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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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(Mark One)
[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 ________________.
0-23926
(Commission file number)
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GEOWORKS CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 94-2920371
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Crescent Court, Suite 1110
Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
(214) 661-7479
(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 the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date:
As of February 13, 2004, the Company had outstanding 29,869,808 shares
of Common Stock, $ 0.001 par value per share.
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GEOWORKS CORPORATION
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets:
December 31, 2003 and March 31, 2003........................ 3
Condensed Consolidated Statements of Operations: Three
and Nine Months ended December 31, 2003 and 2002 ........... 4
Condensed Consolidated Statements of Cash Flows: Nine Months
ended December 31, 2003 and 2002........................... 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk.... 16
Item 4. Procedures and Controls........................................ 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................. 17
SIGNATURES............................................................... 18
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31, March 31,
2003 2003
------------ ---------
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 55 $ 729
Accounts receivable, net ............................................ 206 31
Restricted cash ..................................................... 201 --
Prepaid expenses and other current assets ........................... 408 476
------ ------
Total current assets ........................................... $ 870 $1,236
Other assets ........................................................... 17 --
------ ------
$ 887 $1,236
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................................... $ 1 $ 228
Accrued liabilities ................................................. 228 576
Deferred revenue .................................................... 190 179
------ ------
Total current liabilities ...................................... $ 419 $ 983
Stockholders' equity ................................................... 468 253
------ ------
$ 887 $1,236
====== ======
See accompanying notes
3
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
December 31 December 31
2003 2002 2003 2002
----------------------- ------------------------
Operating expenses:
Legal $ 8 $ 183 $ 38 $ 583
Other general and administrative 34 433 337 1,343
---------------------- ----------------------
Total operating expenses 42 616 375 1,926
---------------------- ----------------------
Operating loss (42) (616) (375) (1,926)
Other income (expense):
Interest income 1 2 2 13
---------------------- ----------------------
Total other income, net 1 2 2 13
---------------------- ----------------------
Loss before discontinued operations (41) (614) (373) (1,913)
Income (loss) from discontinued operations-
net of income taxes 64 (292) 231 (1,340)
---------------------- ----------------------
Net income (loss) $ 23 $ (906) $ (142) $ (3,253)
====================== ======================
Loss before discontinued operations $ (0.00) $ (0.03) $ (0.01) $ (0.08)
Income (loss) from discontinued operations 0.00 (0.01) 0.01 (0.06)
---------------------- ----------------------
Net income (loss) per share-basic and diluted $ 0.00 $ (0.04) $ (0.00) $ (0.14)
====================== ======================
Shares used in net income (loss) per share
Computation-basic 29,869 22,185 28,812 22,911
====================== ======================
Computation-diluted 29,878 22,185 28,812 22,911
====================== ======================
See accompanying notes.
4
GEOWORKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine months ended
December 31
2003 2002
-------- --------
OPERATING ACTIVITIES
Loss before discontinued operations $ (373) $(1,913)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation -- 25
Amortization of deferred compensation -- 75
Loss on cancellation of shareholder note -- 87
Changes in assets and liabilities - continuing operations (270) (551)
--------------------
Cash used in operating activities - continuing operations (643) (2,277)
Income (loss) from discontinued operations 231 (1,340)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation -- 156
Amortization of goodwill and other intangible assets -- 487
Write-down of goodwill and other long-lived assets -- 1,158
Changes in assets and liabilities - discontinued operations (200) (742)
--------------------
Cash provided by (used in) discontinued operations 31 (281)
--------------------
Net cash used in operating activities (612) (2,558)
INVESTING ACTIVITIES
Purchase of investments (416) --
Purchases of property and equipment, net -- (34)
--------------------
Net cash (used in) investing activities (416) (34)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 354 --
--------------------
Net cash provided by financing activities 354 --
--------------------
Net decrease in cash and cash equivalents (674) (2,592)
Cash and cash equivalents, beginning of period 729 3,136
--------------------
Cash and cash equivalents, end of period $ 55 $ 544
====================
See accompanying notes.
5
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements for the three and nine months
ended December 31, 2003 and 2002 are unaudited and have been prepared in
accordance with accounting principles generally accepted in the United States of
America and instructions to Form 10-Q and Article 10 of the Regulation S-X.
Accordingly, they do not include all of the information in notes required by
accounting principles generally accepted in the United States of America for
complete financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the consolidated financial position and results of operations
for the interim periods have been included. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with Management's Discussion and Analysis
of Financial Condition and Results of Operations, included in Geoworks
Corporation's (the "Company's") Annual Report to Shareholders on Form 10-K for
the fiscal year ended March 31, 2003. The results of operations for the three
and nine months ended December 31, 2003 are not necessarily indicative of the
results to be expected for the entire fiscal year.
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period's presentation.
2. SIGNIFICANT EVENTS
In April 2003, we sold 7,377,905 million shares of our common stock ("Stock
Sale") (representing 25% of our common stock after the transaction) to Newcastle
Partners L.P. ("Newcastle") and Mark E. Schwarz, an affiliate of Newcastle, for
total consideration of $325,000. Pursuant to the stock purchase agreement
entered into in connection with the Stock Sale, $200,000 of the proceeds from
the Stock Sale are being held in restricted cash. In connection with this stock
sale, Mr. Schwarz and Steven J. Pully, who is also an affiliate of Newcastle,
joined the Board of Directors and a new operating management team assumed the
management of the Company. Steve Mitchell, the Chief Executive Officer prior to
the transaction, remains as a Director. He and the other officers of the Company
agreed to step down from their management positions in connection with the
transaction.
3. NET INCOME PER SHARE
Basic net income (loss) per share information for all periods is presented in
accordance with the requirements of Statement of Financial Accounting Standards
No. 128, "Earnings per Share" ("SFAS 128"). Basic earnings per share is computed
using the weighted average number of shares of common stock outstanding during
the period and excludes any dilutive effects of outstanding common stock
equivalents. Except for the three months ended December 31, 2003, the effect of
potentially dilutive stock options has been excluded from the computation of
diluted net loss per share because the effect of their inclusion would be
antidilutive.
Since the Company reported net income for the three months ended December 31,
2003, the calculation of diluted earnings per share included the effect of
dilutive common stock options of 7,761, computed using the treasury stock
method. If the Company had reported net income for the nine months ended
December 31, 2003 and the three and nine months ended December 31, 2002, the
calculation of diluted earnings per share for those periods would have included
the effect of dilutive common stock options, computed using the treasury stock
method. There were no dilutive common stock equivalents for the nine months
ended December 31, 2003. For the three and nine months ended December 31, 2002,
the calculation would have included the common stock equivalent effects of 436
and 96,345 stock options outstanding, respectively.
6
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4. ACCOUNTS RECEIVABLE
Our only customer, Toshiba, a diversified electronics company located in Japan,
accounted for 100% of our revenues in the quarter ended December 31, 2003, and
is currently projected to generate all of our limited revenue thereafter. These
revenues are attributable to license and maintenance fees for our MS+
technology. According to our existing contract with Toshiba, we were due an
annual maintenance payment of $150,000 on October 31, 2003 and are also
currently due royalty payments of approximately $56,000 for the quarter's ended
September 30, 2003 and December 31, 2003. We have not recognized any revenue for
the $150,000 annual maintenance payment since we are discussing a sale of our
MS+ technology source code to Toshiba and have discussed with Toshiba deferring
the payment until negotiations are complete. The annual maintenance payment of
$150,000 is reflected in accounts receivable and deferred revenue in the
accompanying December 31, 2003 balance sheet.
5. STOCK COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS 123, as amended
by SFAS 148, and applies APB Opinion 25 and related interpretations in
accounting for its stock option and employee stock purchase plans. No
stock-based employee compensation cost is reflected in net loss, as all options
granted under those plans have an exercise price equal to the market value of
the underlying common stock on the date of grant. Had compensation cost for the
Company's stock plans been determined based on the fair value at the grant date
for awards during fiscal 2004 and 2003 the Company's net income (loss) and net
income (loss) per share would have been increased to the pro forma amounts
indicated below (in thousands, except per share amounts):
Three months ended Nine months ended
December 31 December 31
-------------------------- -------------------------
2003 2002 2003 2002
-------------------------- -------------------------
Net income (loss), as reported $ 23 $ (906) $ (142) $ (3,253)
Net income (loss), pro forma $ 23 $ (1,331) $ (168) $ (5,028)
Income (loss) per share:
Basic and diluted - as reported $ 0.00 $ (0.04) $ (0.00) $ (0.14)
Basic and diluted - pro forma $ 0.00 $ (0.06) $ (0.01) $ (0.22)
6. COMPREHENSIVE INCOME (LOSS)
"Other comprehensive income (loss)" refers to revenues, expenses and gains and
losses that are not included in net income (loss) but rather are recorded in
stockholders' equity. The components of comprehensive income (loss) for the
three and nine months ended December 31, 2003 and 2002 were as follows (in
thousands):
Three months ended Nine months ended
December 31 December 31
----------------------------------------------
2003 2002 2003 2002
--------------------- ---------------------
Net income (loss) ...................... $ 23 $ (906) $ (142) $(3,253)
Foreign currency translation adjustments -- (4) -- 11
-------------------- --------------------
Comprehensive loss ..................... $ 23 $ (910) $ (142) $(3,242)
==================== ====================
7
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7. RESTRUCTURING CHARGES
The activities relating to restructuring during the nine months ended December
31, 2003 consisted of terminating existing contract relationships that arose
from the various reorganizations and restructurings during the year ended March
31, 2003. No new restructuring charges were recorded in the nine months ended
December 31, 2003. Restructuring liabilities as of December 31, 2003 and March
31, 2003 are included in accrued liabilities in the accompanying balance sheets.
The following table summarizes the restructuring activity (in thousands):
Contract
termination
costs
Restructuring liabilities at March 31, 2003........ $ 91
Amounts paid....................................... (60)
---------
Restructuring liabilities at December 31, 2003..... $ 31
=========
8. DISCONTINUED OPERATIONS
In February 2003, the Company ceased ongoing business activity of its remaining
operating division (located in the UK) because of continued market uncertainty
and the inability to generate cash through strategic alternatives. The Company
announced that it was ceasing operations in the UK and entered into a mutual
release agreement with Teleca Ltd. ("Teleca") which allowed Teleca to hire the
Company's former UK employees and to engage in business with the Company's
former customers. In consideration of the release, Teleca agreed to pay the
Company approximately $520,000, one half on signing the release and the balance
after ninety days.
As a result of previous restructurings and ceasing operations in the UK, the
Company no longer has any employees engaged in revenue generating activities and
the historical results of substantially all of the Company's operating
activities are shown as discontinued operations. Interest has not been allocated
to discontinued operations. Income taxes were all allocated to discontinued
operations because they relate primarily to foreign withholding tax on royalties
and sale of patents.
Financial information previously reported in the statement of operations and
cash flows for the the three and nine months ended December 31, 2002 have been
reclassified to present substantially all of the Company's operations as
discontinued operations (with the exception of corporate office legal and
general and administrative expenses), consistent with the presentation for the
three and nine months ended December 31, 2003.
8
GEOWORKS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Summarized financial information for the results of discontinued operations is
as follows (in thousands):
Three months ended Nine months ended
December 31 December 31
-------------------- --------------------
2003 2002 2003 2002
------------------- --------------------
Total net revenues $ 70 $ 1,015 $ 255 $ 3,050
Operating expenses: (excluding items discussed below)
Cost of revenues, sales and marketing, research and
development and general and administrative expenses -- 780 11 2,720
Amortization of goodwill and other intangible assets -- 69 -- 487
Write-down of goodwill and other long-lived assets -- 439 -- 1,158
------- ------- ------- -------
Total operating expenses -- 1,288 11 4,365
------- ------- ------- -------
Income (loss) before income taxes 70 (273) 244 (1,315)
Provision for income taxes 6 19 13 25
------- ------- ------- -------
Income (loss) from discontinued operations - net of taxes $ 64 $ (292) $ 231 $(1,340)
======= ======= ======= =======
Revenues from related parties $ 70 $ 92 $ 255 $ 273
======= ======= ======= =======
Assets and liabilities attributable to the discontinued businesses were as
follows (in thousands):
December 31 March 31
2003 2003
-----------------------------
Current assets $ 209 $ 52
Current liabilities $ 284 $ 45
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), regarding future events and management's plans and expectations. When
used in this Report, the words "believe", "estimate", "project", "intend",
"expect" and "anticipate" and similar expressions are intended to identify such
forward-looking statements. Such statements are subject to certain risks and
uncertainties, including those discussed below, which could cause actual results
to differ materially from those projected. These statements include but are not
limited to our intentions and expectations regarding: our limited cash
resources; our significantly reduced level of operations, dependence on one
customer for almost all of our revenues; our ability to acquire, merge into an
operating business or develop new businesses, our ability to sell any of our
remaining assets; our ability to terminate certain contractual obligations on
acceptable terms; economic conditions, and the health of financial markets in
general.
These statements are subject to risks and uncertainties that could cause actual
results and events to differ materially. Other factors that may contribute to
such differences include, but are not limited to, those discussed in the section
titled "Risk Factors Affecting Future Operating Results" of Part I of our Annual
Report on Form 10-K, as amended, for the fiscal year ended March 31, 2003, and
those discussed below. Consequently, the inclusion of forward-looking
information should not be regarded as a representation by us or any other person
that our objectives or plans will be achieved or that the identified risks are
the only risks facing us. The reader is cautioned not to place undue reliance on
the forward-looking statements contained in this Report, which speak only as of
the date this Report was published. We undertake no obligation to publicly
release updates or revisions to these statements.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our discussion and analysis of financial condition and results of operations is
based upon our Condensed Consolidated Financial Statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these Condensed Consolidated
Financial Statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues, and expenses, and related
disclosure of contingent assets and liabilities. We evaluate, on an ongoing
basis, our estimates and judgments, including those related to revenue
recognition, bad debts, intangible assets, income taxes, restructuring charges
and contingencies such as litigation. We base our estimates on historical
experience and other assumptions that we believe to be reasonable under the
circumstances. Actual results may differ from those estimates.
The Company believes the following critical accounting policies include the more
significant estimates and assumptions used by management in the preparation of
its Condensed Consolidated Financial Statements.
REVENUE RECOGNITION ON DISCONTINUED OPERATIONS
Professional services projects involve consulting related to technology
previously developed by us, as well as development of new technologies
supporting mobile communications. Professional services revenues are generally
billed and recognized based on time and materials expended by the Company at
contracted rates.
Software and related services revenue consists of software license, royalty and
related service revenues, including software customization and maintenance. Such
revenues include software license fees, which are accounted for in accordance
with SOP 97-2 "Software Revenue Recognition," from customers who purchased the
Company's products or royalties from hardware manufacturers that incorporate the
Company's software products into their systems. In addition, the Company has
licensed certain technology and intellectual property and sold source code to
third parties to be used in the development of their own service offerings and
products. Revenues from the license of products, technology, intellectual
property, and the sale of source code are recognized when evidence of an
agreement exists, when the Company has performed under the terms of the related
contract, when such revenues are fixed and determinable and when collectibility
is probable.
Software customization, maintenance and related services revenues are billed and
recognized based on contracted rates, the percentage of completion method or
ratably over the contract period based on the terms of the contract. Advance
payments of license or service fees are recorded as deferred revenue and
recognized as the products or services are delivered.
10
If a customer transaction includes both software licenses and service elements,
the total arrangement fee is allocated to each of the elements using the
residual method, under which revenue is allocated to undelivered elements based
on vendor-specific objective evidence of fair values of such undelivered
elements and the residual amounts of revenue are allocated to the delivered
elements.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes," under which the liability method is used to
account for income taxes. Deferred tax assets and liabilities are determined
based on differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Significant management
judgment is required in determining the provision for income taxes, deferred tax
assets and liabilities, and any valuation allowance recorded against the net
deferred tax assets.
11
OVERVIEW
AS PART OF OUR STRATEGY TO LIMIT OPERATING LOSSES AND ENABLE THE COMPANY TO
REDEPLOY ITS ASSETS AND USE ITS CASH AND CASH EQUIVALENT ASSETS TO ENHANCE
STOCKHOLDER VALUE, WE HAVE SOLD THE MAJORITY OF OUR ASSETS, WHICH REPRESENTED
SUBSTANTIALLY ALL OF OUR REVENUE-GENERATING OPERATIONS AND RELATED ASSETS, ALL
AS FURTHER DESCRIBED HEREIN. THE INFORMATION APPEARING BELOW, WHICH RELATES TO
PRIOR PERIODS, IS THEREFORE NOT INDICATIVE OF THE RESULTS WHICH MAY BE EXPECTED
FOR ANY SUBSEQUENT PERIODS. FUTURE PERIODS WILL PRIMARILY REFLECT GENERAL AND
ADMINISTRATIVE EXPENSES ASSOCIATED WITH THE CONTINUING ADMINISTRATION OF THE
COMPANY AND ITS EFFORTS TO REDEPLOY ITS ASSETS THROUGH AN ACQUISITION, MERGER OR
DEVELOPMENT OF NEW OPERATIONS.
ACCOUNTING FOR DISCONTINUED OPERATIONS
After ceasing operations in the UK effective February 1, 2003, we have
essentially exited the software business and have no meaningful revenue
generating assets or personnel. As a result, consistent with US Generally
Accepted Accounting Principles ("GAAP"), most of our operating activity for the
three and nine months ended December 31, 2003 and 2002 has been disclosed in our
financial statements under the caption, " Income (loss) from discontinued
operations - net of taxes."
We do have one remaining software contract, with Toshiba, for the license of our
Mobile Server+ software. This contract runs through September 2004. Any future
proceeds or costs generated from this contract will also be accounted for as
being part of discontinued operations.
As a result of our significantly reduced revenue generating activities and the
expected substantial reduction in general and administrative expenses, much of
the following discussion of our historical operating results is not relevant to
our continued operations. Consequently, readers should focus on the Company's
liquidity, and should keep in mind that this discussion reflects management's
current beliefs, intentions and expectations. Statements made in this discussion
are subject to risks and uncertainties that could cause actual results and
events to differ materially.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECTEMBER 31, 2003 AND 2002
LEGAL EXPENSES
In addition to third party legal fees, legal expenses include salaries, benefits
and related facilities overhead expense for the Company's in-house legal
personnel. Legal expenses decreased by $175,000, or 96%, and $400,000, or 69%
for the three and nine months ended December 31, 2003, respectively, as compared
to the corresponding periods of the prior fiscal year. The majority of legal
expenses for the three and nine months ended December 31, 2003 related to
regulatory filings with the Securities and Exchange Commission. The large
decreases from the prior fiscal periods as compared to the current fiscal
periods is due to the departure of our in-house legal staff effective May 1,
2003, lower outside legal cost accruals and non-cash charges resulting from the
amortization of deferred compensation related to option grants. The non-cash
charges related to the options were granted in fiscal 2001 and were fully
amortized by March 31, 2003.
OTHER GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs for human resources,
finance, general management functions and related facilities overhead. General
and administrative expenses decreased by $399,000, or 92%, and $910,000, or 68%
for the three and nine months ended December 31, 2003, respectively, as compared
to the corresponding periods of the prior fiscal year. The expenses decreased
primarily due to reduced headcount and reduced facilities costs resulting from
the restructuring actions and cost reduction efforts made over the course of
fiscal 2002 and 2003.
12
INTEREST INCOME
Interest income decreased by $1,000, or 50%, and $11,000 or 85% for the three
and nine months ended December 31, 2003, respectively, as compared to the
corresponding periods of the prior fiscal year. These decreases were
attributable to smaller cash balances available for short-term investment as our
cash resources were depleted by our operations.
PROVISION FOR INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Income tax expense
consists primarily of foreign income tax withholding on foreign source royalties
paid to the Company. The provision for income tax expense was $13,000 for the
nine months ended December 31, 2003 and $25,000 for the nine months ended
December 31, 2002. The decrease is due to the decreased level of royalties and
maintenance revenue received in the current fiscal periods as compared to the
same periods of the prior fiscal year.
Results of discontinued operations are as follows (in thousands):
Three months ended Nine months ended
December 31 December 31
-------------------- --------------------
2003 2002 2003 2002
-------------------- --------------------
Total net revenues $ 70 $ 1,015 $ 255 $ 3,050
Operating expenses: (excluding items discussed below)
Cost of revenues, sales and marketing, research and
development and general and administrative expenses -- 780 11 2,720
Amortization of goodwill and other intangible assets -- 69 -- 487
Write-down of goodwill and other long-lived assets -- 439 -- 1,158
------------------- -------------------
Total operating expenses -- 1,288 11 4,365
------------------- -------------------
Income (loss) before income taxes 70 (273) 244 (1,315)
Provision for income taxes 6 19 13 25
------------------- -------------------
Income (loss) from discontinued operations - net of taxes $ 64 $ (292) $ 231 $(1,340)
=================== ===================
Revenues from related parties $ 70 $ 92 $ 255 $ 273
=================== ===================
NET REVENUES
Net revenues decreased by $945,000, or 93%, and $2,795,000, or 92% for the three
and nine months ended December 31, 2003, respectively, as compared to the
corresponding periods of the prior fiscal year. The substantial decrease in
revenues is the result of discontinuing our operations in the UK in the fourth
quarter of fiscal 2003. During the nine months ended December 31, 2003 Toshiba,
our only remaining customer, provided all of our limited revenue. These revenues
are attributable to license and maintenance fees for our MS+ technology.
OPERATING EXPENSES
Operating expenses do not include corporate office legal and general and
administrative expenses which have not been classified as discontinued
operations. Excluding the corporate office items discussed above operating
expenses decreased by $1,288,000 or 100%, and $4,354,000 or 99% for the three
and nine months ended December 31, 2003, respectively, as compared to the
corresponding periods of the prior fiscal year. The reductions in these
operating expenses reflect our discontinuing of our remaining operating division
in the UK in the fourth quarter of fiscal 2003. The operating expenses for the
nine months ended December 31, 2003 represent maintenance cost associated with
our contract with Toshiba our only remaining customer.
13
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill and other intangibles decreased by $69,000, or 100%,
and $487,000, or 100% for the three and nine months ended December 31, 2003,
respectively, as compared to the corresponding periods of the prior fiscal year.
The $487,000 of amortization recorded for the nine months ended December 31,
2002 related to certain technologies and patents for which the values were
subsequently written off.
WRITE-DOWN OF GOODWILL AND OTHER LONG-LIVED ASSETS
Write-down of goodwill and other long-lived assets decreased by $439,000, or
100% and $1,158,000, or 100% for the three and nine months ended December 31,
2003, respectively, as compared to the corresponding periods of the prior fiscal
year. A $439,000 write-down was recorded in the three months ended December 31,
2002 which related to certain intangble assets from the AirBoss acquisition.
This write-down resulted in the AirBoss intangibles being completely written off
by the third quarter of 2002.
14
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $55,000 at December 31, 2003, compared with
$729,000 at March 31, 2003. During the three months ended December 31, 2003 we
purchased U.S. Government Treasury Bills of approximately $399,000 which are
classified as other current assets as of December 31, 2003. The remaining
overall decrease in cash and cash equivalents is due primarily to cash used in
operating activities-continuing operations offset by cash provided by operating
activities-discontinued operations and the proceeds from the Stock Sale and the
exercise of employee stock options. Pursuant to the stock purchase agreement
entered into in connection with the Stock Sale, $200,000 of the proceeds from
the Stock Sale are being held in restricted cash.
We expect to incur additional losses from our continuing operations at least
through fiscal 2004, which will continue to have a negative impact on liquidity
and capital resources.
Purchases of property and equipment, net of proceeds from sales, for the three
and nine months ended December 31, 2003 and 2002 were $0, and $34,000,
respectively. In general, capital spending is done only to meet customer
requirements.
As of March 31, 2003, the Company has no minimum payments remaining under
non-cancelable operating leases.
Our only customer, Toshiba, a diversified electronics company located in Japan,
accounted for 100% of our revenues in the quarter ended December 31, 2003, and
is currently projected to generate all of our limited revenue thereafter. These
revenues are attributable to license and maintenance fees for our MS+
technology. According to our existing contract with Toshiba we were due an
annual maintenance payment of $150,000 October 31, 2003 and are also currently
due total royalty payments of approximately $56,000 for the three months ended
September 30, 2003 and December 31, 2003. We have not recognized any revenue for
the $150,000 annual maintenance payment since we are discussing a sale of our
MS+ technology source code to Toshiba and have discussed with Toshiba deferring
the payment until negotiations are complete.
We currently anticipate that our available funds will be sufficient to meet our
projected needs to fund operations through fiscal 2004. This projection is based
on several factors and assumptions, and is subject to numerous risks. Our future
capital needs and liquidity will be highly dependent upon a number of variables,
including how successful we are in managing our operating expenses, selling
assets and how successful we are in settling our remaining contractual
liabilities. Our future cash needs are also subject to the cash needs of any new
business that we may enter into. As a result of the foregoing, any projections
of future cash needs and cash sources are subject to substantial uncertainty.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FOREIGN EXCHANGE RISK
There have been no material changes to our exposure to market risk since March
31, 2003.
ITEM 4. PROCEDURES AND CONTROLS
Within 90 days prior to the date of filing of this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's officers performing the function of principal executive officer (the
"Principal Executive Officer") and the principal financial officer (the
"Principal Financial Officer"), of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14(c) under the
Securities Exchange Act of 1934. Based on this evaluation, the Principal
Executive Officer and Principal Financial Officer concluded that the Company's
disclosure controls and procedures are effective for gathering, analyzing and
disclosing the information the Company is required to disclose in the reports it
files under the Securities Exchange Act of 1934, within the time periods
specified in the SEC's rules and forms. The Principal Executive Officer and
Principal Financial Officer also concluded that the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company required to be included in the Company's
periodic SEC filings. In connection with the new rules, the Company is in the
process of further reviewing and documenting its disclosure controls and
procedures, including its internal controls and procedures for financial
reporting, and may from time to time make changes designed to enhance their
effectiveness and to ensure that the Company's systems evolve with its business.
There have been no significant changes in the Company's internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of this evaluation.
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PART II. OTHER INFORMATION
ITEM 1.-ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit
Number Description
31.1 Controls and Procedures Certification of the Chief
Executive Officer dated February 16, 2004.
31.2 Controls and Procedures Certification of the Chief
Financial Officer dated February 16, 2004.
32.1 Certification Pursuant to 18 U.S.C. Section 1350 of
the Chief Executive Officer dated February 16, 2004.
32.2 Certification Pursuant to 18 U.S.C. Section 1350 of
the Chief Financial Officer dated February 16, 2004.
b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the quarter ended
December 31, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
executive officer.
GEOWORKS CORPORATION
Date: February 16, 2004 By: /s/ John P. Murray
------------------
John P. Murray
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
By: /s/ Mark E. Schwarz
-----------------------
Mark E. Schwarz
Chief Executive Officer
(Duly Authorized Officer and
Chief Executive Officer)
18