Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| |
x |
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended June 30, 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: 001-16073
OPENWAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
| Delaware |
|
94-3219054 |
| (State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
1400 Seaport Blvd.
Redwood City, California 94063
(Address of principal executive offices, including zip code)
(650) 480-8000
(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
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 than 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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
The aggregate market value of the voting stock held by nonaffiliates of the registrant was approximately $131,183,867 as of September 15, 2002 based upon the closing sale price on the Nasdaq National Market reported for such date.
Shares of Common Stock held by each officer and director have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
There were 176,788,166 shares of the registrant’s Common Stock issued and outstanding as of September 15, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of
the definitive Proxy Statement relating to the Company’s 2002 Annual Meeting of Stockholders to be filed hereafter are incorporated by reference into Part III hereof.
PART I
Forward-Looking Statements
In addition to historical information, this Annual Report contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are based upon current expectations and
beliefs of our management and are subject to certain risks and uncertainties, including economic and market variables. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,”
“seeks,” “estimates” and similar expressions identify such forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those
indicated in the forward-looking statements. Factors which could cause actual results to differ materially include those set forth in the risks discussed below under the subheading “Risk Factors” under Item 7, Management’s
Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report. We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements. Readers should carefully
review the risk factors described in this section below and any subsequently filed reports.
Item 1. Business
We are a leading provider of infrastructure software, applications and services that enable the convergence of the Internet and
wireless and wireline communications. We were incorporated in Delaware in 1994. Our customers are communication service providers, including wireless and wireline carriers, Internet Service Providers and broadband providers worldwide. Our
Openwave® Services OS™ software suite enables telecommunication companies and wireless service providers to create and deploy new revenue-generating services while
providing their subscribers with a rich personalized experience. The Services OS software suite is designed to provide carrier-class scalability and reliability and work with industry standards, such as WAP, XHTML, SyncML and VoiceXML.
Using our software, communication service providers can offer Internet services to their wireless and wireline subscribers, and wireless device
manufacturers can turn their mass-market mobile phones and other wireless devices into mobile Internet devices. As of June 30, 2002, over 80 communication service providers have licensed our mobile Internet software, have commenced or announced
commercial service or are in market or laboratory trials.
Communication service providers using our software can also provide their
subscribers with a variety of messaging applications, including e-mail, mobile e-mail, mobile instant messaging (mobile IM), multimedia messaging service (MMS) and open voice mail. As of June 2002, we had over 140 million licensed mailbox seats and
over 30 carriers which have each licensed over one million mailboxes.
Our microbrowser software, Openwave Mobile Browser, is designed to
be embedded in wireless devices and to deliver the mobile Internet and the applications of the Services OS software through a graphical or textual user interface. As of June 30, 2002, we estimate that over 250 million handsets have shipped with our
Openwave Mobile Browser embedded.
Recent Events
On August 8, 2000, Phone.com, Inc. and Software.com, Inc, signed an agreement to merge the two companies subject to stockholder approval, regulatory reviews and other conditions. On November 17, 2000, pursuant to such
agreement, a wholly-owned subsidiary of Phone.com was merged with and into Software.com so that Software.com
1
became a wholly-owned subsidiary of Phone.com. At the same time, Phone.com changed its name to Openwave Systems Inc. Under the terms of such agreement, approximately 94.5 million shares of
Openwave common stock were issued in exchange for all the outstanding shares of Software.com common stock based on an exchange ratio of 1.6105 Openwave shares for each Software.com share. Immediately following the exchange, former stockholders of
Phone.com owned approximately 51% of the combined company and former Software.com shareholders owned approximately 49%. The merger was accounted for as a pooling-of-interests.
In connection with the merger, Donald Listwin, formerly an Executive Vice President of Cisco Systems, Inc., became the President and Chief Executive Officer of the combined company. In June 2001, Mr.
Listwin also became Chairman of the Board, replacing Alain Rossmann who resigned from the Company that same month.
In August 2001, Kevin
Kennedy, former senior vice president of Cisco Systems joined the Company to fill the newly-created position of Chief Operating Officer (COO).
In May 2002, we acquired Java download technology, key employees and access to its customers from a Sweden-based company, Ellipsus Systems, Inc. The acquired technology allows operators to efficiently deploy and realize immediate
value from new data services for the mobile user. Also, in July 2002, we acquired SignalSoft Corporation, a leader in software applications for both commercial and emergency (E911) location-based services headquartered in Boulder, Colorado.
During the fourth fiscal quarter of 2002, Bo Hedfors was appointed to the Board of Directors, Bernard Puckett was designated
vice-chairman of the Board, and Andrew Verhalen resigned from the Board.
In July 2002, John MacFarlane stepped down as Chief Technology
Officer (CTO) and was replaced by Thomas Reardon and Bruce Martin, who were appointed to jointly share the role of Chief Technology Officer. Thomas Reardon was formerly CEO of Avogadro, Inc., a developer of instant messaging applications which we
acquired in July 2001, and Bruce Martin was formerly Vice President of Technology for the Company and has worked for the Company since 1995. John MacFarlane remains on the Board of Directors.
Industry Background
The Convergence of the Internet and
Mobile Telephony
As people have become increasingly dependent on e-mail services, remote access to corporate intranets, and
other Internet-based services, mass-market wireless devices that provide mobile access to these resources have become increasingly useful tools. Openwave pioneered the convergence of the Internet and mobile telephony. In 1993, we developed our first
e-mail messaging server. In 1995, we developed our initial mobile Internet technology, which enables the delivery of Internet-based services to wireless devices. In 1996, we introduced and deployed our first products based on our mobile Internet
technology.
To create a worldwide open standard enabling the delivery of Internet-based services to mass-market wireless devices, we
co-founded the Wireless Application Protocol (WAP) Forum in 1997. A year later in 1998, the WAP Forum published technical specifications for application and content development and product interoperability based on Internet technology and standards.
These specifications were the basis of the first wireless Internet applications.
In 2001, the WAP Forum published its WAP 2.0
specifications, to provide full compatibility with the emerging W3C XHTML standards for Web content authoring.
2
In June 2002, the WAP Forum combined with the Open Mobile Architecture initiative to form the Open
Mobile Alliance (OMA) of which Openwave is a founding member. The Open Mobile Alliance seeks to consolidate all the standards initiatives around the mobile Internet into one organization, so as to ensure compatibility between devices, infrastructure
and applications on a worldwide basis.
Growth of the Internet, Messaging and Wireless Telecommunications
Use of the Internet and wireless telecommunications has grown rapidly in the past few years. International Data Corporation
estimates that from the end of 2000 to the end of 2005, the number of users of the Internet worldwide will increase from 400 million to 941 million and the number of e-mail mailboxes will increase from 505 million to 1.2 billion. Industry analysts
estimate that there were approximately 1.0 billion wireless subscribers worldwide at the end of 2001, and the number of subscribers will grow to approximately 1.6 billion by the end of 2004. We cannot assure you that these estimates will be
achieved.
The number of mobile Internet subscribers worldwide as of June 2002 was approximately 100 million. Looking forward, further
growth of the mobile Internet will depend on several factors, including the availability of data-enabled handsets, next generation data networks and compelling data services. All of these factors are expected to experience growth and development
over the next few years.
After a slowdown in 2001, handset growth is expected to resume in 2002, with Strategy Analytics predicting
total shipments of over 400 million handsets in 2002, as compared to approximately 390 million in 2001. Mobile data will be a key feature of many of these handsets. Of the 81 new models announced by the top-five handset vendors for 2002 (as of June
2002), almost all are browser-enabled; 54 are 2.5G capable, 30 have color screens and 28 support Java.
The rollout of next generation
networks, required for the delivery of advanced mobile data services and improved user experience with existing services, is accelerating. By June 2002, 126 communication service providers had launched commercial GPRS or CDMA 1xRTT networks, up from
55 nine months earlier. Moreover, a number of communication service providers are seeing early successes with these services. KDDI in Japan added 1.15 million subscribers to its CDMA 1x network in the 4 months from April to July 2002, while SK
Telecom in Korea has acquired over 7.0 million subscribers since launching its CDMA 1x network in mid-2001.
The
Market Opportunity
The telecommunications industry is currently marked by a multitude of business, services and technological
transitions, which have created an extremely complex and challenging environment for the carriers and vendors who serve the market. Key transitions include the technology transition from 2G to 2.5G to 3G networks and circuit-switch to IP technology.
Services transitions include carriers moving from offering just one service to providing end users with multiple applications and personalized services. In addition, carriers are experiencing key business transitions, such as charging for minutes
plus transactions and amount of data packets downloaded, and selling based on increased value of service offerings rather than competing on the sole basis of price. In order to successfully manage through these transitions, we believe communication
service providers need the right technology and expertise to develop new revenue generating data services and to manage network changes with minimum disruption. An example of a service emerging from these transitions is multimedia messaging services
(MMS). As of August 2002, a total of 27 communication service providers have launched photo- or multimedia messaging services, and another 34 are expected to launch in late 2002 or early 2003.
3
Compelling services, necessary to drive increased mobile data use and thus revenue, are emerging and are
being actively deployed by service providers. Basic download services are improving as next generation networks and handsets enable the delivery of animation, color content and polyphonic ring tones, while games are becoming richer and more
entertaining as mobile content providers develop for Java-capable devices. Location technologies may be used to launch innovative new applications, such as Openwave Safety First, which provides a mobile emergency services solution, while
person-to-person messaging is expanding beyond the realms of basic text messaging, as operators offer e-mail, Instant Messaging (IM), and photo- and multimedia-messaging services.
The Openwave Systems Solution
We provide scalable infrastructure software and messaging
applications to communication service providers enabling the delivery of both Internet-based services to mass market wireless devices and advanced communication services to wireless and wireline end users. Our products allow communication service
providers to offer new revenue generating data services to offset the decrease in voice revenues experienced recently. In addition, wireless device manufacturers can use our browser technology to turn their mass-market wireless devices into mobile
Internet devices. Our strategy is to design software products and platforms that help our customers drive incremental subscriber revenues and increase subscriber loyalty while transitioning to a world of personalized data services, multiple
applications and open standards-based networks.
Products and Services
Our Openwave Services OS software suite enables telecommunication companies and wireless service providers to rapidly create and deploy new revenue-generating services while providing their subscribers
with a rich personalized experience. Our products fall into three broad categories: Messaging products, mobile products and client products. We also have a professional services group which supports all products we sell.
Messaging Products
| |
• |
|
Openwave Email—Internet-based, carrier-class e-mail messaging applications with high scalability, performance and features to achieve reliable operation,
smooth administration and integration with existing systems and services. |
| |
• |
|
Openwave Mobile Messaging—three products are jointly developed, one for MMS, one for Mobile Instant Messaging (IM) and one for Mobile Email. Our MMS
product is the direct result of the integration of our historical development efforts in mobile access gateways and e-mail server technologies. |
| |
• |
|
Openwave Open Voice Mail—a voice messaging application that delivers voice mail over IP networks. This product is designed to take advantage of the shift
of voice traffic to IP networks. Operators may recognize significant cost-savings and new application flexibility by moving to open, IP-based voice mail infrastructure and away from proprietary legacy solutions.
|
Mobile Infrastructure Products
| |
• |
|
Openwave Mobile Access Gateway—carrier-class infrastructure software for exchanging data between the wireline Internet and wireless devices. Our
market-leading gateway includes advanced features such as WAP Push, security, billing support and differentiated classes of service. Now in its fifth generation, this product represents the heart of our mobile data services offering.
|
| |
• |
|
Openwave Provisioning Manager—a flexible, extensible, centralized provisioning solution for over-the-air provisioning of wireless handsets.
|
4
| |
• |
|
Openwave Download Fun—a content delivery solution that provides a platform for communication service providers to offer subscribers the capability to
download a wide variety of media objects to their mobile handsets. |
| |
• |
|
Openwave Location Products—a group of commercial and emergency location-based services applications that were obtained in the acquisition of SignalSoft
Corporation. Such products include Safety First, Friend Finder, Intelligent Network Routing, Location Manager and Location Studio. |
Client Products
| |
• |
|
Openwave Mobile Browser—microbrowser software that is designed and optimized for wireless devices and that we believe provides a rich, easy-to-use
subscriber experience. |
| |
• |
|
Openwave SDK—Software development kit for developers and content providers seeking to build applications and content for the mobile Internet, primarily via
WAP. |
Professional Services
Our products and our customers’ networks are complex requiring an experienced and knowledgeable professional services, support, and training organization to provide world-class
solutions to our customers. Our support organization provides both 24-hour maintenance and support services to our carrier customers and maintenance and engineering support services to wireless device manufacturers, who have ported our Openwave
Mobile Browser and other device applications to their wireless devices. In addition, we provide consulting services to communication service providers who license our software and engage us to perform integration services relating to commercial
launches of our technology, as well as value-added services that are designed to improve the end-to-end consumer experience, ultimately increasing adoption rates for wireless data services.
New Products and Services under Development
We continue to enhance the features,
functionality and usability of our current products while investing in new products for our mobile Internet infrastructure software and messaging application suites. Ongoing developments include an improved graphical user interface and the addition
of new functionality relating to WAP 2.0 and an application delivery solution that allows for the download of a wide variety of media objects to their handsets, including Java games, ring tones, images and other media. We are also developing next
generation messaging applications such as MMS.
Our device software portfolio has expanded to include messaging clients for services such
as MMS and Instant Messaging.
Communication service providers around the world are rapidly deploying 2.5G networks and preparing to
deploy third-generation, or 3G, networks. We are working together with our partners and customers to ensure successful deployment of our products on 2.5G networks. We are engaged in ongoing testing of our products to ensure that they will fully
support 3G deployments in the future. Currently, all of our products support IP transport, which is used by 3G networks.
5
Customers
Communication Service Providers
We sell our software products worldwide, primarily
to communication service providers, including wireless and traditional telecommunications carriers, wireline telecommunication carriers and also to Internet service providers, cable-based Internet access providers and Internet portals.
We also provide our communication service provider customers with professional services that enable them to rapidly adopt our technology and bring
wireless and wireline Internet-based services and applications to market. Our professional services focus on those areas where our products interface with our customers’ internal systems such as billing, provisioning and customer care.
Our agreements with our communication service provider customers grant them nonexclusive licenses to use our Services OS software in
connection with providing Internet-based services to their subscribers. Pricing and payment terms for licenses are negotiated with each customer based upon subscriber count or transaction capacity. Products are licensed under either a perpetual
license model or under a monthly or quarterly time-based license model. Although these agreements do not provide for a right of return, we typically provide a limited warranty and indemnify customers, subject to certain limitations, against
intellectual property infringement claims. In addition, we typically provide fee-based maintenance and support services to our customers, under which they receive error corrections and remote support. Our customers can also purchase new version
coverage to receive new releases of our products for a specified term.
Wireless Device Manufacturers
We license our Openwave Mobile Browser software to wireless device manufacturers, who embed it into their products. In addition,
we provide engineering and support services to accelerate the introduction of new wireless device models that contain our Openwave Mobile Browser.
Our agreements with wireless device manufacturers generally provide these customers with a nonexclusive license to include the Openwave Mobile Browser in the wireless devices that they sell. In addition, customers can elect to
receive varying levels of fee-based maintenance and support services.
Research and Product Development
Our ability to meet our customer’s expectation of innovation and enhancement depends on a number of factors, including our ability to identify and respond
to emerging technological trends in our target markets, develop and maintain competitive products, enhance our existing products by adding features and functionality that differentiate them from those of our competitors and bring products to market
on a timely basis and at competitive prices. Consequently, we continue to enhance the features and performance of our existing products and have made and intend to continue to make, significant investments in research and product development. Our
research and development expenses were $135.1 million, $135.8 million, and $59.9 million for the years ended June 30, 2002, 2001 and 2000, respectively. As of June 30, 2002, we had 728 employees engaged in research and product development
activities.
Technology
Technology and innovation are key to our success. We have contributed to the development of the mobile Internet. Our messaging products have substantial innovation and technology dedicated to the unique and stringent needs of
6
the service provider marketplace. Our products are based on open standards, and we contribute to the development of such standards; in particular, contributions are made in the areas of mobile
Internet protocols, messaging, mobile Internet technology and enabling technologies for 2.5G and 3G networks.
Our technology is designed
for deployment on very large-scale networks. Our customers require highly scalable systems, tools for monitoring and managing systems and other features unique to the size, scale and performance characteristics of their networks and service
offerings. Our technology is designed with these requirements in mind and includes features such as:
| |
• |
|
The ability to segment and structure data for high performance access, enabling a much larger number of supported users |
| |
• |
|
The ability to replicate directory information for increased performance and reliability |
| |
• |
|
The ability to perform certain management and operations activities on the systems without downtime |
| |
• |
|
Implementation techniques that utilize multi-process, multi-threaded architectures to enable efficient utilization of multiple CPU Unix servers
|
Mobile Access Gateway Technology
We have designed our Openwave Mobile Access Gateway to be modular, expandable, flexible, scalable and reliable. Using an architecture based on scalable, object-oriented technology, the Openwave Mobile
Access Gateway typically runs on a large, distributed set of servers. Openwave Mobile Access Gateway is intended to meet the stringent performance, scalability and reliability requirements of communication service providers. The Openwave Mobile
Access Gateway implements OMA specifications for communications with mobile phones and other mobile terminals and anticipates including standards ratified by the OMA.
Mobile Device Software Technology
Our mobile device
software technology is designed to be embedded in limited-function devices, such as wireless devices, and has minimum hardware resource requirements. The technology includes multiple applications, such as browsing and messaging, and platform support
to enable the correct and efficient operation of these applications in a wide variety of mobile devices.
Messaging
Platform Technology
We have developed a scalable platform for building messaging and other Internet-standard, data intensive
applications. Our platform is based on a partitioned cluster architecture, which enables excellent scalability and performance across a wide variety of configurations. Our Internet messaging technology implements a wide variety of messaging
standards, including SMTP, MIME, IMAP4, POP3, and VoiceXML. The message storage subsystem reliably and efficiently stores, organizes and retrieves a variety of messaging media types, including text, graphics, voice, audio and facsimile.
Directory Technology
Many of our products require access to common information, such as a user name, password, phone number or e-mail address. Our directory technology has a core database that contains the common information, and a set of
high-speed replicas of that information. By using multiple replicas, the common information can be repeatedly accessed in a
7
reliable and efficient manner. The replicas support the industry-standard Lightweight Directory Access Protocol (LDAP), so that third-party applications can access the information contained
within the directory by using this standard format.
Sales, Marketing and Customer Support
We sell our products through both a direct sales force and third-party resellers. As of June 30, 2002, we had 885 employees in Sales, Marketing and Customer
Support worldwide. Our sales and marketing groups focus on selling products by establishing and managing relationships with customers and resellers. Our customer support group focuses on performing maintenance and support and related professional
services. Our third-party resellers are telephony infrastructure companies such as Siemens, systems integrators such as Itochu Techno-Science Corporation, and systems providers such as Sun Japan.
International sales of products and services accounted for 68%, 66% and 62% of our total revenues for our fiscal years ended June 30, 2002, 2001 and 2000, respectively. Our international
sales strategy is to sell directly to large carriers and to partner with leading distributors and systems integrators who have strong industry backgrounds and market presence in their respective markets and geographic regions.
We believe that customer service and ongoing technical support are an essential part of the sales process in the telecommunications industry. Our
Customer Advocacy organization is dedicated to the success and satisfaction of customers. Senior management and assigned account managers play an important role in ongoing account management and relationships. We believe these customer relationships
will enable us to improve customer satisfaction and develop products to meet specific customer needs.
We actively recruit content and
application developers to our platform and make available to them free of charge our software development kit, Openwave SDK. We also provide them with free membership in the Openwave Developer Program, free e-mail-based support and the opportunity
to participate in the Openwave Developer Alliances Program.
The Openwave Developer Alliance Program promotes a select group of our
content and application developers as members. We screen applications to the Developer Alliance Program based on the availability and quality of the content or applications produced by the candidates. We perform joint marketing activities with
Alliance partners, as well as provide introductions between them and our wireless communication service providers.
Standards
We believe the growth and development of standards is key to the success of our industry and our Company. Therefore, we take an active role in a
number of industry standards organizations including the OMA, the World Wide Web Consortium (W3C), CDMA Developer Group, Wireless Village, SyncML Consortium and Internet Engineering Task Force among others. In addition, the Third Generation
Partnership Projects (3GPP and 3GPP2), which are the 3G standards organizations for GSM and CDMA, respectively, represent strategic standards for our products.
Competition
The market for wireless and wireline Internet standards-based infrastructure and
applications software products and services continues to be intensely competitive. The widespread adoption of open industry standards may make it easier for new market entrants and existing competitors to introduce new products that compete with our
software products.
8
We expect that we will continue to compete primarily on the basis of quality, technical capability,
breadth of product and service offerings, functionality, price and time to market.
In the messaging products market, our competitors
include CMG, Comverse, Critical Path, Ericsson, iPlanet, Logica and Nokia. In the mobile products market, our competitors include CMG, Ericsson, Nokia, Motorola, Qualcomm and a joint Hewlett-Packard and 7.24 product. In the client products
market, our competitors include Nokia, Microsoft, Access, and AU Systems. In the location products market, our competitors include Ericsson, Nokia, Telecommunication Systems, Intrado, Motorola and Siemens.
Intellectual Property Rights
Our performance
depends significantly on our ability to protect our proprietary rights to the technologies used in our products. If we are not adequately protected, our competitors could use the intellectual property that we have developed to enhance their products
and services, which could harm our business.
We rely on a combination of patent, copyright, trademark, trade secret laws,
confidentiality provisions and other contractual provisions to protect our proprietary rights, but these legal means afford only limited protection. Despite the measures we take to protect our intellectual property, unauthorized parties may attempt
to copy aspects of our products or to obtain and use information which we regard as proprietary. In addition, the laws of some foreign countries may not protect our proprietary rights as fully as do the laws of the United States. Thus, the measures
we take to protect our proprietary rights in the United States and abroad may not be adequate. In addition, our competitors may independently develop similar technologies.
The market for wireless communications and the delivery of Internet-based services are characterized by the existence of a large number of patents and frequent litigation based on allegations of patent
infringement. As the number of entrants into our market increases, the possibility of infringement claims against us grows. For example, we inadvertently may be infringing a patent of which we are unaware. In addition, because patents can take many
years to issue, there may be one or more patent applications now pending of which we are unaware, and which we may be accused of infringing when patent(s) issue from the application(s) in the future. To address any patent infringement claims, we may
need to enter into royalty or licensing agreements on disadvantageous commercial terms. We may also have to incur significant legal expenses to ascertain the risk of infringing a patent and the likelihood of that patent being valid. A successful
claim of patent infringement against us, and our failure to license the infringed or similar technology, could harm our business. In addition, any infringement claims, with or without merit, would be time consuming and expensive to litigate or
settle and could divert management attention from administering our core business.
As a member of several groups involved in setting
standards for the industry, such as the OMA, we have agreed to license our intellectual property to other members of those groups on fair and reasonable terms to the extent that the intellectual property is essential to implementing the
specifications promulgated by those groups. Each other member of the groups has entered into a reciprocal agreement.
Employees
As of June 30, 2002, we had 1,884 employees. None of our employees are covered by any collective bargaining agreements, except for
certain employees located in Europe.
9
Item 2. Properties.
Our principal office is located in Redwood City, California, where we occupy a 280,000 square foot building under a 12-year lease that commenced in the fourth quarter of the fiscal year ended June 30,
2001. In addition, we have two options to extend the lease for five years each. We also have other facility leases in other locations in the United States and throughout the world.
Item 3. Legal Proceedings.
On February 2, 2001, a complaint, Leon
Stambler v. RSA Security Inc., Verisign Inc., First Data Corporation, Openwave Systems Inc. and Omnisky Corporation, Civil Action No. 01-00065, was filed in the U.S. District Court for the District of Delaware against us and certain other companies.
The complaint alleged that the defendants have infringed claims of one or more patents that Mr. Stambler asserts have been granted to him. Pursuant to a written agreement effective as of April 6, 2002, we reached a settlement in which, among other
things, Mr. Stambler dismissed all claims against us with prejudice.
A former employee commenced an arbitration against us in February
2002 alleging various claims for misrepresentation in connection with his employment agreement and for tortious constructive discharge from his employment. The demand for arbitration asks for an award of damages in excess of $25 million. We believe
the claims are without merit, we intend to defend the arbitration vigorously, and we do not believe this matter will have a material adverse effect on the financial condition of our Company.
Based upon certain publicly available information, on November 5, 2001, a purported securities fraud class action complaint was filed in the United States District Court for the Southern
District of New York. The case is now captioned as In re Openwave Systems, Inc. (sic) Initial Public Offering Securities Litigation, Civ. No. 01-9744 (SAS) (S.D.N.Y.), related to In re Initial Public Offering Securities Litigation, 21
MC 92 (SAS) (S.D.N.Y.). On April 22, 2002, plaintiffs electronically served an amended complaint. The amended complaint is brought purportedly on behalf of all persons who purchased our common stock from June 11, 1999 through December 6, 2000. It
names as defendants our Company; five of our present and former officers; and several investment banking firms that served as underwriters of our initial public offering and secondary public offering. The amended complaint alleges liability as to
all defendants under Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, on the grounds that the registration statement for the offerings did not disclose that: (1) the underwriters
had agreed to allow certain customers to purchase shares in the offerings in exchange for excess commissions paid to the underwriters; and (2) the underwriters had arranged for certain customers to purchase additional shares in the aftermarket at
predetermined prices. The amended complaint also alleges that false analyst reports were issued. No specific damages are claimed. We are aware that similar allegations have been made in other lawsuits filed in the Southern District of New York
challenging over 300 other initial public offerings and secondary offerings conducted in 1999 and 2000. Those cases have been consolidated for pretrial purposes before the Honorable Judge Shira A. Scheindlin. On July 15, 2002, we (and all other
issuer defendants) moved to dismiss the respective complaints, which motion is still pending. Based upon our current understanding of the facts, we believe that the complaint’s claims against us are without merit, we intend to defend the case
vigorously, and we do not believe that resolution of this matter will have a material adverse effect on the financial condition of our Company.
On May 3, 2002, we received notice of the pending filing of a purported shareholder derivative lawsuit titled Lefort v. Black et al. The case is now pending before the United States District Court, Northern District of
California, No. C-02-2465 VRW. Plaintiff has moved to transfer the case to the United States District Court, Southern District
10
of New York, and that motion presently is scheduled to be heard on October 3, 2002. The lawsuit purports to be filed on behalf of our Company, asserting claims against the officers and directors
at the time of our initial public offering. The complaint includes allegations similar to the allegations in the securities class action case described above. In the derivative case, however, plaintiff asserts that the alleged conduct injured our
Company because our shares were not sold for as high a price in the IPO as they otherwise could have been. We are aware that similar allegations have been made in other derivative lawsuits involving issuers that also have been sued in the Southern
District of New York securities class action cases. On July 12, 2002, we moved to dismiss the complaint. Subsequently, plaintiff made demand that the Board of Directors assert his purported claims. The parties have stipulated to take the motion off
the calendar while the Board considers the demand. We do not believe that resolution of this matter will have a material adverse effect on the financial condition of our Company.
Item 4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
11
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
Price Range of Common Stock
Our common stock has been listed for quotations on the National Association of
Securities Dealers, Inc. Automated Quotation System under the symbol OPWV since the merger of Phone.com, Inc. and Software.com, Inc. on November 17, 2000. The following table sets forth the fiscal periods indicating the high and low closing sales
prices for our common stock.
| Stock price by quarter
|
|
High
|
|
Low
|
| Fiscal year ended June 30, 2002 |
|
|
|
|
|
|
| First quarter |
|
$ |
33.24 |
|
$ |
12.48 |
| Second quarter |
|
$ |
12.09 |
|
$ |
6.64 |
| Third quarter |
|
$ |
10.90 |
|
$ |
5.49 |
| Fourth quarter |
|
$ |
6.70 |
|
$ |
4.65 |
| |
| Fiscal year ended June 30, 2001 |
|
|
|
|
|
|
| First quarter |
|
$ |
126.88 |
|
$ |
60.50 |
| Second quarter |
|
$ |
116.88 |
|
$ |
37.00 |
| Third quarter |
|
$ |
76.19 |
|
$ |
15.96 |
| Fourth quarter |
|
$ |
46.90 |
|
$ |
13.51 |
As of August 31, 2002, there were 800 holders of record of our common stock. We have not
paid any dividends and currently intend to retain future earnings for reinvestment in our business or the repurchase of outstanding shares of our common stock. Therefore, we do not anticipate paying cash dividends in the foreseeable future.
On May 28, 2002, we issued approximately 2,400,000 unregistered shares in the purchase of Java download technology, key employees and
access to their customers from Ellipsus Systems, Inc. We believe that the transaction was exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) or another applicable exemption.
On October 15, 2001, in connection with the acquisition of software code containing a graphics engine and related intellectual property from
AlphaMask, Inc., we issued approximately 19,000 shares of our common stock to the company. We have the right to repurchase approximately 13,000 shares at $0.01 per share, which repurchase right lapses upon the meeting of certain milestones. We
believe that the transaction was exempt from the registration requirements of the Securities Act of 1933, as amended, under Section 4(2) or other applicable exemption.
Item 6. Selected Financial Data
The tables that follow present portions of our
consolidated financial statements and are not complete. You should read the following selected consolidated financial data in conjunction with our consolidated financial statements and related notes thereto and with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this Form 10-K. The consolidated statements of operations data for the years ended June 30, 2002, 2001, 2000, and 1999 and the consolidated balance
sheet data as of June 30, 2002, 2001, 2000, and 1999 are derived from our financial statements which have been audited by KPMG LLP. The quarterly results of operations for the years ended June 30, 2002 and 2001 and the consolidated statements of
operations and the consolidated balance sheet for the year ended June 30, 1998 represent information that is unaudited. The information is presented for illustrative purposes only and is not necessarily indicative of the periods shown, nor is it
necessarily indicative of future results or financial position.
12
You should also consider that on November 17, 2000, we merged with Software.com, Inc. in a transaction
that was accounted for as a pooling-of-interests. In recording the pooling-of-interests combination, Software.com, Inc.’s consolidated financial statements for the years ended December 31, 1999 and 1998 were combined with our consolidated
financial statements for the years ended June 30, 1999 and 1998. As of the merger date, Software.com changed its fiscal year end to June 30 to conform to our fiscal year end. Software.com’s consolidated financial statements for the twelve
months ended June 30, 2000 were combined with our consolidated financial statements for the same period. Software.com’s unaudited results of operations for the six months ended December 31, 1999 included revenues of $29.0 million, expenses of
$37.2 million and net loss of $8.2 million. An adjustment has been made in stockholders’ equity as of June 30, 2000 to eliminate the effect of including Software.com’s unaudited results of operations for the six months ended December 31,
1999 in both the years ended June 30, 2000 and 1999.
13
The following table sets forth yearly results of operations for fiscal years 2002, 2001, 2000, 1999 and
1998.
| |
|
Years ended June 30,
|
|
| |
|
2002
|
|
|
2001
|
|
|
2000
|
|
|
1999
|
|
|
1998
|
|
| |
|
(in thousands except per share data) |
|
| Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| License |
|
$ |
238,796 |
|
|
$ |
344,990 |
|
|
$ |
93,126 |
|
|
$ |
32,076 |
|
|
$ |
17,984 |
|
| Maintenance and support services |
|
|
76,273 |
|
|
|
60,264 |
|
|
|
25,835 |
|
|
|
13,507 |
|
|
|
4,396 |
|
| Professional services(1) |
|
|
44,484 |
|
|
|
63,814 |
|
|
|
29,307 |
|
|
|
14,800 |
|
|
|
6,558 |
|
| Project revenues |
|
|
5,279 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total revenues |
|
|
364,832 |
|
|
|
469,068 |
|
|
|
148,268 |
|
|
|
60,383 |
|
|
|
28,938 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| License |
|
|
9,237 |
|
|
|
21,945 |
|
|
|
6,742 |
|
|
|
3,046 |
|
|
|
1,663 |
|
| Maintenance and support services |
|
|
30,848 |
|
|
|
28,875 |
|
|
|
14,889 |
|
|
|
5,797 |
|
|
|
2,700 |
|
| Professional services(1) |
|
|
26,849 |
|
|
|
40,760 |
|
|
|
18,831 |
|
|
|
8,685 |
|
|
|
5,161 |
|
| Project costs |
|
|
4,708 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total cost of revenues |
|
|
71,642 |
|
|
|
91,580 |
|
|
|
40,462 |
|
|
|
17,528 |
|
|
|
9,524 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross profit |
|
|
293,190 |
|
|
|
377,488 |
|
|
|
107,806 |
|
|
|
42,855 |
|
|
|
19,414 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Research and development |
|
|
135,136 |
|
|
|
135,768 |
|
|
|
59,889 |
|
|
|
28,934 |
|
|
|
17,822 |
|
| Sales and marketing |
|
|
161,046 |
|
|
|
148,811 |
|
|
|
68,421 |
|
|
|
33,597 |
|
|
|
19,541 |
|
| General and administrative |
|
|
56,470 |
|
|
|
59,320 |
|
|
|
24,061 |
|
|
|
12,099 |
|
|
|
7,277 |
|
| Restructuring and other costs |
|
|
37,732 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Stock-based compensation* |
|
|
14,866 |
|
|
|
10,223 |
|
|
|
|