition include investment banking fees of $2,473,
professional expenses of $929, product due diligence and transfer fees of $181,
and other miscellaneous transaction expenses of $217. The Company believes the
remaining reserve is sufficient to complete these remaining actions under the
plan.
The accrued restructuring expenses and amounts charged against the provision as
of June 30, 2000, were as follows:
BEGINNING CASH ACCRUED EXPENSES AT
ACCRUAL EXPENDITURES JUNE 30, 2000
------------ ------------ -------------------
Employee severance and $ 1,520 $ (1,504) $ 16
relocation costs
Elimination of duplicative 93 (73) 20
operating expense
Product reorganization 82 (37) 45
Integration and other
restructuring costs 86 (86) --
------------ ------------ ----------------
TOTAL $ 1,781 $ (1,700) $ 81
============ ============ ================
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OTHER INCOME, NET
The Company had other income of $1.3 million in the second quarter of 2000
compared to $741,000 in the corresponding period of 1999. This increase is
primarily due to an increase in interest income related to higher cash, cash
equivalents and investment balances as a result of the proceeds from Company's
initial public offering in July 1998, secondary offering in December 1998 and
positive cash flow from operating activities.
PROVISION FOR INCOME TAXES
The effective tax rate was approximately 32% for the quarter ended June 30, 2000
and was approximately 96% for the quarter ended June 30, 1999. The tax benefit
was approximately 11% for the six months ended June 30, 2000 and the effective
tax rate was approximately (446)% for the six months ended June 30, 1999. The
Company's generation of a research and development tax credit positively
impacted these rates. Valuation allowances booked on foreign net operating
losses and Entevo's U.S. losses adversely impacted the rate for the quarter and
six months ended June 30, 1999. A portion of the transaction and restructuring
expenses related to the acquisition of Entevo in the first quarter of 2000 are
non-deductible for income tax purposes. The non-deductible nature of these
expenses resulted in the Company's tax benefit approximating 13% for the first
quarter of 2000. The company expects that its effective tax rate will be
approximately 32% for each of the remaining fiscal quarters of 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased to $77.7 million at June 30, 2000 from
$76.9 million at December 31, 1999. The Company's cash, cash equivalents,
short-term and long-term investments balance decreased to $75.0 million at June
30, 2000 from $83.1 million at December 31, 1999. This decrease is related to
the Company's purchase of $5.0 million of redeemable preferred stock in an
international software distribution and consulting firm and the payment of
transaction and restructuring costs during the period.
The Company believes that its existing cash, cash equivalents, short-term
investments and cash flow from operations will be sufficient to meet its normal
working capital requirements for at least the next 12 months. Thereafter, the
Company may require additional funds to support its working capital requirements
or for other purposes and may seek to raise such additional funds through public
or private equity financing or from other sources. There can be no assurance
that additional financing will be available at all or that, if available, such
financing will be obtainable on terms favorable to the Company or that any
additional financing would not be dilutive.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
exchange rate fluctuations and changes in the market value of its investments.
Foreign Currency Exchange Rates
The Company operates globally and the functional currency for most of its
non-U.S. enterprises is the local currency. For the fiscal years 1999, 1998 and
1997, approximately 17%, 10% and 13% of the Company's consolidated revenues were
derived from customers outside of North America, substantially all of which were
billed and collected in foreign currencies. Similarly, substantially all of the
expenses of operating the Company's foreign subsidiaries are incurred in foreign
currencies. As a result, the Company's U.S. dollar earnings and net cash flows
from international operations may be adversely affected by changes in foreign
currency exchange rates. Based on the Company's foreign currency exchange
instruments outstanding at June 30, 2000, the Company estimates that a near-term
change in foreign currency rates would not materially affect its financial
position, results of operations or net cash flows for the year quarter and six
months ended June 30, 2000. The Company used a value-at-risk (VAR) model to
measure potential fair value losses due to foreign currency exchange rate
fluctuations. The VAR model estimates were made assuming normal market
conditions and a 95% confidence level. The VAR model is a risk estimation tool,
and as such, is not intended to represent actual losses in fair value that will
be incurred by the Company.
Interest Rate Risk
The Company adheres to a conservative investment policy, whereby its
principle concern is the preservation of liquid funds while maximizing its yield
on such assets. Cash, cash equivalents, short-term investments and long-term
investments approximated $75.0 million and $83.1 million at June 30, 2000 and
December 31, 1999, respectively. Such amounts were invested in different types
of investment-grade securities with the intent of holding these securities to
maturity. Although the Company's portfolio is subject to fluctuations in
interest rates and market conditions, no gain or loss on any security would
actually be recognized in earnings unless the instrument was sold. The Company
estimates that a near-term change in interest rates would not materially affect
its financial position, results of operations or net cash flows for the quarter
and six months ended June 30, 2000. The Company used a value-at-risk ("VAR")
model to measure potential market risk on its marketable securities due to
interest rate fluctuations. The VAR model estimates were made assuming normal
market conditions and a 95% confidence level. The VAR model is a risk estimation
tool, and as such, is not intended to represent actual losses in fair value that
will be incurred by the Company.
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PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a vote of security holders.
The Company held its annual meeting of shareholders on May 5, 2000. At that
meeting, the shareholders elected Messrs. John J. Moores and Scott R. Plantowsky
as directors for 3-year terms. In addition, the terms of Messrs. Peter L. Bloom,
Richard P. Gardner, Richard A. Hosley II, Eric J. Pulaski and Leland D.
Putterman continued after the meeting. The shareholders also approved an
amendment to the Company's Omnibus Incentive Plan to increase the number of
shares available for awards granted under that plan. The following is a summary
of how shareholders voted.
- --------------------------------------------------------------------------------------------------------
VOTES FOR VOTES AGAINST ABSTENTIONS AND BROKER NON-VOTES
- --------------------------------------------------------------------------------------------------------
ITEM
- --------------------------------------------------------------------------------------------------------
Election of John J. Moores 39,289,824 n/a 147,373
- --------------------------------------------------------------------------------------------------------
Election of Scott R. Plantowsky 39,260,620 n/a 176,577
- --------------------------------------------------------------------------------------------------------
Plan Amendment 21,332,521 10,848,010 1,364,167
- --------------------------------------------------------------------------------------------------------
ITEM 5. OTHER INFORMATION
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical facts included in this Report, including
without limitation, statements regarding the Company's future financial
position, business strategy, planned products, products under development,
markets, budgets and plans and objectives of management for future operations,
are forward-looking statements. Although we believe that the expectations
reflected in these forward-looking statements are reasonable, we cannot assure
you that those expectations will prove to have been correct. Important factors
that could cause actual results to differ materially from the Company's
expectations are disclosed in statements set forth under "Cautionary Statements"
and elsewhere in this Report, including, without limitation, in conjunction with
the forward-looking statements included in this Report. All subsequent written
and oral forward-looking statements attributable to us, or persons acting on our
behalf, are expressly qualified in their entirety by the Cautionary Statements
and such other statements. For purposes of this Item 5, references to the
"Company", "BindView", "we", "us" and "our" refer to BindView Development
Corporation and its subsidiaries.
CAUTIONARY STATEMENTS
In addition to the other information in this Quarterly Report on Form 10-Q,
the following factors should be considered carefully in evaluating the Company.
OUR QUARTERLY AND ANNUAL REVENUES, EXPENSES AND OPERATING RESULTS MAY
FLUCTUATE SIGNIFICANTLY. These fluctuations may be due to a number of factors,
including:
o demand for our products;
o size and timing of significant orders and their fulfillment;
o our ability to develop and upgrade our technology;
o changes in our level of operating expenses;
o our ability to compete in a highly competitive market;
o undetected software errors and other product quality problems;
o changes in our sales incentive plans and staffing of sales territories;
and
o changes in the mix of domestic and international revenues and the level
of international expansion.
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Generally, we do not operate with a backlog because we ship our products and
recognize revenue shortly after orders are received. The Company recognizes
revenue in accordance with the Statement of Position No. 97-2 "Software Revenue
Recognition" (SOP 97-2) or Statement of Position No. 98-9 "Modification of SOP
97-2, Software Revenue Recognition, with respect to certain transactions" (SOP
98-9), as applicable. As the Company's sales transactions and product mix
becomes more complex, revenue recognition under SOP 97-2 or SOP 98-9 could
require the Company to defer a significant portion of the total contract and
recognize this deferred revenue in future periods.
Orders booked throughout a quarter may substantially impact product revenues
in that quarter. Our sales also fluctuate throughout the quarter as a result of
customer buying patterns. We generally record a significant portion for our
revenue in the later portion of each quarter. In addition, we base our expenses
to a significant extent on our expectations of future revenues. Most of our
expenses are fixed in the short term, and we may not be able to reduce spending
quickly if our revenues are lower than we had projected. If our revenue levels
do not meet our projections, we expect our operating results to be adversely and
disproportionately affected.
Our quarterly operating results also are subject to certain seasonal
fluctuations. Year-end customer buying patterns and compensation policies based
on annual revenue quotas have caused our revenues to be strongest in the fourth
quarter of the year and to decrease in the first quarter of the following year.
In future periods, we expect that these seasonal trends may cause first quarter
revenues to be significantly lower than the level achieved in the preceding
fourth quarter. However, first quarter revenues in any given fiscal year are not
necessarily indicative of, and should not be used as a basis for prediction of
higher revenues in any future quarter.
Before January 1, 1998, we provided telephone support free of charge and
sold product upgrades separately or through subscription contracts. We now
require our customers to purchase a subscription to receive product upgrades and
technical support. Unlike software license revenues, which we generally
recognize upon shipment of the product, we recognize subscription contract
revenues ratably over the life of the contract term. As a result, if we derive a
larger percentage of our revenues from subscription contracts, we will
experience an increase in deferred revenue that is likely to decrease our
operating margins. Decreased operating margins may materially adversely affect
our operating results and financial condition.
We believe quarter-to-quarter comparisons of our revenues, expenses and
results of operations are not necessarily meaningful. You should not rely on our
quarterly revenues, expenses and results of operations to predict our future
performance.
WE HAVE A LIMITED OPERATING HISTORY. We have a limited operating history
based on our primary products and an even more limited operating history with
new and acquired products. An investor in our Company must consider the risks
and uncertainties frequently encountered by software companies in the early
stages of development, particularly those faced by companies in the highly
competitive and rapidly evolving systems management software market. To compete
in this market, we believe that we must devote substantial resources to
expanding our sales and marketing organization and to continue product
development. As a result, we will need to recognize significant quarterly
revenues to remain profitable. Our revenues have increased in recent years, and
revenues for recent quarters have exceeded revenues for the same quarter for the
prior year. However, we cannot be certain that we can sustain these growth rates
or that we will remain profitable on a quarterly or annual basis in the future.
OUR MARKETS ARE HIGHLY COMPETITIVE. We face competition from companies both
small with a niche offering as well as public companies with a breadth of
offerings. Currently, our products compete with products from the following
organizations:
o providers of security analysis and audit products, such as Axent
Technologies, Inc., ODS Networks, Inc., ISS Group, Inc., PentaSafe,
Inc., Network Associates Inc. and Symantec Corporation;
o providers of stand-alone inventory and asset management products, such
as Tally Systems Corp.;
o providers of LAN desktop management suites, such as Intel Corporation,
Hewlett-Packard Company and Microsoft Corporation;
o providers of event notification and response technology, such as
Attention Software, Inc.;
o providers of Windows NT management and migration tools, such as
FastLane Technologies Inc., NetIQ Corporation and Quest Software;
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o certain management features included in our products compete with the
native tools from Novell, Inc. and third-party tools from certain
vendors, such as Computer Associates, Inc. and other companies;
o providers of enterprise resource planning application add-ons for SAP
security administration and vulnerability assessment, such as BMC
Software, Insite Objects, Inc. and Envive Corp.; and
o providers of network security scanning technology, such as Network
Associates, ISS Group, Inc. and Axent Technologies.
In addition, companies such as Novell and Microsoft also offer native tools
with their products that provide a basic set of management tools. While these
tools provide help in certain administrative tasks for their own platform, they
do not help large administrators cope with the day-to-day management tasks that
they are challenged with. BindView solutions not only provide a easy to use
interface, but scales to the largest of the heterogeneous environments. Moreover
Novell and Microsoft do not have any incentive to make their platforms easier to
use or deploy. BindView is in a unique position to help address the growing
demand for cross-platform security and administration in such installations.
We expect competition in the network management software market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. In addition, we have noted what appears to be
a recent trend of consolidation in that market through mergers and acquisitions.
Three recent examples are Mission Critical Software's merger with NetIQ, Axent's
announced acquisition by Symantec, and Braintree Software's announced
acquisition by PentaSafe. If such consolidation continues, it could result in
the creation of new competitors and/or enhancement of the competitive
capabilities of existing competitors. Many of these existing and potential
competitors are likely to enjoy substantial competitive advantages, including:
o greater resources that can be devoted to the development, promotion
and sale of their products;
o more established sales channels;
o greater software development experience; and
o greater name recognition.
Our competitors compete with us not only for sales, but also for employees.
We have recently noted that certain competitors seem to be increasingly
targeting our sales force, and (to a lesser extent) our software development
staff, in their recruiting efforts. In some respects this is a consequence of
our growth in headcount, because we have succeeded in building up a pool of
talent that has become an attractive target for "raiding" by recruiters. We have
taken steps that we deem appropriate to remind departing employees and certain
competitors of our employees' confidentiality- and noncompetition obligations.
If we continue to increase the size of our talent pool as we intend, we expect
that we will become an even more attractive target for employee raiding.
We also believe that operating system software vendors, particularly
Microsoft and Novell, could enhance their products to include functionality that
we currently provide in our products. If these vendors include our software
functionality as standard features of their operating system software, our
products could become obsolete. Even if the functionality of the standard
software features of these vendors is more limited than ours, there is a
substantial risk that a significant number of customers would elect to keep this
limited functionality rather than purchase additional software.
To be competitive, we must respond promptly and effectively to the
challenges of technological change, evolving standards and our competitors'
innovations by continuing to enhance our products, services and sales channels.
In addition, we have and may continue to bundle and offer discounts to our
customers. Bundling or discounting our products may result in reduced operating
margins, reduced profitability and increase the complexity of revenue
recognition. Any pricing pressures, reduced margins or loss of market share
resulting from our failure to compete effectively could materially adversely
affect our business.
OUR PRODUCTS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE. The market for our
products is characterized by rapid technological change, frequent new product
introductions and enhancements, uncertain product life cycles, changes in
customer demands and evolving industry standards. Our products could be rendered
obsolete if new products based on new technologies are introduced or new
industry standards emerge. We rely heavily on our relationships with Microsoft
and Novell and attempt to coordinate our product offerings with the future
releases of their operating systems. These companies may not notify us of
feature enhancements prior to new
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releases of their operating systems in the future. In that case, we may not be
able to introduce products on a timely basis that capitalize on new operating
system releases and feature enhancements.
CLIENT/SERVER COMPUTING ENVIRONMENTS ARE INHERENTLY COMPLEX. As a result, we
cannot accurately estimate our software product life cycles. New products and
product enhancements can require long development and testing periods, which
depend significantly on our ability to hire and retain increasingly scarce and
technically competent personnel. Significant delays in new product releases or
significant problems in installing or implementing new product releases could
seriously damage our business. We have, on occasion, experienced delays in the
scheduled introduction of new and enhanced products and cannot be certain that
such delays will not occur again.
Our future success will depend, in part, upon our ability to enhance
existing products, develop and introduce new products, satisfy customer
requirements and achieve market acceptance. We cannot be certain that we will
successfully identify new product opportunities and develop and bring new
products to market in a timely and cost-effective manner. Further, the products,
capabilities or technologies developed by others may render our products or
technologies obsolete or shorten their life cycles.
WE ARE DEPENDENT UPON CONTINUED GROWTH OF THE MARKET FOR WINDOWS NT AND
NOVELL NETWARE OPERATING SYSTEMS. We depend upon the success of Microsoft's
Windows NT and Novell's NetWare operating systems. In particular, market
acceptance of our products depends on the increasing complexity of these
operating systems and the lack of effective tools to simplify system
administration and security management for these environments. Although demand
for Windows NT and NetWare operating systems has grown in recent years, we
cannot be certain that it will continue to grow. If the market does continue to
grow, we cannot be certain that the market for our products will continue to
develop or that our products will be widely accepted. If the markets for our
products fail to develop or develop more slowly than we anticipate, our business
could be materially adversely affected.
The percentages of our revenues attributable to software licenses for
particular operating system platforms can change from time to time. A number of
factors outside our control can cause these changes, including changing market
acceptance and penetration of the various operating system platforms which we
support and the relative mix of development and installation by value-added
resellers ("VARs") of application software operating on such platforms.
PRODUCT CONCENTRATION. A majority of our revenues are from the sale of our
NOSadmin and NETinventory products. [Is this still accurate?] We anticipate that
these products, along with product additions as a result of the Curasoft, Netect
and Entevo acquisitions, will account for majority or all of all of our revenues
for the foreseeable future. Our future operating results will depend on
continued market acceptance of NOSadmin and NETinventory, introduction of new
products from the Curasoft, Netect and Entevo acquisitions, enhancements to
these products and the continued development of additional snap-in modules for
our Enterprise Console product. Competition, technological change or other
factors could reduce demand for, or market acceptance of any or all of our
products and could substantially damage our business. Although we currently plan
to broaden our product line, we cannot be certain that we will be able to reduce
our product concentration or that we will be able to generate material revenues
from products acquired as a result of the Curasoft, Netect and Entevo
acquisitions.
RISKS ASSOCIATED WITH LENGTH OF SALES CYCLE. We have sold our products to
customer workgroups and corporate divisions. As a result, our sales cycle has
ranged from three to six months. Recently, we have increased our product
offerings and have also focused more of our selling effort on products for the
customer's entire enterprise and as a result, have found that our sales cycle to
enterprises has ranged from six to twelve months. In addition, we are currently
transitioning our telesales force into a direct sales model. Our ability to
effectively transition our sales force to this model can directly impact the
length of our sales cycle. The sales cycle to enterprises is typically longer
for a number of reasons, including:
o the significant resources committed to an evaluation of network
management software by an enterprise require us to expend substantial
time, effort and money educating them on the value of our products and
services; and
o decisions to license and deploy enterprise-wide software generally
involve an evaluation of our software by a significant number of
personnel of the enterprise in various functional and geographic areas,
each often having specific and conflicting requirements.
As a result, we cannot predict the timing and amount of specific sales. Our
inability to complete one or more enterprise-wide sales in a particular quarter
or calendar year could materially adversely affect our business and could cause
our operating results to vary significantly from quarter to quarter.
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NEED TO MANAGE CHANGING OPERATIONS. We have expanded our operations rapidly
in recent years. We intend to continue to expand in the foreseeable future to
pursue existing and potential market opportunities. This rapid growth places a
significant demand on management and operational resources. In order to manage
growth effectively, we must implement and improve our operational systems,
procedures and controls on a timely basis. If we fail to implement and improve
these systems, our business, operating results and financial condition will be
materially adversely affected.
DEPENDENCE ON KEY PERSONNEL. Our success depends largely on the efforts of
our executive officers, particularly Eric J. Pulaski, the President and Chief
Technology Officer of BindView. We do not have an employment contract requiring
Mr. Pulaski to continue his employment for any period of time. We do not
maintain key man life insurance policies on any of our executive officers.
We believe that our future success will depend in large part upon our
ability to attract and retain highly skilled research and development, technical
support and sales and marketing personnel. We face intense competition for
qualified personnel, and we cannot be certain that we will successfully attract
and retain additional qualified personnel in the future. The loss of the
services of one or more of our key individuals or the failure to attract and
retain additional qualified personnel could substantially damage our business.
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS. During 1999, 1998
and 1997, we derived approximately 16%, 10% and 13% of our revenues,
respectively, from sales outside North America. We only recently opened direct
telesales offices outside the United States. We have historically generated
revenues outside North America through indirect channels, including VARs and
other distributors. We are in the early stages of developing our indirect
distribution channels in certain markets outside the United States. We cannot be
certain that we will be able to attract third parties that will be able to
market our products effectively or to provide timely and cost-effective customer
support and service. Our reseller arrangements generally provide that resellers
may carry competing product offerings. We cannot be certain that any distributor
or reseller will continue to represent our products. The inability to recruit,
or the loss of, important sales personnel, distributors or resellers could
materially and adversely affect our business.
As we expand our sales and support operations internationally, we anticipate
that international revenues will grow as a percentage of our total revenues. To
successfully expand international sales, we must:
o establish additional international direct telesales offices;
o expand the management and support organizations for our international
sales channel;
o hire additional personnel;
o customize our products for local markets;
o recruit additional international resellers where appropriate; and
o expand the use of our direct telesales model.
If we are unable to generate increased sales through a direct telesales
model, we will incur higher personnel costs without corresponding increases in
revenue, resulting in lower operating margins for our international operations.
In addition, employment policies vary among countries outside the United States,
which may reduce our flexibility in managing headcount and, in turn, managing
personnel-related expenses. If we do not address the risks associated with
international sales in a cost-effective and timely manner, our international
sales growth will be limited, operating margins could be reduced and our
business could be materially adversely affected. However, even if we are able to
successfully expand our international operations, we cannot be certain that we
will be able to maintain or increase international market demand for our
products.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISKS OF INFRINGEMENT. Our
success depends to a significant degree upon our software and other proprietary
technology. The software industry has experienced widespread unauthorized
reproduction of software products. We rely on a combination of trademark, trade
secret, and copyright law and contractual restrictions to protect our
technology. These legal protections provide only limited protection. The steps
we have taken may deter competitors from misappropriating our proprietary
information. However, we may not be able to detect unauthorized use or take
appropriate steps to enforce our intellectual property rights. If we litigated
to enforce our rights, litigation would be expensive, would divert management
resources and may not be adequate to protect our business. We also could be
subject to claims alleging infringement of third-party intellectual property
rights. In addition, we may be required to indemnify our distribution partners
and end-users for similar claims
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made against them. Any claims against us could require us to spend significant
time and money in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses to intellectual property that is the subject of the
infringement claims. As a result, claims against us could materially adversely
affect our business.
RISKS ASSOCIATED WITH COMPLETED AND POTENTIAL ACQUISITIONS. We have made and
may continue to make investments in complementary companies, technologies,
services or products if we find appropriate opportunities. If we buy a company,
we could have difficulty assimilating the personnel and operations of the
acquired company. If we make other types of acquisitions, assimilating the
technology, services or products into our operations could be difficult.
Acquisitions can disrupt our ongoing business, distract management and other
resources and make it difficult to maintain our standards, controls and
procedures. We may not succeed in overcoming these risks or in any other
problems we might encounter in connection with any future acquisitions. We may
be required to incur debt or issue equity securities to pay for any future
acquisitions. In addition, there can be no assurance that we will be able to
successfully integrate our recent acquisitions of Netect and Entevo or that we
will be able to integrate the products and technology we acquired into our sales
model or product offerings.
RISKS OF UNDETECTED SOFTWARE ERRORS. Our software products are complex and
may contain certain undetected errors, particularly when first introduced or
when new versions or enhancements are released. We have previously discovered
software errors in certain of our new products after their introduction. We
cannot be certain that, despite our testing, such errors will not be found in
current versions, new versions or enhancements of our products after
commencement of commercial shipments. Such undetected errors could result in
adverse publicity, loss of revenues, delay in market acceptance or claims
against us by customers, all of which could materially adversely affect our
business.
RISK OF PRODUCT LIABILITY CLAIMS. Because our product design provides
important network management services, we may receive significant liability
claims. Our agreements with customers typically contain provisions intended to
limit our exposure to liability claims. These limitations may not, however,
preclude all potential claims. Liability claims could require us to spend
significant time and money in litigation or to pay significant damages. As a
result, any such claims, whether or not successful, could seriously damage our
reputation and our business.
ANTI-TAKEOVER PROVISIONS. Incumbent management and our Board of Directors
could use certain provisions of our certificate of incorporation to make it more
difficult for a third party to acquire control of our company, even if the
change in control might be beneficial to our stockholders. This could discourage
potential takeover attempts and could adversely affect the market price of our
common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
The following exhibits are filed with this Quarterly Report.
10.1 Executive Employment Agreement, dated effective April 18, 2000, between
BindView Development Corporation and William D. Miller.
10.2 BindView Development Corporation Omnibus Incentive Plan, as amended
10.3 BindView Development Corporation 1998 Non-Employee Director Stock Option
Plan, as amended
10.4 Netect, Ltd. 1998 International Employee Stock Plan, as amended
10.5 Entevo Corporation 1997 Stock Plan, as amended
10.6 Entevo Corporation 1998 Indian Stock Option Plan, as amended
10.7 2000 Indian Stock Option Plan
10.8 2000 Employee Incentive Plan
11 -- Statement Regarding Computation of Earnings (Loss) Per Common Share
27 -- Financial Data Schedule.
(b) Reports on Form 8-K.
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In a Report on Form 8-K dated April 3, 2000, under Item 5, the Company reported
that it had issued a press release relating to its financial results for the
quarter ended March 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BINDVIEW DEVELOPMENT CORPORATION
By: /s/ RICHARD P. GARDNER
-------------------------------------------
Richard P. Gardner
President and Chief Executive Officer
(duly authorized officer)
AUGUST 14, 2000
By: /s/ SCOTT R. PLANTOWSKY
-------------------------------------------
Scott R. Plantowsky
Vice-President and Chief Financial Officer
(principal financial officer)
AUGUST 14, 2000
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INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.1 Executive Employment Agreement, dated effective April 18, 2000,
between BindView Development Corporation and William D. Miller.
10.2 BindView Development Corporation Omnibus Incentive Plan, as
amended
10.3 BindView Development Corporation 1998 Non-Employee Director Stock
Option Plan, as amended
10.4 Netect, Ltd. 1998 International Employee Stock Plan, as amended
10.5 Entevo Corporation 1997 Stock Plan, as amended
10.6 Entevo Corporation 1998 Indian Stock Option Plan, as amended
10.7 2000 Indian Stock Option Plan
10.8 2000 Employee Incentive Plan
11 -- Statement Regarding Computation of Earnings (Loss) Per
Common Share
27 -- Financial Data Schedule.