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 December 31, 2003
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 0-28450
Netopia, Inc.
(Exact name of registrant as specified in its charter)
| Delaware | 94-3033136 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
6001 Shellmound Street, 4th Floor
Emeryville, California 94608
(Address of principal executive offices, including Zip Code)
(510) 420-7400
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 Exchange Act). Yes ¨ No x
As of December 31, 2003 there were 22,833,829 shares of the Registrant’s common stock outstanding.
Form 10-Q
Table of Contents
PART I — FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NETOPIA, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
| December 31, 2003 |
September 30, 2003* |
|||||||
| (in thousands) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 26,423 | $ | 22,208 | ||||
| Trade accounts receivable less allowance for doubtful accounts and returns of $127 and $178 at December 31 and September 30, 2003, respectively |
18,148 | 16,755 | ||||||
| Inventory |
8,312 | 5,968 | ||||||
| Prepaid expenses and other current assets |
984 | 899 | ||||||
| Total current assets |
53,867 | 45,830 | ||||||
| Furniture, fixtures and equipment, net |
3,409 | 3,740 | ||||||
| Acquired technology and other intangible assets, net |
4,936 | 5,251 | ||||||
| Goodwill |
2,124 | 984 | ||||||
| Long-term investments |
1,032 | 1,032 | ||||||
| Deposits and other assets |
1,043 | 1,105 | ||||||
| TOTAL ASSETS |
$ | 66,411 | $ | 57,942 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 12,615 | $ | 11,222 | ||||
| Accrued compensation |
2,556 | 1,965 | ||||||
| Accrued liabilities |
1,642 | 1,924 | ||||||
| Deferred revenue |
1,637 | 1,659 | ||||||
| Current portion of borrowings under term loans |
250 | 250 | ||||||
| Other current liabilities |
116 | 113 | ||||||
| Total current liabilities |
18,816 | 17,133 | ||||||
| Long-term liabilities: |
||||||||
| Borrowings under term loans |
42 | 104 | ||||||
| Other long-term liabilities |
351 | 328 | ||||||
| Total liabilities |
19,209 | 17,565 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock: $0.001 par value, 50,000,000 shares authorized; 22,833,829 and 21,631,832 shares issued and outstanding at December 31 and September 30, 2003, respectively |
23 | 22 | ||||||
| Additional paid-in capital |
161,826 | 156,132 | ||||||
| Accumulated deficit |
(114,647 | ) | (115,777 | ) | ||||
| Total stockholders’ equity |
47,202 | 40,377 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
$ | 66,411 | $ | 57,942 | ||||
| * | Derived from the audited consolidated balance sheet dated September 30, 2003 included in the Company’s 2003 Annual Report on Form 10-K. |
See accompanying notes to unaudited condensed consolidated financial statements.
Page 1
NETOPIA, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
| Three months ended December 31, |
2003 |
2002 |
|||||
| (in thousands; except per share amounts) |
|||||||
| REVENUES: |
|||||||
| Internet equipment |
$ | 23,946 | $ | 14,596 | |||
| Web platform licenses and services |
4,653 | 5,007 | |||||
| Total revenues |
28,599 | 19,603 | |||||
| COST OF REVENUES: |
|||||||
| Internet equipment |
16,459 | 10,711 | |||||
| Web platform licenses and services |
208 | 429 | |||||
| Total cost of revenues |
16,667 | 11,140 | |||||
| GROSS PROFIT |
11,932 | 8,463 | |||||
| OPERATING EXPENSES: |
|||||||
| Research and development |
3,961 | 3,983 | |||||
| Research and development project cancellation costs |
— | 606 | |||||
| Selling and marketing |
5,315 | 5,661 | |||||
| General and administrative |
1,251 | 1,428 | |||||
| Amortization of intangible assets |
386 | 374 | |||||
| Restructuring costs |
— | 342 | |||||
| Total operating expenses |
10,913 | 12,394 | |||||
| OPERATING INCOME (LOSS) |
1,019 | (3,931 | ) | ||||
| Other income (loss), net |
168 | (7 | ) | ||||
| Income (loss) before income taxes |
1,187 | (3,938 | ) | ||||
| Provision for income taxes |
57 | — | |||||
| NET INCOME (LOSS) |
$ | 1,130 | $ | (3,938 | ) | ||
| Per share data, net income (loss): |
|||||||
| Basic net income (loss) per share |
$ | 0.05 | $ | (0.21 | ) | ||
| Diluted net income (loss) per share |
$ | 0.04 | $ | (0.21 | ) | ||
| Shares used in the basic per share calculation |
22,236 | 18,906 | |||||
| Shares used in the diluted per share calculation |
26,091 | 18,906 | |||||
See accompanying notes to unaudited condensed consolidated financial statements.
Page 2
NETOPIA, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
| Three months ended December 31, |
2003 |
2002 |
||||||
| (in thousands) | ||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income (loss) |
$ | 1,130 | $ | (3,938 | ) | |||
| Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization |
1,281 | 1,438 | ||||||
| Write-off of capitalized software development costs |
26 | 16 | ||||||
| Changes in allowance for doubtful accounts and returns on accounts receivable |
(52 | ) | (20 | ) | ||||
| Changes in operating assets and liabilities: |
||||||||
| Trade accounts receivable |
(1,341 | ) | (653 | ) | ||||
| Inventory |
(2,344 | ) | (1,941 | ) | ||||
| Prepaid expenses and other current assets |
(85 | ) | 452 | |||||
| Deposits and other assets |
— | (129 | ) | |||||
| Accounts payable and accrued liabilities |
1,958 | 3,390 | ||||||
| Deferred revenue |
(51 | ) | (540 | ) | ||||
| Other liabilities |
(202 | ) | (1 | ) | ||||
| Net cash provided by (used in) operating activities |
320 | (1,926 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Purchase of furniture, fixtures and equipment |
(352 | ) | (379 | ) | ||||
| Acquisition of business |
(137 | ) | — | |||||
| Net cash used in investing activities |
(489 | ) | (379 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Borrowings under credit facility |
— | 1,572 | ||||||
| Payments under term loans |
(62 | ) | — | |||||
| Proceeds from the issuance of common stock |
4,446 | 2 | ||||||
| Net cash provided by financing activities |
4,384 | 1,574 | ||||||
| Net increase (decrease) in cash and cash equivalents |
4,215 | (731 | ) | |||||
| Cash and cash equivalents, beginning of quarter |
22,208 | 25,022 | ||||||
| CASH AND CASH EQUIVALENTS, END OF QUARTER |
$ | 26,423 | $ | 24,291 | ||||
| Supplemental disclosure of non-cash investing and financing activities: |
||||||||
| Issuance of common stock for acquisition of businesses |
$ | 1,249 | $ | — | ||||
See accompanying notes to unaudited condensed consolidated financial statements.
Page 3
NETOPIA, INC. AND SUBSIDIARIES
Notes To Unaudited Condensed Consolidated Financial Statements
| (1) | Basis of Presentation |
The unaudited condensed consolidated financial statements included in this Form 10-Q reflect all adjustments, consisting only of normal recurring adjustments which in the Company’s opinion are necessary to fairly present the Company’s consolidated financial position, results of operations and cash flows for the periods presented. These condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K and other filings with the United States Securities and Exchange Commission (SEC). The consolidated results of operations for the period ended December 31, 2003 are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire fiscal year ending September 30, 2004.
| (2) | Stock Based Compensation |
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair market value of options granted. We have chosen to account for stock based compensation using the intrinsic value method prescribed in Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations. Accordingly, because the grant price equals the market price on the date of grant for all options we have issued, no compensation expense is recognized for stock options issued to employees. In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, Accounting for Stock Based Compensation – Transition and Disclosure, which amends SFAS No. 123. SFAS No. 148 requires more prominent and frequent disclosures about the effects of stock-based compensation. We will continue to account for our stock based compensation according to the provisions of APB No. 25.
If we elected to use the fair value method of accounting for stock based compensation as prescribed by SFAS No. 123, the net loss and loss per share for the three months ended December 31, 2003 and 2002 would have been the pro forma amounts as follows:
| Three months ended December 31, |
2003 |
2002 |
||||||
| (in thousands; except per share amounts) |
||||||||
| Net income (loss) – as reported |
$ | 1,130 | $ | (3,938 | ) | |||
| Stock based compensation expense as prescribed by SFAS No. 123 |
1,651 | 2,151 | ||||||
| Net loss – pro forma |
$ | (521 | ) | $ | (6,089 | ) | ||
| Basic net income (loss) per share – as reported |
$ | 0.05 | $ | (0.21 | ) | |||
| Diluted net income (loss) per share – as reported |
$ | 0.04 | $ | (0.21 | ) | |||
| Basic and diluted net loss per share – pro forma |
$ | (0.02 | ) | $ | (0.32 | ) | ||
The Black-Scholes Single Option weighted average fair value of employee stock options granted during the three months ended December 31, 2003 and 2002 was $8.73 and $1.52, respectively. The weighted average exercise price of employee stock options granted during the three months ended December 31, 2003 and 2002 was $8.74 and $1.56, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable while the Company’s
Page 4
employee stock options have characteristics significantly different from those of traded options. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The fair value of each option grant and share purchased under the Purchase Plan are estimated on the date of grant or share purchase using the Black-Scholes option-pricing model with the following assumptions:
| Three months ended December 31, |
2003 |
2002 |
||||
| Expected volatility |