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 the quarterly period ended September 30, 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 number: 001-16073
OPENWAVE SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
94-3219054
(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)
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 Exchange Act). Yes x No ¨
As of October 31, 2004 there were 66,340,619 shares of the registrant’s Common Stock outstanding.
OPENWAVE SYSTEMS INC.
INDEX
| PART I. FINANCIAL INFORMATION |
||||
| Item 1. |
Consolidated Financial Statements (Unaudited) | |||
| Condensed Consolidated Balance Sheets as of September 30, 2004 and June 30, 2004 | 3 | |||
| Condensed Consolidated Statements of Operations for the three months ended September 30, 2004 and 2003 | 4 | |||
| Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2004 and 2003 | 5 | |||
| Notes to Condensed Consolidated Financial Statements | 6 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk | 42 | ||
| Item 4. |
Controls and Procedures | 43 | ||
| Item 1. |
Legal Proceedings | 44 | ||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 44 | ||
| Item 3. |
Defaults Upon Senior Securities | 44 | ||
| Item 4. |
Submission of Matters to a vote of Security Holders | 44 | ||
| Item 5. |
Other Information | 44 | ||
| Item 6. |
Exhibits and Reports on Form 8-K | 45 | ||
| CERTIFICATIONS |
||||
2
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
| September 30, 2004 |
June 30, 2004 |
|||||||
| Assets | ||||||||
| Current Assets: |
||||||||
| Cash and cash equivalents |
$ | 172,662 | $ | 231,509 | ||||
| Short-term investments |
53,012 | 38,262 | ||||||
| Accounts receivable, net |
115,371 | 78,421 | ||||||
| Prepaid and other current assets |
15,376 | 15,694 | ||||||
| Total current assets |
356,421 | 363,886 | ||||||
| Property and equipment, net |
29,794 | 30,552 | ||||||
| Long-term investments, and restricted cash and investments |
54,344 | 72,047 | ||||||
| Deposits and other assets |
6,814 | 7,072 | ||||||
| Intangibles assets, net |
26,171 | 2,228 | ||||||
| Goodwill |
43,323 | 723 | ||||||
| $ | 516,867 | $ | 476,508 | |||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current Liabilities: |
||||||||
| Accounts payable |
$ | 4,929 | $ | 4,697 | ||||
| Notes payable |
3,814 | — | ||||||
| Accrued liabilities |
42,337 | 36,679 | ||||||
| Accrued restructuring costs |
9,981 | 10,429 | ||||||
| Deferred revenue |
70,494 | 60,662 | ||||||
| Total current liabilities |
131,555 | 112,467 | ||||||
| Accrued restructuring costs, less current portion |
37,327 | 38,838 | ||||||
| Deferred revenue, less current portion |
1,477 | 1,321 | ||||||
| Deferred rent obligations |
4,473 | 4,308 | ||||||
| Deferred tax liabilities |
7,683 | — | ||||||
| Convertible subordinated notes, net |
146,748 | 146,542 | ||||||
| Total liabilities |
329,263 | 303,476 | ||||||
| Commitments and contingencies |
||||||||
| Stockholders’ equity: |
||||||||
| Common stock |
66 | 64 | ||||||
| Additional paid-in capital |
2,755,568 | 2,742,139 | ||||||
| Deferred stock-based compensation |
(1,762 | ) | (1,991 | ) | ||||
| Accumulated other comprehensive loss |
(777 | ) | (736 | ) | ||||
| Notes receivable from stockholders |
(208 | ) | (204 | ) | ||||
| Accumulated deficit |
(2,565,283 | ) | (2,566,240 | ) | ||||
| Total stockholders’ equity |
187,604 | 173,032 | ||||||
| $ | 516,867 | $ | 476,508 | |||||
See accompanying notes to condensed consolidated financial statements
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Revenues: |
||||||||
| License |
$ | 38,185 | $ | 32,208 | ||||
| Maintenance and support services |
21,498 | 20,366 | ||||||
| Professional services |
16,818 | 9,803 | ||||||
| Project/Systems |
7,067 | 5,612 | ||||||
| Total revenues |
83,568 | 67,989 | ||||||
| Cost of revenues: |
||||||||
| License |
1,209 | 2,567 | ||||||
| Maintenance and support services |
6,650 | 6,252 | ||||||
| Professional services |
12,295 | 7,296 | ||||||
| Project/Systems |
3,051 | 2,149 | ||||||
| Total cost of revenues |
23,205 | 18,264 | ||||||
| Gross profit |
60,363 | 49,725 | ||||||
| Operating expenses: |
||||||||
| Research and development |
22,005 | 25,586 | ||||||
| Sales and marketing |
22,921 | 23,623 | ||||||
| General and administrative |
10,198 | 10,056 | ||||||
| Restructure and other costs |
907 | 2,652 | ||||||
| Stock-based compensation* |
594 | 735 | ||||||
| Amortization of intangible assets |
525 | 68 | ||||||
| Total operating expenses |
57,150 | 62,720 | ||||||
| Operating income (loss) |
3,213 | (12,995 | ) | |||||
| Interest income |
1,264 | 881 | ||||||
| Interest expense |
(1,292 | ) | (303 | ) | ||||
| Other expense, net |
(215 | ) | — | |||||
| Income (loss) before provision for income taxes |
2,970 | (12,417 | ) | |||||
| Income taxes |
2,013 | 1,572 | ||||||
| Net income (loss) |
$ | 957 | $ | (13,989 | ) | |||
| Basic net income (loss) per share |
$ | 0.01 | $ | (0.23 | ) | |||
| Diluted net income (loss) per share |
$ | 0.01 | $ | (0.23 | ) | |||
| Shares used in computing basic net income (loss) per share |
65,151 | 60,104 | ||||||
| Shares used in computing diluted net income (loss) per share |
68,000 | 60,104 | ||||||
* Stock-based compensation by category: |
||||||||
| Research and development |
$ | 118 | $ | 268 | ||||
| Sales and marketing |
123 | 81 | ||||||
| General and administrative |
353 | 386 | ||||||
| $ | 594 | $ | 735 | |||||
See accompanying notes to condensed consolidated financial statements
4
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Three Months Ended September 30, |
||||||||
| 2004 |
2003 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | 957 | $ | (13,989 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used for operating activities: |
||||||||
| Depreciation and amortization |
4,353 | 6,802 | ||||||
| Amortization of discount on convertible debt and debt issuance costs |
260 | 59 | ||||||
| Stock-based compensation |
594 | 735 | ||||||
| Loss on sale of property and equipment |
11 | 209 | ||||||
| Provision for doubtful accounts |
1,101 | 135 | ||||||
| Impairment of property and equipment - restructuring related |
— | 738 | ||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
(31,562 | ) | 923 | |||||
| Prepaid assets, deposits, and other assets |
1,403 | 510 | ||||||
| Accounts payable |
(909 | ) | 364 | |||||
| Accrued liabilities |
2,202 | 6,631 | ||||||
| Accrued restructuring costs |
(1,960 | ) | (4,853 | ) | ||||
| Deferred revenue |
9,087 | (10,981 | ) | |||||
| Net cash used for operating activities |
(14,463 | ) | (12,717 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of property and equipment |
(1,626 | ) | (651 | ) | ||||
| Proceeds from sale of property and equipment |
— | 29 | ||||||
| Restricted cash and investments |
(205 | ) | (7,596 | ) | ||||
| Acquisitions, net of cash acquired |
(46,433 | ) | — | |||||
| Purchases of short-term investments |
— | (6,595 | ) | |||||
| Proceeds from sales and maturities of short-term investments |
3,412 | 8,789 | ||||||
| Purchases of long-term investments |
(68 | ) | (4,450 | ) | ||||
| Proceeds from sales and maturities of long-term investments |
— | 8,862 | ||||||
| Net cash used for investing activities |
(44,920 | ) | (1,612 | ) | ||||
| Cash flows from financing activities |
||||||||
| Net proceeds from issuance of common stock, net |
767 | 1,627 | ||||||
| Net proceeds from issuance of convertible debt |
— | 144,975 | ||||||
| Other |
(4 | ) | 4 | |||||
| Net cash provided by financing activities |
763 | 146,606 | ||||||
| Effect of exchange rates on cash and cash equivalents |
(227 | ) | — | |||||
| Net increase (decrease) in cash and cash equivalents |
(58,847 | ) | 132,277 | |||||
| Cash and cash equivalents at beginning of period |
231,509 | 139,339 | ||||||
| Cash and cash equivalents at end of period |
&nb | |||||||