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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 JUNE 30, 1997
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)
GEORGIA
(State or other Jurisdiction of incorporation or 58-1817306
organization) (I.R.S. Employer Identification No.)
1055 LENOX PARK BOULEVARD
ATLANTA, GEORGIA 30319
(Address of principal executive offices) (Zip Code)
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
July 30, 1997, the latest practicable date, is as follows: 21,110,345 shares of
Common Stock, $.0001 par value.
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Form 10-Q
Page 1 of 21
2
HARBINGER CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page
Number
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - (unaudited) June 30, 1997
and December 31, 1996 3
Consolidated Statements of Operations (unaudited) -
Three months and six months ended June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows (unaudited) -
Six months ended June 30, 1997 and 1996 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 18
PART III. SIGNATURES 19
Form 10-Q
Page 2 of 21
3
ITEM 1. FINANCIAL STATEMENTS
HARBINGER CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
------------ ------------
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,085,000 $ 9,059,000
Accounts receivable, less allowances for returns and
doubtful accounts of $1,900,000 at June 30, 1997 and
$2,077,000 at December 31, 1996 18,390,000 11,890,000
Deferred income taxes 1,629,000 1,517,000
Due from joint ventures 117,000 1,827,000
Other current assets 1,729,000 1,399,000
------------ ------------
Total current assets 23,950,000 25,692,000
------------ ------------
Property and equipment, less accumulated depreciation and amortization 10,675,000 8,226,000
Investments in joint ventures -- 407,000
Intangible assets, less accumulated amortization 13,050,000 13,147,000
Deferred income taxes and other assets -- 1,321,000
============ ============
$ 47,675,000 $ 48,793,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,438,000 $ 3,053,000
Accrued expenses 10,998,000 9,880,000
Deferred revenues 8,247,000 7,193,000
Note payable to bank -- 1,550,000
Current portion of long-term debt 749,000 907,000
------------ ------------
Total current liabilities 23,432,000 22,583,000
------------ ------------
Commitments and contingencies
Long-term debt, excluding current portion 1,223,000 1,368,000
Redeemable preferred stock:
Zero Coupon; 4,000,000 shares issued and outstanding
at June 30, 1997 and December 31, 1996 -- --
Shareholders' equity:
Common stock, $0.0001 par value; 100,000,000 shares
authorized, 19,291,886 shares and 18,690,265 shares issued
and outstanding at June 30, 1997 and December 31, 1996 2,000 2,000
Additional paid-in capital 57,561,000 45,291,000
Accumulated deficit (34,543,000) (20,451,000)
------------ ------------
Total shareholders' equity 23,020,000 24,842,000
============ ============
$ 47,675,000 $ 48,793,000
============ ============
See accompanying notes to consolidated financial statements
Form 10-Q
Page 3 of 21
4
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------------
1997 1996 1997 1996
----------- ------------ ------------ ------------
Revenues:
Services $12,138,000 $ 9,372,000 $ 24,255,000 $ 16,869,000
Software 7,547,000 5,381,000 12,433,000 9,388,000
----------- ------------ ------------ ------------
Total revenues 19,685,000 14,753,000 36,688,000 26,257,000
----------- ------------ ------------ ------------
Direct costs:
Services 4,258,000 3,503,000 8,091,000 5,922,000
Software 946,000 691,000 1,640,000 1,366,000
----------- ------------ ------------ ------------
Total direct costs 5,204,000 4,194,000 9,731,000 7,288,000
----------- ------------ ------------ ------------
Gross margin 14,481,000 10,559,000 26,957,000 18,969,000
----------- ------------ ------------ ------------
Operating costs:
Selling and marketing 4,009,000 4,146,000 7,491,000 7,202,000
General and administrative 3,714,000 3,304,000 7,070,000 6,056,000
Depreciation and amortization 981,000 747,000 1,966,000 1,238,000
Product development 2,127,000 2,110,000 3,870,000 3,747,000
Charge for purchased in-process product
development and acquisition related charges -- -- 16,236,000 8,350,000
----------- ------------ ------------ ------------
Total operating costs 10,831,000 10,307,000 36,633,000 26,593,000
----------- ------------ ------------ ------------
Operating income (loss) 3,650,000 252,000 (9,676,000) (7,624,000)
Interest (income) expense, net 22,000 (37,000) (42,000) (127,000)
Equity in losses of joint ventures 35,000 1,682,000 53,000 2,861,000
----------- ------------ ------------ ------------
Income (loss) before income tax expense and
extraordinary item 3,593,000 (1,393,000) (9,687,000) (10,358,000)
Income tax expense 1,396,000 83,000 1,419,000 132,000
----------- ------------ ------------ ------------
Income (loss) before extraordinary item 2,197,000 (1,476,000) (11,106,000) (10,490,000)
Extraordinary loss on debt extinguishment -- -- 2,419,000 --
----------- ------------ ------------ ------------
Net income (loss) 2,197,000 (1,476,000) (13,525,000) (10,490,000)
Preferred stock dividends -- -- -- (28,000)
----------- ------------ ------------ ------------
Net income (loss) applicable to common
shareholders $ 2,197,000 $ (1,476,000) $(13,525,000) $(10,518,000)
=========== ============ ============ ============
Net income (loss) per share:
Income (loss) before extraordinary item applicable
to common shareholders $ 0.11 $ (0.08) $ (0.58) $ (0.58)
Extraordinary loss on debt extinguishment -- -- $ (0.13) --
----------- ------------ ------------ ------------
Net income (loss) per common share $ 0.11 $ (0.08) $ (0.71) $ (0.58)
=========== ============ ============ ============
Weighted average number of common and
common equivalent shares outstanding 20,649,000 18,511,000 19,166,000 18,209,000
=========== ============ ============ ============
See accompanying notes to consolidated financial statements
Form 10-Q
Form 4 of 21
5
HARBINGER CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Six Months Ended
--------------------------------
June 30,
--------------------------------
1997 1996
------------ ------------
Cash flows (used in) provided by operating activities: $ (2,051,000) $ 762,000
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (3,270,000) (1,865,000)
Additions to software development costs (1,714,000) (1,321,000)
Acquisitions (1,717,000) (4,603,000)
------------ ------------
Net cash used in investing activities: (6,701,000) (7,789,000)
------------ ------------
Cash flows from financing activities
Dividends paid on preferred stock -- (28,000)
Exercise of stock options and warrants 1,988,000 532,000
Repayments of notes payable (1,943,000) (1,029,000)
Purchase of HNS subordinated debenture (1,500,000) --
------------ ------------
Net cash used in financing activities (1,455,000) (525,000)
------------ ------------
Net decrease in cash and cash equivalents (10,207,000) (7,552,000)
Cash and cash equivalents at beginning of period 9,059,000 12,763,000
Effect of exchange rates on cash (93,000) (100,000)
Cash received from acquisitions 3,326,000 356,000
------------ ------------
Cash and cash equivalents at end of period $ 2,085,000 $ 5,467,000
============ ============
Supplemental disclosure of cash paid for interest $ 31,000 $ 69,000
============ ============
Supplemental disclosure of noncash investing activities:
Purchase of HNS subordinated debenture in exchange
for common stock $ 4,200,000 $ --
============ ============
Acquisition of HNS minority interest in exchange for
issuance of options $ 2,216,000 $ --
============ ============
Acquisition of businesses in exchange for assumption of
liabilities and issuance of common stock $ 677,000 $ --
============ ============
Acquisition of businesses in exchange for assumption of
liabilities and issuance of common stock and options
and warrants to acquire common stock $ -- $ 11,294,000
============ ============
Conversion of Series C preferred stock to common stock $ -- $ 2,485,000
============ ============
See accompanying notes to consolidated financial statements
Form 10-Q
Page 5 of 21
6
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
1. 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, and cash flows
for the interim periods. Operating results for the three and six months ended
June 30, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. 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, 1996 and the Company's current report on Form 8-K dated July 1,
1997.
2. ACQUISITIONS
1996 ACQUISITIONS
Effective March 31, 1996, the Company acquired all of the common stock
of NTEX Holding, B.V. ("NTEX"), a Dutch corporation based in Rotterdam, The
Netherlands, for $8.0 million, consisting of $3,195,000 in cash, 107,778 shares
of the Company's common stock valued at $1.2 million, warrants to acquire
18,750 shares of the Company's stock at $11.33 per share valued at $100,500 and
the assumption of $3.5 million in liabilities including transaction costs. The
Company recorded the acquisition using the purchase method of accounting with
$4,449,000 of the purchase price allocated to in-process product development
and charged to the consolidated statement of operations on March 31, 1996,
$204,000 allocated to purchased technology, $621,000 allocated to tangible
assets and $2.8 million allocated to goodwill.
Effective March 31, 1996, the Company acquired all of the common stock
of INOVIS GmbH & Co. ("INOVIS"), a German corporation based in Karlsruhe,
Germany for $6.1 million, consisting of $1,409,000 in cash, 210,276 shares of
the Company's common stock valued at $2.4 million, warrants to acquire 30,000
shares of the Company's stock at $10.17 per share valued at $104,000, a note
payable of $557,000 and the assumption of $1.7 million in liabilities including
transaction costs. The Company recorded the acquisition using the purchase
method of accounting with $3.4 million of the purchase price allocated to
in-process product development and charged to the consolidated statement of
operations on March 31, 1996, $600,000 allocated to purchased technology,
$1,077,000 allocated to tangible assets and $1.1 million allocated to goodwill.
Effective March 31, 1996, the Company acquired the remaining
outstanding common stock of Harbinger N.V. ("HNV"), a Dutch corporation based
in Hoofddorp, the Netherlands for $1.2 million, consisting of 58,065 shares of
the Company's common stock valued at $668,000 and the assumption of $554,000 in
liabilities. The Company recorded the acquisition using the purchase method of
accounting with $300,000 of the purchase price allocated to in-process product
development and charged to the consolidated statement of operations on March
31, 1996, $518,000 allocated to tangible assets and $447,000 allocated to
goodwill and other intangibles.
Effective August 1, 1996, the Company acquired all of the common stock
of Comtech Management Systems, Inc. ("Comtech"), a Texas corporation based in
Amarillo, Texas, for $500,000, consisting of 24,561 shares of the Company's
common stock valued at $422,000 and the assumption of $75,000 in liabilities.
The Company recorded the acquisition using the purchase method of accounting
with $114,000 of the purchase price allocated to tangible assets, $100,000
allocated to purchased technology, and $283,000 allocated to goodwill.
Form 10-Q
Page 6 of 21
7
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Effective October 15, 1996, the Company acquired all of the common
stock of EDI Integration Services Limited ("EISL"), a company based in
Hampshire, United Kingdom for $804,000 consisting of $134,000 in cash and the
assumption of a $670,000 note payable. The Company recorded the acquisition
using the purchase method of accounting with $250,000 allocated to purchased
technology, $548,000 allocated to goodwill, and $6,000 allocated to tangible
assets.
1997 ACQUISITIONS
HNS
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company began accounting for its investment in HNS by
consolidating the statements of financial position and results of operations of
HNS with those of the Company.
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company recorded an
extraordinary loss on early debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which was accounted for using the purchase method of
accounting with $2.7 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
January 1, 1997, and $1.4 million allocated to goodwill and purchased
technology. The Company also incurred integration costs during the first
quarter of 1997 related to this acquisition of $1.6 million which have been
reflected in the acquisition related charges in the accompanying consolidated
statement of operations. The Company recorded a net deferred income tax asset
of approximately $840,000 as a result of this acquisition and provided a
valuation allowance against such net deferred income tax asset to reduce it to
zero.
Smart Solutions
Effective May 1, 1997, the Company acquired all of the common stock of
Smart Solutions, a Michigan corporation based in Traverse City, Michigan, for
$677,000, consisting of 19,757 unregistered shares of the Company's common
stock valued at $454,000 and the assumption of $223,000 in liabilities. The
Company recorded the acquisition using the purchase method of accounting with
$100,000 of the purchase price allocated to purchased technology, $71,000
allocated to tangible assets and $506,000 allocated to goodwill.
PRO FORMA FINANCIAL INFORMATION
The balance sheets of the above companies have been included in the
Company's consolidated balance sheet as of June 30, 1997 and the results of
operations of the acquired companies have been included in the Company's
consolidated statements of operations beginning on March 31, 1996, except for
Comtech, EISL, HNS and Smart Solutions, which have been included beginning on
August 1, 1996, October 15, 1996, January 1, 1997, and May 1, 1997,
respectively.
Form 10-Q
Page 7 of 21
8
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
The unaudited proforma results of operations of the Company for the
three and six months ended June 30, 1996 as if the acquisitions described above
had been effected on January 1, 1996 is summarized as follows:
Three months Six months
ended ended
June 30, 1996 June 30, 1996
------------- -------------
Revenues $ 14,943,000 $ 28,024,000
============ ============
Loss before extraordinary item applicable
to common shareholders (1,688,000) (14,375,000)
Extraordinary loss on debt extinguishment -- (2,419,000)
============ ============
Net loss applicable to common shareholders $ (1,688,000) $(16,794,000)
============ ============
Net loss per share applicable to common
shareholders before extraordinary item $ (0.09) $ (0.77)
Extraordinary loss per share on
debt extinguishment -- (0.13)
------------ ------------
Net loss per share applicable to common
shareholders $ (0.09) $ (0.90)
============ ============
Weighted average outstanding common
share and common share equivalent 18,773,000 18,659,000
============ ============
The unaudited pro forma results do not necessarily represent results
which would have occurred if the acquisitions had taken place on the dates
indicated nor are they necessarily indicative of the results of future
operations. The unaudited pro forma results for 1997 reflecting the acquisition
of Smart Solutions as if it had occurred on January 1, 1997 would not be
significantly different than presented in the accompanying 1997 consolidated
statement of operations.
STI ACQUISITION
On January 3, 1997, the Company acquired SupplyTech, Inc., a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company (collectively "STI"), for 2,400,000 unregistered
shares of the Company's common stock in transactions accounted for using the
pooling-of-interests method of accounting. SupplyTech, Inc. was acquired in a
merger transaction pursuant to the terms of a merger agreement, dated January
3, 1997, by and among the Company, SupplyTech, Inc. and Harbinger Acquisition
Corporation II, a Georgia corporation and a wholly owned subsidiary of the
Company. SupplyTech, Inc. survived the merger as a wholly owned subsidiary of
the Company. SupplyTech International, LLC was acquired by the Company in a
series of related share purchases, which included the exchange of the Company's
common stock for all the outstanding shares of SupplyTech International, LLC.
In connection with the STI Acquisition, the Company incurred a charge
of $7.1 million in January 1997 for acquisition related expenses and asset
write downs and incurred integration costs of $4.8 million during the first
quarter of 1997. The Company recorded a net deferred income tax asset during
the first quarter 1997 of approximately $1.8 million relating to the STI
Acquisition and provided a valuation allowance against such net deferred income
tax asset to reduce it to zero.
The financial position and results of operations of the Company have
been restated for all periods prior to the merger to give retroactive effect to
the STI Acquisition.
Form 10-Q
Page 8 of 21
9
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Total revenues and net income (loss) for the individual companies as
previously reported are as follows:
Three months Six months
ended ended
June 30, 1996 June 30, 1996
------------ ------------
Total revenues
Harbinger Corporation $ 10,081,000 $ 17,243,000
STI 4,672,000 9,014,000
------------ ------------
$ 14,753,000 $ 26,257,000
============ ============
Net loss
Harbinger Corporation $ (107,000) $ (8,408,000)
STI (1,369,000) (2,110,000)
------------ ------------
$ (1,476,000) $(10,518,000)
============ ============
3. SHAREHOLDERS' EQUITY
Stock Split
On January 10, 1997, the Board of Directors declared a three-for-two
stock split in the form of a 150% stock dividend on the Company's common stock
payable on January 31, 1997, to shareholders of record on January 17, 1997. All
share, per share and shareholder's equity amounts included in the Company's
consolidated financial statements have been retroactively restated to reflect
the split for all periods presented.
Secondary Stock Offering
On July 29, 1997, the Company completed the public offering of 2.9
million shares of Common Stock, consisting of 1.8 million shares sold by the
Company and 1.1 million shares sold by selling shareholders, at a public
offering price of $30.75 per share. The offering resulted in net proceeds to
the Company of approximately $52.6 million.
4. CREDIT FACILITY
Effective April 16, 1997, the Company increased its credit facility to
$10 million with an interest rate of Prime and a commitment fee on the unused
portion of .375%.
5. NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 requires companies that have publicly held common
stock or common stock equivalents to present both basic and diluted earnings
per share ("EPS") on the face of the income statement. Basic EPS is calculated
as income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted EPS is
calculated to reflect the potential dilution that would occur if stock options
or other contracts to issue common stock were exercised and results in
additional common stock that would share in the earnings of the Company. This
statement is effective for financial statements issued for interim and annual
periods ending after December 15, 1997. The Company does not believe the
adoption of SFAS No. 128 will have a significant impact on its reported EPS.
Form 10-Q
Page 9 of 21
10
HARBINGER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect that SFAS No. 129 will require significant revision of prior disclosures
since SFAS No. 129 lists required disclosures that had been included in a
number of previously existing separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence
as other financial statements, the components of comprehensive income. SFAS No.
130 requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's financial statements will
include the disclosure of comprehensive income in accordance with the
provisions of SFAS No. 130 beginning the first quarter of 1998.
Form 10-Q
Page 10 of 21
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
herein and the Company's Form 10-K for the year ending December 31, 1996 and
the Company's current report on Form 8-K dated July 1, 1997.
OVERVIEW
Harbinger Corporation (the "Company") generates revenues from various
sources, including revenues for services and license fees for software.
Revenues for services principally includes subscription fees for transactions
on the Company's Value Added Network ("VAN"), software maintenance and
implementation charges and charges for consulting and training services.
Subscription fees are based on a combination of monthly access charges and
transaction-based usage charges. Software maintenance and implementation
revenues represent recurring charges to customers and are deferred and
recognized ratably over the service period. Revenues for consulting and
training services are based on actual services rendered and are recognized as
services are performed. License fees for software are recognized upon shipment,
net of estimated returns. Software revenues include royalty revenues under the
Company's distribution agreement with a third party distributor which are
recognized based upon sales to end users by that distributor.
1996 ACQUISITIONS
Effective March 31, 1996, the Company completed the acquisition of
NTEX Holding B.V. ("NTEX") for $8.0 million and the acquisition of INOVIS GmbH
("INOVIS") for $6.1 million. NTEX is a Rotterdam, The Netherlands-based
supplier of EC products and services with about 40 employees at the time of the
acquisition. It develops software for EDI, wide area communications, and web
site development, and it operates an electronic clearing center in The
Netherlands. NTEX builds value-added applications that utilize EDI and manages
trading communities for such markets as healthcare, agriculture, shipping and
education. INOVIS is a Karlsruhe, Germany-based supplier of EC products and
services with about 30 employees at the time of the acquisition. INOVIS
develops software for electronic catalogs and ordering systems that use both
CD-ROM and the Internet. It also manages an electronic clearing center serving
the German-speaking market. INOVIS builds value-added applications that utilize
EDI and manages trading communities for the music, book publishing, sporting
goods, and other markets. The Company's acquisitions of NTEX and INOVIS are
expected to accelerate the Company's realization of opportunities for its
products in international markets.
The Company also completed two other acquisitions during 1996, the
acquisition of the remaining outstanding common stock of Harbinger N.V. ("HNV")
and the acquisition of Comtech Management Systems, Inc., which did not have
a significant impact on the Company's financial position or results of
operations.
1997 ACQUISITIONS
Harbinger Net Services LLC ("HNS")
On January 1, 1997, because of the expiration of restrictions on the
Company's ability to appoint a majority of the HNS Board of Managers, the
Company exercised its rights as majority shareholder of HNS by appointing a
majority of the members of the HNS Board of Managers. As a result, effective
January 1, 1997, the Company began accounting for its investment in HNS by
consolidating the statements of financial position and results of operations of
HNS with those of the Company.
Also on January 1, 1997, the Company entered into a debenture purchase
agreement with the holder of the Debenture whereby the Company acquired the
Debenture in exchange for $1.5 million in cash and 242,288 shares of the
Company's common stock valued at $4.2 million. The Company recorded an
extraordinary loss on early debt extinguishment of $2.4 million in the first
quarter of 1997 related to this transaction which represents the amount paid of
$5.7 million in excess of the face amount of the Debenture of $3.0 million plus
accrued interest of $280,000.
Form 10-Q
Page 11 of 21
12
Immediately after this transaction, the Company acquired the minority
interest in HNS, consisting of 585,335 shares of HNS common stock and stock
options to acquire 564,727 shares of HNS common stock at exercise prices
ranging from $0.70 per share to $1.65 per share, by exchanging cash of $1.6
million and stock options to acquire 355,317 shares of the Company's common
stock at exercise prices ranging from $15.22 per share to $16.53 per share
which were valued by the Company at $2.2 million. Including transaction and
other costs of $350,000, the Company paid $4.1 million for the acquisition of
the HNS minority interest which was accounted for using the purchase method of
accounting with $2.7 million of the purchase price allocated to in-process
product development and charged to the consolidated statement of operations on
January 1, 1997, and $1.4 million allocated to goodwill and purchased
technology. The Company also incurred integration costs during the first
quarter of 1997 related to this acquisition of $1.6 million which has been
reflected in the acquisition related charges in the accompanying consolidated
statement of operations. The Company recorded a net deferred income tax asset
of approximately $840,000 as a result of this acquisition and intends to
provide a valuation allowance against such net deferred income tax asset to
reduce it to zero.
STI
On January 3, 1997, the Company acquired SupplyTech, Inc., a Michigan
corporation, and its affiliate, SupplyTech International, LLC, a Michigan
limited liability company (collectively "STI"), for 2,400,000 unregistered
shares of the Company's common stock in transactions accounted for using the
pooling-of-interests method of accounting. SupplyTech, Inc. was acquired in a
merger transaction pursuant to the terms of a merger agreement, dated January
3, 1997, by and among the Company, SupplyTech, Inc. and Harbinger Acquisition
Corporation II, a Georgia corporation and a wholly owned subsidiary of the
Company. SupplyTech, Inc. survived the merger as a wholly owned subsidiary of
the Company. SupplyTech International, LLC was acquired by the Company in a
series of related share purchases, which included the exchange of the Company's
common stock for all the outstanding shares of SupplyTech International, LLC.
In connection with the STI Acquisition, the Company incurred a charge
of $7.1 million in January 1997 for acquisition related expenses and asset
write downs and incurred integration costs of $4.8 million during the first
quarter of 1997. The Company recorded a net deferred income tax asset during
the first quarter 1997 of approximately $1.8 million relating to the STI
Acquisition and provided a valuation allowance against such net deferred income
tax asset to reduce it to zero.
The financial position and results of operations of the Company have
been restated for all periods prior to the merger to give retroactive effect to
the STI Acquisition.
Smart Solutions
On May 1, 1997, the Company acquired Smart Solutions, which is not
expected to have a significant impact on the Company's financial position or
results of operations. Smart Solutions, located in Traverse City, Michigan, is
a provider of advanced ship notice and bar coding software.
RESULTS OF OPERATIONS
REVENUES
Total revenues increased 40% from $26.3 million in the six months
ended June 30, 1996 to $36.7 million in the same period in 1997. Revenues for
services increased 44% from $16.9 million in the six months ended June 30, 1996
to $24.3 million in the same period in 1997, primarily reflecting an increase
in the number of subscribers utilizing the Company's VAN, increases in the
average volume of transmissions by subscribers, and an increase in professional
services revenues. In addition, increases in revenues for services reflect
revenues generated from the Company's European subsidiaries which were acquired
at the end of the first quarter 1996. Revenues from software maintenance and
implementation also increased, reflecting primarily an increase in the number
of customers. Revenue from software sales increased 32% from $9.4 million in
the six months ended June 30, 1996 to $12.4 million in the same period in 1997.
This increase primarily reflects increases in licensed PC software, software
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revenues generated from the Company's European subsidiaries which were acquired
at the end of the first quarter in 1996, and increases in software license fees
attributable to the licensing of enterprise-wide software products. The
increase in software license fees was offset by a $1.7 million decrease in
royalties recognized for software products licensed through a third party
distributor.
Total revenues increased 33% from $14.8 million in the three months
ended June 30, 1996 to $19.7 million in the same period in 1997. Revenues for
services increased 30% from $9.4 million in the three months ended June 30,
1996 to $12.1 million in the same period in 1997, primarily reflecting an
increase in the number of subscribers utilizing the Company's VAN, increases in
the average volume of transmissions by subscribers and increases in
professional services revenues. Revenues from software maintenance and
implementation also increased, reflecting primarily an increase in the number
of customers. Revenues from software license fees increased 40% from $5.4
million in the three months ended June 30, 1996 to $7.5 million in the same
period in 1997. This increase primarily reflects increases in licensed PC and
enterprise-wide software products. The increase in software license fees was
offset by a $633,000 decrease in royalties recognized for software products
licensed through a third party distributor.
DIRECT COSTS
Direct costs for services increased from $5.9 million, or 35.1% of
services revenues, in the six months ended June 30, 1996, to $8.1 million, or
33.4% of services revenues, in the six months ended June 30, 1997. The decrease
in direct costs for services, as a percentage of services revenues reflects
increased operating leverage on higher revenues and operating synergies
realized from the STI merger. Direct costs for software increased from $1.4
million, or 14.6% of software revenues, in the six months ended June 30, 1996,
to $1.6 million, or 13.2% of software revenues, in the six months ended June
30, 1997. The decrease in direct costs for software, as a percentage of
software revenues, is due to a higher level of software license revenues.
Direct costs for services increased from $3.5 million, or 37.4% of
services revenue in the three months ended June 30, 1996, to $4.3 million, or
35.1% of services revenue in the three months ended June 30, 1997. The decrease
in direct costs for services, as a percentage of services revenues reflects
increased operating leverage on higher revenues and operating synergies
realized from the STI merger. Direct costs for software increased from
$691,000, or 12.8% of software revenues, in the three months ended June 30,
1996, to $946,000, or 12.5% of software revenues, in the three months ended
June 30, 1997.
SELLING AND MARKETING
Selling and marketing expenses increased 4% from $7.2 million or 27.4%
of revenues in the six months ended June 30, 1996 to $7.5 million or 20.4% of
revenues in the six months ended June 30, 1997. The decrease in selling and
marketing expenses as a percentage of revenues is primarily due to the effect
of increased revenues and efficiencies associated with other costs to support
increased sales activity as well as efficiencies associated with the STI
merger.
Selling and marketing expenses decreased 3% from $4.1 million, or
28.1% of revenues in the three months ended June 30, 1996 to $4.0 million, or
20.4% of revenues in the three months ended June 30, 1997. The decrease in
selling and marketing expenses as a percentage of revenues is primarily due to
the effect of increased revenues and efficiencies associated with other costs
to support increased sales activity as well as efficiencies associated with the
STI merger.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 17% from $6.1 million in
the six months ended June 30, 1996 to $7.1 million in the six months ended June
30, 1997. As a percentage of revenues, these expenses decreased from 23.1% of
revenues in the six months ended June 30, 1996 to 19.3% of revenues in the six
months ended June 30, 1997. The decrease as a percentage of revenues reflects
efficiencies associated with expanding the Company's
Form 10-Q
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operations and the effect of increases in software and services revenue as well
as efficiencies associated with the STI merger.
General and administrative expenses increased 12% from $3.3 million in
the three months ended June 30, 1996 to $3.7 million in the three months ended
June 30, 1997. As a percentage of revenues, these expenses decreased from 22.4%
of revenues in the three months ended June 30, 1996 to 18.9% of revenues in the
three months ended June 30, 1997. The decrease as a percentage of revenues
reflects efficiencies associated with expanding the Company's operations and
the effect of increases in software and services revenue as well as
efficiencies associated with the STI merger.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased 59% from $1.2 million in the
six months ended June 30, 1996 to $2.0 million in the six months ended June 30,
1997. As a percentage of revenues, these expenses increased from 4.7% of
revenues in the six months ended June 30, 1996 to 5.4% of revenues in the six
months ended June 30, 1997. The increase as a percentage of revenues is
primarily the result of the amortization of the intangible assets related to
the acquisitions completed at the end of first quarter 1996 and increases in
capital expenditures purchased during 1996 and 1997.
Depreciation and amortization increased 31% from $747,000 in the three
months ended June 30, 1996 to $981,000 in the three months ended June 30, 1997.
As a percentage of revenues, these expenses decreased from 5.1% of revenues in
the three months ended June 30, 1996 to 5.0% of revenues in the three months
ended June 30, 1997. The percentage of revenue in the three months ended June
30, 1997 is comparable to the three months ended June 30, 1996 as a result of
revenues increasing at a faster rate than the increase in depreciation and
amortization.
PRODUCT DEVELOPMENT
Total expenditures for product development, including capitalized
software development costs, increased from $5.1 million in the six months ended
June 30, 1996 to $5.6 million in the same period in 1997. This increase
primarily reflects the additional product development personnel related costs
associated with the acquisitions. The Company capitalized product development
costs of $1.3 million and $1.7 million, in the six months ended June 30, 1996
and 1997, respectively, which represented 26.1% and 30.7% of total expenditures
for product development in these respective periods. As a percentage of total
revenues, expenditures for product development costs decreased from 19.3% of
revenues in the six months ended June 30, 1996 to 15.2% of revenues in the six
months ended June 30, 1997. The decrease in product development expenditures as
a percentage of revenue is primarily attributable to increased revenues.
Amortization of capitalized software development costs is charged to direct
costs of software revenues and totaled $843,000 and $771,000, respectively, in
the six months ended June 30, 1996 and 1997.
Total expenditures for product development, including capitalized
software development costs, increased from $2.6 million in the three months
ended June 30, 1996 to $3.1 million in the same period in 1997. This increase
primarily reflects the additional product development personnel related costs
associated with the acquisitions. The Company capitalized software development
costs of $494,000 and $936,000 in the three months ended June 30, 1996 and
1997, respectively, which represented 19% and 30.6% of total expenditures for
product development in these respective periods. The increase in capitalized
software development costs as a percentage of total expenditures for product
development is due to development activities on products that have reached
technological feasibility. As a percentage of total revenues, expenditures for
product development costs were 17.7% of revenues in the three months ended June
30, 1996 and 15.6% in the three months ended June 30, 1997. The decrease in
product development expenditures as a percentage of revenue is primarily
attributable to increased revenues and a higher level of capitalization.
Amortization of capitalized software development costs is charged to direct
cost of software revenues and totaled $421,000 and $378,000 in the three months
ended June 30, 1996 and 1997, respectively.
Form 10-Q
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CHARGE FOR PURCHASED IN-PROCESS PRODUCT DEVELOPMENT AND OTHER
ACQUISITION RELATED CHARGES
The Company incurred a $16.2 million charge for acquired research and
development and other acquisition related charges during the six months ended
June 30, 1997. In connection with the HNS acquisition described above, the
Company acquired in-process product development of approximately $2.7 million.
Since the Company determined that certain of the acquired technologies had not
reached technological feasibility, the Company expensed the portion of the
purchase price allocable to such in-process product development. In connection
with the STI acquisition, the Company incurred approximately $7.1 million for
acquisition related expenses and asset write downs. Additionally, the Company
incurred integration costs of $6.4 million in connection with both the HNS and
STI acquisitions. Because of costs and resources expended in connection with
these integration activities, some expense categories may increase in the
future as a percentage of total revenues. In 1996, the Company incurred an $8.4
million charge for acquired in-process product development in connection with
the European acquisitions.
INTEREST INCOME AND EXPENSE
The Company recorded net interest income of $42,000 for the six months
ended June 30, 1997 as compared to net interest income of $127,000 for the six
months ended June 30, 1996. This decrease is primarily due to the decrease in
cash balances available for investment resulting from the cash payments related
to the acquisitions completed in 1996 and the acquisition of HNS in 1997 as
well as the use of cash for operating purposes.
The Company recorded net interest expense of $22,000 for the three
months ended June 30, 1997 as compared to net interest income of $37,000 for
the three months ended June 30, 1996. This decrease is primarily due to the
decrease in cash balances available for investment resulting from the cash
payments related to the acquisitions completed in 1996 and the acquisition of
HNS in 1997.
EQUITY IN LOSSES OF JOINT VENTURES
The Company recognized equity in loss of SupplyTech Australia, Pty., a
joint venture investment in the second quarter of 1996, in the three and six
months ended June 30, 1997 as compared to equity losses of Harbinger NV ("HNV")
and HNS in the three and six months ended June 30, 1996. Effective March 31,
1996, the Company acquired the remaining outstanding stock of HNV. Effective
January 1, 1997, the Company acquired the remaining outstanding minority
interest of HNS.
INCOME TAXES
The Company recorded income tax expense of $1.4 million for the six
months ended June 30, 1997 as compared to income tax expense of $132,000 for
the six months ended June 30, 1996. The Company recorded income tax expense of
$1.4 million for the three months ended June 30, 1997 as compared to income tax
expense of $83,000 for the three months ended June 30, 1996. The income tax
expense provided during 1997 reflects the nondeductible nature of certain of
the 1997 acquisition related charges.
LOSS ON EARLY EXTINGUISHMENT OF DEBT
The Company recorded a loss of $2.4 million on early debt
extinguishment in the first quarter of 1997 related to the HNS transactions.
NET INCOME (LOSS) AND EARNINGS PER SHARE
The Company realized a net loss of $13.5 million for the six months
ended June 30, 1997 as compared to a net loss of $10.5 million for the six
months ended June 30, 1996. The net loss in the period ended June 30, 1997
reflects the effect of the charge for purchased in-process product development
and acquisition related charges of $16.2 million and the extraordinary loss on
early debt extinguishment of $2.4 million as compared to the effect of the $8.4
million charge for purchased in-process product development and other
acquisition related charges
Form 10-Q
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resulting from the acquisition of the European subsidiaries at the end of the
first quarter of 1996. The Company realized a loss per share of $(0.71) for the
six months ended June 30, 1997 as compared to the loss per share of $(0.58) for
the six months ended June 30, 1996. Excluding the charges for purchased
in-process product development, acquisitions, extraordinary loss on debt
extinguishment, equity loss of HNS in 1996, and the related income tax effects,
the Company would have reported net income of $4 million or $0.19 per share as
compared to net income of $431,000 or $0.02 per share for the six months ended
June 30, 1997 and 1996, respectively.
The Company realized net income of $2.2 million for the three months
ended June 30, 1997 as compared to a net loss of $1.5 million for the three
months ended June 30, 1996. The Company realized income per share of $0.11 for
the three months ended June 30, 1997 as compared to the loss of $(0.08) for the
three months ended June 30, 1996. Excluding the equity loss of HNS in 1996, and
the related income tax effects, the Company would have reported net income of
$157,000 or $0.01 per share in the three months ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased $2.6 million from $3.1 million
as of December 31, 1996 to $518,000 as of June 30, 1997. This decrease
principally reflects the liabilities assumed and the consideration given
related to the acquisitions which occurred in the first half of 1997. In the
six months ended June 30, 1997, the Company used cash in operating activities
of $2.1 million as compared to cash provided by operations of $762,000 for the
six months ended June 30, 1996. This decrease is primarily due to the merger
and integration costs incurred related to the acquisitions which occurred in
the first quarter of 1997. The Company used net cash in investing activities of
$6.7 million for the six months ended June 30, 1997 as compared to $7.8 million
for the six months ended June 30, 1996. Cash used in investing activities for
the period ended June 30, 1997 included cash used in acquisitions, purchases of
property and equipment and additions to capitalized software development costs.
The Company used net cash in financing activities of $1.5 million in the six
months ended June 30, 1997 as compared to $525,000 for the six months ended
June 30, 1996 in order to pay off debt assumed from the acquisitions. These
uses were offset by proceeds received from exercises of options in the six
months ended June 30, 1997. The Company received $52.6 million from a public
offering completed on July 29, 1997.
Management expects that the Company will continue to be able to fund
its acquisitions, operations, investment needs and capital expenditures through
cash flows generated from operations, cash on hand, borrowings under a line of
credit and additional equity capital. Management believes that outside sources
for debt and additional equity capital, if needed, will be available to finance
expansion projects and any possible acquisitions. The form of any financing
will vary depending upon prevailing market and other conditions and may include
short- or long-term borrowings from financial institutions, or the issuance of
additional equity securities. However, there can be no assurances that funds
will be available on terms acceptable to the Company.
Form 10-Q
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This Form 10-Q includes "forward looking" statements within the
meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934
related to the Company that involve risks and uncertainties including, but not
limited to, quarterly fluctuations in results, the management of growth, market
acceptance of certain products and other risks. For further information about
these and other factors that could affect the Company's future results, please
see the Company's reports filed with the Securities and Exchange Commission,
including the Company's Form 10-K for the year ended December 31, 1996 and the
Company's current report on Form 8-K dated July 1, 1997. 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.
SECONDARY STOCK OFFERING
On July 29, 1997, the Company completed the public offering of 2.9
million shares of Common Stock, consisting of 1.8 million shares sold by the
Company and 1.1 million shares sold by selling shareholders, at a public
offering price of $30.75 per share. The offering resulted in net proceeds to
the Company of approximately $52.6 million.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 requires companies that have publicly held common
stock or common stock equivalents to present both basic and diluted earnings
per share ("EPS") on the face of the income statement. Basic EPS is calculated
as income available to common stockholders divided by the weighted average
number of common shares outstanding during the period. Diluted EPS is
calculated to reflect the potential dilution that would occur if stock options
or other contracts to issue common stock were exercised and results in
additional common stock that would share in the earnings of the Company. This
statement is effective for financial statements issued for interim and annual
periods ending after December 15, 1997. The Company does not believe the
adoption of SFAS No. 128 will have a significant impact on its reported EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. The Company does not
expect that SFAS No. 129 will require significant revision of prior disclosures
since SFAS No. 129 lists required disclosures that had been included in a
number of previously existing separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence
as other financial statements, the components of comprehensive income. SFAS No.
130 requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's financial statements will
include the disclosure of comprehensive income in accordance with the
provisions of SFAS No. 130 beginning the first quarter of 1998.
Form 10-Q
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 11. Computation of earnings per share
Exhibit 27. Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
Form 8-K dated April 28, 1997 reporting under Item 5 the
retroactively restated financial information related to the
pooling-of-interests business combination of Harbinger
Corporation and SupplyTech, Inc.
and SupplyTech International, LLC and subsidiaries.
Form 8-K dated July 1, 1997 reporting under Item 5 the
retroactively restated financial information related to the
pooling-of-interests business combination of Harbinger
Corporation and SupplyTech, Inc.
and SupplyTech International, LLC and subsidiaries.
Form 10-Q
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S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBINGER CORPORATION
Date: August 12, 1997 /s/ David T. Leach
--------------------------- ---------------------------
David T. Leach
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1997 /s/ Joel G. Katz
--------------------------- ---------------------------
Joel G. Katz
Chief Financial Officer
(Principal Financial Officer;
Principal Accounting Officer)
Form 10-Q
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