<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 SEPTEMBER 30, 1999
[ ] 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
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
DELAWARE 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
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date:
As of October 31, 1999, the Company had outstanding 17,721,976 shares of Common
Stock, $ 0.001 par value per share.
<PAGE> 2
GEOWORKS CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets: September 30, 1999 and
March 31, 1999 2
Condensed consolidated statements of operations: Three and six
months ended September 30, 1999 and 1998 3
Condensed consolidated statements of cash flows: Six months
ended September 30, 1999 and 1998 4
Notes to condensed consolidated financial statements: September
30, 1999 5-7
Item 2. Management's discussion and analysis of financial condition
and results of operations 8-20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 20
Part II. Other Information
Item 4. Submission of matters to a vote of security holders 21
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
</TABLE>
1
<PAGE> 3
PART I FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Sept. 30, March 31,
1999 1999
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,036 $ 1, 760
Marketable securities 11,213 11,955
Accounts receivable 463 3,102
Prepaid expenses and other current assets 649 371
------- -------
Total current assets 15,361 17,188
Furniture and equipment, net 813 973
Long-term investment 24,718 --
Other assets 22 22
------- -------
$40,914 $18,183
======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 729 $ 504
Accrued and other current liabilities 2,315 2,807
Deferred revenue 2,512 1,498
------- -------
Total current liabilities 5,556 4,809
Stockholders' equity 35,358 13,374
------- -------
$40,914 $18,183
======= =======
</TABLE>
See accompanying notes
2
<PAGE> 4
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------- ----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues:
Professional services $ 1,384 $ 145 $ 2,533 $ 145
Research and development fees -- 746 -- 2,031
License and other revenue 1,556 402 2,040 610
-------- -------- -------- --------
Total net revenues 2,940 1,293 4,573 2,786
Operating expenses:
Cost of services 934 146 1,729 146
Cost of license revenue 115 13 181 31
Sales and marketing 1,109 1,403 2,039 2,646
Research and development 977 3,563 1,926 8,203
General and administrative 814 909 1,516 1,820
-------- -------- -------- --------
Total operating expenses 3,949 6,034 7,391 12,846
-------- -------- -------- --------
Operating loss (1,009) (4,741) (2,818) (10,060)
Other income (expense):
Interest income 146 171 285 366
Interest expense -- (2) (9) (20)
-------- -------- -------- --------
Loss before income taxes (863) (4,572) (2,542) (9,714)
Provision for income taxes 131 29 296 60
-------- -------- -------- --------
Net loss $ (994) $ (4,601) $ (2,838) $ (9,774)
======== ======== ======== ========
Net loss per share - basic and diluted $ (0.06) $ (0.29) $ (0.16) $ (0.61)
======== ======== ======== ========
Shares used in per share computation 17,723 16,048 17,683 15,990
======== ======== ======== ========
</TABLE>
See accompanying notes
3
<PAGE> 5
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------------
Sept. 30, Sept. 30,
1999 1998
--------- ---------
<S> <C> <C>
Operating activities:
Net loss $(2,838) $(9,774)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 326 754
Changes in operating assets and liabilities 3,134 1,229
------- -------
Net cash provided by (used in) operating activities 622 (7,791)
------- -------
Investing activities:
Purchases of property and equipment (166) (121)
Sales of marketable securities (net of purchases) 742 1,985
------- -------
Net cash provided by investing activities 576 1,864
------- -------
Financing activities:
Payments of capital lease and debt obligations (26) (308)
Net proceeds from issuance of common stock 111 170
------- -------
Net cash provided by (used in) financing activities 85 (138)
------- -------
Foreign currency translation adjustments (7) (25)
------- -------
Net increase (decrease) in cash and cash equivalents 1,276 (6,090)
Cash and cash equivalents at beginning of period 1,760 8,738
------- -------
Cash and cash equivalents at end of period $ 3,036 $ 2,648
======= =======
</TABLE>
See accompanying notes
4
<PAGE> 6
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements for the three and six months
ended September 30, 1999 and 1998 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 Stockholders on Form 10-K for the
fiscal year ended March 31, 1999. The results of operations for the three or six
months ended September 30, 1999 are not necessarily indicative of the results to
be expected for the entire fiscal year. Certain reclassifications have been made
to the prior period's financial statements to conform to the current period's
presentation.
In the fiscal year beginning April 1, 1999, the Company began disclosing
professional services revenues and the related service costs. Such consulting
services can be offered at relatively higher rates than those for Original
Equipment Manufacturer (OEM) funded research and development fees, but do not
generally have the additional revenue potential provided by a royalty or license
agreement with the OEM. Professional services revenues are usually billed and
recognized based on time and materials expended rather than based on the
attainment of milestones specific to the OEM contracts. The majority of the
current professional service projects involve consulting related to technology
previously developed by Geoworks. Cost of services are those expenses incurred
to provide professional services, including compensation, travel, related direct
costs and facilities overhead. In general, the employees providing these
services had previously been engaged in fulfilling the Company's obligations
under OEM research and development contracts.
2. NET LOSS PER SHARE
Basic and diluted net loss per share information for all periods is presented in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("FAS 128"). Basic earnings per share has been
computed using the weighted average number of shares of common stock outstanding
during the period and excludes any dilutive effects of outstanding stock
options. Potentially dilutive stock options have also been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive. If the Company had reported net income, the calculation of diluted
earnings per share would have included the effect of 3,193,119 and 3,561,808
common equivalent shares related to outstanding stock options at September 30,
1999 and 1998, respectively.
5
<PAGE> 7
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. LONG-TERM INVESTMENTS
In connection with the transfer of certain technology and rights to two
privately held companies, Wink Communications, Inc. ("Wink") and Global PC, Inc.
("Global PC"), the Company received a minority equity interest in each of these
companies. The costs of developing the related technologies were previously
charged to operations; accordingly no value had been attributed to these
interests in the previously reported consolidated financial statements.
In August 1999, Wink completed an initial public offering. Therefore, the
carrying value of the Company's investment in Wink (565,800 common shares) has
now been determined based on the closing price of Wink shares per the NASDAQ
Market on the balance sheet date. The value of this investment will fluctuate
with the market price of Wink shares. A portion of the Wink shares owned by the
Company are subject to standard lock-up restrictions common to public offerings.
The unrecognized gain on the Wink shares, which is equal to the investment
balance, is included in stockholders' equity.
4. COMPREHENSIVE LOSS
Comprehensive loss consists of the following:
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net loss $ (944) $ (4,601) $ (2,838) $ (9,774)
Unrealized gain on marketable securities 24,718 -- 24,718 --
Foreign currency translation adjustments (8) (31) (7) (25)
-------- -------- -------- --------
Comprehensive gain (loss) $ 23,766 $ (4,632) $ 21,873 $ (9,799)
======== ======== ======== ========
</TABLE>
5. RESTRUCTURING CHARGES
During the fourth quarter of fiscal 1999, the Company recorded restructuring
charges of $1.8 million as a result of actions taken to better align its cost
structure with revenue projections as the Company shifted its resources to
support a business plan focused on opportunities in the mobile e-commerce and
information services market. The Company terminated approximately 27% of its
workforce, vacated one facility and consolidated those operations in a remaining
facility, which is also partially vacant. The restructuring charges consisted of
severance costs for the termination of 33 employees, 32 of which were terminated
prior to March 31, 1999, as well as related charges for the write-off of
property and equipment and the accrual of lease commitment liabilities (net of
expected sublease income) as a result of these actions.
6
<PAGE> 8
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. RESTRUCTURING CHARGES (CONTINUED)
The following table summarizes the restructuring activity (in thousands):
<TABLE>
<CAPTION>
Write-off
of property Accrual of
Severance and and lease
related charges equipment commitments Total
--------------- --------- ----------- ------
<S> <C> <C> <C> <C>
Total restructuring charges $ 247 $ 501 $1,042 $1,790
Amount paid 59 -- -- 59
Amount written off -- 501 -- 501
------ ------ ------ ------
Accrued liabilities at March 31, 1999 188 -- 1,042 1,230
Activity in six months
ended September 30,1999
Amount paid 167 -- 271 438
------ ------ ------ ------
Accrued liabilities at Sept. 30, 1999 $ 21 -- $ 771 $ 792
====== ====== ====== ======
</TABLE>
The Company expects the accrued liabilities for severance and related charges to
be paid by the end of the fiscal year 2000. The lease commitments extend through
January 2002.
7
<PAGE> 9
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 e-commerce and information services; the anticipated
development of markets for wireless content, mobile device commerce and
services, advertising-sponsored content services, Internet-to-wireless device
information services, and the Company's intention to integrate and market such
wireless content and service technologies for use by wireless device operators
and consumers; the status, timing and size of the market for mobile
communication devices; the Company's strategy for establishing its software and
server technology as a solution for the mobile device commerce market; the
Company's intention to fund and complete ongoing research and development
projects, including the ongoing development and improvement of its proprietary
software and services; 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; and
the Company's assessment of its exposures and continuing remedial efforts in
connection with "Year 2000" issues.
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 and exploitation of the wireless device and wireless content
services markets, the activities of a limited number of device manufacturers,
and the fact that Company participates in but has no direct control over those
markets and 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 and
services on a timely basis; (iv) widespread adoption of mobile communication
devices may depend upon the commercial availability of complementary
relationships and technologies, such as wireless mobile network infrastructure,
encryption, and security technologies; (v) the Company anticipates the emergence
and potential impact of competitive products and services; (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 13.
Readers should not rely on forward-looking statements contained herein, which
reflect the analysis of the management of Geoworks based on information known as
of the date of this report. 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.
8
<PAGE> 10
Results of Operations
Net Revenues
<TABLE>
<CAPTION>
Three Months Ended
----------------------- Change
Sept. 30, Sept. 30, --------------------
1999 1998 $ %
--------- --------- ------- -----
<S> <C> <C> <C> <C>
Net revenues:
Professional services $ 1,384 $ 145 $ 1,239 854%
Research and development fees -- 746 (746) (100)
License and other revenue 1,556 402 1,154 287
--------- --------- ------- -----
Total net revenues $ 2,940 $ 1,293 $ 1,647 127%
========= ========= ======= =====
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
----------------------- Change
Sept. 30, Sept. 30, --------------------
1999 1999 $ %
--------- --------- ------- -----
<S> <C> <C> <C> <C>
Net revenues:
Professional services $ 2,553 $ 145 $ 2,388 1,647%
Research and development fees -- 2,031 (2,031) (100)
License and other revenue 2,040 610 1,430 234
--------- --------- ------- -----
Total net revenues 4,573 2,786 $ 1,787 64%
========= ========= ======= =====
</TABLE>
Net revenues increased 127% and 64% during the quarter and six months
ended September 30, 1999, respectively, as compared to the corresponding periods
of the prior fiscal year. These increases were attributable to new professional
services revenues and increased license revenues which more than offset the lack
of research and development fees revenues in the quarter and six months ended
September 30, 1999. The shift in revenues to professional services from research
and development fees is consistent with the Company's shift of focus to becoming
a mobile e-commerce and information services provider.
Professional services revenue increased $1.2 million and $2.4 million
for the quarter and six months ended September 30, 1999, respectively, as
compared to the corresponding periods of the prior fiscal year. These increases
are a result of the change in the nature of the contractual arrangements for
engineering services provided by the Company as well as growth in the volume of
engineering consulting services provided. In the second quarter of fiscal 1999,
the Company began providing some of its non-recurring engineering services on a
consulting basis rather than as Original Equipment Manufacturer (OEM) funded
research and development. Such consulting services can be offered at relatively
higher rates, but do not generally have the additional revenue potential
provided by a product royalty or license agreement with the OEM. Professional
services revenues are usually billed and recognized based on time and materials
expended rather than based on the attainment of milestones specific to the OEM
contracts. Current professional service projects involve consulting related to
technology previously developed by Geoworks as well as the development of new
technologies supporting mobile communications. As of September 30, 1999, the
Company had approximately $3.0 million of potential additional revenue to earn
from professional services under the terms of executed contracts which have
established contract values. There can be no assurance that such revenues will
be recognized because it is possible that the Company will not be able to
assemble or maintain the engineering staff and resources necessary to meet the
customers' currently anticipated scope of these projects, and because there can
be no assurance that these customers will not reduce the scope or delay the
schedules of the projects contemplated in these contracts.
Although the Company continues to have certain research and development
fee contracts, no revenue was recognized on these contracts in the quarter or
six months ended September 30, 1999. As discussed above, the Company's business
model is changing and OEM funded research and development contracts are not
being actively pursued. 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
9
<PAGE> 11
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 to projects in which research and development fees are charged. As of
September 30, 1999, the Company had approximately $320,000 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.
License and other revenue increased 287% and 234% in the quarter and six
months ended September 30, 1999, respectively, as compared to the same periods
of the prior fiscal year. These increases were the result of royalties received
based on increased shipments of units sold by a single OEM licensee and the
recognition of $500,000 of deferred revenue as the Company completed certain
training milestones per the terms of a source code license agreement signed in
the quarter ended March 31, 1999. Royalty revenue based on the shipments of the
single OEM customer has increased in both quarters of the current fiscal year
versus the same quarters of the prior year. The recognition of the deferred
source code license revenue occurred in the quarter ended September 30, 1999.
Under the terms of the noted source code agreement, the Company has also
received an additional $500,000 which has not yet been recognized pending the
completion of certain other contract liabilities. The Company's realization of
license or royalty revenues from OEM licensees is uncertain due to potential
delays and risks in the commercial release and acceptance of such products. Note
that although royalty revenues have increased in the current fiscal year,
because the Company has sold source code outright and terminated a number of
license agreements over the past two fiscal years, and because the Company is
now focusing on professional services, mobile e-commerce and information
services, the number of OEMs subject to license agreements which could generate
future royalty revenues has decreased. Historically, license and other revenue
has also included non-recurring items such as one-time source code license fees,
or fees received due to changes in the terms of license agreements resulting
from amendment, restructuring, or termination of these agreements.
Operating Expenses
Cost of Services. Cost of services are those expenses incurred to
provide professional services consulting, including compensation, travel,
related direct costs and facilities overhead. In general, the employees
providing these services had previously been engaged in fulfilling the Company's
obligations under OEM research and development contracts. The Company's gross
margin percentage on professional services revenues was 33% and 32% for the
quarter and six months ended September 30, 1999, respectively as compared to
zero percent in the same periods of the prior fiscal year. The costs of services
expenses and the related gross margin were significantly less in the quarter and
six months ended September 30, 1998 because the Company had just begun to offer
professional services under consulting agreements. The gross margin recognized
on such services is subject to several variables, particularly the average rates
charged for these consulting services, the ability of the Company to hire and
retain engineering personnel at competitive rates, and the utilization rates of
those personnel. As the Company has a limited history in providing such
services, the gross margin percentage for the quarter and year to date is not
necessarily indicative of future operating results.
Cost of License Revenue. Cost of license revenues consists of license
payments to third parties for software that is incorporated into the Company's
software. Cost of license revenues have increased $102,000 and $150,000 in the
quarter and six months ended September 30, 1999, respectively, as compared to
the corresponding periods of the prior fiscal year. License payments have
increased due to the increased volume of royalty revenue recognized by the
10
<PAGE> 12
Company in the same periods. Gross margin percentage on license and other
revenue was 93% and 91% in the quarter and six months ended September 30, 1999,
respectively, as compared to 97% and 95% in the corresponding periods of the
previous fiscal year. Gross margins have been reduced slightly in the current
fiscal year periods because a greater proportion of the license and other
revenues has been subject to such third party software license agreements.
Sales and Marketing. Sales and marketing expense decreased $294,000, or
21%, and $607,000, or 23% in the quarter and six months ended September 30,
1999, respectively, in comparison with the corresponding periods of the previous
fiscal year. Due to the change in the Company's business focus, the Company has
narrowed the scope of its sales and marketing activities during the current
fiscal year, and as a result has reduced its sales and marketing staff by
approximately 39% in the six months ended September 30, 1999 as compared to the
six months ended September 30, 1998. The cost savings from headcount reductions
have been partially offset by increased spending on marketing and advertising
programs, including those to support the launch of the Company's Mobile Attitude
service offering. In addition, the Company incurred a termination fee of
approximately $100,000 in the quarter ended June 30, 1999 in connection with the
cancellation of a long-term agreement with the Company's primary sales agency in
Japan.
Research and Development. Research and development expense decreased
$2,586,000, or 73%, and $6,277,000 or 77%, in the quarter and six months ended
September 30, 1999, respectively, in comparison with the corresponding periods
of the previous fiscal year. These decreases are attributable principally to
reductions in staffing and related costs, including those resulting from the
restructuring actions taken in the fourth quarter of fiscal 1999. Such staff and
expense reductions were necessary as the Company stopped doing operating system
development and reacted to reduced levels of OEM funding. The Company has also
narrowed the scope of its internal research and development to focus on its
mobile e-commerce and information services business. Research and development
headcount has been reduced approximately 70% compared to the quarter ended June
30, 1998. Approximately 11% of the reduction in research and development
headcount is due to the shift of staff into professional services consulting.
General and Administrative. General and administrative expense decreased
$95,000, or 10%, and $304,000 or 17%, during the quarter and six months ended
September 30, 1999, respectively, in comparison with the corresponding periods
of the previous fiscal year. These decreases are due to reduced staffing costs
and reduced professional fees consistent with the reductions in staffing and
activity in other areas of the Company due to the restructuring actions taken in
the fourth quarter of fiscal 1999 and the change in the Company's business
focus.
Other Income (Expense)
Interest income declined $25,000 or 15%, and $81,000, or 22%, during the
quarter and six months ended September 30, 1999, respectively, in comparison
with the corresponding periods of the previous fiscal year. These decreases were
attributable primarily to reduced cash balances available to the Company for
short-term investment as a result of the Company's operating deficits over the
preceding 12 months. Interest expense was not significant in the quarter or six
months ended September 30, 1999 or the corresponding periods of the prior fiscal
year because the Company has only minimal levels of capital lease and debt
obligation liabilities outstanding in these periods.
11
<PAGE> 13
Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). Income tax expense consists primarily of foreign income tax withholding
on foreign source royalties paid to the Company. The provision for income taxes
increased by $102,000 and $236,000 in the quarter and six months ended September
30, 1999, respectively, in comparison with the corresponding periods of the
previous fiscal year. These increases are due to the increased levels of royalty
and license payments received by the Company discussed above.
Liquidity and Capital Resources
The Company's cash, cash equivalents, and marketable securities have
increased to $14.2 million at September 30, 1999 from $13.7 million at March 31,
1999. Although the net loss in the six months ended September 30, 1999 was $2.8
million, total cash and marketable securities have increased $534,000, due
primarily to changes in working capital, principally collections of accounts
receivable and increased deferred revenue liability. This increase in total cash
and marketable securities in the six months ended September 30, 1999 is
significantly improved compared to the $8.1 million decrease for the same period
of the prior fiscal year. This reduced usage of cash is attributable to actions
taken by Company management to better align its cost structure with revenue
projections, including restructuring moves made in the quarter ended March 31,
1999, as well as the collection of receivables and related customer deposits as
a result of the revenue increases discussed above.
The Company's purchases of property and equipment in the six months
ended September 30, 1999 and September 30, 1998 were not significant, consistent
with reductions in personnel resulting from restructuring moves and reduced
levels of OEM funded research and development activities in these periods.
Marketable securities transactions in the six months ended September 30, 1999
and 1998 were performed when necessary to meet operating cash requirements.
Payments of capital lease and debt obligations were reduced in the six
months ended September 30, 1999 compared to the same period of the prior year
reflecting the reduced levels of these liabilities in the current quarter
compared to the same quarter of the prior year. Proceeds from issuance of common
stock in the six months ended September 30, 1999 and 1998 were generated from
the Company's employee stock option and employee stock purchase plans.
As discussed in the Company's August 24, 1999 filing on Form 8-K, an
additional source of liquidity available to the Company is its ownership of
565,800 shares of common stock of Wink Communications, Inc. ("Wink"). Wink
completed its initial public offering in August 1999 (Nasdaq Symbol: WINK) and
as result the Company has posted the value of these shares to its balance sheet.
The value of this investment will fluctuate with the market price of Wink
shares. This investment had a value of $24.7 million and $22.6 million as of
September 30, 1999 and November 10, 1999, respectively. A portion of the Wink
shares owned by the Company are subject to the standard restrictions common to
public offerings. The Company's strategy for liquidating all or some portion of
these shares will be dependent upon a number of factors. Such factors include,
but are not limited to, the levels of cash used in Company operations, the
desire to diversify the Company's investment risk, and the performance of Wink
stock versus the stock market as a whole.
12
<PAGE> 14
The Company expects to increase its investment in the development of its
mobile e-commerce and information services business, including additional sales,
marketing and research and development spending, and expects to incur additional
operating losses at least through the current fiscal year ending March 31, 2000.
Although the Company anticipates that its existing cash and capital resources
will be adequate to satisfy its operating and capital requirements for at least
the next twelve months, there can be no assurance that the Company will not
require additional funding in that time frame or that such additional funding,
if needed, will be available on acceptable terms.
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 September 30, 1999,
the Company had an accumulated deficit of $91.9 million, and had incurred
operating losses of approximately $16.3 million, $16.0 million, and $15.5
million in the fiscal years ended March 31, 1999, 1998, and 1997, respectively.
The Company expects to continue to incur substantial annual operating losses in
the fiscal year ending March 31, 2000, and it is unclear how soon thereafter, if
ever, the Company will operate profitably. The Company's strategic plan to
achieve profitability includes reducing its operating expenses and maximizing
its revenues in the near term by increasing professional services consulting
revenues and focusing on mobile e-commerce and information services, but there
can be no assurance that such a plan will be successfully implemented. The
Company's objective is to leverage its position as a leading provider of
operating system software for the smart phone market by developing and marketing
other products and services to the installed base of devices and future mobile
devices. Specifically, the Company is focusing on its professional services
consulting business, as well as introducing the Mobile Attitude service, which
delivers mobile information services to digital mobile phones and pagers owned
by business and consumer end users. The Company's strategy includes extending
the reach of data available on the World Wide Web to wireless devices through
its technology. 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, and the Company's ability to establish business relationships
with leading industry partners, to introduce successful products and services,
to generate additional revenues through mobile e-commerce and information
services, and to achieve and maintain a competitive advantage should such a
market develop.
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 for at least the next twelve months. The Company
expects to incur additional losses for the fiscal year ending March 31, 2000,
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
13
<PAGE> 15
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.
Competition in Mobile E-Commerce and Information Services. Significant
competition exists and will continue to develop in the mobile e-commerce and
information services arena. Competition will come from service providers and
Internet content and transaction providers. Companies with significantly greater
financial, technical and marketing resources and greater name recognition are
currently offering or are reported to be developing mobile e-commerce and
information services that may compete directly with the Company's information
services. These companies include Motorola, Phone.com, Saraide, Aether
Technologies, Airflash, @mobile, Intelligent Information, Inc., coolsavings.com,
netcentives.com, Microsoft, Yahoo and other Internet portals.
In June 1999, the Company introduced Discopro.com, its first information
service. The service features discounts and promotions which are delivered to
digital cell phones and alphanumeric pagers. In September 1999, the Company
announced Mobile Attitude. This will be the Company's umbrella mobile portal
brand under which a host of channels will be offered. Discopro.com is now the
Discounts channel within Mobile Attitude and an additional channel, Reminders,
was introduced in September. Reminders gives users the ability to have messages
sent to their digital phone or alphanumeric pager to remind them of
appointments, meetings, birthdays or other events of their choosing. The
Company's Mobile Attitude Service is a new business unit scheduled for
independent legal and accounting treatment. Although Mobile Attitude is among
the first to offer free, advertising-sponsored services delivered to mobile
devices, there can be no assurances that these services will attract the number
of advertisers or customers necessary to achieve market acceptance or that the
market share captured, if any, will be adequate to provide a reasonable return
on investment. The Company plans to offer additional mobile e-commerce services
to business and consumer end users, but there can be no assurances that Company
will bring such services to market or that such services would achieve market
acceptance.
The mobile e-commerce and information services marketplace is expected to evolve
very rapidly. There can be no assurance that the Company's competitors will not
develop or market mobile e-commerce and information services that are superior
to those of the Company or achieve greater market acceptance than those of the
Company.
Dependence on Development of Mobile Device Content and Services. The Company
believes its long-term financial success is dependent on its ability to derive
revenue from the delivery of 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, advertising revenue
associated with mobile information services, transaction revenue from mobile
information services 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, content or services will achieve acceptance in the market.
Further, the Company has historically marketed operating systems and
applications, and has only limited experience marketing server and client
applications and mobile e-commerce and information services. There can be no
assurance that
14
<PAGE> 16
the Company will be able to offer sufficiently attractive products and services
to generate significant revenue and the Company may be required to respond to
competitive products and services. Finally, practical and effective mobile
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 mobile distribution will prove to be feasible or
that the Company's technology will be suitable for the distribution
infrastructure as it develops. If the Company is unable to derive significant
revenue from one or more of the foregoing sources, there will be material
adverse impact to its long-term business, results of operations and financial
condition.
Competition in Mobile Communication Device Operating Systems. The Company
expects intense competition among mobile communicating device operating systems
to the extent a market develops for such mobile 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 market
segments. Companies with significantly greater financial, technical, and
marketing resources and greater name recognition than the Company, such as
Symbian (a joint venture involving Psion, Ericsson, Motorola, and Nokia),
Microsoft, Sun Microsystems, Microware, and 3COM (through its Palm Computing
division), have each developed or are reported to be developing operating
systems which may compete directly with the Company's current 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 which 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
Company believes currently give 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 1998, Psion, Ericsson, Motorola, and Nokia announced a joint venture
named Symbian that will license Psion's EPOC operating system to smart phone
manufacturers. In May of 1999, Matsushita also joined the joint venture. Through
Symbian, these companies are seeking to introduce an operating system platform
in the smart phone market which would directly compete with the Company's
GEOS-SC system software, and together they have contributed over $150 million to
capitalize the venture. Collectively, Ericsson, Motorola, and Nokia hold a
dominant position as suppliers in the worldwide market for wireless mobile
telephones, of which smart phones represent a market segment. While Symbian is
in its early 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.
Due to the Company's transition away from the development of operating system
technology, license fees and royalty revenues related to this technology are
expected to decrease in future quarters.
15
<PAGE> 17
Risks of Software Product Development and Risk of Delays. The Company's future
success will depend upon its ability to develop and release, on a timely basis,
new application software products and new mobile e-commerce and information
services. Broad acceptance of the Company's existing and yet to be released
products and services in new markets is critical to its future success. The
Company has made progress toward this development goal, but acceptance of its
newly developed products and services in the market is uncertain.
Because of the short product life cycles and intense competition expected in the
mobile communicating device market and mobile e-commerce and information
services markets, the timeliness of new product and service introductions and
shipments can be critical to whether a particular product or service will ever
achieve market acceptance. There can be no assurance that the Company will be
able to develop, introduce and ship new products or services on a timely basis.
Furthermore, from time to time, the Company and others may announce new
products, features, technologies or services which have the potential to replace
or shorten the life cycle of the Company's existing product and service
offerings. There can be no assurance that announcements by the Company or by its
competitors will not cause customers to defer purchasing existing products or
use the services of the Company. Delays or difficulties associated with
developing or introducing new products or services could have a material adverse
effect on the Company's business and results of operations.
Dependence on Limited Number of Revenue Generating Customers. In the six months
ended September 30, 1999, three customers have accounted for 96% of the
Company's total net revenues. In fiscal year 1999, one OEM customer accounted
for greater than half of the Company's total net revenues, and three OEM
customers collectively accounted for 90%. During fiscal year 1998, three
customers accounted collectively for greater than half of the Company's total
net revenues, and four customers collectively accounted for 74% of the Company's
total net revenues. Therefore, a termination or decline in the Company's
business relationship with any of its existing customers could have a material
adverse impact on the Company's business, financial condition, and results of
operations, and there can be no assurance that the Company will be able to
sustain these relationships and derive comparable revenues therefrom in future
periods. The Company's royalty revenue is critically dependent upon the timely
introduction and successful marketing and sale by a limited number of consumer
product companies of smart devices based upon the Company's software. The
Company's professional services and research and development revenues are
dependent on a limited number of contracts with customers. This revenue is
constrained by the available research and development employees currently on
staff and the rate at which new highly skilled technical resources could be
hired. The Company derives a substantial portion of its revenue from customers
in Japan, and views the whole of the Asian region as strategic to its business
objectives. Continuing economic difficulties within Asia have had, and may
continue to have, a material adverse effect on the Company's ability to generate
revenue from Asian customers and from customers who market their products within
Asia.
History of Disappointing Revenue from Previous Generation Products.
Historically, the Company emphasized the licensing of its operating system
software to manufacturers of smart phones and non-communicating mobile devices,
such as personal digital assistants and handheld electronic organizers. The
smart phone market has emerged slower than anticipated and there is increasing
competition for the operating systems used in smart phones. The Nokia 9110,
Nokia 9000, Toshiba Dialo, Toshiba Genio and Mitsubishi Moem-D have had only
modest unit sales. The 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 the
non-
16
<PAGE> 18
communicating 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 as a result. 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.
Royalty Revenues from the Smart Phone Market. The Company's historical efforts
have been 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 has in the past depended upon the
emergence of a new market for these products. The Company derives royalty
revenue on a per unit basis and total royalty revenue depends on the volume of
smart phone devices shipped. 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. The Company has developed the operating system software for six
smart phone products which are currently shipping. Although these devices have
received positive reviews and several industry 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. Further, there can be no
assurance that royalty revenues will ever provide a meaningful contribution to
the Company's overall financial results.
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. 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 or using the Company's software; the
introduction and distribution of new system and application software by the
Company; the introduction and acceptance of the Company's mobile e-commerce and
information services; the extent to which the Company can negotiate and
subsequently earn professional services and research and development fees from
customers; the ability of the Company to effectively manage its costs; and
actions by competitors of the Company. 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 mobile e-commerce and information services will vary
based on the market success of the advertising sponsored services model and the
ability of the Company to derive a transaction fee from mobile e-commerce
services. Revenue from research and development fees can vary considerably among
periods, depending upon the specific terms of the Company's contracts with
customers 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 research and development and sales and
marketing expenses. The Company has traditionally devoted substantial resources
toward research and development, which has affected its investment and
performance in other activities and in turn affected reported operating results.
While the Company has taken recent measures to reduce its research and
development expenditures, its investment in research and development remains
significant relative to its investment in other aspects of the Company's
operations. 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
17
<PAGE> 19
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. Revenue from international operations has accounted
for the majority of the Company's revenue in each of the last three fiscal
years. The Company anticipates that such 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 changes in
local economic conditions, changes in regulatory requirements and tariffs,
potential difficulties in the collection of accounts receivable, and unfavorable
tax consequences. In particular, the Company derives a substantial portion of
its revenue from customers in Europe and Japan, and views these regions as
strategic to its business objectives. 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 execute agreements with international customers, and as a
result could adversely affect the Company's ability to generate revenue from
technology licensing, professional services, research and development fees, and
mobile e-commerce and information services. 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 or the
recognition as revenue of paid but unamortized advance royalties under OEM
agreements (currently recorded as deferred revenue) upon the termination,
amendment, or restructuring of such agreements or upon product discontinuation.
Amounts recognized upon such termination, amendment, or restructuring 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.
Dependence on Key Personnel. The Company's future success depends in large part
on the continued service of its key technical, marketing, sales, administrative
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 and services. 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. With the
exception of certain executive positions, the Company does not have employment
contracts with its key employees. In October 1998, the Company appointed Stephen
T. Baker as Vice President and Chief Financial Officer. In January 1999, David
A. Thatcher resigned his position as the Company's President and Chief Executive
Officer and was replaced by David L. Grannan, former Vice President, Marketing.
In January 1999, Lars Stenstedt was promoted to Vice President, Sales and
Business Development; Rhonda Jobe was promoted to Vice President, Marketing; and
Adam de Boor was appointed Vice President and Chief Technical Officer. In May
1999, Wendy Nemeroff, Vice President and General Counsel resigned. In September
1999, Donald G. Ezzell was appointed Chief Operating Officer, General Counsel
and Secretary. The loss of key employees, as well as changes in the Company's
executive management, could have a material adverse effect on the Company's
business, operating results, and financial condition.
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
18
<PAGE> 20
21st century, potentially resulting in operating difficulties ("Year 2000").
Like many organizations, the Company faces risk to the extent such Year 2000
issues cause significant delay in, or cancellation of, decisions to purchase the
Company's products or product support, or to the extent internal management and
communication systems are disrupted, 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 third party 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. The Company's ongoing efforts address
these potential problems, but 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.
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 become Year 2000 compliant. The Company's review of its Year 2000
issues has been conducted internally by company management and personnel and has
been reviewed by the Board of Directors. No outside services or consultants have
been retained in the review process. To date, the Company has spent less than
$100,000 on costs associated with Year 2000 compliance, as most of the necessary
software upgrades and other remediation efforts to date have been covered under
existing maintenance and warranty agreements with vendors. The Company does not
believe that any such additional costs will become material in the future.
Should Year 2000 problems arise in their most severe form, the Company believes
that royalty revenues associated with OEM products could be adversely affected
due to the recall or delay in commercial release of such products, and further
believes that in the worst case scenario certain internal functions, in
particular telecommunication features such as voicemail, could be disrupted.
Additionally, the Company may be obligated to certain of its OEM customers for
legal damages or additional development work should it be determined that the
Company's software products failed to perform as warranted. However, the Company
believes there is only a remote chance that such severe outcomes could occur,
and believes that it cannot reasonably estimate the range of lost revenues or
additional costs, if any, that would result should such outcomes occur.
With respect to the Company's software products and remediation efforts, the
Company and its OEM hardware partners have imposed systematic testing procedures
in the product development process to ensure that the software and the products
into which it is incorporated are Year 2000 compliant. To date, there have been
no performance problems detected related to Year 2000 issues which have
significantly affected or delayed product development schedules or the
commercial release dates of the products under development. Testing routines
will be continuously applied to products as they are developed, and the Company
will continue to undertake reasonable and diligent efforts in future development
activities to detect and correct any Year 2000 issues.
For the Company's internal management information and communication systems, a
review of each system has occurred and a remediation program appropriate to any
detected exposure has been adopted. The Company estimates that the aggregate
cost of these remediation programs will not exceed $100,000, and expects that
the majority of any costs incurred will relate to the upgrade of certain
telecommunication systems such as voicemail. The Company purchased and
19
<PAGE> 21
installed upgrades to its PBX and voice mail system to ensure its Year 2000
compliance. The Company's review has also addressed certain aspects of the
Company's operations which are traditionally considered to be outside the scope
of standard information and communication systems. The most significant
remediation program identified in this part of the Company's review involved
upgrading the Company's building security systems. The Company intends to
continue its review of its internal systems and operations for Year 2000
compliance, but does not anticipate that such additional reviews will uncover
exposures of a material nature which have not been previously identified.
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.
ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
20
<PAGE> 22
PART II OTHER INFORMATION
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company held its Annual Meeting of Stockholders on September 14, 1999.
(b) The Company's Board of Directors is elected at each Annual Meeting of
Stockholders. The Directors elected at the meeting were: John B. Balousek,
Bernard B. Bianchino, Gordon E. Mayer, Eric E. Schmidt and David L. Grannan.
(c) The matters described below were voted on at the Annual Meeting of
Stockholders, and the votes cast with respect to each matter and with respect to
the election of directors for each nominee were as indicated.
1. To elect directors to serve until the next Annual Meeting of
Stockholders and until their successors are duly elected.
<TABLE>
<CAPTION>
NOMINEE FOR WITHHELD
------- ---------- --------
<S> <C> <C>
John B. Balousek 13,675,658 188,787
Bernard B. Bianchino 13,677,663 186,782
Gordon E. Mayer 13,655,335 209,110
Eric E. Schmidt 13,677,363 187,032
David L. Grannan 13,677,988 186,457
</TABLE>
2. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending March 31, 2000.
FOR OPPOSED NON-VOTE ABSTAIN
---------- ------- -------- -------
Common Stock 13,771,886 63,258 0 29,301
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27.1 Financial Data Schedule
b) Reports on Form 8-K
The Company filed a report on Form 8-K dated August 24, 1999 announcing
that the value of its shares of Wink Communications, Inc. had been added
to its balance sheet.
The Company filed a report on Form 8-K dated September 30, 1999
announcing that Donald G. Ezzell was hired as Chief Operating Officer,
General Counsel and Secretary.
21
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
executive officer.
Date: November 12, 1999
GEOWORKS CORPORATION
by: /s/ Stephen T. Baker
-------------------------------
Stephen T. Baker
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer)
22
<PAGE> 24
GEOWORKS CORPORATION
EXHIBITS
TABLE OF CONTENTS
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,036
<SECURITIES> 11,213
<RECEIVABLES> 463
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,361
<PP&E> 3,865
<DEPRECIATION> (3,052)
<TOTAL-ASSETS> 40,914
<CURRENT-LIABILITIES> 5,556
<BONDS> 0
0
0
<COMMON> 102,574
<OTHER-SE> (67,216)
<TOTAL-LIABILITY-AND-EQUITY> 40,914
<SALES> 0
<TOTAL-REVENUES> 4,573
<CGS> 0
<TOTAL-COSTS> 1,910
<OTHER-EXPENSES> 5,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9
<INCOME-PRETAX> (2,542)
<INCOME-TAX> 296
<INCOME-CONTINUING> (2,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,838)
<EPS-BASIC> (.16)
<EPS-DILUTED> (.16)
</TABLE>
