<PAGE>
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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 APRIL 30, 1999
/ / 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
(Address and Zip Code of principal executive office)
408-321-7650
(Registrant's Telephone number including area code)
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 April 30, 1999 was 13,088,092.
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THIS REPORT CONSISTS OF 28 PAGES.
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PUMA TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Condensed Consolidated Financial Statements 3
- Condensed Consolidated Balance Sheet 3
April 30, 1999 and July 31, 1998
- Condensed Consolidated Statement of Operations 4
Three and Nine Months Ended April 30, 1999 and 1998
- Condensed Consolidated Statement of Cash Flows 5
Nine Months Ended April 30, 1999 and 1998
- Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities and use of Proceeds 24
Item 3. Defaults upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
Summary of Trademarks 28
</TABLE>
2
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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APRIL 30, JULY 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,767 $ 7,418
Short-term investments 15,682 13,665
Accounts receivable, net 3,025 3,431
Inventories 207 244
Other current assets 511 392
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Total current assets 29,192 25,150
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Property and equipment, net 2,869 3,254
Other assets 1,679 2,035
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TOTAL ASSETS $ 33,740 $30,439
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 968 $ 1,140
Accrued liabilities 2,239 1,517
Deferred revenue 3,006 1,489
Current portion of capital lease obligations -- 28
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Total current liabilities 6,213 4,174
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Capital lease obligations, net of current portion -- 41
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Total liabilities 6,213 4,215
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Stockholders' equity:
Common stock, $0.001 par value; 13,088 and 12,473 shares issued and
outstanding at April 30, 1999 and July 31, 1998, respectively 13 12
Additional paid-in capital 34,824 33,871
Receivable from stockholders (68) (66)
Deferred stock compensation (32) (53)
Unrealized and Foreign Exchange Translation Gain/loss 3,255 --
Accumulated deficit (10,465) (7,540)
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Total stockholders' equity 27,527 26,224
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,740 $30,439
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
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PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUE $5,175 $6,742 $ 14,329 $ 17,706
Cost of revenue 363 972 1,574 2,226
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GROSS PROFIT 4,812 5,770 12,755 15,480
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OPERATING EXPENSES:
Research and development 2,471 2,392 8,804 6,823
Sales and marketing 1,856 1,740 5,723 5,167
General and administrative 824 738 2,564 2,196
Restructuring and other charges - - 768 -
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Total operating expenses 5,151 4,870 17,859 14,186
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OPERATING (LOSS) INCOME (339) 900 (5,104) 1,294
Interest and other income, net 1,066 270 2,770 850
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INCOME (LOSS) BEFORE INCOME TAXES 727 1,170 (2,334) 2,144
Provision for income taxes (183) (444) (591) (814)
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NET INCOME (LOSS) $ 544 $ 726 $ (2,925) $ 1,330
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NET INCOME (LOSS) PER SHARE:
Basic $ 0.04 $ 0.06 $ (0.23) $ 0.11
DILUTED $ 0.04 $ 0.06 $ (0.23) $ 0.11
SHARES USED IN PER SHARE CALCULATION:
Basic 12,880 12,137 12,706 12,099
DILUTED 13,984 12,501 12,706 12,513
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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NINE MONTHS ENDED
APRIL 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(Loss) $(2,925) $ 1,330
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,349 870
Customer deposits and other 1,517 9
Realized gain on sale of investment (1,901) -
Changes in operating assets and liabilities 711 (1,027)
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Net cash (used in) provided by operating activities (1,249) 1,182
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (424) (1,135)
Maturities (purchases) of short-term investments 3,139 1,118
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Net cash provided by (used in) investing activities 2,715 (17)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (69) (30)
Proceeds from conversion of warrants - -
Net proceeds upon exercise of stock options 647 274
Note repayments (advances) by stockholders, net (2) 126
Net proceeds from newly issued common stock 307 102
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Net cash provided by financing activities 883 472
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Net increase in cash and cash equivalents 2,349 1,637
Cash and cash equivalents at the beginning of the period 7,418 5,824
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Cash and cash equivalents at the end of the period $ 9,767 $ 7,461
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</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
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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 nine months ended April 30, 1999 and 1998 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, 1998. The results of
operations for the interim period ended April 30, 1999 are not necessarily
indicative of results to be expected for the full year.
In October 1997, the AICPA issued Statement of Position (SOP) 97-2, Software
Revenue Recognition, which supersedes SOP 91-1. The Company has adopted SOP
97-2 for software transactions entered into beginning August 1, 1998.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities and is effective for all years beginning after June
15, 2000. The Company does not expect the adoption of SFAS 133 to have a
material impact on its financial position.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share ("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 potential common shares that were outstanding during the period.
Dilutive potential common shares and warrants consist of the incremental
common shares issuable upon the exercise of stock options for all periods.
6
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Basic and diluted earnings per share were calculated as follows during the
three and nine months ended April 30, 1999 and 1998:
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
BASIC:
Weighted average common shares 12,880 12,137 12,706 12,099
------------- ------------- -------------- -----------
------------- ------------- -------------- -----------
Net income (loss) $ 544 $ 726 $(2,925) $ 1,330
------------- ------------- -------------- -----------
------------- ------------- -------------- -----------
Net income (loss) per share $ 0.04 $ 0.06 $(0.23) $ 0.11
------------- ------------- -------------- -----------
------------- ------------- -------------- -----------
DILUTED:
Weighted common shares 12,880 12,137 12,706 12,099
Common equivalent shares from stock
options and warrants 1,104 364 - 414
------------- ------------- -------------- -----------
Shares used in per share calculation 13,984 12,501 12,706 12,513
------------- ------------- -------------- -----------
------------- ------------- -------------- -----------
Net income (loss) $ 544 $ 726 $(2,925) $ 1,330
------------- ------------- -------------- -----------
------------- ------------- -------------- -----------
Net income (loss) per share $ 0.04 $ 0.06 $ (0.23) $ 0.11
------------- ------------- -------------- -----------
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</TABLE>
Diluted loss per share calculation excludes the effect of 671,601 options
outstanding as of April 30,1999 because of their antidilutive impact.
NOTE 4. RESTRUCTURING
In the first quarter of Fiscal 1999, the Company implemented a restructuring
program for the purpose of consolidating the majority of its engineering and
development work at existing facilities in Nashua, New Hampshire. As part of
this program, the company implemented a reduction in force of approximately
40 positions that primarily affected the engineering group located at the San
Jose facility. The severance charge in the first quarter was $210,000.
7
<PAGE>
Additional restructuring charges were also incurred for vacating of a part of
the San Jose facility, as well as a recently leased facility in Nashua. These
charges were $462,000 and $96,000 respectively. The Company has secured a
tenant for the San Jose space, and continues to look for a tenant to sublease
the space in Nashua.
The following table depicts the restructuring activity through April 30, 1999:
(in Thousands)
<TABLE>
<CAPTION>
Restructuring Charges Severance and Accrued lease Total
Benefits costs for excess
facilities
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued balance at October 31, 1998 $ 210 $ 558 $ 768
Cash payments 142 161 303
----------------------------------------------------
Accrued balance at April 30, 1999 $ 68 $ 397 $ 465
----- ----- -----
----- ----- -----
</TABLE>
NOTE 5. COMPREHENSIVE INCOME
The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
------------------ -----------------
(In thousand of dollars) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $ 544 $ 726 $(2,925) $ 1,330
Unrealized gains 586 -- 3,260 --
Foreign Exchange Translation Loss (5) -- (5) --
------- ------- ------- -------
Total comprehensive earnings $ 1,125 $ 726 $ 330 $ 1,330
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The balance of unrealized gains at April 30, 1999 consists entirely of
unrealized gains for the Company's holdings of Amazon.Com Common Stock.
8
<PAGE>
ITEM 2. 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 develops, markets and supports Universal Synchronization
Solutions-TM- software ("USS"), which allows users to easily access, exchange
and synchronize information stored on a variety of different computing
devices such as desktop computers and mobile computing devices, including
notebook and handheld computers, personal electronic organizers, smart phones
and smart pagers. The Company's software is designed to improve the
productivity of business professionals and corporations who are increasingly
relying on mobile computing devices to address their growing needs for
accessible, up-to-date information, whether in or out of the office. Puma's
current Intellisync-Registered Trademark- and recently released Intellisync
Anywhere-TM- product families allow local, LAN, and remote "content-aware"
data synchronization between a wide range of mobile computing devices and PC
and server-based applications. Puma's original TranXit-Registered Trademark-
product family ("TranXit") is a leading software solution specifically
designed to utilize wireless infrared ("IR") connectivity technology for file
exchange, synchronization and printing.
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 user and through the Company's retail distribution channel, and is
bundled with their products by some of the handheld device manufacturers.
9
<PAGE>
The Company also licenses and distributes Software Developers Kits (SDK's).
SDK's are primarily licensed directly to both hardware and software
manufacturers for the purpose of gaining compatibility with the Company's
synchronization engine and the other devices and applications the engine
supports.
The following table sets forth certain consolidated statement of operations data
as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
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THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE 100.0% 100.0% 100.0% 100.0%
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Cost of revenue 7.0 14.4 11.0 12.6
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GROSS PROFIT 93.0 85.6 89.0 87.4
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OPERATING EXPENSES:
Research and development 47.7 35.5 61.4 38.5
Sales and marketing 35.9 25.8 39.9 29.2
General and administrative 15.9 10.9 17.9 12.4
Restructuring and other charges - - 5.4 -
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Total operating expenses 99.5 72.2 124.6 80.1
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OPERATING INCOME (6.5) 13.4 (35.6) 7.3
Interest and other income, net 20.5 4.0 19.3 4.8
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INCOME BEFORE INCOME TAXES 14.0 17.4 (16.3) 12.1
Provision for income taxes (3.5) (6.6) (4.1) (4.6)
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NET INCOME 10.5% 10.8% (20.4)% 7.5%
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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 April 30, 1999 decreased by 23% to $5,175,000 as compared
to $6,742,000 for the same period in 1998. For the nine months ended April 30,
1999 revenue decreased by 19% to $14,329,000 as compared to $17,706,000 for the
same period in 1998. The over all decrease in revenue was primarily due to lower
service revenue, as well as lower license revenue derived from the Company's
TranXit and Intellisync for Notebooks products sold to notebook manufacturers.
These declines were partially offset by increases in license revenue derived
from the Company's Intellisync products for handheld devices as sold to both end
users and major corporations.
Service revenue is derived from fees for services including customer funded
engineering services and amortization of maintenance contract programs. Service
revenue of $379,000 and $975,000
10
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represented 7% of the Company's revenue for the both three and nine months
ended April 30, 1999. Service revenue of $1,489,000 and $3,016,000
represented 22% and 17% of the Company's revenue for the three and nine
months ended April 30, 1998, respectively. The year over year decrease in
service revenue is primarily due to lower levels of customer funded
engineering.
OEM revenue continues to represent a significant portion of the Company's
revenue. OEM revenue of $3,089,000 and $4,468,000 represented 60% and 66% of the
Company's revenue, respectively, in the three months ended April 30, 1999 and
1998. OEM revenue of $8,052,000 and $12,538,000 represented 56% and 71% of the
Company's revenue, in the nine months ended April 30, 1999 and 1998
respectively. Revenue from Toshiba Corporation of $703,000 and $985,000
represented 14% and 15% respectively, of revenue for the three months ended
April 30, 1999 and 1998. Revenue from Toshiba Corporation of $2,278,000 and
$3,162,000 represented 16% and 18% respectively, of revenue for the nine months
ended April 30, 1999 and 1998.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 of $2,031,000 and $3,198,000
represented approximately 39% and 47% of the Company's revenue in the third
fiscal quarter of 1999 and 1998, respectively. International revenue of
$5,701,000 and $9,929,000 represented approximately 40% and 56% of revenue in
the nine months ended April 30, 1999 and 1998, respectively.
Actual events or the actual future results of the Company may differ materially
from any forward-looking statements due to a number of risks and uncertainties
including those set forth below under "Factors That May Affect Future Operating
Results" and "Business Risks." 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 recently introduced a new server product,
Intellisync Anywhere. Other new products will be introduced at various times
throughout the remainder of fiscal 99. 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. The foregoing statements regarding new product
information are forward-looking statements.
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 April 30, 1999 and 1998, cost of revenue was $363,000 and
$972,000, respectively. This represented 7% and 14% of total revenue
respectively, for the three months ended April 30, 1999 and 1998. For the nine
months ended April 30, 1999 and 1998, cost of revenue was $1,574,000 and
$2,226,000, respectively. This represented, as a percentage of revenue, 11% and
13%, respectively.
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.
11
<PAGE>
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 3% to $2,471,000 in the third fiscal quarter of 1999 from
$2,392,000 in the comparable fiscal quarter of 1998. For the nine months ended
April 30, 1999 research and development expenses increased 29% to $8,804,000
from $6,823,000 for the same nine-month period in fiscal 1998. The 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, primarily the development effort of the Company's Intellisync
Anywhere product. In addition, personnel related costs and spending required to
support the SDK program also contributed to the increase. A 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. 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 7% to $1,856,000 in
the third fiscal quarter of 1999 from $1,740,000 for the comparable quarter in
the prior year. For the nine months ended April 30, 1999 sales and marketing
expenses increased 11% to $5,723,000 from $5,167,000 for the same nine-month
period in fiscal 1998. The increase in sales and marketing expense as compared
to the first fiscal quarter of 1998 was primarily due to increased personnel
related spending in both sales and marketing due to increased headcount and
related spending. Additional sales and marketing personnel have been added,
primarily in support of the Intellisync Anywhere product. The Company
anticipates that sales and marketing expenses will continue to increase in
absolute dollars throughout the remainder of fiscal 1999 as the Company expands
its direct sales force in both the United States and Europe.
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 12% to $824,000 in the third
12
<PAGE>
fiscal quarter of 1999 from $738,000 for the same period in the prior year.
General and administrative expenses increased 17% to $2,564,00 in the first
nine months of fiscal 1999 from $2,196,000 for the same period in the prior
year. The increase in spending is primarily attributable to increased legal
expenses incurred in defending the Company's intellectual property against
DataViz, Inc. This matter was recently settled, and the majority of the
expenses related to this have already been incurred.
RESTRUCTURING. In the first quarter of Fiscal 1999, the Company implemented a
restructuring program for the purpose of consolidating the majority of its
engineering and development work at existing facilities in Nashua, New
Hampshire. As part of this program, the Company implemented a reduction in force
of approximately 40 positions that primarily affected the engineering group
located at the San Jose, California facility. This plan was completed at the end
of February 1999. Some of the positions eliminated in San Jose will be replaced
in Nashua. Most of the expected savings from this program will be realized in
research and development.
Also as part of the restructuring, the Company has announced plans for vacating
a portion of the San Jose facility, as well as a recently leased facility in
Nashua. The Company expects to reduce the total cost of leased facilities by
subleasing the excess office space. The Company has entered into an agreement to
sublease space in San Jose and is actively seeking to sublease its Nashua
facility. The remaining balance in the restructure accrual is primarily from
future lease commitments.
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.
Additionally, in the first fiscal quarter of 1999, a gain related to the
Company's investment in PlanetAll, which was acquired by Amazon.com, is also
included. Interest and other income, net, increased to $1,066,000 in the third
fiscal quarter of 1999 from $270,000 for the same period in the prior year.
Interest and other income, net, increased to $2,770,000 for the nine months
ended April 30, 1999 from $850,000 for the same period in 1998. The increase in
interest and other income, net, was primarily due to the recognition of a gain
of $1,103,000 attributable to the Amazon.com acquisition of PlanetAll. In
addition, the Company also recognized a gain of $798,000 from the sale of
Amazon.com common stock in its third fiscal quarter of 1999.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to $183,000
in the third fiscal quarter of 1999 from $444,000 for the same period in the
prior year. The provision for income taxes decreased to $591,000 in the first
nine months of fiscal 1999 from $814,000 for the same period in fiscal 1998. The
provision for income taxes primarily represents foreign withholding taxes on
royalties earned from certain foreign customers. The Company's overall effective
tax rate for fiscal 1999 is significantly dependent on the amount and mix of
income derived from sources subject to foreign withholding taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $2,367,000 of cash in the first nine
months of fiscal 1999 and provided $1,182,000 in the first nine months of fiscal
1998, respectively. Net cash used in the first nine months of fiscal 1999 was
primarily due to a net loss, adjusted for depreciation
13
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and amortization. This was partially offset by a decrease in accounts
receivable and increase in deferred revenue.
Cash provided by investing activities was $3,832,000 in the first nine months of
fiscal 1999. This compares to $17,000 of cash used in the first nine months of
fiscal 1998. Cash provided in the first nine months of fiscal 1999 was primarily
due to maturities of short-term investments and changes in value of other
investments.
Cash provided by financing activities was $884,000 and $472,000 in the first
nine months of fiscal 1999 and 1998, respectively. Cash provided from financing
activities in the nine months of fiscal 1999 was due to issuance of common stock
under the Company's stock option plan, as well as stock issued under the
Company's Employee Stock Purchase Plan. This was partially offset by the
retirement of the Company's capital leases.
At April 30, 1999 the Company's principal source of liquidity represented by
cash, cash equivalents and short-term investments totaled $25,449,000. The
Company currently has no significant capital commitments or 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, the timing of releases of new handheld devices by the Company's
customers, 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
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, in addition to expanding sales to corporations, an
increasing percentage of the Company's sales will come from these areas. Sales
into these channels are harder to predict and may have lower margins than other
channels. The Company has generally recognized a substantial portion of its
revenue in the
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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's sales channel includes fulfillment of orders via the World Wide
Web. While this channel has proven to be an accepted channel for fulfilling
product to end-users, 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 Technology 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 nine 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 year over year revenue since inception, such growth may
not be sustainable and is 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 introduced its
TranXit products in October 1994, Intellisync for handheld devices in the first
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quarter of fiscal 1997, Intellisync for Notebooks in the first quarter of fiscal
1998 and its SDK in the third fiscal quarter of 1998. The Company also recently
released Intellisync Anywhere, a server product designed primarily for corporate
use. As its product families mature, the Company expects that its 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 are 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 business strategy, with respect to the market for synchronization
software for handheld devices, has been evolving as the market has developed. As
PDA's bocome more widely deployed in corporations, the Company believes that
demand for synchronization software will increase. The Company is focusing its
efforts in order to exploit this emerging opportunity. The Company expects that
sales of Intellisync and Intellisync Anywhere to corporations should represent a
growing percentage of sales in the future.
The Company's success is highly dependent upon the market acceptance of both the
handheld devices and software applications supported by its Intellisync
products. This is particularly true in the enterprise. As the Company focuses
its efforts in this area, the adaptation of these devices as important business
tools is critical to Company's success. Lack of market acceptance of hardware or
software products supported by the Company's Intellisync products is largely
outside of the Company's control and may have an adverse effect on the results.
The Company has shifted its business strategy to focus internal efforts on more
widely adopted handheld platforms and groupware and PIM applications with a
large installed base. Lower volume device and application vendors are encouraged
to license the Company's SDK which allows companies to then develop
synchronization capability through the Company's synchronization engine.
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COMPETITION. The Company expects the market for USS 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, River Run, Traveling Software and Starfish (recently acquired by
Motorola). In the future, the Company will also face competition relative to
its upcoming products from vendors offering server-based mobile device data
exchange products and services, including Advanced Systems, Riverbed and
AvantGo.
In addition to direct 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 USS 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, although currently accounting for a substantial portion of the
Company's revenue, will decline in overall revenue contribution in 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 USS 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
rebound from its decline or that the Company will be successful in
developing, introducing or marketing new or enhanced products. A continued
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.
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The inability of the Company to continue to penetrate the existing market for
USS products or the 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 USS 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 USS 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 1998, fiscal 1997 and fiscal 1996.
Specifically, OEM revenue as a percentage of total revenue was 68%, 74% and
89% in fiscal 1998, fiscal 1997 and fiscal 1996, respectively. 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
distributes 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 Company typically is not a secured
creditor with respect to its distributors and retailers and 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
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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 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 CHANGE. The Company is currently experiencing 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. In particular, the Company recently consolidated
its engineering group in Nashua, New Hampshire. This change has resulted in a
continuing increase in the level of responsibility for both existing and new
management personnel. As this change continues, the Company may have
difficulty recruiting, hiring, training and retaining key engineering,
managerial, and sales and marketing personnel. No assurances can be given
that the Company will be able to manage this change successfully.
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 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 other 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
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problem. The Company distributes its software products in the United States,
Japan, Taiwan, Australia 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 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 the 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.
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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 with respect to a myriad of supported applications and
devices. 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 has
accounted for a significant portion of the Company's revenue during the past
few years. 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 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 acquired three
companies. 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 1998, the Company acquired SoftMagic Corp., a developer of software
tools used in conjunction with the 3Com Palm Pilot Organizer. As a result of
the acquisition, three new
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employees and three consultants joined the Company. SoftMagic had incurred a
cumulative loss, through its acquisition by Puma, of $135,000 on cumulative
revenue of $331,000.
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.
YEAR 2000 READINESS DISCLOSURE. Some computers, software, and other equipment
include programming code in which calendar year data is abbreviated to only
two digits. As a result of this design decision, some of these systems could
fail to operate or fail to produce correct results if "00" is interpreted to
mean 1900, rather than 2000. These problems are widely expected to increase
in frequency and severity as the year 2000 approaches, and are commonly
referred to as the "Millennium Bug" or "Year 2000 Problem."
The Year 2000 Problem could affect computers, software, and other equipment
used, operated or maintained by the Company. The Company believes that its
computer systems are Year 2000 compliant.
The Company believes that it has substantially identified and resolved all
potential Year 2000 Problems with any of the software products which it
develops and markets. However, management also believes that it is not
possible to determine with complete certainty that all Year 2000 Problems
affecting the Company's software products have been identified or corrected
due to the complexity of these products and the fact that these products
interact with other third party vendor products and operate on computer
systems which are not under the Company's control.
In addition to computers and related systems, the operation of office and
facilities equipment, such as fax machines, photocopiers, telephone switches,
security systems, elevators, and other common devices may be affected by the
Year 2000 Problem. The Company presently believes that its office and
facilities equipment are Year 2000 compliant.
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The Company has limited or no control over the actions of third party
suppliers. Thus, while the Company expects that it will be able to resolve
any significant Year 2000 Problems with these systems, there can be no
assurance that these suppliers will resolve any or all Year 2000 Problems
with these systems before the occurrence of a material disruption to the
business of the Company or any of its customers. Any failure of these third
parties to resolve Year 2000 Problems with these systems in a timely manner
could have a material adverse effect on the Company's business, financial
condition, and results of operation.
The Company expects to identify and resolve all Year 2000 Problems that would
materially adversely affect its business operations. However, management
believes that it is not possible to determine with complete certainty that
all Year 2000 Problems affecting the Company have been identified or
corrected. The number of systems that could be affected and the interactions
among these systems are simply too numerous. In addition, one cannot
accurately predict how many Year 2000 Problem-related failures will occur or
the severity, duration, or financial consequences of these perhaps inevitable
failures. As a result, management expects that the Company could likely
suffer the following consequences:
1. a significant number of operational inconveniences and
inefficiencies for the Company and its clients that may divert
management's time and attention and financial and human
resources from its ordinary business activities; and
2. a lesser number of serious system failures that may require
significant efforts by the Company or its clients to prevent
or alleviate material business disruptions.
The Company has not developed any Year 2000 contingency plans. The Company
does not believe that the Year 2000 Problem will have a material adverse
effect on the Company's business or results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Dataviz, Inc.
- -------------
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 (Case No. 3: 98CV249 (JCH))
seeking a judgment that four of the Company's patents are invalid and not
infringed by Dataviz' software. Thereafter, the Company filed counterclaims
against DataViz alleging patent infringement and unfair competition. On or
about April 16, 1999, the parties entered into a settlement agreement
providing for dismissal of the action without prejudice and joint technology
licenses between the parties.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
On May 5, 1999, Mr. M. Bruce Nakao was elected to the Company's Board of
Directors to fill the vacancy created by the resignation of Dr. Robert D.
Rutner.
On May 17, 1999, Mr. Nakao resigned as Senior Vice President, Finance and
Administration, and Chief Financial Officer and Mr. Kelly Hicks was elected
Chief Financial Officer, Vice President of Operations of the Corporation.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
2.1 1 Agreement and Plan of Reorganization dated July 27, 1998, by and
among the Company, PacificTech Acquisition Corporation and
SoftMagic Corp.
2.2 3 Asset Acquisition Agreement dated July 15, 1997, by and among
the Company, Real World Solutions, and John Stossel.
2.3 2 Agreement and Plan of Merger dated April 30, 1996, by and among
the Company, IntelliLink Corp. and certain shareholders of
IntelliLink Corp.
3.1 2 Articles of Incorporation of Puma Technology, Inc., a California
corporation.
3.2 2 Certificate of Incorporation of Puma Technology, Inc., a Delaware
corporation.
3.3 2 Bylaws of Puma Technology, Inc., a California corporation.
3.4 2 Bylaws of Puma Technology, Inc., a Delaware corporation.
10.1 2 1993 Stock Option Plan and forms of stock option agreements used
thereunder.
10.2 2 Puma Technology, Inc. 1996 Employee Stock Purchase Plan and form
of notice of exercise used thereunder.
10.3 3 Office Lease Agreement dated March 20, 1997, between the Company
and Catellus Development Corporation.
10.4 3 Standard Commercial Lease Agreement dated March 2, 1992, as
amended, between Intellilink and Thomas J. Flatley, d/b/a The
Flatley Company.
10.5 2 Form of Indemnity Agreement for directors and officers.
10.6 + 2 Software License Agreement dated as of May 30, 1995, between the
Company and Toshiba Corporation.
10.7 2 IntelliLink Corp. 1992 Incentive Stock Option Plan and forms of
stock agreements used thereunder.
27.1 Financial Data Schedule (filed in EDGAR format only).
99.1 2 Agreement and Plan of Merger by and between Puma Technology,
Inc. a California corporation, and Puma Technology, Inc., a
Delaware corporation.
</TABLE>
+ Confidential treatment has been granted for portions of this exhibit
1 Incorporated by reference to the Company's Report on Form 8-K filed
on August 14, 1998.
2 Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 333-011445, declared effective on December 4, 1996).
3 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1998 filed on November 13, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended April 30,
1999.
25
<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: June 14, 1999 By: /s/
----------------------------
Mr. Kelly Hicks
Vice President of Operations
and Chief Financial Officer
26
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------ -------------
<S> <C>
2.1 1 Agreement and Plan of Reorganization dated July 27, 1998, by and
among the Company, PacificTech Acquisition Corporation and
SoftMagic Corp.
2.2 3 Asset Acquistion Agreement dated July 15, 1997, by and among the
Company, Real World Solutions, and John Stossel.
2.3 2 Agreement and Plan of Merger dated April 30, 1996, by and among
the Company, IntelliLink Corp. and certain shareholders of
IntelliLink Corp.
3.1 2 Articles of Incorporation of Puma Technology, Inc., a California
corporation.
3.2 2 Certificate of Incorporation of Puma Technology, Inc., a
Delaware corporation.
3.3 2 Bylaws of Puma Technology, Inc., a California corporation.
3.4 2 Bylaws of Puma Technology, Inc., a Delaware corporation.
10.1 2 1993 Stock Option Plan and forms of stock option agreements
used thereunder.
10.2 2 Puma Technology, Inc. 1996 Employee Stock Purchase Plan and form
of notice of exercise used thereunder.
10.3 3 Office Lease Agreement dated March 20, 1997, between the Company
and Catellus Development Corporation.
10.4 3 Standard Commercial Lease Agreement dated March 2, 1992, as
amended, between Intellilink and Thomas J. Flatley, d/b/a The
Flatley Company.
10.5 2 Form of Indemnity Agreement for directors and officers.
10.6 + 2 Software License Agreement dated as of May 30, 1995, between
the Company and Toshiba Corporation.
10.7 2 IntelliLink Corp. 1992 Incentive Stock Option Plan and forms of
stock agreements used thereunder.
27.1 Financial Data Schedule (filed in EDGAR format only).
99.1 2 Agreement and Plan of Merger by and between Puma Technology,
Inc. a California corporation, and Puma Technology, Inc.,
a Delaware corporation.
</TABLE>
+ Confidential treatment has been granted for portions of this exhibit
1 Incorporated by reference to the Company's Report on Form 8-K filed
on August 14, 1998.
2 Incorporated by reference to the Company's Registration Statement on
Form S-1 (No. 333-011445 declared effective on December 4, 1996).
3 Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1998 filed on November 13, 1998.
27
<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
Intellisync Anywhere
Puma Technology
TranXit
Universal Synchronization Solutions
All other brand or product names are trademarks or registered trademarks of
their respective holders.
28
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> APR-30-1999
<CASH> 9,767
<SECURITIES> 15,682
<RECEIVABLES> 3,601
<ALLOWANCES> 576
<INVENTORY> 207
<CURRENT-ASSETS> 29,192
<PP&E> 5,282
<DEPRECIATION> 2,413
<TOTAL-ASSETS> 33,740
<CURRENT-LIABILITIES> 6,213
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 27,514
<TOTAL-LIABILITY-AND-EQUITY> 33,740
<SALES> 0
<TOTAL-REVENUES> 14,329
<CGS> 1,574
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 17,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,334)
<INCOME-TAX> (591)
<INCOME-CONTINUING> (2,925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,925)
<EPS-BASIC> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
