<PAGE>
EXHIBIT 13.1
PORTIONS OF THE ANNUAL REPORT TO STOCKHOLDERS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
EXPRESSLY INCORPORATED BY REFERENCE HEREIN
<TABLE>
<CAPTION>
PAGE
<S> <C>
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA..................................................39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................................40
CONSOLIDATED BALANCE SHEETS.....................................................................49
CONSOLIDATED STATEMENTS OF OPERATIONS...........................................................50
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.................................................51
CONSOLIDATED STATEMENTS OF CASH FLOWS ..........................................................52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS .....................................................53
REPORT OF INDEPENDENT ACCOUNTANTS...............................................................71
</TABLE>
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PUMA TECHNOLOGY, INC.
SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------- ---------- --------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue.............................................. $ 30,813 $ 20,723 $ 22,341 $ 15,633 $ 7,716
Cost of revenues and operating expenses.............. 57,403 29,704 26,408 15,529 9,693
--------- ---------- --------- ---------- ----------
Operating income (loss).............................. (26,590) (8,981) (4,067) 104 (1,977)
Other income, net.................................... 5,023 3,868 1,077 820 85
--------- ---------- --------- ---------- ----------
Income (loss) before income taxes.................... (21,567) (5,113) (2,990) 924 (1,892)
Provision for income taxes........................... (632) (715) (1,164) (831) (509)
--------- ---------- --------- ---------- ----------
Net income (loss).................................... (22,199) (5,828) (4,154) 93 (2,401)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value.............. (3,877) (4,238) - - -
--------- ---------- --------- ---------- ----------
Net income (loss) attributable to common stockholders $(26,076) $ (10,066) $ (4,154) $ 93 $ (2,401)
========= ========== ========= ========== =========
Basic and diluted net loss per share................ $ (0.74) $ (0.34) $ (0.15) $ - $ (0.41)
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
JULY 31,
2000 1999 1998 1997 1996
--------- ---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and short-term investments.... $ 85,260 $ 28,516 $ 21,091 $ 21,180 $ 982
Total assets......................................... 118,655 37,122 30,745 29,530 4,004
Long-term obligations................................ 310 - 41 66 961
Total stockholders' equity........................... 105,077 18,201 25,824 26,242 653
</TABLE>
SUMMARY CONDENSED QUARTERLY DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
JULY 31, APRIL 30, JAN 31, OCT 31, JULY 31, APRIL 30, JAN 31, OCT 31,
2000 2000 2000 1999 1999 1999 1999 1998
--------- ---------- ---------- ---------- --------- ----------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... $ 9,026 $ 8,014 $ 7,361 $ 6,412 $ 5,946 $ 5,370 $ 4,907 $ 4,500
Cost and operating expense...... 15,531 19,177 10,454 12,241 7,054 6,867 7,897 7,886
Operating loss.................. (6,505) (11,163) (3,093) (5,829) (1,108) (1,497) (2,990) (3,386)
Net loss........................ (5,146) (10,013) (2,285) (4,755) (239) (567) (2,827) (2,195)
Accretion of mandatorily
redeemable convertible preferred
stock to redemption value..... - (577) (1,765) (1,535) (2,700) (1,384) (154) -
Net loss attributable to common
stockholders................... $ (5,146) $(10,590) $ (4,050) $ (6,290) $ (2,939) $ (1,951) $ (2,981) $ (2,195)
Basic and diluted net loss per
share.......................... $ (0.12) $ (0.26) $ (0.11) $ (0.20) $ (0.10) $ (0.07) $ (0.10) $ (0.08)
</TABLE>
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PUMA TECHNOLOGY, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO AND INCLUDED ELSEWHERE
IN OUR FORM 10-K FOR THE FISCAL YEAR ENDED JULY31, 2000. THIS DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONTAINS
FORWARD-LOOKING STATEMENTS REGARDING FUTURE EVENTS OR OUR FUTURE PERFORMANCE
THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. IN THIS REPORT, THE WORDS
"ANTICIPATE(S)," "BELIEVE(S)", "EXPECT(S)", "INTEND(S)", "FUTURE" AND SIMILAR
EXPRESSIONS IDENTIFY FORWARD-LOOKING STATEMENTS. ACTUAL EVENTS OR OUR ACTUAL
FUTURE RESULTS MAY DIFFER MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS DUE TO
SUCH RISKS AND UNCERTAINTIES INCLUDING THOSE SET FORTH BELOW UNDER "FACTORS THAT
MAY AFFECT FUTURE OPERATING RESULTS." WE ASSUME NO OBLIGATION TO UPDATE THESE
FORWARD-LOOKING STATEMENTS TO REFLECT ACTUAL RESULTS OR CHANGES IN FACTORS OR
ASSUMPTIONS AFFECTING SUCH FORWARD-LOOKING ASSUMPTIONS. READERS ARE CAUTIONED
NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT
MANAGEMENT'S ANALYSIS ONLY AS OF THE DATE HEREOF. WE UNDERTAKE NO OBLIGATION TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISION TO THESE FORWARD-LOOKING
STATEMENTS, WHICH MAY BE MADE TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE
HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
Overview
We develop, market and support synchronization, change
detection/notification, and Web rendering/browsing software, enabling
consumers, mobile professionals and information technology officers to
harness the full capabilities of handheld organizers/computers,
Web-enabled/cellular phones, pagers and other wireless personal communication
platforms. Our product families, which include Intellisync-Registered
Trademark-, Intellisync Anywhere-Registered Trademark-, Satellite
Forms-Registered Trademark-, Browse-it-TM- and Mind-it-TM- software, connect
handheld and mobile devices to essential information anytime, anywhere. The
Intellisync platform lets users synchronize the critical connection between
both wired and wireless handheld devices and the vast stores of information
found in corporate databases, the Internet and individuals' PC applications.
Intellisync Anywhere keeps users current with remote and LAN-based data
synchronization between groupware messaging servers and Palm OS-Registered
Trademark- platform handhelds. Satellite Forms provides the tools needed to
create custom applications for Palm OS handhelds and the ability to integrate
those applications with desktop or network databases. Browse-it enables users
to view Web pages online or offline on their handheld devices in a secure,
conventional and quick manner. Mind-it technology provides user-driven
personalization, enabling users to track specific Web information and be
notified when that information changes.
We license our software products to several original equipment
manufacturers ("OEMs") and business development organizations worldwide. In
addition, we sell our retail products through several distribution channels both
domestically and internationally, including major distributors, resellers,
computer dealers, retailers and mail-order companies. Internationally, we are
represented by over 20 distributors and resellers in Africa, Asia, Australia,
Canada, Europe, New Zealand, and South America.
In October 1999, we acquired ProxiNet, Inc. ("ProxiNet"), a startup company
involved in the development of software enabling users of Palm OS handheld
devices to browse Internet content. ProxiNet brought us a highly scalable
proxy-based transformation and delivery architecture. As a result, in June 2000
we announced Browse-it software which allows portals, search engines and
e-commerce companies to provide highly secure, real-time Web access to users of
Palm OS handheld devices, along with the ability to download Web pages for
offline viewing when wireless or wireline access is not available.
In February 2000, we acquired NetMind Technologies, Inc. ("NetMind"), a
leading provider of scalable software solutions that integrate user-driven
personalization technologies into the Internet infrastructure, which brought us
a broad range of Web-based personalization, change-detection and notification
technologies. As a result, in June 2000 we announced Mind-it software which
enables users to receive instant notification of changes to any content they
request on the Internet or corporate intranet.
In July 2000, we acquired Dry Creek Software, LLC ("Dry Creek"), a company
specializing in the creation of software solutions that allow for transparent
data access between mobile devices, enterprise servers and Internet
applications. Dry Creek forms the core of our new Professional Services
Organization, through which we provide customized, turnkey
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solutions based on the Mobile Application Platform ("MAP") infrastructure for
wireless carriers, ISPs, Web portals and corporate enterprises.
MAP is the common server platform on which we will build our new mobile
and wireless solutions. MAP will initially support data synchronization (our
upcoming Sync-it-TM- software), change detection/notification (Mind-it
software) and Web content rendering/browsing (Browse-it software). MAP is
designed for maximum scalability and performance and empowers both Internet
access and wireless access to mobile devices. This differs markedly from the
PC-centric connectivity solutions that enable Internet access only while
tethered to a PC. MAP provides ubiquitous access to mobile devices over both
wired and wireless media, and does not require the PC to act as a gateway to
the network. The platform is deployed inside the firewalls of major
corporations. In addition, we expect, to host, the platform in the public
Internet space on the Intellisync.com-SM- Web service in the first half of
fiscal 2001.
RESULTS OF OPERATIONS
All historical financial information and analysis have been restated to
reflect the acquisition of NetMind on February 24, 2000, which was accounted
for as a pooling of interests (see Note 2 of Notes to Consolidated Financial
Statements).
REVENUE. We derive revenue from two primary sources: software licenses
and fees for service. Revenue was $30,813,000 in fiscal 2000 as compared to
$20,723,000 in fiscal 1999 and $22,341,000 in fiscal 1998. Revenue increased
49% in fiscal 2000 as compared to fiscal 1999 and decreased 7% in fiscal 1999
as compared to fiscal 1998. Our revenue growth in fiscal 2000 resulted from
increased platform licensing of components of our MAP and higher revenues
from our Enterprise products, which include both personal and server based
Intellisync products, and Satellite Forms. This increase more than offset the
decline in Intellisync for Notebook and TranXit-Registered Trademark- product
royalty revenue.
OEMs revenue continues to represent a significant portion of our revenue.
OEM revenue represented 62%, 54%, and 68% of our revenue in fiscal 2000, fiscal
1999, and fiscal 1998, respectively. No customers accounted for more than 10% of
total revenue in fiscal 2000. In fiscal 1999 and 1998, Toshiba Corporation
accounted for approximately 14% and 18% of our revenue, respectively, and no
other customer accounted for more than 10% of our revenue. Although several OEMs
are subject to certain contractual minimum purchase obligations, there can be no
assurance that any particular OEM will satisfy the obligation. In addition, we
believe that the percentage of revenue derived from OEMs may fluctuate in future
periods since the distribution channels we use for our existing and future
products are subject to change. Further, we expect the notebook and PC OEM
portion of this revenue to continue to decrease as a percentage of our overall
revenue throughout fiscal 2001.
International revenue continues to represent a significant portion of our
revenue. International revenue in fiscal 2000 was $8,347,000, or 27% of total
revenue, compared to $8,357,000 or 40% of total revenue in fiscal 1999 and
$10,627,000 or 48% of total revenue in fiscal 1998. The substantial increase in
our revenue from the United States resulted in a decrease of international
revenue as a percent of total revenue in fiscal 2000 as compared to fiscal 1999
and 1998. The absolute dollar decrease in international revenue in fiscal 2000
and 1999 reflected the decrease in notebook and PC OEM royalties we receive from
our international customers. We expect, however, our international revenue to
increase in future periods as we continue to expand our operations worldwide,
particularly Europe. International revenue may be subject to certain risks not
normally encountered in domestic operations, including exposure to tariffs,
various trade regulations and fluctuations in currency exchange rates. See
"Factors That May Affect Future Operating Results."
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<PAGE>
- LICENSE REVENUE. License revenue is earned from the sale and use of
software products and royalty agreements with OEMs. License revenue
was $27,685,000 in fiscal 2000 as compared to $19,084,000 in fiscal
1999 and $18,477,000 in fiscal 1998. The 45% increase in license
revenues in fiscal 2000 reflected increase in revenues of Enterprise
products, primarily Intellisync, Satellite Forms and Intellisync
Anywhere, and MAP products. This increase was offset by declining
revenue received for the Intellisync for Notebook and TranXit
products. The 3% increase in license revenue in fiscal 1999 was
primarily due to increased revenue derived from Enterprise products
such as Intellisync, Satellite Forms and Intellisync Anywhere, and MAP
products such as Intellisync Software Development Kits ("SDKs") and
Mind-it products, offset by a decrease in royalty revenue for the
Intellisync for Notebook and Tranxit products. Deferred revenue was
$6,372,000, $3,989,000 and $1,669,000 at July 31, 2000, 1999 and 1998.
The 60% increase in deferred revenue in July 31, 2000 was attributable
to revenues related to our SDK, Intellisync Gold and Intellisync
Anywhere products.
- SERVICE REVENUE. Service revenue is derived from fees for services,
including non-recurring engineering service projects for software
development, amortization of maintenance contract programs, Web-based
advertising fees and professional services. Service revenue was
$3,128,000 in fiscal 2000 as compared to $1,639,000 in fiscal 1999 and
$3,864,000 in fiscal 1998. The 91% increase in service revenue in
fiscal 2000 was primarily due to an increased number of non-recurring
engineering service projects, increased maintenance revenue and
increased Web-based advertising fees. The 58% decrease in service
revenue in fiscal 1999 was primarily due to reduced number of
non-recurring engineering service projects during that year.
COST OF REVENUE. Cost of revenue consists primarily of product costs and
service costs. Product costs include media and duplication, manuals, packing
supplies and shipping expenses. Service costs include personnel related costs
incurred under non-recurring software engineering services and professional
services, and hosting costs for online services. Our cost of revenue is affected
by the mix between our revenue sources such as licenses and services.
Additionally, our cost of revenue is affected by the mix between our various
distribution channels and by the mix between geographies such as the United
States, Japan and Europe. In general, increased license revenue as compared to
service revenue will have a favorable impact on cost of revenue since the cost
of sales associated with license revenue tend not to be significant as compared
to that with service revenue. In addition, we expect that cost of revenue as a
percent of revenue will increase as service revenue becomes a more substantial
portion of our total revenue.
- COST OF LICENSE REVENUE. Cost of license revenue consist primarily of
packaged product costs including product media and duplication,
manuals, packing supplies, shipping expenses and, in certain
transactions, royalties paid to certain vendors. Cost of license
revenue as a percentage of license revenue was 7% in fiscal 2000 as
compared to 7% in fiscal 1999 and 8% in fiscal 1998.
- COST OF SERVICE REVENUE. Cost of service revenue primarily represents
personnel related costs incurred for software development work under
non-recurring engineering agreements and professional services. Cost
of service revenue as a percentage of service revenue was 59% in
fiscal 2000 as compared to 43% in fiscal 1999 and 40% in fiscal 1998.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other related expenses for research and development
personnel, quality assurance personnel, product localization, fees to outside
contractors and the cost of facilities and depreciation of capital equipment. We
invest in research and development both for new products and to provide
continuing enhancements to existing products. Research and development expenses
increased by 38% to $17,140,000 in fiscal 2000 from $12,421,000 in fiscal 1999.
In fiscal 1999, research and development expenses increased 19% to $12,421,000
from $10,421,000 in fiscal 1998. Research and development represented 56%, 60%
and 47% of total revenue in fiscal 2000, 1999 and 1998, respectively. The
absolute dollar increase in research and development expenses in fiscal 2000 was
primarily due to increased personnel required to integrate the newly acquired
ProxiNet and NetMind technologies into a common platform and the development of
the Intellisync.com service that is expected to be launched in the first half of
fiscal 2001. The absolute dollar increase in research and development expenses
in fiscal 1999 was primarily due to increased personnel related costs and
spending required to develop and support a wider breadth of our existing
Intellisync products and continued investment in our Satellite Forms,
Intellisync Anywhere and Mind-it products. We believe research and development
expenses may continue to increase in absolute dollars in the next several
quarters.
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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.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, promotional expenses and other related expenses of sales,
marketing and technical support personnel. Sales and marketing expenses
increased by 68% to $16,414,000 in fiscal 2000 from $9,758,000 in fiscal 1999.
In fiscal 1999, sales and marketing expenses increased 34% to $9,758,000 from
$7,307,000 in fiscal 1998. Sales and marketing expenses represented 53%, 47% and
33% of total revenues in fiscal 2000, 1999, and 1998, respectively. Sales and
marketing expenses increased in absolute dollars in fiscal 2000 primarily due to
an increase in sales personnel to expand our sales and business development
organizations in the United States and internationally, and to a lesser extent,
an increase in costs associated with corporate branding, which included renaming
our corporate name to Pumatech, Inc., redesigning our Website, and various
product branding. Sales and marketing expenses increased in absolute dollars in
fiscal 1999 primarily due to an increase in our domestic sales and business
development organizations. We expect that sales and marketing expenses will
increase in fiscal 2001 as we continue to expand our direct sales force,
particularly in Europe, and as the related personnel and marketing support costs
also increase.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other related expenses of administrative, executive
and financial personnel and other outside professional fees. General and
administrative expenses increased by 25% to $4,897,000 in fiscal 2000 from
$3,909,000 in fiscal 1999. In fiscal 1999, general and administrative expenses
increased 24% to $3,909,000 from $3,160,000 in fiscal 1998. General and
administrative expenses represented approximately 16%, 19% and 14% of total
revenues in fiscal 2000, 1999 and 1998. The increase in absolute general and
administrative spending in fiscal 2000 was primarily due to the addition of
personnel and increased fees for professional services, such as legal,
accounting, and other consulting services, to support the expansion of our
infrastructure, including the consolidation and assimilation of ProxiNet,
NetMind and Dry Creek businesses. The increase in absolute general and
administrative spending in fiscal 1999 was primarily due to increased personnel
costs and legal fees for defending our Intellectual property rights.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT. We expensed purchased
in-process research and development costs of $4,218,000 as a result of the
ProxiNet acquisition in the first quarter of fiscal 2000, and $2,155,000 as a
result of the SoftMagic Corporation ("SoftMagic") acquisition in the fourth
quarter of fiscal 1998.
The ProxiNet acquisition has been accounted for as a purchase. The total
purchase price of approximately $17,384,000 (including liabilities of
$2,070,000), was assigned, based on independent appraisal, to the fair value of
the assets acquired, including $676,000 to tangible assets acquired, $3,378,000
to identified intangible assets, $4,218,000 to in process research and
development, and $9,112,000 to goodwill. The in-process research and development
was expensed at the acquisition date. The value assigned to this acquired
in-process research and development was determined by identifying research
projects in areas for which technology feasibility had not been established as
of the acquisition date. These include projects for ProxiWare-TM- and
ProxiWeb-TM- technology. The value was determined by estimating the revenue
contribution and the percentage of complete of each of these products. The
projects were deemed to be 55% complete on the date of acquisition. The net cash
flows were then discounted utilizing a weighted average cost of capital of
27.5%, which, among other related assumptions, we believe to be fairly accurate.
This discount rate takes into consideration the inherent uncertainties
surrounding the successful development of the in-process research and
development, the expected profitability levels of such technology, and the
uncertainty of technological advances that could potentially impact the
estimates described above. Revenues were projected to be generated in fiscal
2000 for the products in development at the acquisition date. If these projects
are not successfully developed, our future revenues and achievement of
profitability may not be realized. Additionally, the value of other intangible
assets acquired may become impaired.
The SoftMagic acquisition has been accounted for as a purchase. The total
purchase price of approximately $3,076,000 was assigned, based on an independent
appraisal, to the fair value of the assets acquired, including $35,000 to
tangible assets acquired, $2,155,000 to in-process research and development and
$886,000 to identified intangible assets. The in-process research and
development was expensed at the acquisition date. The value assigned to this
acquired in-process technology was determined by identifying research projects
in areas for which technological feasibility had not been established as of the
acquisition date. These include projects for Satellite Forms and
MobileXtension-TM-. The value was determined by estimating the revenue
contribution of each of these products. The net cash flows were then discounted
utilizing a weighted average
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cost of capital of 35%, which, among other related assumptions, we believe to be
fairly accurate. This discount rate takes into consideration the inherent
uncertainties surrounding the successful development of the in-process research
and development, the expected profitability levels of such technology, and the
uncertainty of technological advances which could potentially impact the
estimates described above. Revenues were projected to be generated in 1998 for
the products in development at the acquisition date. If these projects are not
successfully developed, our future revenues and achievement of profitability may
not be realized. Additionally, the value of other intangible assets acquired may
become impaired.
Regarding our purchase acquisitions completed in fiscal 2000 and 1998,
actual results to date have been consistent, in all material respects, with our
assumptions at the time of the acquisitions. The assumptions primarily consist
of an expected completion date for the in-process projects, estimated costs to
complete the projects, and revenue and expense projections once the products
have entered the market. Failure to achieve the expected levels of revenue and
net income from these products during their entire life cycle will negatively
impact the return on investment expected at the time that the acquisitions were
completed and potentially result in impairment of any other assets related to
the development activities.
AMORTIZATION OF INTANGIBLES. Amortization of acquired intangibles increased
473% to $2,630,000 in fiscal 2000 from $459,000 in fiscal 1999. In fiscal 1999,
amortization of intangibles increased 77% to $459,000 from $260,000 in fiscal
1998. The increases in amortization of intangibles resulted from our
acquisitions of Dry Creek and ProxiNet in fiscal 2000 and of SoftMagic in fiscal
1998.
NON-CASH STOCK COMPENSATION. Non-cash stock compensation relates to stock
options that were deemed to have been granted at a price below market value. The
non-cash stock compensation charge aggregated $2,002,000, $410,000 and $28,000
in fiscal 2000, 1999 and 1998, respectively. These charges are amortized on a
straight-line basis over the vesting period of the options. The majority of the
fiscal 2000 non-cash compensation expense relates to options that were granted
by NetMind prior to our acquisition of NetMind. Future amortization expense is
expected to be $1,075,000, $1,070,000 and $969,000 in fiscal 2001, 2002 and
2003, respectively. Future amortization expense would be reduced if any employee
terminates employment prior to the expiration of the option vesting period.
MERGER COSTS. During the quarter ended April 30, 2000, we incurred one-time
costs totaling $6,322,000 associated with the acquisition of NetMind. These
costs included direct transaction costs primarily for financial advisory
services and professional services costs associated with the merger.
RESTRUCTURING. In the first quarter of fiscal 1999, we implemented a
restructuring program for the purpose of consolidating the majority of our
engineering and development work at existing facilities in Nashua, New
Hampshire. As part of this program, we implemented a reduction in force of
approximately 40 positions that primarily affected the engineering group located
at the San Jose, California facility. The severance charge was $210,000. This
plan was completed at the end of February 1999. As of July 31, 2000, there was
no unused balance.
Also as part of the restructuring, we announced plans for vacating a
portion of the San Jose facility. We reduced the total cost of leased facilities
by subleasing the excess office space. The restructure charge was $558,000. The
unused balance as of July 31, 2000 was $221,000.
INTEREST AND OTHER INCOME, NET. Interest and other income, net, represents
interest earned on cash and short-term investments, realized gain on
miscellaneous investments, offset by interest expense on long-term debt and
capitalized leases and miscellaneous fees and charges. Net interest and other
income was $5,023,000, $3,868,000 and $1,070,000 in fiscal 2000, 1999 and 1998,
respectively. The increase in fiscal 2000 was primarily due to increased gain
recognized from the sales of equity investments, higher yields on our
investments and increased interest earned on our higher cash balance resulting
from the private placement completed in March 2000. The increase in net interest
and other income in fiscal 1999 was primarily due to gains recognized associated
with the sale of equity investments.
PROVISION FOR INCOME TAXES. The provision for income taxes primarily
represents foreign withholding taxes on royalties earned from certain foreign
customers. Provision for income taxes was $632,000, $715,000 and $1,164,000 in
fiscal 2000, 1999 and 1998.
ACCRETION OF MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK TO
REDEMPTION VALUE. During fiscal 1999, NetMind issued approximately 4 million
shares of Series B Preferred Stock which converted into approximately 3.4
million shares of the Company's common stock upon completion of the NetMind
merger in February 2000. Under the terms of the
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original issuance, the Series B shares were redeemable in September 2003 and
2004, at the higher of their original issue price or the fair value of the stock
at the dates of redemption. The difference between the issuance price and the
fair value of the Series B stock was accreted by NetMind. Such accretion
aggregated to $3,877,000 and $4,238,000 in fiscal 2000 and 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments were $85,260,000 at July
31, 2000 compared to $28,516,000 and $21,091,000 at July 31, 1999 and 1998,
respectively.
Our cash, cash equivalents, and short-term investments increased $56.7
million, or 199%, in fiscal 2000, primarily due to proceeds from newly issued
common stock related to the private placement completed in March 2000. We
received net proceeds of approximately $77.2 million from the private placement
of approximately 1,068,000 shares of common stock. We also received net proceeds
of approximately $1.5 million from stock options and warrants exercises and line
of credit. These proceeds, as well as unrealized gain of $1.3 million on
securities, were offset by the net cash used in operations in the amount of
$15.7 million, capital expenditures of $3.1 million, purchase of long-term
investments of $2.1 million, and the acquisition of ProxiNet and Dry Creek for
approximately $2.4 million, net of cash acquired. Cash used in operations during
fiscal 2000 reflected a net loss of $22.2 million, realized gain on sale of
investment of $2.2 million and net change of $1.7 million in operating assets
and liabilities, offset by $4.2 million in depreciation and amortization, $2.0
million in non-cash stock compensation and $4.2 million in purchased in-process
research and development.
Our cash, cash equivalents, and short-term investments increased $7.4
million, or 35%, in fiscal 1999, primarily due to proceeds from NetMind's
issuance of convertible preferred stock of $7.1 million and newly issued common
stock under Employee Stock Purchase Plan and upon exercise of stock options
totaling $1.5 million. These proceeds, as well as unrealized gain of $3.5
million on securities, were offset by the net cash used in operations in the
amount of $3.3 million, capital expenditures of $0.9 million, and net cash used
in other financing activities of approximately $0.5 million. Cash used in
operations during fiscal 1999 reflected a net loss of $5.8 million and realized
gain on sale of investment of $2.6 million, offset by $1.7 million in
depreciation and amortization, $0.4 million in non-cash stock compensation and
$3.0 million provided by changes in operating assets and liabilities.
In October 1999, we issued 5,200,000 shares of common stock and stock
options to complete the acquisition of ProxiNet. In February 2000, we issued
8,808,000 shares of common stock to complete the acquisition of NetMind. In July
2000, we used $1,987,500 of cash and issued 154,000 shares of common stock to
complete the acquisition of Dry Creek. For additional information regarding the
acquisitions, refer to Note 2 of the Notes to Consolidated Financial Statements.
In June 1999, NetMind entered into a loan and security agreement that
provided a $1,000,000 revolving credit line and a $750,000 equipment line to
NetMind. Borrowings under the revolving credit line bear interest at a per annum
rate equal to the prime rate plus one half of one percent. Borrowings under the
equipment line bear interest at a per annum rate equal to the prime rate plus
one percent. At July 31, 2000, $561,000 was outstanding on the equipment line
and no outstanding balance drawn on the revolving credit line.
Dry Creek maintains a $10,000 unsecured line of credit. Borrowings under
the line of credit bear interest at the bank's reference rate plus 7.375
percent. At July 31, 2000, $7,850 was outstanding under this line of credit.
We believe that our current cash, cash equivalents and short-term
investment balances, including the credit lines and cash generated from
operations, if any, will be sufficient to meet our working capital and other
cash requirements for at least the next 12 months. However, this belief assumes
that operating results and cash flows from operations will meet our
expectations.
In the future, we may seek to raise cash through the issuance of debt or
equity securities. There can be no assurance that such financing would be
available to us at all or on terms favorable to us.
See Note 7 of the Notes to Consolidated Financial Statements for additional
information regarding long-term debt.
45
<PAGE>
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
BECAUSE WE HAVE HAD LIMITED INTERNET OPERATING HISTORY, IT IS DIFFICULT TO
EVALUATE OUR BUSINESS AND WE MAY FACE VARIOUS RISKS, EXPENSES AND DIFFICULTIES
ASSOCIATED WITH EARLY STAGE COMPANIES.
Historically, we have licensed our products and technology primarily to PC
OEMs, corporations and to end users through our channels of distribution. In the
second quarter of fiscal 2000, we announced our Internet initiative. This
initiative has required us to add additional resources and to develop and market
our Intellisync.com portal and the products and technologies recently obtained
in the ProxiNet and NetMind acquisitions. We plan to market and license our new
Web-based products and solutions to wireless carriers, Web portals and
individual consumers. We also plan to offer these new products and solutions to
corporations. We expect to incur significant costs in completing the launch of
our Internet initiative.
Our overall operating results have changed significantly as a result of
developing and bringing to market our new Internet products. It is important to
understand that our historical financial statements include operating results of
our recently launched Internet initiative only to the extent that NetMind's
historical operating results have been reflected under pooling-of-interests
accounting. As a result of our Internet initiative, we expect our combined
results to reflect an operating loss for at least the next several fiscal
quarters. There can be no assurance that we will be able to achieve or sustain
profitability.
We have invested substantial amounts in technology and infrastructure
development. We expect to continue to invest substantial financial and other
resources to develop and introduce new Internet and wireless products and
services, and to expand our sales and marketing organizations, strategic
relationships and operating infrastructure. We expect that our cost of revenue,
sales and marketing expenses, general and administrative expenses, operations
and customer support expenses, and depreciation and amortization expenses will
continue to increase in absolute dollars and may increase as a percent of
revenue. If revenue does not correspondingly increase, our operating results and
financial condition could be negatively affected.
OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AND MAY BE DIFFICULT TO PREDICT.
Our operating results have fluctuated in the past, and with our Internet
product initiative and the ProxiNet, NetMind and Dry Creek acquisitions, our
operating results are likely to continue to fluctuate significantly. A number of
factors, many of which are outside of our control, are likely to cause
fluctuations in operating results, including, but not limited to:
- the demand for our products and services;
- our success in developing new products and integrating acquired
technologies;
- the timing of new product introductions by us and our
competitors; and
- market acceptance of our new and enhanced products and services.
Our gross margin on service revenue, particularly non-recurring engineering
service and professional service revenue, is substantially lower than gross
margin on license revenue. We have recently acquired Dry Creek, which formed the
basis of our professional service group, and, consequently, we expect that
professional service revenue, as well as non-recurring engineering service
revenue, will increase in future quarters. Any increase in non-recurring
engineering service and professional service revenue would have a corresponding
increase in cost of revenue and would have an adverse effect on our gross
margins. We may also change prices or increase spending in response to
competition or to pursue new market opportunities.
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.
46
<PAGE>
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 distribution and pricing strategies as compared to our
competitors; and
- growth in the sales of handheld devices supported by our software
and growth in wireless network capabilities to match end user
demand and requirements.
RAPID GROWTH IN OUR BUSINESS COULD STRAIN OUR RESOURCES AND HARM OUR BUSINESS
AND FINANCIAL RESULTS.
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
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.
OUR BUSINESS AND PROSPECTS DEPEND ON DEMAND FOR AND MARKET ACCEPTANCE OF THE
INTERNET, WIRELESS DEVICES AND MOBILE COMPUTING DEVICES.
The increased use of the Internet, wireless devices and mobile computing
devices for retrieving, sharing and transferring information among businesses,
consumers, suppliers and partners, and for Internet personalization services has
only begun to develop in recent years. Our success will depend in large part on
continued growth in the use of the Internet, wireless devices and mobile
computing devices. Critical issues concerning the commercial use of the
Internet, wireless devices and mobile computing devices, including security,
reliability, cost, ease of access and use, quality of service, regulatory
initiatives and necessary increases in bandwidth availability, remain unresolved
and are likely to affect the development of the market for our services. The
adoption of the Internet, wireless devices and mobile computing devices for
information retrieval and exchange, commerce and communications generally will
require the acceptance of a new medium of conducting business and exchanging
information. Demand for and market acceptance of the Internet, wireless devices
and mobile computing devices are subject to a high level of uncertainty and are
dependent on a number of factors, including:
- the growth in access to and market acceptance of new interactive
technologies;
- emergence of a viable and sustainable market for Internet
personalization services; and
- the development of technologies that facilitate interactive
communication between organizations.
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 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
47
<PAGE>
Japan, accounted for 27%, 40% and 48% of our revenue in fiscal 2000, 1999 and
1998, respectively. A key component of our strategy is to further expand our
international activities. As we continue to expand internationally, we are
increasingly subject to risks of doing business internationally, including:
- unexpected changes in regulatory requirements and tariffs;
- export controls relating to encryption technology and other
export restrictions; and
- political and economic instability.
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.
WE MAY REQUIRE ADDITIONAL CAPITAL, WHICH WE MAY NOT BE ABLE TO OBTAIN.
FOREIGN EXCHANGE FLUCTUATIONS COULD DECREASE OUR REVENUES OR CAUSE US TO LOSE
MONEY, ESPECIALLY SINCE WE DO NOT HEDGE AGAINST CURRENCY FLUCTUATIONS.
FINANCIAL MARKET RISKS
We are exposed to a variety of risks, including changes in interest rates,
foreign currency fluctuations and marketable equity security prices which could
impact our results of operations and financial condition. We currently do not
utilize derivative financial instruments to hedge such risks.
At July 31, 2000, we had an investment portfolio of fixed income securities
excluding those classified as cash and cash equivalents and securities available
for sale, of $30,543,000 (see Note 3 of Notes to Consolidated Financial
Statements). These securities, like all fixed income instruments, are subject to
interest rate risk and will fall in values if market interest rates increase. If
market interest rates were to increase immediately and uniformly by 10% from
levels as of July 31, 2000, the decline of the fair value of the portfolio would
be immaterial. Our fixed income investments have maturities of less than one
year. While we have the intent to hold our fixed income investments until
maturity to avoid recognizing an adverse impact in income or cash flows in the
event of an increase in market interest rates, there can be no assurance that we
will be able to do so.
To date, substantially all of our recognized revenue has been denominated
in U.S. dollars and generated primarily from customers in the United States, and
our exposure to foreign currency exchange rates has been immaterial. We expect,
however, that more product and service revenue may also be derived from
international markets and may be denominated in the currency of the applicable
market in the future. As a result, our operating results may become subject to
significant fluctuations based upon changes in exchange rates of certain
currencies in relation to the U.S. dollar. We will also be exposed to increased
risk of non-payment by our customers in foreign countries, especially those of
highly inflationary economies. Furthermore, to the extent that we engage in
international sales denominated in U.S. dollars, an increase in the value of the
U.S. dollar relative to foreign currencies could make our products and services
less competitive in international markets. Although we will continue to monitor
our exposure to currency fluctuations, and, when appropriate, may use financial
hedging techniques in the future to minimize the effect of these fluctuations,
we cannot be assured that exchange rate fluctuations will not adversely affect
our financial results in the future.
We are subject to equity price risks on the marketable portion of
investments in publicly traded equity securities. These investments are
generally in companies having operations or technology in areas within our
strategic focus. We do not attempt to reduce or eliminate our market exposure on
these securities. At July 31, 2000, the fair value of these investments is
$225,000 (see Note 3 of Notes to Consolidated Financial Statements). We believe
that a decline in the investments' fair values would not adversely impact our
results of operations.
48
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JULY 31,
-----------------------------
2000 1999
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................... $ 54,492 $ 16,639
Short-term investments.................................................. 30,768 11,877
Accounts receivable, net................................................ 6,358 3,160
Inventories, net........................................................ 235 258
Other current assets.................................................... 1,732 590
----------- ----------
Total current asset.................................................. 93,585 32,524
Property and equipment, net................................................... 4,828 3,008
Other assets.................................................................. 20,242 1,590
----------- ----------
Total assets $ 118,655 $ 37,122
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................................... $ 2,601 $ 860
Accrued liabilities...................................................... 4,036 2,454
Current portion of long term notes payable............................... 259 325
Deferred revenue......................................................... 6,372 3,989
----------- ----------
Total current liabilities............................................. 13,268 7,628
Long term notes payable........................................................ 310 -
----------- ----------
Total liabilities..................................................... 13,578 7,628
----------- ----------
Commitments and contingencies (Note 8).........................................
Redeemable, convertible preferred stock........................................ - 11,293
----------- ----------
Stockholders' equity:
Common stock, $0.001 par value; 60,000 shares authorized; 42,307 shares
issued and outstanding at July 31, 2000 and 40,000 shares authorized;
31,501 shares issued and outstanding
at July 31, 1999.................................................... 42 30
Additional paid-in capital............................................. 146,051 36,885
Receivable from stockholders........................................... (330) (428)
Deferred stock compensation............................................ (3,114) (3,773)
Accumulated deficit.................................................... (37,589) (15,390)
Other comprehensive income............................................. 17 877
----------- ----------
Total stockholders' equity.......................................... 105,077 18,201
----------- ----------
Total liabilities and stockholders' equity.......................... $ 118,655 $ 37,122
=========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
49
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
----------------------------------------------
2000 1999 1998
----------- ---------- ----------
<S> <C> <C> <C>
Revenue
License......................................... $ 27,685 $ 19,084 $ 18,477
Services........................................ 3,128 1,639 3,864
----------- ---------- ----------
Total revenue................................ 30,813 20,723 22,341
----------- ---------- ----------
Cost of revenues and operating expenses:
Cost of license revenue......................... 1,827 1,270 1,541
Cost of service revenue......................... 1,953 709 1,536
Research and development (excludes non-cash
stock compensation of $769, $68 and $0)....... 17,140 12,421 10,421
Sales and marketing (excludes non-cash stock
compensation of $610, $217 and $0)............ 16,414 9,758 7,307
General and administrative (excludes non-cash
stock compensation of $623, $125 and $28)..... 4,897 3,909 3,160
In-process research and development............. 4,218 - 2,155
Amortization of intangibles..................... 2,630 459 260
Non-cash stock compensation..................... 2,002 410 28
Merger costs.................................... 6,322 - -
Restructuring................................... - 768 -
----------- ---------- ----------
Total cost of revenues and operating expenses 57,403 29,704 26,408
----------- ---------- ----------
Operating loss........................................ (26,590) (8,981) (4,067)
Other income, net..................................... 5,023 3,868 1,077
----------- ---------- ----------
Loss before income taxes.............................. (21,567) (5,113) (2,990)
Provision for income taxes............................ (632) (715) (1,164)
----------- ---------- ----------
Net loss.............................................. (22,199) (5,828) (4,154)
Accretion of mandatorily redeemable convertible
preferred stock to redemption value............. (3,877) (4,238) -
----------- ---------- ----------
Net loss attributable to common stockholders.......... $ (26,076) $ (10,066) $ (4,154)
=========== ========== ==========
Basic net loss per share.............................. $ (0.74) $ (0.34) $ (0.15)
=========== ========== ==========
Diluted net loss per share............................ $ (0.74) $ (0.34) $ (0.15)
=========== ========== ==========
Shares used in computing basic and diluted net loss
per common share................................ 35,319 29,970 27,224
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
50
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
OTHER
ADDITIONAL RECEIVABLE DEFERRED COMPREHENSIVE
COMMON STOCK PAID-IN FROM STOCK ACCUMULATED INCOME
SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT (LOSS)
-------- -------- ---------- -------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1997. 27,142 $ 27 $ 31,514 $ (192) $ (81) $ (5,408) $ _
Issuance of common stock
upon exercise of options 182 _ 107 _ _ _ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 124 _ 273 _ _ _ _
Repurchase of unvested
common stock.......... (108) _ (10) _ _ _ _
Issuance of options and
warrants.............. _ _ 38 _ _ _ _
Issuance of common stock in
connection with
SoftMagic Corp.
acquisition........... 684 1 1,937 _ _ _ _
Issuance of common stock. 1,350 1 1,617 _ _ _ _
Repayments by stockholders _ _ _ 126 _ _ _
Amortization of deferred
compensation ......... _ _ _ _ 28 _ _
Net loss ................ _ _ _ _ _ (4,154) _
-------- -------- ---------- -------------- -------------- ------------ -------------
BALANCE AT JULY 31, 1998. 29,374 29 35,476 (66) (53) (9,562) _
Issuance of common stock
upon exercise of options 1,388 1 1,164 _ _ _ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 348 _ 308 _ _ _ _
Repurchase of unvested
common stock.......... (12) _ (2) _ _ _ _
Exercise of warrants..... 14 _ _ _ _ _ _
Notes issued to stockholders _ _ _ (362) _ _ _
Unrealized gain on
securities available for
sale.................. _ _ _ _ _ _ 3,533
Realized gain on securities
available for sale.... _ _ _ _ _ _ (2,650)
Currency translation
adjustment............ _ _ _ _ _ _ (6)
Issuance of common stock. 389 _ 47 _ _ _ _
Deferred compensation.... _ _ 4,130 _ (4,130) _ _
Amortization of deferred
compensation ......... _ _ _ _ 410 _ _
Redeemable stock accretion _ _ (4,238) _ _ _ _
Net loss ................ _ _ _ _ _ (5,828) _
-------- -------- ---------- -------------- -------------- ------------ -------------
BALANCE AT JULY 31, 1999. 31,501 30 36,885 (428) (3,773) (15,390) 877
Issuance of common stock
upon exercise of options 1,529 2 1,026 _ _ _ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 141 _ 307 _ _ _ _
Exercise of warrants..... 426 _ 123 _ _ _ _
Conversion of preferred
stock to
common stock
(see Note 4)........ 3,397 4 15,166 _ _ _ _
Unrealized gain on
securities available for
sale.................. _ _ _ _ _ _ 1,345
Realized gain on securities
available for sale.... _ _ _ _ _ _ (2,221)
Currency translation
adjustment............ _ _ _ _ _ _ 16
Issuance of common stock in
connection with
acquisitions.......... 3,955 4 18,530 _ _ _ _
Issuance of common stock. 1,358 2 76,923 _ _ _ _
Deferred compensation.... _ _ 968 _ (968) _ _
Repayments by stockholders _ _ _ 98 _ _ _
Amortization of deferred
compensation ......... _ _ _ _ 1,627 _ _
Redeemable stock accretion _ _ (3,877) _ _ _ _
Net loss ................ _ _ _ _ _ (22,199) _
-------- -------- ---------- -------------- -------------- ------------ -------------
BALANCE AT JULY 31, 2000. 42,307 $ 42 $ 146,051 $ (330) $ (3,114) $ (37,589) $ 17
</TABLE>
<TABLE>
<CAPTION>
COMPREHENSIVE
STOCKHOLDERS' INCOME
EQUITY (LOSS)
------------- ---------------
<S> <C> <C>
BALANCE AT JULY 31, 1997. $ 25,860 $ 93
===============
Issuance of common stock
upon exercise of options 107 $ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 273 _
Repurchase of unvested
common stock.......... (10) _
Issuance of options and
warrants.............. 38 _
Issuance of common stock in
connection with
SoftMagic Corp.
acquisition........... 1,938 _
Issuance of common stock. 1,618 _
Repayments by stockholders 126 _
Amortization of deferred
compensation ......... 28 _
Net loss ................ (4,154) (4,154)
------------- ---------------
BALANCE AT JULY 31, 1998. 25,824 $ (4,154)
===============
Issuance of common stock
upon exercise of options 1,165 $ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 308 _
Repurchase of unvested
common stock.......... (2) _
Exercise of warrants..... _ _
Notes issued to stockholders (362) _
Unrealized gain on
securities available for
sale.................. 3,533 3,533
Realized gain on securities
available for sale.... (2,650) (2,650)
Currency translation
adjustment............ (6) (6)
Issuance of common stock. 47 _
Deferred compensation.... _ _
Amortization of deferred
compensation ......... 410 _
Redeemable stock accretion (4,238) _
Net loss ................ (5,828) (5,828)
------------- ---------------
BALANCE AT JULY 31, 1999. 18,201 $ (4,951)
===============
Issuance of common stock
upon exercise of options 1,028 $ _
Issuance of common stock
under Employee Stock
Purchase Plan......... 307 _
Exercise of warrants..... 123 _
Conversion of preferred
stock to
common stock
(see Note 4)........ 15,170 _
Unrealized gain on
securities available for
sale.................. 1,345 1,345
Realized gain on securities
available for sale.... (2,221) (2,221)
Currency translation
adjustment............ 16 16
Issuance of common stock in
connection with
acquisitions.......... 18,534 _
Issuance of common stock. 76,925 _
Deferred compensation.... _ _
Repayments by stockholders 98 _
Amortization of deferred
compensation ......... 1,627 _
Redeemable stock accretion (3,877) _
Net loss ................ (22,199) (22,199)
------------- ---------------
BALANCE AT JULY 31, 2000. $ 105,077 $(23,059)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
51
<PAGE>
PUMA TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
---------------------------------------
2000 1999 1998
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................... $ (22,199) $ (5,828) $ (4,154)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Purchased in-process research and development........... 4,218 - 2,155
Depreciation and amortization........................... 4,215 1,678 1,232
Non-cash stock compensation............................. 2,002 410 28
Interest expense settled in common stock................ - - 42
Realized gain on sale of investment..................... (2,221) (2,650) -
Changes in assets and liabilities:
Accounts receivable.................................. (3,058) 455 -
Inventories.......................................... 23 (14) (20)
Other current assets................................. (1,092) (180) 33
Accounts payable..................................... 1,259 (354) (118)
Accrued liabilities.................................. (465) 824 605
Deferred revenues.................................... 2,313 2,320 986
Other assets and liabilities......................... (677) (6) -
--------- ---------- ----------
Net cash provided by (used in) operating
activities...................................... (15,682) (3,345) 789
--------- ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment........................... (3,105) (877) (1,371)
Purchase of short term investments........................... (41,813) (20,230) (20,409)
Sale and maturities of short-term investments................ 24,318 25,551 21,791
Purchase of investments...................................... (2,132) - -
Acquisitions, net of cash acquired........................... (2,450) - (1,096)
--------- ---------- ----------
Net cash provided by (used in) investing
activities...................................... (25,182) 4,444 (1,085)
--------- ---------- ----------
Cash flows from financing activities:
Principal payments under capital lease obligations........... - (69) (22)
Proceeds from (principal payments on) notes payable.......... - (203) 183
Proceeds from line of credit, net............................ 236 175 -
Note repayments from (advances to) stockholders.............. 98 (362) 126
Proceeds from exercise of warrants........................... 123 - -
Proceeds from issuance of convertible preferred stock, net... - 7,055 -
Proceeds upon exercise of stock options, net................. 1,028 1,165 107
Proceeds from newly issued common stock, net................. 77,232 353 1,494
--------- ---------- ----------
Net cash provided by financing activities....... 78,717 8,114 1,888
--------- ---------- ----------
Increase in cash and cash equivalents................................ 37,853 9,213 1,592
Cash and cash equivalents at beginning of period..................... 16,639 7,426 5,834
--------- ---------- ----------
Cash and cash equivalents at end of period........................... $ 54,492 $ 16,639 $ 7,426
========= ========== ==========
Supplemental disclosure of cash flow information:
Interest paid................................................ $ 58 $ 17 $ 43
========= ========== ==========
Income taxes paid............................................ $ 631 $ 370 $ -
========= ========== ==========
Common Stock issued in connection with business acquisitions $ 18,534 $ - $ 1,938
========= ========== ==========
Conversion of preferred stock to common stock (see Note 4) $ 15,170 $ - $ -
========= ========== ==========
Conversion of promissory notes and accrued interest
settled in common stock................................. $ - $ - $ 425
========= ========== ==========
Non-cash stock compensation.................................. $ 968 $ 4,130 $ -
========= ========== ==========
Accretion of redeemable convertible preferred stock.......... $ 3,877 $ 4,238 $ -
========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
52
<PAGE>
PUMA TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Puma Technology, Inc. ("Pumatech" or "the Company") was incorporated in
California on August 27, 1993 and was subsequently reincorporated in Delaware on
November 27, 1996. The Company develops, markets and supports mobile data
exchange software which allows user to easily access, exchange and synchronize
information stored on a variety of different computing devices.
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, including the company formerly
known as NetMind Technologies, Inc. ("NetMind") that merged with and into a
wholly-owned subsidiary of Pumatech on February 24, 2000 in a pooling of
interests transaction. (See Note 2 for more information on acquisition of
NetMind.) All periods presented have been restated in order to include the
financial results of NetMind since inception. All significant inter-company
accounts and transactions have been eliminated. Certain amounts on prior periods
have been reclassified to conform to the current presentation.
Prior to the acquisition, NetMind's fiscal year ended on December 31. The
consolidated financial statements for the years ended July 31, 2000, 1999, and
1998 reflect the results of operations of Pumatech combined with the results of
operations of NetMind for the corresponding periods.
On February 23, 2000, the Company announced a two-for-one stock split in
the form of a stock dividend. The record date for the stock split was March 8,
2000 and the payment date was March 22, 2000. All share, per share, common
stock, stock option and warrant amounts have been retroactively restated to
reflect the stock split.
USE OF ESTIMATES AND ASSUMPTIONS
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the consolidated financial
statements and reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition" which
superseded SOP 91-1 and provides guidance on generally accepted accounting
principles for recognizing revenue on software transactions. SOP 97-2 requires
that revenue recognized from software arrangements be allocated to each element
of the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post contract customer support,
installations or training. Under SOP 97-2, the determination of fair value is
based on objective evidence, which is specific to the vendor. If such evidence
of fair value for each element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that evidence of fair value
does exist or until all elements of the arrangement are delivered. SOP 97-2 was
amended in February 1998 by SOP 98-4, "Deferral of the effective date of
Provision of SOP 97-2" and was amended again in December 1998 by SOP 98-9,
"Modification of 97-2, Software Revenue recognition with Respect to Certain
Transactions." Those amendments deferred and then clarified, respectively, the
specification of what was considered vendor specific objective evidence of fair
value for the various elements in a multiple element arrangement. The Company
adopted the provisions of SOP 97-2 and SOP 98-4 as of August 1, 1998.
53
<PAGE>
License revenue is generally recognized upon shipment of the software
provided that persuasive evidence of an arrangement exists, the fee is fixed or
determinable and collection of the resulting receivable is deemed probable. The
Company currently sells its products directly to corporations, to original
equipment manufacturers ("OEMs") and to a lesser extent to distributors and
resellers in the United States, Africa, Asia, Australia, Canada, Europe, New
Zealand and South America. The Company grants distributors and resellers certain
rights of return and price protection on unsold merchandise held by those
distributors and resellers. Accordingly, reserves for estimated future returns
and credits for price protection are provided for upon revenue recognition. Such
reserves are based on historical rates of returns and allowances, distributor
inventory levels and other factors.
Revenue from OEMs under minimum guaranteed royalty arrangements, which are
not subject to significant future obligations, is recognized when such royalties
are earned and become payable. Royalty revenue that is subject to significant
future obligations is recognized when such obligations are fulfilled. Royalty
revenue that exceeds minimum guarantees is recognized in the period earned.
Payments received for maintenance contract services are recognized ratably over
the term of the service agreement. Payments from customers received in advance
of revenue recognition are recorded as deferred revenue.
The Company enters into Software Development Kit ("SDK") agreements, which
generally are multi-year in duration. Revenue from SDKs is recognized ratably
over the term of the contract.
The Company derives service revenue from non-recurring engineering service
projects for software developments, maintenance contract programs, Web-based
advertising fees and professional services. Revenue from such services is
generally recognized over the period during which the applicable service is to
be performed or on a services- performed basis.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with maturity of
three months or less at the date of purchase to be cash equivalents.
SHORT TERM INVESTMENTS
The Company accounts for its marketable securities in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," which requires the Company
to classify debt and equity securities into one of three categories: held to
maturity, trading or available for sale. The Company has classified its
investments as available for sale. The cost of securities sold is based on the
specific identification method.
INVENTORIES
Inventories consist principally of software and related documentation,
which are stated at the lower of cost (first-in, first-out) or market.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to the establishment of
technological feasibility are included in research and development and are
expensed as incurred. The Company defines establishment of technological
feasibility at the point which product reaches beta. Software development costs
incurred subsequent to the establishment of technological feasibility through
the period of general market availability of the product are capitalized, if
material. To date, all software development costs have been expensed as
incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization is
computed using the straight-line method over the estimated useful lives of the
assets, generally three to five years, or in the case of leased assets, the life
of the lease, if shorter. The Company reviews the carrying amount of specialized
assets and to evaluate the remaining
54
<PAGE>
life and recoverability of such equipment in light of current market condition.
Upon disposal, the assets and related accumulated depreciation are removed from
the Company's accounts and resulting gains and losses are recorded in other
income or expense.
Repair and maintenance are charged to operations as incurred.
During fiscal 1999, the Company adopted the provisions of Accounting
Standards Executive Committee ("AcSEC") SOP 98-1 "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." During fiscal 2000,
the Company adopted the provisions of Emerging Issues Task Force Issue ("EITF")
No. 00-02 "Accounting for Website Development Costs." Any costs capitalized are
depreciated on a straight-line basis over the lesser of the estimated useful
life. To date, capitalizable costs have been insignificant.
INTANGIBLE ASSETS
Other assets are primarily comprised of intangibles and goodwill.
Amortization is computed on the straight-line basis over the expected lives of
the assets ranging from 18 months to five years. Intangible assets are reviewed
for impairment whenever events or circumstances indicate impairment exist, or at
least annually. The Company assesses the recoverability of its assets, including
goodwill, by comparing projected undiscounted net cash flows associated with
those assets against their respective carrying amounts. Impairment, if any, is
based on the excess of the carrying amount over the fair value of those assets.
LONG-TERM INVESTMENTS
Long-term investments that are not represented by marketable securities are
carried at cost less write-downs for declines in value that are judged to be
other-than temporary. Long-term investments were $2,432,000, which includes
investments of $1,250,000 in Azure Venture Partners, LLP and $750,000 in Free
Communications Corporation, at July 31, 2000. Long-term investments were
$330,000 at July 31, 1999. Dividends are recorded in other income when received.
LONG LIVED ASSETS
The Company evaluates the recoverability for its long-lived assets in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires
recognition of impairment of long-lived assets in the event the net book value
of such assets exceeds the future undiscounted cash flows attributable to such
assets.
ADVERTISING EXPENSE
The Company accrues for co-operative advertising as the related revenue is
earned, and other advertising expense is recorded as incurred. Advertising
costs, which are included in sales and marketing expense, were approximately
$1,081,000, $873,000 and $1,342,000 for the fiscal years 2000, 1999 and 1998,
respectively.
INCOME TAXES
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of the assets and liabilities and are measured using the currently enacted
tax rates and laws.
55
<PAGE>
FOREIGN CURRENCY
Balance sheet accounts of non-U.S. subsidiaries are translated into U.S.
dollars at exchange rates prevailing at balance sheet dates. Revenues, costs and
expenses are translated into U.S. dollars at average rates for the period. Gains
and losses resulting from translation are accumulated as a component of
stockholders' equity (deficit). Net gains and losses resulting from foreign
exchange transactions are included in the consolidated statement of operations
and were not significant during any of the periods presented. To date, the
Company has not engaged in hedging activities.
CONCENTRATION OF SUPPLY AND CREDIT RISK
The Company depends on development tools provided by a limited number of
third party vendors. Together with application developers, the Company relies
primarily upon software development tools provided by companies in the PC and
mobile computing device industries. If any of these companies fail to support or
maintain these development tools, the Company will have to support the tools
itself or transition to another vendor. Any maintenance or support of the tools
by the Company or transition could be time consuming, could delay product
release and upgrade schedule and could delay the development and availability of
third party applications used on the Company's products. Failure to procure the
needed software development tools or any delay in availability of third party
applications could negatively impact the Company's ability and the ability of
third party application developers to release and support the Company's products
or they could negatively and materially affect the acceptance and demand for the
Company's products, business and prospects.
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. The Company places its
cash, cash equivalents and short-term investments primarily in money market
accounts, commercial paper, corporate notes, certificates of deposit, and
government notes and bonds. At July 31, 2000, the Company held its depository
accounts with four financial institutions in the United States, two financial
institutions in Japan, and one financial institution in Ireland. The Company, by
policy, limits the amount of credit exposure for cash equivalents and
investments to any one issuer.
The Company performs ongoing credit evaluations of its customers and
maintains reserves for potential credit losses. At July 31, 2000, a customer
accounted for 15% of accounts receivable. At July 31, 1999, two customers
accounted for 21% and 14% of accounts receivable, respectively. No customers
accounted for more than 10% of total revenue in fiscal 2000. One customer
accounted for 14% and 18% of total revenue in fiscal 1999 and 1998,
respectively.
The Company's sales are generally denominated in US dollars. The Company
does not undertake any foreign currency hedging activities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, short-term investments,
accounts receivable, account payable and notes receivable from stockholders
approximate their respective fair values because of the short-term maturity of
these items. Based on the borrowing rates available for the Company's loans with
similar terms, the carrying values of the notes payable and capital lease
obligation approximate fair value.
NON-CASH STOCK COMPENSATION
The Company uses the intrinsic value method of Accounting Principles Board
Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," in
accounting for its employee stock options, and presents disclosure of proforma
information required under SFAS No. 123, "Accounting for Stock-Based
Compensation." Stock and other equity instruments issued to nonemployees is
accounted for in accordance with SFAS No. 123 and EITF No. 96-18, "Accounting
for Equity Instruments Issued to Other than Employees for Acquiring, or in
Conjunction with Selling Goods or Services" and valued using the Black Scholes
model.
56
<PAGE>
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed in accordance with SFAS No. 128.
Basic net income per share is computed using the weighted average common shares
outstanding during the period. Diluted net income per share is computed using
the weighted average common shares and dilutive common equivalent shares
outstanding during the period.
NOTE 2 BUSINESS COMBINATIONS
POOLING OF INTERESTS COMBINATION
NETMIND TECHNOLOGIES, INC.
On February 24, 2000, the Company completed its acquisition of NetMind, a
provider of scalable software solutions that integrate user-driven
personalization technologies into the Internet infrastructure. The acquisition
has been accounted for as a pooling of interests pursuant to the terms of the
Agreement and Plan of Reorganization dated December 8, 1999. The Company issued
approximately 8,808,000 shares of Pumatech's common stock in the acquisition and
assumed options and warrants that can be exercised for approximately 801,000 and
391,000 shares of Pumatech's common stock respectively.
Prior to the acquisition, NetMind's fiscal year ended on December 31. The
consolidated financial statements for the years ended July 31, 2000, 1999, and
1998 reflect the results of operations of Pumatech for the years ended July 31,
2000, 1999, and 1998 combined with the results of operations of NetMind for the
corresponding periods.
The following table shows the historical results of the Company and NetMind
for the periods prior to the consummation of the merger of the two entities (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED JULY 31,
JANUARY 31, 2000 1999 1998
------------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Revenue:
Pumatech............. $ 13,308 $ 20,043 $ 22,308
NetMind.............. 465 680 33
------------------ ---------- ----------
Combined........ $ 13,773 $ 20,723 $ 22,341
================== ========== ==========
Net loss:
Pumatech............. $ (3,092) $ (1,676) $ (2,699)
NetMind.............. (3,948) (4,152) (1,455)
------------------ ---------- ----------
Combined........ $ (7,040) $ (5,828) $ (4,154)
================== ========== ==========
</TABLE>
The Company incurred $6,322,000 in acquisition-related charges, principally
in the fiscal third quarter ended April 30, 2000. These charges include direct
transaction costs primarily for financial advisory services, legal and
consulting fees and costs associated with combining the operations of the two
companies.
PURCHASE COMBINATIONS
PROXINET, INC.
On October 28, 1999, Pumatech closed the acquisition of ProxiNet, Inc.
("ProxiNet"), a software development company focusing on software that will
enable users with handheld devices and wireline or wireless modems to access the
Internet quickly, conveniently and securely. The consolidated financial
statements include the results of operations
57
<PAGE>
of ProxiNet since the date of acquisition. Under the terms of the agreement, the
Company issued 5,200,000 shares of Common Stock, including stock options, in
exchange for all outstanding shares of ProxiNet and options to purchase shares
of ProxiNet.
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>
<S> <C>
Tangible assets acquired................... $ 676
In-process research and development........ 4,218
Core technology............................ 3,092
Acquired workforce......................... 286
Goodwill................................... 9,112
-------
$17,384
=======
</TABLE>
As of the acquisition date, technological feasibility of the
in-process technology has not been established and the technology has
no alternative future use. Therefore, the Company expensed the
in-process research and development in the first quarter of fiscal year
2000. The remaining intangible assets are being amortized using the
straight-line method over the estimated useful life of the assets, 18
months to 5 years.
The value assigned to acquired in-process research and development was
determined by identifying research projects in areas for which technology
feasibility had not been established as of the acquisition date. These
include projects for ProxiWare-TM- and ProxiWeb-TM- technology that is
currently branded as the Browse-it-TM- product. The value was determined by
estimating the revenue contribution and the percentage of complete of each of
these products. The projects were deemed to be 55% complete on the date of
acquisition. The net cash flows were then discounted utilizing a weighted
average cost of capital of 27.5%. This discount rate takes into consideration
the inherent uncertainties surrounding the successful development of the
in-process research and development, the expected profitability levels of
such technology, and the uncertainty of technological advances that could
potentially impact the estimates described above. Revenues were projected to
be generated in calendar 2000 for the products in development at the
acquisition date. If these projects are not successfully developed our future
revenues and profitability may be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
DRY CREEK SOFTWARE, LLC
On July 14, 2000, Pumatech closed the acquisition of Dry Creek Software,
LLC ("Dry Creek"), a California Limited Liability Corporation specializing in
the creation of software solutions that allow for transparent data access
between mobile devices, enterprise servers and Internet applications. The
consolidated financial statements include the results of operations of ProxiNet
since the date of acquisition. Under the terms of the agreement, the Company
paid $1,987,500 in cash and issued approximately 153,000 shares of common stock
in exchange for all outstanding Dry Creek membership interests.
The Dry Creek acquisition has been accounted for as a purchase. The total
purchase price of approximately $6,816,000 (including liabilities of $931,000),
was assigned, based on independent appraisal, to the fair value of the assets
acquired, including the following (in thousands):
<TABLE>
<S> <C>
Tangible assets acquired................... $ 169
Developed technology....................... 345
Core technology............................ 1,414
Acquired workforce......................... 404
Goodwill................................... 4,484
--------
$ 6,816
========
</TABLE>
58
<PAGE>
The intangible assets acquired are being amortized using the straight-line
method over the estimated useful life of the assets, 18 months to 5 years.
PRO FORMA RESULTS
The following unaudited pro-forma consolidated financial information
reflects the results of operations for the fiscal years ended July 31, 2000 and
1999, as if the acquisitions of ProxiNet and Dry Creek had occurred on August 1,
1998 and after giving effect to purchase accounting adjustments but excluding
the impact of write-offs of acquired in-process technology. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what operating results would have been had the acquisitions
actually taken place on August 1, 1998 and may not be indicative of future
operating results.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------
2000 1999
--------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Pro-forma revenue.................................. $ 31,704 $ 20,922
Pro-forma net loss................................. $ (26,326) $ (17,832)
Pro-forma basic and diluted loss per share......... $ (0.74) $ (0.59)
</TABLE>
There were no acquisitions in fiscal 1999.
NOTE 3 BALANCE SHEET COMPONENTS
Cash equivalents and short-term investments include available-for-sale
securities as follows:
<TABLE>
<CAPTION>
JULY 31,
----------------------------
2000 1999
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash equivalents
Commercial paper................... $ 38,927 $ 9,339
Money market funds................. 13,610 1,062
---------- ---------
$ 52,537 $ 10,401
============ ==========
Short term investments
Commercial paper................... $ 11,524 $ 10,414
Corporate notes..................... 1,515 -
Certificate of deposit.............. 2,000 -
Government notes and bonds.......... 10,904 -
Auction rate preferred stock........ 4,600 -
Securities available for sale....... 225 1,463
------------ ----------
$ 30,768 $ 11,877
============ ==========
</TABLE>
Realized gain on sales of available-for-sale securities was $2,221,000 and
$2,650,000 for the years ended July 31, 2000 and July 31, 1999, respectively.
Realized gain or loss on sales of available-for-sale securities was immaterial
for the year ended July 31, 1998. The unrealized holding gain on securities was
$7,000 and $883,000 at July 31, 2000 and July 31, 1999, respectively. The
short-term investments have maturities of less than one year from the balance
sheet date.
59
<PAGE>
Accounts receivable, net, consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Accounts receivable......................................................... $ 8,342 $ 4,767
Less: Allowance for doubtful accounts and sales returns..................... (1,984) (1,607)
============== =================
Accounts receivable, net................................................ $ 6,358 $ 3,160
============== =================
</TABLE>
Property and equipment, net, consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment and software............................................ $ 5,977 $ 2,931
Furniture and office equipment............................................. 2,313 1,988
Leasehold improvements..................................................... 1,006 975
-------------- --------------
9,296 5,894
Less: Accumulated depreciation and amortization............................ (4,468) (2,886)
-------------- --------------
Property and equipment, net............................................. $ 4,828 $ 3,008
============== ==============
</TABLE>
At July 31, 2000 and July 31, 1999, the Company had no equipment under
capital lease. The depreciation expense for fiscal years 2000, 1999 and 1998 was
$1,428,000, $1,678,000 and $1,608,000, respectively.
Other assets consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Intangible assets:
Goodwill................................................................ $ 14,130 $ 533
Developed technology.................................................... 5,711 861
Workforce in place...................................................... 900 210
-------------- --------------
20,741 1,604
Less: Accumulated amortization.......................................... (3,632) (1,002)
-------------- --------------
Intangible assets................................................... 17,109 602
Other long-term assets..................................................... 3,133 988
-------------- --------------
Other assets................................................... $ 20,242 $ 1,590
============== ==============
</TABLE>
The amortization expense for fiscal years 2000, 1999 and 1998 was
$2,630,000, $459,000 and $260,000, respectively.
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Payroll related accruals.................................................. $ 2,623 $ 1,418
Other accrued liabilities................................................. 1,413 1,036
-------------- --------------
Accrued liabilities..................................................... $ 4,036 $ 2,454
============== ==============
</TABLE>
60
<PAGE>
NOTE 4 REDEEMABLE CONVERTIBLE PREFERRED STOCK
During fiscal 1999 NetMind issued approximately 4.1 million shares of
Series B Redeemable Preferred Stock which converted into approximately 3.4
million shares of the Company's common stock upon completion of the NetMind
merger in February 2000. Under terms of the original issuance, the Series B
shares were redeemable in September 2003 and 2004, at the higher of their
original issue price or fair value of the stock at the dates of redemption. The
difference between the issuance price and the fair value of the Series B stock
was accreted by NetMind until the date of conversion to common stock. Such
accretion aggregated $3,877,000 and $4,238,000 in fiscal years 2000 and 1999,
respectively.
The following table summarizes activities related to the Redeemable
Convertible Preferred Stock:
<TABLE>
<CAPTION>
REDEEMABLE CONVERTIBLE
PREFERRED STOCK
-----------------------------
SHARES AMOUNT
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE AT JULY 31, 1998............................................ - $ -
NetMind's issuance of Series B Mandatorily Redeemable
Convertible Preferred Stock at $1.74 per share in October
1998, net of issuance costs...................................... 4,072 7,055
Accretion of Mandatorily Redeemable Convertible Preferred
Stock to redemption value........................................ - 4,238
------------ ------------
BALANCE AT JULY 31, 1999............................................ 4,072 11,293
Accretion of Mandatorily Redeemable Convertible Preferred
Stock to redemption value........................................ - 3,877
Conversion of Mandatorily Redeemable Convertible Preferred
Stock into 3,397 shares of Pumatech's common stock............... (4,072) (15,170)
------------ ------------
BALANCE AT JULY 31, 2000............................................ - $ -
============ ============
</TABLE>
NOTE 5 STOCKHOLDERS' EQUITY
STOCK OPTION PLANS. In October 1993, the Board of Directors and
stockholders adopted the 1993 Stock Option Plan ("the Plan") which provides for
granting of incentive stock options ("ISOs") and nonqualified stock options
("NSOs") to purchase shares of common stock to employees, directors, consultants
and advisors of the Company. To date, the Company has not granted any
significant options to consultants or advisors. In accordance with the Plan, the
stated exercise price shall be not less than 100% and 85% of the estimated fair
market value of common stock on the date of grant for ISOs and NSOs,
respectively, as determined by the Board of Directors. The Plan provides that
the options shall be exercisable over a period not to exceed ten years. Options
generally vest 25% one year after date of grant and 1/48th each month thereafter
for the next 36 months. The Plan provides that the options may be exercised
prior to the options becoming vested but the shares are subject to repurchase.
If the optionee's employment is terminated for any reason, the Company has the
right to repurchase any unvested shares. Options available for grant as of July
31, 2000 were approximately 311,000 shares.
In October 1998, the Board of Directors approved the repricing of certain
outstanding stock options under the Plan. Each employee, officer and director
who elected to participate in the repricing program received a new option with
an exercise price of $1.0938 (the fair market value on October 29, 1998). Each
repriced option retained its original vesting schedule except that no portion of
the option could be exercised prior to January 29, 1999. Options to purchase
4,719,032 shares were repriced pursuant to the program.
In September of 1997, the Board of Directors approved the repricing of
certain outstanding stock options under the Plan. Each employee, officer or
director who elected to participate in the repricing program received a new
option with
61
<PAGE>
an exercise price of $3.25 (the fair market value on October 3, 1997). Each
repriced option retained its original vesting schedule except that no portion of
the option could be exercised prior to April 3, 1998 and no vesting accrued
between October 3, 1997 and April 3, 1998. Options to purchase 2,396,200 shares
were repriced pursuant to this program.
In March 2000, the Board of Directors adopted the 2000 Supplemental Stock
Option Plan ("the SSOP") which provides for granting of nonqualified stock
options to purchase shares of common stock to non-executive officers, employees
and consultants of the Company. In accordance with the SSOP, the stated exercise
price shall not be less than 85% of the estimated fair market value of common
stock on the date of grant as determined by the Board of Directors. The SSOP
provides that the options shall be exercisable over a period not to exceed ten
years. Options generally vest 25% one year after date of grant and 1/48th each
month thereafter for the next 36 months. Options available for grant as of July
31, 2000 were approximately 114,000 shares.
The Company has assumed certain options granted to former employees of
acquired companies ("Acquired Options"). All of the Acquired Options have been
adjusted to effectuate the conversion under the terms of the agreements between
the Company and the companies acquired. The Acquired Options generally become
exercisable over a four-year period and generally expire ten years from the date
of grant. No additional options will be granted under any of these plans. See
Note 2 for more information on the acquired companies.
Stock option activity, both incentive and nonqualified, under all plans is
presented as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTION SHARES RANGE OF PRICE EXERCISE
(IN THOUSANDS) PER SHARE PRICE PER SHARE
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Outstanding at July 31, 1997........... 4,216 $0.10 - $8.44 $3.63
Granted................................ 3,816 $0.13 - $4.19 $3.16
Exercised.............................. (182) $0.10 - $3.75 $0.59
Canceled............................... (2,848) $0.10 - $8.44 $4.86
----------------------
Outstanding at July 31, 1998........... 5,002 $0.10 - $4.88 $2.68
Granted................................ 7,408 $0.13 - $2.94 $1.30
Exercised.............................. (1,388) $0.10 - $1.25 $0.84
Canceled............................... (5,934) $0.10 - $4.88 $2.69
----------------------
Outstanding at July 31, 1999........... 5,088 $0.10 - $2.94 $1.16
Granted................................ 5,888 $0.16 - $83.50 $27.59
Exercised.............................. (1,529) $0.10 - $2.94 $0.67
Canceled............................... (1,530) $0.13 - $83.50 $30.12
----------------------
Outstanding at July 31, 2000........... 7,917 $0.10 - $83.50 $14.75
======================
</TABLE>
Proceeds received by the Company from exercises are credited to common
stock and capital in excess of par value.
At July 31, 2000, a total of 18,000 shares were subject to repurchase and
options to purchase approximately 425,000 shares were available for future
grants.
Based on an independent appraiser's valuation report, management believes
that the exercise price for certain options granted during fiscal 1996 were
below the estimated fair value of the Company's stock at the dates of grant. The
Company is recognizing approximately $115,000 in fiscal 1996 of compensation
expense over the options' four-year vesting periods. In conjunction with certain
options granted by NetMind, the Company is recognizing approximately $5,098,000
of deferred compensation expense over the options' four-year vesting periods.
Accordingly, the Company booked $1,627,000, $410,000 and $28,000 of expense in
fiscal 2000, 1999 and 1998, respectively.
62
<PAGE>
The following table summarizes information about stock options under the
Plan outstanding at July 31, 2000:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------- ------------------------------------------
NUMBER NUMBER
RANGE OF OUTSTANDING WEIGHTED-AVERAGE EXERCISABLE
EXERCISE AT 7/31/00 REMAINING WEIGHTED-AVERAGE AT 7/31/00 WEIGHTED-AVERAGE
PRICES (IN THOUSANDS) CONTRACTUAL LIFE EXERCISE PRICE (IN THOUSANDS) EXERCISE PRICE
-------------------- -------------------- -------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C>
$0.10 - $1.09 2,893 7.71 $0.83 2,123 $1.01
$1.10 - $25.89 2,649 8.43 $11.27 1,778 $5.51
$25.90 - $83.50 2,375 9.66 $35.59 1,625 $31.93
-------------------- --------------------
7,917 8.54 $14.75 5,526 $11.55
==================== ====================
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN. In December 1998, the Board of Directors
adopted the 1998 Employee Stock Purchase Plan ("the 98ESPP") which replaced the
1996 Employee Stock Purchase Plan. The 98ESPP authorizes the issuance of
1,000,000 shares of Common Stock. The purpose of the ESPP is to provide eligible
employees of the Company with a means of acquiring common stock of the Company
through payroll deductions. The plan consists of four six-month purchase periods
in each two-year offering period. Shares may be purchased under the ESPP at 85%
of the lesser of the fair market value of the common stock on the grant or
purchase date. During fiscal 2000, 141,352 shares were sold through the ESPP.
Approximately 859,000 shares were available for purchase as of July 31, 2000.
PRO FORMA INFORMATION. The Company applies APB Opinion No. 25 "Accounting
for Stock Issued to Employees" and related interpretations in accounting for the
stock compensation plans ("the Plans") described above. Accordingly, no
compensation cost has been recognized for the Plans. If compensation cost for
the Plans had been determined consistent with SFAS No. 123 "Accounting for
Stock-Based Compensation," the Company's net loss and loss per share would have
been adjusted to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------------------------
2000 1999 1998
-------------- -------------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net loss attributable to common stockholders.................. $ (26,076) $ (10,066) $ (4,154)
============== ============== ==============
Net loss attributable to stockholders - pro forma............. $ (45,269) $ (14,138) $ (8,946)
============== ============== ==============
Basic and diluted net loss per common share................... $ (0.74) $ (0.34) $ (0.15)
============== ============== ==============
Basic and diluted net loss per common share - pro forma....... $ (1.28) $ (0.47) $ (0.33)
============== ============== ==============
</TABLE>
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to August 1, 1995, and because the
Black-Scholes option valuation model was developed for traded options and
requires the input of subjective assumptions, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
STOCK OPTION PLANS EMPLOYEE STOCK PURCHASE PLAN
---------------------------------------- ----------------------------------------
YEAR ENDED JULY 31, YEAR ENDED JULY 31,
---------------------------------------- ----------------------------------------
2000 1999 1998 2000 1999 1998
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Option life (in years)..... 5.1 4.0 4.0 1.0 2.0 0.5
Risk-free interest rate.... 6.24% 6.04% 5.70% 6.50% 6.04% 5.25%
Stock price volatility..... 75% 75% 75% 75% 75% 75%
Dividend yield............. - - - - - -
</TABLE>
63
<PAGE>
The following is a summary of weighted-average grant date fair values:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE GRANT
DATE FAIR VALUE
----------------------------------------
YEAR ENDED JULY 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Options granted under Stock Option Plans............... $ 18.58 $ 1.81 $ 3.60
Shares granted under the Stock Purchase Plan........... $ 1.20 $ 1.20 $ 1.98
</TABLE>
COMMON STOCK WARRANTS. In July 1996, the Company agreed to issue a warrant
to purchase 280,000 shares of its common stock at $2.75 per share to one of its
Series C stockholders in exchange for rights to certain technology. These
warrants were subsequently issued in August 1996. The aggregate value of the
warrant was estimated by the Company at $175,000 and is being accounted for as
purchased technology. The warrant is exercisable immediately and expires at the
earlier of August 2001 or the acquisition of the Company by another entity. The
purchased technology is being amortized over its estimated life.
In conjunction with the issuance of convertible promissory notes and notes
payable in fiscal 1997 and 1998, NetMind issued 91,650 shares of Series A
Convertible Preferred Stock at $1.00 per share which converted into
approximately 75,000 shares ($1.26 per share) of the Company's common stock upon
completion of the NetMind merger in February 2000. Under terms of the original
issuance, the warrants are exercisable immediately and expire five years from
the date of issue.
In conjunction with the issuance of Series A Convertible Preferred Stock in
fiscal 1998, NetMind issued warrants to purchase 816,250 shares of NetMind's
common stock at $0.01 per share and 73,411 shares of NetMind's common stock at
$1.00 per share which converted into approximately 651,000 shares ($0.01 per
share) and 58,600 shares ($1.26 per share), respectively, of the Company's
common stock upon completion of the NetMind merger in February 2000. Under terms
of the original issuance, the warrants are exercisable immediately and expire
five years from the date of issue.
The following summarizes the warrants outstanding at July 31, 2000:
<TABLE>
<CAPTION>
Number of Exercise Term
Shares Price (Years) Expiration Date
--------------- --------------- --------------- ---------------------------
<S> <C> <C> <C> <C>
Pumatech's common stock....................... 280,000 $ 2.75 5 August 2001
NetMind's Series A convertible preferred
stock, converted to Pumatech's common stock 5,518 $ 1.26 5 January 2002 - June 2002
NetMind's common stock,
converted to Pumatech's common stock....... 178,580 $ 0.01 5 August 2002 - December 2002
NetMind's common stock,
converted to Pumatech's common stock...... 41,960 $ 1.26 5 May 2003 - June 2003
</TABLE>
NOTES RECEIVABLE FROM STOCKHOLDERS. In October 1996, an officer of the
Company purchased a total of 2,500 shares of the Company's common stock for
$15,000 in exchange for a full recourse promissory note. The note bears interest
at 6 percent per annum, with interest and principal due on demand. The note is
secured by the common shares purchased by the officer.
In July 1999, an officer of the Company purchased a total of 143,413 shares
of the Company's common stock for $315,000 in exchange for a full recourse
promissory note. The note bears interest at 5.32 percent per annum, with
interest and principal payable in July 2002. The note is secured by the common
shares purchased by the officer.
64
<PAGE>
NOTE 6 EMPLOYEE 401(k) PLAN
The Company has adopted a plan to provide retirement and incidental
benefits for its employees. As allowed under Section 401(k) of the Internal
Revenue Code, the Plan provides tax-deferred salary deductions for eligible
employees. Employees may contribute from 1% to 20% of their annual compensation,
limited to a maximum annual amount as set periodically by the Internal Revenue
Service. As of fiscal 2000, the Company matches 50% of employee contributions up
to a maximum of $750 per year per person. Employee contributions vest
immediately, whereas Company matching contributions vest at a rate of 25 percent
per year after first year of employment. At the direction of each employee
participant, the trustee of the 401(k) plan invests the contributions to the
401(k) plan in selected investment options. The Company's matching contributions
to the 401(k) plan were approximately $74,000 in fiscal 2000.
NOTE 7 LONG-TERM NOTES PAYABLE
The Company's long-term notes payable includes the following:
<TABLE>
<CAPTION>
JULY 31,
--------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Equipment line, 9.3% average rate, payable through March 2003........ $ 561 $ 325
Borrowings under unsecured line of credit............................ 8 -
------------ ------------
569 325
Less: Short-term portion of notes payable............................ 259 325
------------ ------------
Long-term notes payable.......................................... $ 310 $ -
============ ============
</TABLE>
In June 1999, NetMind entered into a loan and security agreement that
provided a $1,000,000 revolving credit line and a $750,000 equipment line to
NetMind. Borrowings under the revolving credit line bear interest at a per annum
rate equal to the prime rate plus one half of one percent. Borrowings under the
equipment line bear interest at a per annum rate equal to the prime rate plus
one percent. Equipment acquired is pledged as collateral. At July 31, 2000,
$561,000 was outstanding on the equipment line and no outstanding balance drawn
on the revolving credit line.
Dry Creek maintains a $10,000 unsecured line of credit. Borrowings under
the line of credit bear interest at the bank's reference rate (9.5% at July 31,
2000) plus 7.375 percent. At July 31, 2000, $7,850 was outstanding under this
line of credit.
Principal payments required on long-term debt outstanding at July 31, 2000,
are as follows:
<TABLE>
<CAPTION>
Fiscal year ending July 31, (IN THOUSANDS)
<S> <C>
2001................................................ $ 259
2002................................................ 228
2003................................................ 82
------------------
Total principal payments on long-term debt...... $ 569
==================
</TABLE>
65
<PAGE>
NOTE 8 COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases that expire at
various dates through April 2006. The leases provide for escalating lease
payments.
Future minimum lease payments, at July 31, 2000 were as follows:
<TABLE>
<CAPTION>
OPERATING
LEASES
------------------
(IN THOUSANDS)
<S> <C>
Fiscal year ending July 31,
2001.................................................................. $ 1,413
2002.................................................................. 1,416
2003.................................................................. 994
2004.................................................................. 1,085
2005.................................................................. 1,094
Thereafter............................................................ 1,097
------------------
Total future minimum lease payments................................ $ 7,099
==================
</TABLE>
Total rent expense was approximately $1,225,000, $1,161,000, and $1,246,000
for the years ended July 31, 2000, 1999 and 1998 respectively.
The Company is also committed to invest additional $3,750,000 in Azure
Venture Partners, LLP in fiscal 2001.
The Company is involved in litigation arising from the normal course of
business. In management's opinion, this litigation is not expected to materially
impact the Company's consolidated results of operations or financial condition.
NOTE 9 OTHER INCOME (EXPENSE)
Other income (expense), net, consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest income....................................... $ 2,918 $ 1,214 $ 1,158
Interest expense...................................... (58) (17) (43)
Other expenses, net................................... (58) (55) (38)
Realized gains........................................ 2,221 2,650 -
Miscellaneous income.................................. - 76 -
--------------- -------------- ---------------
Total other income, net............................ $ 5,023 $ 3,868 $ 1,077
=============== ============== ===============
</TABLE>
66
<PAGE>
NOTE 10 INCOME TAXES
The income tax provision for the years ended July 31, 2000, 1999 and 1998
is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------
2000 1999 1998
-------------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal.......................................... $ 20 $ - $ 13
State............................................ 32 3 26
Foreign withholding tax.......................... 580 712 1,125
-------------- --------------- --------------
$ 632 $ 715 $ 1,164
============== =============== ==============
</TABLE>
Deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
JULY 31,
--------------------------------
2000 1999
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets are summarized as follows (in thousands):
Net operating loss carryforwards...................................... $ 5,446 $ 2,183
Alternative minimum tax credit carryforwards.......................... 78 78
Research and development credit carryforwards......................... 1,226 782
Foreign tax credit carryforwards...................................... 1,923 1,343
Other................................................................. 1,157 941
-------------- --------------
Total deferred tax assets.......................................... 9,830 5,327
Deferred tax asset valuation allowance................................ (9,830) (5,327)
-------------- --------------
$ - $ -
============== ==============
</TABLE>
Except for fiscal 1997, the Company has incurred losses from inception
through fiscal 2000. Management believes that, based on the history of such
losses and other factors, the weight of available evidence indicates that it is
more likely than not that the Company will not be able to realize its deferred
tax assets and thus a full valuation reserve has been recorded at July 31, 2000
and 1999.
A reconciliation of the income tax provision to the amount computed by
applying the statutory federal income tax rate to income (loss) before income
tax provision is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts computed at statutory federal rate............ $ (7,548) $ (1,739) $ (1,017)
Foreign withholding taxes............................. 580 712 1,125
Non deductible amortization and in-process research
and development..................................... 3,097 - 288
Utilization of foreign tax credits.................... - - (190)
Utilization of tax loss carryforwards................. - - (359)
Future benefits not currently recognized.............. 4,503 1,742 1,317
--------------- -------------- ---------------
$ 632 $ 715 $ 1,164
=============== ============== ===============
</TABLE>
At July 31, 2000, the Company has $1,226,000 of federal and state research
and development credit carryforwards, $1,923,000 of foreign tax credit
carryforwards and $148,000 of alternative minimum tax credit carryforwards. The
Company also has $14,860,000 and $5,400,000 of federal and state net operating
loss carryforwards, respectively.
67
<PAGE>
NOTE 11 NET INCOME (LOSS) PER SHARE
In accordance with disclosure requirements of SFAS No. 128, a
reconciliation of the numerator and denominator of basic and diluted net loss
per share calculations is provided as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
NUMERATOR:
Net loss attributable to common stockholders............ $ (26,076) $ (10,066) $ (4,154)
=============== ============== ===============
DENOMINATOR:
Weighted average shares outstanding used to compute
basic and diluted net loss per common share......... 35,319 29,970 27,224
=============== ============== ===============
Basic and diluted net loss per share.................... $ (0.74) $ (0.34) $ (0.15)
=============== ============== ===============
</TABLE>
As a result of net loss incurred by the Company in fiscal 2000, 1999 and
1998, potential common shares attributable to mandatorily redeemable preferred
stock, stock options and warrants were antidilutive and were excluded from net
loss per share calculations. Total potential common shares, the corresponding
weighted averages of which were excluded from net loss per share calculations in
fiscal 2000, 1999 and 1998, were 8,142,568, 9,247,669 and 5,764,443,
respectively.
NOTE 12 BUSINESS SEGMENTS
Operating segments are identified as components of an enterprise about
which separate discrete financial information is available that is evaluated by
the chief operating decision maker or decision making group to make decisions
about how to allocate resources and assess performance. The Company's chief
operating decision maker is the chief executive officer. To date the Company has
reviewed its operations principally in a single segment. The chief operating
decision maker assesses performance based on the gross profit generated by this
segment.
The Company operates in a single industry segment encompassing the
development, marketing and support of mobile data exchange software. The Company
markets its products to customers in North America, Asia and Europe. The
Company's customer base consists primarily of large OEMs in the PC market and
selected distributors in North America, Africa, Asia, Australia, Europe, New
Zealand and South America which primarily market to the retail channel.
Revenue information by geographic region is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
North America.......................................... $ 22,786 $ 12,366 $ 11,714
Japan.................................................. 6,822 7,134 9,888
Other International.................................... 1,205 1,223 739
--------------- -------------- ---------------
Total revenue........................................ $ 30,813 $ 20,723 $ 22,341
=============== ============== ===============
</TABLE>
68
<PAGE>
Revenue information by product group is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
--------------------------------------------------
2000 1999 1998
--------------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Intellisync for Notebook and TranXit royalty revenues.. $ 4,724 $ 6,130 $ 10,818
Enterprise products.................................... 14,144 9,114 7,172
MAP products and licensing ............................ 8,817 3,840 487
Service................................................ 3,128 1,639 3,864
--------------- -------------- ---------------
Total revenue........................................ $ 30,813 $ 20,723 $ 22,341
=============== ============== ===============
</TABLE>
Substantially all of the Company's long lived assets are in the United
States.
NOTE 13 RECENT ACCOUNTING PRONOUNCEMENTS
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes accounting and reporting standards for derivative instruments and
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The Company is required to adopt SFAS No. 133 effective August 1,
2000. The Company does not engage in hedging activities and do not buy or sell
derivative instruments. Therefore, the Company does not believe that application
of this statement will have any effect on its consolidated financial statements.
REVENUE RECOGNITION AND FINANCIAL STATEMENTS
In December 1999, the Securities and Exchange Commission ("SEC") issued SEC
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarized certain of the SEC's views in applying generally
accepted accounting principles to revenue recognition in financial statements.
SAB 101 must be implemented by the Company no later than its fourth fiscal
quarter of fiscal 2001. The Company is reviewing the requirements of SAB 101 and
currently believes that its revenue recognition policy is consistent with the
guidance of SAB 101.
CERTAIN TRANSACTIONS INVOLVING STOCK COMPENSATION
In March 2000, FASB issued FASB Interpretation No. 44 ("FIN 44"),
"Accounting for Certain Transactions Involving Stock Compensation--an
Interpretation of APB Opinion No. 25." FIN 44 clarifies the following: the
definition of an employee for purposes of applying APB Opinion No. 25; the
criteria for determining whether a plan qualifies as a noncompensatory plan;
the accounting consequence of various modifications to the terms of the
previously fixed stock options or awards; and the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 became
effective on July 1, 2000, but certain conclusions in FIN 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
Company does not expect the application of FIN 44 to have a material impact
on the Company's financial position or results of operations.
69
<PAGE>
ACCOUNTING FOR CERTAIN SALES INCENTIVES
In May 2000, the EITF released issue No. 00-14 "Accounting for Certain
Sales Incentives", which provides guidance on the accounting for certain sales
incentives offered by companies to their customers such as discounts, coupons,
rebates and products or services. EITF 00-14 is effective for all fiscal
quarters beginning after May 18, 2000 and addresses the recognition, measurement
and income statement classification for sales incentives offered voluntarily by
a vendor without charge to customers that can be used in, or that are
exercisable by a customer as a result of a single exchange transaction. The
provisions of EITF 00-14 will require the Company to classify free product and
service incentives delivered to customers at the time of sale as cost of sales
in its consolidated statement of operations. The Company does not expect the
application of EITF 00-14 to have a material impact on the Company's financial
position or results of operations.
ACCOUNTING FOR SHIPPING AND HANDLING FEES AND COSTS
In August 2000, the EITF reached tentative conclusions on issue No. 00-10,
"Accounting for Shipping and Handling Fees and Costs." EITF 00-10 addresses the
income statement classification of amounts billed to a customer for shipping and
handling costs as well as the classification of amounts incurred for shipping
and handling costs. The EITF tentatively concluded that amounts billed to
customers in sales transactions related to shipping and handling should be
classified as revenue, and any costs incurred should be classified as cost of
goods sold. The Company will be required to adopt EITF 00-10 for all reporting
periods ending after the date final conclusions are reached. The Company does
not expect the application of EITF 00-10 to have a material impact on the
Company's financial position or results of operations.
NOTE 14 RESTRUCTURING
In the first quarter of fiscal year 1999, the Company implemented a
restructuring program for the purpose of consolidating the majority of
engineering and development work at existing facilities in Nashua, New
Hampshire. As part of this program, the Company implemented a reduction in force
of approximately 40 positions that primarily affected the engineering group
located at the San Jose, California facility. The severance costs were $210,000.
As of July 31, 1999, there was no unused balance.
Also as part of the restructuring, the Company vacated a portion of the San
Jose, California facility, as well as a facility in Nashua, New Hampshire. The
restructure charge was $558,000. The unused balance as of July 31, 2000 was
$221,000.
NOTE 15 SUBSEQUENT EVENT
On October 9, 2000, the Company amended the non-binding letter of intent
dated September 22, 2000 in which it agreed to negotiate an asset purchase of
the business operations of The Windward Group, a wholly-owned subsidiary of
Vanteon Corporation ("Vanteon") for aggregate consideration of approximately $15
million, consisting of approximately $12 million in cash and $3 million in
common stock. The common stock will be subject to escrow for a period of one
year and would be released to Vanteon based on minimum bookings thresholds.
Under the terms of the letter of intent, the Company and Vanteon agreed to reach
a definitive agreement by October 13, 2000 and to close the transaction no later
than October 31, 2000.
70
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Puma Technology, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Puma
Technology, Inc. and its subsidiaries at July 31, 2000 and 1999, and the results
of their operations and their cash flows for each of the three years in the
period ended July 31, 2000 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
San Jose, California
August 21, 2000,
except as to Note 15, which is as of October 9, 2000
71
