<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2000
OR
[ ] 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.
Incorporated Pursuant to the Laws of the State of Delaware
--------------------
IRS Employer Identification Number 77-0349154
2550 North First Street, San Jose, California 95131
(408) 321-7650
--------------------
Indicate by check mark whether the registrant (1) has filed all reports required
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
----- ------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 30, 2000: 43,855,953
<PAGE>
PUMA TECHNOLOGY, INC.
10-Q REPORT
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I - FINANCIAL INFORMATION 2
Item 1. Condensed Consolidated Financial Statements 2
Condensed Consolidated Balance Sheets 2
Condensed Consolidated Statements of Operations 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 37
PART II - OTHER INFORMATION 38
Item 1. Legal Proceedings 38
Item 2. Changes in Securities and Use of Proceeds 38
Item 3. Defaults Upon Senior Securities 38
Item 4. Submission of Matters to a Vote of Security Holders 38
Item 5. Other Information 38
Item 6. Exhibits and Reports on Form 8-K 38
SIGNATURE 39
</TABLE>
1
<PAGE>
PUMA TECHNOLOGY, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
2000 2000
--------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 30,541 $ 54,492
Short-term investments.......................................... 37,061 30,768
Accounts receivable, net....................................... 6,514 6,358
Inventories, net................................................ 244 235
Other current assets............................................ 1,379 1,732
--------------- ---------------
Total current assets......................................... 75,739 93,585
Property and equipment, net....................................... 6,446 4,828
Intangible assets, net............................................. 27,375 17,109
Other assets....................................................... 4,974 3,133
--------------- ---------------
Total assets............................................. $ 114,534 $ 118,655
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 3,400 $ 2,601
Accrued liabilities............................................. 3,707 4,036
Current portion of long-term notes payable...................... 259 259
Deferred revenue................................................ 6,002 6,372
--------------- ---------------
Total current liabilities.................................... 13,368 13,268
Long-term notes payable............................................ 259 310
--------------- ---------------
Total liabilities............................................ 13,627 13,578
--------------- ---------------
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value, 60,000 shares authorized; 43,005
shares at October 31, 2000 and 42,307 shares at July 31, 2000
issued and outstanding....................................... 43 42
Additional paid-in capital...................................... 146,631 146,051
Receivable from stockholders.................................... (330) (330)
Deferred stock compensation..................................... (2,893) (3,114)
Accumulated deficit............................................. (42,571) (37,589)
Other comprehensive income...................................... 27 17
--------------- ---------------
Total stockholders' equity................................... 100,907 105,077
--------------- ---------------
Total liabilities and stockholders' equity............... $ 114,534 $ 118,655
=============== ===============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
---------------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Revenue....................................................... $ 9,923 $ 6,412
-------------- -------------
Cost and operating expenses:
Cost of revenue............................................ 1,559 605
Research and development (excludes non-cash stock
compensation of $89 and $87)............................. 5,999 2,836
Sales and marketing (excludes non-cash stock compensation
of $37 and $183)......................................... 5,373 3,171
General and administrative (excludes non-cash stock
compensation of $95 and $121)............................ 1,323 946
In-process research and development........................ - 4,218
Amortization of intangibles................................ 1,382 74
Non-cash stock compensation................................ 221 391
-------------- -------------
Total cost and operating expenses...................... 15,857 12,241
-------------- -------------
Operating loss................................................ (5,934) (5,829)
Other income, net............................................. 1,088 1,266
-------------- -------------
Loss before income taxes...................................... (4,846) (4,563)
Provision for income taxes.................................... (136) (192)
-------------- -------------
Net loss...................................................... (4,982) (4,755)
Accretion of mandatorily redeemable convertible preferred
stock to redemption value.................................. - (1,535)
-------------- -------------
Net loss attributable to common stockholders.................. $ (4,982) $ (6,290)
============== =============
Basic and diluted net loss per share.......................... $ (0.12) $ (0.20)
============== =============
Shares used in computing basic and diluted net loss per
share...................................................... 42,666 31,461
============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PUMA TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
------------------------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................................... $ (4,982) $ (4,755)
Adjustments to reconcile net loss to net cash used in operating
activities:
Purchased in-process research and development................... - 4,218
Depreciation and amortization................................... 1,927 403
Non-cash stock compensation..................................... 221 391
Realized gain on sale of investments............................ - (892)
Changes in operating assets and liabilities:
Accounts receivable............................................. (156) (858)
Inventories..................................................... (9) (141)
Other current assets............................................ 454 (1,008)
Accounts payable................................................ 799 297
Accrued liabilities............................................. (529) (523)
Deferred revenues............................................... (370) 468
Other assets and liabilities.................................... (542) 601
------------- ------------
Net cash used in operating activities................................. (3,187) (1,799)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................. (1,757) (422)
Purchase of short-term investments, net............................ (6,287) (1,937)
Purchase of investments............................................ (1,000) -
Acquisition........................................................ (12,250) -
------------- ------------
Net cash used in investing activities................................. (21,294) (2,359)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable................................ (51) -
Proceeds from line of credit, net.................................. - 118
Note advances to stockholders...................................... - (1)
Proceeds from exercise of warrants................................. 2 -
Proceeds upon exercise of stock options, net....................... 183 55
Proceeds from newly issued common stock, net....................... 396 137
Payments to settle acquired liabilities............................ - (764)
------------- ------------
Net cash provided by (used in) financing activities................... 530 (455)
------------- ------------
Net decrease in cash and cash equivalents............................. (23,951) (4,613)
Cash and cash equivalents at beginning of period...................... 54,492 16,639
------------- ------------
Cash and cash equivalents at end of period............................ $ 30,541 $ 12,026
============= ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid...................................................... $ 16 $ 6
============= ============
Income taxes paid.................................................. $ 167 $ 205
============= ============
Common stock issued in connection with business acquisition........ $ - $ 14,787
============= ============
Accretion of redeemable convertible preferred stock................ $ - $ 1,535
============= ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PUMA TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Puma
Technology, Inc. (Pumatech or the Company) for the three months ended October
31, 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, 2000. The condensed consolidated balance sheet as
of July 31, 2000 has been derived from the audited financial statements at
that date but does not include all of the information and footnotes required
by generally accepted accounting principles for complete financial
statements. Certain prior period amounts have been reclassified to conform to
the current period's presentation. The results of operations for the interim
period ended October 31, 2000 are not necessarily indicative of results to be
expected for the full year.
The accompanying condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, including the company
formerly known as NetMind Technologies, Inc. (NetMind) that merged with and into
a wholly-owned subsidiary of Pumatech on February 24, 2000 in a pooling of
interests transaction. 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
condensed consolidated financial statements for the three months ended October
31, 2000 and 1999 reflect the results of operations of Pumatech combined with
the results of operations of NetMind for the corresponding periods.
On February 23, 2000, the Company announced a two-for-one stock split in the
form of a stock dividend. The record date for the stock split was March 8, 2000
and the payment date was March 22, 2000. All share, per share, common stock,
stock option and warrant amounts have been retroactively restated to reflect the
stock split.
NOTE 2 RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which establishes accounting
and reporting standards for derivative instruments and hedging activities.
SFAS 133 was amended by SFAS 138 in June 2000. SFAS 133 and 138 require that
an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The Company
adopted these statements on August 1, 2000. Since the Company does not engage
5
<PAGE>
in hedging activities and does not buy or sell derivative instruments, the
adoption of SFAS 133 and 138 had no impact on the consolidated financial
statements.
REVENUE RECOGNITION AND FINANCIAL STATEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued SEC Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarized certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 must be implemented by the Company no later than its fourth fiscal
quarter of fiscal 2001. The Company is reviewing the requirements of SAB 101 and
currently believes that its revenue recognition policy is consistent with the
guidance of SAB 101.
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, FASB issued FASB Interpretation No. 44 (FIN 44), "Accounting
for Certain Transactions Involving Stock Compensation--an Interpretation of
Accounting Principles Board (APB) Opinion No. 25." FIN 44 clarifies the
following: the definition of an employee for purposes of applying APB Opinion
No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to
the terms of previously fixed stock options or awards; and the accounting for
an exchange of stock compensation awards in a business combination. FIN 44
became effective on July 1, 2000, but certain conclusions in FIN 44 cover
specific events that occurred after either December 15, 1998 or January 12,
2000. The application of FIN 44 did not have a material impact on the
Company's financial position or results of operations.
ACCOUNTING FOR CERTAIN SALES INCENTIVES
In May 2000, the Emerging Issues Task Force Issue (EITF) released issue No.
00-14 "Accounting for Certain Sales Incentives," which provides guidance on the
accounting for certain sales incentives offered by companies to their customers
such as discounts, coupons and rebates on products or services. EITF 00-14
became effective for all fiscal quarters beginning after May 18, 2000 and
addresses the recognition, measurement and income statement classification for
sales incentives offered voluntarily by a vendor without charge to customers
that can be used in, or that are exercisable by a customer as a result of a
single exchange transaction. The provisions of EITF 00-14 will require the
Company to classify free product and service incentives delivered to customers
at the time of sale as cost of sales in its consolidated statement of
operations. The application of EITF 00-14 did not have a material impact on the
Company's financial position or results of operations.
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS
In August 2000, the EITF released issue No. 00-10, "Accounting for Shipping
and Handling Fees and Costs." EITF 00-10 addresses the income statement
classification of amounts billed to a customer for shipping and handling
costs as well as the classification of amounts incurred for shipping and
handling costs. The EITF concluded that amounts billed to customers in sales
transactions related to shipping and handling should be classified as
revenue, and any costs incurred should be classified as cost of goods sold
or, in general, as operating expense. If shipping and handling costs incurred
are not included in cost of goods sold, the amount of such costs and the line
item on the statement of operations which includes those costs should be
disclosed. The Company has adopted EITF 00-10. The application of EITF 00-10
did not have a material impact on the Company's financial position or results
of operations.
6
<PAGE>
NOTE 3 BALANCE SHEET COMPONENTS
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
2000 2000
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................................... $ 9,131 $ 8,342
Less: Allowances for doubtful accounts and sales returns................... (2,617) (1,984)
-------------- -----------------
Accounts receivable, net................................................ $ 6,514 $ 6,358
============== =================
</TABLE>
Inventories, net, consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
2000 2000
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................................... $ 161 $ 173
Finished goods and work-in-process.......................................... 173 149
-------------- -----------------
334 322
Less: Inventory reserves................................................... (90) (87)
-------------- -----------------
Inventories, net........................................................ $ 244 $ 235
============== =================
</TABLE>
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
2000 2000
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software........................................... $ 8,029 $ 5,977
Furniture and office equipment............................................ 2,339 2,313
Leasehold improvements.................................................... 1,091 1,006
-------------- ----------------
11,459 9,296
Less: Accumulated depreciation and amortization........................... (5,013) (4,468)
-------------- ----------------
Property and equipment, net............................................. $ 6,446 $ 4,828
============== ================
</TABLE>
7
<PAGE>
Intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
OCTOBER 31, JULY 31,
2000 2000
-------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill............................................................... $ 24,297 $ 14,130
Developed technology.................................................... 5,711 5,711
Workforce-in-place..................................................... 2,181 900
Existing contracts...................................................... 200 -
-------------- ----------------
32,389 20,741
Less: Accumulated amortization.......................................... (5,014) (3,632)
-------------- ----------------
Intangible assets, net.............................................. $ 27,375 $ 17,109
============== ================
</TABLE>
NOTE 4 NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net income (loss) per share is computed
giving effect to all dilutive potential common shares that were outstanding
during the period. Dilutive potential common shares consist of the incremental
common shares issuable upon the exercise of stock options and warrants for all
periods.
Basic and diluted net loss per share were calculated as follows during the three
months ended October 31, 2000 and 1999, respectively:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------------------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999
-------------- ------------
<S> <C> <C>
NUMERATOR:
Net loss attributable to common stockholders................ $ (4,982) $ (6,290)
============== ============
DENOMINATOR:
Weighted average shares outstanding used to compute basic
and diluted net loss per common share................... 42,666 31,461
============== ============
Basic and diluted net loss per share........................ $ (0.12) $ (0.20)
============== ============
</TABLE>
All common shares that were held in escrow were excluded from basic and
diluted net loss per share calculations.
Potential common shares attributable to mandatorily redeemable preferred
stock, stock options, and warrants of 8,459,416 and 10,814,102 were
outstanding at October 31, 2000 and 1999, respectively. However, as a result
of a net loss incurred by the Company in the three months ended October 31,
2000 and 1999, the corresponding weighted average outstanding shares (using
the treasury stock method) were antidilutive and were excluded from net loss
per share calculations.
8
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NOTE 5 COMPREHENSIVE INCOME / (LOSS)
Accumulated other comprehensive income (loss) on the condensed consolidated
balance sheets consists of unrealized gains (losses) on available for sale
investments and foreign currency translation adjustments. Total comprehensive
loss for the three months ended October 31, 2000 and 1999, is presented in the
following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
(IN THOUSANDS) OCTOBER 31,
-----------------------------
2000 1999
------------- --------------
<S> <C> <C>
Net loss............................................... $ (4,982) $ (4,755)
Other comprehensive income:
Change in unrealized gains on investments.......... 6 212
Change in currency translation adjustments.......... 4 (5)
------------- --------------
Total other comprehensive income................ 10 207
------------- --------------
Total comprehensive loss................................ $ (4,972) $ (4,548)
============= ==============
</TABLE>
The balance of unrealized gains on investments at October 31, 2000 and 1999
consisted entirely of unrealized gains for our holdings of Amazon.com common
stock.
NOTE 6 PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
The Company expensed purchased in-process research and development costs of
$4,218,000 as a result of the ProxiNet, Inc. (ProxiNet) acquisition in the
first quarter of fiscal 2000.
The ProxiNet acquisition has been accounted for as a purchase. The total
purchase price of approximately $17,384,000 (including liabilities of
$2,070,000), was assigned, based on an independent appraisal, to the fair
value of the assets acquired, including the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Tangible assets, net, acquired............ $ 676
In-process research and development....... 4,218
Core technology........................... 3,092
Acquired workforce-in-place............... 286
Goodwill.................................. 9,112
-------
$17,384
=======
</TABLE>
As of the acquisition date, technological feasability of the in-process
technology has not been established and the technology has no alternative
future use. Therefore, the Company expensed the in-process research and
development in the first quarter of fiscal year 2000. The remaining intangible
9
<PAGE>
assets are being amortized using the straight-line method over the estimated
useful life of the assets ranging from 18 months to 5 years.
The value assigned to this acquired in-process research and development was
determined by identifying research projects in areas for which technological
feasibility had not been established as of the acquisition date. These
include projects for ProxiWare-TM- and ProxiWeb-TM- technology. The value was
determined by estimating the revenue contribution and the percentage of
completion of each of these projects. The projects were deemed to be 55%
complete on the date of acquisition. The net cash flows were then discounted
utilizing a weighted average cost of capital of 27.5%, which, among other
related assumptions, we believe to be fairly accurate. This discount rate
takes into consideration the inherent uncertainties surrounding the
successful development of the in-process research and development, the
expected profitability levels of such technology, and the uncertainty of
technological advances that could potentially impact the estimates described
above. Revenues were projected to be generated in fiscal 2000 for the
products in development at the acquisition date. If these projects are not
successfully developed, our future revenues and achievement of profitability
may not be realized. Additionally, the value of other intangible assets
acquired may become impaired.
To date, actual results have been consistent, in all material respects, with
our assumptions at the time of the acquisition. The assumptions primarily
consist of an expected completion date for the in-process projects, estimated
costs to complete the projects, and revenue and expense projections once the
products have entered the market. The projects for ProxiWare and ProxiWeb
technology that is currently branded as the Browse-it product was completed,
as expected, in the fourth quarter of fiscal 2000 and are now generating
revenue. Failure to achieve the expected levels of revenue and net income
from these products during their entire life cycle will negatively impact the
return on investment expected at the time that the acquisition was completed
and potentially result in impairment of any other assets related to the
development activities.
NOTE 7 ACQUISITION
In October 2000, the Company signed and closed an asset purchase agreement
with Vanteon Corporation (Vanteon), of Rochester, New York to acquire certain
assets and assume certain liabilities of The Windward Group (Windward), a
wholly owned subsidiary of Vanteon headquartered in Los Gatos, California.
Windward is a professional services company specializing in creating consumer
and enterprise solutions that combine mobile, wireless, desktop, Internet and
database technology. The condensed consolidated financial statements include
the results of operations of Windward since the date of acquisition. Under
the terms of the agreement, we paid $12,250,000 in cash up-front and placed
approximately 171,000 of Pumatech common stock in escrow. These shares will
be valued upon issuance from escrow based on the fair value of the common
stock around that date and will increase the amount of goodwill arising from
the transaction. The shares will be released to Vanteon based on the
achievement of quarterly performance milestones over fiscal 2001. The
agreement also provided for a rent reimbursement from Vanteon for the Los
Gatos facility over the remaining term of the related lease which has been
assumed by the Company. The $611,000 present value of the rent reimbursement
was treated as a reduction of the purchase price.
The Windward acquisition has been accounted for as a purchase. The total
purchase price of approximately $12,030,000 (including liabilities of
$191,000 and acquisition costs of $200,000) was assigned, based on
independent appraisal, to the fair value of net assets acquired, including
the following (in thousands):
10
<PAGE>
<TABLE>
<S> <C>
Tangible assets, net, acquired............. $ 406
Existing contracts......................... 200
Acquired workforce-in-place................ 1,281
Goodwill................................... 10,143
-----------
$ 12,030
===========
</TABLE>
The intangible assets acquired are being amortized using the straight-line
method over the estimated useful life of the assets. The estimated useful
life of the existing contracts is the remaining term of the respective
contracts ranging from one to four months. The useful life of the acquired
workforce-in-place and goodwill is estimated to be 18 months and 5 years,
respectively.
PRO FORMA RESULTS
The following unaudited pro-forma consolidated financial information reflects
the results of operations for the three months ended October 31, 2000 and
1999, as if the acquisition of Windward had occurred on August 1, 1999 and
after giving effect to purchase accounting adjustments. These pro forma
results have been prepared for comparative purposes only and do not purport
to be indicative of what operating results would have been had the
acquisitions actually taken place on August 1, 1999. In addition, these
results are not intended to be projection of future results and do not
reflect any synergies that might be achieved from the combined operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31,
-----------------------------------------
2000 1999
------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro-forma revenue.................................. $ 11,536 $ 8,617
Pro-forma net loss................................. $ (6,333) $ (7,113)
Pro-forma basic and diluted loss per share......... $ (0.15) $ (0.23)
</TABLE>
NOTE 8 BUSINESS SEGMENTS
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available that is evaluated by the
chief operating decision maker or decision-making group to make decisions about
how to allocate resources and assess performance. The Company's chief operating
decision maker is the chief executive officer. To date the Company has reviewed
its operations principally in a single segment. The chief operating decision
maker assesses performance based on the gross profit generated by this segment.
The Company operates in a single industry segment encompassing the
development, marketing and support of mobile data exchange software. The
Company markets its products to customers primarily in North America, Asia
and Europe. The Company's customer base consists primarily of corporate
organizations, business development organizations, industry associations,
resellers, international system integrators, large OEMs in the PC market and
selected distributors in North America, Africa, Asia, Australia, Europe, New
Zealand and South America which primarily market to the retail channel.
11
<PAGE>
Revenue information by geographic region is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 2000
--------------------------------
2000 1999
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
North America......................................... $ 7,829 $ 4,051
Japan.................................................. 1,545 1,987
Other International.................................... 549 374
--------------- ----------------
Total revenue........................................ $ 9,923 $ 6,412
=============== ================
</TABLE>
Revenue information by product group is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OCTOBER 31, 2000
--------------------------------
2000 1999
--------------- ----------------
(IN THOUSANDS)
<S> <C> <C>
Notebook-Intellisync royalty revenues.................. $ 757 $ 1,580
Enterprise products.................................... 4,720 2,854
MAP products and licensing ............................ 3,313 1,555
Service................................................ 1,133 423
--------------- ----------------
Total revenue........................................ $ 9,923 $ 6,412
=============== ================
</TABLE>
Substantially all of the Company's long-lived assets are in the United States.
NOTE 9 SUBSEQUENT EVENT
On November 7, 2000, the Company signed and closed a definitive agreement to
acquire certain assets of SwiftTouch Corporation of Bedford, Massachusetts, a
provider of Web-based Universal Access Solutions. Under the terms of the
agreement, the Company paid $320,000 in cash and issued 100,000 shares of the
Company's common stock. The transaction is being accounted for as a purchase.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE 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.
ALL STATEMENTS THAT ADDRESS OPERATING PERFORMANCE, EVENTS OR DEVELOPMENTS THAT
WE EXPECT OR ANTICIPATE WILL OCCUR IN THE FUTURE, INCLUDING STATEMENTS RELATING
TO PLANNED PRODUCT RELEASES AND COMPOSITION OF REVENUE, BOTH IN TERMS OF SEGMENT
AND GEOGRAPHICAL SOURCE, ARE FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING
STATEMENTS ARE BASED ON MANAGEMENT'S CURRENT VIEWS AND ASSUMPTIONS REGARDING
FUTURE EVENTS AND OPERATING PERFORMANCE, AND SPEAK ONLY AS OF THE DATE HEREOF.
WE UNDERTAKE NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS OR OTHERWISE.
ACTUAL EVENTS OR OUR ACTUAL FUTURE RESULTS MAY DIFFER MATERIALLY FROM ANY
FORWARD LOOKING STATEMENTS DUE TO THE RISKS AND UNCERTAINTIES OUTLINED BELOW.
Management's discussion and analysis includes:
- Business overview.
- A comparison of our results of operations in the three months
ended October 31, 2000 with the results in the corresponding
period in fiscal 2000.
- A discussion of our operating liquidity and capital resources.
- A discussion of factors that may affect our future operating
results.
BUSINESS OVERVIEW
Puma Technology, Inc. (Pumatech) was incorporated in California in August
1993 and reincorporated in Delaware in November 1996. We develop, market and
support synchronization, change detection/notification, and Web
rendering/browsing software that enables consumers, mobile professionals and
information technology officers to harness the full capabilities of handheld
organizers/computers, Web-enabled-cellular phones, pagers and other wireless
personal communications platforms. We provide a mobile device management
solution that addresses several scenarios for synchronization, complete
customization of device-based applications, centralized backup, security,
information flow control, notification, e-commerce and browsing of intranet
and Internet-based information. Our software is designed to improve the
productivity of business professionals and corporations who are increasingly
relying on mobile computing devices to address their growing needs for
accessible, up-to-date information, whether in or out of the office. Our
product families, which include Intellisync-Registered Trademark-,
Intellisync Anywhere-Registered Trademark-, Satellite Forms-Registered
Trademark-, Browse-it-TM-, Mind-it-TM- and Sync-it-TM- software are designed
to connect mobile devices to essential information anytime, anywhere. The
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Intellisync platform lets users synchronize the critical connection between
both wired and wireless handheld devices and the vast stores of information
found in corporate databases, the Internet and individuals' PC applications.
Intellisync Anywhere keeps users current with remote and LAN-based data
synchronization between groupware servers and Palm OS-Registered Trademark-
handhelds. Satellite Forms provides the tools needed to create custom
applications for Palm OS handhelds and the ability to integrate those
applications with desktop or network databases. Browse-it enables users to
view Web pages online or offline on their Palm OS handhelds in a secure,
conventional and quick manner. Mind-it technology provides user-driven
personalization, enabling users to track specific Web information and be
notified when that information changes. Based on our Intellisync
synchronization software, our recently announced Sync-it solution, (currently
undergoing beta testing) allows users to perform true, multi-point, Web-based
synchronization of calendar, e-mail, contacts, and tasks between their Palm
OS handheld and their home PC, work PC, and Internet PIM (Personal
Information Management), using a network, dial-up, or wireless connection to
the Internet.
Browse-it, Mind-it and Sync-it form the essential components of our Mobile
Application Platform (MAP) offering. MAP is the common server platform on
which we are building our new mobile and wireless solutions. Designed for
maximum scalability and performance, MAP empowers both Internet access and
wireless access to mobile devices. This differs markedly from the PC-centric
connectivity solutions that enable Internet access only while tethered to a
PC. MAP will provide ubiquitous access to mobile devices over both wired and
wireless media, and will not require the PC to act as a gateway to the
network. MAP is deployed inside the firewalls of major corporations. In
addition, MAP may also be hosted through our recently announced
Intellisync.com-SM- Web service, which is currently undergoing a nationwide
beta test involving thousands of users. We expect Intellisync.com to be
available for the general public in the first half of calendar 2001.
We license our software products to several original equipment manufacturers
(OEMs) and business development organizations worldwide. In addition, we sell
our retail products through several distribution channels both domestically and
internationally, including major distributors, resellers, computer dealers,
retailers and mail-order companies. Internationally, we are represented by over
20 distributors and resellers in Africa, Asia, Australia, Canada, Europe, New
Zealand, and South America.
In October 2000, we signed and closed an asset purchase agreement with
Vanteon Corporation (Vanteon), of Rochester, New York to acquire selective
assets and assume certain liabilities of The Windward Group (Windward), a
wholly owned subsidiary of Vanteon headquartered in Los Gatos, California.
Windward is a professional services company specializing in creating consumer
and enterprise solutions that combine mobile, wireless, desktop, Internet and
database technology. The condensed consolidated financial statements
presented in this Form 10-Q include the results of operations of Windward
since the date of acquisition. The transaction is being accounted for as a
purchase. Under the terms of the agreement, we paid $12,250,000 in cash
up-front and placed approximately 171,000 of Pumatech common stock in escrow.
These shares will be valued upon issuance from escrow based on the fair value
of the common stock around that date and will increase the amount of goodwill
arising from the transaction. The shares will be released to Vanteon based on
the achievement of quarterly performance milestones over fiscal 2001. The
agreement also provided for a rent reimbursement from Vanteon for the Los
Gatos facility over the remaining term of the related lease which has been
assumed by Pumatech. The $610,000 present value of the rent reimbursement was
treated as a reduction of the purchase price. In connection with this
acquisition, we hired from Windward approximately 40 additional employees for
our professional services organization.
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RECENT EVENT
On November 7, 2000, we signed and closed a definitive agreement to acquire
certain assets of SwiftTouch Corporation (SwiftTouch) of Bedford, Massachusetts,
a provider of Web-based Universal Access Solutions. Under the terms of the
agreement, we paid $320,000 in cash and issued 100,000 shares of our common
stock. The transaction is being accounted for as a purchase.
RESULTS OF OPERATIONS
All historical financial information and analysis have been restated to reflect
the acquisition of NetMind Technologies, Inc. (NetMind) on February 24, 2000,
which was accounted for as a pooling of interests.
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
OCTOBER 31,
----------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Revenue 100.0% 100.0%
--------------- ---------------
Cost and operating expenses:
Cost of revenue 15.7 9.4
Research and development 60.5 44.2
Sales and marketing 54.1 49.5
General and administrative 13.4 14.7
In-process research and development - 65.8
Amortization of intangibles 13.9 1.2
Non-cash stock compensation 2.2 6.1
--------------- ---------------
Total cost and operating expenses 159.8 190.9
--------------- ---------------
Operating loss (59.8) (90.9)
Other income, net 11.0 19.7
--------------- ---------------
Loss before income taxes (48.8) (71.2)
Provision for income taxes (1.4) (3.0)
--------------- ---------------
Net loss (50.2) (74.2)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value - (23.9)
--------------- ---------------
Net loss attributable to common stockholders (50.2)% (98.1)%
=============== ===============
</TABLE>
REVENUE. We derive revenue from two primary sources: software licenses and
fees for service. Revenue for the three months ended October 31, 2000
increased by 55% to $9,923,000 as compared to $6,412,000 for the same period
in 1999. Our revenue growth in fiscal 2001 resulted from higher revenues from
our Enterprise products, which include both personal and server based
Intellisync, Intellisync Anywhere and Satellite Forms products, increased
licensing of components of our MAP, and higher service revenue. This increase
more than offset the decline in Intellisync for Notebook and
TranXit-Registered Trademark- product royalty revenue.
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OEM revenue continues to represent a significant portion of our revenue. OEM
revenue of $2,795,000 and $3,262,000 represented 28% and 51% of our revenue, in
the three months ended October 31, 2000 and 1999, respectively. The decrease in
OEM revenue was primarily due to the decline in Intellisync for Notebook and
TranXit product royalty revenue, partially offset by increase in platform
licensing of Software Development Kits (SDK). No customer accounted for more
than 10% of total revenue in the three months ended October 31, 2000. In the
three months ended October 31, 1999, Toshiba Corporation accounted for
approximately 12% of our revenue and no other customer accounted for more than
10% of our revenue. Although several OEMs agreements contain contractual minimum
purchase obligations, there can be no assurance that any particular OEM will
satisfy the obligation. In addition, we believe that the percentage of revenue
derived from OEMs may fluctuate in future periods since the distribution
channels we use for our existing and future products are subject to change.
Further, we expect the notebook and PC OEM portion of this revenue to continue
to decrease as a percentage of our overall revenue throughout fiscal 2001.
International revenue continues to represent a significant portion of our
revenue. International revenue in the three months ended October 31, 2000 was
$2,345,000, or 24% of total revenue, compared to $2,520,000 or 39% of total
revenue for the same period in 1999. International revenue decreased as a
percentage of total revenue due to the substantial increase in our U.S. revenue.
Our international revenue decreased in absolute terms due to lower international
notebook and PC OEM royalties. We expect, however, our international revenue to
increase in future periods as we continue to expand our operations worldwide,
particularly Europe. International revenue may be subject to certain risks not
normally encountered in domestic operations, including exposure to tariffs,
various trade regulations and fluctuations in currency exchange rates. See
"Factors That May Affect Future Operating Results."
- LICENSE REVENUE. License revenue is earned from the sale and
use of software products and royalty agreements with OEMs.
License revenue was $8,790,000 in the first three months ended
October 31, 2000 as compared to $5,989,000 for the same period
in 1999. The 47% increase in license revenues reflected an
increase in revenues of MAP products and Enterprise products,
primarily Intellisync, Satellite Forms and Intellisync
Anywhere. This increase was offset by declining revenue
received for the Intellisync for Notebook and TranXit products.
Deferred revenue was $6,002,000 and $4,457,000 at October 31,
2000 and 1999, respectively. The 35% increase in deferred
revenue was attributable to revenues related to Intellisync
Gold and Intellisync Anywhere products and platform licensing
of SDK.
- SERVICE REVENUE. Service revenue is derived from fees for
services, including fixed time and materials for professional
services, non-recurring engineering service projects for
software development, amortization of maintenance contract
programs and advertising fees. Service revenue was $1,133,000
in the three months ended October 31, 2000 as compared to
$423,000 for the same period in 1999. The 168% increase in
service revenue was primarily due to revenue generated by our
professional services organization, increased Internet
maintenance revenue and increased advertising and consulting
fees. The increase in service revenue was partially offset by a
decrease in revenue from a decreased number of non-recurring
engineering service projects. We expect service revenue to
continue to increase as we are able to increase our client base.
COST OF REVENUE. Our cost of revenue is affected by the mix between our revenue
sources such as licenses and services. Additionally, our cost of revenue is
affected by the mix between our various distribution channels and by the mix
between geographies such as the United States, Japan and Europe. In general,
increased license revenue as compared to service revenue will have a favorable
impact on cost of revenue
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as a percentage of total revenue since the cost of sales associated with license
revenue tends to be lower than the cost of sales associated with service revenue
as a percentage of total revenue.
- COST OF LICENSE REVENUE. Cost of license revenue consist
primarily of packaged product costs including product media and
duplication, manuals, packing supplies, shipping expenses and,
in certain transactions, royalties paid to certain vendors.
Cost of license revenue increased 222% to $776,000 in the three
months ended October 31, 2000 from $241,000 for the same period
in 1999. Cost of license revenue as a percentage of license
revenue was 9% and 4% in the three months ended October 31,
2000 and 1999, respectively. The increase in cost of license
revenue was due to the related increase in license revenue in
the three months ended October 31, 2000.
- COST OF SERVICE REVENUE. Cost of service revenue primarily
consists of personnel related costs incurred for software
development work under professional services and non-recurring
engineering agreements, professional service contracts and hosting
costs for online services. Cost for service revenue increased 114%
to $783,000 in the three months ended October 31, 2000 from
$365,000 for the same period in 1999. Cost of service revenue as a
percentage of service revenue was 69% and 86% in the three months
ended October 31, 2000 and 1999, respectively. The absolute dollar
increase in cost of service revenue was due to increased personnel
in our professional services organization and additional hosting
costs we incurred for our online services. The decrease in cost of
service revenue as a percentage of service revenue resulted from
leveraging the costs of service revenue over a larger service
revenue base. The rate of increase in service revenue was greater
than the rate of increase in the related costs of service revenue.
We expect cost of revenue to increase in absolute dollars relative to total
revenue in the near term. In addition, we expect that cost of revenue as a
percentage of revenue will increase as service revenue becomes a more
substantial portion of our total revenue.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily
of salaries and other related expenses for research and development
personnel, quality assurance personnel, product localization, fees to outside
contractors and the cost of facilities and depreciation of capital equipment.
We invest in research and development both for new products and to provide
continuing enhancements to existing products. Research and development
expenses increased by 112% to $5,999,000 in the three months ended October
31, 2000 from $2,836,000 for the same period in 1999. Research and
development represented approximately 60% and 44% of total revenue in the
three months ended October 31, 2000 and 1999, respectively. The increase in
research and development expenses was primarily due to increased personnel
that we acquired in connection with our newly acquired subsidiaries,
including ProxiNet, Inc. and NetMind, and actual spending for MAP. We believe
that a significant level of investment in MAP, Intellisync.com and other
research and development initiatives is required to integrate our
technologies and service our customer needs. Accordingly, we expect research
and development expenses to continue to increase in absolute dollars
throughout the remainder of fiscal 2001.
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Research and development costs have been expensed as incurred. Statement
of Financial Accounting Standards (SFAS) No. 86 requires capitalization of
certain software development costs once technological feasibility is
established. We define establishment of technological feasibility at the point
that product reaches beta. Software development costs incurred subsequent to the
establishment of technological feasibility through the period of general market
availability of the product are capitalized, if material. To date, all of these
software development costs have been insignificant and expensed as incurred.
In March 2000, the Emerging Issues Task Force (EITF) reached a consensus on
Issue 00-2, "Accounting for the Costs of Developing a Web Site." In general,
EITF 00-2 states that the costs of developing a Web site should be accounted
for under the provisions of Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." It
requires that costs incurred during the Web application and infrastructure
and graphics development stages of development should be capitalized. To
date, all relevant Web development costs have been immaterial and expensed as
incurred.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, promotional expenses and other related expenses of
sales, marketing and technical support personnel. Sales and marketing
expenses increased by 69% to $5,373,000 in the three months ended October 31,
2000 from $3,171,000 for the same period in 1999. Sales and marketing
expenses represented approximately 54% and 49% of total revenues in the three
months ended October 31, 2000 and 1999, respectively. Sales and marketing
expenses increased primarily due to an increase in sales personnel to expand
our sales and business development organizations in the United States and
internationally and an increase in corporate marketing resources, corporate
branding and marketing headcount for our online services group. We expect
that sales and marketing expenses will continue to increase in absolute
dollars throughout the remainder of fiscal 2001 as we continue to expand our
direct sales force, particularly in Europe, as we plan to invest more
resources in marketing Intellisync.com services, and as 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 by 40% to $1,323,000 in the three months ended
October 31, 2000 from $946,000 for the same period in 1999. General and
administrative expenses represented approximately 13% and 15% of total revenues
in the three months ended October 31, 2000 and 1999, respectively. The increase
in absolute general and administrative spending was primarily due to the
addition of personnel and increased fees for professional services, such as
legal, accounting, and other consulting services, to support the expansion of
our infrastructure and the consolidation and assimilation of the ProxiNet,
NetMind, Dry Creek Software and Windward businesses. We intend to add personnel
to expand our infrastructure and to support our operations. As a result, we
expect general and administrative expenses to increase in absolute dollars
throughout the remainder of fiscal 2001.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. We expensed purchased in-process
research and development costs of $4,218,000 as a result of the ProxiNet
acquisition in the first quarter of fiscal 2000.
The ProxiNet acquisition has been accounted for as a purchase. The total
purchase price of approximately $17,384,000 (including liabilities of
$2,070,000), was assigned, based on an independent appraisal, to the fair
value of the assets acquired, including $676,000 to tangible assets acquired,
$3,378,000 to identified intangible assets, $4,218,000 to in process research
and development, and $9,112,000 to goodwill. The in-process research and
development was expensed at the acquisition date. The value assigned to this
acquired in-process research and development was determined by identifying
research projects in areas for which technological feasibility had not been
established as of the acquisition date. These include projects for
ProxiWare-TM- and ProxiWeb-TM- technology. The value was determined by
estimating the revenue contribution and the percentage of completion of each
of these projects. The projects were deemed to be 55% complete on the date of
acquisition. The net cash flows were then discounted utilizing a weighted
average cost of capital of 27.5%, which, among other related assumptions, we
believe to be fairly accurate. This discount rate takes into consideration
the inherent uncertainties surrounding the successful development of the
in-process research and development, the expected profitability levels of
such technology, and the uncertainty of technological advances that could
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potentially impact the estimates described above. Revenues were projected to be
generated in fiscal 2000 for the products in development at the acquisition
date. If these projects are not successfully developed, our future revenues and
achievement of profitability may not be realized. Additionally, the value of
other intangible assets acquired may become impaired.
To date, actual results have been consistent, in all material respects, with
our assumptions at the time of the acquisition. The assumptions primarily
consist of an expected completion date for the in-process projects, estimated
costs to complete the projects, and revenue and expense projections once the
products have entered the market. The projects for ProxiWare and ProxiWeb
technology that is currently branded as Browse-it product was completed, as
expected, in the fourth quarter of fiscal 2000 and are now generating
revenue. Failure to achieve the expected levels of revenue and net income
from these products during their entire life cycle will negatively impact the
return on investment expected at the time that the acquisition was completed
and potentially result in impairment of any other assets related to the
development activities.
AMORTIZATION OF INTANGIBLES. Amortization of acquired intangibles increased to
$1,382,000 in the three months ended October 31, 2000 from $74,000 for the same
period in 1999. The increase in amortization of intangibles resulted from our
acquisitions of Windward in the first quarter of fiscal 2001 and Dry Creek and
ProxiNet in fiscal 2000.
NON-CASH STOCK COMPENSATION. Non-cash stock compensation relates to stock
options that were deemed to have been granted at a price below market value.
These charges are amortized on a straight-line basis over the vesting period of
the options. The aggregate non-cash stock compensation charge, net of the effect
of terminations, was $221,000 and $391,000 in the three months ended October 31,
2000 and 1999, respectively. The non-cash compensation expense in the three
months ended October 31, 2000 relates to options that were granted by NetMind
prior to our acquisition of NetMind. Total amortization expense is expected to
be $1,075,000, $1,070,000 and $969,000 in fiscal 2001, 2002 and 2003,
respectively. Future amortization expense would be reduced if any employee
terminates employment prior to the expiration of the option vesting period.
INTEREST AND OTHER INCOME, NET. Interest and other income, net, represents
interest earned on cash and short-term investments and realized gain on
miscellaneous investments, offset by interest expense on long-term debt and
capitalized leases and miscellaneous fees and charges. Net interest and other
income was $1,088,000 and $1,266,000 in the three months ended October 31,
2000 and 1999, respectively. The decrease in interest and other income, net,
was primarily due to income received from the one time sale of Amazon.com
securities during the three months ended October 31, 1999. This income from
fiscal 1999 more than offset the higher yields on other investments and
increased interest earned on higher cash balances during the three months
ended October 31, 2000.
PROVISION FOR INCOME TAXES. The provision for income taxes primarily represents
foreign withholding taxes on royalties earned from certain foreign customers.
Provision for income taxes was $136,000 and $192,000 in the three months ended
October 31, 2000 and 1999, respectively.
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 Pumatech 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
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was accreted by NetMind. Such accretion aggregated to $1,535,000 in the three
months ended October 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
We ended the first quarter of fiscal 2001 with $67,602,000 in cash, cash
equivalents and short-term investments. Cash and cash equivalents decreased by
$24.0 million during the first quarter of fiscal 2001 to $30.5 million at
October 31, 2000. This decrease was offset by an increase in short-term
investments of $6.3 million during the same period.
Net cash used in operations of $3.2 million during the three months ended
October 31, 2000 was comprised of net loss adjusted for non-cash items of $2.6
million and net change of $0.6 million in operating assets and liabilities. Net
cash used in operations of $1.8 million during the three months ended October
31, 1999 was comprised of net loss adjusted for non-cash items of $0.6 million
and net change of $1.2 in operating assets and liabilities.
Net cash used in investing activities of $21.3 million during the three months
ended October 31, 2000 resulted from $12.2 million of cash paid for the asset
purchase of Windward, $6.3 million for net purchase of short term investments,
$1.8 million for capital expenditures and $1.0 million for other long-term
investment. Net cash used in investing activities of $2.4 million during the
three months ended October 31, 1999 was primarily for net purchase of short-term
investments of $2.0 million and capital expenditures of $0.4 million.
Net cash provided by financing activities of $0.5 million during the three
months ended October 31, 2000 resulted primarily from $0.5 million of proceeds
from issuance of common stock. Net cash provided by financing activities of $0.5
million during the three months ended October 31, 1999 resulted from $0.8
million of payments made to settle acquired liabilities, offset by $0.1 million
net proceeds from line of credit and $0.2 million proceeds from issuance of
common stock.
We maintain a loan and security agreement that provides a $1,000,000 revolving
credit line and a $750,000 equipment line. Borrowings under the revolving credit
line bear interest at a per annum rate equal to the prime rate plus one half of
one percent. Borrowings under the equipment line bear interest at a per annum
rate equal to the prime rate plus one percent. Equipment acquired is pledged as
collateral. The loan and security agreement contains covenants requiring that we
maintain a minimum level of equity and meet certain quick and liquidity ratios.
The agreement also contains certain restrictive covenants including but not
limited to limitations on indebtedness, limitations on dividends and other
restricted payments (including repurchases of our common stock), limitations on
transactions with affiliates, limitations on liens and limitations on
disposition of proceeds of asset sales, among others. We are currently in
compliance with all of the aforementioned covenant obligations. At October 31,
2000, $518,000 was outstanding on the equipment line and we had no outstanding
balance drawn on the revolving credit line.
In October 2000, in connection with our acquisition of Windward, we used
$12,250,000 of cash and issued approximately 171,000 shares of common stock to
Vanteon. The shares will be released from escrow based on achievement of
performance milestones over fiscal 2001, to complete the acquisition of
Windward. For additional information regarding the acquisition, refer to Note 6
of the Notes to Condensed Consolidated Financial Statements.
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We believe that our current cash, cash equivalents and short-term investment
balances, including the credit lines and cash generated from operations, if any,
will be sufficient to meet our working capital and other cash requirements for
at least the next 12 months. However, this belief assumes that operating results
and cash flows from operations will meet our expectations.
In the future, we may seek to raise cash through the issuance of debt or equity
securities. There can be no assurance that such financing would be available to
us at all or on terms favorable to us.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
There are many factors that affect our business and the results of our
operations, some of which are beyond our control. The following is a description
of some of the important factors that may cause the actual results of our
operations in future periods to differ materially from those currently expected
or desired.
BECAUSE WE HAVE HAD LIMITED INTERNET OPERATING HISTORY, IT IS DIFFICULT TO
EVALUATE OUR BUSINESS AND WE MAY FACE VARIOUS RISKS, EXPENSES AND DIFFICULTIES
ASSOCIATED WITH EARLY STAGE COMPANIES.
Historically, we have licensed our products and technology primarily to PC OEMs,
corporations and to end users through our channels of distribution. In the
second quarter of fiscal 2000, we announced our Internet initiative. This
initiative has required us to add additional resources and to develop and market
our Intellisync.com portal and the products and technologies recently obtained
in the ProxiNet and NetMind acquisitions. We plan to market and license our new
Web-based products and solutions to wireless carriers, Web portals and
individual consumers. We also plan to offer these new products and solutions to
corporations. We expect to incur significant costs in completing the launch of
our Internet initiative.
Our overall operating results have changed significantly as a result of
developing and bringing to market our new Internet products. It is important to
understand that our historical financial statements include operating results of
our recently launched Internet initiative only to the extent that NetMind's
historical operating results have been reflected under pooling-of-interests
accounting. As a result of our Internet initiative, we expect our combined
results to reflect an operating loss for at least the next several fiscal
quarters. There can be no assurance that we will be able to achieve or sustain
profitability.
Since we just launched our Internet initiative, there is little information on
which to evaluate our business and prospects as an Internet company. An investor
in our common stock should consider the risks, expenses and difficulties that
young companies frequently encounter in the new and rapidly evolving markets for
Internet products and services. These risks to us include:
- 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 our customer base and retaining key clients;
- introducing and expanding new services, including our Professional
Services Organization;
- managing rapidly growing operations, including new facilities and
information technology infrastructure;
- competing in a highly competitive market; and
- attracting, retaining and motivating key employees.
We may not be successful in implementing any of our strategies or in addressing
these risks and uncertainties. We expect that our operating expenses will
continue to increase, primarily as a result of our investment in our new
Internet product initiative. Moreover, even if we accomplish our objectives, we
still may not achieve sustainable profitability in the future.
We have invested substantial amounts in technology and infrastructure
development and development of our professional services organization. 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, our professional services organization,
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.
HOSTING OUR MOBILE APPLICATION PLATFORM ON INTELLISYNC.COM MAY NOT BE
SUCCESSFUL; AND, IF SUCCESSFUL, MAY DIVERT OUR ATTENTION FROM OUR EXISTING
PRODUCT LICENSE BUSINESS, WHICH COULD RESULT IN LOWER REVENUE FROM SUCH
BUSINESS.
In late October, we announced the launch of a nationwide beta test of the
Intellisync.com Web service. Intellisync.com is currently undergoing a
nationwide beta test involving thousands of users. We expect Intellisync.com
will be made available to the general public in the first half of calendar
year 2001. As part of the public launch, we intend to announce the fee
structure for the premium services that we plan to offer on our
Intellisync.com service. Any delay in launching Intellisync.com for the
public may have a negative effect on our revenue and results of operations.
In addition, even if we launch it, our customers may not choose to use MAP
through Intellisync.com for their applications for a variety of reasons,
including: the actual or perceived reduction in security protections of
mobile solutions hosted on the Internet; the possible reluctance to be
dependent on a third party to host important information and infrastructure
and to perform basic support and other functions; and the possible inability
of MAP to be able to support many users in an enterprise-wide environment.
Although we expect to derive a significant portion of our future revenue from
our Intellisync.com subscription offering, we have not yet
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commercially introduced it and we do not have a proven expense and revenue model
for it. Intellisync.com may not be commercially viable if our expense and
revenue model is not acceptable to our customers. This would seriously harm our
business, particularly if the failure of Intellisync.com and MAP to achieve
market acceptance negatively affects sales of our other products and services.
In addition, if our customers adopt the MAP offering through Intellisync.com, we
may experience a decline in the growth of our existing product license business.
THE SIZE OF THE MOBILE COMPUTING MARKET CANNOT BE ACCURATELY PREDICTED, AND IF
OUR MARKET DOES NOT GROW AS WE EXPECT, OUR REVENUE WILL BE BELOW OUR
EXPECTATIONS AND OUR BUSINESS AND FINANCIAL RESULTS WILL SUFFER.
We are focusing on expanding into the mobile computing market, an unproven
market. Accordingly, the size of this market cannot be accurately estimated and
therefore we are unable to accurately determine the potential demand for our
products and services. If our customer base does not expand or if there is not
widespread acceptance of our products and services, our business and prospects
will be harmed. We believe that our potential to grow and increase the market
acceptance of our products depends principally on the following factors, some of
which are beyond our control:
- the effectiveness of our marketing strategy and efforts;
- our product and service differentiation and quality;
- our ability to provide timely, effective customer support;
- our distribution and pricing strategies as compared to our
competitors;
- growth in the sales of handheld devices supported by our software
and growth in wireless network capabilities to match end user
demand and requirements;
- our industry reputation; and
- general economic conditions such as downturns in the computer or
software markets.
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:
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- the growth in access to and market acceptance of new interactive
technologies;
- emergence of a viable and sustainable market for Internet
personalization services;
- the development of technologies that facilitate interactive
communication between organizations; and
- increases in bandwidth for data transmission.
If the market for Internet personalization services or the Internet, wireless
devices and mobile computing devices as a commercial or business medium does not
develop, or develops more slowly than expected, our business, results of
operations and financial condition will be seriously harmed.
Specifically, even if an Internet personalization services market does develop,
services that we currently offer or may offer in the future may not achieve
widespread market acceptance. Failure of our current and planned services to
operate as expected could delay or prevent their adoption. If our target
customers do not adopt, purchase and successfully deploy our current and planned
services, our revenue will not grow significantly and our business, results of
operations and financial condition will be seriously harmed. We have not taken
any steps to mitigate the risks associated with reduced demand for our existing
Internet personalization services.
OUR MARKET CHANGES RAPIDLY DUE TO CHANGING TECHNOLOGY AND EVOLVING INDUSTRY
STANDARDS. IF WE DO NOT ADAPT TO MEET THE SOPHISTICATED NEEDS OF OUR CUSTOMERS,
OUR BUSINESS AND PROSPECTS WILL SUFFER.
The market for our services is characterized by rapidly changing technology,
evolving industry standards and frequent new service introductions. Our future
success will depend to a substantial degree on our ability to offer services
that incorporate leading technology, address the increasingly sophisticated and
varied needs of our current and prospective customers and respond to
technological advances and emerging industry standards and practices on a timely
and cost-effective basis. You should be aware that:
- our technology or systems may become obsolete upon the
introduction of alternative technologies;
- we may not have sufficient resources to develop or acquire new
technologies or to introduce new services capable of competing
with future technologies or service offerings; and
- the price of the services we provide is expected to decline as
rapidly as the cost of any competitive alternatives.
We may not be able to effectively respond to the technological requirements of
the changing market. To the extent we determine that new technologies and
equipment are required to remain competitive, the development, acquisition and
implementation of such technologies and equipment are likely to continue to
require significant capital investment by us. Sufficient capital may not be
available for this purpose in the future, and even if it is available,
investments in new technologies may not result in commercially viable
technological processes and there may not be commercial applications for such
technologies. If we do not develop and introduce new products and services and
achieve market acceptance in a timely manner, our business and prospects may
suffer.
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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, the ProxiNet, NetMind and Dry Creek acquisitions and the Windward
and SwiftTouch asset purchases, our operating results are likely to continue to
fluctuate significantly. A number of factors, many of which are outside of our
control, are likely to cause fluctuations in operating results, including, but
not limited to:
- the demand for our products and services;
- our success in developing new products and integrating acquired
technologies;
- the timing of new product introductions by us and our competitors;
- market acceptance of our new and enhanced products and services;
- market acceptance of handheld devices generally, and those
supported by our products and services;
- the emergence of new industry standards;
- the timing of customer orders;
- the mix of products and services sold;
- 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
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revenue is below expectations in any given quarter, the adverse impact of the
shortfall on operating results may be magnified by our inability to adjust
spending to compensate for the shortfall. Therefore, a shortfall in actual
revenue as compared to estimated revenue would have an immediate adverse effect
on our business, operating results and financial condition that could be
material.
Due to our ongoing efforts to expand into retail and reseller channels, we are
focusing our efforts on licensing our server and personal applications to
corporations and licensing our Software Development Kits (SDKs) to software
developers and mobile computing device manufacturers. SDKs provide the complete
solution for adding intelligent synchronization to enterprise applications,
mobile devices and Web-based services. With intelligent synchronization, users
can keep their critical information up-to-date and in sync across multiple
applications and mobile devices. As a result, we expect that our notebook and PC
OEM revenue will decrease as a percentage of our overall revenue. This new sales
strategy has the following risks:
- sales into these channels are harder to predict and may have lower
margins than sales in other channels;
- we have a very limited history in penetration and support for
these channels;
- the average transaction size and sales cycle vary significantly,
making forecasting difficult;
- smaller transactions may have relatively higher administrative
costs;
- any significant deferral of purchases of our products by customers
could jeopardize our operating results in any particular
quarter;
- to the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely
affected;
- products that are accepted in the OEM market may not be readily
accepted by corporations;
- we may incur increased costs related to new infrastructure
requirements; and
- planned marketing strategy may require significant expenditures
but may not have immediate or future beneficial effect on sales.
Our gross margin on service revenue, particularly non-recurring engineering
service and professional service revenue, is substantially lower than gross
margin on license revenue. We have recently acquired Dry Creek and, in
connection with the acquisition of assets from Windward, we hired a number of
employees of Windward, which forms the basis of our professional service group,
and, consequently, we expect that professional service revenue, as well as
non-recurring engineering service revenue, will increase in future quarters. Any
increase in non-recurring engineering service and professional service revenue
would have a corresponding increase in cost of revenue and would have an adverse
effect on our gross margins as a percent of total revenue. 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
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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.
WE DERIVE A PORTION OF OUR REVENUE FROM A NUMBER OF THINLY CAPITALIZED CUSTOMERS
SUCH AS DOT-COM COMPANIES.
We have derived, and believe that we will continue to derive, a portion of
our revenues from small companies including dot-coms. Recently, many of these
dot-com and other small companies have been closing down their operations. As
a result of such failures, many similarly situated customers and potential
customers may be experiencing difficulty in their funding activities and may
be thinly capitalized. The composition of our customer base exposes us to
additional risks, including longer payment cycles and collection problems. We
have implemented policies and procedures to identify and mitigate our
exposure to such risks.
Failure of these thinly capitalized companies to be successful in their
operations could have a material adverse effect on our business, results of
operations and financial condition.
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 initiative ($1.7 million in the three
months ended October 31, 2000, $2.0 million in fiscal 2000, and $0.7 million in
fiscal 1999) has been limited. If we are successful in implementing our
marketing strategy, we also expect the demands on our technical support
resources to grow rapidly, and we may experience difficulties responding to
customer demand for our services and providing technical support in accordance
with our customers' expectations. We expect that these demands will require not
only the addition of new management personnel, but also the development of
additional expertise by existing management personnel and the establishment of
long-term relationships with third-party service vendors. Additionally, we have
recently opened additional facilities in New Hampshire and intend to open new
offices in Europe. We may encounter difficulties in integrating information and
communications systems in multiple locations. We may not be able to keep pace
with growth, successfully implement and maintain our operational and financial
systems or successfully obtain, integrate and utilize the employees, facilities,
third-party vendors and equipment, or management, operational and financial
resources necessary to manage a developing and expanding business in our
evolving and increasingly competitive industry. If we are unable to manage
growth effectively, we may lose customers or fail to attract new customers and
our business and financial results will suffer.
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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.
IF WE ARE UNABLE TO SUCCESSFULLY EXPAND OUR PROFESSIONAL SERVICES ORGANIZATION,
CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL SUFFER.
We believe that successful implementation of our technology by our customers and
future growth in our product sales depend on our ability to provide our
customers with professional services, including customer support, training,
consulting and initial implementation and deployment of our products. We have
developed an in-house professional services organization with employees who can
perform these tasks and who also educate third-party systems integrators in the
use of our products so that they can provide these services to our customers.
Competition for qualified professional services personnel is intense due to the
limited number of people who have the requisite knowledge and skills. As a
result, we may not be able to attract or retain a sufficient number of qualified
professional services personnel. If we are unable to develop sufficient
relationships with third-party systems integrators and our professional services
organization is under-staffed, we could be unable to complete implementations in
a timely manner, which would cause delays in revenue recognition. In addition,
if we do not provide adequate customer support, consulting and training for our
customers, we could face customer dissatisfaction, damage to our reputation and
decreased overall demand for our products.
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 certain assets of Windward and SwiftTouch and
acquired Dry Creek, NetMind, ProxiNet, SoftMagic Corporation, RealWorld
Solutions, Inc. and IntelliLink Corporation. In addition, we recently signed and
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closed an agreement to acquire certain assets of SwiftTouch. 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 the Securities and Exchange Commission (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.
WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT A TAKEOVER THAT
STOCKHOLDERS MAY CONSIDER FAVORABLE.
Certain provisions of our certificate of incorporation and bylaws and provisions
of Delaware law could have the effect of delaying, deferring or preventing an
acquisition of us. These provisions include a classified board of directors and
limitations on actions by our stockholders by written consent. In addition, our
board of directors has the right to issue up to 2,000,000 shares of "blank
check" preferred stock without stockholder approval, which could be used to
dilute the stock ownership of a potential hostile acquirer. The preferred stock
we issue could have mandatory redemption features, liquidation preference and
other rights that are senior to the rights of common stockholders. Delaware law
also imposes some restrictions on mergers and other business combinations
between us and any holder of 15% or more of our outstanding common stock.
Although we believe these provisions provide for an opportunity to receive a
higher bid by requiring potential acquirers to negotiate with our board of
directors, these provisions apply even if the offer may be considered beneficial
by some stockholders.
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In addition, our stockholders may not take actions by written consent and our
stockholders are limited in their ability to make proposals at stockholder
meetings.
Our common stock will likely be subject to substantial price and volume
fluctuations due to a number of factors, some of which are beyond our control.
The trading price of our common stock has been and is likely to continue to be
highly volatile. Our stock price is subject to wide fluctuations in response to
a variety of factors including:
- quarterly variations in operating results;
- announcements of technological innovations;
- announcements of new software or services by us or our
competitors;
- changes in financial estimates by securities analysts; or
- other events beyond our control.
In addition, the stock market has experienced significant price and volume
fluctuations that have particularly affected the trading prices of equity
securities of many high technology companies. These fluctuations have often been
unrelated or disproportionate to the operating performance of these companies.
Any negative change in the public's perception of Internet or Internet software
companies or companies in the wireless communications market could depress our
stock price regardless of our operating results.
Recently, when the market price of a stock has been volatile, holders of that
stock have often instituted securities class action litigation against the
company that issued the stock when such stock declines. If any of our
stockholders brought such a lawsuit against us, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time and attention of
our management.
We expect that our future operating results could fluctuate significantly as a
result of numerous factors including, but not limited to, the demand for our
products, our success in developing new products, the timing of new product
introductions by us and our competitors, the timing of releases of new handheld
devices by our customers, market acceptance of our new and enhanced products,
the emergence of new industry standards, the timing of customer orders, the mix
of products sold, competition, the mix of distribution channels employed, the
evolving and unpredictable nature of the markets for our products and mobile
computing devices generally, the rate of growth of the personal computer market
in general and general economic conditions.
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. Historically we have relied on the capital markets, including a
private placement in March 2000 to raise money for our working capital and
capital expenditure needs. The capital markets are very volatile and we may not
be able to obtain future equity or debt financing in the future 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
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abandon some or all of our development and expansion plans or otherwise forego
market opportunities. Our inability to obtain additional capital on satisfactory
terms may delay or prevent the expansion of our business, which could cause our
business, operating results and financial condition to suffer.
Our working capital is primarily comprised of cash, short-term investments,
accounts receivable, inventory, other current assets, accounts payable, accrued
expenses, deferred revenue and current portion of notes payable. The timing and
amount of our future capital requirements may vary significantly depending on
numerous factors, including our financial performance, technological,
competitive and other developments in our industry. These factors may cause our
actual revenue and costs to vary from expected amounts, possibly to a material
degree, and such variations are likely to affect our future capital
requirements.
WE ARE DEPENDENT ON OUR INTERNATIONAL OPERATIONS FOR A SIGNIFICANT PORTION OF
OUR REVENUES.
Our international activities expose us to additional risks. International
revenue, primarily from customers based in Japan, accounted for 23% of our
revenue in the three months ended October 31, 2000, 27% of revenue in fiscal
2000, and 40% of revenue in fiscal 1999. A key component of our strategy is to
further expand our international activities. As we continue to expand
internationally, we are increasingly subject to risks of doing business
internationally, including:
- unexpected changes in regulatory requirements and tariffs;
- 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;
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- nonrefundable withholding taxes on royalty income from customers
in certain countries, such as Japan and Taiwan; and
- an adverse effect on our provision for income taxes based on the
amount and mix of income from foreign customers; and
- exposure to risk of non-payment by customers in foreign countries
with highly inflationary economies.
Any of these risks could harm our international operations. For example, some
European countries already have laws and regulations related to content
distributed on the Internet and technologies used on the Internet that are more
strict than those currently in force in the United States. The European
Parliament has recently adopted a directive relating to the reform of copyright
in the European Community that will, if made into law, restrict caching and
mirroring. Any or all of these factors could cause our business and prospects to
suffer.
Our international sales growth will be limited if we are unable to establish
additional foreign operations, expand international sales channel management and
support, hire additional personnel, customize products for local markets and
develop relationships with international service providers, distributors and
device manufacturers. Even if we are able to successfully expand international
operations, we cannot be certain that we will succeed in maintaining or
expanding international market demand for our products.
FOREIGN EXCHANGE FLUCTUATIONS COULD DECREASE OUR REVENUES OR CAUSE US TO LOSE
MONEY, ESPECIALLY SINCE WE DO NOT HEDGE AGAINST CURRENCY FLUCTUATIONS.
To date, the majority of our customers have paid for our services in U.S.
dollars. Through the first quarter of fiscal 2001 and for the fiscal years 2000
and 1999, costs denominated in foreign currencies were nominal and we had
minimal foreign currency losses during those periods. However, we believe that
in the future an increasing portion of our costs will be denominated in foreign
currencies. Fluctuations in the value of the Yen, Euro or other foreign
currencies may cause our business and prospects to suffer. We will also be
exposed to increased risk of non-payment by our customers in foreign countries,
especially those with highly inflationary economies. We currently do not engage
in foreign exchange hedging activities and, although we have not yet experienced
any material losses due to foreign currency fluctuation, our international
revenues are currently subject to the risks of foreign currency fluctuations and
such risks will increase as our international revenues increase.
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
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market acceptance of personalization software, our business, financial condition
and operating results could be harmed.
We use cookies to provide users convenient access to the Web sites they are
minding and to track demographic information and user preferences. A cookie is
information keyed to a specific user that is stored on a computer's hard drive,
typically without the user's knowledge. Cookies are generally removable by the
user, although removal could affect the content available on a particular site.
A number of governmental bodies and commentators in the United States and abroad
have urged passage of laws limiting or abolishing the use of cookies. If such
laws are passed or if users begin to delete or refuse cookies as a common
practice, market demand for our products and services could be reduced.
ACTIONS BY MAJOR WEB SITE PROVIDERS TO BLOCK OUR SOFTWARE FROM MINDING THEIR
SITES COULD LIMIT MARKET ACCEPTANCE OF OUR PRODUCTS.
One of the primary benefits of our products and services is that they bring
users back to a Web site through click-throughs on links within our change
notifications. This is generally very beneficial to Web site providers. These
providers do, however, have the ability to detect our monitoring of their sites
and could block our access to their site. Widespread blocking by major Web sites
could seriously limit market acceptance of our products.
THERE ARE MANY COMPANIES PROVIDING COMPETING PRODUCTS AND SERVICES.
There are few substantial barriers to entry and we expect that we will face
additional competition from existing competitors and new market entrants in the
future.
We currently face direct competition with respect to individual elements of
our MAP including Sync-it, Browse-it and Mind-it. Sync-it faces competition
from Advanced Systems Network, Inc., Aether Software, Chapura, Inc., DataViz,
Inc., Extended Systems, Inc., FusionOne, Inc., IBM Corporation, Laplink.com,
Inc., Motorola, Inc., Phone.com, Inc. (now Openwave Systems, 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:
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- 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.
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, and 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 Pumatech. To integrate into our
company, new employees must spend a significant amount of time learning our
business model and management system, in addition to performing their regular
duties. Accordingly, the integration of new personnel has resulted and will
continue to result in some disruption to our ongoing operations. If we fail to
complete this integration in an efficient manner, our business and financial
results will suffer.
WE MUST RETAIN AND ATTRACT KEY EMPLOYEES OR ELSE WE MAY NOT GROW OR BE
SUCCESSFUL.
We are highly dependent on key members of our management and engineering staff.
The loss of one or more of these officers or key employees might impede the
achievement of our business objectives. Furthermore, recruiting and retaining
qualified technical personnel to perform research, development and technical
support is critical to our success. If our business grows, we will also need to
recruit a significant number of management, technical and other personnel for
our business. Competition for employees in our industry and geographic location
is intense. We may not be able to continue to attract and retain skilled and
experienced personnel on acceptable terms.
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 12 issued United States patents and have an
additional 12 patent applications pending, we cannot be certain that such
patents and patent applications will provide an adequate level of intellectual
property protection. In addition, we have corresponding international patent
applications pending under the Patent Cooperation Treaty in countries to be
designated at a later date. We cannot be certain that any pending or future
patent applications will be granted, that any pending or future patents will not
be challenged, invalidated or circumvented, or that rights granted under any
patent that may be issued will provide competitive advantages to us.
We have also provided our source code under escrow agreements and to foreign
translators which may increase the likelihood of misappropriation by third
parties.
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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 regions where we do business,
such as in Africa, Asia-Pacific and Europe, there may not be effective legal
protection of patents and other proprietary rights that we believe are important
to our business.
As a matter of company policy, we enter into confidentiality and assignment
agreements with our employees, consultants and vendors. We also control access
to and distribution of our software, documents and other proprietary
information. Notwithstanding these precautions, it may be possible for an
unauthorized third party to copy or otherwise obtain and use our software or
other proprietary information or to develop similar software independently.
Policing unauthorized use of our products is difficult, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software and other transmitted data. The laws of
other countries may afford us little or no effective protection of our
intellectual property. The steps we have taken to prevent misappropriation of
our technology, including entering into agreements for that purpose may be
insufficient. In addition, litigation may be necessary in the future to enforce
our intellectual property rights, to protect our trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Such litigation, whether successful or
unsuccessful, could result in substantial costs and diversions of our management
resources, either of which could harm our business.
WE MAY BE UNABLE TO LICENSE NECESSARY TECHNOLOGY AND IT MAY BE SUBJECT TO
INFRINGEMENT CLAIMS BY THIRD PARTIES.
Our commercial success will also depend in part on not infringing the
proprietary rights of others and not breaching technology licenses that cover
technology used in our products. It is uncertain whether any third party patents
will require us to develop alternative technology or to alter our products or
processes, obtain licenses or cease activities that infringe on third party's
intellectual property rights. If any such licenses are required, we may not be
able to obtain such licenses on commercially favorable terms, if at all. Our
failure to obtain a license to any technology that we may require to
commercialize our products and services could cause our business and prospects
to suffer. Litigation may also be necessary to enforce any patents issued or
licensed to us or to determine the scope and validity of third party proprietary
rights.
WE ARE DEPENDENT ON NON-EXCLUSIVE LICENSES FOR CERTAIN TECHNOLOGY INCLUDED IN
OUR PRODUCTS.
We depend on development tools provided by a limited number of third party
vendors. Together with application developers, we rely primarily upon software
development tools provided by companies in the PC and mobile computing device
industries. If any of these companies fail to support or maintain these
development tools, we will have to support the tools ourselves or transition to
another vendor. Any maintenance or our support of the tools or transition could
be time consuming, could delay product release and upgrade schedule and could
delay the development and availability of third party applications used on our
products. Failure to procure the needed software development tools or any delay
in availability of third party applications could negatively impact our ability
and the ability of third party application developers to release and support our
products or they could negatively and materially affect the acceptance and
demand for our products, business and prospects.
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The risks associated with such non-exclusive third party licenses:
- If we are unable to continue to license the technology or to
license other necessary technologies for use with our products or
if there are substantial increases in royalty payments under
third-party licenses, it could jeopardize our operating results.
- The effective implementation of our products depends upon the
successful operation of these licenses in conjunction with our
products, and therefore any undetected errors in products
resulting from such licenses may prevent the implementation or
impair the functionality of our products, delay new product
introductions and injure our reputation. Such problems could have
a material adverse effect on our business, operating results and
financial condition.
- Although we are generally indemnified against claims that the
third party technology we license infringes the proprietary rights
of others, this indemnification is not always available for all
types of intellectual property rights (for example, patents may be
excluded) and, in some cases, the scope of such indemnification is
limited. Even if we receive broad indemnification, third party
indemnitors are not always well-capitalized and may not be able to
indemnify us in the event of infringement, resulting in
substantial exposure to us. There can be no assurance that
infringement or invalidity claims arising from the incorporation
of third party technology in our products, and claims for
indemnification from our customers resulting from these claims,
will not be asserted or prosecuted against us. These claims, even
if not meritorious, could result in the expenditure of significant
financial and managerial resources in addition to potential
product redevelopment costs and delays, all of which could
materially adversely affect our business, operating results and
financial condition.
OUR PRODUCTS MAY CONTAIN PRODUCT ERRORS THAT COULD SUBJECT US TO PRODUCT
LIABILITY CLAIMS.
Our products may contain undetected errors or failures when first introduced or
as new versions are released, which can result in loss of or delay in market
acceptance and could adversely impact future operating results. We do not
currently maintain product liability insurance. Although our license agreements
contain provisions limiting our liability in the case of damages resulting from
use of the software, in the event of such damages, we may be found liable, and
in such event such damages could materially affect our business, operating
results and financial condition.
IMPACT OF YEAR 2000
We are currently not aware of Year 2000 problems in any of our products,
critical systems or services. However, the success to date of our Year 2000
efforts cannot guarantee that a Year 2000 problem affecting third parties upon
which we rely will not become apparent in the future.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to a variety of risks, including changes in interest rates,
foreign currency fluctuations, marketable equity security prices and market
values of our investments which could impact our results of operations and
financial condition. We currently do not utilize derivative financial
instruments to hedge such risks.
At October 31, 2000, we had an investment portfolio of fixed income securities
excluding those classified as cash and cash equivalents and securities available
for sale, of $37,025,000. These securities, like all fixed income instruments,
are subject to interest rate risk and will fall in values if market interest
rates increase. If market interest rates were to increase immediately and
uniformly by 10% from levels as of October 31, 2000, the decline of the fair
value of the portfolio would be immaterial. Our fixed income investments have
maturities of less than one year. While we have the intent to hold our fixed
income investments until maturity to avoid recognizing an adverse impact in
income or cash flows in the event of an increase in market interest rates, there
can be no assurance that we will be able to do so.
To date, substantially all of our recognized revenue has been denominated in
U.S. dollars and generated primarily from customers in the United States, and
our exposure to foreign currency exchange rates has been immaterial. We expect,
however, that more product and service revenue may also be derived from
international markets and may be denominated in the currency of the applicable
market in the future. As a result, our operating results may become subject to
significant fluctuations based upon changes in exchange rates of certain
currencies in relation to the U.S. dollar. We will also be exposed to increased
risk of non-payment by our customers in foreign countries, especially those of
highly inflationary economies. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products and services
less competitive in international markets. Although we will continue to monitor
our exposure to currency fluctuations, and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot be assured that exchange rate fluctuations will not adversely affect
our financial results in the future.
We are subject to equity price risks on the marketable portion of investments in
publicly traded equity securities. These investments are generally in companies
having operations or technology in areas within our strategic focus. We do not
attempt to reduce or eliminate our market exposure on these securities. At
October 31, 2000, the fair value of these investments is $36,000. We believe
that a decline in the investments' fair values would not adversely impact our
results of operations.
We also invest in a venture capital fund and in equity instruments of
privately-held companies for business and strategic purposes. These
investments are included in other long-term assets and are accounted for
under the cost method when ownership is less than 20% and we do not have the
ability to exercise significant influence over operations. At October 31,
2000, these investments amounted to $3,432,000. For these investments, we
regularly review the assumptions underlying the operating performance and
cash flow forecasts in assessing the carrying values. We identify and record
impairment losses when events and circumstances indicate that such assets
might be impaired. To date, no such impairment has been recorded. Although we
will continue to assess the carrying values of our investments, we cannot be
assured that a decline in value of our investments will not adversely affect
our financial results in the future.
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PUMA TECHNOLOGY, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - Not Applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 18, 2000 and in connection with the asset purchase agreement with
Vanteon Corporation, of Rochester, New York to acquire selective assets and
assume certain liabilities of The Windward Group, a wholly owned subsidiary
of Vanteon headquartered in Los Gatos, California, we issued 171,026 shares
of common stock to Vanteon which will be released from escrow based on
achievement of performance milestones over fiscal 2001. The issuance of these
shares was exempt from registration under Section 4(2) of the Securities Act
of 1933. The resale of these shares and other shares issued in connection
with the acquisitions of Dry Creek Software and SwiftTouch Corporation has
been registered on a Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on December 4, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - Not
Applicable
ITEM 5. OTHER INFORMATION - Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K.
Report on Form 8-K dated October 17, 2000, containing
Selected Condensed Consolidated Financial Data,
Consolidated Financial Statements, and Management's
Discussion and Analysis of Financial Condition and
Results of Operations for the fiscal year ended July
31, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PUMA TECHNOLOGY, INC.
(Registrant)
Date: December 15, 2000 By: /s/ KELLY J. HICKS
--------------------------------
Kelly J. Hicks
Vice President of Operations and
Chief Financial Officer (Principal
Financial and Accounting Officer)
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