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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 JUNE 30, 1998
[ ] 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 CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 94-2920371
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
960 ATLANTIC AVENUE, ALAMEDA, CALIFORNIA 94501
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(Address of principal executive offices) (Zip code)
510-814-1660
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date:
AS OF JUNE 30, 1998, THE COMPANY HAD OUTSTANDING 16,010,142 SHARES OF COMMON
STOCK, $ 0.001 PAR VALUE PER SHARE.
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GEOWORKS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets: June 30, 1998 and March 31, 1998 2
Condensed consolidated statements of operations: Three months ended
June 30, 1998 and 1997 3
Condensed consolidated statements of cash flows: June 30, 1998 and 1997 4
Notes to condensed consolidated financial statements: June 30, 1998 5-6
Item 2. Management's discussion and analysis of financial condition and results
of operations 7-17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
</TABLE>
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PART 1 -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1998 1998
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<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,542 $ 8,738
Marketable securities 14,112 11,243
Accounts receivable (billed) 81 1,546
Accounts receivable (unbilled) 1,902 1,866
Prepaid expenses and other current assets 424 542
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Total current assets 19,061 23,935
Furniture and equipment, net 3,013 3,301
Other assets 222 227
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$22,296 $27,463
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LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued liabilities $ 1,440 $ 1,669
Deferred revenue 1,029 778
Other current liabilities 1,303 1,393
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Total current liabilities 3,772 3,840
Other liabilities 202 231
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Total liabilities 3,974 4,071
Stockholders' equity 18,322 23,392
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$22,296 $27,463
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</TABLE>
See accompanying notes
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GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
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June 30, 1998 June 30, 1997
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<S> <C> <C>
Net revenues:
License revenue $ 132 $ 849
Research and development fees 1,285 824
Service revenue 76 225
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Total net revenues 1,493 1,898
Operating expenses:
Cost of license revenue 18 47
Sales and marketing 1,243 2,248
Research and development 4,640 4,899
General and administrative 911 894
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Total operating expenses 6,812 8,088
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Operating loss (5,319) (6,190)
Other income (expense):
Interest income 195 475
Interest expense (18) (32)
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Loss before income taxes (5,142) (5,747)
Provision for income taxes 31 37
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Net loss $ (5,173) $ (5,784)
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Net loss per share (basic and diluted) $ (0.32) $ (0.37)
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Shares used in per share
computations 15,931 15,512
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</TABLE>
See accompanying notes
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GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
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June 30, 1998 June 30, 1997
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<S> <C> <C>
Operating activities:
Net loss $(5,173) $(5,784)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 430 369
Changes in operating assets and liabilities 1,621 (791)
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Net cash used in operating activities (3,122) (6,206)
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Investing activities:
Purchases of furniture and equipment (89) (498)
Sales of marketable securities (net of purchases) (2,869) 3,780
Other 6 31
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Net cash provided by (used in) investing activities (2,952) 3,313
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Financing activities:
Payments of obligations under capital leases (219) (76)
Net proceeds from issuance of common stock 97 36
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Net cash used in financing activities (122) (40)
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Net decrease in cash and cash equivalents (6,196) (2,933)
Cash and cash equivalents at beginning of period 8,738 6,319
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Cash and cash equivalents at end of period $ 2,542 $ 3,386
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</TABLE>
See accompanying notes
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GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements for the three months ended
June 30, 1998 and 1997 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
results of operations for the interim periods. The condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto, together with management's discussion
and analysis of financial condition and results of operations, included in the
Company's Annual Report to Shareholders on Form 10-K for the fiscal year ended
March 31, 1998. The results of operations for the three months ended June 30,
1998 are not necessarily indicative of the results to be expected for the entire
fiscal year. Certain reclassifications have been made to the 1998 financial
statements to conform to the current period's presentation.
2. In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128") which
replaced the calculation of primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share and includes the dilutive
effect of the assumed exercise of stock options using the treasury stock method.
Shares used in computing basic and diluted net loss per share are based on the
weighted-average shares outstanding in each period. The effect of outstanding
stock options is excluded from the calculation of diluted net loss per share as
their inclusion would be antidilutive. Net loss per share amounts for all
periods have been presented in conformity with the requirements of FAS 128.
3. In June 1997, the Financial Accounting Standards Board issued Statement No.
130 "Reporting Comprehensive Income" ("FAS 130"), and Statement No. 131,
"Disclosure about Segments of an Enterprise and Related Information" ("FAS
131"). The Company has adopted these statements in fiscal year 1999. FAS 130
establishes new standards for reporting and displaying comprehensive income and
its components. FAS 131 requires disclosure of certain information regarding
operating segments, products and services, geographic areas of operation, and
major customers. Adoption of these statements has not had a material effect on
the Company's consolidated financial position, results of operations, or cash
flows.
4. At June 30, 1998, the Company had a balance of $1,902,000 in unbilled
accounts receivable. This balance consisted of research and development fees
which were accrued into revenue under the percentage-of-completion method but
unbilled as of the date of the balance sheet. Research and development fees are
billed by the Company in accordance with installment payment schedules
stipulated in license agreements with OEMs. Unbilled accounts receivable
balances result when revenue earned under the percentage-of-completion method
exceeds the amount billed to OEM licensees pursuant to the terms of their
respective agreements.
5. The Company has received purported termination notices from an OEM licensee
pertaining to a license agreement under which it has received non-refundable
research and development fees. The OEM licensee has alleged a material breach of
the agreement by the Company, and has demanded that the Company return
approximately $1 million previously paid under the agreement and forego
collection of future scheduled milestone payments in the approximate amount of
$900,000.
The Company believes that it has meritorious defenses to the assertions
made by the OEM licensee, and intends to defend its position vigorously. The
Company further believes that resolution of the dispute will not have a material
adverse effect on its financial position. However,
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depending upon the amount and timing, an unfavorable resolution of this claim
could have a material effect on the Company's future results of operations or
cash flows in a particular period.
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ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995
Many of the discussions in this Form 10-Q for Geoworks Corporation
("Geoworks" or the "Company") are forward-looking statements, within the meaning
of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section
21E of the Securities Exchange Act of 1934 ( the "Exchange Act"). Words such as
"expects," "anticipates," "believes," "intends," "plans," "seeks," "estimates,"
and variations of such words and similar expressions are intended to identify
these forward-looking statements. In particular, discussions of the following
topics include forward-looking statements: the anticipated emergence, timing and
size of the market for mobile communicating devices, particularly smart phones;
the Company's strategy for establishing its software as a standard solution for
the smart phone market; competition in the market for mobile communicating
devices; the Company's intention to fund and complete ongoing research and
development projects, including the ongoing development and improvement of the
latest version of its operating system software; the Company's intention to
attract new OEM licensees and to develop additional devices with existing
licensees; the Company's intention to expand the market for its software by
leveraging its existing licensees; the development of a market for wireless
content and services and the Company's intention to integrate and market such
wireless content and service technologies for use by wireless mobile operators.
Actual results may vary materially from such forward-looking statements,
due to various risks and uncertainties. In particular, those risks include, but
are not limited to, the following: (i) the Company's business is critically
dependent upon the emergence of a new market and on the activities of a limited
number of device manufacturers, and the Company has no direct control over those
activities; (ii) the Company's success depends upon the acceptance of its
existing and future technologies by existing and new market participants; (iii)
development by the Company of its technologies is subject to the scheduling and
delivery risks inherent in the development of complex technologies, and such
risks have in the past caused product delays and may in the future affect the
Company's ability to develop and release new products on a timely basis; (iv)
the Company anticipates the emergence and potential impact of competitive
products and services; (v) widespread adoption of mobile communicating devices
may depend upon the commercial availability of complementary relationships and
technologies, such as wireless mobile network infrastructure; (vi) the Company
does not control the development, timing or commercial distribution of its
licensees' products, and there can be no assurance that such devices will be
released to the public or that the Company will receive any significant revenue
therefrom; and (vii) the Company has historically experienced significant losses
and disappointing revenue from past products. Please refer to the detailed
discussions of these and other risk factors at Factors Affecting Future
Operating Results, beginning on page 10.
Readers are cautioned not to place undue reliance on forward-looking
statements contained herein, which reflect the analysis of the management of
Geoworks only as of the date hereof. Geoworks does not undertake any obligation
to release publicly the results of any revision to these forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
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Results of Operations
Net Revenues
Net revenues decreased $405,000, or 21%, during the quarter ended June
30, 1998 in comparison with the corresponding quarter of the previous fiscal
year. The decrease was attributable to declines in the Company's license revenue
and service revenue in the current quarter which more than offset an increase in
revenue from research and development fees.
During the quarter ended June 30, 1998, license revenue decreased
$717,000, or 84%, in comparison with the corresponding quarter of the previous
fiscal year. License revenue in the quarter ended June 30, 1997 consisted of
royalties on units sold by OEM licensees and a source code license transaction
in the amount of $650,000. There was no such source code license during the
quarter ended June 30, 1998, as license revenue was comprised solely of
royalties on units sold by OEM licensees. Revenues associated with source code
license fees, or with any change to the terms of license agreements resulting
from amendment, restructuring, or termination, are non-recurring. Accordingly,
license revenue for the quarter ended June 30, 1997 is not considered to be
indicative of license revenue to be recognized in future periods. Further, the
Company's realization of anticipated license revenue from OEM licensees is
uncertain due to potential delays and risks in the commercial release and
acceptance of new products.
Revenue related to research and development fees increased $461,000, or
56%, during the quarter ended June 30, 1998, in comparison with the
corresponding quarter 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 amount of such revenue 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. The
increase in research and development fees during the quarter ended June 30, 1998
over the corresponding period in the previous fiscal year resulted from higher
reimbursement levels specified in the Company's contracts with OEM licensees. As
of June 30, 1998, the Company had approximately $980,000 of potential additional
revenue to earn in research and development fees under the terms of current
contracts with OEM licensees. There can be no assurance that the Company will
achieve the milestones required to earn such fees.
Service revenue of $76,000 in the quarter ended June 30, 1998 consisted
entirely of amounts earned for the support and maintenance of software licensed
by OEM customers. In addition to support and maintenance fees, service revenue
of $225,000 in the quarter ended June 30, 1997 included fees earned in
connection with software workshops sponsored by the Company for the benefit of
current and prospective OEM licensees, the absence of which accounted for the
decline in service revenue of $149,000, or 66%, for the quarter ended June 30,
1998 in comparison with the corresponding quarter of the previous fiscal year.
Operating Expenses
Cost of License Revenue. The Company's gross margin percentage on
license revenue was 86% during the quarter ended June 30, 1998 and 94% in the
corresponding quarter of the
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previous fiscal year. Cost of license revenue for the current period consisted
of license payments to third parties for software that is incorporated into the
Company's software. The inclusion of revenue from a source code license in
license revenues reported for the quarter ended June 30, 1997 increased that
quarter's gross margin percentage, and was responsible for the difference in
gross margin percentage between the two periods.
Sales and Marketing. Sales and marketing expense decreased $1,005,000,
or 45%, during the quarter ended June 30, 1998 in comparison with the
corresponding quarter of the previous fiscal year. The Company has narrowed the
scope of its product plans and marketing activities during the current fiscal
year, and as a result has lowered its staffing and achieved certain other cost
reductions in its sales and marketing programs. Additionally, there was a
non-recurring charge of approximately $300,000 during the quarter ended June 30,
1997 resulting from a reorganization of staff in certain sales and marketing
functions.
Research and Development. Research and development expense decreased
$259,000, or 5%, during the quarter ended June 30, 1998 in comparison with the
corresponding period of the previous fiscal year. This decrease was attributable
primarily to a reduction in the amounts paid to outside developers for the
license of software to be incorporated into future products.
General and Administrative. General and administrative expense
increased $17,000, or 2%, during the quarter ended June 30, 1998 in comparison
with the corresponding period of the previous fiscal year. This slight increase
reflected higher fees paid for outside legal services in connection with
intellectual property protection, and higher amounts paid for other professional
services during the current fiscal year.
Other Income (Expense)
Interest income declined $280,000, or 59%, during the quarter ended
June 30, 1998 in comparison with the corresponding period of the previous fiscal
year. This decrease was attributable to lower balances available to the Company
for short-term investment in the current period as a direct result of the
Company's operating deficits over the preceding 12 months. Interest expense
decreased $14,000, or 44%, for the quarter ended June 30, 1998 in comparison
with the corresponding period of the previous fiscal year, as monthly payments
by the Company of capital lease obligations amortized outstanding principal
balances and accordingly reduced computed interest expense.
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 March 31 year end for income
tax purposes. As of March 31, 1998, the Company had net operating loss
carryforwards for U.S. income tax purposes of approximately $67,000,000, for
U.K. income tax purposes of $7,000,000, and for state income tax purposes of
approximately $14,000,000. The Company also had research and development credit
carryforwards for federal income tax purposes of approximately $2,000,000 and
for state income tax purposes of approximately $780,000. Utilization of the
company's U.S. net operating loss and research credit carryforwards will be
subject to an annual limitation due to the "change of ownership" provisions of
the Tax Reform Act of 1986. The annual limitation may result in the expiration
of net operating loss and research credit carryforwards before utilization.
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Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities
declined to $16.7 million at June 30, 1998 from $20.0 million at March 31, 1998.
This decrease of $3.3 million resulted primarily from the use of cash during the
period for operating activities. The Company expects to incur additional
substantial operating losses at least through its fiscal year ending March 31,
1999, but anticipates that its existing capital resources will be adequate to
satisfy its operating and capital requirements throughout the fiscal year.
At June 30, 1998, the Company had a balance in accounts receivable of
$1,983,000, a decrease of $1,429,000 from the corresponding balance at March 31,
1998. The balance consisted primarily of amounts accrued by the Company under
the percentage-of-completion method. During the quarter ended June 30, 1998,
payments received from OEM licensees in connection with the achievement of
engineering milestones exceeded the amount of revenue accrued under the
percentage-of-completion method, causing the balance in accounts receivable to
decline. Prepaid expenses and other current assets decreased $118,000 from March
31, 1998 to June 30, 1998 due primarily to the amortization during the quarter
of the Company's prepaid annual insurance premiums. Furniture and equipment, net
of depreciation, decreased $288,000 from March 31, 1998 to June 30, 1998 as
depreciation of existing furniture equipment exceeded purchases of new furniture
and equipment during the period.
Accounts payable and accrued liabilities decreased $229,000 at June 30,
1998 in comparison with March 31, 1998, due principally to lower balances in the
current fiscal year for short-term equipment lease obligations and accrued
office rents. During the quarter ended June 30, 1998, the Company made scheduled
balloon payments to equipment lessors and significantly reduced the outstanding
principal balance of its short-term debt obligations. Deferred revenue increased
$251,000 from March 31, 1998 to June 30, 1998, as the Company received advance
royalty payments from OEM licensees which exceeded the amount of such payments
earned and therefore recognized as revenue within the period. Other current
liabilities decreased $90,000 from March 31, 1998 to June 30, 1998 due to the
amortization in the current fiscal year of severance obligations which had been
accrued in previous periods.
Factors Affecting Future Operating Results
History Of Operating Losses; Anticipated Future Losses. Since its inception
in 1983, the Company has realized limited revenues, incurred significant losses,
and suffered substantial negative operating cash flow. As of June 30, 1998, the
Company had an accumulated deficit of $78.4 million, and had incurred operating
losses of approximately $16.0 million, $15.5 million, and $10.7 million, in the
fiscal years ended March 31, 1998, 1997, and 1996, respectively, and an
operating loss of $5.3 million for the quarter ended June 30, 1998. The Company
expects to continue to incur substantial annual operating losses at least
through its fiscal year ending March 31, 1999, 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 communicating devices and
reducing its operating expenses. The Company's objective is to establish its
operating system software as a leading operating system for this market, and to
leverage this position by developing and marketing products and services to the
installed base of smart phone 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 these markets, the Company's ability to establish
licensing relationships with leading hardware manufacturers, the introduction by
those manufacturers of successful products, the emergence of wireless content
and services for smart phones to spur
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demand for the smart phone market and generate additional revenues, and the
Company's ability to achieve and maintain a competitive advantage should such
market develop.
Dependence On Emergence Of Smart Phone Market. The Company's efforts are
currently concentrated on developing and marketing operating system software and
applications for use in smart phones, from enhanced phones to the higher end of
smart communicators. The Company's success depends upon the emergence of a new
market for these products. Although the market for wireless mobile telephones is
well-established and is currently growing 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 or been shipped in volume in the
United States. In August 1996, Nokia released a smart phone in selected
geographic markets which incorporates the Company's GEOS software. The product
began shipping in North America in December 1997. In July 1997, Toshiba released
a smart phone for the Japanese market that incorporates the Company's operating
system software. Although these devices have received positive reviews and
several awards, their market acceptance has been limited and they have yet to
make a meaningful contribution to the Company's royalty revenues or operating
results. More generally, the failure, delay in shipment, or cancellation of any
product in this new category, or the discontinuation of any such product by its
manufacturer, could significantly affect the marketability of other similar or
related products and components and the development of the market. The Company
has no control over the commercial release or pricing of devices incorporating
the Company's operating system and, therefore, cannot guarantee that any devices
will reach the desired price points to achieve mass market acceptance. Further,
there can be no assurance that the market for smart communicators will emerge,
but the Company believes that such market will in any case not emerge before the
year 2000.
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 maintenance and support 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. The
success of smart phones also depends on a number of other general market factors
outside the Company's control, including but not limited to consumer acceptance
of particular smart phone concepts and features.
In addition, the Company's long-term results will be affected by the
success of the market for wireless content products and services that operate on
smart phones. There can be no assurance, however, that the wireless content and
services market will develop as anticipated.
Risks of Software Product Development and Risk of Delays. The Company's
future success will depend on its ability to develop and release, on a timely
basis, new operating system and application software products and upgrades for
smart communicators, new applications for enhanced phones, and new aftermarket
products and services. Geoworks has recently introduced a new generation of its
operating system software called GEOS-SC that, unlike its predecessor GEOS
technology, is processor-independent, i.e., not limited to processors based upon
the Intel x86 architecture. Further, Geoworks is currently developing software
technologies for enhanced phones. Broad acceptance of Geoworks' existing and yet
to be released products in new markets, including markets that may be
characterized by greater usage of non-Intel microprocessors, is critical to
Geoworks' future success. Geoworks has made significant progress toward this
development goal, but acceptance of its newly developed products in the market
is uncertain and the adaptation and/or development of core technology for a
different microprocessor architecture can be technically difficult, time
consuming and subject to delays. There can be no assurance that
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Geoworks will be successful in continuing to market and sell products developed
for non-Intel microprocessors, or will be successful in future development
efforts.
Further, because of the short product life cycles and intense competition
expected in the mobile communicating device market, the timeliness of new
product introductions and shipments can be critical to whether a particular
product will ever achieve market acceptance. There can be no assurance that the
Company will be able to develop, introduce and ship new products or upgrades on
a timely basis. Furthermore, from time to time, the Company and others may
announce new products, features or technologies that have the potential to
replace or shorten the life cycle of the Company's existing product offerings.
There can be no assurance that announcements by the Company or competitors will
not cause customers to defer purchasing existing products of the Company or its
hardware partners, or cause distributors and dealers to return products. Delays
or difficulties associated with developing or introducing new products could
have a material adverse effect on the Company's business and results of
operations.
The Company has historically engaged in significant customization of its
GEOS system software for each mobile communicating device hardware partner. The
software development and customization process is inherently unpredictable.
Development time and the achievability of design objectives may not be
determinable until very late in the development process. Problems and delays in
product development or customization may result in the delay or cancellation of
planned product or service offerings by the Company and its strategic partners,
and consequently could have an adverse effect on the Company's operating
results. In the past, the Company has experienced significant delays in the
completion of development and customization projects and the release of new
products to mobile communicating device hardware partners. Consequently, the
receipt of research and development fees and license revenue from these partners
has also been delayed, and in several cases the partners have elected not to
commercialize the products under development. Such delays have resulted from a
number of factors, including, but not limited to, changes in specifications
initiated by the Company's hardware partners. The extent of these delays has
varied depending upon the size and scope of the project and the nature of the
problems encountered. There can be no assurance that the Company will not
experience similar problems and delays in the future, which would have material
adverse effects on the Company's operating results. Furthermore, complex
software products often contain errors, and significant errors may go undetected
for some time. Discovery of significant errors may delay or cancel product
releases and, if not discovered until after product release, may necessitate
recall of products by the Company and its strategic partners and expose the
Company to substantial expense and claims for reimbursement.
Competition. The Company expects there to be intense competition among
mobile communicating device operating systems, to the extent a market develops
for such communicating devices. Although the Company believes that the diverse
segments of the mobile communicating device market will provide opportunities
for more than one operating system, it is possible that a single operating
system supplier may dominate in one or more segments of the market. Companies
with significantly greater financial, technical, and marketing resources and
greater name recognition than the Company, such as Symbian (a joint venture
involving Psion, Nokia, Ericsson, and possibly Motorola), Microsoft, Sun
Microsystems, Microware, and 3COM (through its Palm Computing division), have
each developed or are reported to be developing operating systems that may
compete directly with the Company's current and anticipated future operating
system software. Further, developers of real-time operating systems and low-end
operating system software may attempt to adapt their products for the smart
phone market, thus providing operating systems that compete with the Company's
offerings in terms of size and battery life. Each of these systems represents an
effort to deliver an operating system for use in mobile communicating devices,
and one or more of these systems may include or improve upon features which the
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Company believes currently gives the GEOS and GEOS-SC system software an
advantage in mobile communicating devices over competing operating systems.
Moreover, a number of the Company's current licensees have also established
relationships with certain of these competing companies, and future licensees
may do the same. In addition, manufacturers may choose to develop or acquire
proprietary operating systems for their mobile communicating devices and thereby
compete directly with the Company. There can be no assurance that the Company's
competitors will not develop or market mobile communicating device operating
system or application software products that are superior to those of the
Company, that are offered at lower prices than those of the Company, or that
achieve greater market acceptance than those of the Company.
In June of 1998, Psion, Ericsson, and Nokia announced a joint venture called
Symbian that will license Psion's EPOC operating system to smart phone
manufacturers. At the time of the announcement, Motorola had executed a
Memorandum of Understanding with the intention of becoming an investor in
Symbian. Collectively, Ericsson, Nokia, and Motorola hold a dominant position in
the worldwide market for wireless mobile telephones, of which smart phones
represent a market segment. While Symbian is in its formative stages and its
ultimate impact on the Company is difficult to assess, this joint venture could
have a material adverse effect on the Company's business and results of
operations.
Acceptance Of Geoworks Technology. The Company's success in establishing its
current or its anticipated future operating system software and applications
software as leading software solutions in the mobile communicating device market
is critically dependent on the Company's ability to establish and sustain
business relationships with key mobile communicating device market participants.
The Company has already established relationships with several mobile
communicating device hardware manufacturers and other companies which the
Company believes will be significant participants in the mobile communicating
device and services markets. Despite the importance of these relationships, the
Company must secure additional strategic design wins and licensing relationships
with its existing licensees and with other market participants in order to
establish the Company's software as accepted solutions. Accordingly, there can
be no assurance that the Company's existing licenses will result in sustained
license relationships, successful products or substantial revenues for the
Company. Furthermore, even if the Company is able to establish and sustain
relationships with particular participants in the mobile communicating device
market, the Company's success depends upon the development by the Company and
others of aftermarket application products and services for mobile communicating
device products in order to derive revenue from aftermarket products and
services. There can be no assurance that the Company will be able to establish
any such relationships, that the Company's software will be accepted or that
successful aftermarket products and services will be developed or licensed. The
Company's application strategy initially includes supporting a limited number of
independent software developers who elect to create, produce and market
aftermarket applications and services targeted for devices that incorporate the
Company's operating system software. There can be no assurance that the Company
will develop such relationships, or that a limited number of independent
software developer relationships will be sufficient for the Company to compete
effectively in the mobile communicating device market, that the Company or
independent software developers will be able to develop aftermarket applications
and services in a timely manner or, if developed, that such applications and
services will achieve market acceptance.
Dependence On Complementary Technologies. In certain mobile communicating
device market segments, widespread adoption and use of mobile communicating
devices may depend on the commercial availability of other technologies and
business relationships. For example, widespread use of wireless mobile
telephones for data transfer in the United States or other regions may depend
upon the development of a wireless mobile network infrastructure capable of
digital
13
<PAGE> 15
transmission, as well as reliable, affordable and convenient wireless
transmission of data. For mobile communicating devices to achieve consumer-level
pricing, technologies which reduce the cost of manufacturing and the cost of
goods may need to be developed and implemented. These cost reductions will also
require the Company's OEM licensees to achieve economies of scale in
manufacturing. There can be no assurance that such complementary technologies
will develop, or that such cost and price reductions can be achieved.
Disappointing Revenue from Previous Generation Products. Prior to its
concentration on software for the emerging smart phone market, the Company
licensed its 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, achieved only modest unit
sales. With the exception of the Palm Pilot product from 3COM (which does not
incorporate the Company's software), products in these device categories have
experienced low adoption rates. 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. Several of the Company's
previous licensees have canceled products prior to introduction or discontinued
them after experiencing disappointing sales. Collectively, these third-party
product cancellations, terminations and disappointments have resulted in the
Company recognizing lower-than-expected recurring license revenues in previous
fiscal years.
Adequacy of Capital Resources to Execute Business Plan. The Company
anticipates that its existing capital resources will be adequate to satisfy its
operating and capital requirements at least through March 31, 1999. The Company
expects to incur additional substantial losses at least through the fiscal year
ending March 31, 1999, and may require substantial additional capital beyond
that time to successfully execute its business plan and achieve profitability.
The Company's long-term capital requirements will depend upon many factors,
including, but not limited to, revenue from operations, working capital
requirements, investment in product development and sales and marketing
activities, and capital expenditures. Historically, the Company has relied upon
the sale of equity securities, advance payments of license revenue and
engineering fees, and short-term loans as sources of funding. In the event the
Company requires additional financing to execute its business plan, there can be
no assurance that such additional financing will be available or that, if
available at all, the terms of such financing would be favorable to the Company
or to its stockholders without substantial dilution of their ownership and
rights. If adequate funds are not available to satisfy either short-term or
long-term requirements, the Company may be required to significantly curtail the
scale of its operations, forego market opportunities, or obtain funds through
arrangements with strategic partners or others that may require the Company to
relinquish material rights to certain of its technologies or potential markets.
Dependence On Limited Number Of Manufacturers. The Company's business is
critically dependent upon the timely introduction and successful marketing and
sale by a limited number of consumer product companies of smart phones based
upon the Company's software. The Company is dependent upon the actions of its
customers concerning the development and release of their products, and there
can be no assurance that the Company's licensees will commercialize such
products or that the Company will derive revenues therefrom. During fiscal year
1998, three licensees of the Company's software accounted collectively for
greater than half of the Company's total net revenues, and four licensees each
accounted individually for greater than 10% of the Company's total net revenues.
In August 1996, Nokia released in selected geographic markets a smart phone
which incorporates the Company's GEOS software. In July 1997, Toshiba introduced
the GENIO, a mobile communicating device for the Japanese market incorporating
Company's operating system software. These products have yet to generate
significant royalty revenue or
14
<PAGE> 16
make material, favorable contributions to the Company's operating results. It is
unclear whether these products will in the long term have a beneficial impact on
the Company's reported royalties or the adoption rate of smart phones. The
Company has no direct control over any particular smart phone's hardware design,
product functionality, pricing strategy, release dates, market positioning,
product promotion or distribution, all of which affect the product's success
and, therefore, the Company's business results. In addition, foreign currency
fluctuations may limit the ability of foreign consumer product companies to
achieve production costs low enough to meet the pricing requirements of the
smart phone market or otherwise affect the pricing of their products in foreign
markets, to the extent that pricing is denominated in U.S. dollars. If a
particular smart phone does not achieve broad market acceptance and generate
anticipated sales volume, the Company's operating system royalties from such
product and the Company's opportunity for aftermarket sales of products and
services to users of such product will be materially adversely affected.
Furthermore, under the terms of the Company's agreements with hardware
manufacturers, the manufacturer is generally permitted to add product
enhancements or new products to the agreement. In such event, the Company may be
obligated to apply unamortized advance payments under the agreement against
license revenue to be earned by the Company on per unit sales of such additional
products. The Company may incur additional research and development expenses to
provide software for such products. Any such activities are generally subject to
reaching agreement on specifications, delivery, pricing and additional payments.
Dependence On Development Of Wireless Content And Services. Even if the
general smart phone market develops as anticipated by the Company and the
Company's software becomes a leading software solution for hardware devices, the
Company believes its long-term financial success is also dependent on its
ability to derive revenue from the delivery of wireless content and services for
mobile communicating devices. The Company's plan for generating such revenue
includes: sales by the Company of internally developed client and server
software and services for, as well as upgrades to and associated products for,
smart phones based upon the Company's operating system; recurring license
revenue from communication services providers; and integration by the Company of
third-party content, applications and services. There can be no assurance,
however, that the Company will be able to derive significant revenue from any of
these sources. The Company currently offers only a very limited number of
aftermarket applications in selected smart phone market segments. The Company's
wireless server and client development resources, experience and market presence
are more limited than those of many other developers. There can be no assurance
that the Company will be able to successfully develop additional aftermarket
products or services or obtain distribution rights to third-party products or
content, or that any such products or content will achieve acceptance in the
market. Further, the Company has historically marketed operating system and
applications, and has only limited experience marketing server and client
applications to communication service providers. There can be no assurance that
the Company will be able to offer sufficiently attractive products to generate
significant revenue. Moreover, the Company may be required to respond to
competitive products and to customer demands by including features of its
aftermarket products or services in updated versions of the Company's software.
To the extent that the Company is required to so include such products and
services, the Company may be unable to derive the level of revenue from such
products and services that the Company would derive if such products or services
were sold separately. While, in the past, the Company has been able to obtain
recurring license revenue from certain communication services providers, there
can be no assurance that the Company will be able to obtain similar arrangements
with other providers. Finally, practicable and effective wireless distribution
of content and services is an unproven concept which depends on many factors for
success, including the size of the data and applications to be distributed and
the presence of an appropriate infrastructure. Accordingly, there can be no
assurance that wireless distribution will prove to be feasible or that the
Company's technology will be suitable for the distribution infrastructure as it
develops. Regardless of the success of the Company's operating system
15
<PAGE> 17
software, if the Company is unable to derive significant revenue from one or
more of the foregoing aftermarket sources, the Company's long-term business,
results of operations and financial condition will be materially adversely
affected.
Fluctuations in Operating Results. 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 by these
participants and market acceptance of new phones based upon the Company's
software; the introduction and distribution of new system and application
software by the Company; the extent to which the Company can negotiate and
subsequently earn research and development fees from its OEM licensees; 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. Revenue from research and development fees 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 toward projects on which research and development fees are
charged. 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 toward 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, Japanese and global economies. The Company believes that
the market for smart phones and other mobile communicating devices 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.
International Operations. International revenue has accounted for the
majority of the Company's revenue in each of the last three fiscal years. The
Company anticipates that international revenue will continue to represent a
significant portion of the Company's future revenue. Revenue from international
sources is subject to certain inherent risks, including unexpected changes in
regulatory requirements and tariffs, potential difficulties in the collection of
accounts receivable, and unfavorable tax consequences. Although the Company's
revenue is generally denominated in U.S. dollars, fluctuations in currency
exchange rates and changes in local economic conditions could have adverse
consequences on the Company's ability to license its technology to international
customers, and as a result could adversely affect the Company's ability to
generate revenue from technology licensing and from research and development
fees. Additionally, royalty income from licensees in certain countries, such as
Japan and Finland, is subject to the withholding of income taxes. The amount and
mix of the Company's revenue derived from such licensees will impact the
Company's provision for income taxes. Differences in the amount and mix of the
Company's revenue actually derived from licensees subject to foreign withholding
taxes as compared to amounts forecast by the Company may adversely impact the
Company's income tax rate.
Non-Recurring Revenues. 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,
amendment, or termination of such agreements or upon product discontinuation.
Amounts recognized upon such restructuring, amendment, or termination have
16
<PAGE> 18
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.
Effect Of Wholesale Prices On Royalties. Royalties from the license of the
Company's software to mobile communicating device hardware manufacturers may
represent a significant component of the Company's future revenues. The
royalties the Company receives from these licenses are usually correlated to the
wholesale or comparable transfer price of the mobile communicating devices in
which the Company's software is incorporated. The price of smart phones and
other mobile communicating devices is expected to decline over time, as a result
of competitive pressures and consumer demands, and due to the efforts of the
Company's OEM customers to achieve increased sales volume through price
reductions. To the extent that the Company's royalty is determined as a
percentage of said price, or to the extent that the Company responds to market
pressures by reducing the amount of fixed-dollar royalties, any such reduction
in the wholesale or comparable transfer price will have a material adverse
effect on the royalty per unit the Company receives. There can be no assurance
that an increase in sales volume will result from a decline in the wholesale or
comparable price and thereby compensate for any decline in royalties per unit
which the Company receives from its OEM licensees.
Dependence on Key Personnel. The Company's future success depends in large
part on the continued service of its key technical, sales, and management
personnel, and on its ability to attract and retain qualified employees,
particularly highly skilled software design engineers involved in the
development of new products. The competition in the high technology industry for
such personnel is intense, and there can be no assurance that the Company will
be successful in attracting and retaining such personnel. In addition, the
Company does not have any employment contracts in place for key employees. The
loss of key employees could have a material adverse effect on the Company's
business, operating results, and financial condition.
Dependence on Year 2000 Compliance. Without modifications, many currently
installed computer systems and applications are not capable of adequately
responding to the change from the 20th century to the 21st century, potentially
resulting in operating difficulties ("Year 2000"). To the extent such Year 2000
issues cause significant delay in, or cancellation of, decisions to purchase the
Company's products or product support, the Company's business, results of
operations and financial condition could be materially adversely affected. The
Company's software products operate as a conduit for data from smart phones and
other mobile communicating devices to application software developed by third
parties. The Company has no control as to whether such hardware devices and
software will accurately process Year 2000 data. The Company faces additional
risk to the extent that suppliers of products, services and systems purchased by
the Company and others with whom the Company transacts business are not Year
2000 compliant. Based on its assessment to date, the Company believes that the
current versions of its products, as well as its internal management information
and other systems, are either Year 2000 compliant or will not require
substantial effort or cost to make them Year 2000 compliant. Further, the total
cost of these Year 2000 compliance activities has not been material to date.
However, there can be no assurance that the Company will identify and remedy all
significant Year 2000 problems in a timely fashion, that remedial efforts in
this regard will not involve significant time and expense, or that such problems
will not have a material adverse effect on the Company's business, results of
operations and financial condition.
Volatility Of Stock Price. 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's 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.
17
<PAGE> 19
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
None.
18
<PAGE> 20
PART 2 -- OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
<TABLE>
<S> <C>
10.24 Separation Agreement and General Release between the
Registrant and Jordan J. Breslow dated June 30, 1998
27.1 Financial Data Schedule
</TABLE>
b) Reports on Form 8-K
No reports on Form 8-K were filed in this quarter.
19
<PAGE> 21
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: August 13, 1998
GEOWORKS CORPORATION
by: /s/ David A. Thatcher
---------------------------------------
David A. Thatcher
President, Chief Executive Officer and
Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
20
<PAGE> 22
GEOWORKS CORPORATION
EXHIBITS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
10.24 Separation Agreement and General Release between the
Registrant and Jordan J. Breslow dated June 30, 1998
27.1 Financial Data Schedule
</TABLE>
21
<PAGE> 1
EXHIBIT 10.24
SEPARATION AGREEMENT AND GENERAL RELEASE
This Separation Agreement and general Release (the "Agreement") is entered into
this 1st day of July, 1998, between Geoworks Corporation, a Delaware corporation
("Company") and Jordan J. Breslow ("Employee").
WHEREAS, Company and Employee desire to resolve any and all claims, demands,
rights or actions, arising out of or in connection with Employee's employment or
separation from employment with Company, whether legal, equitable, contractual,
statutory (federal, state, or local) or otherwise without litigation.
IN CONSIDERATION OF THE MUTUAL AGREEMENTS AND COVENANTS SET FORTH HEREIN, THE
PARTIES AGREE AS FOLLOWS:
1. Employee shall resign from the office of Vice President, General Counsel,
which resignation shall be deemed effective as of July 24, 1998 ("Resignation
Date"). Employee will continue as an employee of the Company through September
30, 1998 ("Termination Date"). No further Paid Time Off will be accrued during
the period between Resignation Date and Termination Date.
2. Employee shall be paid the value of any unused PTO as of July 24, 1998 on
August 31, 1998 and will receive semi-monthly paychecks calculated as the
pro-rata amount of a monthly payment of $13,666.67 from the Resignation Date to
the Termination Date ("Settlement Sum"). All payments shall be less withholdings
required by law. Federal and state withholding taxes on income, state disability
insurance, FUTA and FICA contributions will continue to be withheld on the same
basis currently in effect, subject to any changes in governmental regulations or
general company policy which may require adjustment to the current amounts.
Payment of the Settlement Sum shall be subject to and on condition that, as of
the date of each payment, Employee is in compliance with all material terms of
this agreement.
3. The Company reaffirms its obligation under Employee's June 20, 1997
engagement letter (the "Engagement Letter"), to provide tax return preparation
and income tax equalization. Income tax equalization shall be administered
pursuant to the Geoworks U.S. Tax Equalization Policy.
4. The Company reaffirms its obligation under the Engagement Letter to provide
reimbursement for reasonable expenses related to Employee's relocation from The
Netherlands to the San Francisco Bay Area. Additionally, the Company agrees to
cover any ongoing costs, such as rental and realtor commission, that may remain
in the Netherlands.
5. Employee reaffirms his obligation to repay the outstanding balance of an
automobile loan in the sum of three thousand five hundred forty-three dollars
and forty-one cents ($3,543.41) (the principal balance owed as of July 31,
1998). The Company may deduct said sum from the final payment to be made to
Employee under paragraph 2, above.
6. For the period from July 7, 1998 through July 24, 1998, Employee agrees to
cooperate with Company as necessary, to provide information known to Employee
(both written and electronic) concerning the operations of Company and Company's
customers, and to provide an orderly transition with respect to Employee's work
in progress. Employee further agrees to be reasonably available for brief
telephone consultation with the executive staff and legal department of Company
concerning transition matters during the period from August 1 through September
30, 1998.
<PAGE> 2
7. Employee's stock options shall continue to vest up to and including August
24, 1998, in accordance with the terms of the Stock Option Agreement between
Company and Employee. Said options may be exercised by Employee within ninety
(90) days of Termination Date.
8. Employee and Company agree that the terms of this Agreement will be held in
confidence by both parties except to the extent that disclosures may be required
by government regulations or judicial process. Company will refrain from making
disparaging statements regarding Employee. Employee agrees that he shall refrain
from making disparaging statements regarding Company, its products, personnel or
operations and that he shall characterize the reason for his departure as
"resignation". Likewise, management and the Board of Directors shall
characterize Employee's departure as a voluntary resignation when addressing
Company employees, industry participants and others.
9. Employee agrees that, during the course of his employment, he has had access
to certain trade secrets and confidential and proprietary information of
Company. Employee agrees that he shall neither use nor disclose, either for his
own benefit or the benefit of any other person or entity other than Company, any
information which can be properly characterized as a trade secret or
confidential and proprietary information of Company including, without
limitation, customer lists, knowledge of the status of certain transactions,
development plans or schedules and any information concerning the financial
status of Company. Employee acknowledges his continuing obligations under the
terms of Employee's Invention Assignment, Proprietary Information and
Nondisclosure Agreement.
10. Employee shall return to Company all property of Company including, but not
limited to, all equipment, tangible proprietary information, documents, books,
records, reports, contracts, lists, computer disks or any other computer
generated files or data, or copies thereof, created on any medium, prepared or
obtained by Employee in the course of, or incident to, his employment with
Company no later than thirty (30) working days after the Resignation Date.
Employee may purchase from Company the following equipment currently in
Employee's use: desktop computer, laptop computer and fax machine, for $1500
U.S.
11. During the period between Resignation Date and Termination Date, Employee
and his eligible dependents will continue to receive medical, dental, and vision
benefits as provided previously. Employee will also continue to have short-term
disability, long-term disability, life insurance, accidental death insurance,
and he will be eligible to participate in the 401(k) and Employee Stock Purchase
Plan. Employee may continue to use his voice mail box and e-mail account through
the Termination Date. The Company reaffirms its obligations under the Engagement
Letter to reimburse Employee for any uninsured medical expenses incurred during
Employee's European assignment that would have been insured if employee were a
U.S. resident employee.
12. Release. The Parties and their representatives, heirs, successors and
assigns do hereby irrevocably and unconditionally release and forever discharge
each other and each and all of their affiliates, and their present and former
shareholders, officers, directors, agents, employees, attorneys, successors and
assigns (collectively, "Released Parties") from all claims, rights, demands,
actions, obligations and causes of action of every kind and character, known and
unknown, mature or unmatured, which Employee and Company may now have or has
ever had, whether based on tort, contract (express or implied), or any federal,
state, or local law, statute or regulation (collectively, "Release Claims"). By
way of example and not in limitation of the foregoing, Released Claims shall
include any claims arising under Title VII of the Civil Rights Act of 1964, the
Age Discrimination in Employment Act, the Americans with Disabilities Act and
the California Fair Employment and Housing Act, as well as any claim asserting
wrongful termination, breach of contract, breach of covenant of good faith and
fair dealing, negligent or intentional infliction of emotional distress,
negligent or intentional misrepresentation, negligent or intentional
interference with contract or prospective economic advantage, defamation,
invasion of privacy and claims related to disability. Released Claims shall also
include, but not be limited to, claims for severance pay, bonuses, sick leave,
vacation pay, life or health insurance or any other benefit. The Parties
likewise
<PAGE> 3
release Released Parties from any and all obligations for attorneys' fees
incurred in regard to the above claims or otherwise to the extent provided by
law.
13. Section 1542 Waiver. The parties understand and agree that Released Claims
include not only claims presently known to them, but also include all unknown or
unanticipated claims, rights, demands, actions, obligations, liabilities and
causes of action of every kind and character that would otherwise come within
the scope of Released Claims as described in paragraph 12. The Parties further
understand that they may hereafter discover facts different from what they now
believe to be true, which if known, could have materially affected this
Agreement, but they nevertheless waive any claims or rights based on different
or additional facts. The parties knowingly and voluntarily waive any and all
rights or benefits that they may now have, or in the future may have, under the
terms of Section 1542 of the California Civil Code, which provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR
SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF
KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
14. Nonadmission. The parties understand and agree that this is a compromise
settlement of disputed claims and that the furnishing of the consideration for
this Agreement shall not be deemed or construed at any time or for any purpose
as an admission of liability by Company or Employee. The liability for any and
all claims is expressly denied by both parties.
15. Age Discrimination Claims. Employee understands and agrees that, by entering
into this Agreement, (i) he is waiving any rights or claims he might have under
Age Discrimination in Employment Act; (ii) he has received consideration beyond
that to which he was previously entitled; (iii) he has been advised to consult
with an attorney before signing this Agreement; and (iv) he has been offered the
opportunity to evaluate the terms of this Agreement for not less than twenty-one
(21) days prior to the execution of the Agreement. Employee may revoke this
Agreement (by written notice to Company) for a period of seven (7) days after
his execution of the Agreement, and it shall become enforceable upon the
expiration of this revocation period without prior revocation by Employee.
16. Arbitration. All claims that Employee may have against Company or any other
Released Party, or that Company may have against Employee, in any way related to
the interpretation or enforcement of this Agreement ("Arbitrable Claims") shall
be resolved by arbitration to the extent permitted by law. Arbitration shall be
in accordance with the National Rules for the Resolution of Employment Disputes
of the American Arbitration Association, as amended, and as augmented by this
Agreement. Either party may bring an action in court to compel arbitration under
this Agreement and to enforce an arbitration award. THE PARTIES HEREBY WAIVE ANY
RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
17. Notices. Any notice under this Agreement must be in writing and shall be
effective upon delivery by hand, upon facsimile transmission, two (2) days after
deposit with a nationally recognized overnight courier service, or three (3)
business days after deposit in the United States mail, postage prepaid,
certified, or registered and addressed to Company or Employee at the
corresponding address or fax number (if any) below. Employee shall be obligated
to notify Company in writing of any change of his address. Notice of change of
address shall be effective only when done in accordance with this Section.
Company's Notice Address:
Geoworks
960 Atlantic Avenue
Alameda, CA 94501
Fax number: 510-814-4253
<PAGE> 4
Employee's Notice Address:
Jordan Breslow
2602 Webster Street
Berkeley, CA 94705
18. Integration. The parties understand and agree that the preceding Sections
recite the sole consideration for this Agreement; that no representation or
promise has been made by Employee, Company or other Released Party on any
subject whatsoever, except as expressly set forth in this Agreement, the
provisions of the Engagement Letter referred to herein, and the Geoworks U.S.
Tax Equalization Policy (which collectively constitute the "Separation
Agreement"); and that all agreements and understandings between the parties on
any subject whatsoever are embodied and expressed in the Separation Agreement.
The Separation Agreement shall supersede all prior or contemporaneous agreements
and understandings among Employee, Company and any other Released Party, whether
written or oral, express or implied, with respect to any subject whatsoever,
including without limitation any employment-related agreement or benefit plan,
except to the extent that the provisions of any such agreement or plan have been
expressly referred to in this Agreement as having continued effect.
19. Amendments; Waivers. This Agreement may not be amended except by an
instrument in writing, signed by each of the parties.
20. Assignments: Successors and Assigns. Employee agrees that he will not
assign, sell, transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, or by operation of law, any rights or obligations under this
Agreement. Any such purported assignment, transfer or delegation shall be null
and void. Employee represents that he has not previously assigned or transferred
any claims or rights released by him pursuant to this Agreement.
21. Severability. If any provision of this Agreement, or its application to any
person, place or circumstance, is held by an arbitrator or a court of competent
jurisdiction to be invalid, unenforceable or void, such provision shall be
enforced to the greatest extent permitted by law, and the remainder of this
Agreement and such provision as applied to other persons, places and
circumstances shall remain in full force and effect.
22. Governing Law. This Agreement shall be governed and construed in accordance
with the law of the State of California.
23. Representation by Counsel. The parties acknowledge that (i) they have had
the opportunity to consult counsel in regard to this Agreement; (ii) they have
read and understand the Agreement and they are fully aware of its legal effect;
and (iii) they are entering into this Agreement freely and voluntarily, and
based on each party's own judgment and not on any representations or promises
made by the other party, other than those contained in this Agreement.
<PAGE> 5
The parties have duly executed this Agreement as of the date first written
above.
GEOWORKS: EMPLOYEE:
By /s/ David A. Thatcher By /s/ Jordan J. Breslow
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Title President and CEO Date July 9, 1998
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Date July 9, 1998
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET OF GEOWORKS AS OF JUNE 30, 1998, AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,542,000
<SECURITIES> 14,112,000
<RECEIVABLES> 1,983,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,061,000
<PP&E> 7,445,000<F1>
<DEPRECIATION> (4,432,000)<F1>
<TOTAL-ASSETS> 22,296,000
<CURRENT-LIABILITIES> 3,772,000
<BONDS> 0
0
0
<COMMON> 96,548,000<F1>
<OTHER-SE> (78,226,000)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 22,296,000
<SALES> 0
<TOTAL-REVENUES> 1,493,000
<CGS> 0
<TOTAL-COSTS> 18,000
<OTHER-EXPENSES> 6,794,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,000
<INCOME-PRETAX> (5,142,000)
<INCOME-TAX> 31,000
<INCOME-CONTINUING> (5,173,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,173,000)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
<FN>
<F1>INTEREST INCOME ON SECURITIES - $195,000
</FN>
</TABLE>
