<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-30719
HANDSPRING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 77-0490705
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
</TABLE>
189 BERNARDO AVENUE
MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(650) 230-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of October 27, 2000 there were 126,830,106 shares of the Registrant's
common stock outstanding.
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<PAGE> 2
HANDSPRING, INC.
FORM 10-Q
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at September 30,
2000 and July 1, 2000.................................. 1
Condensed Consolidated Statements of Operations for the
Quarters Ended September 30, 2000 and October 2,
1999................................................... 2
Condensed Consolidated Statements of Cash Flows for the
Quarters Ended September 30, 2000 and October 2,
1999................................................... 3
Notes to Condensed Consolidated Financial Statements...... 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 7
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 19
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 20
Item 2. Changes in Securities and Use of Proceeds................... 20
Item 3. Defaults Upon Senior Securities............................. 20
Item 4. Submission of Matters to a Vote of Security Holders......... 20
Item 5. Other Information........................................... 20
Item 6. Exhibits and Reports on Form 8-K............................ 20
SIGNATURES........................................................... 21
</TABLE>
i
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANDSPRING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 1,
2000 2000
------------- --------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $180,289 $196,548
Short-term investments.................................... 41,104 --
Accounts receivable, net.................................. 35,302 20,484
Prepaid expenses and other current assets................. 4,320 1,816
-------- --------
Total current assets.............................. 261,015 218,848
Property and equipment, net................................. 11,196 8,280
Investments................................................. 2,995 --
Other assets................................................ 3,404 3,344
-------- --------
Total assets...................................... $278,610 $230,472
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 38,864 $ 20,152
Accrued liabilities....................................... 25,261 16,034
-------- --------
Total current liabilities......................... 64,125 36,186
-------- --------
Long-term liabilities....................................... -- 57
-------- --------
Stockholders' equity:
Common stock.............................................. 127 125
Additional paid-in capital................................ 349,056 321,116
Deferred stock compensation............................... (49,884) (58,268)
Accumulated other comprehensive income (loss)............. 239 (64)
Accumulated deficit....................................... (85,053) (68,680)
-------- --------
Total stockholders' equity........................ 214,485 194,229
-------- --------
Total liabilities and stockholders' equity........ $278,610 $230,472
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
1
<PAGE> 4
HANDSPRING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(UNAUDITED)
<S> <C> <C>
Revenue..................................................... $ 70,517 $ --
-------- -------
Costs and operating expenses:
Cost of revenue............................................. 48,508 --
Research and development.................................... 4,782 2,472
Selling, general and administrative......................... 27,786 3,656
Amortization of deferred stock compensation................. 8,384 3,202
-------- -------
Total costs and operating expenses................ 89,460 9,330
-------- -------
Loss from operations........................................ (18,943) (9,330)
Interest and other income, net.............................. 3,320 129
-------- -------
Net loss before taxes....................................... (15,623) (9,201)
Income tax provision........................................ 750 --
-------- -------
Net loss.................................................... $(16,373) $(9,201)
======== =======
Basic and diluted net loss per share........................ $ (0.17) $ (0.38)
-------- -------
Shares used in calculating basic and diluted net loss per
share..................................................... 96,582 24,378
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 5
HANDSPRING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(16,373) $(9,201)
Adjustment to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 1,376 71
Amortization of deferred stock compensation............ 8,384 3,202
Amortization of costs associated with financing
agreement............................................. -- 154
Amortization of premium or discount on short-term
investments........................................... (245) (66)
Changes in assets and liabilities:
Accounts receivable.................................. (15,074) --
Prepaid expenses and other current assets............ (2,777) (166)
Other assets......................................... (65) (416)
Accounts payable..................................... 19,137 2,357
Accrued liabilities.................................. 9,477 171
-------- -------
Net cash provided by (used in) operating
activities...................................... 3,840 (3,894)
-------- -------
Cash flows from investing activities:
Purchases of short-term investments....................... (40,859) (494)
Purchases of investments.................................. (2,984) --
Proceeds from maturities or sales of short-term
investments............................................ 198 3,308
Purchases of property and equipment....................... (4,297) (2,018)
-------- -------
Net cash provided by (used in) investing
activities...................................... (47,942) 796
-------- -------
Cash flows from financing activities:
Principal payments on borrowings.......................... (83) --
Issuance of Series B redeemable convertible preferred
stock, net............................................. -- 9,990
Net proceeds from issuance of common stock upon exercise
of underwriter's over-allotment........................ 27,970 --
Proceeds from issuance of common stock.................... 13 107
Repurchase of common stock................................ (41) --
-------- -------
Net cash provided by financing activities......... 27,859 10,097
-------- -------
Effect of exchange rate changes on cash........... (16) --
-------- -------
Net increase (decrease) in cash and cash equivalents........ (16,259) 6,999
Cash and cash equivalents:
Beginning of period....................................... 196,548 7,533
-------- -------
End of period............................................. $180,289 $14,532
======== =======
Supplemental disclosure of cash flow information:
Cash paid for interest.................................... $ 5 $ --
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 6
HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and generally accepted accounting principals. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. In the opinion of
management, the statements include all adjustments necessary (which are of a
normal and recurring nature) for the fair presentation of the results of the
interim periods presented. These financial statements should be read in
conjunction with our audited consolidated financial statements and the notes
thereto for the year ended July 1, 2000. The results of operations for the
quarter ended September 30, 2000 are not necessarily indicative of the operating
results for the full fiscal year or any future period.
Beginning with the first quarter of fiscal year 2000, the Company changed
its fiscal periods so that each fiscal year ends on the Saturday closest to June
30. The Company's fiscal quarters end on the Saturday closest to the end of each
calendar quarter.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative investments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company adopted SFAS No. 133 at the beginning of fiscal
2001. To date, the Company has not engaged in derivative or hedging activities.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. SAB 101 is effective beginning in the fourth quarter of fiscal
2001. Implementation of SAB 101 is not expected to require the Company to change
existing revenue recognition policies and therefore is not expected to have a
material effect on the Company's financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44") Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the
definition of employee for purposes of applying Opinion No. 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 is effective July 1, 2000,
but certain conclusions cover specific events that occur after either December
15, 1998, or January 12, 2000. FIN 44 did not have a material effect on the
Company's financial position or results of operations.
3. NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, Earnings
per Share. Under the provisions of SFAS No. 128, basic net loss per share is
computed by dividing the net loss applicable to common stockholders for the
period by the weighted average number of common shares outstanding during the
period (excluding shares subject to repurchase). Diluted net loss per share is
computed by dividing the net
4
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HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
loss applicable to common stockholders for the period by the weighted average
number of common and potential common shares outstanding during the period if
their effect is dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
<S> <C> <C>
Net loss............................................ $(16,373) $ (9,201)
======== ========
Basic and diluted:
Weighted average common shares outstanding........ 126,887 69,525
Weighted average common shares subject to
repurchase..................................... (30,305) (45,147)
-------- --------
Weighted average common shares used to compute basic
and diluted net loss per share.................... 96,582 24,378
======== ========
Basic and diluted net loss per share................ $ (0.17) $ (0.38)
======== ========
</TABLE>
Diluted net loss per share does not include the effect of the following
potential common shares at the dates indicated as their effect is anti-dilutive
(in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
<S> <C> <C>
Common stock subject to repurchase................... 28,359 42,475
Shares issuable under stock options.................. 27,460 14,633
Shares issuable pursuant to right to purchase
redeemable convertible preferred stock............. -- 895
Shares of redeemable convertible preferred stock on
an "as if converted" basis......................... -- 40,524
</TABLE>
The weighted average repurchase price of unvested stock was $0.07 and $0.01
as of September 30, 2000 and October 2, 1999, respectively. The weighted-average
exercise price of stock options outstanding was $5.85 and $0.15 as of September
30, 2000 and October 2, 1999, respectively.
4. COMPREHENSIVE LOSS
The components of comprehensive loss are as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------- ----------
<S> <C> <C>
Net loss............................................. $(16,373) $(9,201)
Other comprehensive income:
Unrealized gain on securities...................... 38 1
Foreign currency translation adjustments........... 265 --
-------- -------
Comprehensive loss................................... $(16,070) $(9,200)
======== =======
</TABLE>
5. BUSINESS SEGMENT REPORTING
The Company operates in one operating segment, handheld computing, with its
headquarters and most of its operations located in the United States. The
Company also conducts sales, marketing and customer service activities
throughout the world. Geographic revenue information is based on the location of
the end customer. Geographic long-lived assets information is based on the
physical location of the assets at the end of each
5
<PAGE> 8
HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
period. Revenue from unaffiliated customers and long-lived assets by geographic
region are as follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
SEPTEMBER 30,
2000
-------------
<S> <C>
Revenue:
North America............................................. $59,367
Rest of the world......................................... 11,150
-------
Total............................................. $70,517
=======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, JULY 1,
2000 2000
------------- -------------
<S> <C> <C>
Property and equipment:
North America................................... $15,745 $ 9,914
Rest of the world............................... 1,850 1,710
------- -------
Total................................... $17,595 $11,624
======= =======
</TABLE>
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We may make statements in this Form 10-Q, such as statements regarding our
plans, objectives, expectations and intentions that are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We may identify these statements by the use of words
such as "believe", "expect", "anticipate", "intend", "plan", and similar
expressions. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of these risks and uncertainties,
including those we discuss in "Factors Affecting Future Results" and elsewhere
in this Form 10-Q. These forward-looking statements speak only as of the date of
this Form 10-Q, and we caution you not to rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business as addressed in this Form 10-Q.
OVERVIEW
We were incorporated in July 1998 to develop innovative handheld computers
that are fun, smart, approachable, compelling and personal. Our business is
focused on becoming a global market leader in the handheld computing and
communications marketplace. During the period from inception to the date of our
first product shipments, our operating activities were focused on developing our
products, obtaining license rights, establishing third party manufacturing and
distribution relationships, recruiting personnel and raising capital. Shipments
of our first Visor products began in October 1999 for orders received through
our Web site. In March 2000, we began shipping our products to selected
retailers in the United States. Starting in May 2000, our Visor handheld
computer became available in Europe, both in English and in German language
versions. In June 2000, we introduced the Japanese language version of our Visor
handheld computer in Japan, in July 2000 we began shipment to Canada, and in
September 2000 we announced a French language version to be distributed in
France, Belgium, and Switzerland. In recent months we have expanded our
distribution to include additional retail and sales partners in the United
States.
We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending patterns on electronic devices during the holiday season. We
also expect that sales may decline during the summer months because of typical
decreased consumer spending patterns during this period. These seasonal
variations in our sales may lead to fluctuations in our quarterly operating
results.
RESULTS OF OPERATIONS
REVENUE. Revenue is comprised almost entirely of sales of our handheld
computer devices, modules and related accessories. We began shipping products in
October 1999 for orders received through our Web site. In March 2000, we
extended our distribution strategy to include select retailers. During the
fourth quarter of fiscal 2000 and the first quarter of 2001, we launched our
products in Canada, Europe and Japan, and added additional retail and sales
partners in the United States. Revenue was $70.5 million during the quarter
ended September 30, 2000, with revenue outside North America representing 16% of
this total.
Product orders placed by end user customers are received via our Web site
or over the telephone via our third party customer support partner. Retail sales
orders are placed in our internal order processing system. All orders are then
transmitted to our logistics partner. We take title at the point of transfer
from this logistics partner to the common carrier. Title generally then
transfers once the carrier has received the products. We recognize revenue when
a purchase order has been received, the product has been shipped, the sales
price is fixed and determinable and collection of the resulting receivable is
probable. No significant post-delivery obligations exist with respect to revenue
recognized. Provisions are made at the time the related revenue is recognized
for estimated product returns and warranty. Also included in revenue are
shipping and handling charges billed to our customers. These charges amounted to
$501,000 during the quarter ended September 30, 2000.
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<PAGE> 10
COST OF REVENUE. Cost of revenue consists primarily of materials, labor,
royalty expenses, warranty expenses and shipping and handling. Cost of revenue
was $48.5 million during the quarter ended September 30, 2000. Shipping and
handling costs represented $1.6 million of this total cost.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of materials and software used in product development. Research and
development expenses increased to $4.8 million during the quarter ended
September 30, 2000 from $2.5 million during the quarter ended October 2, 1999.
This increase was associated with the hiring of personnel devoted to the
development of new products. We believe that continued investment in research
and development is critical to attaining our strategic objectives and we expect
research and development expenses to increase in the future.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses consist primarily of promotional and advertising costs, Web site design
and maintenance expenses, salaries and related expenses, accounting and
administrative expenses, costs for legal and professional services and general
corporate expenses. Selling, general and administrative expenses increased to
$27.8 million during the quarter ended September 30, 2000 from $3.7 million
during the quarter ended October 2, 1999. This increase reflects the costs and
expenses relating to sales and marketing activities for the Company's products
which first shipped in the second quarter of fiscal 2000, and to the overall
expansion in the Company's level of operations. We anticipate that selling,
general and administrative expenses will increase in the future. In comparison
with revenue we expect that these expenses will be higher during the second
quarter of fiscal 2001 due to aggressive spending for marketing during the
holiday season.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. Prior to our initial public
offering on June 20, 2000, we granted stock options to our officers and
employees at prices subsequently deemed to be below the fair value of the
underlying stock. The cumulative difference between the fair value of the
underlying stock at the date the options were granted and the exercise price of
the granted options was $102.0 million. This amount is being amortized, using
the multiple option method, over the four-year vesting period of the granted
options. Accordingly, our results of operations will include amortization of
deferred stock compensation through fiscal 2004. We recognized $8.4 million of
this expense during the quarter ended September 30, 2000 and $3.2 million during
the same period of the previous year.
Future compensation expense resulting from the grant of these stock options
is estimated to be $22.9 million, $18.1 million, $7.7 million, and $1.2 million
for the fiscal years ended 2001, 2002, 2003 and 2004, respectively.
INTEREST AND OTHER INCOME, NET. Interest and other income, net increased to
$3.3 million during the quarter ended September 30, 2000 from $129,000 during
the quarter ended October 2, 1999. This increase was primarily due to interest
income earned on the proceeds received from our initial public offering in June
2000, and the subsequent exercise of the underwriter's over-allotment in July
2000.
Also included within interest and other income, net during the quarter
ended October 2, 1999 is the amortization of costs associated with a
subordinated debt facility agreement that we entered into in June 1999. These
costs related to the inclusion of a right granted to our lender to purchase
198,965 shares of Series A preferred stock. The total cost was amortized over
the 12 month term of the agreement.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering on June 20, 2000, we funded our
operations primarily from the sale of preferred stock, through which we raised
net proceeds of $28.0 million. Net proceeds from the initial public offering and
the exercise of the underwriter's over-allotment option were $184.9 million and
$28.0 million, respectively. As of September 30, 2000 we had $221.4 million in
cash and cash equivalents and short-term investments.
During the quarter ended September 30, 2000 there was $3.8 million of net
cash provided by operating activities, primarily due to a $28.6 million increase
in accounts payable and accrued liabilities as well the amortization of $8.4
million of deferred stock compensation. A net loss of $16.4 million and an
increase in
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<PAGE> 11
accounts receivable of $15.1 million during the quarter offset these sources of
cash. Net cash used in operating activities was $3.9 million during the quarter
ended October 2, 1999, which was primarily attributable to our net losses of
$9.2 million, offset by $3.2 million of deferred stock compensation amortization
and a $2.5 million increase in accounts payable and accrued liabilities.
Net cash used in investing activities was $47.9 million during the quarter
ended September 30, 2000. Purchases of short-term investments and investments
accounted for $43.8 million of this usage. An additional $4.3 million was used
for purchases of property and equipment. During the quarter ended October 2,
1999, investing activities provided net cash of $796,000, primarily due to $3.3
million of proceeds received from maturities or sales of short-term investments,
partially offset by $2.0 million and $494,000 of cash used for purchases of
property and equipment and short-term investments, respectively.
Net cash provided by financing activities was $27.9 million during the
quarter ended September 30, 2000 compared with $10.1 million during the quarter
ended October 2, 1999. In July 2000, the underwriters of our initial public
offering exercised their over-allotment to purchase 1,500,000 shares of common
stock for net proceeds to us of $28.0 million. This amount accounted for
substantially all of the cash provided by financing activities during the
quarter ended September 30, 2000. The cash provided by financing activities
during the quarter ended October 2, 1999 was almost entirely due to $10.0
million of net proceeds we received from the issuance of Series B preferred
stock.
Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and expansion of our
marketing efforts. We believe that our cash and cash equivalents will be
sufficient to meet our working capital needs for at least the next 12 months. To
the extent that we grow more rapidly than expected in the future, we may need
additional cash to finance our operating and investing needs. We intend to
invest the cash in excess of current operating requirements in interest-
bearing, investment-grade securities with maturities no greater than two years.
FACTORS AFFECTING FUTURE RESULTS
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND PROSPECTS.
We incorporated in July 1998. We did not start selling our Visor handheld
computer or generating revenue until the quarter ended January 1, 2000.
Accordingly, we have only a limited operating history upon which you can
evaluate our business. The revenue and income potential of our products and
business are unproven. Our chances of financial and operational success are
subject to the risks, uncertainties, expenses, delays and difficulties
associated with starting a new business in a highly competitive field, many of
which may be beyond our control. If we fail to address these risks,
uncertainties, expenses, delays and difficulties, our business will be harmed.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO
REDUCED PRICES FOR OUR STOCK.
Given our lack of operating history, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. In some future periods, our results of operations could
be below the expectations of investors and public market analysts. In this
event, the price of our common stock would likely decline. Factors that are
likely to cause our results to fluctuate include the following:
- the announcement and timely introduction of new products by us and our
competitors;
- the timing and the availability of software programs and Springboard
modules that are compatible with our products;
- market acceptance of existing and future versions of our products and
compatible Springboard modules;
- fluctuations in the royalty rates and manufacturing costs we pay to
produce our handheld computers;
- the availability of components required to manufacture our products;
9
<PAGE> 12
- the seasonality of our product sales;
- our ability to avoid potential system failures on our Web site;
- the price of products that both we and our competitors offer; and
- the mix of products that we offer.
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MIGHT NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
Our accumulated deficit as of September 30, 2000 was approximately $85.1
million. We had net losses of approximately $16.4 million for the quarter ended
September 30, 2000 and $9.2 million during the same period of the previous
fiscal year. To date we have funded our operations primarily through the sale of
equity securities. Moreover, we expect to incur significant operating expenses.
We also expect to continue to incur substantial non-cash costs relating to the
amortization of deferred compensation, which will contribute to our net losses.
As of September 30, 2000, we had a total of $49.9 million of deferred
compensation to be amortized. As a result, we expect to continue to incur losses
into calendar year 2001. Even if we ultimately do achieve profitability, we may
not be able to sustain or increase profitability on a quarterly or annual basis.
If our revenue grows more slowly than we anticipate, or if our operating
expenses exceed our expectations and cannot be adjusted accordingly, our
business will be harmed.
WE DEPEND HEAVILY UPON OUR LICENSE FROM PALM, INC. AND OUR FAILURE TO MAINTAIN
THIS LICENSE COULD SERIOUSLY HARM OUR BUSINESS.
We rely on technologies that we license or acquire from third parties,
including Palm. Our failure to maintain these licenses could seriously harm our
business. The Palm OS operating system is integrated with our
internally-developed software and hardware, and is used to enhance the value of
our products. Our license of the Palm OS operating system is critical to our
Visor handheld computer. The license agreement extends until September 2003 and
may be renewed for successive one-year terms if both parties agree. It is
possible that Palm will choose not to renew the license at the end of its term
for competitive or other reasons. Upon expiration or termination of the Palm OS
operating system license agreement, other than due to our breach, we may choose
to keep the license granted under the agreement for two years following the
expiration or termination. However, the license during this two-year period is
limited and does not entitle us to upgrades to the Palm OS operating system. If
we were not a licensee of the Palm OS operating system, we would be required to
license a substitute operating system, which could be less desirable and could
be costly in terms of cash and other resources. In the alternative, we could
develop our own operating system, which would take considerable time, resources
and expense, would divert our engineers' attention from product innovations and
would not have the advantage of Palm OS operating system applications
compatibility. In addition, we may not assign that license agreement to a third
party without the written consent of Palm unless it is to a purchaser of
substantially all of our assets who is not a competitor of Palm. The existence
of these license termination provisions may have an anti-takeover effect in that
it could discourage competitors of Palm from acquiring us.
OUR BUSINESS COULD BE HARMED BY LAWSUITS WHICH HAVE BEEN FILED OR MAY IN THE
FUTURE BE FILED AGAINST PALM INVOLVING THE PALM OS OPERATING SYSTEM.
Suits against Palm involving the Palm OS operating system, which we license
from Palm, could adversely affect us. A disruption in Palm's business because of
these suits could disrupt our operations and cost us money. Palm is a defendant
in several patent infringement lawsuits involving the Palm OS operating system.
Although we are not a party to these cases and we are indemnified by Palm for
damages arising from lawsuits of this type, we could still be adversely affected
by a determination adverse to Palm as a result of market uncertainty or product
changes that could arise from such a determination.
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WE EXPECT TO INCREASE OUR RELIANCE ON RETAILERS TO SELL OUR PRODUCTS, AND
DISRUPTIONS IN THIS CHANNEL AND OTHER EFFECTS OF SELLING THROUGH RETAILERS WOULD
HARM OUR ABILITY TO GENERATE REVENUES FROM THE SALE OF OUR HANDHELD COMPUTERS.
We sell our products both through our handspring.com Web site as well as
through retail partners. In March 2000, we entered into agreements with Best
Buy, CompUSA and Staples, currently our three largest retail partners, to resell
our products in their stores in the United States. Since that time we have
expanded our retail distribution into Canada, Germany, the United Kingdom,
France, Japan and other international markets. We have also added additional
retail and sales partners within the United States. We expect to add additional
retail partners worldwide as we continue to expand our business. We are subject
to many risks relating to the retail distribution of our products including the
following:
- retailers may not maintain inventory levels sufficient to meet customer
demand;
- if we reduce the prices of our products, we may have to compensate
retailers for the difference between the higher price they paid to buy
their inventory and the new lower prices;
- product returns could increase as a result of our strategic interest in
assisting retailers in balancing inventories;
- retailers may emphasize our competitors' products or decline to carry our
products;
- we may not be able to attract or retain a sufficient number of qualified
retailers; and
- as increased sales are made through our retail distribution channel, a
conflict may develop between that channel and direct sales through our
handspring.com Web site.
In addition, to the extent our revenues through our retail distribution
channel continue to increase as a percentage of total revenues, our gross
margins may decrease because sales through retailers are made at lower margins
than sales through our Web site. A higher percentage of retail distribution
sales also would negatively impact our cash cycle.
A PORTION OF OUR REVENUE HAS BEEN DERIVED FROM SALES ON OUR WEB SITE AND SYSTEM
FAILURES OR DELAYS HAVE IN THE PAST AND MIGHT IN THE FUTURE HARM OUR BUSINESS.
A portion of our revenue is generated through our Web site. As a result,
our business depends on our ability to maintain and expand our computer systems.
We must also protect our computer systems against damage from fire, water, power
loss, telecommunications failures, computer viruses, vandalism and other
malicious acts and similar unexpected adverse events. During our initial product
launch, we experienced system interruptions and slowdowns due to an improper
design and implementation of our Web site from which consumers purchase our
products. This caused long wait times on our Web site, long delivery times, lost
orders, lost revenues and harm to our reputation. Despite precautions we have
taken, unanticipated problems affecting our systems could again in the future
cause temporary interruptions or delays in the services we provide. Our
customers might become dissatisfied by any system failure or delay that
interrupts our ability to provide service to them or slows our response time.
Sustained or repeated system failures or delays would affect our reputation,
which would harm our business. Slow response time or system failures could also
result from straining the capacity of our systems due to an increase in the
volume of traffic on our Web site. While we carry business interruption
insurance, it might not be sufficient to cover any serious or prolonged
emergencies.
OUR PRODUCTION COULD BE SERIOUSLY HARMED IF WE EXPERIENCE COMPONENT SHORTAGES OR
IF OUR SUPPLIERS ARE NOT ABLE TO MEET OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT
AVAILABLE.
Our products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers and that are in great demand. We do not carry inventory of our
products or product components. We rely on our suppliers to deliver necessary
components to our contract manufacturers in a timely manner based on forecasts
that we provide. At various times, some of the key components for handheld
computers have been in short supply. In recent months a number of
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suppliers have been capacity constrained due to high industry demand for their
components and relatively long lead times required to expand factory capacity.
Due in part to these component shortages, some of our competitors have been
unable to meet demand for their products. Ongoing shortages of components would
harm our ability to deliver our products on a timely basis. The cost, quality
and availability of components are essential to the successful production and
timely sale of our products.
Some components, such as power supply integrated circuits, microprocessors
and certain discrete components, come from sole or single source suppliers.
Alternative sources are not currently available for these sole and single source
components. If suppliers are unable to meet our demand for sole source
components and if we are unable to obtain an alternative source or if the price
for an alternative source is prohibitive, our ability to maintain timely and
cost-effective production of our handheld computer products would be seriously
harmed. In addition, because we mainly rely on purchase orders rather than
long-term contracts with our suppliers, including our sole and single source
suppliers, we cannot predict with certainty our ability to procure components in
the longer term. If we receive a smaller allocation of components than is
necessary to manufacture products in quantities sufficient to meet customer
demand, customers could choose to purchase competing products.
IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, heavy
competition and frequent new product introductions. If we fail to modify or
improve our products in response to changes in technology or industry standards,
our products could rapidly become less competitive or obsolete. Our future
success will depend, in part, on our ability to:
- use leading technologies effectively;
- continue to develop our technical expertise;
- enhance our current products and develop new products that meet changing
customer needs;
- time new product introductions in a way that minimizes the impact of
customers delaying purchases of existing products in anticipation of new
product releases;
- adjust the prices of our existing products to increase customer demand;
- successfully advertise and market our products; and
- influence and respond to emerging industry standards and other
technological changes.
We must respond to changing technology and industry standards in a timely
and cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products on a
timely basis. These new technologies or enhancements may not achieve market
acceptance. Our pursuit of necessary technology may require substantial time and
expense. We may need to license new technologies to respond to technological
change. These licenses may not be available to us on terms that we can accept.
Finally, we may not succeed in adapting our products to new technologies as they
emerge.
IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS,
DEMAND FOR OUR PRODUCTS COULD DECREASE.
We depend on our ability to develop new or enhanced products that achieve
rapid and broad market acceptance. We may fail to identify new product
opportunities successfully and develop and bring to market new products in a
timely manner. In addition, our product innovations may not achieve the market
penetration or price stability necessary for profitability.
As the use of our Visor handheld computer and Springboard slot continue to
evolve, we plan to develop additional complementary products and services as
additional sources of revenue are available. Accordingly, we may change our
business model to take advantage of new business opportunities, including
business areas
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in which we do not have extensive experience. For example, we have recently
announced VisorPhone, our GSM cell phone module that relies on a wireless
infrastructure. If we fail to develop these or other products successfully, our
business would be harmed.
IF POPULAR SPRINGBOARD MODULES ARE NOT DEVELOPED FOR OUR VISOR HANDHELD
COMPUTER, DEMAND FOR OUR PRODUCTS MAY BE LIMITED.
To differentiate our products from competitors and attract large numbers of
consumer purchasers of our products, we and third parties need to develop
compelling Springboard modules for our Visor handheld computer. We may be unable
to attract a sufficient number of talented third-party Springboard module
developers because of our relatively small market share in the handheld computer
industry or for technological or other reasons. There is a limited number of
Springboard modules available for sale. If Springboard module developers fail to
anticipate market needs in a timely manner, or if there is not a successful
distribution outlet for the sale of Springboard modules, demand for our Visor
handheld computer may diminish.
OUR REPUTATION COULD BE HARMED IF THE SPRINGBOARD MODULES DEVELOPED BY THIRD
PARTIES ARE DEFECTIVE.
Because we offer an open development environment, third party developers
are free to design, market and sell modules for our Springboard slot without our
consent, endorsement or certification. Nevertheless our reputation is
inextricably tied to the Springboard modules designed for our Visor handheld
computer. If modules sold by third parties are defective or are of poor quality,
our reputation could be harmed and the demand for our Visor handheld computer
and modules could decline.
IF THE EXPANDABLE DESIGN OF OUR PRODUCTS IS NOT ACCEPTED BY CONSUMERS, OUR
REVENUES WILL FAIL TO MEET OUR EXPECTATIONS.
Much of the perceived value of our Visor handheld computer lies in the
Springboard expansion slot, which enables users to add functions by inserting
modules into the base device. Many of these modules will perform functions that
are today generally performed by a dedicated standalone device. While we believe
that the simple customization provided by the Springboard slot will be
attractive to users, the uniqueness of the feature combined with the recent
introduction of the product make it unclear whether consumers will prefer our
approach as compared either to multiple dedicated devices or to other designs
for multifunction devices.
IF WE FAIL TO ACCURATELY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE
TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD
COMPUTERS OR WE COULD HAVE COSTLY EXCESS PRODUCTION.
Because we have a limited operating history and did not begin selling our
products until October 1999, we have very little information about demand for
our products. The demand for our products depends on many factors and is
difficult to forecast. We experienced product shortages when we introduced our
Visor handheld computer because we underestimated initial demand. We expect that
it will become even more difficult to forecast demand as we introduce and
support multiple products and as competition in the market for our products
intensifies. Significant unanticipated fluctuations in demand could cause
problems in our operations.
If demand does not develop as expected, we could have excess production
resulting in excess finished products and components. We have limited capability
to reduce manufacturing capacity within a 90-day period. If we have excess
production, we could incur cancellation charges or other liabilities to our
manufacturing partners.
If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturers. Our suppliers will also need to
provide additional volumes of components, which may not be possible within our
timeframes. Even if our third-party manufacturers are able to obtain enough
components, they might not be able to produce enough of our products as fast as
we need them. The inability of either our manufacturers or our suppliers to
increase production rapidly enough could cause us to fail to meet customer
demand. In addition, rapid increases in production levels to meet unanticipated
demand could result in higher costs for manufacturing and supply of components
and other expenses. These higher costs would lower our profit margins.
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IF ANY OF OUR MANUFACTURING PARTNERS FAIL TO PRODUCE QUALITY PRODUCTS ON TIME
AND IN SUFFICIENT QUANTITIES, OUR REPUTATION AND RESULTS OF OPERATIONS WOULD
SUFFER.
We depend on third-party manufacturers to produce sufficient volume of our
handheld devices, modules and accessories in a timely fashion and at
satisfactory quality levels. The cost, quality and availability of third-party
manufacturing operations are essential to the successful production and sale of
our products. We currently have manufacturing agreements with Flextronics and
Solectron under which we order products on a purchase order basis in accordance
with a forecast. The absence of dedicated capacity under our manufacturing
agreements means that, with little or no notice, our manufacturers could refuse
to continue to manufacture all or some of the units of our devices that we
require or change the terms under which they manufacture our devices. If they
were to stop manufacturing our devices, it could take from three to six months
to secure alternative manufacturing capacity and our results of operations could
be harmed. In addition, if our manufacturers were to change the terms under
which they manufacture for us, our manufacturing costs could increase and our
results of operations could suffer.
Our reliance on third-party manufacturers exposes us to risks outside our
control, including the following:
- unexpected increases in manufacturing and repair costs;
- interruptions in shipments if one of our manufacturers is unable to
complete production;
- inability to control quality of finished products;
- inability to control delivery schedules;
- unpredictability of manufacturing yields; and
- potential lack of adequate capacity to fill all or a part of the services
we require.
WE RELY ON THIRD PARTIES FOR ORDER FULFILLMENT, REPAIR SERVICES AND TECHNICAL
SUPPORT. OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE HARMED BY OUR
INABILITY TO CONTROL THEIR OPERATIONS.
We rely on third parties to package and ship customer orders, repair units
and provide technical support. If our order fulfillment services, repair
services or technical support services are interrupted or experience quality
problems, our ability to meet customer demands would be harmed, causing a loss
of revenue and harm to our reputation. Although we have the ability to add new
service providers or replace existing ones, transition difficulties and lead
times involved in developing additional or new third party relationships could
cause interruptions in services and harm our business.
WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FLUCTUATE.
We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending on electronic devices during the holiday season. We also
expect that sales may decline during the summer months because of typical slower
consumer spending in this period. These seasonal variations in our sales may
lead to fluctuations in our quarterly operating results.
OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR
OUR PRODUCTS.
We believe that continuing to strengthen our brand will be critical to
increasing demand for, and achieving widespread acceptance of, our handheld
computer products. Some of our competitors and potential competitors have better
name recognition and powerful brands. Promoting and positioning our brand will
depend largely on the success of our marketing efforts, our ability and the
ability of third party developers to deliver software and Springboard modules
that are engaging to our users and our ability to provide high quality support.
To promote our brand, we expect to increase our marketing expenditures and
otherwise increase our financial commitment to creating and maintaining brand
loyalty among users. Brand promotion activities may not yield increased revenues
or customer loyalty and, even if they do, any increased revenues may not offset
the expenses we incur in building and maintaining our brand.
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IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE.
The market for handheld computing and communication products is highly
competitive and we expect competition to increase in the future. Some of our
competitors or potential competitors have significantly greater financial,
technical and marketing resources than we do. These competitors may be able to
respond more rapidly than we can to new or emerging technologies or changes in
customer requirements. They may also devote greater resources to the
development, promotion and sale of their products than we do.
Our handheld computers compete with a variety of handheld devices,
including keyboard-based devices, sub-notebook computers, smart phones and
two-way pagers. Our principal competitors include:
- Palm, from whom we license the Palm OS operating system;
- licensees of the Microsoft Windows CE operating system for devices such
as the PocketPC, including Casio, Compaq and Hewlett-Packard;
- members of the Symbian consortium, including Psion, Ericsson and
Motorola; and
- other Palm OS operating system licensees, including Nokia, Kyocera and
Sony.
- Research In Motion Limited, a leading provider of wireless email, instant
messaging and Internet connectivity.
We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies. For
example, in August 2000, both Palm and Sony introduced new handheld computers
based on the Palm OS operating system. Successful new product introductions or
enhancements by our competitors could reduce sales and the market acceptance of
our products, cause intense price competition or make our products obsolete. To
be competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot be sure that we
will have sufficient resources to make these investments or that we will be able
to make the technological advances necessary to be competitive. Increased
competition could result in price reductions, fewer customer orders, reduced
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business.
OUR MANAGEMENT AND INTERNAL SYSTEMS MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL
GROWTH.
We have experienced rapid growth and expansion since our inception. From
July 29, 1998 to September 30, 2000, we increased the number of our employees
from two to 268. This growth has placed, and will continue to place, a
significant strain on our management and information systems and operational and
financial resources. To manage future growth, our management must continue to
improve our operational and financial systems and expand, train, retain and
manage our employee base. Our management may not be able to manage our growth
effectively. If our systems, procedures and controls are inadequate to support
our operations, our expansion would be halted and we could lose our opportunity
to gain significant market share. Any inability to manage growth effectively may
harm our business.
OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS, OR COULD BE SUBJECT TO VIRUSES,
WHICH COULD RESULT IN THE REJECTION OF OUR PRODUCTS AND DAMAGE TO OUR
REPUTATION, AS WELL AS LOST REVENUES, DIVERTED DEVELOPMENT RESOURCES AND
INCREASED SERVICE COSTS AND WARRANTY CLAIMS.
Our handheld computers and Springboard modules are complex and must meet
stringent user requirements. We must develop our products quickly to keep pace
with the rapidly changing handheld computing and communications market. Products
as sophisticated as ours are likely to contain detected and undetected errors or
defects, especially when first introduced or when new models or versions are
released. In the future, we may experience delays in releasing new products as
problems are corrected. From time to time, we have become aware of problems with
components and other defects. Errors or defects in our products that are
significant, or are perceived to be significant, could result in the rejection
of our products, damage to our reputation, lost revenues, diverted development
resources and increased customer service and support costs and warranty
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claims. In addition, some undetected errors or defects may only become apparent
as new functions are added to our handheld computers through the use of future
Springboard modules. Currently, consumers that purchase through our Web site may
return their handheld computers for any reason within 30 days of purchase. In
addition, we warrant that our hardware will be free of defects for one year from
date of purchase. Delays, costs and damage to our reputation due to product
defects could harm our business.
Our products also could be affected by viruses. In September 2000, the
first-ever virus written to destroy programs based on the Palm OS was
discovered. While there have been few reports of users affected by this virus,
it is possible that viruses may become more prevalent, particularly as handheld
computers are more commonly used for wireless applications that facilitate the
sharing of files and other information. To the extent that antivirus software
was unable to protect users of our product from such viruses, our products could
be rejected and result in increased service costs.
IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS
SUCCESSFULLY.
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel and their ability to
execute our growth strategy. In particular, we rely on Jeffrey C. Hawkins, our
Chief Product Officer, Donna L. Dubinsky, our Chief Executive Officer, and
Edward T. Colligan, our Senior Vice President, Marketing and Sales. The loss of
the services of any of our senior level management, or other key employees,
could harm our business. Our future performance will depend, in part, on the
ability of our executive officers to work together effectively. Our executive
officers may not be successful in carrying out their duties or running our
company. Any dissent among executive officers could impair our ability to make
strategic decisions quickly in a rapidly changing market.
IF WE FAIL TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED EMPLOYEES, OUR ABILITY TO
EXECUTE OUR BUSINESS PLAN WOULD BE COMPROMISED.
Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in our industry is intense.
Although we provide compensation packages that include stock options, cash
incentives and other employee benefits, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. For example, fluctuations in the market price of our common stock
could lead potential and existing employees to believe that our equity
incentives are less attractive, which could adversely affect our ability to
attract and retain qualified employees. We expect to experience difficulty in
hiring and retaining highly skilled employees with appropriate qualifications.
WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY.
Our success and ability to compete substantially depends on our internally
developed proprietary technologies, which we protect through a combination of
trade secret, trademark, copyright and patent laws. While we have patent
applications pending, to date no U.S. or foreign patents have been granted to
us.
Patent applications or trademark registrations may not be approved. Even if
they are approved, our patents or trademarks may be successfully challenged by
others or invalidated. In addition, any patents that may be granted to us may
not provide us a significant competitive advantage. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we enter into arrangements
with the third-party owners, which might not be possible on commercially
reasonable terms or at all. If we fail to protect or enforce our intellectual
property rights successfully, our competitive position could suffer.
We may be required to spend significant resources to protect, monitor and
police our intellectual property rights. We may not be able to detect
infringement and may lose competitive position in the market before we do so. In
addition, competitors may design around our technology or develop competing
technologies. Intellectual property rights may also be unavailable or limited in
some foreign countries, which could make it easier for competitors to capture
market share.
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WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.
Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. From time to time, third parties have in the past and
may in the future assert patent, copyright, trademark or other intellectual
property rights to technologies that are important to our business. For example,
we have received a letter from NCR notifying us of potential infringement of its
patents, although we do not believe that resolution of the matter will have a
material impact on us. We may in the future receive other notices of claims that
our products infringe or may infringe intellectual property rights. Any
litigation to determine the validity of such claims, including claims arising
through our contractual indemnification of our business partners, regardless of
their merit or resolution, would likely be costly and time consuming and divert
the efforts and attention of our management and technical personnel. We cannot
assure you that we would prevail in such litigation given the complex technical
issues and inherent uncertainties in intellectual property litigation. If such
litigation resulted in an adverse ruling, we could be required to:
- pay substantial damages;
- cease the manufacture, use or sale of infringing products;
- discontinue the use of certain technology; or
- obtain a license under the intellectual property rights of the third
party claiming infringement, which license may not be available on
reasonable terms, or at all.
OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.
To date, we have generated substantially all of our revenue from sales in
the United States. In recent months, however, we have entered the European and
Asian markets. We expect to enter additional international markets over time. To
the extent that our revenue from international operations represents an
increasing portion of our total revenue, we will be subject to increased
exposure to international risks. In addition, the facilities where our Visor
handheld computers are, and will be, manufactured are located outside the United
States. A substantial number of our material suppliers are based outside of the
United States, and are subject to a wide variety of international risks.
Accordingly, our future results could be harmed by a variety of factors,
including:
- changes in foreign currency exchange rates;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
- trade protection measures and import or export licensing requirements;
- development risks and expenses associated with customizing our products
for local languages;
- potentially negative consequences from changes in tax laws;
- impact of natural disasters with an inability of the local government to
quickly provide recovery services;
- difficulty in managing widespread sales and manufacturing operations; and
- less effective protection of intellectual property.
WE MAY PURSUE STRATEGIC ACQUISITIONS AND WE COULD FAIL TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES.
We expect to evaluate acquisition opportunities that could provide us with
additional product or services offerings, technologies or additional industry
expertise. Any future acquisition could result in difficulties assimilating
acquired operations and products, diversion of capital and management's
attention away from
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other business issues and opportunities and amortization of acquired intangible
assets. Integration of acquired companies may result in problems related to
integration of technology and management teams. Our management has had limited
experience in assimilating acquired organizations and products into our
operations. We could fail to integrate the operations, personnel or products
that we may acquire in the future. If we fail to successfully integrate
acquisitions, our business could be materially harmed.
WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT
NOT BE AVAILABLE.
We currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for the next 12 months. However, our resources may prove to be
insufficient for these working capital and capital expenditure requirements. We
may need to raise additional funds through public or private debt or equity
financing in order to:
- take advantage of opportunities, including the purchase of technologies
or acquisitions of complementary businesses;
- develop new products or services; or
- respond to competitive pressures.
Any additional financing we need may not be available on terms acceptable
to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we might not be able to take advantage of unanticipated
opportunities, develop new products or services or otherwise respond to
unanticipated competitive pressures, and our business could be harmed.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE
AND SUBJECT TO WIDE FLUCTUATIONS.
The market price of the securities of technology-related companies has been
especially volatile. Thus, the market price of our common stock has been and is
likely to continue to be subject to wide fluctuations, particularly given that
only a small portion of our outstanding shares currently are publicly traded. If
our revenues do not grow or grow more slowly than we anticipate, or, if
operating or capital expenditures exceed our expectations and cannot be adjusted
accordingly, or if some other event adversely affects us, the market price of
our common stock could decline. In addition, if the market for
technology-related stocks or the stock market in general experiences a loss in
investor confidence or otherwise fails, the market price of our common stock
could fall for reasons unrelated to our business, results of operations and
financial condition. The market price of our stock also might decline in
reaction to events that affect other companies in our industry even if these
events do not directly affect us. In the past, companies that have experienced
volatility in the market price of their stock have been the subject of
securities class action litigation. If we were to become the subject of
securities class action litigation, it could result in substantial costs and a
diversion of management's attention and resources.
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER A COMPANY FROM ACQUIRING US.
We have a classified board of directors. In addition, our stockholders are
unable to call special meetings of stockholders, to act by written consent, to
remove any director or the entire board of directors without a super majority
vote or to fill any vacancy on the board of directors. Our stockholders must
also meet advance notice requirements for stockholder proposals. Our board of
directors may also issue preferred stock without any vote or further action by
the stockholders. These provisions and other provisions under Delaware law could
make it more difficult for a third party to acquire us, even if doing so would
benefit our stockholders.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.
Our executive officers, our directors and entities affiliated with them
together beneficially own a substantial portion of our outstanding common stock.
As a result, these stockholders are able to exercise substantial influence over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control that may be viewed as beneficial by other stockholders.
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FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE.
If our existing stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could decline. After
the lock-up agreements pertaining to our initial public offering expire in
December 2000, a large number of our shares will be eligible for sale in the
public market for the first time. Many of these shares are held by directors,
executive officers and other affiliates, and are subject to volume limitations
under Rule 144 of the Securities Act of 1933 and various vesting agreements. In
addition, shares subject to outstanding options and shares reserved for future
issuance under our stock option and purchase plans will become eligible for sale
in the public market to the extent permitted by the provisions of various
vesting agreements, the lock-up agreements and Rules 144 and 701 under the
Securities Act.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE SENSITIVITY. We maintain an investment portfolio consisting
mainly of fixed income securities with an average maturity of less than one
year. These securities are subject to interest rate risk and will fall in value
if market interest rates increase. We have the ability to hold our fixed income
investments until maturity, and therefore we do not expect our operating results
or cash flows to be affected to any significant degree by the effect of a sudden
change in market interest rates. We do not hedge any interest rate exposures.
FOREIGN CURRENCY EXCHANGE RISK. Revenue and expenses of our international
operations are denominated in various foreign currencies and, accordingly, we
are subject to exposure from adverse movements in foreign currency exchange
rates. To date, the effect of changes in foreign currency exchange rates on
revenues and expenses have not been material. We currently do not hedge our
foreign currency exposure. We intend to assess the need to utilize financial
instruments to hedge currency exposures on an ongoing basis.
19
<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of filing this Form 10-Q, we are
not subject to any material legal proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Our Registration Statement on Form S-1 (File No. 333-33666) related to our
initial public offering was declared effective by the SEC on June 20, 2000. A
total of 11,500,000 shares of our Common Stock were registered on our behalf.
Net offering proceeds to us (after deducting underwriting discounts and
commissions and offering expenses) were approximately $212.9 million. As of
September 30, 2000, approximately $10.8 million of these net offering proceeds
had been allocated to general working capital and the remainder had been
invested in short-term, interest-bearing, investment-grade securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter.
20
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: November 14, 2000 HANDSPRING, INC.
By: /s/ BERNARD J. WHITNEY
------------------------------------
Bernard J. Whitney
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Duly Authorized Officer)
21
<PAGE> 24
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
22
