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Table of Contents
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
FORM 10-Q
 
 
(Mark One)
 
x Quarterly Report Pursuant to Section 13 or 15(d)
Of The Securities Exchange Act of 1934
 
For Quarter Ended July 31, 2002
 
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 001-15715
 
 
 
 
TIPPINGPOINT TECHNOLOGIES, INC.
 
 
Organized in the State of Delaware
Tax Identification No. 74-2902814
 
 
7501B North Capital of Texas Highway, Austin, Texas 78731
Telephone No. (512) 681-8000
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x            No  ¨
 
The number of shares outstanding of each of the issuer’s classes of common stock as of August 31, 2002.
 
Class
     
Number of Shares
Common Stock, $0.01 par value
     
4,067,517
 
 

Table of Contents
TIPPINGPOINT TECHNOLOGIES, INC.
 
INDEX
 
         
Page Number
PART I.
      
1
Item 1.
      
1
       
1
       
2
       
3
       
4
Item 2.
      
8
Item 3.
      
25
PART II.
      
25
Item 1.
      
25
Item 4.
      
26
Item 6.
      
26
  
27
  
27
 

Table of Contents
PART I.    FINANCIAL INFORMATION.
 
ITEM 1.    FINANCIAL STATEMENTS.
 
TIPPINGPOINT TECHNOLOGIES, INC.
 
CONDENSED BALANCE SHEETS
(UNAUDITED)
 
ASSETS
   
July 31,
2002
     
January 31,
2002
     
December 31,
2001
  
Current assets:
                           
Cash, cash equivalents and short-term investments
   
$
28,471,967
 
   
$
40,512,649
 
   
$
42,297,751
 
Prepaid expenses and other current assets
   
 
1,688,779
 
   
 
1,007,468
 
   
 
899,613
 
Inventory
   
 
543,867
 
   
 
50,615
 
   
 
—  
 
    
  
  
Total current assets
   
 
30,704,613
 
   
 
41,570,732
 
   
 
43,197,364
 
    
  
  
Property and equipment, net
   
 
6,200,796
 
   
 
5,535,872
 
   
 
5,669,136
 
Net assets from discontinued operations
   
 
—  
 
   
 
—  
 
   
 
375,000
 
Other
   
 
1,864,253
 
   
 
2,071,006
 
   
 
1,841,738
 
    
  
  
    
$
38,769,662
 
   
$
49,177,610
 
   
$
51,083,238
 
    
  
  
LIABILITIES AND STOCKHOLDERS’ EQUITY
                           
Current liabilities:
                           
Trade accounts payable
   
$
530,849
 
   
$
620,615
 
   
$
138,127
 
Current portion of long-term debt
   
 
205,825
 
   
 
—  
 
   
 
—  
 
Accrued liabilities
   
 
5,956,925
 
   
 
4,894,123
 
   
 
5,478,881
 
    
  
  
Total current liabilities
   
 
6,693,599
 
   
 
5,514,738
 
   
 
5,617,008
 
Long-term debt
   
 
525,994
 
   
 
—  
 
   
 
—  
 
Other liabilities
   
 
446,230
 
   
 
522,730
 
   
 
535,480
 
    
  
  
Total liabilities
   
 
7,665,823
 
   
 
6,037,468
 
   
 
6,152,488
 
    
  
  
Stockholders’ equity:
                           
Common stock
   
 
40,675
 
   
 
40,495
 
   
 
40,460
 
Additional paid-in capital
   
 
304,880,856
 
   
 
304,796,929
 
   
 
304,779,058
 
Deferred stock-based compensation
   
 
(1,446,382
)
   
 
(1,925,795
)
   
 
(2,002,515
)
Stockholder notes receivable
   
 
(652,800
)
   
 
(652,800
)
   
 
(652,800
)
Accumulated other comprehensive gain/(loss)
   
 
18,304
 
   
 
(209
)
   
 
5,329
 
Accumulated deficit
   
 
(271,736,814
)
   
 
(259,118,478
)
   
 
(257,238,782
)
    
  
  
Total stockholders’ equity
   
 
31,103,839
 
   
 
43,140,142
 
   
 
44,930,750
 
    
  
  
    
$
38,769,662
 
   
$
49,177,610
 
   
$
51,083,238
 
    
  
  
 
See accompanying notes to unaudited condensed financial statements.

1

Table of Contents
 
TIPPINGPOINT TECHNOLOGIES, INC.
 
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
    
Three Months
Ended
     
Six Months
Ended
  
    
July 31,
2002
     
June 30,
2001
     
July 31,
2002
     
June 30,
2001
  
Operating expenses:
                                    
Research and development
   
$
4,091,550
 
   
$
2,768,041
 
   
$
8,073,493
 
   
$
5,138,496
 
Sales and marketing
   
 
894,156
 
   
 
—  
 
   
 
1,501,429
 
   
 
—  
 
General and administrative
   
 
1,352,217
 
   
 
1,736,615
 
   
 
2,577,296
 
   
 
3,613,077
 
    
  
  
  
Total operating expenses
   
 
6,337,923
 
   
 
4,504,656
 
   
 
12,152,218
 
   
 
8,751,573
 
    
  
  
  
Operating loss
   
 
(6,337,923
)
   
 
(4,504,656
)
   
 
(12,152,218
)
   
 
(8,751,573
)
Interest income, net
   
 
162,880
 
   
 
763,740
 
   
 
346,915
 
   
 
1,727,029
 
    
  
  
  
Loss from continuing operations
   
 
(6,175,043
)
   
 
(3,740,916
)
   
 
(11,805,303
)
   
 
(7,024,544
)
Discontinued operations:
                                    
Loss from operations of a discontinued business
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
(3,697,206
)
Loss on disposal of a discontinued business, including provision for operating losses during phase-out period
   
 
(813,033
)
   
 
(2,090,700
)
   
 
(813,033
)
   
 
(4,290,700
)
    
  
  
  
Net loss
   
$
(6,988,076
)
   
$
(5,831,616
)
   
$
(12,618,336
)
   
$
(15,012,450
)
    
  
  
  
Per share data:
                                    
Net loss
   
$
(6,988,076
)
   
$
(5,831,616
)
   
$
(12,618,336
)
   
$
(15,012,450
)
    
  
  
  
Net basic and diluted loss from continuing operations per common share
   
$
(1.52
)
   
$
(0.92
)
   
$
(2.91
)
   
$
(1.74
)
Net basic and diluted loss from discontinued operations per common share
   
 
(0.20
)
   
 
(0.52
)
   
 
(0.20
)
   
 
(1.98
)
    
  
  
  
Net basic and diluted loss per common share
   
$
(1.72
)
   
$
(1.44
)
   
$
(3.11
)
   
$
(3.72
)
    
  
  
  
Weighted average common shares outstanding
   
 
4,061,467
 
   
 
4,042,217
 
   
 
4,057,470
 
   
 
4,040,591
 
    
  
  
  
 
See accompanying notes to unaudited condensed financial statements.

2

Table of Contents
 
TIPPINGPOINT TECHNOLOGIES, INC.
 
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
    
Six Months Ended
  
    
July 31, 2002
     
June 30, 2001
  
Cash flows from continuing operating activities:
                  
Loss from continuing operations
   
$
(11,805,303
)
   
$
(7,024,544
)
Adjustments to reconcile loss from continuing operations to net cash used in continuing operating activities:
                  
Depreciation and amortization
   
 
1,470,647
 
   
 
1,559,465
 
Accretion of investment securities
   
 
(101,016
)
   
 
(1,420,721
)
Loss on sale of fixed assets
   
 
—  
 
   
 
28,840
 
Stock-based compensation expense
   
 
507,286
 
   
 
435,082
 
Changes in operating assets and liabilities:
                  
Prepaid expenses and other current assets
   
 
(801,966
)
   
 
(849,667
)
Inventory
   
 
(493,251
)
   
 
—  
 
Trade accounts payable and accrued liabilities
   
 
667,025
 
   
 
(8,047,437
)
Other non-current assets
   
 
230,631
 
   
 
272,024
 
    
  
Net cash used in continuing operating activities
   
 
(10,325,947
)
   
 
(15,046,958
)
    
  
Cash flows from investing activities:
                  
Purchases of property and equipment
   
 
(2,005,571
)
   
 
(1,217,936
)
Purchases of investment securities
   
 
(8,789,504
)
   
 
(41,437,647
)