TARANTELLA INC - 10-Q Quarterly Report

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, 2004

¨	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 0-21484

TARANTELLA, INC.

(Exact name of registrant as specified in this charter)

California

94-2549086

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

425 Encinal Street, Santa Cruz, California 95060

(Address of principal executive office)

(831) 427-7222

(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 ¨ No x

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. ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of shares outstanding of the registrant’s common stock as of January 31, 2005 was 27,888,903.

TARANTELLA, INC.

FORM 10-Q

For the Quarterly Period Ended December 31, 2004

Table of Contents


				Page
*Part I. Financial Information*

	Item 1.	Financial Statements

		a)	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended December 31, 2004 and 2003	3

		b)	Unaudited Condensed Consolidated Balance Sheets, as of December 31, 2004 and September 30, 2004	4

		c)	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2004 and 2003	5

		d)	Notes to Unaudited Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		18

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		36

	Item 4.	Controls and Procedures		36

*Part II. Other Information*

	Item 1.	Legal Proceedings		38

	Item 2.	Unregistered Sales in Equity Securities and Use of Proceeds		38

	Item 3.	Defaults Upon Senior Securities		38

	Item 4.	Submission of Matters to a Vote of Security Holders		38

	Item 5.	Other Information		38

	Item 6.	Exhibits and Reports on Form 8-K		39

	*Signatures and certifications*			40

Part I. Financial Information

Item I. Financial Statements

TARANTELLA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(In thousands, except per share data)


	Three Months Ended December 31,
	2004			2003
Net revenues:
Licenses	$	2,871		$	2,366
Services		1,143			1,102

Total net revenues		4,014			3,468

Cost of revenues:
Licenses		150			168
Services		401			330

Total cost of revenues		551			498

Gross margin		3,463			2,970

Operating expenses:
Research and development		832			961
Selling, general and administrative		3,923			4,536
Legal settlement and litigation costs		—			49
Restructuring charge		—			19

Total operating expenses		4,755			5,565

Operating loss		(1,292	)		(2,595	)

Other income (expense):
Interest income		27			1
Interest expense		(6	)		(8	)
Other income (expense), net		32			(50	)

Total other income (expense)		53			(57	)

Loss before provision for income taxes		(1,239	)		(2,652	)

Provision for income taxes		19			98

Net loss		(1,258	)		(2,750	)

Other comprehensive income:
Foreign currency translation adjustment		58			69
Unrealized gain on available for sale securities		—			75

Total other comprehensive income		58			144

Comprehensive loss	$	(1,200	)	$	(2,606	)

Net loss per share:
Basic and diluted	$	(0.05	)	$	(0.22	)
Shares used in net loss per share calculation:
Basic and diluted		27,058			12,689

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TARANTELLA, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	December 31, 2004			September 30, 2004 (1)
Assets
Current assets:
Cash and cash equivalents	$	5,581		$	9,621
Trade receivables, net of allowances of $0.1 million at December 31, 2004 and September 30, 2004		3,629			2,069
Other receivables		272			247
Prepaids and other current assets		651			622

Total current assets		10,133			12,559

Property and equipment, net		896			947
Acquired intangible assets, net		585			674
Goodwill		2,395			2,395
Other assets		19			19

Total assets	$	14,028		$	16,594

Liabilities and shareholders’ equity
Current liabilities:
Trade payables	$	907		$	832
Royalties payable - former New Moon shareholders		1,713			1,713
Income taxes payable		204			210
Accrued restructuring charges		390			1,121
Accrued expenses and other current liabilities		2,472			3,740
Deferred revenues		2,617			2,572

Total current liabilities		8,303			10,188

Long-term deferred revenues		884			794
Long-term liabilities, other		53			16

Total long-term liabilities		937			810

Total liabilities		9,240			10,998

Shareholders’ equity:
Preferred stock, authorized 20,000 shares; no shares issued and outstanding in 2004		—			—
Common stock, no par value, authorized 100,000 shares; issued and outstanding 27,889 at December 31, 2004 and 27,553 shares at September 30, 2004		146,427			146,088
Deferred stock compensation		(134	)		(187	)
Accumulated other comprehensive income		242			184
Accumulated deficit		(141,747	)		(140,489	)

Total shareholders’ equity		4,788			5,596

Total liabilities and shareholders’ equity	$	14,028		$	16,594

(1)	Amounts as of September 30, 2004 have been derived from audited financial statements as of that date.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

TARANTELLA, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Three Months Ended December 31,
	2004			2003
Cash flows from operating activities:
Net loss	$	(1,258	)	$	(2,750	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		202			270
Foreign currency exchange gain		44			43
Loss on disposal of property and equipment		3			1
Stock compensation expense		215			22
Changes in operating assets and liabilities:
Trade receivables		(1,559	)		85
Other receivables		(25	)		(4	)
Prepaids and other current assets		(29	)		90
Other assets		—			(84	)
Trade payables		75			(298	)
Royalties payable		—			(22	)
Income taxes payable		(6	)		(3	)
Accrued restructuring expenses		(731	)		(223	)
Accrued expenses and other current liabilities		(1,268	)		607
Deferred revenues		135			795
Other long-term liabilities		37			—

Net cash used in operating activities		(4,165	)		(1,471	)

Cash flows from investing activities:
Purchases of property and equipment		(2	)		(6	)
Purchases of software and technical licenses		(49	)		—
Additional New Moon acquisition costs		—			(4	)
Change in royalties payable - former New Moon shareholders		—			(2	)

Net cash used in investing activities		(51	)		(12	)

Cash flows from financing activities:
Payments on capital lease obligations		—			(18	)
Line of credit payments		—			(319	)
Net proceeds from issuance of common stock and warrants		177			2,518

Net cash provided by financing activities		177			2,181

Effects of exchange rate changes on cash and cash equivalents		(1	)		1

Increase (decrease) in cash and cash equivalents		(4,040	)		699
Cash and cash equivalents at beginning of period		9,621			3,151