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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, 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 January 31, 1999 was 12,699,058.
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THIS REPORT CONSISTS OF 29 PAGES.
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PUMA TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 27
Summary of Trademarks 29
</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:
<TABLE>
<CAPTION>
FINANCIAL STATEMENT DESCRIPTION PAGE
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<S> <C>
- - Condensed Consolidated Balance Sheet 4
January 31, 1999 and July 31, 1998
- - Condensed Consolidated Statement of Operations 5
Three and Six Months Ended January 31, 1999 and 1998
- - Condensed Consolidated Statement of Cash Flows 6
Six Months Ended January 31, 1999 and 1998
- - Notes to Condensed Consolidated Financial Statements 7
</TABLE>
3
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PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
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JAN. 31, JULY 31,
1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,120 $ 7,418
Short-term investments 8,227 13,665
Accounts receivable, net 3,162 3,431
Inventories 85 244
Other current assets 517 392
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Total current assets 27,111 25,150
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Property and equipment, net 2,985 3,254
Other assets 1,627 2,035
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TOTAL ASSETS $ 31,723 $ 30,439
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,008 $ 1,140
Accrued liabilities 2,622 1,517
Deferred revenue 2,480 1,489
Current portion of capital lease obligations - 28
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Total current liabilities 6,110 4,174
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Capital lease obligations, net of current portion - 41
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Total liabilities 6,110 4,215
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Stockholders' equity:
Common stock, $0.001 par value; 12,699 and 12,473 shares issued and
outstanding at January 31, 1999 and July 31, 1998, respectively 13 12
Additional paid-in capital 34,040 33,871
Receivable from stockholders (66) (66)
Deferred stock compensation (39) (53)
Unrealized Gain/Loss on securities available for sale 2,674 -
Accumulated deficit (11,009) (7,540)
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Total stockholders' equity 25,613 26,224
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,723 $ 30,439
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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)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUE $ 4,742 $ 5,727 $ 9,154 $ 10,964
Cost of revenue 526 629 1,211 1,254
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GROSS PROFIT 4,216 5,098 7,943 9,710
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OPERATING EXPENSES:
Research and development 3,234 2,299 6,333 4,431
Sales and marketing 2,017 1,826 3,867 3,427
General and administrative 936 661 1,740 1,458
Restructuring and other charges - - 768 -
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Total operating expenses 6,187 4,786 12,708 9,316
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OPERATING INCOME (1,971) 312 (4,765) 394
Interest and other income, net 312 295 1,704 580
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INCOME BEFORE INCOME TAXES (1,659) 607 (3,061) 974
Provision for income taxes (204) (231) (408) (370)
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NET INCOME $ (1,863) $ 376 $ (3,469) $ 604
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NET INCOME PER SHARE:
Basic $ (0.15) $ 0.03 $ (0.27) $ 0.05
DILUTED $ (0.15) $ 0.03 $ (0.27) $ 0.05
SHARES USED IN PER SHARE CALCULATION:
Basic 12,684 12,103 12,621 12,088
DILUTED 12,684 12,548 12,621 12,526
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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)
<TABLE>
<CAPTION>
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SIX MONTHS ENDED
JANUARY 31,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(Loss) $ (3,469) $ 604
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 974 549
Customer deposits and other 2,674 (68)
Changes in operating assets and liabilities (1,792) (706)
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Net cash provided by (used in) operating activities (1,613) 379
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (272) (976)
Maturities (purchases) of short-term investments 9,487 3,621
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Net cash provided by (used in) investing activities 9,215 2,645
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (70) (21)
Proceeds from conversion of warrants - -
Net proceeds upon exercise of stock options 49 76
Note repayments (advances) by stockholders, net - -
Net proceeds from newly issued common stock 121 149
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Net cash provided by financing activities 100 204
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Net increase in cash and cash equivalents 7,702 3,228
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 $ 15,120 $ 9,052
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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, 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 January 31, 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,
1999. 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 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 and convertible preferred stock for periods prior to the
Company's initial public offering.
7
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Basic and diluted earnings per share were calculated as follows during the
three and six months ended January 31, 1999 and 1998:
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
BASIC:
Weighted average common shares 12,684 12,103 12,621 12,088
--------- -------- --------- --------
--------- -------- --------- --------
Net income (loss) $ (1,863) $ 376 $ (3,469) $ 604
--------- -------- --------- --------
--------- -------- --------- --------
Net income (loss) per share $ (0.15) $ 0.03 $ (0.27) $ 0.05
--------- -------- --------- --------
--------- -------- --------- --------
DILUTED:
Weighted common shares 12,684 12,103 12,621 12,088
Weighted average preferred shares as if converted
Common equivalent shares from stock
options and warrants - 445 - 438
--------- -------- --------- --------
Shares used in per share calculation 12,684 12,548 12,621 12,526
--------- -------- --------- --------
--------- -------- --------- --------
Net income (loss) $ (1,863) $ 376 $ (3,469) $ 604
--------- -------- --------- --------
--------- -------- --------- --------
Net income (loss) per share $ (0.15) $ 0.03 $ (0.27) $ 0.05
--------- -------- --------- --------
--------- -------- --------- --------
</TABLE>
Note: Diluted loss per share calculation excludes effect of 927,000 and
462,000 options outstanding respectively as of January 31, 1999, because of
the anti-dilutive 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 costs associated with this program are expected
to be $210,000. The reduction in force was completed February 26, 1999.
8
<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 continues to look
for tenants to sublease the available space in both of these facilities.
The following table depicts the restructuring activity through January 31,
1999:
(in Thousands)
<TABLE>
<CAPTION>
Restructuring Charges Severance and Accrued lease Total
Benefits costs for excess
facilities
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<S> <C> <C> <C>
Accrued balance at October 31, 1998 $ 210 $ 558 $ 768
Cash payments 88 40 128
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Accrued balance at January 31, 1999 $ 122 $ 518 $ 640
----- ----- -----
----- ----- -----
</TABLE>
NOTE 5. COMPREHENSIVE INCOME
The Company's total comprehensive earnings were as follows:
<TABLE>
<CAPTION>
Six Months Ended
----------------
January 31
----------
1999 1998
(In thousands of dollars) ---- ----
<S> <C> <C>
Net income (loss) $(3,469) $ 604
Unrealized gains 2,674 -
------- -------
Total comprehensive earnings (loss) $ (793) $ 604
</TABLE>
The balance of unrealized gains January 31, 1999 consists entirely of
unrealized gains for the Company's holdings of Amazon.Com Stock.
9
<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.
The Company also licenses and distributes Software Developers Kits. Software
Developers Kits 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.
10
<PAGE>
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 SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------
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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 11.1 11.0 13.2 11.4
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GROSS PROFIT 88.9 89.0 86.8 88.6
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OPERATING EXPENSES:
Research and development 68.3 40.2 69.2 40.4
Sales and marketing 42.5 31.9 42.2 31.3
General and administrative 19.7 11.5 19.0 13.3
Restructuring and other charges - - 8.4 -
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Total operating expenses 130.5 83.6 138.8 85.0
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OPERATING INCOME (41.6) 5.4 (52.0) 3.6
Interest and other income, net 6.6 5.2 18.6 5.3
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INCOME BEFORE INCOME TAXES (35.0) 10.6 (33.4) 8.9
Provision for income taxes (4.3) (4.0) (4.5) (3.4)
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NET INCOME (39.3)% 6.6% (37.9)% 5.5%
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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 January 31, 1999 decreased by 17% to $4,742,000 as
compared to $5,727,000 for the same period in 1998. For the six months ended
January 31, 1999 revenue decreased by 17% to $9,154,000 as compared to
$10,964,000 for the same period in 1998. The over all decrease in revenue was
primarily due to lower license revenue derived from the Company's TranXit and
Intellisync for Notebooks products sold to notebook manufacturers, as well as
lower service revenue. 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 $214,000 and $596,000 represented 5% and 7% of the Company's revenue
for the three and six months ended January 31, 1999, respectively. Service
revenue of $755,000 and $1,527,000 represented 13% and 14% of the Company's
revenue for the three and six months ended January 31, 1998, respectively. The
year over year decrease in service revenue is primarily due to lower levels of
customer funded engineering. The Company believes service revenue as a
percentage of total revenue will
11
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continue at lower levels in the future, as compared to prior quarters, and
may fluctuate from period to period.
OEM revenue continues to represent a significant portion of the Company's
revenue. OEM revenue of $2,531,000 and $ 4,009,000 represented 53% and 70% of
the Company's revenue, respectively, in the three months ended January 31, 1999
and 1998. OEM revenue of $4,963,000 and $8,070,000 represented 54% and 74% of
the Company's revenue, in the six months ended January 31, 1999 and 1998
respectively. Revenue from Toshiba Corporation of $692,000 and $984,000
represented 15% and 17% respectively, of revenue for the three months ended
January 31, 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 $1,861,000 and $3,332,000
represented approximately 39% and 58% of the Company's revenue in the second
fiscal quarter of 1999 and 1998, respectively. International revenue of
$3,670,000 and $6,731,000 represented approximately 40% and 61% of revenue in
the six months ended January 31, 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 January 31, 1999 and 1998, cost of revenue was $526,000 and
$629,000, respectively. This represented, as a percentage of revenue, 11% for
both fiscal periods respectively. For the six months ended January 31, 1999 and
1998, cost of revenue was $1,211,000 and $1,254,000, respectively. This
represented, as a percentage of revenue, 13% and 11%, 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. 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
12
<PAGE>
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 costs. The Company's new product, Intellisync Anywhere, will also be
sold through distribution. This will also contribute to lower gross margins,
as a percentage of total revenue.
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 41% to $3,234,000 in the second fiscal quarter of 1999 from
$2,299,000 in the comparable fiscal quarter of 1998. For the six months ended
January 31, 1999 research and development expenses increased 43% to $6,333,000
from $4,431,000 for the same six-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, much of which was for developing the Intellisync Anywhere server
solution. In addition, personnel related costs and spending required to develop
the SDK and other new products 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. Research and development spending is anticipated to decline with
completion of the Company's consolidation plan, which involved moving a
significant portion of the development effort to the company's existing facility
in Nashua, New Hampshire. 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 10% to $2,017,000 in
the second fiscal quarter of 1999 from $1,826,000 for the comparable quarter in
the prior year. For the six months ended January 31, 1999 sales and marketing
expenses increased 13% to $3,867,000 from $3,427,000 for the same six-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.
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.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and other outside
13
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professional fees. General and administrative expenses increased 42% to
$936,000 in the second fiscal quarter of 1999 from $661,000 for the same
period in the prior year. General and administrative expenses increased 19%
to $1,740,00 in the first six months of fiscal 1999 from $1,458,000 for the
same period in the prior year. A significant amount of the increase in
spending is for legal expenses in incurred defending the Company's
intellectual property.
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 not yet found tenants for
either facility.
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 $312,000 in the second
fiscal quarter of 1999 from $295,000 for the same period in the prior year.
Interest and other income, net, increased to $1,704,000 for the six months ended
January 31, 1999 from $580,000 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.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to $204,000
in the second fiscal quarter of 1999 from $231,000 for the same period in the
prior year. The provision for income taxes increased to $408,000 in the first
six months of fiscal 1999 from $370,000 for the same period in fiscal 1998. 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 1999 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 1999
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 of
pre-tax income compared to such projections could cause the income tax rate to
fluctuate during the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $1,643,000 in the first six
months of fiscal 1999 and provided $379,000 in the first six months of fiscal
1998, respectively. Net cash used in the first six months of fiscal 1999 was
primarily due to a net loss, adjusted for depreciation and amortization. This
was partially offset by a decrease in accounts receivable and increases in
deferred revenue and other current liabilities.
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Cash generated in investing activities was $9,245,000 in the first six months of
fiscal 1999. This compares to $2,645,000 of cash generated in the first six
months of fiscal 1998. Cash generated in the first six months of fiscal 1999 was
primarily due to maturities of short-term investments.
Cash provided by financing activities was $100,000 and $204,000 in the first six
months of fiscal 1999 and 1998, respectively. Cash provided from financing
activities in the first six 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 January 31, 1999 the Company's principal source of liquidity represented by
cash, cash equivalents and short-term investments totaled $23,347,000. 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, 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 derived from sales to a limited
number of customers. The Company has generally
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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'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 eight 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
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introduced its TranXit products in October 1994, Intellisync for handheld
devices in the first 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 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 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 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 their 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 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.
The Company is currently in the process of shifting its business strategy to
focus its internal efforts on more widely adopted handheld platforms and
groupware and PIM applications with a large installed
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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.
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
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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 USS 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, TranXit sales declined in mid-1998 and 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 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
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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 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
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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, 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 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.
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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 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
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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
three 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 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 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.
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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.
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.
24
<PAGE>
PART II. OTHER INFORMATION
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. The Company has filed a response denying all of Dataviz' allegations and
asserting numerous affirmative defenses. The Company has also filed
counterclaims asserting that Dataviz' software infringes two of the Company's
patents. The parties have agreed to narrow the case to include only those two
patents and are currently engaged in discovery.
The Company believes that Dataviz' claims have no merit and intends to defend
the action vigorously. The final resolution of this lawsuit is not expected to
have a material adverse effect on the results of operations or the financial
condition of the Company. The cost of this lawsuit had an adverse impact on the
current quarter results of approximately $200,000. Additional expenditures are
expected in the next fiscal quarter.
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
(1) To Elect five (5) members of the Board or Directors to hold office
until the 1999 Annual Meeting of Stockholders and until their
respective successors are elected and qualified. The proposal was
approved by the following vote:
<TABLE>
<CAPTION>
Nominee In Favor Withheld
- ------- -------- --------
<S> <C> <C>
Bradley A. Rowe 10,452,355 47,485
Stephen A. Nicol 10,452,355 47,485
Michael M. Clair 10,452,855 46,985
Tyrone F. Pike 10,451,855 47,985
Robert D. Rutner, DDS 10,432,388 50,985
</TABLE>
(2) To approve the Puma Technology, Inc. 1998 Employee Stock Purchase Plan.
The proposal was approved by the following vote:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
10,105,641 367,173 27,026
</TABLE>
25
<PAGE>
(3) To vote upon a proposal to ratify the appointment of
PricewaterhouseCoopers LLP as the Company's independent public
accountants for the fiscal year ending July 31, 1999. The proposal was
approved by the following vote:
<TABLE>
<CAPTION>
For Against Withheld
--- ------- --------
<S> <C> <C>
10,481,935 6,300 11,605
</TABLE>
ITEM 5. OTHER INFORMATION
Not Applicable
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.
26
<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, 1999 By: /s/ M. Bruce Nakao
-------------------------------
M. Bruce Nakao
Sr. Vice President and
Chief Financial Officer
27
<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 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.
28
<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.
29
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 15,120
<SECURITIES> 8,227
<RECEIVABLES> 3,783
<ALLOWANCES> 621
<INVENTORY> 85
<CURRENT-ASSETS> 27,111
<PP&E> 5,130
<DEPRECIATION> 2,145
<TOTAL-ASSETS> 31,723
<CURRENT-LIABILITIES> 6,110
<BONDS> 0
0
0
<COMMON> 13
<OTHER-SE> 25,600
<TOTAL-LIABILITY-AND-EQUITY> 31,723
<SALES> 0
<TOTAL-REVENUES> 9,154
<CGS> 1,211
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,061)
<INCOME-TAX> (408)
<INCOME-CONTINUING> (3,469)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,469)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
