<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1996
FILED ON MAY 15, 1996 PURSUANT TO A RULE 202(d) CONTINUING HARDSHIP EXEMPTION.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 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 March 31, 1996
OR
[ ] 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 33-87164
GENERAL MAGIC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0250147
(State of incorporation) (IRS Employer Identification Number)
420 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94086
(408) 774-4000
(Address and telephone number of principal executive offices)
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
--- ---
25,995,179 shares of the registrant's Common Stock, $0.001 par value, were
outstanding as of April 30, 1996.
THIS DOCUMENT CONTAINS 23 PAGES.
THE EXHIBIT INDEX IS ON PAGE 21.
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GENERAL MAGIC, INC.
FORM 10-Q, March 31, 1996
C O N T E N T S
<TABLE>
<CAPTION>
Item Number Page
----------- ----
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheets - March 31, 1996 and December 31,
1995 3
b. Consolidated Statements of Operations - Three-Month Periods
Ended March 31, 1996 and 1995 4
c. Consolidated Statements of Cash Flows - Three-Month Periods
Ended March 31, 1996 and 1995 5
d. Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits 23
</TABLE>
2
<PAGE> 3
PART I.- FINANCIAL INFORMATION
Item 1. Financial Statements
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 69,099 $ 40,563
Short-term investments 30,344 64,162
Receivables 1,111 3,196
Prepaid expenses 833 810
--------- ---------
Total current assets $ 101,387 $ 108,731
Property and equipment, net 6,590 6,692
Other assets 443 443
--------- ---------
$ 108,420 $ 115,866
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,448 $ 2,771
Accrued expenses 2,867 3,193
Current portion of capital lease obligations 762 734
Deferred revenue 1,702 1,614
--------- ---------
Total current liabilities 6,779 8,312
Deferred revenue, noncurrent 15,760 15,760
Capital lease obligations, net of current portion 1,048 1,247
Other long-term liabilities 2,074 1,455
--------- ---------
Total liabilities 25,661 26,774
Commitments and contingencies
Stockholders' equity:
Common stock, $0.001 par value;
Authorized: 60,000 shares
Issued: 1996 - 25,986; 1995 - 25,789 26 26
Additional paid-in capital 163,376 162,595
Unrealized gain on investments 87 170
Deficit accumulated during development stage (80,730) (73,699)
--------- ---------
Total stockholders' equity 82,759 89,092
--------- ---------
$ 108,420 $ 115,866
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three-Month Periods Ended
March 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
Revenue:
Licensing revenue 1,429 3,363
Other revenue 1,379 820
-------- --------
Total revenue 2,808 4,183
Costs and expenses:
Cost of other revenue 1,068 538
Research and development 5,411 4,231
Sales, general, and administrative 4,152 3,786
-------- --------
Total costs and expenses 10,631 8,555
-------- --------
Loss from operations (7,823) (4,372)
-------- --------
Net interest, other income and expense 913 1,075
-------- --------
Loss before income taxes (6,910) (3,297)
Income taxes 121 350
-------- --------
Net loss $ (7,031) $ (3,647)
======== ========
Net loss per share (0.27) (0.17)
Shares and share equivalents used in computing per share 25,905 21,784
amounts
</TABLE>
See accompanying notes to consolidated financial statements.
4
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GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three-month Period Ended
March 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,031) $ (3,647)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 752 439
Amortization of deferred gain from sale and leaseback
financing (24) (24)
Changes in items affecting operations:
Receivables and prepaid expenses 2,062 (1,180)
Accounts payable and accrued expenses (1,649) 2,205
-------- --------
Net cash used in operating activities (5,890) (2,207)
-------- --------
Cash flows from investing activities:
Purchases of short-term investments -- (82,411)
Proceeds from sales and maturities of short-term
investments 33,735 6,207
Purchases of property and equipment (650) (1,869)
Other assets -- 695
-------- --------
Net cash provided by (used in) investing activities 33,085 (77,378)
-------- --------
Cash flows from financing activities:
Repayment of capital lease obligations (171) (119)
Proceeds from sale of common stock 781 81,453
Deferred revenue 88 (57)
Other long-term liabilities 643 169
-------- --------
Net cash provided by financing activities 1,341 81,446
-------- --------
Net increase in cash and cash equivalents 28,536 1,861
Cash and cash equivalents, beginning of period 40,563 34,021
-------- --------
Cash and cash equivalents, end of period $ 69,099 $ 35,882
======== ========
Supplemental disclosures of cash flow information:
Income taxes paid during the period $ 121 $ 350
Noncash financing activity:
Conversion of preferred stock into common stock -- 77,019
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC). In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) considered necessary for a fair presentation of the
Company's financial condition, results of operations and cash flows for the
periods presented. These financial statements should be read in conjunction with
the Company's audited consolidated financial statements as of December 31, 1995
and 1994, and for each of the three years ended December 31, 1995, including
notes thereto, included in the Company's Form 10-K Statement which was filed
with the SEC on March 27, 1996.
The results of operations for the three-month period ended March 31, 1996 are
not necessarily indicative of the results expected for the current year or any
other period.
NOTE 2: CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with original
maturities of three-months or less to be cash equivalents. Cash equivalents
include commercial paper, U.S. Treasury Bills, money market mutual funds and
various deposit accounts.
The Company adopted the provisions of SFAS No. 115 for investments held as of
January 1, 1994. Such investments are considered "available for sale" by SFAS
No. 115 and are recorded at fair value with unrealized gains and losses, if
material, recorded as a separate component of equity until realized. Interest
income is recorded using the effective interest rate, with associated premium or
discount amortized to "investment income." The cost of securities sold is based
upon the specific identification method.
NOTE 3: STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING AND PREFERRED STOCK
The Company completed an initial public offering (IPO) on February 9, 1995,
issuing 6,325,000 shares of its common stock at $14 per share. The proceeds, net
of commissions and expenses, from this IPO totaled $81,255,000.
As of March 31, 1996, none of the Company's authorized 500,000 shares of
preferred stock were issued and outstanding.
6
<PAGE> 7
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: NET LOSS PER SHARE
Net loss per share is based upon the weighted average number of outstanding
shares of common stock and common stock equivalent shares from preferred stock.
NOTE 5: PROPERTY AND EQUIPMENT
A summary of property and equipment follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Office equipment and computers $ 7,716 $ 7,190
Furniture and fixtures 2,661 2,537
Leasehold improvements 483 483
------- -------
10,860 10,210
Less accumulated depreciation and amortization 4,270 3,518
------- -------
$ 6,590 $ 6,692
======= =======
</TABLE>
NOTE 6: ACCRUED EXPENSES
A summary of accrued expenses follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
(unaudited)
<S> <C> <C>
Employee compensation $1,790 $2,286
Accrued legal expense 395 339
Foreign income tax withholding on royalty receipts 181 182
Other 501 386
------ ------
$2,867 $3,193
====== ======
</TABLE>
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including those discussed in the Risk Factors section of this Item 2 that could
cause actual results to differ materially from historical results or those
anticipated. In this report, the words "anticipates," "believes," "expects,"
"future," "intends," and similar expressions identify forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
OVERVIEW
General Magic (the "Company") was incorporated in California in May 1990 and was
reorganized as a Delaware corporation in February 1995. The Company operates a
wholly-owned French subsidiary. Since its inception, the Company has been
developing object-oriented software platform technologies for a new generation
of electronic communication devices, computer networks and services. The Company
has developed two platform technologies called Magic Cap and Telescript. Magic
Cap technology integrates electronic mail, fax, telephone and paging
capabilities, enables wireless and wireline communications, and provides an
intuitive user interface for personal intelligent communicators and other
communicating devices. Telescript technology is intended to turn passive
computer networks into active networks by enabling intelligent software programs
("agents") to perform various tasks on network servers on behalf of users, from
carrying messages, to searching for data, to executing transactions. The
Company's technologies are open platforms intended to enable the development of
applications and services by independent software vendors, electronic merchants
and publishers, and other third parties.
To promote the emergence of its Magic Cap and Telescript platforms the Company
has formed a strategic alliance with multinational consumer electronics,
computer and telecommunications equipment companies, including Sony Corporation,
Motorola, Inc., Apple Computer, Inc., Fujitsu Ltd., Matsushita Electric
Industrial Co. Ltd., Mitsubishi Electric Corporation, Nortel (previously known
as Northern Telecom, Inc.), Oki Electric Industry Co., Ltd., Philips Electronics
N.V., Sanyo Electric Co. and Toshiba Corporation, and large network operators
such as AT&T Corp., Cable & Wireless plc., France Telecom, Fujitsu, Nippon
Telegraph and Telephone Corporation (NTT) and PTT Telecom. At present, Sony and
Motorola are selling Magic Cap-based products and AT&T is offering a commercial
Telescript-based service. NTT-Fan, a joint venture between NTT, Sony and AT&T,
is operating an English language Telescript-based pilot service in Japan known
as Paseo. NTT-Fan is leasing Magic Cap-based personal intelligent communicators
made by Sony and Matsushita to users of the Paseo service. Certain other
alliance members are in various stages of developing products or services based
on the Company's technologies, except Apple which to the best of the Company's
knowledge has no current plans to develop such products.
To date, the Company has devoted virtually all of its resources to research and
development
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activities, establishing and leveraging its strategic alliance relationships and
marketing and promoting its technologies. The Company has generated the majority
of its revenues from licensing its software platform, Magic Cap, to
multinational consumer electronics and computer companies, and its Telescript
communication technology to large network operators. In the current licensing
structure, the Company collects one-time license fees from technology licensing
agreements in addition to royalties and fees it may collect if the Company's
licensees develop and market products or services based on the licensed
technology. In addition to revenues from license fees, the Company has generated
revenues from customer engineering and support and maintenance services it
provides to its licensees. Other than the minimal fees the Company collects for
its developer kits, the Company does not have any current plans to collect any
revenues from its third party software developers.
The Company expects that its operating results will fluctuate as a result of a
number of factors, including: timing of new product and service introductions by
its licensees and competitors; changes in the Company's level of operating
expenses, including the Company's expenditures on research and development and
promotional programs; payments to independent contractors; the size and timing
of customer orders for its licensees' products or services; development,
production or quality problems on the part of the Company or any of its
licensees; amount and timing of royalty payments and one-time license fees by
licensees, as well as, support and maintenance fees; and competition in the
personal intelligent communications market. In the early years of
commercialization of its technologies, the Company expects to derive a
significant portion of its revenue from one-time license fees, distribution of
"shrink-wrap" products, customer engineering projects and support and
maintenance contracts. As discussed in the "Risk Factors" section of this
Management Discussion and Analysis, the Company is developing and plans to
distribute Magic Cap applications that add standard Internet email and Web
browsing capabilities to Magic Cap-based personal communicators, as well as a
version of the Magic Cap platform that executes on Windows-based PCs. The
Company also plans to develop a Telescript-based World Wide Web server add-on
product, which will be able to execute Telescript applications over existing
Internet standards. As the Company expands its product offerings and
distribution channels, quarterly results could be significantly influenced by
new product introductions or the cyclical nature of consumer purchases. Further,
the Company will continue to charge up-front payments from Magic Cap licensees
upon establishing new license arrangements. The timing of entering into, or the
absence of, such new licenses in a given period could result in significant
periodic fluctuations in the Company's operating results, liquidity and capital
resources. Therefore, the Company expects that fluctuations in revenue will
result in inconsistent gross profit trends affected by changes in the revenue
mix and the associated product and operating costs.
RESULTS OF OPERATIONS
For the three-month period ended March 31, 1996, the Company incurred net losses
of $7.0 million, or $0.27 per share, compared to a net loss of $3.6 million, or
$0.17 per share, for the same three-month period ended March 31, 1995, and $5.4
million, or $0.21 per share for the preceding three-months ended December 31,
1995. Revenues for the three-month period ended March 31, 1996 totaled $2.8
million compared to $4.2 million for the same three-month period last year and
to $4.9 million last quarter. Revenues were primarily related to research and
development fees from an existing Telescript licensee and customer specific
engineering programs. As discussed in the Risk Factors section that follows, the
Company has recently
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directed its product offerings toward the Internet. This shift had an adverse
impact to first quarter 1996 revenues and is anticipated to adversely impact
revenues for the remainder of 1996. While this strategy is believed to be in the
Company's best long term interest, and while the Company anticipates generating
revenue this year from its Internet-based product offerings, such revenue is not
expected to make up for the anticipated shortfall in licensing fees originally
planned in 1996.
To date, the Company has generated minimal royalty revenues from Magic Cap-based
device shipments and fees from AT&T's PersonaLink Services (the "PersonaLink
network"). Limited retail sales of Magic Cap-based personal intelligent
communicators and the correspondingly small subscriber base for AT&T's
PersonaLink network are and will continue to be directly reflected in the amount
of royalties and fees recognized by the Company and indicate an extremely modest
adoption rate for personal intelligent communicators and Telescript-based
service, which if it were to continue, could have a material adverse effect on
the Company's business operating results and financial condition.
Cost of other revenue, which is related to revenue attributable to customer
specific engineering projects, maintenance and support services, was $1.1
million for the three-month period ended March 31, 1996, compared to $0.5
million for the same three-month period last year and to $0.7 million last
quarter. It consisted primarily of personnel and equipment costs. The level of
future cost of other revenue is not predictable since it relates to variable
customer-specific services.
Research and development expenses were $5.4 million for the three-month period
ended March 31, 1996, compared to $4.2 million for the same three-month period
last year and to $5.5 million last quarter. While this represents a 28% increase
from the prior year's first quarter due to continued investment in platform
technologies, there was no increase from last quarter as headcount remained
relatively flat and the Company has focused on cost containment. To date, the
Company has expensed all software development costs as incurred. The Company
anticipates that research and development expenses will increase in future
periods as the Company continues to support OEM customers, enhance existing
technologies, and develop new product offerings focused toward the World Wide
Web, the Internet and intranets.
Sales, general and administrative expenses were $4.2 million for the three-month
period ended March 31, 1996, compared to $3.8 million for the same three-month
period last year and to $5.0 million last quarter. This represents a 10%
increase over the same period last year, reflecting the Company's expanded sales
and marketing presence in Japan and Europe. The 18% decrease in spending
compared to last quarter is due primarily to the costs incurred in the fourth
quarter 1995 for the Company's first annual Developers' Conference. During the
first quarter of 1996, no similar large event was staged. To support its current
and anticipated licensee base, marketing programs, new distribution strategies
and growing operations, the Company anticipates that selling, general and
administrative expenses will continue to increase.
Net interest, other income and expense, largely earned from remaining cash
proceeds from the Company's IPO in February 1995, amounted to $0.9 million for
the three-month period ended March 31, 1996, compared to $1.1 million in the
comparable period last year and $1.4 million last quarter. Future interest
income is likely to decrease as cash and cash equivalents and short-term
investments are consumed by the Company's normal operating requirements.
Income taxes, which amounted to $0.1 million, $0.4 million and $0.6 million for
the three-
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month periods ended March 31, 1996 and 1995, and December 31, 1995,
respectively, related to foreign withholding taxes on revenue generated from the
Company's Japan-based customers.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are its cash, cash equivalents and
short-term investment balances, which totaled $99.4 million as of March 31,
1996, down approximately 5% from $104.7 million as of December 31, 1995. For the
three-month period ended March 31, 1996, the Company invested approximately $0.7
million in fixed assets consisting primarily of the purchase of computer
equipment.
In conjunction with licensing Magic Cap technology, the Company receives
prepayments of royalties as it achieves certain product milestones. The Company
has accounted for prepayments of royalties as deferred revenue. As such, future
revenues recognized by the Company will not generate cash to the extent of the
recoupment of these deferred royalties. Such deferred royalties are generally
recouped at the rate of $0.50 of each dollar of royalties earned. If the
prepayments are not fully recouped by the fifth anniversary of the license
agreements (November 30, 1997), the licensees may demand repayment of the
unrecouped amount plus interest. As of March 31, 1996, the Company had a balance
of $17.5 million representing current and long-term components of deferred
revenue.
The Company expects that its cash and short-term investment balances of $99.4
million as of March 31, 1996 will be adequate to fund the Company's operations
through mid-1997. The Company's capital requirements will depend on many
factors, including, but not limited to, the rate at which the Company's Magic
Cap and Telescript licensees develop and introduce their products and services;
the market acceptance and competitive position of new products and services; the
levels of promotion and advertising required to launch and market such products
and services and attain a competitive position in the marketplace; the extent to
which the Company invests in new technology and management and staff
infrastructure to support its licensees and third-party software developers; and
the response of competitors to the products and services based on the Company's
technologies. To the extent that the Company needs additional public and private
financing, no assurance can be given that additional financing will be available
or that, if available, it will be available on terms favorable to the Company or
its stockholders. If adequate funds are not available to satisfy either short-
or long-term capital requirements, the Company may be required to significantly
limit its operations.
As part of its business strategy, the Company frequently assesses opportunities
to enter into joint ventures, acquisitions of businesses, products or
technologies and other like transactions. In April 1996, the Company purchased
rights to two Internet applications called Presto!Mail 1.5 and Presto!Links 1.0
from Active Paper Inc. As previously discussed, the Company is developing and
plans to distribute these applications that will add standard Internet email and
Web browsing capabilities to Magic Cap-based communicators. The Company has no
commitment or agreement with respect to any other such transactions at this
time.
RISK FACTORS
In addition to the other information in this From 10-Q, the following factors
should be considered carefully in evaluating the Company and its business before
purchasing shares of the Company's stock.
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MINIMAL REVENUES; HISTORY OF AND ANTICIPATION OF LOSSES
The Company has generated minimal revenues, has incurred significant losses and
has substantial negative cash flow. As of March 31, 1996, the Company had an
accumulated deficit of $80.7 million, with net losses of $7.0 million, $20.6
million and $21.5 million for the quarter ended March 31, 1996 and the years
ended December 31, 1995, and 1994, respectively. The Company expects its
operating loss for the year ending December 31, 1996, will be larger than for
the year-earlier periods. A large percentage of the revenue earned by the
Company to date is attributable to one-time license fees and customer support
fees, as opposed to recurring royalty revenue. The Company expects this trend to
continue at least through 1996. The Company expects to continue to incur
substantial losses at least through the year ending December 31, 1997. There can
be no assurance that the Company will ever achieve or sustain significant
revenues or become cash flow positive or profitable at any time in the future.
DEPENDENCE ON ONGOING DEVELOPMENT OF NEW PRODUCTS BY THIRD PARTIES;
RESPONSIVENESS TO MARKET DEMANDS; UNDETECTED SOFTWARE ERRORS; SECURITY
The Company's two platform technologies, Magic Cap and Telescript, are designed
to be incorporated into products and services of the Company's licensees. The
Company provided certain of its licensees with the first generation of its Magic
Cap and Telescript software in the third quarter of 1994. The Company delivered
an enhanced version of its first generation of Magic Cap software in the fall of
1995. Only Sony (with its Magic Link product), Motorola (with its Envoy product)
and Matsushita (with its NeoNet product) have developed commercial products
based on the first generation of Magic Cap. Matsushita is marketing the NeoNet
only to identified vertical market segments. Only AT&T (with the AT&T
PersonaLink Services) has offered a commercial on-line service based on the
Company's first generation of Telescript technology. NTT is also offering an
English language pilot service (known as the Paseo pilot service) in Japan,
which is based on the Company's first generation Telescript technology. While
some of the other companies in the Alliance are developing, or have indicated a
desire to develop, goods and services based on the Company's second generation
of technologies, there can be no assurance that such development will actually
lead to the availability of commercial products.
The computer industry is characterized by rapid technological advances. For the
Company to remain competitive, it must respond quickly to changing market
demands. The Company believes that its technologies, which were originally
designed to execute in conjunction with large proprietary on-line services, must
be enhanced to work in conjunction with the Internet, especially the World Wide
Web (the "Web") component of the Internet, and enterprise-wide "intranets." The
Company is developing and plans to distribute Magic Cap applications that add
standard Internet email and Web browsing capabilities to Magic Cap-based
communicators. The Company also plans to enhance its Telescript technology so
that it is well suited to execute in the Web server environment. The Company
plans to create a Web server add-on product based on this enhanced version of
Telescript. There can be no assurance that the Company will be successful in
developing these new products and enhancements on a timely basis if at all, or
that such new products and enhancements will achieve market acceptance. The
failure to develop these products and enhancements on a timely basis, or of the
products to
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achieve market acceptance could have a material adverse effect on the Company's
business and results in operation. The Company must continue to monitor and
respond to market advances. As the Web is in a very early stage of development,
there can be no assurance that future technological advances will not obsolete
the Company's current Internet and intranet focus, thus requiring the Company to
again shift its focus.
The Magic Cap and Telescript software platforms are complex, first generation
technologies that have been exposed to only limited commercial use. There can be
no assurance that a substantial technical difficulty with, or an undetected
error in, the Company's software or the products and services of its licensees
will not arise, resulting in unanticipated costs, production delays or product
recalls. Extended delays in product development could result in alliance members
abandoning their plans to develop goods and services based on the Company's
technologies, which would likely result in a material adverse effect on the
Company's business and results of operation. See, "Dependence on Strategic
Alliance." As stated above, Telescript was originally created to serve as the
basis of large proprietary on-line services as opposed to Web servers. One
effect of creating a Telescript-based Web server add-on product is that the
Telescript interpreter will likely be subject to a wider variety of Telescript
applications than if it was used only in proprietary-based networks. Each
Telescript application will place differing resource requirements on the
Telescript interpreter. These differing resource requirements makes it
impossible to benchmark the Telescript interpreter's performance for all
potential Telescript applications. Accordingly, there can be no assurances that
the Telescript-based Web server add-on product will achieve a commercially
reasonable performance for any particular Telescript application.
The Company's Telescript technology enables the creation of software "agents"
that move from network server to network server, performing tasks on behalf of
the agent's creator. Because the agent's creator might not have any direct
relationship with the operator of the network server, Telescript must establish
a safe and secure environment in which the network server executes an agent's
commands. To date, and to the best of the Company's knowledge, Telescript has
not been subject to independent third party attacks on the safety and security
of the environment in which network servers execute agents. Given the Company's
high profile in the mobile agent field, the Company will likely be the target of
computer "hackers" who attempt to breach the security regime implemented by
Telescript. There can be no assurances that such attempts will not be successful
or that Telescript provides a fully safe and secure environment in which network
servers may execute third party created agents.
TELESCRIPT WEB PRODUCTS; DISTRIBUTION RISKS
One result of the Company's focus on Telescript-based Web server add-on products
is that the Company is now working with its large public telephone and telegraph
company ("PTOs") alliance members to refine the PTOs' plans to implement
Telescript-enhanced networks. As part of this refinement process, the Company is
renegotiating existing commercial Telescript agreements with its PTO alliance
members to establish more appropriate rights and obligations with respect to
Telescript. There can be no assurances that the Company will successfully
renegotiate commercial agreements with its PTO alliance members even though the
failure to do so could have a material adverse effect on the Company and its
results of operation. See, "Dependence on Strategic Alliance." There can be no
assurances that such renegotiations will not result in the Company refunding
nonrefundable, nonrecoupable fees that had previously been
13
<PAGE> 14
recorded by the Company as revenue.
To date, the Company has distributed its Magic Cap and Telescript platforms
directly to its partners. Because of this distribution model, the Company has
not previously established distribution channels with independent distributors,
system integrators, hardware original equipment manufacturers and value added
resellers. The Company believes that the establishment of such channels is
essential to the success of the Company's Telescript Web server add-on product.
The Company also believes that the establishment of such channels is essential
to the success of the version of the Magic Cap platform that executes as an
application on Windows-based PCs ("MCW") as well as other "shrink-wrap" products
distributed by the Company. There can be no assurances that the Company will be
able to establish and maintain independent distributor channels, system
integrator channels, hardware original equipment manufacturers and value added
reseller channels for any of its product offerings. The failure to timely
establish these channels will have a material adverse effect on the Company and
its results of operation.
As part of the Telescript Web Server add-on product and MCW sales strategies,
the Company intends to expand its sales and marketing efforts significantly.
There can be no assurances that the cost of this expansion will not exceed the
revenues generated, or that the Company's sales and marketing organization will
successfully compete against larger and better funded sales and marketing
organizations of the Company's competitors. See, "Limited Resources; Personnel"
DEPENDENCE ON DEVELOPMENT OF PERSONAL INTELLIGENT COMMUNICATOR MARKET;
The current market for personal intelligent communicators is modest. The
Company's Magic Cap technology is currently only commercially available as
incorporated into personal intelligent communicators, and therefore, the
Company's success is highly dependent on increased sales of personal intelligent
communicators. Sales of Sony Magic Link, Motorola Envoy and Matsushita NeoNet
communicators remain modest to date, and it is not clear if, or when, such sales
will become substantial. There can be no assurance that the market for personal
intelligent communicators will grow to commercially significant volumes or that
products incorporating General Magic's Magic Cap technology will offer
sufficient price/performance advantages to be commercially successful in the
personal intelligent communicator market. In addition, the Company expects that
the royalty amounts it charges for the distribution of Magic Cap-based
communicators may erode over time due to increased competition.
LIMITED RESOURCES; PERSONNEL
Building commercial goods and services based on Magic Cap and Telescript is a
complex process that currently requires direct engineering support from the
Company. Therefore, the Company must rapidly expand its customer engineering
capabilities so that Magic Cap communicator manufacturers, and Telescript system
integrators, value added resellers, hardware original equipment manufacturers
and Web service operators can develop, integrate and test their products and
services without requiring direct support from the Company's core product
development groups. The Company must also create tools and documentation to
enable such development, integration and testing. Finally, the Company must make
its technology releases sufficiently generic to avoid the need for creating
licensee-specific product releases. Until the
14
<PAGE> 15
Company is able to achieve the above, the Company's ability to enhance its
existing products and develop new ones will be significantly limited by the
support requirements of the Company's licensees. The Company does not expect to
ship versions of its Magic Cap platform that can be used by its licensees to
develop commercial products without significant development support from the
Company for at least six months. The Company does not plan to ship a Telescript
Web server add-on product that can be combined with existing Web servers without
the need of significant development support from the Company until the second
half of 1996. The creation of third party applications for the Web server add-on
product may, depending on the complexity of the applications, require detailed
development support from the Company. The strains on the Company's engineering
group that result from the Magic Cap and Telescript third party support
requirements mentioned above could significantly delay the Company's planned
shipment of new releases of these platforms. There can be no assurance that
these processes can be successfully managed given the Company's limited
engineering, management and financial resources. Failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
Because of the speed in which the Web is developing, software companies that
make technologies for the Web typically create new versions of their
technologies on a very fast schedule. Because of the complexity of the Company's
platform technologies and the related resource requirements needed to modify the
technologies and create development tools for the technologies, there can be no
assurances that the Company will be able to release technologies as rapidly as
other Web focused companies. The failure of the Company to release its
technology on schedules that are equivalent to other Web focused companies could
have a material adverse effect on the Company's business, financial condition
and operating results.
The Company must also continue to attract, retain and motivate qualified
personnel. Silicon Valley remains a highly competitive job market, and there can
be no assurances that key Company management and engineering personnel will
remain employed by the Company, or that the Company will be able to attract
sufficient additional personnel to execute its business plan. The Company has
experienced significant attrition of engineering, marketing, administrative and
sales personnel in the past twelve months.
DEPENDENCE ON STRATEGIC ALLIANCE
The Company relies on its alliance members to support its development program,
achieve commercialization of its technologies and market and sell products
through appropriate channels. There are no financial or other contractual
obligations imposed on the Company's strategic alliance members to develop or
commercialize the Company's technologies, and to date many of them have not
taken commercial licenses for the Company's technologies. Other alliance members
are not actively engaged in development or commercialization activities with
respect to the Company's technologies. There can be no assurance that any
communicator manufacturing alliance members other than Sony, Motorola and
Matsushita will successfully develop Magic Cap-based communicators, or that any
Magic Cap-based product can be marketed at price points low enough to achieve
mass market penetration and consumer acceptance. There can be no assurances that
Sony, Motorola and Matsushita will continue to enhance and/or market their
respective Magic Cap-based products. There can be no assurance that any PTO
other than AT&T with its PersonaLink Services will successfully develop and
offer a Telescript-based on-line service. There can be no assurances that AT&T
will continue to
15
<PAGE> 16
enhance and/or market AT&T PersonaLink Services. AT&T has informed the Company
that AT&T is currently evaluating whether to continue operating AT&T PersonaLink
Services. Failure of a significant number of the alliance members to
successfully commercialize products and services incorporating the Company's
technologies would have a material adverse effect on the Company's business,
financial condition and operating results. Likewise, the failure of a
significant number of alliance members to commit sufficient resources to the
marketing of their goods and services that incorporate the Company's
technologies will have a material and adverse effect on the Company's business,
financial condition and operating results.
The ability of the alliance members to commercialize products and services
incorporating the Company's technologies successfully is, in part, dependent on
the Company's ability to upgrade its technologies to meet its licensees'
requirements. There can be no assurance that the Company will be able to comply
with future specification and delivery schedule requirements regarding its
technologies. The Company's inability to meet such requirements would delay the
ongoing development of products and services utilizing its technologies and
could result in the alliance members seeking alternative technologies for use in
their products and services, either of which would have a material adverse
impact on the Company's business, financial condition and operating results. In
addition, the failure of initial products and services incorporating the
Company's technologies to achieve market acceptance could result in alliance
members discontinuing development efforts based on the Company's technologies
and seeking alternative technologies for use in their products and services and
would have a material adverse effect on the Company's business, financial
condition and operating results.
As stated above, the Company is working with its PTO alliance members to refine
their plans in light of the Company's development of a Telescript-based Web
server add-on product. However, there can be no assurances that the Company's
PTO alliance members will develop and offer Telescript-based services via the
Web. A decision by these PTOs to not develop and offer Telescript-based services
via the Web could have a material adverse impact on the commercial acceptance of
Telescript. The failure by the Company to rapidly develop a version of
Telescript that can be accessed via the Web could severely and adversely effect
the decision by the Company's PTO alliance members to develop and offer
Telescript-based services via the Web, thus reducing the value of the Telescript
technology to the marketplace.
Although the Company views its alliance as a strategic factor in the development
and commercialization of its technologies, the level of commitment to the
development and commercialization of the Company's technologies varies among the
alliance members. There can be no assurance that the individual alliance members
regard the alliance as strategic to their own respective businesses and
operations or that they will not reassess their commitment to the Company at any
time in the future. Several of the alliance members are in direct or indirect
competition with the Company and among themselves and have announced products or
services directly competitive with the Company's technologies and each other's
products and services or have strategic relationships with competitors of the
Company. See, "Competition."
RELIANCE ON APPLICATIONS AND SERVICE DEVELOPERS
The widespread adoption of Telescript is dependent upon third-party developers
developing, marketing and offering Web-based applications and services that
require the presence of the Telescript-based Web server add-on product discussed
above. The widespread adoption of
16
<PAGE> 17
Magic Cap-based personal intelligent communicators is aided by the availability
of numerous third party applications for these communicators. Therefore, the
Company is relying on the willingness and ability of third-party software
developers and electronic merchants and publishers to develop applications and
services for use with Telescript and Magic Cap-based products and services
introduced by the Company's licensees.
Until recently, largely due to limited resources, the Company has limited the
number of third-party developers for Telescript-based products and services. The
Company has recently made available a pre-release version of its tools for
creating Telescript-based applications offered via the Web. These tools were
originally named the "Active Web Tools," but will be renamed prior to their
first commercial release. The Active Web Tools enable developers to create
applications that execute on the company's planned Telescript-based Web server
add-on product. Currently, the Active Web Tools (as well as the Telescript-based
Web server add-on product) are executable only on UNIX-based workstations. The
Company is not currently developing a release of these tools for Windows-based
PCs or Macintosh computers. There can be no assurances that the Company will
ever make these tools available on PC or Macintosh computers. There can be no
assurances that developers will be able to use the pre-release version of the
Active Web Tools to develop and deploy commercial Telescript-based applications.
Even if developers are able to develop and deploy commercial quality
Telescript-based applications, a proven business case does not exist for
successfully exploiting these applications. Significant additional development
will be required to enhance the Active Web Tools as new versions of the
Telescript platform are released and to include additional tools and frameworks
and to conform to emerging Internet standards. As stated above, this additional
development may result in the Company releasing technology on a schedule that is
slower than other Web focused companies. See, "Limited Resources; Personnel."
The Company has contracted with a third party development tools provider for the
creation and distribution of software tools that can be used by developers to
develop programs for the Company's first generation Magic Cap-based personal
intelligent communicator. These tools execute on Macintosh computers, and there
can be no assurance that the Company will ever complete and make commercially
available tools that execute on Windows-based PCs. There can also be no
assurance that the third-party development tools providers will continue to
distribute the Company's Magic Cap software development tools. The Company is
also distributing a pre-release of third-party developer tools that can be used
to develop applications that execute on MCW. Developers must use these tools to
port their applications written to execute on Magic Cap-based personal
intelligent communicators to MCW. There can be no assurance that the Company
will be able to deliver a final version of such tools. The requirement that
third party software developers port their applications from Magic Cap-based
personal intelligent communicators to MCW, and the lack of a final version of
the tools necessary to perform such a port may limit the number of third-party
developers willing to develop applications for both products, which in turn
would limit the potential market for third-party developer applications.
The Company must also create new developer tools for the second generation Magic
Cap platform, including new compilers and debuggers which will work with such
second generation technology. Any delay in the availability or adoption of such
tools will delay the development of applications for Magic Cap-based
communicators based on the second generation of the Magic Cap software, which
could in turn severely limit or eliminate their chances for commercial success.
In addition, there can be no assurance that communicating applications
17
<PAGE> 18
developed by third parties will achieve market acceptance. Further, the limited
success of initial products and services incorporating the Company's
technologies to achieve market acceptance could result in third party software
developers and electronic merchants and publishers discontinuing development and
support of products and services based on the Company's technologies.
COMPETITION
The first generation of Magic Cap-based personal intelligent communicators
compete with certain existing hand-held personal organizers, personal digital
assistants ("PDAs") and notebook and sub-notebook computing devices. Despite
their origins in the organizer, PDA or computer category, such devices are now
being repositioned as personal intelligent communicators, even if their
communications functionality is an add-on option. For instance, Apple's Newton
technology now includes GSM support, which is a technology for wireless digital
transmission. Newton technology also includes client software for the CompuServe
proprietary network. In addition, third party Newton developers have created
technology that adds wireless support to Newton technology. Motorola has
developed and is marketing a wireless Newton technology-based PDA named Marco.
Organizers based on proprietary software include the Sharp Zaurus product
family, Casio's BOSS product family and Psion's Series 3 palmtop computers. All
of these organizers can be augmented with wireline and wireless communication
options at extra cost. Psion Series 3 Palmtop computers now have text based
email capabilities over cc:Mail, Microsoft Mail and CompuServe. Psion has
recently announced that it is in discussions with a number of other companies
for the licensing of the Psion operating system. Sharp has announced a new
Zaurus PDA, the Zaurus 5800, which comes pre-loaded with communications
software. Sharp has also announced a color version of its Zaurus PDA, the Color
Zaurus MI-10, which purportedly includes email support, a Web browser and
support for a digital camera.
Geoworks has announced relationships with Novell, NEC, Nokia, Hewlett Packard,
Ericsson and Toshiba. Hewlett Packard is marketing its OmniGo organizer, which
is based on Geoworks' Geos operating system. A third party software developer
has recently announced support for text email and paging on the OmniGo. Nokia
has announced a "smart" cellular phone based on version 3.0 of the GEOS
operating system. This cellular phone purportedly will include Web browsing and
SMTP email capabilities. Geoworks has announced alliances with NEC and Ericsson
to jointly develop families of smart cellular phones for the Japanese and
European markets respectively.
Microsoft has announced that it expects products based on its Pegasus hand-held
operating system to be available by the end of 1996. Pegasus is based on
Microsoft's Windows operating system, and purportedly will include wireless
communication features. Casio, Compaq, Toshiba, NEC, Epson America and Philips
are all purportedly developing products based on Pegasus.
Palm, a subsidiary of U.S. Robotics, has released its Palm Pilot organizer.
Although the Palm Pilot does not currently include communications features, U.S.
Robotics has announced that it will release communications add-ons for Palm
Pilot.
18
<PAGE> 19
In addition to competition in the personal intelligent communicator market, the
Company faces competition in the market for easy to use, inexpensive Internet
connectivity solutions. Oracle has publicly demonstrated its NC Internet access
computer. It has been reported that Oracle has talked with Pacific Bell about
bundling NC with Pacific Bell's Internet service, which would offer a large
distribution channel for the Oracle product. Apple has disclosed plans to
incorporate a TCP/IP stack into its Newton operating system for PDAs. The TCP/IP
stack will enable Newton-based PDAs to connect to the Internet. Sun Microsystems
has publicly discussed its development of a "zero-administration Internet
client." Apple has announced that its Pippin technology is being readied to
serve as a network computer. Philips has announced and demonstrated technology
that turns its CD-i player into Internet computers. Sega has announced a
technology for turning its Saturn home video game computers into Internet
computers. Zenith has announced that it plans to market a television equipped
with both a high-speed modem and an Ethernet connection to make it possible to
connect easily to the Net without a separate computer. IBM has promised the
development of a communications optimized personal computer. Microsoft has
announced that it is developing a PDA that connects to the Web. SunRiver and
WelBook have announced plans to develop a low-cost Internet terminal based on
Sun Microsystem's Java programming language. Japan Computer has announced the
development of the iBox Internet access computer. Citrix, Compaq, Mitsubishi and
ViewCall have all made similar announcements.
The Company believes that various groups of private telecommunications, computer
and software companies in the United States and abroad and various European and
Asian government-owned or controlled telecommunications companies are
investigating the development of enhanced electronic messaging, information and
transaction products and services that would compete with services based on
General Magic's technologies.
Many companies are developing products that enable functions on the Web that are
similar to the functions that the Company plans to enable with its
Telescript-based Web server add-on product. Some of these products are built on
agent-based technology, while others rely upon more traditional platform and
client/server technologies. Edify's Electronic Workforce, Next's Web Objects,
Open Market's Open Market WebServer, Forte's Forte product, Spider Technologies'
NetDynamics, ParcPlace Digitalk, BlueStone's Sapphire/Web, WebGalaxy's WebGalaxy
product, FTP Software's CyberAgent and Wayfarers, QuickServer all are either Web
servers or add-ons to Web servers that enable increased functionality over
today's standard Web servers. Some of the above technologies execute or support
applications written in computer languages that are better known than
Telescript. For instance, NetDynamics and CyberAgent support programs written in
the Java language, while VisualWave supports programs written in Smalltalk. Some
of the above products provide a fully integrated "drag and drop" development
environment, which the Company's Telescript technology does not currently
support. In addition, there are several technologies that are popular with the
Internet community that could be used to develop competing server-based
products. For instance, Perl, which is a widely used language for UNIX systems,
and Safe-TCL, which is a security enhanced version of the Internet standard TCL
language, could be used as the basis for a Web server add-on products.
In addition to the companies and languages listed above, other companies have
developed technologies that personalize a user's experience on the Web. Alta
Vista has created a comprehensive directory of Web pages, thus easing the user
experience of finding desired data. Farcast has created an agent-based
technology for collecting data from Web pages and watching
19
<PAGE> 20
Web pages for changes. Netscape has created its Smart Marks technology, which
watches identified Web pages for changes.
Many of the companies with which the Company or its licensees compete, or which
are expected to offer products or services based on alternatives to the Magic
Cap or Telescript technologies, have substantially greater financial resources,
research and development capabilities, and sales and marketing staffs and
distribution channels than the Company. In addition, several of the alliance
members are in direct or indirect competition with the Company and among
themselves and have announced products or services directly competitive with
General Magic's technologies and each other's products and services or have
strategic relationships with competitors of the Company. For example, Apple is
marketing its Newton technology and related MessagePad products; Motorola is
shipping its Marco product, a wireless communicator based on Newton technology;
and Toshiba has announced a relationship with Geoworks for the GEOS operating
system. It has been reported that Toshiba has licensed the Pegasus operating
system from Microsoft. AT&T is rumored to be in discussions with Microsoft
regarding incorporating support of AT&T's planned PACT two-way paging network
into Pegasus. NTT has announced that it is working with Microsoft to develop
multimedia software. Philips is developing a network computer based on its CD-I
technology. Philips may have licensed the Pegasus operating system from
Microsoft. There can be no assurances that products and services incorporating
the Company's technologies will achieve sufficient quality, functionality or
cost-effectiveness to compete with existing or future alternatives. Furthermore,
there can be no assurance that the Company's competitors will not succeed in
developing products or services which are more effective and lower-cost than
those based on the Company's technologies, or which render the Company's
technologies obsolete. The Company believes that its ability to compete depends
on factors both within and outside its control. The principal competitive
factors affecting the market for the Company's technologies are the availability
of the Company's technologies and the products and services of its licensees and
their competitors; the functionality and architecture of the Company's
technologies; the quality, ease of use, performance and functionality of the
products and services developed and marketed by the Company's licensees; the
effectiveness of these companies in marketing and distributing these products
and services; the emergence of a Telescript-based electronic marketplace; and
price. There can be no assurance that the Company will be successful in the face
of increasing competition from new technologies or products introduced by
existing competitors and by new companies entering the market.
POSSIBLE VOLATILITY OF STOCK
The stock market has from time to time experienced significant price and volume
fluctuations which have particularly affected the market prices of the stocks of
high technology companies, and which may be unrelated to the operating
performance of particular companies. There has been particular volatility in the
market prices of securities of companies which, like General Magic, are still
primarily engaged in product development. Factors such as technology and product
announcements by the Company and its licensees or by competitors, disputes
relating to patents and proprietary rights, failures or delays in the Company's
development program or the commercialization activities of its alliance members
and public concerns as to the safety of wireless voice and data transmission may
have a significant effect on the market price of the Company's common stock.
Since the Company's initial public offering in February 1995, the price of the
Company's common stock has experienced extreme volatility.
20
<PAGE> 21
GENERAL MAGIC, INC.
FORM 10-Q, March 31, 1996
Part II--Other Information
ITEM 1. LEGAL PROCEEDINGS.
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit has been filed with this report:
11.1 Computation of Net Loss Per Share
27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
21
<PAGE> 22
GENERAL MAGIC, INC.
FORM 10-Q, March 31, 1996
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: May 14, 1996 /s/ Wendy Olszewski
------------ -------------------------------
Name: Wendy Olszewski
Title: Acting Chief Financial Officer,
Controller
DATE: May 14, 1996 /s/ Bob Kelsch
------------ -------------------------------
Name: Bob Kelsch
Title: President and
Chief Operating Officer
22
<PAGE> 1
GENERAL MAGIC, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
EXHIBIT 11.1
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three-Month Periods Ended
March 31
-------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average common shares outstanding for the
period:
Common stock 25,905 16,558
Preferred stock -- 5,226
-------- --------
Shares used in per share calculation 25,905 21,784
======== ========
Net loss $ (7,031) $ (3,647)
======== ========
Net loss per share $ (0.27) $ (0.17)
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 69,099
<SECURITIES> 30,344
<RECEIVABLES> 1,111
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 101,387
<PP&E> 10,860
<DEPRECIATION> 4,270
<TOTAL-ASSETS> 108,420
<CURRENT-LIABILITIES> 6,779
<BONDS> 1,048
0
0
<COMMON> 26
<OTHER-SE> 82,733
<TOTAL-LIABILITY-AND-EQUITY> 108,420
<SALES> 0
<TOTAL-REVENUES> 2,808
<CGS> 0
<TOTAL-COSTS> 1,068
<OTHER-EXPENSES> 9,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 608
<INCOME-PRETAX> (6,910)
<INCOME-TAX> 121
<INCOME-CONTINUING> (7,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,031)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
