<PAGE> 1
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 DECEMBER 31, 1996
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from to .
Commission file number 0-23926
GEOWORKS
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-2920371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
(Address of principal executive offices) (Zip code)
510-814-1660
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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. [ X ] Yes [ ] No
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. [ ] Yes [ ] No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
COMMON STOCK, NO PAR VALUE: 14,094,972 SHARES AS OF DECEMBER 31, 1996
<PAGE> 2
GEOWORKS
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets: December 31, 1996 and March 31, 1996 2
Condensed consolidated statements of operations: Three and nine months ended
December 31, 1996 and December 31, 1995 3
Condensed consolidated statements of cash flows: Nine months ended
December 31, 1996 and December 31, 1995 4
Notes to condensed consolidated financial statements: December 31, 1996 5
Item 2. Management's discussion and analysis of financial condition and results
of operations 6-11
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signature 13
</TABLE>
1
<PAGE> 3
PART 1-FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS
GEOWORKS
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Dec. 31, March 31,
1996 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 4,727 $10,765
Marketable securities 34,794 39,625
Prepaid expenses and other current assets 459 216
------- -------
Total current assets 39,980 50,606
Furniture and equipment, net 3,055 2,132
Other assets 160 160
------- -------
$43,195 $52,898
======= =======
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 1,621 $ 1,240
Deferred revenue 1,366 5,529
Other current liabilities 1,025 707
------- -------
Total current liabilities 4,012 7,476
Other liabilities 658 965
------- -------
Total liabilities 4,670 8,441
Shareholders' equity 38,525 44,457
------- -------
$43,195 $52,898
======= =======
</TABLE>
See accompanying notes
2
<PAGE> 4
GEOWORKS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues:
License revenue and product sales $ 2,733 $ 2,842 $ 6,160 $ 4,002
Research and development fees 371 25 1,304 200
Service revenue 100 -- 200 --
-------- -------- -------- --------
Total net revenues 3,204 2,867 7,664 4,202
Operating expenses:
Cost of license revenue and product sales 210 65 309 105
Sales and marketing 1,723 1,070 4,773 2,962
Research and development 3,084 1,945 8,716 5,664
General and administrative 738 781 2,394 1,859
-------- -------- -------- --------
Total operating expenses 5,755 3,861 16,192 10,590
-------- -------- -------- --------
Operating loss (2,551) (994) (8,528) (6,388)
Other income (expense):
Interest income 488 397 1,778 663
Interest expense (38) (49) (119) (132)
-------- -------- -------- --------
Loss before income taxes (2,101) (646) (6,869) (5,857)
Provision for income taxes 55 -- 55 --
-------- -------- -------- --------
Net loss $ (2,156) $ (646) $ (6,924) $ (5,857)
======== ======== ======== ========
Net loss per share $ (0.15) $ (0.05) $ (0.49) $ (0.49)
======== ======== ======== ========
Shares used in per share
computation 14,077 12,939 14,028 11,881
======== ======== ======== ========
</TABLE>
See accompanying notes
3
<PAGE> 5
GEOWORKS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------
Dec. 31, Dec. 31,
1996 1995
-------- --------
<S> <C> <C>
Operating activities:
Net loss $ (6,924) $ (5,857)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 955 793
Changes in operating assets and liabilities (3,797) (2,505)
-------- --------
Net cash used in operating activities (9,766) (7,569)
-------- --------
Investing activities:
Purchases of furniture and equipment (1,768) (728)
Sales (purchases) of marketable securities 4,832 (33,499)
Other -- 115
-------- --------
Net cash provided by (used in) investing activities 3,064 (34,112)
-------- --------
Financing activities:
Proceeds from sale/leaseback of equipment -- 288
Payments of obligations under capital leases (207) (161)
Net proceeds from issuance of common stock 871 44,895
-------- --------
Net cash provided by financing activities 664 45,022
-------- --------
Net increase in cash and cash equivalents (6,038) 3,341
Cash and cash equivalents at beginning of period 10,765 1,788
-------- --------
Cash and cash equivalents at end of period $ 4,727 $ 5,129
======== ========
</TABLE>
See accompanying notes
4
<PAGE> 6
GEOWORKS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements for the three months and nine
months ended December 31, 1996 and 1995 are unaudited but reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the consolidated
financial position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, contained in the
Company's Annual Report to Shareholders for the fiscal year ended March 31,
1996. The results of operations for the three months and nine months ended
December 31, 1996 are not necessarily indicative of the results to be expected
for the entire fiscal year.
2. Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options are not
included in the computation as they are antidilutive.
3. In October 1995, the Financial Accounting Standards Board issued Statement
No. 123 (SFAS No. 123), "Accounting for Stock-Based Compensation," which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 123
allows a company to adopt a new fair value-based method or continue to measure
compensation cost for its stock-based compensation plans using the intrinsic
value-based method of accounting prescribed by Accounting Principles Board
Opinion No. 25 (APB No. 25). The Company will continue to follow APB No. 25 but
will be required to make pro forma disclosures of net income or loss and
earnings per share as if the fair value-based method had been applied.
5
<PAGE> 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
Results of Operations
Net Revenues
Net revenues for the nine months ended December 31, 1996 increased
$3,462,000, or 82%, compared to the nine months ended December 31, 1995. License
revenue and product sales increased between the two periods by $2,158,000, or
54%, due primarily to the termination or restructuring of four OEM license
agreements in the current fiscal year for which there were non-refundable,
prepaid royalty balances. The prepaid balances related to these agreements had
been recorded as deferred revenue, and had not yet been fully amortized at the
time the agreements were terminated or restructured. Revenue recognized upon the
termination or restructuring of these four agreements was included in license
revenue and product sales, and accounted for $3,336,000, or 54%, of the
Company's license revenue and product sales during the nine months ended
December 31, 1996. For the corresponding period of the previous fiscal year,
revenue resulting from the termination or restructuring of OEM license
agreements amounted to $3,175,000.
In addition to revenue recognized upon the termination or restructuring
of license agreements, license revenue and product sales for the nine months
ended December 31, 1996 included $1,071,000 of source code license fees paid by
an OEM customer. Revenues associated with source code license fees and with the
termination or restructuring of OEM license agreements are non-recurring. As a
result of these and other non-recurring revenues, revenues for the nine months
ended December 31, 1996 are not indicative of revenues to be recognized in
future periods. The remainder of license revenue and product sales during the
nine months ended December 31, 1996 consisted primarily of royalties on units
sold by OEM licensees.
Revenue related to research and development fees for the nine months
ended December 31, 1996 increased $1,104,000, or 552%, compared to the
corresponding period of the previous fiscal year. Research and development fees
represent amounts received pursuant to contracts with OEM licensees under which
the Company is reimbursed for a portion of its development costs related to
specific products up to the amounts specified in the contracts. The Company is
typically paid by the OEM licensee as certain project milestones are achieved.
Revenue under these research and development arrangements is recognized under
the percentage of completion method. The extent to which such revenue is
reported can vary considerably among periods, depending upon the specific terms
of the Company's contracts with OEM licensees and the relative level of
development effort devoted towards projects on which research and development
fees are charged.
Service revenue increased $200,000 for the nine months ended December
31, 1996 compared to the corresponding period of the previous fiscal year.
Service revenue represents amounts earned for the support and maintenance of
software pursuant to contracts with OEM licensees.
For the three months ended December 31, 1996, net revenues increased
$337,000, or 12%, compared to the corresponding period of the previous fiscal
year. License revenue and product sales declined $109,000, or 4%, principally
due to lower revenues in the current quarter revenues from the termination or
restructuring of OEM license agreements. Research and development fees increased
$346,000 and service revenue increased $100,000 in the three
6
<PAGE> 8
months ended December 31, 1996, compared to the corresponding period of the
previous fiscal year.
Operating Expenses
Cost of Revenues. The Company's gross margin percentage was 96% for the
nine months ended December 31, 1996 and 98% for the corresponding period of the
previous fiscal year. Gross margin percentage was 93% for the three months ended
December 31, 1996, and 98% for the corresponding three months of the previous
fiscal year. Cost of revenues for all periods presented consisted principally of
license payments to third parties for software that is incorporated into the
Company's software. The Company anticipates that gross margin percentages would
decline gradually in the event that OEM unit shipments increase and royalty
revenues come to represent a greater share of total revenues.
Sales and Marketing. Sales and marketing expense increased $1,811,000,
or 61%, for the nine months ended December 31, 1996, and $653,000, or 61%, for
the three months ended December 31, 1996, in comparison with the corresponding
periods of the previous fiscal year. These increases resulted from the Company's
expanded efforts in pursuit of opportunities in the market for mobile
communications devices. As this market has evolved, the Company has dedicated
additional resources towards the design and marketing of content and services
for wireless devices, and has also broadened its services to VARs and other
outside developers of software for the market. To support these activities,
staffing and related costs for travel, benefits, and facilities increased in the
three month and nine month periods ended December 31, 1996, as compared to the
corresponding periods of the previous fiscal year.
Research and Development. Research and development expense increased
$3,052,000, or 54%, for the nine months ended December 31, 1996, and $1,139,000,
or 59%, for the three months ended December 31, 1996, in comparison with the
corresponding periods of the previous fiscal year. These increases were due
primarily to the continuing expansion of the Company's engineering staff, which
resulted in higher compensation costs and related increases in costs for
employee benefits, travel, and facilities. The Company expects that research and
development expense will continue to increase in future periods, as the Company
expands its efforts to develop products for the emerging market for mobile
communications devices.
General and Administrative. General and administrative expense
increased $535,000, or 29%, for the nine months ended December 31, 1996, in
comparison with the corresponding period of the previous fiscal year. Higher
costs for compensation, recruiting, and outside services were primarily
responsible for this increase. General and administrative expense declined
$43,000, or 6%, in the three months ended December 31, 1996, in comparison with
the corresponding period of the previous fiscal year.
Other Income (Expense)
Interest income rose $1,115,000, or 168%, for the nine months ended
December 31, 1996, and $91,000, or 23%, for the three months ended December 31,
1996, in comparison with the corresponding periods of the previous fiscal year.
These increases were attributable to the significantly higher balances available
to the Company for short-term investment as a direct result of the Company's
secondary public offering of common stock and concurrent sale of common stock to
a private investor in November 1995. These concurrent equity offerings raised
over $40 million for the Company.
7
<PAGE> 9
Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Income
tax expense consists of foreign income tax withholding on foreign source
royalties paid to the Company. The Company has a July 31 year end for income tax
purposes. As of March 31, 1996, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $37,246,000 and for state
income tax purposes of approximately $14,449,000. The Company also had research
and development credit carryforwards for federal income tax purposes of
approximately $1,255,000 and for state income tax purposes of approximately
$561,000. Pursuant to the Tax Reform Act of 1986, annual utilization of the
Company's net operating loss and tax credit carryforwards is partially limited.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities
declined to $39.5 million at December 31, 1996 from $50.4 million at March 31,
1996. This decrease of $10.9 million resulted primarily from the use of cash
during the period of $9.8 million for operating activities and $1.8 million for
the purchase of furniture and equipment, offset by the net receipt of
approximately $700,000 through equity and lease financing activities . The
Company expects to incur additional substantial losses at least through its
fiscal year ending March 31, 1997, but anticipates that its existing capital
resources will be adequate to satisfy its operating and capital requirements at
least through its fiscal year ending March 31, 1998.
Prepaid expenses and other current assets increased $243,000 from March
31, 1996 to December 31, 1996 due to increases in the balance of prepaid
insurance premiums in connection with the Company's directors and officers
liability insurance coverage. Furniture and equipment, net of depreciation,
increased $923,000 from March 31, 1996 to December 31, 1996, due to furniture
and equipment purchases for new employees, leasehold improvements related to
office expansions, and ongoing enhancements to the Company's computer equipment
used for research and development. Accounts payable and accrued liabilities
increased $381,000 at December 31, 1996 as compared to March 31, 1996,
principally because of higher accrual balances in the current fiscal year for
marketing events and for license payments due to third parties. Deferred revenue
at December 31, 1996 fell $4,163,000 from March 31, 1996, as the Company
recognized as revenue certain advance royalty payments collected in previous
periods under contracts with OEM customers. The amount of such advance royalty
payments recognized as revenue during the nine months ended December 31, 1996
exceeded the amount of any payments collected during the period, causing the
balance in deferred revenue to decline significantly. The significant decrease
in the Company's deferred revenue balance during the period was attributable
primarily to the recognition as revenue of $3,336,000 in connection with the
termination or restructuring of four OEM license agreements for which there had
been non-refundable, prepaid royalty balances outstanding at the time of the
termination or restructuring. Other current liabilities increased $318,000 from
March 31, 1996 to December 31, 1996 as a result of higher accrual balances for
certain incentive compensation and employee benefit programs. Lease obligations
decreased $307,000 from March 31, 1996 to December 31, 1996, as monthly lease
payments amortized outstanding principal balances.
Future Operating Results
Since its inception in 1983, the Company has realized limited revenues,
incurred significant losses, and suffered substantial negative cash flow. At
December 31, 1996, the
8
<PAGE> 10
Company had an accumulated deficit of $48.5 million, and had incurred operating
losses of approximately $9.9 million, $10.2 million, and $7.9 million in the
fiscal years ended March 31, 1996, 1995 and 1994, respectively, and $6.9 million
during the nine months ended December 31, 1996. The Company expects to continue
to incur substantial annual operating losses at least through its fiscal year
ending March 31, 1997, and it is unclear how soon thereafter, if ever, the
Company will operate profitably. The Company's strategic plan to achieve
profitability includes focusing in the near term on the "smart phone" segment of
the market for mobile communications devices. The Company's objective is to
establish its GEOS system software as a leading operating system for this market
in the near term, and to leverage this position by developing and marketing an
array of products and services to the installed base of GEOS-based devices. The
duration and outcome of any of these efforts is uncertain, and the Company's
future operating results will depend upon the growth rate of the smart phone
market segment, the Company's ability to establish licensing relationships with
leading smart phone hardware manufacturers, the introduction by those
manufacturers of successful smart phone products, the emergence of wireless
content and services for smart phones to spur demand and generate additional
revenues, and the Company's ability to achieve and maintain a competitive
advantage.
Prior to the emergence of the smart phone market, the Company licensed
its GEOS operating system software to manufacturers of non-communicating mobile
devices, such as personal digital assistants and handheld electronic organizers.
These non-communicating devices - in particular the Hewlett-Packard OmniGo and
Casio Z-7000 -- as well as those introduced by competitors, such as the Apple
Newton, Sony MagicLink and Motorola Envoy, have achieved only modest unit sales
to date. As a result of the slow adoption rates in these device categories, the
Company has failed to generate significant royalty revenues in connection with
its licensing efforts to date, and its operating results have been affected
adversely. The Casio Z-7000, a first-generation personal digital assistant based
upon the Company's GEOS system software, has been discontinued. Sharp and
Toshiba have each developed a non-communicating GEOS-based device and
subsequently elected to cancel introduction of such devices in to the market.
Other market participants have announced restructurings of their efforts
relating to similar products. In addition, sales of low-cost, GEOS-based
educational computer systems fell short of the Company's expectations, causing
the Company to discontinue its development efforts in this segment and
restructure its licensing agreement with IBM/Eduquest. During calendar year
1995, Brother released the Ensemble, a personal desktop publishing system, and
Hewlett-Packard announced and shipped its OmniGo 100, a second generation
electronic organizer. Both of these products are based on the GEOS system
software. Royalty revenues earned on reported unit shipments of these products,
however, have been modest to date, and it is unlikely that they will ever make a
significant favorable contribution to the Company's operating results.
Collectively, these third-party product discontinuances and disappointments have
resulted in the Company recognizing lower-than-expected recurring license
revenues in the current fiscal year and previous fiscal years.
In August 1996, Nokia Mobile Phones released in selected geographic
markets a smart phone which incorporates the Company's software. Although this
device has been well received since its introduction, it is unclear what effect
in the long term this new product will have on the Company's reported royalties
or the adoption rate of smart phones. Many factors relating to the market
introduction and promotion of smart phone and other products are not within the
control of the Company, and there can be no assurance as to the timing of
release or success of any such products, the impact they may have on adoption
rates within their respective markets, or the effect they may have on the
Company's operating results.
The Company's efforts are currently concentrated on developing and
marketing operating system software for use in mobile communicating devices. The
Company's success depends both upon the development of a new market for these
products and upon the adoption of the Company's GEOS system software as an
accepted operating system standard for such devices. Although the market for
cellular telephones is well-established and is currently growing
9
<PAGE> 11
at an appreciable rate, the smart phone market is in the early stages of
development, and to date no smart phone device has achieved broad market
acceptance. The development of the smart phone market, like that of other
computer and consumer electronics markets, is dependent upon the simultaneous
development of a substantial infrastructure of related and supporting products
and services, including hardware and software products, distribution channels
and services, communications services and support and repair services. The
Company has only limited influence over and, therefore, is substantially
dependent upon, the activities of third parties for the development of this
infrastructure. In addition, the Company's long-term results will depend upon
its success in developing and marketing aftermarket wireless content products
and services that operate on GEOS-based smart phones. There can be no assurance,
however, that the wireless content and services market will develop as
anticipated or that the Company will be able to execute its business plan
successfully.
The Company's operating results have in the past been, and are expected
in the future to be, subject to significant fluctuations on both a quarterly and
annual basis. Specifically, the Company expects that its operating results will
fluctuate as a result of the timing and success of the Company's efforts to
establish and maintain relationships with significant smart phone market
participants; the introduction and market acceptance of new GEOS-based smart
phones by these participants; the introduction and distribution of new system
and application software by the Company; actions by competitors of the Company;
and actions by its partners. License revenue related to OEM customer products
which contain the Company's software is contingent upon those OEM customers'
success in meeting anticipated shipment dates, obtaining market acceptance for
their products, and realizing significant sales volume of those products. The
Company's results are also affected by the timing and extent of product
development, engineering, and sales and marketing expenses. The Company
presently intends to devote substantial resources towards product development,
which may affect its investment and performance in other activities and in turn
affect reported operating results in future periods. In addition, the Company's
results may be affected by seasonal and other fluctuations in demand for smart
phones and for related software products and services, as well as by the general
state of the domestic and global economies. The Company expects the smart phone
market could ultimately reflect significant seasonal swings in demand similar to
those in the consumer electronics market, in which demand typically peaks in the
fourth calendar quarter of each year.
The Company's operating results may also vary as a result of the
receipt of one-time technology license or engineering fees, and the recognition
as revenue of paid but unamortized advance royalties under OEM agreements
(currently recorded as deferred revenue) upon the restructuring or termination
of such agreements or upon product discontinuation. Amounts recognized upon such
restructuring or termination have accounted in the past, and could account in
the future, for a material portion of the Company's revenue, with no
corresponding cash flow benefit in the period in which the revenue is
recognized.
Shortfalls in the Company's revenues or results of operations in
comparison with levels expected by securities analysts could have an immediate
and significant adverse effect on the trading price of the Company's common
stock. Moreover, the Company' stock price is subject to the volatility generally
associated with technology stocks and may also be affected by broader market
trends unrelated to the Company's specific performance.
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such statements include those referring to the Company's future plans,
capital needs and operating results, the acceptance of the activities and
products of the Company and its partners in the market for mobile communications
devices, the extent of the Company's investment in research and development in
future periods, and the development of the market for mobile communications
devices in general. Actual events and results could differ materially from those
projected in the forward-looking statements as a result of a variety of factors,
including those risk factors set
10
<PAGE> 12
forth in the preceding seven paragraphs and elsewhere in this report, especially
those regarding the Company's operating results and future activities and those
regarding the market for mobile communications devices.
11
<PAGE> 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.38 Amendment Number One to Software License Agreement
dated December 5, 1996 between Casio Computer Co.,
Ltd. and Geoworks
10.39 Amendment Number Four to Corporate Technology
Agreement between the Company and Toshiba
Corporation**
27.1 Financial Data Schedule
** Confidential treatment requested as to portions
thereof.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
12
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February , 1997
GEOWORKS
by: /s/ Daniel L. Sicotte
------------------------------
Daniel L. Sicotte
Treasurer
(Duly Authorized Officer and Principal
Financial Officer)
13
<PAGE> 15
GEOWORKS
EXHIBITS
TABLE OF CONTENTS
Exhibit No. Description Sequential Page Number
- ----------- ----------- ----------------------
10.38 Amendment Number One to Software License Agreement dated
December 5, 1996 between Casio Computer Co., Ltd. and Geoworks
10.39 Amendment Number Four to Corporate Technology Agreement
between the Company and Toshiba Corporation **
27.1 Financial Data Schedule
** Confidential treatment requested as to portions thereof
14
<PAGE> 1
EXHIBIT 10.38
December 5, 1996
Mr. Hidetaka Fujisawa
General Manager
Development Department
Communication Technology Laboratory
Hamura R & D Center
Casio Computer Co., Ltd.
2-1 Sakaecho 3-chome
Hamura-shi
Tokyo 205
Japan
Dear Fujisawa-san,
As you know, Casio Computer Co., Ltd. a Japanese Corporation ("Casio") and
Geoworks, a California corporation ("Geoworks") are parties to a Software
License Agreement (the "Zoomer Agreement"), entered into as of May 22, 1992. Our
records show that either party may now terminate the Zoomer Agreement. By this
letter, Geoworks respectfully advises Casio that Geoworks hereby terminates the
Zoomer Agreement as of the date of this letter.
Although the Zoomer Agreement provides that all obligations cease upon
termination, Geoworks will be pleased to continue providing support in the
manner established by the Agreement, through December 31, 1997.
We would appreciate your acknowledgment of this termination by signing this
letter below and returning it to us.
It has been our pleasure to work with Casio, and hope we may have an additional
opportunity to work together again in the future.
Sincerely,
/s/ Leland J. Llevano
Leland J. Llevano
VP Strategic Partnerships
ACKNOWLEDGED: Casio Computer Co., Ltd.
hereby acknowledges the termination of the
above-referenced Software License Agreement
as of the date of this letter.
Signed: /s/ Hidetaka Fujisawa
<PAGE> 1
EXHIBIT 10.39
CONFIDENTIAL TREATMENT REQUESTED
---------------------------------------
** This portion has been omitted and
filed separately pursuant to a request
of confidential treatment.
---------------------------------------
ADDENDUM
TO GEOWORKS - TOSHIBA
CORPORATE TECHNOLOGY AGREEMENT
This Addendum (the "Addendum") to the March 17, 1993 Corporate
Technology Agreement between Geoworks and Toshiba is effective as of December
16, 1996.
RECITALS
A. Toshiba and Geoworks entered into a Corporate Technology License
Agreement effective as of March 17, 1993 (the "Original Agreement"), as amended
by Amendment Number One effective as of June 30, 1994 ("Amendment No. 1"),
Amendment Number Two effective as of June 20, 1995 ( "Amendment No. 2"),
Amendment Number Three effective as of September 29, 1995 ("Amendment No. 3"),
the ** Project memorandum entered into in October 1995 (the "Project Outline),
and the ** made by Geoworks in connection with Toshiba's equity investment in
Geoworks (the **). Hereinafter the Original Agreement, Amendment No. 1,
Amendment No. 2, Amendment No. 3, Project Outline and ** are collectively
referred to as the "Agreement."
B. Notwithstanding the Project Outline, the Parties agreed that
Toshiba ** . Instead, the Parties wish to ** technology on which Geoworks has **
.
C. The Parties wish to amend the Agreement to add a license from
Geoworks to Toshiba of an ** for the ** operating system.
AGREEMENT
1. ADDITION TO LICENSED TECHNOLOGY
The list of technologies licensed by Geoworks to Toshiba for the ** is
hereby amended to add an ** for the ** operating system.
2. LICENSE FEE
In consideration for the addition of the ** technology, Toshiba shall
pay to Geoworks the sum of ** U.S. upon signing this Addendum. Said sum
shall
Page 1 of 2 ADDENDUM
<PAGE> 2
CONFIDENTIAL TREATMENT REQUESTED
---------------------------------------
** This portion has been omitted and
filed separately pursuant to a request
of confidential treatment.
---------------------------------------
constitute a ** for the right to use the ** technology in accordance
with the terms and conditions of the Agreement.
** of the ** technology are not **. A ** will be negotiated between the
parties should Toshiba desire that **.
Maintenance and support of the ** technology will be provided by
Geoworks under the same terms and conditions of the Agreement.
3. CONTRACT AMENDMENT
Both Parties agree to use their best efforts to formally amend the
Agreement to incorporate the terms and conditions of this Addendum.
IN WITNESS WHEREOF, the Parties have executed this Amendment as of the
Amendment Effective Date.
TOSHIBA GEOWORKS
Signature: /s/ S. Yamashita Signature: /s/ Leland J. Llevano
Print Name: S. Yamashita Printed Name: Leland J. Llevano
Title: General Manager Title: Vice President
Legal Affairs Division
Date: Dec 27, 1996 Date: 12 Dec 1996
Page 2 of 2 ADDENDUM
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF GEOWORKS AS OF DECEMBER 31, 1996, AND THE
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,727,000
<SECURITIES> 34,794,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 39,980,000
<PP&E> 5,666,000
<DEPRECIATION> (2,611,000)
<TOTAL-ASSETS> 43,195,000
<CURRENT-LIABILITIES> 4,012,000
<BONDS> 0
0
0
<COMMON> 87,138,000
<OTHER-SE> (48,613,000)
<TOTAL-LIABILITY-AND-EQUITY> 43,195,000
<SALES> 0
<TOTAL-REVENUES> 7,664,000
<CGS> 0
<TOTAL-COSTS> 309,000
<OTHER-EXPENSES> 15,883,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119,000
<INCOME-PRETAX> (6,869,000)
<INCOME-TAX> 55,000
<INCOME-CONTINUING> (6,924,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,924,000)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
