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UNITED STATES
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 JANUARY 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
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COMMISSION FILE NUMBER 333-11445
PUMA TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0349154
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 NORTH FIRST STREET, SAN JOSE, CALIFORNIA 95131
408-321-7650 (Zip Code)
(Address and telephone number of principal executive office)
Indicate by check mark whether the registrant (1) has filed all reports 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 outstanding of the registrant's common stock, par value
$0.001 per share, as of January 31, 1998 was 12,113,883.
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THIS REPORT CONSISTS OF 25 PAGES.
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PUMA TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
TABLE OF CONTENTS
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PART I. FINANCIAL INFORMATION PAGE
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Item 1. Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
PART II. OTHER INFORMATION
Item 6. Exhibits 23
Signature 24
Summary of Trademarks 25
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM I. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included under this item are
as follows:
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FINANCIAL STATEMENT DESCRIPTION PAGE
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- - Condensed Consolidated Balance Sheet 4
January 31, 1998 and July 31, 1997
- - Condensed Consolidated Statement of Operations 5
Three and Six Months Ended January 31, 1998 and 1997
- - Condensed Consolidated Statement of Cash Flows 6
Six Months Ended January 31, 1998 and 1997
- - Notes to Condensed Consolidated Financial Statements 7
</TABLE>
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PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
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JANUARY 31, JULY 31,
1998 1997
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ASSETS
Current assets:
Cash and cash equivalents $ 9,052 $ 5,824
Short-term investments 11,726 15,347
Accounts receivable, net 3,851 3,615
Inventories 254 224
Other current assets 765 443
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Total current assets 25,648 25,453
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Property and equipment, net 3,391 2,844
Other assets 1,057 1,116
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TOTAL ASSETS $ 30,096 $ 29,413
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,051 $ 1,215
Accrued liabilities 998 1,001
Deferred revenue 711 683
Current portion of capital lease obligations 25 25
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Total current liabilities 2,785 2,924
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Capital lease obligations, net of current portion 45 66
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Total liabilities 2,830 2,990
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Stockholders' equity:
Common stock, $0.001 par value; 12,114 and
12,032 shares issued and outstanding at
January 31, 1998 and July 31, 1997, respectively 12 12
Additional paid-in capital 31,750 31,525
Receivable from stockholders (192) (192)
Deferred stock compensation (67) (81)
Accumulated deficit (4,237) (4,841)
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Total stockholders' equity 27,266 26,423
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,096 $ 29,413
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
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PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
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<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1998 1997 1998 1997
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REVENUE $ 5,727 $ 3,624 $10,964 $ 6,826
Cost of revenue 629 295 1,254 652
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GROSS PROFIT 5,098 3,329 9,710 6,174
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OPERATING EXPENSES:
Research and development 2,299 1,429 4,431 2,630
Sales and marketing 1,826 880 3,427 1,758
General and administrative 661 505 1,458 932
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Total operating expenses 4,786 2,814 9,316 5,320
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OPERATING INCOME 312 515 394 854
Interest and other income, net 295 183 580 194
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INCOME BEFORE INCOME TAXES 607 698 974 1,048
Provision for income taxes (231) (244) (370) (367)
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NET INCOME $ 376 $ 454 $ 604 $ 681
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NET INCOME PER SHARE:
Basic $ 0.03 $ 0.05 $ 0.05 $ 0.10
DILUTED $ 0.03 $ 0.04 $ 0.05 $ 0.06
SHARES USED IN PER SHARE CALCULATION:
Basic 12,103 9,014 12,088 6,691
DILUTED 12,548 11,502 12,526 10,562
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
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SIX MONTHS ENDED
JANUARY 31,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 604 $ 681
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 549 283
Customer deposits and other (68) 20
Changes in operating assets and liabilities (706) (779)
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Net cash provided by operating activities 379 205
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (976) (219)
Maturities (purchases) of short-term investments 3,621 (15,749)
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Net cash provided by (used in) investing activities 2,645 (15,968)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (21) (19)
Proceeds from conversion of warrants - 405
Net proceeds upon exercise of stock options 76 548
Note repayments by stockholders - 1,514
Net proceeds from newly issued common stock 149 21,300
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Net cash provided by financing activities 204 23,748
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Net increase in cash and cash equivalents 3,228 7,985
Cash and cash equivalents at the beginning of the period 5,824 982
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Cash and cash equivalents at the end of the period $ 9,052 $ 8,967
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
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PUMA TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the three
and six months ended January 31, 1998 and 1997 are unaudited and reflect all
normal recurring adjustments which are, in the opinion of management,
necessary for their fair presentation. These condensed consolidated
financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended July 31, 1997. The
results of operations for the interim periods ended January 31, 1998 are not
necessarily indicative of results to be expected for the full year.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, Software
Revenue Recognition, which supersedes SOP 91-1. The Company will be required
to adopt SOP 97-2 prospectively for software transactions entered into
beginning August 1, 1998. SOP 97-2 generally requires revenue earned on
software arrangements involving multiple elements such as software products,
upgrades, enhancements, postcontract customer support, installation and
training, to be allocated to each element based on the relative fair values
of the elements. The fair value of an element must be based on vendor
specific objective evidence. The revenue allocated to software products,
including specified upgrades or enhancements generally is recognized upon
delivery of the products. The revenue allocated to postcontract customer
support generally is recognized ratably over the term of the support and
revenue allocated to service elements generally is recognized as the services
are performed. If a vendor does not have evidence of the fair value for all
elements in a multiple-element arrangement, all revenue from the arrangement
is deferred until such evidence exists or until all elements are delivered.
The Company currently does not believe the adoption of SOP 97-2 will have a
material impact on the Company's financial position or results of operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income."
SFAS No. 130 establishes standards for reporting and displaying of
comprehensive income and its components. The Company will adopt SFAS No. 130
effective August 1, 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes new
requirements for the reporting of information regarding operating segments,
products, services, geographic areas and major customers. The Company will
adopt SFAS No.131 effective August 1, 1998.
NOTE 3. EARNINGS PER SHARE
The Company has adopted the provisions of SFAS No. 128 (SFAS 128), "EPS",
effective January 31, 1998. SFAS 128 requires the presentation of basic and
diluted earnings per share. Basic EPS is computed by dividing income
available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted EPS is computed giving effect to
all dilutive
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potential common shares that were outstanding during the period. Dilutive
potential common shares consist of the incremental common shares issuable
upon the exercise of stock options for all periods and convertible preferred
stock for periods prior to the Company's initial public offering. All prior
period earnings per share amounts have been restated to comply with SFAS 128.
Basic and diluted earnings per share were calculated as follows during the three
and six months ended January 31, 1998 and 1997:
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
BASIC:
Weighted average common shares 12,103 9,014 12,088 6,691
-------- -------- -------- --------
-------- -------- -------- --------
Net income $ 376 $ 454 $ 604 $ 681
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $0.03 $0.05 $0.05 $0.10
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DILUTED:
Weighted common shares 12,103 9,014 12,088 6,691
Weighted average preferred shares as if converted 1,711 3,043
Common equivalent shares from stock
options and warrants 445 777 438 828
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Shares used in per share calculation 12,548 11,502 12,526 10,562
-------- -------- -------- --------
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Net income $ 376 $ 454 $ 604 $ 681
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Net income per share $ 0.03 $ 0.04 $ 0.05 $ 0.06
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</TABLE>
Options to purchase 193,188 and 10,690 shares of common stock at a range of
$6.60 to $9.75 and $16.57 to $16.88 per share were outstanding during the
second quarter of fiscal 1998 and 1997, respectively, but were not included
in the computation of diluted EPS because the options' exercise price was
greater than the average market price of the common shares for each
respective quarter.
8
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PUMA TECHNOLOGY, INC.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED
FINANCIAL STATEMENTS AND THE NOTES THERETO AND IN CONJUNCTION WITH
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IN THE FORM 10-K. THIS QUARTERLY REPORT ON FORM 10-Q, AND IN
PARTICULAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS REGARDING FUTURE
EVENTS OR THE FUTURE PERFORMANCE OF THE COMPANY THAT INVOLVE CERTAIN RISKS
AND UNCERTAINTIES INCLUDING THOSE DISCUSSED IN "FACTORS THAT MAY AFFECT
FUTURE OPERATING RESULTS" AND "BUSINESS RISKS" BELOW. IN THIS REPORT, THE
WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL EVENTS OR THE ACTUAL
FUTURE RESULTS OF THE COMPANY MAY DIFFER MATERIALLY FROM ANY FORWARD-LOOKING
STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES. THE COMPANY ASSUMES NO
OBLIGATION TO UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL
RESULTS OR CHANGES IN FACTORS OR ASSUMPTIONS AFFECTING SUCH FORWARD-LOOKING
ASSUMPTIONS. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF
THE DATE HEREOF. THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING STATEMENTS, WHICH MAY BE
MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT
THE OCCURRENCE OF UNANTICIPATED EVENTS.
RESULTS OF OPERATIONS
OVERVIEW
Puma Technology, Inc. ("Puma" or "the Company") develops, markets and
supports Mobile Data Exchange (MDE)-TM- software, including wireless infrared
connectivity and advanced data synchronization software. The Company
currently has three families of products -- its TranXit family of products
that supports infrared connectivity, its IntelliSync-TM- family of products
that performs advanced data synchronization, and its IntelliSync97 family of
products which combines infrared connectivity with advanced data
synchronization.
TranXit and IntelliSync 97 software is licensed primarily to original
equipment manufacturer (OEM) customers, which are primarily makers of laptop
computers. These OEM customers license the Company's software for inclusion
in their laptop computers to enable infrared connectivity (IR) from the
laptop back to desktop computers. These OEM customers include the Company's
software into their products at the time of manufacture and for each device
shipped, the Company collects a royalty. Royalties are typically paid to the
Company once a quarter based on volume, although certain contracts contain
fixed royalties regardless of volume, for a given time period.
IntelliSync software is used for advanced data synchronization of database
information that resides on a computer such as a desktop machine and
increasingly popular handheld devices such as electronic organizers, handheld
computers, smart phones and smart pagers. The Company's software actually
runs on the desktop computer and keeps information in the desktop and the
handheld device synchronized. IntelliSync software is currently distributed
directly to the end
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user and through the Company's retail distribution channel, and is bundled
with their products by some of the handheld device manufacturers.
The following table sets forth certain consolidated statement of income data
as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
REVENUE 100.0% 100.0% 100.0% 100.0%
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Cost of revenue 11.0 8.1 11.4 9.6
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GROSS PROFIT 89.0 91.9 88.6 90.4
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OPERATING EXPENSES:
Research and development 40.2 39.5 40.4 38.5
Sales and marketing 31.9 24.3 31.3 25.8
General and administrative 11.5 13.9 13.3 13.7
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Total operating expenses 83.6 77.7 85.0 77.9
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OPERATING INCOME 5.4 14.2 3.6 12.5
Interest and other income, net 5.2 5.1 5.3 2.9
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INCOME BEFORE INCOME TAXES 10.6 19.3 8.9 15.4
Provision for income taxes (4.0) (6.8) (3.4) (5.4)
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NET INCOME 6.6% 12.5% 5.5% 10.0%
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</TABLE>
REVENUE. The Company's revenue is derived from two primary sources; software
licenses and fees for service. License revenue is derived from the licensing
of software products and royalty agreements with OEMs. The Company's revenue
for the three months ended January 31, 1998 increased by 58% to $5,727,000 as
compared to $3,624,000 for the same period in 1997. For the six months ended
January 31, 1998 revenue increased by 61% to $10,964,000 as compared to
$6,826,000 for the six months ended January 31, 1997. The overall increase
in revenue was primarily due to increased license revenue derived from the
Company's TranXit and IntelliSync97 products sold to notebook manufacturers,
increased license revenue derived from the Company's IntelliSync for handheld
devices, and to a lesser extent, increased service revenue. The Company
believes license revenue derived from handheld devices, in particular
IntelliSync for Palm Pilot, was favorably impacted from increased demand due
to the holiday season in its second fiscal quarter of 1998.
Service revenue is derived from fees for services including customer funded
engineering services and amortization of maintenance contract programs.
Service revenue represented 13% and 14% of the Company's revenue for the
three and six months ended January 31, 1998, respectively. Service revenue
was less than 10% of revenue for the three and six months ended January 31,
1997. The year over year increase in service revenue is primarily due to
increased customer funded engineering services, and to a lesser extent,
increased amortization of maintenance contract programs. The Company
believes this percentage may fluctuate in the future.
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OEM revenue continues to represent a significant portion of the Company's
revenue. OEM revenue represented 70% and 78% of the Company's revenue in the
three months ended January 31, 1998 and 1997, respectively. OEM revenue
represented 74% and 72% of the Company's revenue in the six months ended
January 31, 1998 and 1997, respectively. Toshiba represented 17% and 22% of
revenue for the three months ended January 31, 1998 and 1997, respectively.
Although several OEMs are subject to certain contractual minimum purchase
obligations, there can be no assurance that any particular OEM will satisfy
the obligation. Accordingly, the Company recognizes revenue from minimum
guaranteed royalties when such royalties are earned and become payable. The
Company believes that the percentage of revenue derived from OEMs may
fluctuate in future periods depending in part upon the marketing channels
used by the Company for future products currently under development, and the
level of shipments by OEM customers of products with the Company's software.
International revenue continues to represent a significant portion of the
Company's revenue. International revenue represented approximately 61% and
52% of the Company's revenue in the second fiscal quarter of 1998 and 1997,
respectively. International revenue represented approximately 64% and 55% of
revenue in the six months ended January 31, 1998 and 1997, respectively.
The foregoing statements regarding new product information are
forward-looking statements. Actual events or the actual future results of
the Company may differ materially from any forward-looking statements due to
such risks and uncertainties. Introduction of new products and enhancements
of existing products can have a significant impact on the Company's revenue.
Any delays in the scheduled release of major new products and enhancements
can have a material adverse impact on the Company's business, operating
results and financial condition. The Company plans to introduce new versions
of IntelliSync for Notebooks, IntelliSync for PC's and other new products at
various times throughout the remainder of fiscal 1998. Any delays in
introduction of these products or failure of these products to achieve
anticipated levels of market acceptance will have an adverse impact on the
Company's business, operating results and financial condition.
COST OF REVENUE. Cost of revenue consists primarily of product media and
duplication, manuals, packing supplies, shipping expenses and personnel
related costs incurred under customer funded software engineering services.
For the three months ended January 31, 1998 and 1997, cost of revenue, as a
percentage of revenue was approximately 11% and 8%, respectively. For the
six months ended January 31, 1998 and 1997, cost of revenue as a percentage
of revenue was approximately 11% and 10%, respectively. The year over year
increase in cost of revenue was primarily due to increased costs associated
with increased levels of customer funded engineering services.
The Company's cost of revenue is affected by the mix among its distribution
channels and is affected by the mix among its revenue sources including
royalties, packaged product, customer funded engineering contracts and sales
and fulfillment via its Web site. A majority of IntelliSync for handhelds
revenue is derived by direct sales to distributors and retailers as well as
end-users. The Company anticipates that gross profit as a percentage of total
revenue will decrease, to the extent sales to distributors and retailers
increase in proportion to the Company's total revenue. This decline in gross
profit percentage is anticipated since the average selling price to
distributors and retailers is lower due to distributor discounts and the cost
of revenue is higher due to product
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costs. Royalty revenue is derived largely from licensing TranXit and
IntelliSync 97 to OEM customers and cost of sales attributable to TranXit and
IntelliSync 97 royalties have not been significant so far.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, quality assurance personnel, fees to outside contractors and the
cost of facilities and depreciation of capital equipment. Research and
development expenses increased 61% to $2,299,000 in the second fiscal quarter
of 1998 from $1,429,000 in the comparable fiscal quarter of 1997. For the
six months ended January 31, 1998 research and development expenses totaled
$4,431,000 representing a 69% increase compared to $2,630,000 for the same
six-month period in fiscal 1997. The year over year increase in research and
development expenses was primarily due to increased personnel related costs
and spending required to develop the Company's IntelliSync product offerings
and, to a lesser extent, increased personnel related costs and spending
required to develop enhanced versions of TranXit and other new products. A
significant portion of the Company's research and development expenses are
comprised of fees paid to outside contractors which are engaged by the
Company on a project-by-project basis. Research and development spending is
anticipated to increase in absolute dollars as the Company continues to
invest in product development. In addition, the Company believes research and
development expenses may fluctuate from quarter to quarter both in absolute
dollars as well as a percentage of revenue, depending upon the status of
various development projects.
Research and development expenses have been expensed as incurred. Statement
of Financial Accounting Standards No. 86 requires capitalization of certain
software development costs once technological feasibility is established.
The Company defines establishment of technological feasibility at the point
which product reaches beta. Software development costs incurred subsequent
to the establishment of technological feasibility through the period of
general market availability of the product are capitalized, if material. To
date, all of these software development costs have been insignificant and
expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, promotional expenses and other related expenses of
sales and marketing personnel. Sales and marketing expenses increased 108%
to $1,826,000 in the second fiscal quarter of 1998 from $880,000 for the
comparable quarter in the prior year. Sales and marketing expenses increased
95% to $3,427,000 in the first six months of fiscal 1998 from $1,758,000 for
the comparable six-month period in the prior year. The year over year sales
and marketing expense increase for the second quarter of fiscal 1998 as
compared to the second fiscal quarter of 1997 was primarily due to increased
personnel related spending in both sales and marketing due to increased
headcount. In addition, the Company increased its spending in the areas of
corporate advertising and package design associated with the release of new
products. Additionally, in an effort to expand its presence in the retail
market channel, the Company has incurred higher levels of market development
and cooperative advertising expenses paid to its distributors. The Company
anticipates that sales and marketing expenses will continue to increase in
absolute dollars throughout the remainder of fiscal 1998.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and other outside professional fees. General and
administrative expenses increased 31% to $661,000 in the second fiscal
quarter of 1998 from $505,000 for the same period in the prior year. General
and
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administrative expenses increased 56% to $1,458,000 in the first six months
of fiscal 1998 from $932,000 for the same period in the prior year. The year
over year increases in absolute general and administrative spending from the
second fiscal quarter of 1998 as compared to the second fiscal quarter of
1997 was primarily due to increased legal and financial costs, spending to
support the need for a growing infrastructure, and to a lesser extent,
increased provisions for doubtful accounts. The Company anticipates that its
general and administrative expenses will increase in absolute dollars in the
future as the Company expands its administrative staff, management
information systems and other items related to infrastructure.
INTEREST AND OTHER INCOME, NET. Interest and other income, net, represents
interest earned by the Company on its cash and short-term investments, offset
by interest expense on capitalized leases and miscellaneous fees and charges.
Interest and other income, net, increased to $295,000 in the second fiscal
quarter of 1998 from $183,000 for the same period in the prior year and
increased to $580,000 for the six months ended January 31, 1998 from $194,000
for the same period in 1997. The increase in interest and other income, net,
in the second quarter of fiscal 1998 as compared to the second quarter of
fiscal 1997 was primarily due to increased interest income on higher levels
of cash equivalents and short-term investments. The increased balances were
primarily a result of proceeds generated from the Company's initial public
offering in December 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
$231,000 in the second fiscal quarter of 1998 from $244,000 for the same
period in the prior year. The provision for income taxes increased to
$370,000 in the first six months of fiscal 1998 from $367,000 for the same
period in fiscal 1997. The provision for income taxes primarily represents
foreign withholding taxes. The foreign withholding taxes are a function of
royalties earned by the Company from certain foreign customers. The Company's
overall tax rate for fiscal 1998 is significantly dependent on the amount and
mix of income derived from sources subject to foreign withholding taxes. The
Company's estimate of its fiscal 1998 income tax rate is based on current
projections and mix of its pre-tax income. Any adverse movements in actual
foreign withholding taxes or level of amount pre-tax income compared to such
projections could cause the income tax rate to increase substantially in the
second half of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided cash of $379,000 and $205,000 in
the first six months of fiscal 1998 and 1997, respectively. Net cash provided
in the first six months of fiscal 1998 was primarily due to net income
adjusted for depreciation and amortization and partially offset by increases
in accounts receivable and other assets and decreases in accounts payable.
Net cash provided in the first six months of fiscal 1997 was primarily due to
net income adjusted for depreciation and amortization and increases in
accrued liabilities. These sources were partially offset by increases in
accounts receivable and other assets and decreases in accounts payable and
deferred revenue.
Cash provided by investing activities was $2,645,000 and used in investing
activities was $15,968,000 in the first six months of fiscal 1998 and 1997,
respectively. Cash provided in the first six months of fiscal 1998 was
primarily due to maturities of short-term investments partially offset by
purchases of property and equipment. Cash used in the first six months of
fiscal 1997 was primarily due to purchases of short-term investments, and to
a lesser extent, purchases of
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property and equipment. The Company expects purchases of property and
equipment to increase in the remainder of fiscal 1998 as it purchases
computer and other equipment to enhance its infrastructure as well as expand
its facility located on the east coast.
Cash provided by financing activities was $204,000 and $23,748,000 in the
first six months of fiscal 1998 and 1997, respectively. Cash provided from
financing activities in the first six months of fiscal 1998 was primarily due
to issuances of common stock under the Company's Employee Stock Purchase
Plan, and to a lesser extent, exercise of stock options. Cash provided from
financing activities in the first six months of 1997 was primarily due to the
issuance of common stock in the Company's initial public offering, and to a
much lesser extent, note repayments by stockholders and issuance of preferred
stock.
At January 31, 1998 the Company's principal source of liquidity represented
by cash, cash equivalents and short-term investments totaled $20,778,000. The
Company currently has no significant capital commitments. The Company
currently has no bank financing arrangements. The Company believes that its
current cash, cash equivalents and short-term investment balances and cash
generated from operations, if any, will be sufficient to meet its working
capital and other cash requirements for at least the next twelve months.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
The Company expects that its future operating results could fluctuate
significantly as a result of numerous factors including, but not limited to,
the demand for the Company's products, the Company's success in developing
new products, the timing of new product introductions by the Company and its
competitors, market acceptance of the Company's new and enhanced products,
the emergence of new industry standards, the timing of customer orders, the
mix of products sold, competition, the mix of distribution channels employed,
the evolving and unpredictable nature of the markets for the Company's
products and mobile computing devices generally, the rate of growth of the
personal computer market in general and general economic conditions.
The Company's revenue is difficult to forecast in part because the market for
wireless IR connectivity and data synchronization software is rapidly
evolving. In addition, the Company typically operates with a relatively small
order backlog. As a result, quarterly sales and operating results depend in
part on the volume and timing of orders received within the quarter, which
are difficult to forecast. In addition, a significant portion of the
Company's expense levels is fixed in advance based in large part on the
Company's forecasts of future revenue. If revenue is below expectations in
any given quarter, the adverse impact of the shortfall on the Company's
operating results may be magnified by the Company's inability to adjust
spending to compensate for the shortfall. Therefore, a shortfall in actual
revenue as compared to estimated revenue would have an immediate adverse
effect on the Company's business, financial condition and operating results
that could be material.
The Company historically has derived a substantial portion of its revenue
from OEMs. Due to the Company's ongoing effort to expand into retail and
reseller distribution channels, an increasing percentage of the Company's
licensing activity is expected to result from the sale of products through
distributors and other resellers, which sales are harder to predict and may
have lower margins than other channels. Sales through such channels may
contribute to increased fluctuation of operating results. A significant
portion of the Company's revenue in any quarter is typically
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<PAGE>
derived from sales to a limited number of customers. The Company has
generally recognized a substantial portion of its revenue in the last month
of each quarter, when it typically receives royalty reports from its OEM
customers. Any significant deferral of purchases of the Company's products by
its customers could have a material adverse effect on the Company's business,
operating results and financial condition in any particular quarter. To the
extent that significant sales occur earlier than expected, operating results
for subsequent quarters may be adversely affected.
The Company has expanded its sales channel by fulfilling orders via the World
Wide Web. Given its limited history, there can be no assurance of continued
acceptance or demand for orders placed via the Web. Additionally, there can
be no assurance that Web sales may not adversely affect sales in the
Company's retail and reseller sales channels.
The Company's gross margin on its service revenue is substantially lower than
its gross margin on license revenue. Any increase in service revenue would
have a corresponding increase in cost of revenue and may have an adverse
effect on the Company's gross margins. The Company may also reduce prices or
increase spending in response to competition or to pursue new market
opportunities.
The operating results of many software companies reflect seasonal
fluctuation. For example, sales in Europe and certain other countries
typically are adversely affected in the summer months when business activity
is reduced. The Company's revenues and operating results may be adversely
affected by diminished demand for the Company's products on a seasonal basis.
Because of these factors, the Company believes that period-to-period
comparisons of its operating results are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future
performance. As a result of the foregoing and other factors, the Company's
operating results and stock price may be subject to significant volatility,
particularly on a quarterly basis.
BUSINESS RISKS
LIMITED HISTORY OF OPERATIONS AND PROFITABILITY. Puma was organized in
August 1993 and began shipping products in October 1994. Accordingly, the
Company has a limited operating history upon which an evaluation of the
Company can be based. The Company has only been profitable in seven quarters
since inception. The Company's results must be considered in light of the
risks, expenses and difficulties frequently encountered by companies in their
early stages of development, particularly companies in a new and evolving
market such as the mobile data exchange software market. Although the
Company has experienced increased quarterly revenue over the last nine fiscal
quarters, such growth rates may not be sustainable and are not indicative of
future operating results. There can be no assurance that any of the Company's
business strategies will be successful or that the Company's revenue growth
or profitability will continue on a quarterly or annual basis.
RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT AND TIMELY INTRODUCTION OF NEW
AND ENHANCED PRODUCTS. The markets for the Company's products are
characterized by rapidly changing technologies, evolving industry standards,
frequent new product introductions and short product life cycles. The
Company first
15
<PAGE>
introduced its TranXit products in October 1994, IntelliSync for handheld
devices in the first quarter of fiscal 1997, and IntelliSync 97 in the first
quarter of fiscal 1998. As its product families mature, the Company expects
that their gross margins may decline. The Company's future success will
depend to a substantial degree upon its ability to enhance its existing
products and to develop and introduce, on a timely and cost-effective basis,
new products and features that meet changing customer requirements and
emerging and evolving industry standards. The Company budgets amounts to
expend for research and development based on planned product introductions
and enhancements; however, actual expenditures may significantly differ from
budgeted expenditures. Inherent in the product development process is a
number of risks. The development of new, technologically advanced software
products is a complex and uncertain process requiring high levels of
innovation, as well as the accurate anticipation of technological and market
trends. The introduction of new or enhanced products also requires the
Company to manage the transition from older products in order to minimize
disruption in customer ordering patterns, avoid excessive levels of older
product inventories and ensure that adequate supplies of new products can be
delivered to meet customer demand. The Company is continually required to
recruit new engineering personnel to meet increased engineering and testing
requirements associated with patent development and enhancement. There can
be no assurance that the Company will successfully develop, introduce or
manage the transition to new products. Nor can there be any assurance that
the Company will be able to hire and retain sufficient engineering personnel
to meet the requirements inherent in this transition. The Company has in the
past, and may in the future, experience delays in the introduction of its
products, due to factors internal and external to the Company. Any future
delays in the introduction or shipment of new or enhanced products, the
inability of such products to gain market acceptance or problems associated
with new product transitions could adversely affect the Company's operating
results, particularly on a quarterly basis.
BUSINESS STRATEGY. The Company's current business strategy with respect to
the market for synchronization software for handheld devices has been to
identify multiple handheld solutions and software applications, and offer an
array of solutions in its IntelliSync product family. In contrast, some of
the Company's direct competitors in this market focus its efforts on fewer
devices and fewer applications.
The Company's success is highly dependent upon the market acceptance of both
the handheld devices and software applications supported by its IntelliSync
products. Typically the Company must develop the software supporting a
particular device or application before it has been determined whether that
third-party product will be gain market acceptance. Lack of market
acceptance of hardware or software products supported by the Company's
IntelliSync product is largely outside of the Company's control and may have
an adverse effect on the results. And, because the Company is focusing on a
variety of products, the Company may be slower to offer features that are
specific to each individual handheld-to-PC solution. The Company's failure
to identify in advance the devices and applications that may gain market
dominance and to sufficiently focus on the most popular solutions may
adversely affect its results of operations.
COMPETITION. The Company expects the market for MDE software, including data
synchronization and IR connectivity software, to the extent it develops, to
become intensely competitive. The Company currently faces direct competition
with respect to a number of its individual products from several private
companies, including DataViz, Chapura, Rand Software, Maximizer, Tele-Support
Software Software and Traveling Software. In addition to direct
16
<PAGE>
competition, the Company faces indirect competition from existing and
potential customers that provide internally developed solutions. As a
result, the Company must educate prospective customers as to the advantage of
the Company's products versus internally developed solutions. The Company
currently faces limited direct competition from major applications and
operating systems software vendors who may choose to incorporate data
synchronization and IR connectivity functionality into their software,
thereby potentially reducing the need for OEMs to include the Company's
products in their notebook and desktop PCs. For example, Microsoft's
inclusion of certain features permitting data synchronization and IR
connectivity between computers utilizing the Windows 95 operating system may
have the effect of reducing revenue from the Company's software if users of
Windows 95 perceive that their data synchronization and IR connectivity needs
are adequately met by Microsoft. Certain of the companies with which the
Company competes or may in the future compete, including internal software
development groups of its current and potential customers, have substantially
greater financial, marketing, sales and support resources and may have more
"brand-name" recognition than the Company. There can be no assurance that the
Company will be able either to develop software comparable or superior to
software offered by its current or future competitors or to adapt to new
technologies, evolving industry standards and changes in customer
requirements. In addition, the PC and mobile computing device markets
experience intense price competition, and the Company expects that, in order
to remain competitive, it may have to decrease its unit royalties on certain
products.
PRODUCT CONCENTRATION; RISKS ASSOCIATED WITH NEW AND EVOLVING MARKETS. The
market for Mobile Data Exchange software, including wireless IR connectivity
and advanced data synchronization software, is new and evolving. To date,
the Company has derived a substantial portion of its revenue from the
licensing of its TranXit IR connectivity software. Although additional
products are currently being sold and potential products are currently under
development, the Company believes that the TranXit and IntelliSync for
Notebooks product families may continue to account for a substantial portion
of the Company's revenue for the foreseeable future. The life cycle of
TranXit and IntelliSync for Notebooks is difficult to estimate because of,
among other factors, the emerging nature of the MDE software market and the
possibility of future competition. As a result, the Company's future
operating results, particularly in the near term, are dependent upon the
continued market acceptance of TranXit and IntelliSync for Notebooks. There
can be no assurance that TranXit will continue to meet with market acceptance
or that the Company will be successful in developing, introducing or
marketing new or enhanced products. A decline in the demand for TranXit, as
a result of competition, technological change or other factors, and the
failure to successfully develop, introduce or market new or enhanced products
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The market for MDE software is still emerging, and there can be no assurance
that it will continue to grow or that, even if the market does grow, TranXit
or IntelliSync for Notebooks will be adopted. Moreover, although demand for
TranXit and its successor product IntelliSync for Notebooks has grown in
recent years with the Company's OEM customers, the Company has no accurate
method of determining the extent that end-users utilize TranXit or
IntelliSync for Notebooks. The Company's success in generating significant
revenue in these evolving markets will depend, among other things, on its
ability to educate potential OEMs, retail partners and end users about the
benefits of the Company's IR technology, to maintain and enhance its
relationships with leading OEMs and to develop effective retail distribution
channels. The inability of the Company to continue to penetrate the existing
market for MDE products or the
17
<PAGE>
failure of current markets to grow or new markets to develop or be receptive
to the Company's products would have a material adverse effect on the
Company's business, operating results and financial condition. The emergence
of markets for the Company's MDE products will also be affected by a variety
of factors beyond the Company's control. In particular, the Company's
products are designed to conform to certain standard IR and data
communications specifications, many of which have not been adopted as
industry standards. There can be no assurance that these specifications will
be widely adopted or that competing specifications will not emerge which will
be preferred by OEMs. The emergence of markets for the Company's products is
also critically dependent upon continued expansion of the market for mobile
computing devices and the timely introduction and successful marketing and
sale of notebook and desktop personal computers ("PCs"), personal electronic
organizers, smart phones and smart pagers. In addition, there can be no
assurance that IR technology itself will be adopted as the standard or
preferred technology for MDE or that manufacturers of personal computers will
elect to bundle IR technology in their products. There can be no assurance
that these or other factors beyond the Company's control will not adversely
affect the development of markets for the Company's products.
DEPENDENCE ON OEMS. Revenue from OEMs was a substantial portion of the
Company's revenue during fiscal 1997, fiscal 1996 and fiscal 1995. Weakening
demand from any key OEM and the inability of the Company to replace revenue
provided by such OEM could have a material adverse effect on the Company's
business, operating results and financial condition. The Company maintains
individually significant receivable balances from major OEMs. If these OEMs
fail to meet their payment obligations, the Company's operating results could
be materially adversely affected.
RISKS ASSOCIATED WITH DEVELOPMENT OF RETAIL DISTRIBUTION CHANNEL. The Company
intends to distribute its products through distributors, major computer and
software retailing organizations, consumer electronics stores, discount
warehouse stores and other specialty retailers. The Company often sells on a
purchase order basis, and there are often no minimum purchase obligations on
behalf of any principal distributor or retailer. Distribution and retailing
companies in the computer industry have from time to time experienced
significant fluctuations in their businesses, and there have been a number of
business failures among these entities. The insolvency or business failure
of any significant distributor or retailer of the Company's products could
have a material adverse effect on the Company's business, operating results
and financial condition. Further, certain mass-market retailers have
established exclusive relationships under which such retailers will buy
customer software only from one or two intermediaries. In such instances,
the price or other terms on which the Company sells to such retailers may be
materially adversely affected by the terms imposed by such intermediaries, or
the Company may be unable to sell to such retailers on the terms, which the
Company deems acceptable.
Retailers of the Company's products typically have a limited amount of shelf
space and promotional resources, and there is intense competition among
consumer software producers for adequate levels of shelf space and
promotional support from retailers. The Company expects that, as the number
of consumer multimedia and software products and computer platforms
increases, this competition for shelf space will intensify. Due to increased
competition for limited shelf space, retailers and distributors are
increasingly in a better position to negotiate favorable terms of sale,
including price discounts, price protection and product return policies.
Retailers often require software publishers to pay fees or provide other
accommodations in
18
<PAGE>
exchange for shelf space. The Company's products constitute a relatively
small percentage of each retailer's sales volume, and there can be no
assurance that retailers will continue to purchase the Company's products or
provide the Company's products with adequate shelf space and promotional
support.
MANAGEMENT OF GROWTH. The Company is currently experiencing growth and rapid
change which has placed, and will continue to place, a significant strain on
its administrative, operational and financial resources and increased demands
on its systems and controls. This growth has resulted in a continuing
increase in the level of responsibility for both existing and new management
personnel. The Company anticipates that its continued growth will require it
to recruit, hire, train and retain a substantial number of new engineering,
managerial, sales and marketing personnel. The Company's ability to manage
its growth successfully will also require the Company to continue to expand
and improve its operational, management and financial systems and controls on
a timely basis
DEPENDENCE ON STRATEGIC BUSINESS RELATIONSHIPS; RISKS ASSOCIATED WITH
THIRD-PARTY SERVICES. The Company believes that its success is largely
dependent on its strategic relationships with key participants in the PC and
mobile computing device industries, including Compaq, IBM, Intel, Microsoft,
NEC, Sharp, Texas Instruments, Toshiba and 3COM. These relationships
generally enable the Company to receive prototypes from hardware
manufacturers and software vendors prior to their market introduction. The
Company is thereby in a stronger position to launch complementary product
offerings shortly after the commercial release of these companies' new
hardware and software products. The loss of any of these strategic
relationships or any other significant partner could materially adversely
affect the Company's product development efforts, its business, operating
results and financial condition and its ability to realize its strategic
objective to be the technological leader in its industry. In addition, the
Company relies significantly on third-party services. In particular, third
party services translate the Company's products into 13 different native
languages. The Company has generally been able to obtain translated,
functional versions of its products in a timely manner. However, any
significant delays by such third parties could delay new or existing
shipments of products and have a material adverse effect on the Company's
business, operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continuing contributions of its engineering, management,
sales and marketing personnel. The Company has few employment contracts with
its key personnel and does not maintain any key person life insurance
policies. The loss of key management or technical personnel could adversely
affect the Company. The Company believes that its future success will depend
in large part upon its ability to attract and retain highly skilled
engineering, management, sales and marketing personnel. Failure to recruit,
hire, train and retain key personnel could have a material adverse effect on
the Company's business, operating results and financial condition.
PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT AND SOURCE CODE RELEASE. The
Company relies on a combination of patent, copyright and trademark laws,
trade secrets, confidentiality procedures and contractual provisions to
protect its proprietary rights. The Company also believes that factors such
as the technological and creative skills of its
19
<PAGE>
personnel, new product developments, frequent product enhancements and name
recognition are essential to establishing and maintaining a technology
leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright
laws, which afford only limited protection. The Company currently has five
issued United States patents that expire in 2012, 2014, 2015 and has seven
patent applications pending. In addition, the Company has corresponding
international patent applications pending under the Patent Cooperation Treaty
in countries to be designated at a later date. There can be no assurance
that the Company's patents will not be invalidated, circumvented or
challenged, that the rights granted thereunder will provide competitive
advantages to the Company or that any of the Company's pending or future
patent applications, whether or not being currently challenged by applicable
governmental patent examiners, will be issued with the scope of the claims
sought by the Company, if at all. Furthermore, there can be no assurance
that others will not develop technologies that are similar or superior to the
Company's technology or design around the patents owned by the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem.
The Company distributes its software products in the United States, Japan,
Taiwan and member countries of the European Union. The laws and practices of
some foreign countries in which the Company does business, in particular
Taiwan, do not ensure that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competition
will not independently develop similar technology. There can be no assurance
that the Company will not distribute its software products in the future to
countries where the enforcement of proprietary rights may be equally or more
uncertain. The Company has also entered into source code escrow agreements
with a limited number of its customers requiring release of source code in
certain circumstances. Such agreements generally provide that such parties
will have a limited, non-exclusive right to use such code in the event that
there is a bankruptcy proceeding by or against the Company, if the Company
ceases to do business or if the Company fails to meet its support
obligations. The Company also provides its source code to foreign language
translation service providers and consultants to the Company in limited
circumstances. The provision of source code may increase the likelihood of
misappropriation by third parties.
The Company is not aware that it is infringing any proprietary rights of
third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company of their intellectual property rights.
In particular, because patent applications are kept confidential by the
Patent and Trademark Office, the Company has no means by which to monitor
patent applications filed by its competitors, which could result in future
infringement claims against the Company. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows
and the functionality of products in different industry segments overlaps and
as patent protection for software becomes increasingly popular. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause
product shipment delays. In addition, such claims could require the Company
to discontinue the use of certain software codes or processes, to cease the
manufacture, use and sale of infringing products, to incur significant
litigation costs and expenses and to develop non-infringing technology or to
obtain licenses to the alleged infringing technology. There can be no
assurance that the Company would be able to develop alternative
20
<PAGE>
technologies or obtain such licenses or, if a license were obtainable, that
the terms would be commercially acceptable to the Company.
In the event of a successful claim of product infringement against the
Company and failure or inability of the Company to license the infringed or
similar technology, the Company's business, operating results and financial
condition would be materially adversely affected.
DEPENDENCE ON LICENSED TECHNOLOGY. The Company licenses technology on a
non-exclusive basis from several companies for use with its products and
anticipates that it will continue to do so in the future. The inability of
the Company to continue to license this technology or to license other
necessary technology for use with its products or substantial increases in
royalty payments under third-party licenses could have a material adverse
effect on its business, operating results and financial condition. In
addition, the effective implementation of the Company's products depends upon
the successful operation of these licenses in conjunction with the Company's
products, and therefore any undetected errors in products resulting from such
licenses may prevent the implementation or impair the functionality of the
Company's products, delay new product introductions and injure the Company's
reputation. Such problems could have a material adverse effect on the
Company's business, operating results and financial condition.
PRODUCT ERRORS; PRODUCT LIABILITY. Software products as complex as those
offered by the Company typically contain undetected errors or failures when
first introduced or as new versions are released. Testing of the Company's
products is particularly challenging because it is difficult to simulate the
wide variety of computing environments in which the Company's customers may
deploy these products. Accordingly, there can be no assurance that, despite
testing by the Company and by current and potential customers, errors will
not be found after commencement of commercial shipments, resulting in loss of
or delay in market acceptance, any of which could have a material adverse
effect upon the Company's business, operating results and financial
condition. Further, the Company's license agreements with its customers
typically contain provisions designed to limit the Company's exposure to
potential product liability claims. Although the Company has not experienced
any product liability claims, the sale and support of products by the Company
entails the risk of such claims. The Company does not currently maintain
product liability insurance. A successful product liability claim brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. International revenue
accounted for a significant portion of the Company's revenue in the second
fiscal quarter and first six months of 1998 and in fiscal 1997. The Company
expects that international revenue will continue to account for a significant
portion of its future revenue. Revenue from the Company's international
operations is subject to certain inherent risks, including unexpected changes
in regulatory requirements and tariffs, difficulties in staffing and managing
foreign operations, longer payment cycles, problems in collecting accounts
receivable and potentially adverse tax consequences. In addition, sales in
Europe and certain other parts of the world typically are adversely affected
in the summer months of each year when many customers and users reduce their
business activities. These seasonal factors may have a material adverse
effect on the Company's business, operating results and financial condition.
Although the Company's revenue is currently denominated in U.S. dollars,
fluctuations in currency exchange rates could cause the Company's products to
become relatively more expensive to customers in a particular country,
leading to a reduction in sales or profitability in that country.
Furthermore, future international
21
<PAGE>
activity may result in foreign currency denominated sales, particularly if
international revenue from distributors increases. Consequently, gains and
losses on the conversion to U.S. dollars of accounts receivable and accounts
payable arising from international operations may contribute to fluctuations
in the Company's operating results. Royalty income by the Company from
customers in certain countries, such as Japan and Taiwan, is subject to
withholding income taxes. The amount and mix of the Company's income derived
from such customers will impact the Company's provision for income taxes.
Differences in the amount and mix of the Company's income actually derived
from customers subject to foreign withholding taxes as compared to the
amounts forecasted by the Company may adversely impact the Company's income
tax rate.
UNCERTAINTIES ASSOCIATED WITH ACQUISITIONS. The Company has been involved in
two acquisitions. These acquisitions have been motivated by many factors
including the desire to obtain new technologies, the desire to expand and
enhance the Company's product lines and the desire to attract key personnel.
In July 1997, the Company acquired substantially all of the assets of Real
World Solutions, Inc. (RWS), a developer of client/server solutions. As a
result of the acquisition four new employees joined the Company. RWS had
incurred a cumulative loss through its acquisition by Puma on July 17, 1997
of approximately $1.3 million on cumulative revenue of $0.5 million.
In April 1996, the Company acquired IntelliLink Corp. As a result of the
acquisition the Company acquired two additional product families, as well as
other technologies. In addition, more than 20 new employees joined the
Company. IntelliLink had incurred a cumulative net loss through its
acquisition by Puma on April 30, 1996 of approximately $2.5 million on
cumulative revenue of approximately $4.2 million.
POTENTIAL VOLATILITY OF STOCK PRICE. The trading price of the Company's
Common Stock is likely to be highly volatile and may be significantly
affected by factors such as actual or anticipated fluctuations in the
Company's operating results; announcements of technological innovations; new
products or new contracts by the Company or its competitors; developments
with respect to patents; copyrights or proprietary rights; conditions and
trends in the software and other technology industries; adoption of new
accounting standards affecting the software industry; changes in financial
estimates by securities analysts; general market conditions and other
factors. In addition, the stock market has from time to time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies. These broad
market fluctuations may materially adversely affect the market price of the
Company's Common Stock.
DEPENDENCE ON YEAR 2000 COMPLIANCE OF THIRD-PARTY PRODUCTS. The Company's
synchronization software products operate as a conduit for data from handheld
devices to personal information manager software ("PIMs"). The Company has
no control as to whether the hardware devices and PIMs that the Company's
software supports will accurately process date and time data from, into and
between the 20th and 21st centuries. The Company and its business would be
adversely affected should the third-party products with which the Company's
software functions fail to accommodate the change in date from December 31,
1999 to January 1, 2000.
22
<PAGE>
In addition, the Company and its business are dependent upon the products and
business of many third parties in the computer and information technology
sectors, including the Company's OEM customers and distributors and various
suppliers of products and services to the Company. The Company cannot
control whether the products and technologies of these third parties will
accurately process time and date data from, into and between the 20th and
21st centuries. The Company and its business would be adversely affected by
failure(s) of these third-party products and technologies to accommodate the
change in date from December 31, 1999 to January 1, 2000.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
27.1 Financial Data Schedule
ITEM 1 LEGAL PROCEEDINGS.
On February 6, 1998, in response to the Company's offer of a royalty-bearing
patent license, DataViz, Inc. filed a lawsuit against the Company in the U.S.
District Court for the District of Connecticut seeking a judgment that four
of the Company's patents are invalid and not infringed by DataViz' software.
The complaint seeks no monetary relief other than an award of the costs of
the lawsuit and reasonable attorneys' fees. The complaint contains no
allegation that the Company's software infringes any third-party intellectual
property rights. As of the date of filing this report, the Company has not
been served with DataViz' complaint and the parties are engaged in settlement
discussions.
The Company believes that DataViz' claims have no merit and intends to defend
the action vigorously if it is served with the complaint. The final
resolution of this lawsuit is not expected to have a material adverse effect
on the results of operations or the financial results of the Company. It is
too early to determine whether attorneys' fees and costs associated with the
lawsuit may have an adverse effect on the Company's results of operations.
ITEMS 2, 3, 4 AND 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
23
<PAGE>
SIGNATURE
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.
Puma Technology, Inc.
Date: March 12, 1998 By: /s/ Bruce Nakao
-----------------------------
M. Bruce Nakao
Sr. Vice President and
Chief Financial Officer
24
<PAGE>
PUMA TECHNOLOGY, INC.
SUMMARY OF TRADEMARKS
The following trademarks of Puma Technology, Inc., which may be registered in
certain jurisdictions, are referenced in this Form 10-Q:
IntelliLink
IntelliSync
Mobile Data Exchange
Puma Technology
TranXit
All other brand or product names are trademarks or registered trademarks of
their respective holders.
25
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</TABLE>