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EXHIBIT 20
PUMA TECHNOLOGY, INC.
TABLE OF CONTENTS
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PAGE
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SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA......................2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........................................3
CONSOLIDATED BALANCE SHEETS........................................21
CONSOLIDATED STATEMENTS OF OPERATIONS..............................22
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY....................23
CONSOLIDATED STATEMENTS OF CASH FLOWS..............................24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................25
REPORT OF INDEPENDENT ACCOUNTANTS..................................42
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PUMA TECHNOLOGY, INC.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
YEAR ENDED JULY 31,
---------------------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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Revenue.............................................. $ 30,813 $ 20,723 $ 22,341 $ 15,633 $ 7,716
Cost of revenues and operating expenses.............. 57,403 29,704 26,408 15,529 9,693
---------- -------- -------- --------- ---------
Operating income (loss).............................. (26,590) (8,981) (4,067) 104 (1,977)
Other income, net.................................... 5,023 3,868 1,077 820 85
---------- -------- -------- --------- ---------
Income (loss) before income taxes.................... (21,567) (5,113) (2,990) 924 (1,892)
Provision for income taxes........................... (632) (715) (1,164) (831) (509)
---------- -------- -------- --------- ---------
Net income (loss).................................... (22,199) (5,828) (4,154) 93 (2,401)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value.............. (3,877) (4,238) - - -
---------- -------- -------- --------- ---------
Net income (loss) attributable to common stockholders $ (26,076) $(10,066) $ (4,154) $ 93 $ (2,401)
========== ======== ======== ========= =========
Basic and diluted net loss per share................. $ (0.74) $ (0.34) $ (0.15) $ - $ (0.41)
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CONDENSED CONSOLIDATED BALANCE SHEET DATA
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JULY 31,
2000 1999 1998 1997 1996
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(IN THOUSANDS)
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Cash, cash equivalents and short-term investments.... $ 85,260 $ 28,516 $ 21,091 $ 21,180 $ 982
Total assets......................................... 118,655 37,122 30,745 29,530 4,004
Long-term obligations................................ 310 - 41 66 961
Total stockholders' equity........................... 105,077 18,201 25,824 26,242 653
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SUMMARY CONDENSED QUARTERLY DATA
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THREE MONTHS ENDED
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JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31,
2000 2000 2000 1999 1999 1999 1999 1998
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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Revenue......................... $ 9,026 $ 8,014 $ 7,361 $ 6,412 $ 5,946 $ 5,370 $ 4,907 $ 4,500
Cost and operating expense...... 15,531 19,177 10,454 12,241 7,054 6,867 7,897 7,886
Operating loss.................. (6,505) (11,163) (3,093) (5,829) (1,108) (1,497) (2,990) (3,386)
Net loss........................ (5,146) (10,013) (2,285) (4,755) (239) (567) (2,827) (2,195)
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value..... - (577) (1,765) (1,535) (2,700) (1,384) (154) -
Net loss attributable to common
stockholders.................. $(5,146) $(10,590) $ (4,050) $ (6,290) $ (2,939) $ (1,951) $ (2,981) $ (2,195)
Basic and diluted net loss per
share......................... $ (0.12) $ (0.26) $ (0.11) $ (0.20) $ (0.10) $ (0.07) $ (0.10) $ (0.08)
</TABLE>
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PUMA TECHNOLOGY, INC.
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 INCLUDED
ELSEWHERE IN OUR FORM 10-K FOR THE FISCAL YEAR ENDED JULY 31, 2000. THIS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,
CONTAINS FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR OUR FUTURE
PERFORMANCE THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES INCLUDING THOSE SET
FORTH BELOW UNDER "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS." IN THIS
REPORT, THE WORDS "ANTICIPATE(S)," "BELIEVE(S)," "EXPECT(S)," "INTEND(S),"
"FUTURE" AND SIMILAR EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL
EVENTS OR OUR ACTUAL FUTURE RESULTS MAY DIFFER MATERIALLY FROM ANY
FORWARD-LOOKING STATEMENTS DUE TO SUCH RISKS AND UNCERTAINTIES. WE ASSUME 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. WE UNDERTAKE 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.
OVERVIEW
We develop, market and support synchronization, change
detection/notification, and Web rendering/browsing software, enabling
consumers, mobile professionals and information technology officers to
harness the full capabilities of handheld organizers/computers,
Web-enabled/cellular phones, pagers and other wireless personal communication
platforms. Our product families, which include Intellisync-Registered
Trademark-, Intellisync Anywhere-Registered Trademark-, Satellite
Forms-Registered Trademark-, Browse-it-TM- and Mind-it-TM- software, connect
handheld and mobile devices to essential information anytime, anywhere. The
Intellisync platform lets users synchronize the critical connection between
both wired and wireless handheld devices and the vast stores of information
found in corporate databases, the Internet and individuals' PC applications.
Intellisync Anywhere keeps users current with remote and LAN-based data
synchronization between groupware messaging servers and Palm OS-Registered
Trademark- platform handhelds. Satellite Forms provides the tools needed to
create custom applications for Palm OS handhelds and the ability to integrate
those applications with desktop or network databases. Browse-it enables users
to view Web pages online or offline on their handheld devices in a secure,
conventional and quick manner. Mind-it technology provides user-driven
personalization, enabling users to track specific Web information and be
notified when that information changes.
We license our software products to several original equipment
manufacturers ("OEMs") and business development organizations worldwide. In
addition, we sell our retail products through several distribution channels
both domestically and internationally, including major distributors,
resellers, computer dealers, retailers and mail-order companies.
Internationally, we are represented by over 20 distributors and resellers in
Africa, Asia, Australia, Canada, Europe, New Zealand, and South America.
In October 1999, we acquired ProxiNet, Inc. ("ProxiNet"), a startup
company involved in the development of software enabling users of Palm OS
handheld devices to browse Internet content. ProxiNet brought us a highly
scalable proxy-based transformation and delivery architecture. As a result,
in June 2000 we announced Browse-it software which allows portals, search
engines and e-commerce companies to provide highly secure, real-time Web
access to users of Palm OS handheld devices, along with the ability to
download Web pages for offline viewing when wireless or wireline access is
not available.
In February 2000, we acquired NetMind Technologies, Inc. ("NetMind"), a
leading provider of scalable software solutions that integrate user-driven
personalization technologies into the Internet infrastructure, which brought
us a broad range of Web-based personalization, change-detection and
notification technologies. As a result, in June 2000 we announced Mind-it
software which enables users to receive instant notification of changes to
any content they request on the Internet or corporate intranet.
In July 2000, we acquired Dry Creek Software, LLC ("Dry Creek"), a
company specializing in the creation of software solutions that allow for
transparent data access between mobile devices, enterprise servers and
Internet applications. Dry Creek forms the core of our new Professional
Services Organization, through which we provide customized, turnkey solutions
based on the Mobile Application Platform ("MAP") infrastructure for wireless
carriers, ISPs, Web portals and corporate enterprises.
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MAP is the common server platform on which we will build our new mobile
and wireless solutions. MAP will initially support data synchronization (our
upcoming Sync-it-TM- software), change detection/notification (Mind-it
software) and Web content rendering/browsing (Browse-it software). MAP is
designed for maximum scalability and performance and empowers both Internet
access and wireless access to mobile devices. This differs markedly from the
PC-centric connectivity solutions that enable Internet access only while
tethered to a PC. MAP provides ubiquitous access to mobile devices over both
wired and wireless media, and does not require the PC to act as a gateway to
the network. The platform is deployed inside the firewalls of major
corporations. In addition, we expect, to host, the platform in the public
Internet space on the Intellisync.com-SM- Web service in the first half of
fiscal 2001.
RESULTS OF OPERATIONS
All historical financial information and analysis have been restated to
reflect the acquisition of NetMind on February 24, 2000, which was accounted
for as a pooling of interests (see Note 2 of Notes to Consolidated Financial
Statements).
REVENUE. We derive revenue from two primary sources: software licenses
and fees for service. Revenue was $30,813,000 in fiscal 2000 as compared to
$20,723,000 in fiscal 1999 and $22,341,000 in fiscal 1998. Revenue increased
49% in fiscal 2000 as compared to fiscal 1999 and decreased 7% in fiscal 1999
as compared to fiscal 1998. Our revenue growth in fiscal 2000 resulted from
increased platform licensing of components of our MAP and higher revenues
from our Enterprise products, which include both personal and server based
Intellisync products, and Satellite Forms. This increase more than offset the
decline in Intellisync for Notebook and TranXit-Registered Trademark- product
royalty revenue.
OEMs revenue continues to represent a significant portion of our
revenue. OEM revenue represented 62%, 54%, and 68% of our revenue in fiscal
2000, fiscal 1999, and fiscal 1998, respectively. No customers accounted for
more than 10% of total revenue in fiscal 2000. In fiscal 1999 and 1998,
Toshiba Corporation accounted for approximately 14% and 18% of our revenue,
respectively, and no other customer accounted for more than 10% of our
revenue. Although several OEMs are subject to certain contractual minimum
purchase obligations, there can be no assurance that any particular OEM will
satisfy the obligation. In addition, we believe that the percentage of
revenue derived from OEMs may fluctuate in future periods since the
distribution channels we use for our existing and future products are subject
to change. Further, we expect the notebook and PC OEM portion of this revenue
to continue to decrease as a percentage of our overall revenue throughout
fiscal 2001.
International revenue continues to represent a significant portion of
our revenue. International revenue in fiscal 2000 was $8,347,000, or 27% of
total revenue, compared to $8,357,000 or 40% of total revenue in fiscal 1999
and $10,627,000 or 48% of total revenue in fiscal 1998. The substantial
increase in our revenue from the United States resulted in a decrease of
international revenue as a percent of total revenue in fiscal 2000 as
compared to fiscal 1999 and 1998. The absolute dollar decrease in
international revenue in fiscal 2000 and 1999 reflected the decrease in
notebook and PC OEM royalties we receive from our international customers. We
expect, however, our international revenue to increase in future periods as
we continue to expand our operations worldwide, particularly Europe.
International revenue may be subject to certain risks not normally
encountered in domestic operations, including exposure to tariffs, various
trade regulations and fluctuations in currency exchange rates. See "Factors
That May Affect Future Operating Results."
- LICENSE REVENUE. License revenue is earned from the sale and use of
software products and royalty agreements with OEMs. License revenue
was $27,685,000 in fiscal 2000 as compared to $19,084,000 in fiscal
1999 and $18,477,000 in fiscal 1998. The 45% increase in license
revenues in fiscal 2000 reflected increase in revenues of Enterprise
products, primarily Intellisync, Satellite Forms and Intellisync
Anywhere, and MAP products. This increase was offset by declining
revenue received for the Intellisync for Notebook and TranXit
products. The 3% increase in license revenue in fiscal 1999 was
primarily due to increased revenue derived from Enterprise products
such as Intellisync, Satellite Forms and Intellisync Anywhere, and MAP
products such as Intellisync Software Development Kits ("SDKs") and
Mind-it products, offset by a decrease in royalty revenue for the
Intellisync for Notebook and TranXit products. Deferred revenue was
$6,372,000, $3,989,000 and $1,669,000 at July 31, 2000, 1999 and 1998.
The 60% increase in deferred revenue in July 31, 2000 was attributable
to revenues related to our SDK, Intellisync Gold and Intellisync
Anywhere products.
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- SERVICE REVENUE. Service revenue is derived from fees for services,
including non-recurring engineering service projects for software
development, amortization of maintenance contract programs, Web-based
advertising fees and professional services. Service revenue was
$3,128,000 in fiscal 2000 as compared to $1,639,000 in fiscal 1999 and
$3,864,000 in fiscal 1998. The 91% increase in service revenue in
fiscal 2000 was primarily due to an increased number of non-recurring
engineering service projects, increased maintenance revenue and
increased Web-based advertising fees. The 58% decrease in service
revenue in fiscal 1999 was primarily due to reduced number of
non-recurring engineering service projects during that year.
COST OF REVENUE. Cost of revenue consists primarily of product costs and
service costs. Product costs include media and duplication, manuals, packing
supplies and shipping expenses. Service costs include personnel related costs
incurred under non-recurring software engineering services and professional
services, and hosting costs for online services. Our cost of revenue is
affected by the mix between our revenue sources such as licenses and
services. Additionally, our cost of revenue is affected by the mix between
our various distribution channels and by the mix between geographies such as
the United States, Japan and Europe. In general, increased license revenue as
compared to service revenue will have a favorable impact on cost of revenue
since the cost of sales associated with license revenue tend not to be
significant as compared to that with service revenue. In addition, we expect
that cost of revenue as a percent of revenue will increase as service revenue
becomes a more substantial portion of our total revenue.
- COST OF LICENSE REVENUE. Cost of license revenue consist primarily of
packaged product costs including product media and duplication,
manuals, packing supplies, shipping expenses and, in certain
transactions, royalties paid to certain vendors. Cost of license
revenue as a percentage of license revenue was 7% in fiscal 2000 as
compared to 7% in fiscal 1999 and 8% in fiscal 1998.
- COST OF SERVICE REVENUE. Cost of service revenue primarily represents
personnel related costs incurred for software development work under
non-recurring engineering agreements and professional services. Cost
of service revenue as a percentage of service revenue was 59% in
fiscal 2000 as compared to 43% in fiscal 1999 and 40% in fiscal 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, quality assurance personnel, product localization, fees to outside
contractors and the cost of facilities and depreciation of capital equipment.
We invest in research and development both for new products and to provide
continuing enhancements to existing products. Research and development
expenses increased by 38% to $17,140,000 in fiscal 2000 from $12,421,000 in
fiscal 1999. In fiscal 1999, research and development expenses increased 19%
to $12,421,000 from $10,421,000 in fiscal 1998. Research and development
represented 56%, 60% and 47% of total revenue in fiscal 2000, 1999 and 1998,
respectively. The absolute dollar increase in research and development
expenses in fiscal 2000 was primarily due to increased personnel required to
integrate the newly acquired ProxiNet and NetMind technologies into a common
platform and the development of the Intellisync.com service that is expected
to be launched in the first half of fiscal 2001. The absolute dollar increase
in research and development expenses in fiscal 1999 was primarily due to
increased personnel related costs and spending required to develop and
support a wider breadth of our existing Intellisync products and continued
investment in our Satellite Forms, Intellisync Anywhere and Mind-it products.
We believe research and development expenses may continue to increase in
absolute dollars in the next several quarters.
Research and development costs have been expensed as incurred. Statement
of Financial Accounting Standards ("SFAS") No. 86 requires capitalization of
certain software development costs once technological feasibility is
established. We define establishment of technological feasibility at the
point that 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, marketing and technical support personnel. Sales and marketing
expenses increased by 68% to $16,414,000 in fiscal 2000 from $9,758,000 in
fiscal 1999. In fiscal 1999, sales and marketing expenses increased 34% to
$9,758,000 from $7,307,000 in fiscal 1998. Sales and marketing expenses
represented 53%, 47% and 33% of total revenues in fiscal 2000, 1999, and
1998, respectively. Sales and marketing expenses increased in absolute
dollars in fiscal 2000 primarily due to an increase in sales personnel to
expand our sales and business development organizations in the United States
and internationally, and to a lesser extent, an increase in costs associated
with corporate branding, which included renaming our corporate name to
Pumatech, Inc., redesigning our Website, and various product branding. Sales
and marketing expenses increased in absolute dollars in fiscal 1999 primarily
due to an increase in our domestic sales and business development
organizations. We expect that sales and marketing expenses will increase in
fiscal 2001 as we continue to expand our direct sales force, particularly in
Europe, and as the related personnel and marketing support costs also
increase.
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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 by 25% to $4,897,000 in fiscal 2000 from
$3,909,000 in fiscal 1999. In fiscal 1999, general and administrative
expenses increased 24% to $3,909,000 from $3,160,000 in fiscal 1998. General
and administrative expenses represented approximately 16%, 19% and 14% of
total revenues in fiscal 2000, 1999 and 1998. The increase in absolute
general and administrative spending in fiscal 2000 was primarily due to the
addition of personnel and increased fees for professional services, such as
legal, accounting, and other consulting services, to support the expansion of
our infrastructure, including the consolidation and assimilation of ProxiNet,
NetMind and Dry Creek businesses. The increase in absolute general and
administrative spending in fiscal 1999 was primarily due to increased
personnel costs and legal fees for defending our Intellectual property rights.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. We expensed purchased
in-process research and development costs of $4,218,000 as a result of the
ProxiNet acquisition in the first quarter of fiscal 2000, and $2,155,000 as a
result of the SoftMagic Corporation ("SoftMagic") acquisition in the fourth
quarter of fiscal 1998.
The ProxiNet acquisition has been accounted for as a purchase. The total
purchase price of approximately $17,384,000 (including liabilities of
$2,070,000), was assigned, based on independent appraisal, to the fair value
of the assets acquired, including $676,000 to tangible assets acquired,
$3,378,000 to identified intangible assets, $4,218,000 to in process research
and development, and $9,112,000 to goodwill. The in-process research and
development was expensed at the acquisition date. The value assigned to this
acquired in-process research and development was determined by identifying
research projects in areas for which technology feasibility had not been
established as of the acquisition date. These include projects for
ProxiWare-TM- and ProxiWeb-TM- technology. The value was determined by
estimating the revenue contribution and the percentage of complete of each of
these products. The projects were deemed to be 55% complete on the date of
acquisition. The net cash flows were then discounted utilizing a weighted
average cost of capital of 27.5%, which, among other related assumptions, we
believe to be fairly accurate. This discount rate takes into consideration
the inherent uncertainties surrounding the successful development of the
in-process research and development, the expected profitability levels of
such technology, and the uncertainty of technological advances that could
potentially impact the estimates described above. Revenues were projected to
be generated in fiscal 2000 for the products in development at the
acquisition date. If these projects are not successfully developed, our
future revenues and achievement of profitability may not be realized.
Additionally, the value of other intangible assets acquired may become
impaired.
The SoftMagic acquisition has been accounted for as a purchase. The
total purchase price of approximately $3,076,000 was assigned, based on an
independent appraisal, to the fair value of the assets acquired, including
$35,000 to tangible assets acquired, $2,155,000 to in-process research and
development and $886,000 to identified intangible assets. The in-process
research and development was expensed at the acquisition date. The value
assigned to this acquired in-process technology was determined by identifying
research projects in areas for which technological feasibility had not been
established as of the acquisition date. These include projects for Satellite
Forms and MobileXtension-TM-. The value was determined by estimating the
revenue contribution of each of these products. The net cash flows were then
discounted utilizing a weighted average cost of capital of 35%, which, among
other related assumptions, we believe to be fairly accurate. This discount
rate takes into consideration the inherent uncertainties surrounding the
successful development of the in-process research and development, the
expected profitability levels of such technology, and the uncertainty of
technological advances which could potentially impact the estimates described
above. Revenues were projected to be generated in 1998 for the products in
development at the acquisition date. If these projects are not successfully
developed, our future revenues and achievement of profitability may not be
realized. Additionally, the value of other intangible assets acquired may
become impaired.
Regarding our purchase acquisitions completed in fiscal 2000 and 1998,
actual results to date have been consistent, in all material respects, with
our assumptions at the time of the acquisitions. The assumptions primarily
consist of an expected completion date for the in-process projects, estimated
costs to complete the projects, and revenue and expense projections once the
products have entered the market. Failure to achieve the expected levels of
revenue and net income from these products during their entire life cycle
will negatively impact the return on investment expected at the time that the
acquisitions were completed and potentially result in impairment of any other
assets related to the development activities.
AMORTIZATION OF INTANGIBLES. Amortization of acquired intangibles
increased 473% to $2,630,000 in fiscal 2000 from $459,000 in fiscal 1999. In
fiscal 1999, amortization of intangibles increased 77% to $459,000 from
$260,000 in fiscal 1998. The increases in amortization of intangibles
resulted from our acquisitions of Dry Creek and ProxiNet in fiscal 2000 and
of SoftMagic in fiscal 1998.
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NON-CASH STOCK COMPENSATION. Non-cash stock compensation relates to stock
options that were deemed to have been granted at a price below market value. The
non-cash stock compensation charge aggregated $2,002,000, $410,000 and $28,000
in fiscal 2000, 1999 and 1998, respectively. These charges are amortized on a
straight-line basis over the vesting period of the options. The majority of the
fiscal 2000 non-cash compensation expense relates to options that were granted
by NetMind prior to our acquisition of NetMind. Future amortization expense is
expected to be $1,075,000, $1,070,000 and $969,000 in fiscal 2001, 2002 and
2003, respectively. Future amortization expense would be reduced if any employee
terminates employment prior to the expiration of the option vesting period.
MERGER COSTS. During the quarter ended April 30, 2000, we incurred
one-time costs totaling $6,322,000 associated with the acquisition of
NetMind. These costs included direct transaction costs primarily for
financial advisory services and professional services costs associated with
the merger.
RESTRUCTURING. In the first quarter of fiscal 1999, we implemented a
restructuring program for the purpose of consolidating the majority of our
engineering and development work at existing facilities in Nashua, New
Hampshire. As part of this program, we implemented a reduction in force of
approximately 40 positions that primarily affected the engineering group
located at the San Jose, California facility. The severance charge was
$210,000. This plan was completed at the end of February 1999. As of July 31,
2000, there was no unused balance.
Also as part of the restructuring, we announced plans for vacating a
portion of the San Jose facility. We reduced the total cost of leased
facilities by subleasing the excess office space. The restructure charge was
$558,000. The unused balance as of July 31, 2000 was $221,000.
INTEREST AND OTHER INCOME, NET. Interest and other income, net,
represents interest earned on cash and short-term investments, realized gain
on miscellaneous investments, offset by interest expense on long-term debt
and capitalized leases and miscellaneous fees and charges. Net interest and
other income was $5,023,000, $3,868,000 and $1,070,000 in fiscal 2000, 1999
and 1998, respectively. The increase in fiscal 2000 was primarily due to
increased gain recognized from the sales of equity investments, higher yields
on our investments and increased interest earned on our higher cash balance
resulting from the private placement completed in March 2000. The increase in
net interest and other income in fiscal 1999 was primarily due to gains
recognized associated with the sale of equity investment.
PROVISION FOR INCOME TAXES. The provision for income taxes primarily
represents foreign withholding taxes on royalties earned from certain foreign
customers. Provision for income taxes was $632,000, $715,000 and $1,164,000
in fiscal 2000, 1999 and 1998.
ACCRETION OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK TO
REDEMPTION VALUE. During fiscal 1999, NetMind issued approximately 4 million
shares of Series B Preferred Stock which converted into approximately 3.4
million shares of the Company's common stock upon completion of the NetMind
merger in February 2000. Under the terms of the original issuance, the Series B
shares were redeemable in September 2003 and 2004, at the higher of their
original issue price or the fair value of the stock at the dates of redemption.
The difference between the issuance price and the fair value of the Series B
stock was accreted by NetMind. Such accretion aggregated to $3,877,000 and
$4,238,000 in fiscal 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $85,260,000 at July
31, 2000 compared to $28,516,000 and $21,091,000 at July 31, 1999 and 1998,
respectively.
Our cash, cash equivalents, and short-term investments increased $56.7
million, or 199%, in fiscal 2000, primarily due to proceeds from newly issued
common stock related to the private placement completed in March 2000. We
received net proceeds of approximately $77.2 million from the private
placement of approximately 1,068,000 shares of common stock. We also received
net proceeds of approximately $1.5 million from stock options and warrants
exercises and line of credit. These proceeds, as well as unrealized gain of
$1.3 million on securities, were offset by the net cash used in operations in
the amount of $15.7 million, capital expenditures of $3.1 million, purchase
of long-term investments of $2.1 million, and the acquisition of ProxiNet and
Dry Creek for approximately $2.4 million, net of cash acquired. Cash used in
operations during fiscal 2000 reflected a net loss of $22.2 million, realized
gain on sale of investment of $2.2 million and net change of $1.7 million in
operating assets and liabilities, offset by $4.2 million in depreciation and
amortization, $2.0 million in non-cash stock compensation and $4.2 million in
purchased in-process research and development.
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Our cash, cash equivalents, and short-term investments increased $7.4
million, or 35%, in fiscal 1999, primarily due to proceeds from NetMind's
issuance of convertible preferred stock of $7.1 million and newly issued
common stock under Employee Stock Purchase Plan and upon exercise of stock
options totaling $1.5 million. These proceeds, as well as unrealized gain of
$3.5 million on securities, were offset by the net cash used in operations in
the amount of $3.3 million, capital expenditures of $0.9 million, and net
cash used in other financing activities of approximately $0.5 million. Cash
used in operations during fiscal 1999 reflected a net loss of $5.8 million
and realized gain on sale of investment of $2.6 million, offset by $1.7
million in depreciation and amortization, $0.4 million in non-cash stock
compensation and $3.0 million provided by changes in operating assets and
liabilities.
In October 1999, we issued 5,200,000 shares of common stock and stock
options to complete the acquisition of ProxiNet. In February 2000, we issued
8,808,000 shares of common stock to complete the acquisition of NetMind. In
July 2000, we used $1,987,500 of cash and issued 154,000 shares of common
stock to complete the acquisition of Dry Creek. For additional information
regarding the acquisitions, refer to Note 2 of the Notes to Consolidated
Financial Statements.
In June 1999, NetMind entered into a loan and security agreement that
provided a $1,000,000 revolving credit line and a $750,000 equipment line to
NetMind. Borrowings under the revolving credit line bear interest at a per
annum rate equal to the prime rate plus one half of one percent. Borrowings
under the equipment line bear interest at a per annum rate equal to the prime
rate plus one percent. At July 31, 2000, $561,000 was outstanding on the
equipment line and no outstanding balance drawn on the revolving credit line.
Dry Creek maintains a $10,000 unsecured line of credit. Borrowings under
the line of credit bear interest at the bank's reference rate plus 7.375
percent. At July 31, 2000, $7,850 was outstanding under this line of credit.
We believe that our current cash, cash equivalents and short-term
investment balances, including the credit lines and cash generated from
operations, if any, will be sufficient to meet our working capital and other
cash requirements for at least the next 12 months. However, this belief
assumes that operating results and cash flows from operations will meet our
expectations.
In the future, we may seek to raise cash through the issuance of debt or
equity securities. There can be no assurance that such financing would be
available to us at all or on terms favorable to us.
See Note 7 of the Notes to Consolidated Financial Statements for
additional information regarding long-term debt.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
BECAUSE WE HAVE HAD LIMITED INTERNET OPERATING HISTORY, IT IS DIFFICULT TO
EVALUATE OUR BUSINESS AND WE MAY FACE VARIOUS RISKS, EXPENSES AND DIFFICULTIES
ASSOCIATED WITH EARLY STAGE COMPANIES.
Historically, we have licensed our products and technology primarily to
PC OEMs, corporations and to end users through our channels of distribution.
In the second quarter of fiscal 2000, we announced our Internet initiative.
This initiative has required us to add additional resources and to develop
and market our Intellisync.com portal and the products and technologies
recently obtained in the ProxiNet and NetMind acquisitions. We plan to market
and license our new Web-based products and solutions to wireless carriers,
Web portals and individual consumers. We also plan to offer these new
products and solutions to corporations. We expect to incur significant costs
in completing the launch of our Internet initiative.
Our overall operating results have changed significantly as a result of
developing and bringing to market our new Internet products. It is important
to understand that our historical financial statements include operating
results of our recently launched Internet initiative only to the extent that
NetMind's historical operating results have been reflected under
pooling-of-interests accounting. As a result of our Internet initiative, we
expect our combined results to reflect an operating loss for at least the
next several fiscal quarters. There can be no assurance that we will be able
to achieve or sustain profitability.
Since we just launched our Internet initiative, there is little information
on which to evaluate our business and prospects as an Internet company. An
investor in our common stock should consider the risks, expenses and
difficulties that young companies frequently encounter in the new and rapidly
evolving markets for Internet products and services. These risks to us include:
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- our evolving new business model;
- our need and ability to manage growth; and
- rapid evolution of technology.
To address these risks and uncertainties, we must take several steps,
including:
- creating and maintaining strategic relationships;
- expanding sales and marketing activities;
- integrating existing and acquired technologies;
- expanding our customer base and retaining key clients;
- introducing new services, including our Professional Services
Organization;
- managing rapidly growing operations, including new facilities and
information technology infrastructure;
- competing in a highly competitive market; and
- attracting, retaining and motivating key employees.
We may not be successful in implementing any of our strategies or in
addressing these risks and uncertainties. We expect that our operating
expenses will continue to increase, primarily as a result of our investment
in our new Internet product initiative. Moreover, even if we accomplish our
objectives, we still may not achieve sustainable profitability in the future.
We have invested substantial amounts in technology and infrastructure
development. We expect to continue to invest substantial financial and other
resources to develop and introduce new Internet and wireless products and
services, and to expand our sales and marketing organizations, strategic
relationships and operating infrastructure. We expect that our cost of
revenue, sales and marketing expenses, general and administrative expenses,
operations and customer support expenses, and depreciation and amortization
expenses will continue to increase in absolute dollars and may increase as a
percent of revenue. If revenue does not correspondingly increase, our
operating results and financial condition could be negatively affected.
OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY BE DIFFICULT TO PREDICT.
Our operating results have fluctuated in the past, and with our Internet
product initiative and the ProxiNet, NetMind and Dry Creek acquisitions, our
operating results are likely to continue to fluctuate significantly. A number
of factors, many of which are outside of our control, are likely to cause
fluctuations in operating results, including, but not limited to:
- the demand for our products and services;
- our success in developing new products and integrating acquired
technologies;
- the timing of new product introductions by us and our
competitors;
- market acceptance of our new and enhanced products and services;
- market acceptance of handheld devices generally, and those
supported by our products and services;
- the emergence of new industry standards;
- the timing of customer orders;
- the mix of products and services sold;
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- product life cycles;
- competition;
- the mix of distribution channels employed;
- seasonal trends;
- the timing and magnitude of our capital expenditures, including
costs relating to the expansion of operations;
- the evolving and unpredictable nature of the markets for our
products and mobile computing devices generally;
- the rate of growth of the Internet and the personal computer
market in general; and
- general economic conditions.
In addition, we typically operate 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 and fulfilled within the quarter, which
are difficult to forecast. A significant portion of our expense levels are
fixed in advance, based in large part on our resource requirements to meet
planned product and customer requirements. If revenue is below expectations
in any given quarter, the adverse impact of the shortfall on operating
results may be magnified by our 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 our business,
operating results and financial condition that could be material.
Due to our ongoing efforts to expand into retail and reseller channels,
we are focusing our efforts on licensing our server and personal applications
to corporations and licensing our Software Development Kits ("SDKs") to
software developers and mobile computing device manufacturers. SDKs provide
the complete solution for adding intelligent synchronization to enterprise
applications, mobile devices and Web-based services. With intelligent
synchronization, users can keep their critical information up-to-date and in
sync across multiple applications and mobile devices. As a result, we expect
that our notebook and PC OEM revenue will decrease as a percentage of our
overall revenue. This new sales strategy has the following risks:
- sales into these channels are harder to predict and may have
lower margins than sales in other channels;
- we have a very limited history in penetration and support for
these channels;
- the average transaction size and sales cycle vary significantly,
making forecasting difficult;
- smaller transactions may have relatively higher administrative
costs;
- any significant deferral of purchases of our products by
customers could jeopardize our operating results in any
particular quarter;
- to the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely
affected;
- products that are accepted in the OEM market may not be readily
accepted by corporations;
- we may incur increased costs related to new infrastructure
requirements; and
- planned marketing strategy may require significant expenditures
but may not have immediate or future beneficial effect on sales.
Our gross margin on service revenue, particularly non-recurring
engineering service and professional service revenue, is substantially lower
than gross margin on license revenue. We have recently acquired Dry Creek,
which formed the basis of our professional service group, and, consequently,
we expect that professional service revenue, as well as non-recurring
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engineering service revenue, will increase in future quarters. Any increase
in non-recurring engineering service and professional service revenue would
have a corresponding increase in cost of revenue and would have an adverse
effect on our gross margins. We may also change 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. Our revenue and operating results may be adversely affected by
diminished demand for products on a seasonal basis.
Period-to-period comparisons of operating results are not a good
indication of future performance. It is likely that operating results in some
quarters will be below market expectations. In this event, the price of our
common stock is likely to decline.
THE SIZE OF THE MOBILE COMPUTING MARKET CANNOT BE ACCURATELY PREDICTED, AND IF
OUR MARKET DOES NOT GROW AS WE EXPECT, OUR REVENUE WILL BE BELOW OUR
EXPECTATIONS AND OUR BUSINESS AND FINANCIAL RESULTS WILL SUFFER.
We are focusing on expanding into the mobile computing market, an
unproven market. Accordingly, the size of this market cannot be accurately
estimated and therefore we are unable to accurately determine the potential
demand for our products and services. If our customer base does not expand or
if there is not widespread acceptance of our products and services, our
business and prospects will be harmed. We believe that our potential to grow
and increase the market acceptance of our products depends principally on the
following factors, some of which are beyond our control:
- the effectiveness of our marketing strategy and efforts;
- our product and service differentiation and quality;
- our ability to provide timely, effective customer support;
- our distribution and pricing strategies as compared to our
competitors;
- growth in the sales of handheld devices supported by our software
and growth in wireless network capabilities to match end user
demand and requirements;
- our industry reputation; and
- general economic conditions such as downturns in the computer or
software markets.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR RESOURCES AND HARM OUR BUSINESS
AND FINANCIAL RESULTS.
The planned expansion of our Internet initiative as well as growth in
our existing enterprise business will place a significant strain on our
management, financial controls, operations systems, personnel and other
resources. To date, revenue recognized from our Internet initiatives, $2.0
million in fiscal 2000, has been limited. If we are successful in
implementing our marketing strategy, we also expect the demands on our
technical support resources to grow rapidly, and we may experience
difficulties responding to customer demand for our services and providing
technical support in accordance with our customers' expectations. We expect
that these demands will require not only the addition of new management
personnel, but also the development of additional expertise by existing
management personnel and the establishment of long-term relationships with
third-party service vendors. Additionally, we have recently opened additional
facilities in New Hampshire and intend to open new offices in Europe. We may
encounter difficulties in integrating information and communications systems
in multiple locations. We may not be able to keep pace with growth,
successfully implement and maintain our operational and financial systems or
successfully obtain, integrate and utilize the employees, facilities,
third-party vendors and equipment, or management, operational and financial
resources necessary to manage a developing and expanding business in our
evolving and increasingly competitive industry. If we are unable to manage
growth effectively, we may lose customers or fail to attract new customers
and our business and financial results will suffer.
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THE INTEGRATION OF KEY NEW EMPLOYEES AND OFFICERS INTO OUR MANAGEMENT TEAM HAS
INTERFERED, AND WILL CONTINUE TO INTERFERE, WITH OUR OPERATIONS.
We have recently hired a number of key employees and we are currently
seeking additional engineering, sales and marketing and professional services
personnel. In addition, there has been turnover among our officers as two
individuals added as officers at the closing of the NetMind merger have since
left the company. To integrate into our company, new employees must spend a
significant amount of time learning our business model and management system,
in addition to performing their regular duties. Accordingly, the integration
of new personnel has resulted and will continue to result in some disruption
to our ongoing operations. If we fail to complete this integration in an
efficient manner, our business and financial results will suffer.
WE MUST RETAIN AND ATTRACT KEY EMPLOYEES OR ELSE WE MAY NOT GROW OR BE
SUCCESSFUL.
We are highly dependent on key members of our management and engineering
staff. The loss of one or more of these officers or key employees might
impede the achievement of our business objectives. Furthermore, recruiting
and retaining qualified technical personnel to perform research, development
and technical support is critical to our success. If our business grows, we
will also need to recruit a significant number of management, technical and
other personnel for our business. Competition for employees in our industry
and geographic location is intense. We may not be able to continue to attract
and retain skilled and experienced personnel on acceptable terms.
ACQUISITIONS WE HAVE MADE AND MAY MAKE IN THE FUTURE COULD DISRUPT OUR BUSINESS
OR NOT BE SUCCESSFUL AND HARM OUR FINANCIAL CONDITION.
We have in the past acquired or made investments in, and intend in the
future to acquire or make investments in other complementary companies,
products and technologies. We have acquired Dry Creek, NetMind, ProxiNet,
SoftMagic, RealWorld Solutions, Inc. and IntelliLink Corporation. In the
event of any future acquisitions or investments, we could:
- issue stock that would dilute the ownership of our then existing
stockholders;
- incur debt;
- assume liabilities;
- face SEC challenges to the accounting treatment of these
acquisitions which may result in changes to our financial
statements and cause us to incur charges to earnings over time
that we did not expect;
- incur amortization expenses related to goodwill and other
intangible assets; or
- incur large and immediate write-offs.
These acquisitions and investments also involve numerous risks, including:
- problems integrating the operations, technologies or products
purchased with those we already have;
- unanticipated costs and liabilities;
- diversion of management's attention from our core business;
- adverse effects on existing business relationships with suppliers
and customers;
- risks associated with entering markets in which we have no or
limited prior experience; and
- potential loss of key employees, particularly those of the
acquired organizations.
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BECAUSE TRACKING INTERNET-BASED INFORMATION ACROSS THE ENTIRE WORLDWIDE WEB IS A
HIGHLY COMPLEX PROCESS, OUR PRODUCTS AND SERVICES MAY HAVE ERRORS OR DEFECTS
THAT COULD SERIOUSLY HARM OUR BUSINESS.
The tracking of Internet-based information across the entire worldwide
Web is a highly complex process. We and our customers have, from time to
time, discovered errors and defects in our software. In the future, there may
be additional errors and defects in our software that may adversely affect
our products and services. If we are unable to efficiently fix errors or
other problems that may be identified, we could experience:
- loss of or delay in revenue and loss of market share;
- loss of customers;
- failure to attract new customers or achieve market acceptance;
- diversion of development resources;
- loss of reputation and credibility;
- increased service costs; and
- legal actions by our customers.
REGULATIONS OR CONSUMER CONCERNS REGARDING PRIVACY ON THE INTERNET COULD LIMIT
MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES.
Our products and services will allow our customers to develop and
maintain Web user profiles to tailor content to specific users. Profile
development involves both data supplied by the user and data derived from the
user's Web site behavior. Privacy concerns may cause users to resist
providing personal data or to avoid Web sites that track user behavior. In
addition, legislative or regulatory requirements may heighten consumer
concerns if businesses must notify Web site users that user profile data may
be used to direct product promotion and advertising to users. Other countries
and political entities, such as the European Economic Community, have adopted
such legislation or regulatory requirements. The United States may do so in
the future. If privacy legislation is enacted or consumer privacy concerns
limit the market acceptance of personalization software, our business,
financial condition and operating results could be harmed.
We use cookies to provide users convenient access to the Web sites they
are minding and to track demographic information and user preferences. A
cookie is information keyed to a specific user that is stored on a computer's
hard drive, typically without the user's knowledge. Cookies are generally
removable by the user, although removal could affect the content available on
a particular site. A number of governmental bodies and commentators in the
United States and abroad have urged passage of laws limiting or abolishing
the use of cookies. If such laws are passed or if users begin to delete or
refuse cookies as a common practice, market demand for our products and
services could be reduced.
ACTIONS BY MAJOR WEB SITE PROVIDERS TO BLOCK OUR SOFTWARE FROM MINDING THEIR
SITES COULD LIMIT MARKET ACCEPTANCE OF OUR PRODUCTS.
One of the primary benefits of our products and services is that they
bring users back to a Web site through click-throughs on links within our
change notifications. This is generally very beneficial to Web site
providers. These providers do, however, have the ability to detect our
monitoring of their sites and could block our access to their site.
Widespread blocking by major Web sites could seriously limit market
acceptance of our products.
OUR BUSINESS AND PROSPECTS DEPEND ON DEMAND FOR AND MARKET ACCEPTANCE OF THE
INTERNET, WIRELESS DEVICES AND MOBILE COMPUTING DEVICES.
The increased use of the Internet, wireless devices and mobile computing
devices for retrieving, sharing and transferring information among
businesses, consumers, suppliers and partners, and for Internet
personalization services has only begun to develop in recent years. Our
success will depend in large part on continued growth in the use of the
Internet, wireless devices and mobile computing devices. Critical issues
concerning the commercial use of the Internet, wireless devices and mobile
computing devices, including security, reliability, cost, ease of access and
use, quality of service, regulatory initiatives and necessary increases in
bandwidth availability, remain unresolved and are likely to affect the
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development of the market for our services. The adoption of the Internet,
wireless devices and mobile computing devices for information retrieval and
exchange, commerce and communications generally will require the acceptance
of a new medium of conducting business and exchanging information. Demand for
and market acceptance of the Internet, wireless devices and mobile computing
devices are subject to a high level of uncertainty and are dependent on a
number of factors, including:
- the growth in access to and market acceptance of new interactive
technologies;
- emergence of a viable and sustainable market for Internet
personalization services;
- the development of technologies that facilitate interactive
communication between organizations; and
- increases in bandwidth for data transmission.
If the market for Internet personalization services or the Internet,
wireless devices and mobile computing devices as a commercial or business
medium does not develop, or develops more slowly than expected, our business,
results of operations and financial condition will be seriously harmed.
Specifically, even if an Internet personalization services market does
develop, services that we currently offer or may offer in the future may not
achieve widespread market acceptance. Failure of our current and planned
services to operate as expected could delay or prevent their adoption. If our
target customers do not adopt, purchase and successfully deploy our current
and planned services, our revenue will not grow significantly and our
business, results of operations and financial condition will be seriously
harmed. We have not taken any steps to mitigate the risks associated with
reduced demand for our existing Internet personalization services.
THERE ARE MANY COMPANIES PROVIDING COMPETING PRODUCTS AND SERVICES.
There are few substantial barriers to entry and we expect that we will
face additional competition from existing competitors and new market entrants
in the future.
We currently face direct competition with respect to individual elements
of our MAP including Sync-it, Browse-it and Mind-it. Sync-it faces
competition from Advanced Systems Network, Inc., Aether Software, Chapura,
Inc., DataViz, Inc., Extended Systems, Inc., FusionOne, Inc., IBM
Corporation, Laplink.com, Inc., Motorola, Inc., Phone.com, Inc. and River Run
Computers, Inc. Browse-it's transformation and mobile content distribution
features face competition from AvantGo, Inc., Broadvision, Inc., InfoSpace,
Inc., OpenTV, Inc. and Oracle Corporation. Finally, Mind-it faces competition
from Aeneid Corporation, Alerts.com, Inc., and The Informant in the area of
alerts and notifications and competition from MicroStrategy, Inc., Net
Perceptions, Inc. and Personify, Inc. in the areas of personalization,
profiling and analytics. In addition to direct competition noted above, we
face indirect competition from existing and potential customers that may
provide internally developed solutions to each of elements of MAP.
Many of our competitors have substantially greater financial, technical
and marketing resources, larger customer bases, longer operating histories,
greater name recognition and more established relationships in the industry
than we do. Our larger competitors may be able to provide customers with
additional benefits in connection with their Internet systems and network
solutions, including reduced communications costs. As a result, these
companies may be able to price their products and services more competitively
than we can and respond more quickly than us to new or emerging technologies
and changes in customer requirements. If we are unable to compete
successfully against our current or future competitors, we may lose market
share, and our business and prospects would suffer.
Increased competition could result in:
- price and revenue reductions and lower profit margins;
- loss of customers or failure to obtain additional customers; and
- loss of market share.
Any one of these could materially and adversely affect our business,
financial condition and results of operations.
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OUR MARKET CHANGES RAPIDLY DUE TO CHANGING TECHNOLOGY AND EVOLVING INDUSTRY
STANDARDS. IF WE DO NOT ADAPT TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS,
OUR BUSINESS AND PROSPECTS WILL SUFFER.
The market for our services is characterized by rapidly changing
technology, evolving industry standards and frequent new service
introductions. Our future success will depend to a substantial degree on our
ability to offer services that incorporate leading technology, address the
increasingly sophisticated and varied needs of our current and prospective
customers and respond to technological advances and emerging industry
standards and practices on a timely and cost-effective basis. You should be
aware that:
- our technology or systems may become obsolete upon the
introduction of alternative technologies;
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing
with future technologies or service offerings; and
- the price of the services we provide is expected to decline as
rapidly as the cost of any competitive alternatives.
We may not be able to effectively respond to the technological
requirements of the changing market. To the extent we determine that new
technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and
equipment are likely to continue to require significant capital investment by
us. Sufficient capital may not be available for this purpose in the future,
and even if it is available, investments in new technologies may not result
in commercially viable technological processes and there may not be
commercial applications for such technologies. If we do not develop and
introduce new products and services and achieve market acceptance in a timely
manner, our business and prospects may suffer.
WE MAY REQUIRE ADDITIONAL CAPITAL, WHICH WE MAY NOT BE ABLE TO OBTAIN.
The expansion and development of our business may require additional
capital in the future to fund our operating losses, working capital needs and
capital expenditures. We may not be able to obtain future equity or debt
financing on satisfactory terms or at all. Our failure to generate sufficient
cash flows from sales of products and services or to raise sufficient funds
may require us to delay or abandon some or all of our development and
expansion plans or otherwise forego market opportunities. Our inability to
obtain additional capital on satisfactory terms may delay or prevent the
expansion of our business, which could cause our business, operating results
and financial condition to suffer.
Our working capital is primarily comprised of cash, short-term
investments, accounts receivable, inventory, other current assets, accounts
payable, accrued expenses, deferred revenue and current portion of notes
payable. The timing and amount of our future capital requirements may vary
significantly depending on numerous factors, including our financial
performance, technological, competitive and other developments in our
industry. These factors may cause our actual revenue and costs to vary from
expected amounts, possibly to a material degree, and such variations are
likely to affect our future capital requirements.
FOREIGN EXCHANGE FLUCTUATIONS COULD DECREASE OUR REVENUES OR CAUSE US TO LOSE
MONEY, ESPECIALLY SINCE WE DO NOT HEDGE AGAINST CURRENCY FLUCTUATIONS.
To date, the majority of our customers have paid for our services in
U.S. dollars. For fiscal 2000, 1999 and 1998, costs denominated in foreign
currencies were nominal and we had minimal foreign currency losses during
those periods. However, we believe that in the future an increasing portion
of our costs will be denominated in foreign currencies. Fluctuations in the
value of the Yen, Euro or other foreign currencies may cause our business and
prospects to suffer. We will also be exposed to increased risk of non-payment
by our customers in foreign countries, especially those with highly
inflationary economies. We currently do not engage in foreign exchange
hedging activities and, although we have not yet experienced any material
losses due to foreign currency fluctuation, our international revenues are
currently subject to the risks of foreign currency fluctuations and such
risks will increase as our international revenues increase.
YEAR 2000 COMPUTER COMPLICATIONS COULD DISRUPT OUR OPERATIONS AND HARM OUR
BUSINESS.
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
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results if "00" is interpreted to mean 1900, rather than 2000. These problems
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 us. We have not experienced any
significant problems on January 1, 2000 or since then and believe that our
computer systems are Year 2000 compliant.
We believe that we have substantially identified and resolved all
potential Year 2000 Problems with any of the software products that we
develop and market. However, we also believe that it is not possible to
determine with complete certainty that all Year 2000 Problems affecting our
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 our control.
Since January 1, 2000, we have had minimal interruptions with
third-party software and we have not received any significant complaints from
any customers relating to Year 2000 problems in their products. We have not
developed any Year 2000 contingency plans. We do not believe that the Year
2000 Problem will have a material adverse effect on our business or results
of operations.
OUR FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS MAY HARM OUR
COMPETITIVE POSITION.
We rely on a combination of patents, copyrights, trademark, service mark
and trade secret laws and contractual restrictions to establish and protect
proprietary rights in our products and services. However, we will not be able
to protect our intellectual property if we are unable to enforce our rights
or we do not detect unauthorized use of our intellectual property.
Although we currently have 11 issued United States patents and have
additional 13 patent applications pending, we cannot be certain that such
patents and patent applications will provide an adequate level of intellectual
property protection. In addition, we have corresponding international patent
applications pending under the Patent Cooperation Treaty in countries to be
designated at a later date. We cannot be certain that any pending or future
patent applications will be granted, that any pending or future patents will not
be challenged, invalidated or circumvented, or that rights granted under any
patent that may be issued will provide competitive advantages to us.
We have also provided our source code under escrow agreements and to
foreign translators which may increase the likelihood of misappropriation by
third parties.
We have applied for trademarks and service marks on certain terms and
symbols that we believe are important for our business. However, the steps we
have taken to protect our technology or intellectual property may be inadequate.
Our competitors may independently develop technologies that are substantially
equivalent or superior to ours. Moreover, in other countries where we do
business, such as in Africa, Asia-Pacific and Europe, there may not be effective
legal protection of patents and other proprietary rights that we believe are
important to our business.
As a matter of company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products is difficult, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software and other transmitted data. The laws of
other countries may afford us little or no effective protection of our
intellectual property. The steps we have taken to prevent misappropriation of
our technology, including entering into agreements for that purpose may be
insufficient. In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of our management
resources, either of which could harm our business.
WE MAY BE UNABLE TO LICENSE NECESSARY TECHNOLOGY AND IT MAY BE SUBJECT TO
INFRINGEMENT CLAIMS BY THIRD PARTIES.
Our commercial success will also depend in part on not infringing the
proprietary rights of others and not breaching technology licenses that cover
technology used in our products. It is uncertain whether any third party patents
will require us to develop alternative technology or to alter our products or
processes, obtain licenses or cease activities that infringe on third
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party's intellectual property rights. If any such licenses are required, we
may not be able to obtain such licenses on commercially favorable terms, if
at all. Our failure to obtain a license to any technology that we may require
to commercialize our products and services could cause our business and
prospects to suffer. Litigation may also be necessary to enforce any patents
issued or licensed to us or to determine the scope and validity of third
party proprietary rights.
WE ARE DEPENDENT ON NON-EXCLUSIVE LICENSES FOR CERTAIN TECHNOLOGY INCLUDED IN
OUR PRODUCTS.
We depend on development tools provided by a limited number of third
party vendors. Together with application developers, we rely primarily upon
software development tools provided by companies in the PC and mobile
computing device industries. If any of these companies fail to support or
maintain these development tools, we will have to support the tools itself or
transition to another vendor. Any maintenance or our support of the tools or
transition could be time consuming, could delay product release and upgrade
schedule and could delay the development and availability of third party
applications used on the our products. Failure to procure the needed software
development tools or any delay in availability of third party applications
could negatively impact our ability and the ability of third party
application developers to release and support our products or they could
negatively and materially affect the acceptance and demand for our products,
business and prospects.
The risks associated with such non-exclusive third party licenses:
- If we are unable to continue to license the technology or to
license other necessary technologies for use with our products or
if there are substantial increases in royalty payments under
third-party licenses, it could jeopardize our operating results.
- The effective implementation of our products depends upon the
successful operation of these licenses in conjunction with our
products, and therefore any undetected errors in products
resulting from such licenses may prevent the implementation or
impair the functionality of our products, delay new product
introductions and injure our reputation. Such problems could have
a material adverse effect on our business, operating results and
financial condition.
- Although we are generally indemnified against claims that the
third party technology we license infringes the proprietary
rights of others, this indemnification is not always available
for all types of intellectual property rights (for example,
patents may be excluded) and, in some cases, the scope of such
indemnification is limited. Even if we receive broad
indemnification, third party indemnitors are not always
well-capitalized and may not be able to indemnify us in the
event of infringement, resulting in substantial exposure to us.
There can be no assurance that infringement or invalidity claims
arising from the incorporation of third party technology in our
products, and claims for indemnification from our customers
resulting from these claims, will not be asserted or prosecuted
against us. These claims, even if not meritorious, could result
in the expenditure of significant financial and managerial
resources in addition to potential product redevelopment costs
and delay, all of which could materially adversely affect our
business, operating results and financial condition.
OUR PRODUCTS MAY CONTAIN PRODUCT ERRORS THAT COULD SUBJECT US TO PRODUCT
LIABILITY CLAIMS.
Our products may contain undetected errors or failures when first
introduced or as new versions are released, which can result in loss of or
delay in market acceptance and could adversely impact future operating
results. We do not currently maintain product liability insurance. Although
our license agreements contain provisions limiting our liability in the case
of damages resulting from use of the software, in the event of such damages,
we may be found liable, and in such event such damages could materially
affect our business, operating results and financial condition.
WE ARE DEPENDENT ON OUR INTERNATIONAL OPERATIONS FOR A SIGNIFICANT PORTION OF
OUR REVENUES.
Our international activities expose us to additional risks.
International revenue, primarily from customers based in Japan, accounted for
27%, 40% and 48% of our revenue in fiscal 2000, 1999 and 1998, respectively.
A key component of our strategy is to further expand our international
activities. As we continue to expand internationally, we are increasingly
subject to risks of doing business internationally, including:
- unexpected changes in regulatory requirements and tariffs;
17
<PAGE>
- export controls relating to encryption technology and other
export restrictions;
- political and economic instability;
- difficulties in staffing and managing foreign operations;
- reduced protection for intellectual property rights in some
countries;
- longer payment cycles;
- problems in collecting accounts receivable;
- potentially adverse tax consequences;
- seasonal reductions in business activity during the summer months
in Europe and certain other parts of the world;
- fluctuations in currency exchange rates that may make our
products more expensive to international customers;
- causing gains and losses on the conversion to U.S. dollars of
accounts receivable and accounts payable arising from
international operations due to foreign currency denominated
sales;
- nonrefundable withholding taxes on royalty income from customers
in certain countries, such as Japan and Taiwan; and
- an adverse effect on our provision for income taxes based on the
amount and mix of income from foreign customers; and
- exposure to risk of non-payment by customers in foreign countries
with highly inflationary economies.
Any of these risks could harm our international operations. For example,
some European countries already have laws and regulations related to content
distributed on the Internet and technologies used on the Internet that are
more strict than those currently in force in the United States. The European
Parliament has recently adopted a directive relating to the reform of
copyright in the European Community that will, if made into law, restrict
caching and mirroring. Any or all of these factors could cause our business
and prospects to suffer.
Our international sales growth will be limited if we are unable to
establish additional foreign operations, expand international sales channel
management and support, hire additional personnel, customize products for
local markets and develop relationships with international service providers,
distributors and device manufacturers. Even if we are able to successfully
expand international operations, we cannot be certain that we will succeed in
maintaining or expanding international market demand for our products.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE.
Certain provisions of our certificate of incorporation and bylaws and
provisions of Delaware law could have the effect of delaying, deferring or
preventing an acquisition of us. These provisions include a classified board
of directors and limitations on actions by our stockholders by written
consent. In addition, our board of directors has the right to issue up to
2,000,000 shares of "blank check" preferred stock without stockholder
approval, which could be used to dilute the stock ownership of a potential
hostile acquirer. The preferred stock we issue could have mandatory
redemption features, liquidation preference and other rights that are senior
to the rights of common stockholders. Delaware law also imposes some
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. Although we believe
these provisions provide for an opportunity to receive a higher bid by
requiring potential acquirers to negotiate with our board of directors, these
provisions apply even if the offer may be considered beneficial by some
stockholders.
18
<PAGE>
In addition, our stockholders may not take actions by written consent and
our stockholders are limited in their ability to make proposals at stockholder
meetings.
Our common stock will likely be subject to substantial price and volume
fluctuations due to a number of factors, some of which are beyond our control.
The trading price of our common stock has been and is likely to continue
to be highly volatile. Our stock price is subject to wide fluctuations in
response to a variety of factors including:
- quarterly variations in operating results;
- announcements of technological innovations;
- announcements of new software or services by us or our
competitors;
- changes in financial estimates by securities analysts; or
- other events beyond our control.
In addition, the stock market has experienced significant price and
volume fluctuations that have particularly affected the trading prices of
equity securities of many high technology companies. These fluctuations have
often been unrelated or disproportionate to the operating performance of
these companies. Any negative change in the public's perception of Internet
or Internet software companies or companies in the wireless communications
market could depress our stock price regardless of our operating results.
Recently, when the market price of a stock has been volatile, holders of
that stock have often instituted securities class action litigation against
the company that issued the stock when such stock declines. If any of our
stockholders brought such a lawsuit against us, we could incur substantial
costs defending the lawsuit. The lawsuit could also divert the time and
attention of our management.
We expect that our future operating results could fluctuate
significantly as a result of numerous factors including, but not limited to,
the demand for our products, our success in developing new products, the
timing of new product introductions by us and our competitors, the timing of
releases of new handheld devices by our customers, market acceptance of our
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 our products and mobile computing devices generally, the rate of
growth of the personal computer market in general and general economic
conditions.
FINANCIAL MARKET RISKS
We are exposed to a variety of risks, including changes in interest
rates, foreign currency fluctuations and marketable equity security prices
which could impact our results of operations and financial condition. We
currently do not utilize derivative financial instruments to hedge such risks.
At July 31, 2000, we had an investment portfolio of fixed income
securities excluding those classified as cash and cash equivalents and
securities available for sale, of $30,543,000 (see Note 3 of Notes to
Consolidated Financial Statements). These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in values if
market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10% from levels as of July 31, 2000, the decline
of the fair value of the portfolio would be immaterial. Our fixed income
investments have maturities of less than one year. While we have the intent
to hold our fixed income investments until maturity to avoid recognizing an
adverse impact in income or cash flows in the event of an increase in market
interest rates, there can be no assurance that we will be able to do so.
To date, substantially all of our recognized revenue has been
denominated in U.S. dollars and generated primarily from customers in the
United States, and our exposure to foreign currency exchange rates has been
immaterial. We expect, however, that more product and service revenue may
also be derived from international markets and may be denominated in the
currency of the applicable market in the future. As a result, our operating
results may become subject to significant fluctuations based upon changes in
exchange rates of certain currencies in relation to the U.S. dollar. We will
also be exposed to increased risk of
19
<PAGE>
non-payment by our customers in foreign countries, especially those of highly
inflationary economies. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of
the U.S. dollar relative to foreign currencies could make our products and
services less competitive in international markets. Although we will continue
to monitor our exposure to currency fluctuations, and, when appropriate, may
use financial hedging techniques in the future to minimize the effect of
these fluctuations, we cannot be assured that exchange rate fluctuations will
not adversely affect our financial results in the future.
We are subject to equity price risks on the marketable portion of
investments in publicly traded equity securities. These investments are
generally in companies having operations or technology in areas within our
strategic focus. We do not attempt to reduce or eliminate our market exposure
on these securities. At July 31, 2000, the fair value of these investments is
$225,000 (see Note 3 of Notes to Consolidated Financial Statements). We
believe that a decline in the investments' fair values would not adversely
impact our results of operations.
20
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
---------------------------
2000 1999
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 54,492 $ 16,639
Short-term investments................................................. 30,768 11,877
Accounts receivable, net............................................... 6,358 3,160
Inventories, net....................................................... 235 258
Other current assets................................................... 1,732 590
--------- --------
Total current asset................................................. 93,585 32,524
Property and equipment, net................................................. 4,828 3,008
Other assets................................................................ 20,242 1,590
--------- --------
Total assets $ 118,655 $ 37,122
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 2,601 $ 860
Accrued liabilities.................................................... 4,036 2,454
Current portion of long term notes payable............................. 259 325
Deferred revenue....................................................... 6,372 3,989
--------- --------
Total current liabilities........................................... 13,268 7,628
Long term notes payable..................................................... 310 -
--------- --------
Total liabilities................................................... 13,578 7,628
--------- --------
Commitments and contingencies (Note 8)......................................
Redeemable, convertible preferred stock..................................... - 11,293
--------- --------
Stockholders' equity:
Common stock, $0.001 par value; 60,000 shares authorized; 42,307
shares issued and outstanding at July 31, 2000 and 40,000 shares
authorized; 31,501 shares issued and outstanding at July 31, 1999... 42 30
Additional paid-in capital............................................. 146,051 36,885
Receivable from stockholders........................................... (330) (428)
Deferred stock compensation............................................ (3,114) (3,773)
Accumulated deficit.................................................... (37,589) (15,390)
Other comprehensive income............................................. 17 877
--------- --------
Total stockholders' equity.......................................... 105,077 18,201
--------- --------
Total liabilities and stockholders' equity.......................... $ 118,655 $ 37,122
========= ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
21
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------------
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
License......................................... $ 27,685 $ 19,084 $ 18,477
Services....................................... 3,128 1,639 3,864
----------- ----------- -----------
Total revenue............................... 30,813 20,723 22,341
----------- ----------- -----------
Cost of revenues and operating expenses:
Cost of license revenue......................... 1,827 1,270 1,541
Cost of service revenue......................... 1,953 709 1,536
Research and development (excludes non-cash
stock compensation of $769, $68 and $0)...... 17,140 12,421 10,421
Sales and marketing (excludes non-cash stock
compensation of $610, $217 and $0)........... 16,414 9,758 7,307
General and administrative (excludes non-cash
stock compensation of $623, $125 and $28).... 4,897 3,909 3,160
In-process research and development............ 2,155
4,218 -
Amortization of intangibles..................... 2,630 459 260
Non-cash stock compensation..................... 2,002 410 28
Merger costs.................................... 6,322 - -
Restructuring................................... - 768 -
----------- ----------- -----------
Total cost of revenues and operating expenses 57,403 29,704 26,408
----------- ----------- -----------
Operating loss...................................... (26,590) (8,981) (4,067)
Other income, net.................................. 5,023 3,868 1,077
----------- ----------- -----------
Loss before income taxes........................... (21,567) (5,113) (2,990)
Provision for income taxes......................... (632) (715) (1,164)
----------- ----------- -----------
Net loss............................................ (22,199) (5,828) (4,154)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value............ (3,877) (4,238) -
----------- ----------- -----------
Net loss attributable to common stockholders........ $ (26,076) $ (10,066) $ (4,154)
=========== =========== ===========
Basic net loss per share........................... $ (0.74) $ (0.34) $ (0.15)
=========== =========== ===========
Diluted net loss per share......................... $ (0.74) $ (0.34) $ (0.15)
=========== =========== ===========
Shares used in computing basic and diluted net loss
per common share............................... 35,319 29,970 27,224
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
ADDITIONAL RECEIVABLE DEFERRED COMPREHENSIVE
COMMON STOCK PAID-IN FROM STOCK ACCUMULATED INCOME
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT (LOSS)
------ ------ -------- ------------ ------------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1997. 27,142 $ 27 $ 31,514 $(192) $ (81) $ (5,408) $ -
Issuance of common stock
upon exercise of
options............... 182 - 107 - - - -
Issuance of common stock
under Employee Stock
Purchase Plan......... 124 - 273 - - - -
Repurchase of unvested
common stock.......... (108) - (10) - - - -
Issuance of options and
warrants.............. - - 38 - - - -
Issuance of common stock
in connection with
SoftMagic Corp.
acquisition........... 684 1 1,937 - - - -
Issuance of common stock. 1,350 1 1,617 - - - -
Repayments by stockholders - - - 126 - - -
Amortization of deferred
compensation ......... - - - - 28 - -
Net loss ................ - - - - - (4,154) -
------ ---- -------- ------ -------- --------- -------
BALANCE AT JULY 31, 1998. 29,374 29 35,476 (66) (53) (9,562) -
Issuance of common stock
upon exercise of
options............... 1,388 1 1,164 - - - -
Issuance of common stock
under Employee Stock
Purchase Plan......... 348 - 308 - - - -
Repurchase of unvested
common stock.......... (12) - (2) - - - -
Exercise of warrants..... 14 - - - - - -
Notes issued to
stockholders.......... - - - (362) - - -
Unrealized gain on
securities available
for sale.............. - - - - - - 3,533
Realized gain on
securities available
for sale.............. - - - - - - (2,650)
Currency translation
adjustment............ - - - - - - (6)
Issuance of common stock. 389 - 47 - - - -
Deferred compensation.... - - 4,130 - (4,130) - -
Amortization of deferred
compensation ......... - - - - 410 - -
Redeemable stock accretion - - (4,238) - - - -
Net loss ................ - - - - - (5,828) -
------ ---- -------- ------ -------- --------- -------
BALANCE AT JULY 31, 1999. 31,501 30 36,885 (428) (3,773) (15,390) 877
Issuance of common stock
upon exercise of
options............... 1,529 2 1,026 - - - -
Issuance of common stock
under Employee Stock
Purchase Plan......... 141 - 307 - - - -
Exercise of warrants..... 426 - 123 - - - -
Conversion of preferred
stock to common stock
(see Note 4).......... 3,397 4 15,166 - - - -
Unrealized gain on
securities available
for sale.............. - - - - - - 1,345
Realized gain on
securities available
for sale.............. - - - - - - (2,221)
Currency translation
adjustment............ - - - - - - 16
Issuance of common stock
in connection with
acquisitions.......... 3,955 4 18,530 - - - -
Issuance of common stock. 1,358 2 76,923 - - - -
Deferred compensation.... - - 968 - (968) - -
Repayments by stockholders - - - 98 - - -
Amortization of deferred
compensation ......... - - - - 1,627 - -
Redeemable stock accretion - - (3,877) - - - -
Net loss ................ - - - - - (22,199) -
------ ---- -------- ------ -------- --------- -------
BALANCE AT JULY 31, 2000. 42,307 $ 42 $146,051 $(330) $(3,114) $(37,589) $ 17
====== ==== ======== ====== ======== ========= =======
</TABLE>
<TABLE>
<CAPTION>
COMPREHENSIVE
STOCKHOLDERS' INCOME
EQUITY (LOSS)
------ ------
<S> <C> <C>
BALANCE AT JULY 31, 1997. $ 25,860 $ 93
=========
Issuance of common stock
upon exercise of
options............... 107 $ -
Issuance of common stock
under Employee Stock
Purchase Plan......... 273 -
Repurchase of unvested
common stock.......... (10) -
Issuance of options and
warrants.............. 38 -
Issuance of common stock
in connection with
SoftMagic Corp.
acquisition........... 1,938 -
Issuance of common stock. 1,618 -
Repayments by stockholders 126 -
Amortization of deferred
compensation ......... 28 -
Net loss ................ (4,154) (4,154)
-------- ---------
BALANCE AT JULY 31, 1998. 25,824 $ (4,154)
=========
Issuance of common stock
upon exercise of
options............... 1,165 $ -
Issuance of common stock
under Employee Stock
Purchase Plan......... 308 -
Repurchase of unvested
common stock.......... (2) -
Exercise of warrants..... - -
Notes issued to
stockholders.......... (362) -
Unrealized gain on
securities available
for sale.............. 3,533 3,533
Realized gain on
securities available
for sale.............. (2,650) (2,650)
Currency translation
adjustment............ (6) (6)
Issuance of common stock. 47 -
Deferred compensation.... - -
Amortization of deferred
compensation ......... 410 -
Redeemable stock accretion (4,238) -
Net loss ................ (5,828) (5,828)
-------- ---------
BALANCE AT JULY 31, 1999. 18,201 $ (4,951)
Issuance of common stock
upon exercise of
options............... 1,028 $ -
Issuance of common stock
under Employee Stock
Purchase Plan......... 307 -
Exercise of warrants..... 123 -
Conversion of preferred
stock to common stock
(see Note 4).......... 15,170 -
Unrealized gain on
securities available
for sale.............. 1,345 1,345
Realized gain on
securities available
for sale.............. (2,221) (2,221)
Currency translation
adjustment............ 16 16
Issuance of common stock
in connection with
acquisitions.......... 18,534 -
Issuance of common stock. 76,925 -
Deferred compensation.... - -
Repayments by stockholders 98 -
Amortization of deferred
compensation ......... 1,627 -
Redeemable stock accretion (3,877) -
Net loss ................ (22,199) (22,199)
-------- ---------
BALANCE AT JULY 31, 2000. $105,077 $(23,059)
======== =========
</TABLE>
The accompanying notes are an integral
part of these consolidated financial statements
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------
2000 1999 1998
-------- -------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................... $(22,199) $ (5,828) $ (4,154)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Purchased in-process research and development.......... 4,218 - 2,155
Depreciation and amortization.......................... 4,215 1,678 1,232
Non-cash stock compensation............................ 2,002 410 28
Interest expense settled in common stock............... - - 42
Realized gain on sale of investment.................... (2,221) (2,650) -
Changes in assets and liabilities:
Accounts receivable................................. (3,058) 455 -
Inventories......................................... 23 (14) (20)
Other current assets................................ (1,092) (180) 33
Accounts payable.................................... 1,259 (354) (118)
Accrued liabilities................................. (465) 824 605
Deferred revenues................................... 2,313 2,320 986
Other assets and liabilities........................ (677) (6) -
-------- -------- --------
Net cash provided by (used in) operating
activities..................................... (15,682) (3,345) 789
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment.......................... (3,105) (877) (1,371)
Purchase of short term investments.......................... (41,813) (20,230) (20,409)
Sale and maturities of short-term investments............... 24,318 25,551 21,791
Purchase of investments..................................... (2,132) - -
Acquisitions, net of cash acquired.......................... (2,450) - (1,096)
-------- -------- --------
Net cash provided by (used in) investing
activities..................................... (25,182) 4,444 (1,085)
-------- -------- --------
Cash flows from financing activities:
Principal payments under capital lease obligations.......... - (69) (22)
Proceeds from (principal payments on) notes payable......... - (203) 183
Proceeds from line of credit, net........................... 236 175 -
Note repayments from (advances to) stockholders............. 98 (362) 126
Proceeds from exercise of warrants.......................... 123 - -
Proceeds from issuance of convertible preferred stock, net.. - 7,055 -
Proceeds upon exercise of stock options, net................ 1,028 1,165 107
Proceeds from newly issued common stock, net................ 77,232 353 1,494
-------- -------- --------
Net cash provided by financing activities...... 78,717 8,114 1,888
-------- -------- --------
Increase in cash and cash equivalents............................... 37,853 9,213 1,592
Cash and cash equivalents at beginning of period.................... 16,639 7,426 5,834
-------- -------- --------
Cash and cash equivalents at end of period.......................... $ 54,492 $ 16,639 $ 7,426
======== ======== ========
Supplemental disclosure of cash flow information:
Interest paid............................................... $ 58 $ 17 $ 43
======== ======== ========
Income taxes paid........................................... $ 631 $ - $ 370
======== ======== ========
Common Stock issued in connection with business acquisitions $ 18,534 $ - $ 1,938
======== ======== ========
Conversion of preferred stock to common stock (see Note 4) $ 15,170 $ - $ -
======== ======== ========
Conversion of promissory notes and accrued interest
settled in common stock................................ $ - $ - $ 425
======== ======== ========
Non-cash stock compensation $ 968 $ 4,130 $ -
======== ======== ========
Accretion of redeemable convertible preferred stock $ 3,877 $ 4,238 $ -
======== ======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
15
<PAGE>
PUMA TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Puma Technology, Inc. ("Pumatech" or "the Company") was incorporated in
California on August 27, 1993 and was subsequently reincorporated in Delaware
on November 27, 1996. The Company develops, markets and supports mobile data
exchange software which allows user to easily access, exchange and
synchronize information stored on a variety of different computing devices.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, including the company
formerly known as NetMind Technologies, Inc. ("NetMind") that merged with and
into a wholly-owned subsidiary of Pumatech on February 24, 2000 in a pooling
of interests transaction. (See Note 2 for more information on acquisition of
NetMind.) All periods presented have been restated in order to include the
financial results of NetMind since inception. All significant inter-company
accounts and transactions have been eliminated. Certain amounts on prior
periods have been reclassified to conform to the current presentation.
Prior to the acquisition, NetMind's fiscal year ended on December 31.
The consolidated financial statements for the years ended July 31, 2000,
1999, and 1998 reflect the results of operations of Pumatech combined with
the results of operations of NetMind for the corresponding periods.
On February 23, 2000, the Company announced a two-for-one stock split in
the form of a stock dividend. The record date for the stock split was March
8, 2000 and the payment date was March 22, 2000. All share, per share, common
stock, stock option and warrant amounts have been retroactively restated to
reflect the stock split.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition"
which superseded SOP 91-1 and provides guidance on generally accepted
accounting principles for recognizing revenue on software transactions. SOP
97-2 requires that revenue recognized from software arrangements be allocated
to each element of the arrangement based on the relative fair values of the
elements, such as software products, upgrades, enhancements, post contract
customer support, installations or training. Under SOP 97-2, the
determination of fair value is based on objective evidence, which is specific
to the vendor. If such evidence of fair value for each element of the
arrangement does not exist, all revenue from the arrangement is deferred
until such time that evidence of fair value does exist or until all elements
of the arrangement are delivered. SOP 97-2 was amended in February 1998 by
SOP 98-4, "Deferral of the effective date of Provision of SOP 97-2" and was
amended again in December 1998 by SOP 98-9, "Modification of 97-2, Software
Revenue recognition with Respect to Certain Transactions." Those amendments
deferred and then clarified, respectively, the specification of what was
considered vendor specific objective evidence of fair value for the various
elements in a multiple element arrangement. The Company adopted the
provisions of SOP 97-2 and SOP 98-4 as of August 1, 1998.
License revenue is generally recognized upon shipment of the software
provided that persuasive evidence of an arrangement exists, the fee is fixed
or determinable and collection of the resulting receivable is deemed
probable. The Company currently sells its products directly to corporations,
to original equipment manufacturers ("OEMs") and to a lesser extent to
25
<PAGE>
distributors and resellers in the United States, Africa, Asia, Australia,
Canada, Europe, New Zealand and South America. The Company grants
distributors and resellers certain rights of return and price protection on
unsold merchandise held by those distributors and resellers. Accordingly,
reserves for estimated future returns and credits for price protection are
provided for upon revenue recognition. Such reserves are based on historical
rates of returns and allowances, distributor inventory levels and other
factors.
Revenue from OEMs under minimum guaranteed royalty arrangements, which
are not subject to significant future obligations, is recognized when such
royalties are earned and become payable. Royalty revenue that is subject to
significant future obligations is recognized when such obligations are
fulfilled. Royalty revenue that exceeds minimum guarantees is recognized in
the period earned. Payments received for maintenance contract services are
recognized ratably over the term of the service agreement. Payments from
customers received in advance of revenue recognition are recorded as deferred
revenue.
The Company enters into Software Development Kit ("SDK") agreements,
which generally are multi-year in duration. Revenue from SDKs is recognized
ratably over the term of the contract.
The Company derives service revenue from non-recurring engineering
service projects for software developments, maintenance contract programs,
Web-based advertising fees and professional services. Revenue from such
services is generally recognized over the period during which the applicable
service is to be performed or on a services- performed basis.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturity
of three months or less at the date of purchase to be cash equivalents.
SHORT TERM INVESTMENTS
The Company accounts for its marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires the
Company to classify debt and equity securities into one of three categories:
held to maturity, trading or available for sale. The Company has classified
its investments as available for sale. The cost of securities sold is based
on the specific identification method.
INVENTORIES
Inventories consist principally of software and related documentation,
which are stated at the lower of cost (first-in, first-out) or market.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. 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 software development costs have been
expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
is computed using the straight-line method over the estimated useful lives of
the assets, generally three to five years, or in the case of leased assets,
the life of the lease, if shorter. The Company reviews the carrying amount of
specialized assets and to evaluate the remaining life and recoverability of
such equipment in light of current market condition. Upon disposal, the
assets and related accumulated depreciation are removed from the Company's
accounts and resulting gains and losses are recorded in other income or
expense.
Repair and maintenance are charged to operations as incurred.
During fiscal 1999, the Company adopted the provisions of Accounting
Standards Executive Committee ("AcSEC") SOP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." During fiscal
2000, the
26
<PAGE>
Company adopted the provisions of Emerging Issues Task Force Issue
("EITF") No. 00-02 "Accounting for Website Development Costs." Any costs
capitalized are depreciated on a straight-line basis over the lesser of the
estimated useful life. To date, capitalizable costs have been insignificant.
INTANGIBLE ASSETS
Other assets are primarily comprised of intangibles and goodwill.
Amortization is computed on the straight-line basis over the expected lives
of the assets ranging from 18 months to five years. Intangible assets are
reviewed for impairment whenever events or circumstances indicate impairment
exist, or at least annually. The Company assesses the recoverability of its
assets, including goodwill, by comparing projected undiscounted net cash
flows associated with those assets against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the
fair value of those assets.
LONG-TERM INVESTMENTS
Long-term investments that are not represented by marketable securities
are carried at cost less write-downs for declines in value that are judged to
be other-than temporary. Long-term investments were $2,432,000, which
includes investments of $1,250,000 in Azure Venture Partners, LLP and
$750,000 in Free Communications Corporation, at July 31, 2000. Long-term
investments were $330,000 at July 31, 1999. Dividends are recorded in other
income when received.
LONG LIVED ASSETS
The Company evaluates the recoverability for its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book
value of such assets exceeds the future undiscounted cash flows attributable
to such assets.
ADVERTISING EXPENSE
The Company accrues for co-operative advertising as the related revenue
is earned, and other advertising expense is recorded as incurred. Advertising
costs, which are included in sales and marketing expense, were approximately
$1,081,000, $873,000 and $1,342,000 for the fiscal years 2000, 1999 and 1998,
respectively.
INCOME TAXES
Income taxes are computed using the asset and liability method. Under
the asset and liability method, deferred income tax assets and liabilities
are determined based on the differences between the financial reporting and
tax bases of the assets and liabilities and are measured using the currently
enacted tax rates and laws.
FOREIGN CURRENCY
Balance sheet accounts of non-U.S. subsidiaries are translated into U.S.
dollars at exchange rates prevailing at balance sheet dates. Revenues, costs
and expenses are translated into U.S. dollars at average rates for the
period. Gains and losses resulting from translation are accumulated as a
component of stockholders' equity (deficit). Net gains and losses resulting
from foreign exchange transactions are included in the consolidated statement
of operations and were not significant during any of the periods presented.
To date, the Company has not engaged in hedging activities.
27
<PAGE>
CONCENTRATION OF SUPPLY AND CREDIT RISK
The Company depends on development tools provided by a limited number of
third party vendors. Together with application developers, the Company relies
primarily upon software development tools provided by companies in the PC and
mobile computing device industries. If any of these companies fail to support
or maintain these development tools, the Company will have to support the
tools itself or transition to another vendor. Any maintenance or support of
the tools by the Company or transition could be time consuming, could delay
product release and upgrade schedule and could delay the development and
availability of third party applications used on the Company's products.
Failure to procure the needed software development tools or any delay in
availability of third party applications could negatively impact the
Company's ability and the ability of third party application developers to
release and support the Company's products or they could negatively and
materially affect the acceptance and demand for the Company's products,
business and prospects.
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash, cash
equivalents, short-term investments and trade accounts receivable. The
Company places its cash, cash equivalents and short-term investments
primarily in money market accounts, commercial paper, corporate notes,
certificates of deposit, and government notes and bonds. At July 31, 2000,
the Company held its depository accounts with four financial institutions in
the United States, two financial institutions in Japan, and one financial
institution in Ireland. The Company, by policy, limits the amount of credit
exposure for cash equivalents and investments to any one issuer.
The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses. At July 31, 2000, a customer
accounted for 15% of accounts receivable. At July 31, 1999, two customers
accounted for 21% and 14% of accounts receivable, respectively. No customers
accounted for more than 10% of total revenue in fiscal 2000. One customer
accounted for 14% and 18% of total revenue in fiscal 1999 and 1998,
respectively.
The Company's sales are generally denominated in US dollars. The
Company does not undertake any foreign currency hedging activities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term
investments, accounts receivable, account payable and notes receivable from
stockholders approximate their respective fair values because of the
short-term maturity of these items. Based on the borrowing rates available
for the Company's loans with similar terms, the carrying values of the notes
payable and capital lease obligation approximate fair value.
NON-CASH STOCK COMPENSATION
The Company uses the intrinsic value method of Accounting Principles
Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," in
accounting for its employee stock options, and presents disclosure of
proforma information required under SFAS No. 123, "Accounting for Stock-Based
Compensation." Stock and other equity instruments issued to nonemployees is
accounted for in accordance with SFAS No. 123 and EITF No. 96-18, "Accounting
for Equity Instruments Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services" and valued using the Black
Scholes model.
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed in accordance with SFAS No. 128.
Basic net income per share is computed using the weighted average common
shares outstanding during the period. Diluted net income per share is
computed using the weighted average common shares and dilutive common
equivalent shares outstanding during the period.
28
<PAGE>
NOTE 2 BUSINESS COMBINATIONS
POOLING OF INTERESTS COMBINATION
NETMIND TECHNOLOGIES, INC.
On February 24, 2000, the Company completed its acquisition of NetMind,
a provider of scalable software solutions that integrate user-driven
personalization technologies into the Internet infrastructure. The
acquisition has been accounted for as a pooling of interests pursuant to the
terms of the Agreement and Plan of Reorganization dated December 8, 1999. The
Company issued approximately 8,808,000 shares of Pumatech's common stock in
the acquisition and assumed options and warrants that can be exercised for
approximately 801,000 and 391,000 shares of Pumatech's common stock
respectively.
Prior to the acquisition, NetMind's fiscal year ended on December 31.
The consolidated financial statements for the years ended July 31, 2000,
1999, and 1998 reflect the results of operations of Pumatech for the years
ended July 31, 2000, 1999, and 1998 combined with the results of operations
of NetMind for the corresponding periods.
The following table shows the historical results of the Company and
NetMind for the periods prior to the consummation of the merger of the two
entities (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
JANUARY 31, 2000 1999 1998
------------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Pumatech............. $ 13,308 $ 20,043 $ 22,308
NetMind.............. 465 680 33
--------- --------- ---------
Combined........... $ 13,773 $ 20,723 $ 22,341
========= ========= =========
Net loss:
Pumatech............. $ (3,092) $ (1,676) $ (2,699)
NetMind.............. (3,948) (4,152) (1,455)
--------- --------- ---------
Combined........... $ (7,040) $ (5,828) $ (4,154)
========= ========= =========
</TABLE>
The Company incurred $6,322,000 in acquisition-related charges,
principally in the fiscal third quarter ended April 30, 2000. These charges
include direct transaction costs primarily for financial advisory services,
legal and consulting fees and costs associated with combining the operations
of the two companies.
PURCHASE COMBINATIONS
PROXINET, INC.
On October 28, 1999, Pumatech closed the acquisition of ProxiNet, Inc.
("ProxiNet"), a software development company focusing on software that will
enable users with handheld devices and wireline or wireless modems to access
the Internet quickly, conveniently and securely. The consolidated financial
statements include the results of operations of ProxiNet since the date of
acquisition. Under the terms of the agreement, the Company issued 5,200,000
shares of Common Stock, including stock options, in exchange for all
outstanding shares of ProxiNet and options to purchase shares of ProxiNet.
29
<PAGE>
The ProxiNet acquisition has been accounted for as a purchase. The total
purchase price of approximately $17,384,000 (including liabilities of
$2,070,000), was assigned, based on an independent appraisal, to the fair
value of the assets acquired, including the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tangible assets acquired................. $ 676
In-process research and development...... 4,218
Core technology.......................... 3,092
Acquired workforce....................... 286
Goodwill................................. 9,112
--------
$ 17,384
========
</TABLE>
As of the acquisition date, technological feasibility of the in-process
technology has not been established and the technology has no alternative
future use. Therefore, the Company expensed the in-process research and
development in the first quarter of fiscal year 2000. The remaining
intangible assets are being amortized using the straight-line method over the
estimated useful life of the assets, 18 months to 5 years.
The value assigned to acquired in-process research and development was
determined by identifying research projects in areas for which technology
feasibility had not been established as of the acquisition date. These
include projects for ProxiWare-TM- and ProxiWeb-TM- technology that is
currently branded as the Browse-it-TM- product. The value was determined by
estimating the revenue contribution and the percentage of complete of each of
these products. The projects were deemed to be 55% complete on the date of
acquisition. The net cash flows were then discounted utilizing a weighted
average cost of capital of 27.5%. This discount rate takes into consideration
the inherent uncertainties surrounding the successful development of the
in-process research and development, the expected profitability levels of
such technology, and the uncertainty of technological advances that could
potentially impact the estimates described above. Revenues were projected to
be generated in calendar 2000 for the products in development at the
acquisition date. If these projects are not successfully developed our future
revenues and profitability may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
DRY CREEK SOFTWARE, LLC
On July 14, 2000, Pumatech closed the acquisition of Dry Creek Software,
LLC ("Dry Creek"), a California Limited Liability Corporation specializing in
the creation of software solutions that allow for transparent data access
between mobile devices, enterprise servers and Internet applications. The
consolidated financial statements include the results of operations of
ProxiNet since the date of acquisition. Under the terms of the agreement, the
Company paid $1,987,500 in cash and issued approximately 153,000 shares of
common stock in exchange for all outstanding Dry Creek membership interests.
The Dry Creek acquisition has been accounted for as a purchase. The
total purchase price of approximately $6,816,000 (including liabilities of
$931,000), was assigned, based on independent appraisal, to the fair value of
the assets acquired, including the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tangible assets acquired.............. $ 169
Developed technology.................. 345
Core technology....................... 1,414
Acquired workforce.................... 404
Goodwill.............................. 4,484
-------
$ 6,816
=======
</TABLE>
The intangible assets acquired are being amortized using the straight-line
method over the estimated useful life of the assets, 18 months to 5 years.
PRO FORMA RESULTS
The following unaudited pro-forma consolidated financial information
reflects the results of operations for the fiscal years ended July 31, 2000 and
1999, as if the acquisitions of ProxiNet and Dry Creek had occurred on August 1,
1998 and after giving
30
<PAGE>
effect to purchase accounting adjustments but excluding the impact of
write-offs of acquired in-process technology. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisitions
actually taken place on August 1, 1998 and may not be indicative of future
operating results.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------
2000 1999
---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro-forma revenue.......................... $ 31,704 $ 20,922
Pro-forma net loss......................... $ (26,326) $ (17,832)
Pro-forma basic and diluted loss per share.... $ (0.74) $ (0.59)
</TABLE>
There were no acquisitions in fiscal 1999.
NOTE 3 BALANCE SHEET COMPONENTS
Cash equivalents and short-term investments include available-for-sale
securities as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------
2000 1999
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash equivalents
Commercial paper......................... $ 38,927 $ 9,339
Money market funds....................... 13,610 1,062
--------- -------
$ 52,537 $ 10,401
========= =======
Short term investments
Commercial paper......................... $ 11,524 $ 10,414
Corporate notes.......................... 1,515 -
Certificate of deposit................... 2,000 -
Government notes and bonds............... 10,904 -
Auction rate preferred stock............. 4,600 -
Securities available for sale............ 225 1,463
--------- -------
$ 30,768 $ 11,877
========= =======
</TABLE>
Realized gain on sales of available-for-sale securities was $2,221,000
and $2,650,000 for the years ended July 31, 2000 and July 31, 1999,
respectively. Realized gain or loss on sales of available-for-sale securities
was immaterial for the year ended July 31, 1998. The unrealized holding gain
on securities was $7,000 and $883,000 at July 31, 2000 and July 31, 1999,
respectively. The short-term investments have maturities of less than one
year from the balance sheet date.
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
JULY 31,
---------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable........................................... $ 8,342 $ 4,767
Less: Allowance for doubtful accounts and sales returns....... (1,984) (1,607)
-------- --------
Accounts receivable, net.................................... $ 6,358 $ 3,160
======== ========
</TABLE>
31
<PAGE>
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
JULY 31,
---------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................ $ 5,977 $ 2,931
Furniture and office equipment............................. 2,313 1,988
Leasehold improvements..................................... 1,006 975
------- ------
9,296 5,894
Less: Accumulated depreciation and amortization............ (4,468) (2,886)
-------- -------
Property and equipment, net............................. $ 4,828 $ 3,008
======== ========
</TABLE>
At July 31, 2000 and July 31, 1999, the Company had no equipment under
capital lease. The depreciation expense for fiscal years 2000, 1999 and 1998 was
$1,428,000, $1,678,000 and $1,608,000, respectively.
Other assets consist of the following:
<TABLE>
<CAPTION>
JULY 31,
---------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill................................................ $ 14,130 $ 533
Developed technology.................................... 5,711 861
Workforce in place...................................... 900 210
------- -----
20,741 1,604
Less: Accumulated amortization.......................... (3,632) (1,002)
------- ------
Intangible assets................................... 17,109 602
Other long-term assets..................................... 3,133 988
------- ------
Other assets................................... $ 20,242 $ 1,590
======= =======
</TABLE>
The amortization expense for fiscal years 2000, 1999 and 1998 was
$2,630,000, $459,000 and $260,000, respectively.
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Payroll related accruals.................................................. $ 2,623 $ 1,418
Other accrued liabilities................................................. 1,413 1,036
============== ==============
Accrued liabilities..................................................... $ 4,036 $ 2,454
============== ==============
</TABLE>
NOTE 4 REDEEMABLE CONVERTIBLE PREFERRED STOCK
During fiscal 1999 NetMind issued approximately 4.1 million shares of
Series B Redeemable Preferred Stock which converted into approximately 3.4
million shares of the Company's common stock upon completion of the NetMind
merger in February 2000. Under terms of the original issuance, the Series B
shares were redeemable in September 2003 and 2004, at the higher of their
original issue price or fair value of the stock at the dates of redemption. The
difference between the issuance price and the fair value of the Series B stock
was accreted by NetMind until the date of conversion to common stock. Such
accretion aggregated $3,877,000 and $4,238,000 in fiscal years 2000 and 1999,
respectively.
32
<PAGE>
The following table summarizes activities related to the Redeemable
Convertible Preferred Stock:
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK
----------------------------
SHARES AMOUNT
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE AT JULY 31, 1998....................................... - $ -
NetMind's issuance of Series B Mandatorily Redeemable
Convertible Preferred Stock at $1.74 per share in October
1998, net of issuance costs................................ 4,072 7,055
Accretion of Mandatorily Redeemable Convertible Preferred Stock
to redemption value........................................ - 4,238
----------- -----------
BALANCE AT JULY 31, 1999....................................... 4,072 11,293
Accretion of Mandatorily Redeemable Convertible Preferred Stock
to redemption value........................................ - 3,877
Conversion of Mandatorily Redeemable Convertible Preferred Stock
into 3,397 shares of Pumatech's common stock............... (4,072) (15,170)
----------- -----------
BALANCE AT JULY 31, 2000....................................... - $ -
=========== ===========
</TABLE>
NOTE 5 STOCKHOLDERS' EQUITY
STOCK OPTION PLANS. In October 1993, the Board of Directors and
stockholders adopted the 1993 Stock Option Plan ("the Plan") which provides for
granting of incentive stock options ("ISOs") and nonqualified stock options
("NSOs") to purchase shares of common stock to employees, directors, consultants
and advisors of the Company. To date, the Company has not granted any
significant options to consultants or advisors. In accordance with the Plan, the
stated exercise price shall be not less than 100% and 85% of the estimated fair
market value of common stock on the date of grant for ISOs and NSOs,
respectively, as determined by the Board of Directors. The Plan provides that
the options shall be exercisable over a period not to exceed ten years. Options
generally vest 25% one year after date of grant and 1/48th each month thereafter
for the next 36 months. The Plan provides that the options may be exercised
prior to the options becoming vested but the shares are subject to repurchase.
If the optionee's employment is terminated for any reason, the Company has the
right to repurchase any unvested shares. Options available for grant as of July
31, 2000 were approximately 311,000 shares.
In October 1998, the Board of Directors approved the repricing of certain
outstanding stock options under the Plan. Each employee, officer and director
who elected to participate in the repricing program received a new option with
an exercise price of $1.0938 (the fair market value on October 29, 1998). Each
repriced option retained its original vesting schedule except that no portion of
the option could be exercised prior to January 29, 1999. Options to purchase
4,719,032 shares were repriced pursuant to the program.
In September of 1997, the Board of Directors approved the repricing of
certain outstanding stock options under the Plan. Each employee, officer or
director who elected to participate in the repricing program received a new
option with an exercise price of $3.25 (the fair market value on October 3,
1997). Each repriced option retained its original vesting schedule except that
no portion of the option could be exercised prior to April 3, 1998 and no
vesting accrued between October 3, 1997 and April 3, 1998. Options to purchase
2,396,200 shares were repriced pursuant to this program.
In March 2000, the Board of Directors adopted the 2000 Supplemental Stock
Option Plan ("the SSOP") which provides for granting of nonqualified stock
options to purchase shares of common stock to non-executive officers, employees
and consultants of the Company. In accordance with the SSOP, the stated exercise
price shall not be less than 85% of the estimated fair market value of common
stock on the date of grant as determined by the Board of Directors. The SSOP
provides that the options shall be exercisable over a period not to exceed ten
years. Options generally vest 25% one year after date of grant and 1/48th each
month thereafter for the next 36 months. Options available for grant as of July
31, 2000 were approximately 114,000 shares.
The Company has assumed certain options granted to former employees of
acquired companies ("Acquired Options"). All of the Acquired Options have been
adjusted to effectuate the conversion under the terms of the agreements between
the
33
<PAGE>
Company and the companies acquired. The Acquired Options generally become
exercisable over a four-year period and generally expire ten years from the
date of grant. No additional options will be granted under any of these
plans. See Note 2 for more information on the acquired companies.
Stock option activity, both incentive and nonqualified, under all plans
is presented as follows:
<TABLE>
<CAPTION>
OPTION SHARES RANGE OF PRICE WEIGHTED AVERAGE EXERCISE
(IN THOUSANDS) PER SHARE PRICE PER SHARE
------------------- ------------------- -------------------------------
<S> <C> <C> <C>
Outstanding at July 31, 1997........... 4,216 $0.10 - $8.44 $3.63
Granted................................ 3,816 $0.13 - $4.19 $3.16
Exercised.............................. (182) $0.10 - $3.75 $0.59
Canceled............................... (2,848) $0.10 - $8.44 $4.86
------------------
Outstanding at July 31, 1998........... 5,002 $0.10 - $4.88 $2.68
Granted................................ 7,408 $0.13 - $2.94 $1.30
Exercised.............................. (1,388) $0.10 - $1.25 $0.84
Canceled............................... (5,934) $0.10 - $4.88 $2.69
------------------
Outstanding at July 31, 1999........... 5,088 $0.10 - $2.94 $1.16
Granted................................ 5,888 $0.16 - $83.50 $27.59
Exercised.............................. (1,529) $0.10 - $2.94 $0.67
Canceled............................... (1,530) $0.13 - $83.50 $30.12
------------------
Outstanding at July 31, 2000........... 7,917 $0.10 - $83.50 $14.75
==================
</TABLE>
Proceeds received by the Company from exercises are credited to common
stock and capital in excess of par value.
At July 31, 2000, a total of 18,000 shares were subject to repurchase and
options to purchase approximately 425,000 shares were available for future
grants.
Based on an independent appraiser's valuation report, management believes
that the exercise price for certain options granted during fiscal 1996 were
below the estimated fair value of the Company's stock at the dates of grant. The
Company is recognizing approximately $115,000 in fiscal 1996 of compensation
expense over the options' four-year vesting periods. In conjunction with certain
options granted by NetMind, the Company is recognizing approximately $5,098,000
of deferred compensation expense over the options' four-year vesting periods.
Accordingly, the Company booked $1,627,000, $410,000 and $28,000 of expense in
fiscal 2000, 1999 and 1998, respectively.
The following table summarizes information about stock options under the
Plan outstanding at July 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------------- ---------------------------------------
NUMBER NUMBER
OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
RANGE OF AT 7/31/00 REMAINING WEIGHTED-AVERAGE AT 7/31/00 WEIGHTED-AVERAGE
EXERCISE (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
PRICES
---------------- ----------------- --------------------- ---------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C>
$ 0.10 - $1.09 2,893 7.71 $ 0.83 2,123 $ 1.01
$ 1.10 - $25.89 2,649 8.43 $11.27 1,778 $ 5.51
$25.90 - $83.50 2,375 9.66 $35.59 1,625 $31.93
----------------- -----------------
7,917 8.54 $14.75 5,526 $11.55
----------------- -----------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In December 1998, the Board of Directors
adopted the 1998 Employee Stock Purchase Plan ("the 98ESPP") which replaced the
1996 Employee Stock Purchase Plan. The 98ESPP authorizes the issuance of
1,000,000 shares of Common Stock. The purpose of the ESPP is to provide eligible
employees of the Company with a means of acquiring common stock of the Company
through payroll deductions. The plan consists of four six-month purchase periods
in each two-year offering period. Shares may be purchased under the ESPP at 85%
of the lesser of the fair market value of the common stock on the grant or
purchase date. During fiscal 2000, 141,352 shares were sold through the ESPP.
Approximately 859,000 shares were available for purchase as of July 31, 2000.
34
<PAGE>
PRO FORMA INFORMATION. The Company applies APB Opinion No. 25
"Accounting for Stock Issued to Employees" and related interpretations in
accounting for the stock compensation plans ("the Plans") described above.
Accordingly, no compensation cost has been recognized for the Plans. If
compensation cost for the Plans had been determined consistent with SFAS No.
123 "Accounting for Stock-Based Compensation," the Company's net loss and
loss per share would have been adjusted to the pro-forma amounts indicated
below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------
2000 1999 1998
------------ ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss attributable to common stockholders.................. $ (26,076) $ (10,066) $ (4,154)
------------ ----------- ----------
Net loss attributable to stockholders - pro forma............. $ (45,269) $ (14,138) $ (8,946)
------------ ----------- ----------
Basic and diluted net loss per common share................... $ (0.74) $ (0.34) $ (0.15)
------------ ----------- ----------
Basic and diluted net loss per common share - pro forma....... $ (1.28) $ (0.47) $ (0.33)
------------ ----------- ----------
</TABLE>
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to August 1, 1995, and because the
Black-Scholes option valuation model was developed for traded options and
requires the input of subjective assumptions, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted
average assumptions:
<TABLE>
<CAPTION>
STOCK OPTION PLANS EMPLOYEE STOCK PURCHASE PLAN
-------------------------------------------- -------------------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
-------------------------------------------- -------------------------------------------
2000 1999 1998 2000 1999 1998
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Option life (in years).......... 5.1 4.0 4.0 1.0 2.0 0.5
Risk-free interest rate......... 6.24% 6.04% 5.70% 6.50% 6.04% 5.25%
Stock price volatility.......... 75% 75% 75% 75% 75% 75%
Dividend yield.................. - - - - - -
</TABLE>
The following is a summary of weighted-average grant date fair values:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE GRANT
DATE FAIR VALUE
-------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------
2000 1999 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Options granted under Stock Option Plans............... $ 18.58 $ 1.81 $ 3.60
Shares granted under the Stock Purchase Plan........... $ 1.20 $ 1.20 $ 1.98
</TABLE>
COMMON STOCK WARRANTS. In July 1996, the Company agreed to issue a
warrant to purchase 280,000 shares of its common stock at $2.75 per share to
one of its Series C stockholders in exchange for rights to certain
technology. These warrants were subsequently issued in August 1996. The
aggregate value of the warrant was estimated by the Company at $175,000 and
is being accounted for as purchased technology. The warrant is exercisable
immediately and expires at the earlier of August 2001 or the acquisition of
the Company by another entity. The purchased technology is being amortized
over its estimated life.
In conjunction with the issuance of convertible promissory notes and
notes payable in fiscal 1997 and 1998, NetMind issued 91,650 shares of Series
A Convertible Preferred Stock at $1.00 per share which converted into
approximately 75,000 shares ($1.26 per share) of the Company's common stock
upon completion of the NetMind merger in February 2000. Under terms of the
original issuance, the warrants are exercisable immediately and expire five
years from the date of issue.
In conjunction with the issuance of Series A Convertible Preferred Stock
in fiscal 1998, NetMind issued warrants to purchase 816,250 shares of
NetMind's common stock at $0.01 per share and 73,411 shares of NetMind's
common stock at $1.00 per share which converted into approximately 651,000
shares ($0.01 per share) and 58,600 shares ($1.26 per share), respectively,
of the Company's common stock upon completion of the NetMind merger in
February 2000. Under terms of the original issuance, the warrants are
exercisable immediately and expire five years from the date of issue.
35
<PAGE>
The following summarizes the warrants outstanding at July 31, 2000:
<TABLE>
<CAPTION>
Number of Exercise Term
Shares Price (Years) Expiration Date
------------ ----------- --------- ----------------------
<S> <C> <C> <C> <C>
Pumatech's common stock........................... 280,000 $ 2.75 5 August 2001
NetMind's Series A convertible preferred stock,
converted to Pumatech's common stock.......... 5,518 $ 1.26 5 January 2002 - June 2002
NetMind's common stock,
converted to Pumatech's common stock.......... 178,580 $ 0.01 5 August 2002 - December 2002
NetMind's common stock,
converted to Pumatech's common stock.......... 41,960 $ 1.26 5 May 2003 - June 2003
</TABLE>
NOTES RECEIVABLE FROM STOCKHOLDERS. In October 1996, an officer of the
Company purchased a total of 2,500 shares of the Company's common stock for
$15,000 in exchange for a full recourse promissory note. The note bears interest
at 6 percent per annum, with interest and principal due on demand. The note is
secured by the common shares purchased by the officer.
In July 1999, an officer of the Company purchased a total of 143,413 shares
of the Company's common stock for $315,000 in exchange for a full recourse
promissory note. The note bears interest at 5.32 percent per annum, with
interest and principal payable in July 2002. The note is secured by the common
shares purchased by the officer.
NOTE 6 EMPLOYEE 401(k) PLAN
The Company has adopted a plan to provide retirement and incidental
benefits for its employees. As allowed under Section 401(k) of the Internal
Revenue Code, the Plan provides tax-deferred salary deductions for eligible
employees. Employees may contribute from 1% to 20% of their annual compensation,
limited to a maximum annual amount as set periodically by the Internal Revenue
Service. As of fiscal 2000, the Company matches 50% of employee contributions up
to a maximum of $750 per year per person. Employee contributions vest
immediately, whereas Company matching contributions vest at a rate of 25 percent
per year after first year of employment. At the direction of each employee
participant, the trustee of the 401(k) plan invests the contributions to the
401(k) plan in selected investment options. The Company's matching contributions
to the 401(k) plan were approximately $74,000 in fiscal 2000.
NOTE 7 LONG-TERM NOTES PAYABLE
The Company's long-term notes payable includes the following:
<TABLE>
<CAPTION>
JULY 31,
----------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Equipment line, 9.3% average rate, payable through March 2003........ $ 561 $ 325
Borrowings under unsecured line of credit............................ 8 -
-------- --------
569 325
Less: Short-term portion of notes payable............................ 259 325
-------- --------
Long-term notes payable.......................................... $ 310 $ -
======== ========
</TABLE>
In June 1999, NetMind entered into a loan and security agreement that
provided a $1,000,000 revolving credit line and a $750,000 equipment line to
NetMind. Borrowings under the revolving credit line bear interest at a per annum
rate equal to the prime rate plus one half of one percent. Borrowings under the
equipment line bear interest at a per annum rate equal to the prime rate plus
one percent. Equipment acquired is pledged as collateral. At July 31, 2000,
$561,000 was outstanding on the equipment line and no outstanding balance drawn
on the revolving credit line.
36
<PAGE>
Dry Creek maintains a $10,000 unsecured line of credit. Borrowings under
the line of credit bear interest at the bank's reference rate (9.5% at July 31,
2000) plus 7.375 percent. At July 31, 2000, $7,850 was outstanding under this
line of credit.
Principal payments required on long-term debt outstanding at July 31, 2000,
are as follows:
<TABLE>
<CAPTION>
Fiscal year ending July 31, (IN THOUSANDS)
<S> <C>
2001................................................ $ 259
2002................................................ 228
2003................................................ 82
-----------
Total principal payments on long-term debt...... $ 569
===========
</TABLE>
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases that expire at
various dates through April 2006. The leases provide for escalating lease
payments.
Future minimum lease payments, at July 31, 2000 were as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------------
(IN THOUSANDS)
Fiscal year ending July 31,
<S> <C>
2001.................................................................. $ 1,413
2002.................................................................. 1,416
2003.................................................................. 994
2004.................................................................. 1,085
2005.................................................................. 1,094
Thereafter............................................................ 1,097
------------
Total future minimum lease payments............................. $ 7,099
============
</TABLE>
Total rent expense was approximately $1,225,000, $1,161,000, and
$1,246,000 for the years ended July 31, 2000, 1999 and 1998 respectively.
The Company is also committed to invest additional $3,750,000 in Azure
Venture Partners, LLP in fiscal 2001.
The Company is involved in litigation arising from the normal course of
business. In management's opinion, this litigation is not expected to
materially impact the Company's consolidated results of operations or
financial condition.
37
<PAGE>
NOTE 9 OTHER INCOME (EXPENSE)
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income....................................... $ 2,918 $ 1,214 $ 1,158
Interest expense...................................... (58) (17) (43)
Other expenses, net................................... (58) (55) (38)
Realized gains........................................ 2,221 2,650 -
Miscellaneous income.................................. - 76 -
--------------- -------------- ---------------
Total other income, net.......................... $ 5,023 $ 3,868 $ 1,077
=============== ============== ===============
</TABLE>
NOTE 10 INCOME TAXES
The income tax provision for the years ended July 31, 2000, 1999 and 1998
is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-----------------------------------------------
2000 1999 1998
------------ --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.......................................... $ 20 $ - $ 13
State............................................ 32 3 26
Foreign withholding tax.......................... 580 712 1,125
------------ --------------- --------------
$ 632 $ 715 $ 1,164
============ =============== ==============
</TABLE>
Deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets are summarized as follows (in thousands):
Net operating loss carryforwards...................................... $ 5,446 $ 2,183
Alternative minimum tax credit carryforwards.......................... 78 78
Research and development credit carryforwards......................... 1,226 782
Foreign tax credit carryforwards...................................... 1,923 1,343
Other................................................................. 1,157 941
-------------- --------------
Total deferred tax assets.......................................... 9,830 5,327
Deferred tax asset valuation allowance................................. (9,830) (5,327)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
Except for fiscal 1997, the Company has incurred losses from inception
through fiscal 2000. Management believes that, based on the history of such
losses and other factors, the weight of available evidence indicates that it is
more likely than not that the Company will not be able to realize its deferred
tax assets and thus a full valuation reserve has been recorded at July 31, 2000
and 1999.
38
<PAGE>
A reconciliation of the income tax provision to the amount computed by
applying the statutory federal income tax rate to income (loss) before income
tax provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts computed at statutory federal rate............ $ (7,548) $ (1,739) $ (1,017)
Foreign withholding taxes............................. 580 712 1,125
Non deductible amortization and in-process research
and development....................................... 3,097 - 288
Utilization of foreign tax credits.................... - - (190)
Utilization of tax loss carryforwards................. - - (359)
Future benefits not currently recognized.............. 4,503 1,742 1,317
--------------- -------------- ---------------
$ 632 $ 715 $ 1,164
=============== ============== ===============
</TABLE>
At July 31, 2000, the Company has $1,226,000 of federal and state
research and development credit carryforwards, $1,923,000 of foreign tax
credit carryforwards and $148,000 of alternative minimum tax credit
carryforwards. The Company also has $14,860,000 and $5,400,000 of federal and
state net operating loss carryforwards, respectively.
NOTE 11 NET INCOME (LOSS) PER SHARE
In accordance with disclosure requirements of SFAS No. 128, a
reconciliation of the numerator and denominator of basic and diluted net loss
per share calculations is provided as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NUMERATOR:
Net loss attributable to common stockholders............ $ (26,076) $ (10,066) $ (4,154)
=============== ============== ===============
DENOMINATOR:
Weighted average shares outstanding used to compute
basic and diluted net loss per common share......... 35,319 29,970 27,224
=============== ============== ===============
Basic and diluted net loss per share.................... $ (0.74) $ (0.34) $ (0.15)
=============== ============== ===============
</TABLE>
As a result of net loss incurred by the Company in fiscal 2000, 1999 and
1998, potential common shares attributable to mandatorily redeemable preferred
stock, stock options and warrants were antidilutive and were excluded from net
loss per share calculations. Total potential common shares, the corresponding
weighted averages of which were excluded from net loss per share calculations in
fiscal 2000, 1999 and 1998, were 8,142,568, 9,247,669 and 5,764,443,
respectively.
NOTE 12 BUSINESS SEGMENTS
Operating segments are identified as components of an enterprise about
which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision making group to make decisions
about how to allocate resources and assess performance. The Company's chief
operating decision maker is the chief executive officer. To date the Company has
reviewed its operations principally in a single segment. The chief operating
decision maker assesses performance based on the gross profit generated by this
segment.
The Company operates in a single industry segment encompassing the
development, marketing and support of mobile data exchange software. The Company
markets its products to customers in North America, Asia and Europe. The
Company's
39
<PAGE>
customer base consists primarily of large OEMs in the PC market and selected
distributors in North America, Africa, Asia, Australia, Europe, New Zealand
and South America which primarily market to the retail channel.
Revenue information by geographic region is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
North America......................................... $ 22,786 $ 12,366 $ 11,714
Japan.................................................. 6,822 7,134 9,888
Other International.................................... 1,205 1,223 739
--------------- -------------- ---------------
Total revenue........................................ $ 30,813 $ 20,723 $ 22,341
=============== ============== ===============
Revenue information by product group is as follows:
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
Intellisync for Notebook and TranXit royalty revenues.. $ 4,724 $ 6,130 $ 10,818
Enterprise products.................................... 14,144 9,114 7,172
MAP products and licensing ............................ 8,817 3,840 487
Service................................................ 3,128 1,639 3,864
--------------- -------------- ---------------
Total revenue........................................ $ 30,813 $ 20,723 $ 22,341
=============== ============== ===============
</TABLE>
Substantially all of the Company's long lived assets are in the United
States.
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
which establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The Company is required to adopt SFAS No.
133 effective August 1, 2000. The Company does not engage in hedging
activities and do not buy or sell derivative instruments. Therefore, the
Company does not believe that application of this statement will have any
effect on its consolidated financial statements.
REVENUE RECOGNITION AND FINANCIAL STATEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued
SEC Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in
Financial Statements." SAB 101 summarized certain of the SEC's views in
applying generally accepted accounting principles to revenue recognition in
financial statements. SAB 101 must be implemented by the Company no later
than its fourth fiscal quarter of fiscal 2001. The Company is reviewing the
requirements of SAB 101 and currently believes that its revenue recognition
policy is consistent with the guidance of SAB 101.
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the following: the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a noncompensatory plan;
the accounting consequence of various modifications to the terms of the
previously fixed stock options or awards; and the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 became
effective on July 1, 2000,
40
<PAGE>
but certain conclusions in FIN 44 cover specific events that occurred after
either December 15, 1998 or January 12, 2000. The Company does not expect the
application of FIN 44 to have a material impact on the Company's financial
position or results of operations.
ACCOUNTING FOR CERTAIN SALES INCENTIVES
In May 2000, the EITF released issue No. 00-14 "Accounting for Certain
Sales Incentives," which provides guidance on the accounting for certain
sales incentives offered by companies to their customers such as discounts,
coupons, rebates and products or services. EITF 00-14 is effective for all
fiscal quarters beginning after May 18, 2000 and addresses the recognition,
measurement and income statement classification for sales incentives offered
voluntarily by a vendor without charge to customers that can be used in, or
that are exercisable by a customer as a result of a single exchange
transaction. The provisions of EITF 00-14 will require the Company to
classify free product and service incentives delivered to customers at the
time of sale as cost of sales in its consolidated statement of operations.
The Company does not expect the application of EITF 00-14 to have a material
impact on the Company's financial position or results of operations.
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS
In August 2000, the EITF reached tentative conclusions on issue No.
00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10
addresses the income statement classification of amounts billed to a customer
for shipping and handling costs as well as the classification of amounts
incurred for shipping and handling costs. The EITF tentatively concluded that
amounts billed to customers in sales transactions related to shipping and
handling should be classified as revenue, and any costs incurred should be
classified as cost of goods sold. The Company will be required to adopt EITF
00-10 for all reporting periods ending after the date final conclusions are
reached. The Company does not expect the application of EITF 00-10 to have a
material impact on the Company's financial position or results of operations.
NOTE 14 RESTRUCTURING
In the first quarter of fiscal year 1999, the Company implemented a
restructuring program for the purpose of consolidating the majority of
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. The severance costs were
$210,000. As of July 31, 1999, there was no unused balance.
Also as part of the restructuring, the Company vacated a portion of the
San Jose, California facility, as well as a facility in Nashua, New
Hampshire. The restructure charge was $558,000. The unused balance as of July
31, 2000 was $221,000.
NOTE 15 SUBSEQUENT EVENT
On October 9, 2000, the Company amended the non-binding letter of intent
dated September 22, 2000 in which it agreed to negotiate an asset purchase of
the business operations of The Windward Group, a wholly-owned subsidiary of
Vanteon Corporation ("Vanteon") for aggregate consideration of approximately
$15 million, consisting of approximately $12 million in cash and $3 million
in common stock. The common stock will be subject to escrow for a period of
one year and would be released to Vanteon based on minimum bookings
thresholds. Under the terms of the letter of intent, the Company and Vanteon
agreed to reach a definitive agreement by October 13, 2000 (which date has
been extended) and to close the transaction no later than October 31, 2000.
41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Puma Technology, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Puma Technology, Inc. and its subsidiaries at July 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years
in the period ended July 31, 2000 in conformity with accounting principles
generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 21, 2000,
except as to Note 15, which is as of October 9, 2000
42
