<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _______________
------------------------------------
COMMISSION FILE NUMBER 0-21709
PUMA TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0349154
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2550 NORTH FIRST STREET, SUITE 500
SAN JOSE, CALIFORNIA 95131
(Address and Zip Code of principal executive office)
408-321-7650
(Registrant's Telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the registrant's common stock, par value
$0.001 per share, as of June 6, 2000 was 41,925,427.
===============================================================================
THIS REPORT CONSISTS OF 36 PAGES.
<PAGE>
PUMA TECHNOLOGY, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Condensed Consolidated Financial Statements 3
- Condensed Consolidated Balance Sheet 3
April 30, 2000 and July 31, 1999
- Condensed Consolidated Statement of Operations 4
Three and Nine Months Ended April 30, 2000 and 1999
- Condensed Consolidated Statement of Cash Flows 5
Nine Months Ended April 30, 2000 and 1999
- Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 10
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 32
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 32
Item 2. Changes in Securities and Use of Proceeds 32
Item 3. Defaults upon Senior Securities 32
Item 4. Submission of Matters to a Vote of Security Holders 32
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 34
Signature 35
Summary of Trademarks 36
</TABLE>
2
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
APRIL 30, JULY 31,
2000 1999
========================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 81,741 $ 16,639
Short-term investments 9,745 11,877
Accounts receivable, net 7,032 3,160
Inventories 269 258
Other current assets 1,924 590
----------------------------------------------------------------------------------------
Total current assets 100,711 32,524
Property and equipment, net 4,130 3,008
Other assets 12,524 1,590
----------------------------------------------------------------------------------------
TOTAL ASSETS $ 117,365 $ 37,122
========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,418 $ 860
Accrued liabilities 3,975 2,454
Notes Payable 257 325
Deferred revenue 5,384 3,989
----------------------------------------------------------------------------------------
Total current liabilities 11,034 7,628
Notes Payable - long-term 381 0
----------------------------------------------------------------------------------------
Total liabilities 11,415 7,628
Redeemable, convertible preferred stock -- 11,293
Commitments and contingencies
----------------------------------------------------------------------------------------
Stockholders' equity: Common stock, $0.001 par value;
60,000 shares authorized; 41,807 shares issued and
outstanding at April 30, 2000 and 40,000 shares
authorized, 31,501 shares issued and outstanding
at July 31, 1999 42 30
Additional paid-in capital 142,190 36,885
Receivable from stockholders (429) (428)
Deferred stock compensation (3,401) (3,773)
Accumulated deficit (32,443) (15,390)
Other comprehensive income (loss) (9) 877
----------------------------------------------------------------------------------------
Total stockholders' equity 105,950 18,201
----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 117,365 $ 37,122
----------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
========================================================================================================
<S> <C> <C> <C> <C>
REVENUE $8,014 $5,370 $21,787 $14,777
COST AND OPERATING EXPENSES:
Cost of revenue 882 387 2,524 1,599
Research and development 4,792 2,796 11,385 9,662
Sales and marketing 4,647 2,518 11,107 7,209
General and administrative 1,245 942 3,257 2,942
In-process research and development - - 4,218 -
Amortization of intangibles 824 126 1,733 363
Non cash stock compensation 465 98 1,326 107
Merger Costs 6,322 - 6,322 -
Restructure - - - 768
--------------------------------------------------------------------------------------------------------
Total cost and operating expenses 19,177 6,867 41,872 22,650
--------------------------------------------------------------------------------------------------------
OPERATING LOSS (11,163) (1,497) (20,085) (7,873)
Interest and other income, net 1,309 1,113 3,549 2,875
--------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (9,854) (384) (16,536) (4,998)
Provision for income taxes (159) (183) (517) (591)
--------------------------------------------------------------------------------------------------------
NET LOSS (10,013) (567) (17,053) (5,589)
Accretion of mandatorily redeemable
Convertible preferred stock to redemption (577) (1,384) (3,877) (1,538)
value
========================================================================================================
NET LOSS ATTRIBUTABLE TO COMMON (10,590) (1,951) (20,930) (7,127)
SHAREHOLDERS
NET LOSS PER SHARE:
Basic $(0.26) $(0.07) $(0.62) $(0.25)
DILUTED $(0.26) $(0.07) $(0.62) $(0.25)
SHARES USED IN PER SHARE CALCULATION:
Basic 39,995 30,013 33,678 28,392
DILUTED 39,995 30,013 33,678 28,392
========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
APRIL 30,
2000 1999
================================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,053) $(5,589)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
In-process research and development 4,218 -
Depreciation and amortization 2,777 1,430
Customer deposits and other 1,395 1,692
Realized gain on sale of investment (2,182) (1,901)
Changes in operating assets and liabilities (3,075) 988
------------------------------------------------------------------------------------------------
Net cash used in operating activities (13,920) (3,380)
------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,167) (765)
Maturities of short-term investments 3,404 3,144
-----------------------------------------------------------------------------------------------
Net cash provided by investing activities 1,237 2,379
-----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations - (69)
Principal payments on notes payable - (203)
Net proceeds (repayments) from line of credit 313 (150)
Net proceeds upon exercise of stock options 957 647
Note advances to stockholders, net (1) (2)
Net proceeds from newly issued common stock 77,280 307
Payments to settle acquired liabilities (764) -
Net proceeds from issuance of convertible preferred stock - 7,055
-----------------------------------------------------------------------------------------------
Net cash provided by financing activities 77,785 7,585
-----------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 65,102 6,584
Cash and cash equivalents at the beginning of the period 16,639 7,426
-----------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the period $ 81,741 $14,010
===============================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATMENTS
5
<PAGE>
PUMA TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements for the three and
nine months ended April 30, 2000 and 1999 are unaudited and reflect all normal
recurring adjustments which are, in the opinion of management, necessary for
their fair presentation. These condensed consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended July 31, 1999. The results of operations for the
interim period ended April 30, 2000 are not necessarily indicative of results to
be expected for the full year.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly and majority owned subsidiaries, including the company
formerly known as NetMind Technologies, Inc. ("NetMind") that merged with and
into a wholly-owned subsidiary of Puma Technology, Inc. on February 24, 2000 in
a pooling of interests transaction. The Company issued approximately 8,808,000
shares of Puma Common Stock in the acquisition and assumed options and warrants
that can be exercised for approximately 801,000 and 391,000 shares of Puma
Common Stock, respectively. 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.
Prior to the acquisition, NetMind's fiscal year ended on December 31. The
consolidated financial statements for the three months and nine months ended
April 30, 2000 and 1999 reflect the results of operations of Puma 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. The share numbers set forth in these
financial statements have been retroactively restated to reflect the stock
split.
NOTE 2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Investments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting standards of
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In July 1999, the FASB issued
SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the effective date of FASB Statement No. 133" ("SFAS
137"). SFAS 137 deferred the effective date until the first fiscal quarter
commencing after June 15, 2000. The Company will adopt
6
<PAGE>
SFAS 133 in its quarter ending October 31, 2000 and
does not expect such adoption to have an impact on the Company's results of
operations, financial position or cash flows.
NOTE 3. EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed giving effect to all dilutive potential
common shares that were outstanding during the period. Dilutive potential common
shares and warrants consist of the incremental common shares issuable upon the
exercise of stock options for all periods.
Basic and diluted earnings per share were calculated as follows during the three
and nine months ended April 30, 2000 and 1999 respectively:
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASIC:
Weighted average common shares 39,995 30,013 33,678 28,392
============= ============== ============== =============
Net loss attributable to common shareholders $ (10,590) $ (1,951) $ (20,930) $(7,127)
============= ============== ============== =============
Net loss per share $ (0.26) $ (0.07) $ (0.62) $ (0.25)
============= ============== ============== =============
DILUTED:
Weighted common shares 39,995 30,013 33,678 28,392
Common equivalent shares from stock
options and warrants - - - -
------------- -------------- -------------- -------------
Shares used in per share calculation 39,995 30,013 33,678 28,392
============= ============== ============== =============
Net loss attributable to common shareholders $ (10,590) $ (1,951) $ (20,930) $ (7,127)
============= ============== ============== =============
Net loss per share $ (0.26) $ (0.07) $ (0.62) $ (0.25)
============= ============== ============== =============
</TABLE>
Diluted loss per share calculation excludes the effect of 5,127,000 and
1,429,000 options outstanding during the nine month periods ended April 30, 2000
and 1999 respectively because of their anti-dilutive impact.
7
<PAGE>
NOTE 4. 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 facility. The associated
severance costs were $210,000. As of July 31, 1999, there was no unused balance.
Additional restructuring charges were also incurred for vacating of a part of
the San Jose facility, as well as a leased facility in Nashua. The
restructure charge was $558,000.
The following table depicts the restructuring activity through April 30, 2000:
<TABLE>
<CAPTION>
(in thousands)
Restructuring Charges Severance and Accrued lease costs for Total
Benefits excess facilities
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Accrued balance at July 31, 1999 $ - $ 331 $ 331
Cash payments - 101 101
--------------------------------------------------------------
Accrued balance at April 30, 2000 $ - $ 230 $ 230
=== ===== =====
</TABLE>
NOTE 5. COMPREHENSIVE INCOME/(LOSS)
Our total comprehensive earnings (loss) were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ -----------------
April 30, April 30,
------------ ---------
(In thousands of dollars) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $(10,013) $(567) $(17,053) $ (5,589)
Unrealized gain (loss) (506) 586 (910) 3,260
Foreign exchange translation gain (loss) 60 (5) 24 (5)
-------- -------- -------- --------
Total comprehensive loss $(10,459) $ 14 $(17,939) $ (2,334)
======== ======== ======== ========
</TABLE>
8
<PAGE>
The unrealized loss for nine months ended April 30, 2000 relates primarily to
the offset of previously recorded unrealized gains on our holdings of Amazon.com
stock against realized gains recorded as shares were sold during the period.
NOTE 6. PROXINET ACQUISITION
On October 28, 1999, Puma 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 in
exchange for all outstanding shares of ProxiNet and options to purchase shares
of ProxiNet.
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. Amortization of the intangible assets
acquired is computed 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 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.
The following unaudited pro-forma consolidated financial information reflects
the results of operations for the nine months ended April 30, 2000, as if the
acquisition had occurred on August 1, 1999 and after giving 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 acquisition actually taken place on August 1,
1999 and may not be indicative of future operating results (in thousands, except
per share data).
<TABLE>
<CAPTION>
Nine months ended April 30, 2000
9
<PAGE>
<S> <C>
Pro-forma revenue $21,787
Pro-forma net loss ($18,667)
Pro-forma basic and diluted loss per share $(0.55)
</TABLE>
NOTE 7. PRIVATE PLACEMENT
On March 16, 2000, the Company completed a private placement of approximately
1,068,000 shares of Common Stock for approximately $77,000,000 in net
proceeds.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO CONTAINED ELSEWHERE IN
THIS FORM 10-Q AND IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS IN OUR FORM 10-K. THIS QUARTERLY REPORT ON FORM 10-Q, AND IN
PARTICULAR MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS REGARDING FUTURE
EVENTS OR OUR FUTURE PERFORMANCE THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES
INCLUDING THOSE DISCUSSED IN "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS"
BELOW. IN THIS FORM 10-Q, THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS",
"INTENDS", "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.
RESULTS OF OPERATIONS
OVERVIEW
We develop, market and support mobile device management and synchronization
software, enabling consumers, mobile professionals and information technology
officers to harness the full capabilities of handheld computers, smart
phones, and other wireless personal communication platforms. We currently
have eight primary families of products: our Intellisync-Registered
Trademark- family of products, which performs advanced data synchronization
from handheld devices to personal computers; our Intellisync Anywhere-TM-
server product, which performs advanced data synchronization from handheld
devices to corporate groupware messaging servers; our Intellisync Software
Development Kit or SDK, which enables customers to develop translators for
both applications and devices, which can then be incorporated into our
product offerings; our Satellite Forms-TM- product, which is a visual rapid
application development tool for devices based
10
<PAGE>
on the Palm Computing-Registered Trademark- platform; our TranXit-Registered
Trademark- family of products, which supports infrared connectivity; and our
Intellisync for Notebooks family of products, which combines infrared
connectivity with advanced data synchronization; our Browse-it product which
delivers web rendering/browsing capabilities for users of handheld devices
connecting to the Internet; and our Mind-it-TM- product which is a highly
scalable software solution that detects specific, relevant changes on the
world wide web that then promptly notifies users about what information has
changed. The Intellisync SDK delivers our Sync-it-TM- product that, together
with Browse-it and Mind-it form the essential components of the our Mobile
Application Platform-TM- (MAP) offering. MAP is the common server platform on
which we are building our new mobile solutions.
Intellisync software is used for advanced synchronization of calendar,
e-mail, contact and task data between PCs and popular handheld computers,
smart phones and smart pagers. Intellisync software is currently distributed
directly to end users through our retail distribution channel, Web store, and
fulfillment houses, and is bundled with products offered by certain handheld
device manufacturers. Intellisync Anywhere and Satellite Forms software are
currently distributed directly to the end user and through our corporate
marketing/fulfillment partner, Rainmaker Systems, Inc. TranXit and
Intellisync for Notebooks software is bundled with products offered by
certain handheld device manufacturers and is preloaded on personal computers.
<PAGE>
The following table sets forth-certain consolidated statement of operations data
as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
REVENUE 100.0% 100.0% 100.0% 100.0%
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST AND OPERATING EXPENSES:
Cost of revenue 11.0 7.2 11.6 10.8
Research and development 59.8 52.1 52.3 65.4
Sales and marketing 58.0 46.9 51.0 48.8
General and administrative 15.5 17.5 14.9 19.9
In-process research and development - - 19.4 -
Amortization of intangibles 10.3 2.4 8.0 2.5
Non cash stock compensation 5.8 1.8 6.1 0.7
Merger related costs 78.9 - 29.0 -
Restructuring and other charges - - - 5.2
----------------------------------------------------------------------------------------------------------------
Total cost and operating expenses 239.3 127.9 192.2 153.3
----------------------------------------------------------------------------------------------------------------
OPERATING LOSS (139.3) (27.9) (92.2) (53.3)
Interest and other income, net 16.3 20.7 16.3 19.5
----------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (123.0) (7.2) (75.9) (33.8)
Provision for income taxes (2.0) (3.4) (2.4) (4.0)
----------------------------------------------------------------------------------------------------------------
NET LOSS (125.0) (10.6) (78.3) (37.8)
Accretion of mandatorily redeemable
convertible preferred stock to
redemption value (7.2) (25.8) (17.8) (10.4)
----------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS (132.2) % (36.4) % (96.1) % (48.2) %
----------------------------------------------------------------------------------------------------------------
</TABLE>
REVENUE. Our revenue is derived from two primary sources: software licenses and
fees for service. Our revenue for the three months ended April 30, 2000
increased by 49% to $8,014,000 as compared to $5,370,000 for the same period in
1999. For the nine months ended April 30, 2000 revenues increased by 47% to
$21,787,000 as compared with $14,777,000 for the same period in 1999. Revenue
growth resulted from increased platform licensing of components of our Mobile
Application Platform, higher revenues from both personal and server based
Intellisync products, and to a lesser extent sales of Satellite Forms.
OEM revenue continues to represent a significant portion of our revenue. OEM
revenue of $3,288,000 and $3,089,000 represented 41% and 58% of our revenue, in
the three months ended April 30, 2000 and 1999, respectively. OEM revenue of
$9,320,000 and $8,052,000
12
<PAGE>
represented 43% and 54% of our revenue, in the nine months ended April 30,
2000 and 1999, respectively. Revenue from Toshiba Corporation of $1,815,000
and $2,278,000 represented 8% and 15% of revenue for the nine months ended
April 30, 2000 and 1999, respectively. Revenue from Toshiba of $562,000 and
$703,000 accounted for 7% and 13% of revenue during the three months ended
April 30, 2000 and 1999, respectively. 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 used by us for our existing and future products are
subject to change. Further, we expect the notebook and PC OEM portion of this
revenue is expected to continue to decrease as a percentage of our overall
revenue.
International revenue continues to represent a significant portion of our
revenue. International revenue of $2,040,000 and $2,031,000 represented
approximately 25% and 38% of our revenue for the three months ended April 30,
2000 and 1999, respectively. International revenue of $6,494,000 and $5,701,000
represented approximately 30% and 39% of our revenue for the nine months ended
April 30, 2000 and 1999, respectively.
LICENSE REVENUE. License revenue is derived from the licensing of software
products and royalty agreements with OEMs. License revenue was $19,612,000 in
the first nine months of fiscal 2000 as compared to $13,677,000 in the same
period in fiscal 1999. Our license revenues increased for Software Development
Kits, Intellisync, Satellite Forms and Intellisync Anywhere Products. These
increases were offset by declining revenues in the Intellisync for Notebook and
TranXit products.
SERVICE REVENUE. Service revenue is derived from fees for services including
customer funded engineering services, amortization of maintenance contract
programs and advertising fees. Service revenue of $949,000 and $2,175,000
represented 12% and 10% of our revenue for the three and nine months ended April
30, 2000, respectively. Service revenue of $469,000 and $1,100,000 represented
9% and 7% of our revenue for three and nine months ended April 30, 1999,
respectively. These increases were related primarily to increases in advertising
fees.
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 customer funded software engineering services and hosting costs for online
services. For the three months ended April 30, 2000 and 1999, cost of revenue
was $882,000 and $387,000, respectively. This represented 11% and 7% of total
revenue, for both fiscal periods, respectively. This increase primarily related
to an increase in costs for customer funded engineering projects and to a lesser
extent increased hosting costs. For the nine months ended April 30, 2000 and
1999, cost of revenue was $2,524,000 and $1,599,000, respectively, and
represented 12% and 11% of total revenue.
Our cost of revenue is affected by the mix among our distribution channels as
well as the mix among our revenue sources including royalties, packaged product,
customer funded engineering contracts and sales and fulfillment via our Web
site.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries and other related expenses for research and development personnel,
quality assurance
13
<PAGE>
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 71% to
$4,792,000 in the third fiscal quarter of 2000 from $2,796,000 in the
comparable fiscal quarter of 1999. For the nine months ended April 30, 2000
research and development expenses increased 18% to $11,385,000 from
$9,662,000 for the same nine-month period in fiscal 1999. The increase in
research and development expenses was primarily due to increased personnel
required to integrate the newly acquired Proxinet-TM- and NetMind
technologies within our Mobile Application Platform and the development of
the Intellisync.com service that is expected to be launched in Q1 of fiscal
2001. While we believe research and development expenses may continue to
increase in absolute dollars in the next several quarters, we also expect
these expenses to begin decrease as a percentage of revenue during the same
periods.
Research and development expenses have been expensed as incurred. Statement of
Financial Accounting Standards No. 86 requires capitalization of certain
software development costs once technological feasibility is established. We
define establishment of technological feasibility at the point at which a
product reaches beta. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized, if material. To date, all of these
software development costs have been insignificant and expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions, promotional expenses and other related expenses of sales and
marketing personnel. Sales and marketing expenses increased 85% to $4,647,000 in
the third fiscal quarter of 2000 from $2,518,000 for the comparable quarter in
the prior year. For the nine months ended April 30, 2000 sales and marketing
expenses increased 54% to $11,107,000 from $7,209,000 for the same nine-month
period in fiscal 1999. The increase in sales and marketing expenses as compared
to the third fiscal quarter of 1999 was primarily due to an increase in sales
personnel to expand our sales and business development organizations in the US
and internationally, including Europe and Asia Pacific, and corporate marketing
expenditures in support of the renaming of the company to PUMATECH, Inc. and the
portal design costs for Intellisync.com. We anticipate that sales and marketing
expenses will continue to increase throughout the remainder of the fiscal year
as we continue to expand our direct sales force and the related personnel and
marketing support costs also increase.
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 32% to $1,245,000 in the third fiscal quarter
of 2000 from $942,000 for the same period in the prior year. For the nine months
ended April 30, 2000 general and administrative increased 11% to $3,257,000 from
$2,942,000. The increase in spending is primarily attributable to the more
complex and demanding infrastructure requirements associated with our growth.
IN-PROCESS RESEARCH AND DEVELOPMENT. In the first quarter of fiscal 2000 we
recorded a charge of $4,218,000 for in-process research and development
associated with the acquisition of ProxiNet. 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
14
<PAGE>
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 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 and ProxiWeb 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%. 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 profitability
may be adversely affected. Additionally, the value of other intangible assets
acquired may become impaired.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles consists of
amortization of acquired intangibles, primarily the result of the Proxinet
acquisition. Amortization of intangible expense increased 554% to $824,000 in
the third fiscal quarter of 2000 from $126,000 for the same period in the prior
year. For the nine months ended April 30, 2000 amortization of intangibles
increased 377% to $1,733,000 from $363,000. These increases result directly from
the Proxinet acquisition.
NON-CASH STOCK COMPENSATION. For the first nine months of fiscal 2000 non-cash
stock compensation expense increased to $1,326,000 from $107,000 in the
comparable period in fiscal 1999. These expenses are for stock options that were
deemed to have been granted at a price less than market value. The majority of
the fiscal 2000 non-cash compensation expense relates options that were granted
by NetMind Technologies prior to the merger of NetMind with and into a
wholly-owned subsidiary of Puma Technology, Inc. These charges are being
amortized on a straight-line basis over the vesting period of the options.
MERGER COSTS. During the quarter ended April 30, 2000, the Company incurred
$6,322,000 in one-time acquisition related costs for the transaction with
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 April 30, 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 April 30, 2000 was $230,000.
15
<PAGE>
INTEREST AND OTHER INCOME, NET. Interest and other income, net, represents
interest earned by us on our cash and short-term investments, offset by
interest expense on capitalized leases and miscellaneous fees and charges.
Additionally, a gain related to our investment in PlanetAll, which was
acquired by Amazon.com, is also included. Interest and other income, net,
increased to $1,309,000 in the third fiscal quarter of 2000 from $1,113,000
for the same period in the prior year. For the nine months ended April 30,
2000 interest and other income, net increased to $3,549,000 from $2,875,000
for the same period in the prior year. The increase in interest and other
income, net, was primarily due to the recognition of a gain of $2,182,000 in
the nine months ended April 30, 2000 as compared with $1,901,000 of gain
recognized in the nine months ended April 30, 1999. These gains were
attributable to stock sales and the exchange of Planet All stock for
Amazon.com stock up the acquisition of PlanetAll. Additionally, interest
income increased as a result higher cash balances subsequent to the closing
of the private placement in March 2000 yielding gross proceeds of
approximately $82,000,000.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to $159,000
in the third fiscal quarter of 2000 from $183,000 for the same period in the
prior year. For the nine months ended April 30, 2000 the provision for income
taxes decreased to $517,000 from $591,000 for same period in the prior year. The
provision for income taxes primarily represents foreign withholding taxes on
royalties earned from certain foreign customers. Our overall effective tax rate
for fiscal 2000 is significantly dependent on the amount and mix of income
derived from sources subject to foreign withholding taxes.
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 $4,238,000 in fiscal 1999 and
$3,877,000 for the nine months ended April 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our operating activities used $13,920,000 of cash in the first nine months of
fiscal 2000 and used $3,380,000 in the first nine months of fiscal 1999,
respectively. Net cash used in the first nine months of fiscal 2000 was
primarily due to the net loss adjusted for non-cash depreciation and
amortization, in-process research and development related asset acquisition and
adjusted for changes in deferred revenue, accrued expenses, accounts receivable,
prepaid expenses, inventory and accounts payable. Net loss for the nine months
ended April 30, 2000 included $6,322,000 in costs associated with the NetMind
acquisition.
Cash provided by investing activities was $1,237,000 in the first nine months of
fiscal 2000. This compares to $2,379,000 of cash generated in the first nine
months of fiscal 1999. Cash generated in the first nine months of fiscal 2000
was primarily due to maturities of short-term investments and adjusted for
purchases of short-term investments and to a lesser extent, purchases of
property and equipment.
16
<PAGE>
Cash provided by financing activities was $77,785,000 in the first nine
months of fiscal 2000 and consisted primarily of the net proceeds from a
private placement in March 2000. This compares to $7,585,000 of cash
generated in the first nine months of fiscal 1999, which resulted primarily
from a private placement by NetMind.
At April 30, 2000, our principal source of liquidity represented by cash, cash
equivalents and short-term investments totaled $91,486,000. We currently have no
significant capital commitments or bank financing arrangements. We believe that
our current cash, cash equivalents and short-term investment balances and cash
generated from operations, if any, will be sufficient to meet our working
capital and other cash requirements for at least the next twelve months.
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 launched our Internet initiative. The
launching of this initiative has required us to add additional resources and to
develop and market our Intellisync.com portal and the products and technologies
recently acquired in the ProxiNet and NetMind mergers. We plan to market and
license our new web-based products and solutions to e-commerce providers, web
portals and individual consumers. We also plan to offer these new products and
solutions to corporations. While the Browse-it product based on Proxinet's
technology was recently announced, other new web based products remain under
development. We expect to incur significant costs in completing the launch 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:
- 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:
17
<PAGE>
- creating and maintaining strategic relationships;
- expanding sales and marketing activities;
- integrating existing and acquired technologies;
- expanding its customer base and retaining key clients;
- introducing new services;
- 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 and NetMind mergers, our operating
results are likely 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;
18
Introduced in the second quarter of fiscal 1999, Intellisync Anywhere is a
server-based solution that provides secure, reliable synchronization of email
and personal information manager data to mobile devices both in connected and
wireless environments. We are currently working on expanding Intellisync
Anywhere to include support for Lotus Domino, Novell Groupwise and to
incorporate our Satellite Forms functionality.
The Intellisync SDK is primarily licensed directly to both hardware and software
manufacturers to enable their products to work with Intellisync software.
Satellite Forms is a visual development tool that enables developers to create
complete applications for the Palm Computing platform - without programming.
These integrate tightly with corporate data stored in Microsoft Access, Oracle,
DB2, Lotus Notes and others.
TranXit and Intellisync for Notebooks software is licensed primarily to original
equipment manufacturer customers which are primarily makers of laptop computers.
These OEM customers license our software for inclusion in their laptop computers
to enable infrared and advanced data synchronization from the laptop back to
desktop computers. These OEM customers include our software in their products
during the manufacturing process and for each device shipped, we earn a royalty.
Royalties are typically paid to us based on actual usage or forecasted volume,
although certain contracts contain fixed royalties regardless of volume, for a
given time period.
11
<PAGE>
The following table sets forth-certain consolidated statement of operations data
as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
APRIL 30, APRIL 30,
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------------
REVENUE 100.0% 100.0% 100.0% 100.0%
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
COST AND OPERATING EXPENSES:
Cost of revenue 11.0 7.2 11.6 10.8
Research and development 59.8 52.1 52.3 65.4
Sales and marketing 58.0 46.9 51.0 48.8
General and administrative 15.5 17.5 14.9 19.9
In-process research and development - - 19.4 -
Amortization of intangibles 10.3 2.4 8.0 2.5
Non cash stock compensation 5.8 1.8 6.1 0.7
Merger related costs 78.9 - 29.0 -
Restructuring and other charges - - - 5.2
----------------------------------------------------------------------------------------------------------------
Total cost and operating expenses 239.3 127.9 192.2 153.3
----------------------------------------------------------------------------------------------------------------
OPERATING LOSS (139.3) (27.9) (92.2) (53.3)
Interest and other income, net 16.3 20.7 16.3 19.5
----------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAXES (123.0) (7.2) (75.9) (33.8)
Provision for income taxes (2.0) (3.4) (2.4) (4.0)
----------------------------------------------------------------------------------------------------------------
NET LOSS (125.0) (10.6) (78.3) (37.8)
Accretion of mandatorily redeemable
convertible preferred stock to
redemption value (7.2) (25.8) (17.8) (10.4)
----------------------------------------------------------------------------------------------------------------
NET LOSS ATTRIBUTABLE
TO COMMON SHAREHOLDERS (132.2) % (36.4) % (96.1) % (48.2) %
----------------------------------------------------------------------------------------------------------------
</TABLE>
REVENUE. Our revenue is derived from two primary sources: software licenses and
fees for service. Our revenue for the three months ended April 30, 2000
increased by 49% to $8,014,000 as compared to $5,370,000 for the same period in
1999. For the nine months ended April 30, 2000 revenues increased by 47% to
$21,787,000 as compared with $14,777,000 for the same period in 1999. Revenue
growth resulted from increased platform licensing of components of our Mobile
Application Platform, higher revenues from both personal and server based
Intellisync products, and to a lesser extent sales of Satellite Forms.
OEM revenue continues to represent a significant portion of our revenue. OEM
revenue of $3,288,000 and $3,089,000 represented 41% and 58% of our revenue, in
the three months ended April 30, 2000 and 1999, respectively. OEM revenue of
$9,320,000 and $8,052,000
12
<PAGE>
represented 43% and 54% of our revenue, in the nine months ended April 30,
2000 and 1999, respectively. Revenue from Toshiba Corporation of $1,815,000
and $2,278,000 represented 8% and 15% of revenue for the nine months ended
April 30, 2000 and 1999, respectively. Revenue from Toshiba of $562,000 and
$703,000 accounted for 7% and 13% of revenue during the three months ended
April 30, 2000 and 1999, respectively. 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 used by us for our existing and future products are
subject to change. Further, we expect the notebook and PC OEM portion of this
revenue is expected to continue to decrease as a percentage of our overall
revenue.
International revenue continues to represent a significant portion of our
revenue. International revenue of $2,040,000 and $2,031,000 represented
approximately 25% and 38% of our revenue for the three months ended April 30,
2000 and 1999, respectively. International revenue of $6,494,000 and $5,701,000
represented approximately 30% and 39% of our revenue for the nine months ended
April 30, 2000 and 1999, respectively.
LICENSE REVENUE. License revenue is derived from the licensing of software
products and royalty agreements with OEMs. License revenue was $19,612,000 in
the first nine months of fiscal 2000 as compared to $13,677,000 in the same
period in fiscal 1999. Our license revenues increased for Software Development
Kits, Intellisync, Satellite Forms and Intellisync Anywhere Products. These
increases were offset by declining revenues in the Intellisync for Notebook and
TranXit products.
SERVICE REVENUE. Service revenue is derived from fees for services including
customer funded engineering services, amortization of maintenance contract
programs and advertising fees. Service revenue of $949,000 and $2,175,000
represented 12% and 10% of our revenue for the three and nine months ended April
30, 2000, respectively. Service revenue of $469,000 and $1,100,000 represented
9% and 7% of our revenue for three and nine months ended April 30, 1999,
respectively. These increases were related primarily to increases in advertising
fees.
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 customer funded software engineering services and hosting costs for online
services. For the three months ended April 30, 2000 and 1999, cost of revenue
was $882,000 and $387,000, respectively. This represented 11% and 7% of total
revenue, for both fiscal periods, respectively. This increase primarily related
to an increase in costs for customer funded engineering projects and to a lesser
extent increased hosting costs. For the nine months ended April 30, 2000 and
1999, cost of revenue was $2,524,000 and $1,599,000, respectively, and
represented 12% and 11% of total revenue.
Our cost of revenue is affected by the mix among our distribution channels as
well as the mix among our revenue sources including royalties, packaged product,
customer funded engineering contracts and sales and fulfillment via our Web
site.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
salaries and other related expenses for research and development personnel,
quality assurance
13
<PAGE>
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 71% to
$4,792,000 in the third fiscal quarter of 2000 from $2,796,000 in the
comparable fiscal quarter of 1999. For the nine months ended April 30, 2000
research and development expenses increased 18% to $11,385,000 from
$9,662,000 for the same nine-month period in fiscal 1999. The increase in
research and development expenses was primarily due to increased personnel
required to integrate the newly acquired Proxinet-TM- and NetMind
technologies within our Mobile Application Platform and the development of
the Intellisync.com service that is expected to be launched in Q1 of fiscal
2001. While we believe research and development expenses may continue to
increase in absolute dollars in the next several quarters, we also expect
these expenses to begin decrease as a percentage of revenue during the same
periods.
Research and development expenses have been expensed as incurred. Statement of
Financial Accounting Standards No. 86 requires capitalization of certain
software development costs once technological feasibility is established. We
define establishment of technological feasibility at the point at which a
product reaches beta. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized, if material. To date, all of these
software development costs have been insignificant and expensed as incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of salaries,
commissions, promotional expenses and other related expenses of sales and
marketing personnel. Sales and marketing expenses increased 85% to $4,647,000 in
the third fiscal quarter of 2000 from $2,518,000 for the comparable quarter in
the prior year. For the nine months ended April 30, 2000 sales and marketing
expenses increased 54% to $11,107,000 from $7,209,000 for the same nine-month
period in fiscal 1999. The increase in sales and marketing expenses as compared
to the third fiscal quarter of 1999 was primarily due to an increase in sales
personnel to expand our sales and business development organizations in the US
and internationally, including Europe and Asia Pacific, and corporate marketing
expenditures in support of the renaming of the company to PUMATECH, Inc. and the
portal design costs for Intellisync.com. We anticipate that sales and marketing
expenses will continue to increase throughout the remainder of the fiscal year
as we continue to expand our direct sales force and the related personnel and
marketing support costs also increase.
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 32% to $1,245,000 in the third fiscal quarter
of 2000 from $942,000 for the same period in the prior year. For the nine months
ended April 30, 2000 general and administrative increased 11% to $3,257,000 from
$2,942,000. The increase in spending is primarily attributable to the more
complex and demanding infrastructure requirements associated with our growth.
IN-PROCESS RESEARCH AND DEVELOPMENT. In the first quarter of fiscal 2000 we
recorded a charge of $4,218,000 for in-process research and development
associated with the acquisition of ProxiNet. 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
14
<PAGE>
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 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 and ProxiWeb 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%. 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 profitability
may be adversely affected. Additionally, the value of other intangible assets
acquired may become impaired.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles consists of
amortization of acquired intangibles, primarily the result of the Proxinet
acquisition. Amortization of intangible expense increased 554% to $824,000 in
the third fiscal quarter of 2000 from $126,000 for the same period in the prior
year. For the nine months ended April 30, 2000 amortization of intangibles
increased 377% to $1,733,000 from $363,000. These increases result directly from
the Proxinet acquisition.
NON-CASH STOCK COMPENSATION. For the first nine months of fiscal 2000 non-cash
stock compensation expense increased to $1,326,000 from $107,000 in the
comparable period in fiscal 1999. These expenses are for stock options that were
deemed to have been granted at a price less than market value. The majority of
the fiscal 2000 non-cash compensation expense relates options that were granted
by NetMind Technologies prior to the merger of NetMind with and into a
wholly-owned subsidiary of Puma Technology, Inc. These charges are being
amortized on a straight-line basis over the vesting period of the options.
MERGER COSTS. During the quarter ended April 30, 2000, the Company incurred
$6,322,000 in one-time acquisition related costs for the transaction with
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 April 30, 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 April 30, 2000 was $230,000.
15
<PAGE>
INTEREST AND OTHER INCOME, NET. Interest and other income, net, represents
interest earned by us on our cash and short-term investments, offset by
interest expense on capitalized leases and miscellaneous fees and charges.
Additionally, a gain related to our investment in PlanetAll, which was
acquired by Amazon.com, is also included. Interest and other income, net,
increased to $1,309,000 in the third fiscal quarter of 2000 from $1,113,000
for the same period in the prior year. For the nine months ended April 30,
2000 interest and other income, net increased to $3,549,000 from $2,875,000
for the same period in the prior year. The increase in interest and other
income, net, was primarily due to the recognition of a gain of $2,182,000 in
the nine months ended April 30, 2000 as compared with $1,901,000 of gain
recognized in the nine months ended April 30, 1999. These gains were
attributable to stock sales and the exchange of Planet All stock for
Amazon.com stock up the acquisition of PlanetAll. Additionally, interest
income increased as a result higher cash balances subsequent to the closing
of the private placement in March 2000 yielding gross proceeds of
approximately $82,000,000.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to $159,000
in the third fiscal quarter of 2000 from $183,000 for the same period in the
prior year. For the nine months ended April 30, 2000 the provision for income
taxes decreased to $517,000 from $591,000 for same period in the prior year. The
provision for income taxes primarily represents foreign withholding taxes on
royalties earned from certain foreign customers. Our overall effective tax rate
for fiscal 2000 is significantly dependent on the amount and mix of income
derived from sources subject to foreign withholding taxes.
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 $4,238,000 in fiscal 1999 and
$3,877,000 for the nine months ended April 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our operating activities used $13,920,000 of cash in the first nine months of
fiscal 2000 and used $3,380,000 in the first nine months of fiscal 1999,
respectively. Net cash used in the first nine months of fiscal 2000 was
primarily due to the net loss adjusted for non-cash depreciation and
amortization, in-process research and development related asset acquisition and
adjusted for changes in deferred revenue, accrued expenses, accounts receivable,
prepaid expenses, inventory and accounts payable. Net loss for the nine months
ended April 30, 2000 included $6,322,000 in costs associated with the NetMind
acquisition.
Cash provided by investing activities was $1,237,000 in the first nine months of
fiscal 2000. This compares to $2,379,000 of cash generated in the first nine
months of fiscal 1999. Cash generated in the first nine months of fiscal 2000
was primarily due to maturities of short-term investments and adjusted for
purchases of short-term investments and to a lesser extent, purchases of
property and equipment.
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Cash provided by financing activities was $77,785,000 in the first nine
months of fiscal 2000 and consisted primarily of the net proceeds from a
private placement in March 2000. This compares to $7,585,000 of cash
generated in the first nine months of fiscal 1999, which resulted primarily
from a private placement by NetMind.
At April 30, 2000, our principal source of liquidity represented by cash, cash
equivalents and short-term investments totaled $91,486,000. We currently have no
significant capital commitments or bank financing arrangements. We believe that
our current cash, cash equivalents and short-term investment balances and cash
generated from operations, if any, will be sufficient to meet our working
capital and other cash requirements for at least the next twelve months.
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 launched our Internet initiative. The
launching of this initiative has required us to add additional resources and to
develop and market our Intellisync.com portal and the products and technologies
recently acquired in the ProxiNet and NetMind mergers. We plan to market and
license our new web-based products and solutions to e-commerce providers, web
portals and individual consumers. We also plan to offer these new products and
solutions to corporations. While the Browse-it product based on Proxinet's
technology was recently announced, other new web based products remain under
development. We expect to incur significant costs in completing the launch 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:
- 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:
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- creating and maintaining strategic relationships;
- expanding sales and marketing activities;
- integrating existing and acquired technologies;
- expanding its customer base and retaining key clients;
- introducing new services;
- 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 and NetMind mergers, our operating
results are likely 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;
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- the emergence of new industry standards;
- the timing of customer orders;
- the mix of products and services sold;
- 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 SDK to software developers and
mobile computing device manufacturers and licensing our server and personal
applications to corporations. 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;
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- 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; and
- we may incur increased costs related to new infrastructure
requirements.
Our gross margin on service revenue, particularly non-recurring
engineering service revenue, is substantially lower than gross margin on license
revenue. Any increase in non-recurring engineering 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;
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- 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 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.
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 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 Puma, 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
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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 NetMind Technologies, Inc., ProxiNet, Inc.,
SoftMagic, Inc., RealWorld Solutions, Inc. and IntelliLink Corp. 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.
FAILURE OF THE NETMIND MERGER TO QUALIFY AS A POOLING OF INTERESTS
WOULD HARM OUR FINANCIAL RESULTS.
If the NetMind merger does not qualify for pooling of interests
accounting treatment for financial reporting purposes, our future reported
earnings would be harmed due to amortization of goodwill and other intangible
assets, which would be likely to harm the trading price of our common stock. The
availability of pooling of interests accounting treatment for this merger
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depends upon circumstances and events occurring before and after the effective
time of the merger. For example, there must not be any significant changes in
our business, including significant dispositions of assets, for a period of two
years following completion of the merger.
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
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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 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
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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 faces direct competition with respect to individual
elements of our Mobile Application Platform (MAP) including Sync-it, Browse-it
and Mind-it. Sync-it faces competition from Advanced Systems, Inc., Aether
Systems, Inc., 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.
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
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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, accounts
receivable, accounts payable and accrued expenses. 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.
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To date, the majority of our customers have paid for our services in
U.S. dollars. For fiscal 1998, 1999, and through the first nine months of fiscal
2000 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 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 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 its 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 eleven issued United States patents and have
additional 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.
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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, 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 its 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 its 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 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.
There are certain risks associated with such non-exclusive third party
licenses:
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- 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 its 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 Japan, accounted for 30% of our revenue
during the first nine months of fiscal 2000, 40% of revenue in fiscal 1999 and
48% in fiscal 1998. 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:
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- unexpected changes in regulatory requirements and tariffs;
- 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.
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.
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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. For example, we may authorize the issuance of
up to 2,000,000 shares of "blank check" preferred stock. 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
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generally, the rate of growth of the personal computer market in general and
general economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of April 30, 2000, we had an investment portfolio of
fixed income securities excluding those classified as cash and cash
equivalents, of $9,745,000. These securities, like all fixed income
instruments, are subject to interest rate risk and will fall in value if
market interest rates increase. If market interest rates were to increase
immediately and uniformly by 10% from levels as of April 30, 2000, the decline
of the fair value of the portfolio would not be material. However, we have
the ability to hold our fixed income investments until maturity, and
therefore would not expect to recognize such an adverse impact in income or
cash flows.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On March 17, 2000, we sold 1,067,232 newly-issued shares of our
common stock to a select group of institutional investors. The purchase price of
the shares was $76.75 per share, or an aggregate of $81,910,056 in gross cash
proceeds. We engaged FleetBoston Robertson Stephens Inc. to act as placement
agent for the private placement. CE Unterberg Towbin served as financial advisor
with respect to the private placement. The placement agent and financial advisor
received from us a total of 6.0% of the gross proceeds of the sale of the
shares. The private placement was exempt from registration under Section 4(2) of
the Securities Act of 1933. We agreed to register the resale of the shares of
common stock issued in the private placement, and filed a registration statement
on Form S-3 with the Securities and Exchange Commission which became effective
on May 5, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 24, 2000, we held a special meeting of stockholders. At that
meeting, the following matters were voted upon with the number of votes cast
for, against or withheld as set forth in the columns opposite the respective
matters.
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<PAGE>
<TABLE>
<CAPTION>
Matter For Withheld Against
------ --- -------- -------
<S> <C> <C> <C>
(1) To consider and vote upon a proposal to 9,389,996 6,964 35,010
approve the issuance of up to 5,000,000
shares of common stock, par value $0.001
per share, of Puma pursuant to a merger
agreement among Puma, NetMind Technologies,
Inc. and Rocket Kitty Acquisition Corp.,
a wholly owned subsidiary of Puma, under
which NetMind will become a wholly owned
subsidiary of Puma.
(2) To grant the Puma board of directors 8,785,190 20,957 625,823
discretionary authority to adjourn the
special meeting to solicit additional
votes for approval of the share issuance.
(3) To transact such other business as may 7,769,407 802,712 859,851
properly come before the special meeting
or any adjournment or postponement.
</TABLE>
ITEM 5. OTHER INFORMATION
On May 8, 2000, we announced that Puma Technology, Inc. is now doing
business as PUMATECH, Inc. and that we plan to ask our stockholders to legally
change the name at the next meeting of stockholders scheduled to be held in
December 2000.
On February 24, 2000, Puma Technology, Inc., a Delaware corporation
closed its merger with NetMind Technologies, Inc., a California corporation,
following a vote by the shareholders of NetMind to approve the merger and of
Puma Technology shareholders to approve the issuance of up to 5,000,000 shares
of Puma Technology common stock in the merger.
Pursuant to an Agreement and Plan of Merger and Reorganization dated
December 8, 1999, by and among Puma Technology, NetMind and Rocket Kitty
Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Puma
Technology, Rocket Kitty merged with and into NetMind with NetMind surviving as
a wholly-owned subsidiary of Puma Technology. Pursuant to the terms of the
Reorganization Agreement, each outstanding share of the common stock, series a
preferred stock and series b preferred stock of NetMind has been converted into
the right to receive 0.7981328, 0.8179082 and 0.8341680 shares of the common
stock of Puma Technology, respectively.
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In addition, each option to purchase shares of common stock of NetMind
outstanding immediately prior to the effective time of the merger has been
converted into an option purchase 0.7981328 shares of the common stock of Puma
Technology. Each warrant to purchase shares of common stock of NetMind
outstanding immediately prior to the effective time of the merger has been
converted into a warrant to purchase 0.7981328 shares of the common stock of
Puma Technology and each warrant to purchase shares of series a preferred stock
of NetMind outstanding immediately prior to the effective time of the merger has
been converted into a warrant to purchase 0.8179082 shares of the common stock
of Puma Technology.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 - Financial Data Schedule
(b) Reports on Form 8-K
Form 8-K filed on April 18, 2000 to report that the historical operating
results of Puma Technology, Inc. and NetMind Technologies, Inc. on a
combined basis in accordance with pooling of interests accounting.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Puma Technology, Inc.
Date: June 14, 2000 By: /s/ Kelly J. Hicks
---------------------------
Kelly J. Hicks
Vice President of Operations
and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting
Officer)
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PUMA TECHNOLOGY, INC.
SUMMARY OF TRADEMARKS
The following trademarks of Puma Technology, Inc., or its wholly-owned
subsidiary NetMind Technologies, Inc., which may be registered in certain
jurisdictions, are referenced in this Form 10-Q:
Browse-it
IntelliLink
Intellisync
Intellisync Anywhere
Mobile Application Platform
Mind-it
Proxinet
Proxiware
Proxiweb
PUMATECH
Satellite Forms
Sync-it
TranXit
All other brand or product names are trademarks or registered trademarks of
their respective holders.
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