UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended February 27, 2004
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 No. 000-50402
PalmSource, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 77-0586278 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 1240 Crossman Avenue Sunnyvale, California |
94089-1116 | |
| (Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: (408) 400-3000
Former name, former address and former fiscal year, if changed since last report: N/A
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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No x
As of March 26, 2004, 11,626,989 shares of our Common Stock were outstanding.
PalmSource, Inc.
| Page | ||||
| PART I. |
FINANCIAL INFORMATION | |||
| Item 1. |
Financial Statements |
|||
| Condensed Consolidated Statements of Operations (Unaudited) Three and nine months ended February 29, 2004 and February 28, 2003 |
3 | |||
| Condensed Consolidated Balance Sheets (Unaudited) February 29, 2004 and May 31, 2003 |
4 | |||
| Condensed Consolidated Statements of Cash Flows (Unaudited) Nine months ended February 29, 2004 and February 28, 2003 |
5 | |||
| Notes to Condensed Consolidated Financial Statements (Unaudited) |
6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 | ||
| Item 3. |
43 | |||
| Item 4. |
43 | |||
| PART II. |
OTHER INFORMATION |
|||
| Item 1. |
43 | |||
| Item 2. |
43 | |||
| Item 3. |
43 | |||
| Item 4. |
44 | |||
| Item 5. |
44 | |||
| Item 6. |
44 | |||
| 45 | ||||
The page numbers in this Table of Contents reflect actual page numbers, not EDGAR page tag numbers.
References to “PalmSource,” “Company,” “we”, “us,” and “our” in this Form 10-Q refer to PalmSource, Inc. and its subsidiaries unless the context requires otherwise.
2
PART I. FINANCIAL INFORMATION
| Item 1. | Financial Statements |
PalmSource, Inc.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended |
Nine Months Ended |
|||||||||||||||
| February 29, 2004 |
February 28, 2003 |
February 29, 2004 |
February 28, 2003 |
|||||||||||||
| Revenues: |
||||||||||||||||
| Related party license and royalty |
$ | 2,958 | $ | 18,675 | $ | 23,588 | $ | 38,127 | ||||||||
| Third party license and royalty |
17,303 | 5,560 | 27,983 | 13,413 | ||||||||||||
| Total license and royalty |
20,261 | 24,235 | 51,571 | 51,540 | ||||||||||||
| Related party support and service |
87 | 254 | 500 | 1,282 | ||||||||||||
| Third party support and service |
1,221 | 1,785 | 3,402 | 3,290 | ||||||||||||
| Total support and service |
1,308 | 2,039 | 3,902 | 4,572 | ||||||||||||
| Total revenues |
21,569 | 26,274 | 55,473 | 56,112 | ||||||||||||
| Cost of revenues: |
||||||||||||||||
| License and royalty |
1,111 | 1,931 | 3,102 | 6,264 | ||||||||||||
| Support and service |
460 | 779 | 1,432 | 2,132 | ||||||||||||
| Total cost of revenues |
1,571 | 2,710 | 4,534 | 8,396 | ||||||||||||
| Gross margin |
19,998 | 23,564 | 50,939 | 47,716 | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Research and development |
8,587 | 10,363 | 25,556 | 31,553 | ||||||||||||
| Sales and marketing |
4,899 | 4,402 | 14,524 | 12,839 | ||||||||||||
| General and administrative |
5,180 | 3,534 | 13,935 | 9,511 | ||||||||||||
| Amortization of intangible assets |
— | 104 | 163 | 314 | ||||||||||||
| Restructuring |
— | 2,172 | — | 2,172 | ||||||||||||
| Separation costs |
181 | 960 | 7,273 | 2,853 | ||||||||||||
| Total operating expenses |
18,847 | 21,535 | 61,451 | 59,242 | ||||||||||||
| Income (loss) from operations |
1,151 | 2,029 | (10,512 | ) | (11,526 | ) | ||||||||||
| Interest expense |
(193 | ) | (138 | ) | (466 | ) | (378 | ) | ||||||||
| Interest and other income (expense), net |
(105 | ) | (507 | ) | (67 | ) | (4,382 | ) | ||||||||
| Income (loss) before income taxes |
853 | 1,384 | (11,045 | ) | (16,286 | ) | ||||||||||
| Income tax provision |
256 | 650 | 1,269 | 2,034 | ||||||||||||
| Net income (loss) |
$ | 597 | $ | 734 | $ | (12,314 | ) | $ | (18,320 | ) | ||||||
| Basic net income (loss) per share |
$ | 0.06 | $ | 0.07 | $ | (1.20 | ) | $ | (1.83 | ) | ||||||
| Shares used in computing basic net income (loss) per share amounts |
10,667 | 10,000 | 10,298 | 10,000 | ||||||||||||
| Diluted net income (loss) per share |
$ | 0.05 | $ | 0.07 | $ | (1.20 | ) | $ | (1.83 | ) | ||||||
| Shares used in computing diluted net income (loss) per share amounts |
11,186 | 10,667 | 10,298 | 10,000 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
3
PalmSource, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
| February 29, 2004 |
May 31, 2003 |
|||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 31,611 | $ | 37,465 | ||||
| Receivables from related parties |
— | 5,132 | ||||||
| Accounts receivable, net |
6,056 | 583 | ||||||
| Prepaids and other |
3,425 | 1,305 | ||||||
| Total current assets |
41,092 | 44,485 | ||||||
| Restricted investments |
1,676 | 1,671 | ||||||
| Property and equipment, net |
2,607 | 3,419 | ||||||
| Goodwill |
52,845 | 52,845 | ||||||
| Intangible assets, net |
177 | 976 | ||||||
| Other assets |
1,187 | 1,211 | ||||||
| Total assets |
$ | 99,584 | $ | 104,607 | ||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 3,841 | $ | 2,868 | ||||
| Payable to Palm, Inc. |
— | 1,911 | ||||||
| Deferred revenue |
10,139 | 9,392 | ||||||
| Accrued restructuring |
— | 349 | ||||||
| Other accrued liabilities |
7,529 | 9,215 | ||||||
| Total current liabilities |
21,509 | 23,735 | ||||||
| Non-current liabilities: |
||||||||
| Note payable to Palm, Inc., including accrued interest |
— | 20,744 | ||||||
| Deferred revenue and other |
11,422 | 13,848 | ||||||
| Long-term convertible subordinated note |
15,000 | — | ||||||
| Commitments and contingencies (Notes 5 and 10) |
||||||||
| Series A redeemable convertible preferred stock 10,000 shares authorized; outstanding: 0 and 3,333 shares, respectively |
— | 20,000 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, $.001 par value, authorized: 100,000 and 950,000 shares, respectively; outstanding: 11,628 and 10,000 shares, respectively |
12 | 10 | ||||||
| Additional paid-in capital |
108,089 | 61,939 | ||||||
| Accumulated other comprehensive income |
621 | 448 | ||||||
| Unearned stock-based compensation |
(8,638 | ) | — | |||||
| Accumulated deficit |
(48,431 | ) | (36,117 | ) | ||||
| Total stockholders’ equity |
51,653 | 26,280 | ||||||
| Total liabilities, redeemable convertible preferred stock and stockholders’ equity |
$ | 99,584 | $ | 104,607 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
4
PalmSource, Inc.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
| Nine Months Ended |
||||||||
| February 29, 2004 |
February 28, 2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (12,314 | ) | $ | (18,320 | ) | ||
| Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||
| Depreciation and amortization |
1,940 | 6,146 | ||||||
| Stock-based compensation transferred from Palm, Inc |
(14 | ) | 439 | |||||
| Stock-based compensation expense |
6,374 | — | ||||||
| Loss on disposal of equipment |
— | 104 | ||||||
| Deferred income taxes |
762 | 286 | ||||||
| Impairment of equity investment recorded at cost |
— | 3,206 | ||||||
| Changes in assets and liabilities, net of effect of acquisitions: |
||||||||
| Receivable from related par | ||||||||