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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 for the fiscal year ended March 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 0-23926
GEOWORKS CORPORATION
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 94-2920371
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification
No.)
300 CRESCENT COURT, SUITE 1110, DALLAS, TEXAS 75201
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(Address of Principal Executive Offices) (Zip Code)
214-661-7479
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $0.001 PER SHARE
(TITLE OF CLASS)
PREFERRED STOCK PURCHASE RIGHTS
(TITLE OF CLASS)
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.
[ X ] Yes [ ] No
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 the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). [ ] Yes [ X ] No
The aggregate market value of the Registrant's voting and non-voting common
stock held by non-affiliates, based upon the closing sale price of the common
stock on March 31, 2004, as reported on the OTC Bulletin Board, was
approximately $3,584,377. Shares of the Registrant's common stock held by each
executive officer and director and by each person who owns 10% or more of the
outstanding common stock, based on Schedule 13D or G filings, have been excluded
since such persons may be deemed affiliates. This determination of affiliate
status is not necessarily a conclusive determination for other purposes.
As of August 2, 2004 there were 29,869,808 shares of the Registrant's common
stock outstanding.
GEOWORKS CORPORATION
TABLE OF CONTENTS
PAGE
PART I
Item 1. Business.............................................................4
Risk Factors.........................................................6
Item 2. Properties...........................................................8
Item 3. Legal Proceedings....................................................8
Item 4. Submission of Matters to a Vote of Security Holders..................8
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities........................9
Item 6. Selected Financial Data.............................................10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk..........19
Item 8. Financial Statements and Supplementary Data.........................20
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................38
Item 9A. Controls and Procedures.............................................38
PART III
Item 10. Directors and Executive Officers of the Registrant..................39
Item 11. Executive Compensation..............................................41
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.....................................44
Item 13. Certain Relationships and Related Transactions......................45
Item 14. Principal Accounting Fees and Services..............................45
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....46
Signatures
Exhibit Index
2
PART I
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 of this Report titled "Risk Factors Affecting Future Operating
Results" beginning on page 6 as well as those discussed elsewhere in this
Report. 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.
3
ITEM 1. BUSINESS
SUMMARY
Geoworks Corporation ("Geoworks" or the "Company", which may also be referred to
as "we", "us" or "our") was formerly a provider of leading-edge software design
and engineering services to the mobile and handheld device industry. As a result
of changes in the market and our own decreasing financial resources, our
operations were substantially scaled back through a number of restructuring
actions. In February 2003, we ceased ongoing business activity at our last
operating division, which had been located in Macclesfield, England. In April
2003, 25% of our newly issued common stock was sold in order to increase our
financial resources and improve our potential to make acquisitions or develop
new operations. In connection with this stock sale, a substantially new board of
directors and new operating management team was appointed. Our current strategic
business plans are based on realizing the value of the Company's few remaining
technology-related assets and identifying new operations or a merger candidate.
HISTORICAL OVERVIEW
From our initial public offering in 1994 through early 1999, we were focused on
developing and selling wireless operating systems for smart phones and PDA's
(personal digital assistants). Our customers were large mobile phone
manufacturers who paid us research and development fees to develop software and
agreed to pay us royalties based on the number of phones they shipped with our
operating system. This market did not develop as rapidly as we expected and in
mid-1998, several of the world's largest handset makers including Nokia,
Motorola, Ericsson and Matsushita, representing over half of our target market,
created a joint venture to develop their own mobile operating system. In
response to the slow growth in the market, increased competition and the loss of
key original equipment manufacturer ("OEM") prospects, we shifted our focus to
the development of mobile server software for mobile commerce and information
services. By the fourth quarter of fiscal 1999, we had discontinued development
of our smart phone operating system (GEOS SC(TM)) and licensed the source code,
on a non-exclusive basis, to one of our major OEM customers, Mitsubishi Electric
Corporation ("Mitsubishi"), whom we continued to support through a professional
services consulting agreement through March 2002.
During fiscal year 2000, our research and development and sales and marketing
efforts were targeted at our mobile software and services, in particular our
Mobile ASP (Application Service Provider) offering, based on our Mobile Server+
software. We also continued to provide engineering services to some OEM
customers, however, such services were provided through professional services
consulting contracts, rather than as customer funded research with potential
product royalties.
In July 2000, we broadened our software product and service offering by
acquiring the AirBoss Application Platform and the AirBoss Business Unit
("AirBoss") from Telcordia Technologies, Inc. ("Telcordia"). Telcordia and its
parent, Science Applications International Corporation ("SAIC"), became our
largest shareholder. We established an office in New Jersey to continue the
research, development, and deployment of the AirBoss line of patented mobile
communications software products, as well as to service the various third
parties whose contractual rights with Telcordia were assigned to us as part of
the acquisition. In June 2001, we reorganized our operations, exited the Mobile
ASP market and accelerated the integration of our two software platforms, Mobile
Server+ and the AirBoss Application Platform, into a single integrated product
offering for enterprise applications.
Through January 2001, we had been able to successfully raise capital through
public offerings, a number of private placements and through our employee stock
option plans. However, raising capital became increasingly difficult due to the
uncertainty in the market as a whole and in the wireless and telecommunications
industry, in particular. In August 2001, we engaged an investment banker to
assist us in considering our strategic alternatives.
In October 2001, as a result of market uncertainties and a lack of market
visibility, we announced a number of cost cutting measures to conserve our
resources, including terminating approximately 45% of our workforce. Because of
continued market uncertainty and our inability to generate cash through
strategic alternatives, in January 2002, we announced a restructuring involving
our exit from the software products business and additional cost cutting
measures, including terminating 45% of our remaining workforce. In particular,
we concluded it would be in the best interest of our company to try to sell our
AirBoss assets in order to focus on realizing the value of our professional
services business.
4
Following the January 2002 restructuring announcement, we pursued a number of
measures to sell assets. Several patents were sold during the fourth quarter of
fiscal 2002 and the GEOS-SC source code was sold to Mitsubishi during the fourth
quarter of fiscal 2003. Additionally, we terminated the leases of our former
facilities in New Jersey and Alameda, California.
Our weak financial position made it increasingly difficult to maintain a viable
ongoing business in the UK. In particular, our UK employees had been recruited
heavily by third parties while a proposed sale of our UK subsidiary and its
professional services business to Teleca Ltd. (the "Proposed Sale") was under
consideration. These employees' perceived uncertainty only intensified when the
Proposed Sale was not approved by our stockholders as a result of our failure to
secure a quorum for the special shareholders meeting. Our limited resources made
it unlikely that we could continue covering our already reduced cost structure,
much less absorb the costs of any decrease or interruption in our revenues
associated with employee attrition or resulting customer dissatisfaction. Faced
with this significant possibility of failing to meet our obligations and in an
effort to minimize ongoing liabilities, we entered into a mutual release
agreement with Teleca (the "Release") that allowed Teleca to hire our former UK
employees and do business with our customers. In consideration of the Release,
Teleca agreed to pay us approximately $500,000, consisting of one half on
signing the Release and the balance after ninety days. Also, Teleca separately
agreed to assume our UK subsidiary's remaining lease obligations in exchange for
use of the subsidiary's equipment. By agreeing to enter the Release we estimate
that we have avoided approximately $300,000 of statutory employee severance and
over $400,000 of future lease obligations.
In April 2003, we sold 7,377,905 shares of our common stock (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. This transaction increased our financial resources
and we believe it improves our potential to avoid bankruptcy and to identify and
close other strategic transactions or to develop new operations. 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.
ORGANIZATION AND CURRENT BUSINESS
Our company was incorporated in California in 1983 and reincorporated in
Delaware in 1997. The Company's headquarters is in Dallas, Texas. Our fiscal
year commences on April 1 and ends on March 31.
Although we have essentially exited the software business and have no employees
devoted to generating software revenues, we have one remaining software contract
with Toshiba for the license of our Mobile Server+ software. This contract runs
through September 2004. Per the terms of the agreement, we receive annual
maintenance fees and 15% of the revenues generated by Toshiba from the use of
the software. Revenues generated from Toshiba were approximately $296,000 and
$413,000 in fiscal year 2004 and 2003, respectively. We plan to fulfill any
maintenance requirements to Toshiba through subcontracting for appropriate
engineering support. See Note 1 to the Consolidated Financial Statements for
further discussion of major customers in discontinued operations. Also as more
fully described in the financial statements we have been in discussions with
Toshiba to sell the source code to the Mobile Server+ software.
Other than fulfilling the Toshiba contract, Geoworks currently has no business
operations other than seeking an acquisition, business combination or developing
new operations, the success of which cannot be guaranteed. The Company has no
current plans, proposals, agreements, understandings or arrangements to acquire
or merge with any specific business or company nor does it have current plans to
develop new operations. At this time, the Company does not expect to generate
any revenue from any sources other than Toshiba during the coming fiscal year
and generation of future revenue is subject to substantial risks as discussed in
the risk factors below.
EMPLOYEES
As of August 2, 2004, we had three employees. None of our employees are
represented by a labor union or subject to a collective bargaining agreement,
and we have not had a work stoppage from any labor grievance or strike.
5
RISK FACTORS AFFECTING FUTURE OPERATING RESULTS
You should consider carefully the risks and uncertainties described below and
the other information in this report. The risks set forth below are not the only
ones we face. Additional risks and uncertainties that we are not aware of or
that we currently deem immaterial also may become important or impair our
business. If any of the following risks actually occur, our business, financial
condition and operating results could be materially adversely affected, the
trading price of our common stock could decline and the likelihood of there
being any potential return to stockholders would diminish.
WE HAVE LIMITED FINANCIAL RESOURCES AND A HISTORY OF OPERATING LOSSES, WE HAVE
CURTAILED OPERATIONS AND WE EXPECT TO CONTINUE INCURRING LOSSES.
Since inception, we have experienced negative cash flow from operations, which
we expect to continue. We currently anticipate that our available funds will be
sufficient to meet our projected needs through fiscal 2006. This projection is
based on several factors and assumptions, in particular that our primary
customer continues to pay us on a timely basis, 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 realizing the value of
legacy assets and settling existing contractual liabilities. We do not consider
the sale of most of these assets to be likely, rather highly unlikely. As a
result, any projections of future cash needs and cash flows are subject to
substantial uncertainty.
WE ARE CURRENTLY DEPENDENT UPON A SINGLE CUSTOMER FOR ALL OF OUR REVENUE.
One customer, Toshiba, a diversified electronics company located in Japan,
accounted for all of our revenues in fiscal 2004 and is currently projected to
generate all of our limited revenue in the near future. These revenues are
attributable to license and maintenance fees for our MS+ technology. If this
revenue stream is interrupted, we may not be able to satisfy our outstanding
obligations and our liquidity could be negatively impacted.
OUR INABILITY TO SELL OUR REMAINING LEGACY ASSETS COULD BE HARMFUL.
Although we have been able to sell certain assets since the reorganization
announced in January 2002 and we continue to explore the sale of our remaining
assets, including MS+, there are very few active prospects. We may not be able
to locate buyers for these assets on acceptable terms. Even if we are able to
locate a buyer or buyers who are willing to acquire these assets on terms that
we believe are in our best interests, the sale of these assets involves a number
of risks and uncertainties.
WE MAY BE UNABLE TO REDEPLOY OUR ASSETS SUCCESSFULLY.
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 are pursuing a strategy of identifying suitable merger
partners, acquisition candidates or developing new operations. We may not be
successful in acquiring such a business or in operating any business that we
acquire or develop. Failure to redeploy our assets successfully will prevent us
from becoming profitable.
ANY ACQUISITIONS THAT WE ATTEMPT OR COMPLETE COULD PROVE DIFFICULT TO INTEGRATE
OR REQUIRE A SUBSTANTIAL COMMITMENT OF MANAGEMENT TIME AND OTHER RESOURCES.
Acquisitions involve a number of unique risks including: (i) completing due
diligence successfully; (ii) exposure to unforeseen liabilities of acquired
companies; and (iii) increased risk of costly and time-consuming litigation,
including stockholder lawsuits. We may be unable to address these problems
successfully. Moreover, our future operating results will depend to a
significant degree on our ability to integrate acquisitions (if any)
successfully and manage operations while also controlling our expenses. We may
be unable to select, manage or absorb or integrate any future acquisitions
successfully, particularly acquisitions of large companies. Any acquisition,
even if effectively integrated, may not benefit our stockholders.
6
WE MAY BE UNABLE TO REALIZE THE BENEFITS OF OUR NET OPERATING LOSS ("NOL")
CARRYFORWARDS.
NOLs may be carried forward to offset federal and state taxable income in future
years and eliminate income taxes otherwise payable on such taxable income,
subject to certain adjustments. Based on current federal corporate income tax
rates, our NOL and other carryforwards could provide a benefit to us, if fully
utilized, of significant future tax savings. However, our ability to use these
tax benefits in future years will depend upon the amount of our otherwise
taxable income. If we do not have sufficient taxable income in future years to
use the tax benefits before they expire, we will lose the benefit of these NOL
carryforwards permanently. Consequently, our ability to use the tax benefits
associated with our substantial NOL will depend largely on our success in
identifying suitable merger partners and/or acquisition candidates, and once
identified, successfully consummate a merger with and/or acquisition of these
candidates.
Additionally, if we underwent an ownership change, the NOL carryforward
limitations would impose an annual limit on the amount of the taxable income
that may be offset by our NOL generated prior to the ownership change. If an
ownership change were to occur, we would be unable to use a significant portion
of our NOL to offset taxable income. In general, an ownership change occurs
when, as of any testing date, the aggregate of the increase in percentage points
of the total amount of a corporation's stock owned by "5-percent shareholders"
(within the meaning of the NOL carryforward limitations) whose percentage
ownership of the stock has increased as of such date over the lowest percentage
of the stock owned by each such "5-percent shareholder" at any time during the
three-year period preceding such date, is more than 50 percentage points. In
general, persons who own 5% or more of a corporation's stock are "5-percent
shareholders," and all other persons who own less than 5% of a corporation's
stock are treated, together, as a single, public group "5-percent shareholder,"
regardless of whether they own an aggregate of 5% of a corporation's stock.
The amount of NOL carryforwards that we have claimed has not been audited or
otherwise validated by the U.S. Internal Revenue Service. The IRS could
challenge our calculation of the amount of our NOL or our determinations as to
when a prior change in ownership occurred and other provisions of the Internal
Revenue Code may limit our ability to carry forward our NOL to offset taxable
income in future years. If the IRS was successful with respect to any such
challenge, the potential tax benefit of the NOL carryforwards to us could be
substantially reduced.
ANY TRANSFER RESTRICTIONS IMPLEMENTED BY THE COMPANY TO PRESERVE OUR NOL MAY NOT
BE EFFECTIVE OR MAY HAVE SOME UNINTENDED NEGATIVE EFFECTS.
The Company may seek to preserve its NOL through an amendment of its certificate
of incorporation and/or bylaws, which would impose restrictions on the transfer
of the Company's capital stock. Any transfer restrictions on the Company's
capital stock will be designed to restrict only those transfers that could
result in an impermissible ownership change limiting our ability to utilize our
NOL. Although any transfer restriction imposed on our capital stock is intended
to reduce the likelihood of an impermissible ownership change, there is no
guarantee that such restriction would prevent all transfers that would result in
an impermissible ownership change.
The Board of Directors adopted an amendment to the Companys' Shareholders Rights
Plan ("Rights Plan") which reduces the triggering of the Rights Plan from 15% of
the common stock to 5% of the common stock. There is no guarantee that the
amendment of the Rights Plan will prevent a stockholder from acquiring more than
5% of the common stock.
Any transfer restrictions will require any person attempting to acquire a
significant interest in the Company to seek the approval of our Board of
Directors. This may have an "anti-takeover" effect because our Board of
Directors may be able to prevent any future takeover. Similarly, any limits on
the amount of capital stock that a stockholder may own could have the effect of
making it more difficult for stockholders to replace current management.
Additionally, because transfer restrictions will have the effect of restricting
a stockholder's ability to dispose of or acquire our common stock, the liquidity
and market value of our common stock might suffer.
OUR STOCK IS ILLIQUID.
Because we failed to meet the minimum net tangible assets, stockholders' equity
and bid price requirements of the Nasdaq National Market, we transferred the
listing of our common stock from the Nasdaq National Market to the Nasdaq
SmallCap Market in May 2002 and our common stock was delisted from the Nasdaq
SmallCap Market in November 2002. Our stock is currently quoted on the OTC
Bulletin Board ("OTCBB"), and has traded as low as $0.015 per share. Since our
common stock was delisted from a national exchange and is trading at a price
below $5.00 per share it is subject to certain other rules of the Exchange Act.
7
Such rules require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a "penny stock". "Penny stock" is
defined as any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions. Such rules require the delivery
of a disclosure schedule explaining the penny stock market and the risks
associated with that market before entering into any penny stock transaction.
Disclosure is also required to be made about compensation payable to both the
broker-dealer and the registered representative and current quotations for the
securities. The rules also impose various sales practice requirements on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors. For these types of transactions, the broker-dealer
must make a special suitability determination for the purchaser and must receive
the purchaser's written consent to the transaction prior to the sale. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stocks. The additional burdens imposed upon broker-dealers by such
requirements could discourage broker-dealers from effecting transactions in our
common stock. This could severely limit the market liquidity of our common stock
and the ability of a stockholder to sell the common stock.
ANY LITIGATION COULD RESULT IN SUBSTANTIAL COSTS AND DIVERT MANAGEMENT'S
ATTENTION AND RESOURCES.
Securities class action lawsuits are often brought against companies under
various legal theories. Also, if third parties claim we have infringed their
intellectual property rights, we may be forced to pay for expensive licenses,
reengineer our work, engage in expensive and time-consuming litigation, or
abandon efforts to conclude a change in control transaction. Any litigation
could result in substantial costs, eliminate the prospects for any change of
control transaction and force bankruptcy.
DEPENDENCE ON KEY PERSONNEL; POTENTIAL NEED FOR ADDITIONAL PERSONNEL
The Company's performance is substantially dependent on the services and on the
performance of its officers and directors. The Company's performance also
depends on its ability to attract, hire, retain, and motivate its officers and
key employees. The loss of the services of any of the executive officers or
other key employees could have a material adverse effect on the Company's
business, prospects, financial condition, and results of operations. The Company
has not entered into long-term employment agreements with any of its key
personnel and currently has no "Key Man" life insurance policies. The Company's
future success may also depend on it's ability to identify, attract, hire,
train, retain, and motivate other highly skilled technical, managerial,
marketing, and customer service personnel. Competition for such personnel is
intense, and there can be no assurance that the Company will be able to
successfully attract, assimilate, or retain sufficiently qualified personnel.
The failure to attract and retain the necessary technical, managerial,
marketing, and customer service personnel could have a material adverse effect
on the Company's business.
YOU SHOULD NOT UNDULY RELY ON FORWARD-LOOKING STATEMENTS CONTAINED IN THIS
REPORT BECAUSE THEY ARE INHERENTLY UNCERTAIN.
This Report contains forward-looking statements that involve risks and
uncertainties. We use words such as "believe", "expect", "anticipate", "intend",
"plan", "future", "may", "will", "should", "estimates", "potential", or
"continue" and similar expressions to identify forward-looking statements. You
should not place undue reliance on these forward-looking statements, which apply
only as of the date of this report. The forward-looking statements contained in
this report are subject to the provisions of Section 27A of the Securities Act
and Section 21E of the Exchange Act. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons,
including the risks described above and elsewhere in this document.
ITEM 2. PROPERTIES
The Company's headquarters are located at 300 Crescent Court, Suite 1110,
Dallas, Texas 75201. The Company believes that this facility is adequate for its
current needs and that suitable additional space will be available as required.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal proceedings against the Company. The Company is not
aware of any threatened or pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the year ended March 31, 2004.
8
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
CHANGES IN COMMON STOCK MARKET VALUE
Our common stock has been traded and quoted on the OTCBB since November 2002
under the symbol GWRX.OB. It was previously traded on the Nasdaq SmallCap Market
and the Nasdaq National Market under the symbol GWRX. We transferred the listing
of our common stock from the Nasdaq National Market to the Nasdaq SmallCap
Market in May 2002 and our common stock was delisted from the Nasdaq SmallCap
Market in November 2002. The following table sets forth the high and low closing
sales prices for our common stock as reported by Nasdaq or the OTCBB, as the
case may be, for the quarters indicated. With respect to over-the-counter market
quotations provided below, such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission, and may not represent actual
transactions.
HIGH LOW
FOR THE QUARTER ENDED:
March 31, 2004 $ .15 $ .08
December 31, 2003 .15 .08
September 30, 2003 .16 .08
June 30, 2003 .35 .01
FOR THE QUARTER ENDED:
March 31, 2003 $ .03 $ .01
December 31, 2002 .10 .01
September 30, 2002 .16 .04
June 30, 2002 .36 .11
REGISTERED HOLDERS; DIVIDENDS
As of August 2, 2004 there were 333 registered holders of record of our common
stock and approximately 17,000 beneficial holders of our common stock. We have
never declared or paid any cash dividends on our common stock. Since we
currently intend to retain all future earnings to finance operations, we do not
anticipate paying any cash dividends in the foreseeable future.
SALE OF UNREGISTERED SECURITIES
In April 2003, we sold 7,377,905 shares of our common stock (representing 25% of
our common stock after the transaction) to Newcastle and Mark E. Schwarz, an
affiliate of Newcastle, for total consideration of $325,000. This sale of shares
of our common stock was deemed to be exempt from registration under the
Securities Act in reliance on Section 4(2) of the Securities Act as a
transaction by an issuer not involving a public offering. This transaction
increased our financial resources and we believe it improves our potential to
avoid bankruptcy and to identify and close other strategic transactions or to
develop new operations.
9
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below is qualified in its entirety by reference to, and
should be read in conjunction with, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations," ("MD&A") and the
"Consolidated Financial Statements" and notes thereto included elsewhere in this
Report on Form 10-K. Certain amounts have been reclassified in prior fiscal
years to conform to the current year presentation. Due to the material
developments affecting our business since the beginning of fiscal 1999, which
are discussed in the MD&A, and the material uncertainties we currently face, the
data reflected herein may not be useful or indicative of the Company's future
financial condition or results of operations. Substantially all of our results
of operations with the exception of certain corporate office legal and general
and administrative expenses have been reclassfied as discontinued operations in
the Consolidated Statements of Operations for all periods presented.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2004 2003 2002 2001 2000
Operating expenses:
Legal $ 46 $ 887 $ 701 $ 3,009 $ 861
General and administrative 361 1,699 3,073 3,661 2,332
----------------------------------------------------------------
Total operating expenses 407 2,586 3,774 6,670 3,193
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Operating loss (407) (2,586) (3,774) (6,670) (3,193)
Other income (expense):
Other income -- -- 3,994 265 4,049
Interest income 3 15 191 840 646
Interest expense -- -- (8) (4) (10)
----------------------------------------------------------------
Total other income, net 3 15 4,177 1,101 4,685
----------------------------------------------------------------
Income (loss) before discontinued operations (404) (2,571) 403 (5,569) 1,492
Income (loss) from discontinued operations -
net of income taxes 268 (576) (43,003) (15,489) (2,465)
----------------------------------------------------------------
Net loss $ (136) $ (3,147) $(42,600) $(21,058) $ (973)
================================================================
Income (loss) before discontinued operations
per share- basic and diluted $ (0.02) $ (0.11) $ 0.02 $ (0.26) $ 0.09
Income (loss) from discontinued operations 0.01 (0.03) (1.83) (0.73) (0.14)
----------------------------------------------------------------
Net loss per share- basic and diluted $ (0.01) $ (0.14) $ (1.81) $ (0.99) $ (0.05)
================================================================
Shares used in net loss per share
computation - basic and diluted 29,024 22,718 23,555 21,190 17,866
================================================================
10
CONSOLIDATED BALANCE SHEET DATA:
(IN THOUSANDS)
MARCH 31
----------------------------------------------------------------------
2004 2003 2002 2001 2000
---------------------------------------------------------------------
Cash and cash equivalents $ 37 $ 729 $ 3,136 $ 13,713 $ 17,204
Working capital 458 253 1,033 10,616 14,286
Total assets 747 1,236 6,729 56,263 41,459
Deferred revenue 26 179 424 1,128 1,629
Long-term obligations, net of
current portion -- -- -- 128 --
Accumulated deficit (156,993) (156,857) (153,710) (111,110) (90,052)
Stockholders' equity 476 253 3,297 49,731 36,632
---------------------------------------------------------------------
11
SELECTED CONSOLIDATED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
-------------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
2004 2003 2003 2003
-------------------------------------------------------
Operating expenses:
Legal $ 8 $ 8 $ 12 $ 18
General and administrative 24 34 108 195
------------------------------------------------------
Total operating expenses 32 42 120 213
------------------------------------------------------
Operating loss (32) (42) (120) (213)
Other income (expense):
Other income -- -- -- --
Interest income 1 1 1 --
Interest expense -- -- -- --
------------------------------------------------------
Income (loss) before discontinued operations (31) (41) (119) (213)
Income (loss) from discontinued operations -
net of taxes 37 64 78 89
------------------------------------------------------
Net income (loss) $ 6 $ 23 $ (41) $(124)
======================================================
Income (loss) before discontinued operations
per share- basic and diluted $(0.01) $(0.00) $(0.00) $(0.01)
Income (loss) from discontinued operations 0.01 0.00 0.00 0.00
------------------------------------------------------
Net income (loss) per share- basic and diluted $(0.00) $0.00 $(0.00) $(0.01)
======================================================
12
SELECTED CONSOLIDATED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
QUARTER ENDED
----------------------------------------------------------------
MARCH 31, DECEMBER 31, SEPTEMBER 30, JUNE 30,
2003 2002 2002 2002
----------------------------------------------------------------
Operating expenses:
Legal $ 304 $ 183 $ 265 $ 135
General and administrative 356 433 467 443
-------------------------------------------------------------
Total operating expenses 660 616 732 578
-------------------------------------------------------------
Operating loss (660) (616) (732) (578)
Other income (expense):
Other income -- -- -- --
Interest income 2 2 4 7
Interest expense -- -- -- --
-------------------------------------------------------------
Loss before discontinued operations (658) (614) (728) (571)
Income (loss) from discontinued operations -
net of taxes 764 (292) 24 (1,072)
-------------------------------------------------------------
Net income (loss) $ 106 $ (906) $ (704) $(1,643)
=============================================================
Loss before discontinued operations per share -
basic and diluted $ (0.03) $ (0.03) $ (0.03) $ (0.02)
Income (loss) from discontinued operations 0.04 (0.01) 0.00 (0.06)
-------------------------------------------------------------
Net loss per share- basic and diluted $ 0.01 $ (0.04) $ (0.03) $ (0.08)
=============================================================
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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, 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.
OPERATIONS CEASED IN THE UK
By January 2003, our primary remaining revenue generating operations were
located in our Macclesfield, England facility. However, our weak financial
position made it increasingly difficult to maintain a viable ongoing business
there. In particular, our UK employees had been recruited heavily by third
parties. These employees' perceived uncertainty only intensified when the
proposed sale to Teleca was not approved as a result of our failure to secure a
quorum for the special stockholders meeting. Our limited resources made it
unlikely that we could cover our already reduced cost structure for much longer,
much less absorb the costs of any decrease or interruption in our revenues
associated with employee attrition or resulting customer dissatisfaction. Faced
with this significant possibility of failing to meet our obligations, on
February 1, 2003, we entered into the Release, which allowed Teleca to hire our
former UK employees and do business with our customers in an effort to minimize
our liabilities.
In consideration of the Release, Teleca agreed to pay the Company approximately
$500,000, one half on signing the Release and the balance in May 2003. Also,
Teleca separately agreed to assume our UK subsidiary's remaining lease
obligations in exchange for use of the subsidiary's equipment. By agreeing to
enter the Release, we estimate that we avoided approximately $300,000 of
statutory employee severance and over $400,000 of future lease obligations.
As our operations have been reduced, we have made every reasonable effort to
meet our obligations, to limit our liabilities, to conserve resources and to
limit contingent liabilities in order to increase the number of potential
opportunities for continuing the Company. In addition, in April 2003, we issued
additional common stock representing 25% of our common stock in order to
increase our financial resources and improve our potential for additional
transactions or developing new operations. In connection with this stock sale, a
substantially new board of directors and new operating management team was
appointed. Our current strategic business plans are based on realizing the value
of the Company's remaining assets and identifying new operations or a merger
candidate.
ACCOUNTING FOR DISCONTINUED OPERATIONS
After ceasing operations in the UK, 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 over the past three years 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
part of discontinued operations. We are discussing a sale of the MS+ software
source code to Toshiba as more fully described in the Liquidity and Capital
Resources section below.
14
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
FISCAL YEARS ENDED MARCH 31, 2004, MARCH 31, 2003 AND MARCH 31, 2002
LEGAL EXPENSES
Legal expenses decreased by $841,000, or 95%, to $46,000 in fiscal 2004 as
compared to $887,000 in fiscal 2003. In fiscal 2004 legal expenses mainly
consisted of costs associated with Securities and Exchange Commission ("SEC")
filings. In fiscal 2003, legal expenses consisted of salaries, benefits and
related facilities overhead expense for the Company's in-house legal personnel,
approximately $100,000 due to the efforts to close a transaction for the sale of
the UK subsidiary and non-cash charges resulting from the amortization of
deferred compensation related to option grants to in-house legal personnel.
These options which were granted in fiscal 2001 have now been fully amortized.
Legal expenses increased by $186,000, or 27%, to $887,000 in fiscal 2003 as
compared to $701,000 in fiscal 2002. Approximately $100,000 of this increase was
due to the efforts to close a transaction for the sale of the UK subsidiary as
further described above. The remaining increase in legal expenses from fiscal
2002 to fiscal 2003 was due to non-cash charges resulting from the amortization
of deferred compensation related to option grants. These options which were
granted in fiscal 2001 have now been fully amortized.
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 $1,338,000, or 79%, to $361,000, during
fiscal 2004, as compared to fiscal 2003. The expenses decreased primarily due to
reduced compensation and reduced facilities overhead resulting from the
restructuring actions and cost reduction efforts made over the course of fiscal
2003.
General and administrative expenses decreased by $1,374,000, or 45%, to
$1,699,000, during fiscal 2003, as compared to fiscal 2002. The expenses
decreased primarily due to reduced compensation, including temporary labor, and
reduced facilities overhead, resulting from the restructuring actions and cost
reduction efforts made over the course of fiscal 2002 and 2003.
VARIABLE NON-CASH STOCK COMPENSATION
On November 5, 2001, we announced an offer to our employees with outstanding
stock options to exchange such options for new options to purchase a different
number of shares of common stock priced as of December 7, 2001. In order to
participate in the exchange, an optionee had to exchange all of his or her
existing options. Options issued in the exchange vest and become exercisable in
twelve monthly increments and include an acceleration provision in the event of
a change in control. The first vesting date was December 31, 2001. The options
were granted on December 7, 2001 with an exercise price of $1.11 per share,
which was the closing price for our common stock as reported by the Nasdaq
National Market on that date. The options expire on December 7, 2003. Other than
changes to the number of shares, exercise price, the vesting schedule, and the
expiration date, the new options have substantially the same terms as the
exchanged options.
The exchange resulted in the voluntary cancellation of employee stock options to
purchase 3,550,264 shares of common stock with varying exercise prices in
exchange for employee stock options to purchase a total of 3,275,000 shares of
common stock with an exercise price of $1.11 per share.
15
This offer to exchange options constituted a stock option repricing for
financial accounting purposes, requiring us to use variable accounting to
measure stock compensation expense potentially arising from the options that
were subject to the offer, including options retained by eligible optionees who
elected not to participate in the offer. As these new options vest, at the end
of each reporting period, we must recognize stock compensation expense based on
the excess, if any, of the quoted market price of our common stock over the
exercise price. Subsequent declines in the intrinsic value of these new options
and the retained options may result in reversal of previously recognized
expense. After the options become fully vested, any additional compensation due
to changes in intrinsic value will be recognized as compensation expense
immediately. Such variable accounting will continue until each option is
exercised, or forfeited, or canceled.
Because the closing price of our common stock as reported by Nasdaq and the
OTCBB has been less than the $1.11 option price on the last day of each of the
calendar quarters since the grant, no stock compensation has been recorded for
the years ended March 31, 2003 and 2002.
OTHER INCOME.
Other income decreased by $3,994,000, or 100%, to $0, during fiscal 2003, as
compared to fiscal 2002. Other income of $3,994,000 was recorded in the second
quarter of fiscal 2002, as a result of the sale of the remaining 480,000 shares
of our investment in Wink Communications, Inc. ("Wink") and the conversion to
cash of the related derivative instruments. See further discussion in Note 1 to
the Consolidated Financial Statements.
INTEREST INCOME
Interest income decreased by $12,000, or 80%, to $3,000, during fiscal 2004, as
compared to fiscal 2003. This decrease was attributable to lower cash balances
available for short-term investment as our cash resources were depleted by our
operations.
Interest income decreased by $176,000, or 92%, to $15,000, during fiscal 2003,
as compared to fiscal 2002. This decrease was attributable to lower cash
balances available for short-term investment as our cash resources were depleted
by our operations.
INTEREST EXPENSE
Interest expense was not significant in fiscal years 2004, 2003 and 2002 as we
had minimal balances of capital lease and debt outstanding. We may consider
financing alternatives that could increase the amount of interest expense
incurred in the future.
PROVISION FOR INCOME TAXES
We account for income taxes in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes." Income tax expense consists of
foreign income tax withholding on foreign source royalties paid us. As of March
31, 2004, we had net operating loss carryforwards for U.S. federal income tax
purposes of approximately $123,000,000 and for U.K. income tax purposes of
approximately $3,860,000 and for state income tax purposes of approximately
$31,770,000. We also had research and development credit carryforwards for
federal income tax purposes of approximately $3,426,000 and for state income tax
purposes of approximately $1,506,000. Utilization of our U.S. net operating loss
and research credit carryforwards will be subject to annual limitations based on
the "change of ownership" provisions of the Tax Reform Act of 1986. These
limitations may result in the expiration of net operating loss and research
credit carryforwards before utilization.
16
INCOME (LOSS) FROM DISCONTINUED OPERATIONS.
The condensed results of discontinued items are summarized as follows:
YEAR ENDED MARCH 31
---------------------------------------------
2004 2003 2002
---------------------------------------------
Total net revenues $ 296 $ 3,440 $ 11,694
Operating expenses (excluding items listed below) 11 3,067 19,012
Amortization of goodwill and other intangible assets -- 487 5,227
Restructuring charges (reversal) -- (96) 3,272
Write-down of goodwill and other long-lived assets -- 1,158 27,557
---------------------------------------------
Total operating expenses 11 4,616 55,068
---------------------------------------------
Operating income (loss) from discontinued operations 285 (1,176) (43,374)
Other income, principally asset sales and gain -- 646 500
---------------------------------------------
Income (loss) before income taxes 285 (530) (42,874)
Provision for income taxes 17 46 129
---------------------------------------------
Income (loss) from discontinued operations - net of taxes $ 268 $ (576) $(43,003)
=============================================
NET REVENUES
Net revenues decreased by $3,144,000, or 91%, to $296,000, during fiscal 2004,
as compared to fiscal 2003. The substantial decrease in revenues is the result
of discontinuing our operations in the UK in the fourth quarter of fiscal 2003.
During fiscal 2004, Toshiba, our only remaining customer, provided all of our
limited revenue. These revenues are attributable to license and maintenance fees
for our MS+ technology.
Net revenues decreased by $8,254,000, or 71%, to $3,440,000, during fiscal 2003,
as compared to fiscal 2002. Net revenues have decreased as the number of revenue
generating personnel and contracts declined. In particular, as a result of our
restructuring efforts, our fiscal 2003 revenue was composed entirely of
professional services consulting revenue. Revenues from contracts with Nokia and
Mitsubishi (expired in March 2002) declined approximately $400,000 and
$4,600,000, respectively, from fiscal 2003 to 2002. The remaining decrease in
revenues from fiscal 2003 to 2002 was due to the decline in AirBoss related
revenues.
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 $3,056,000, or 99% to $11,000, during fiscal 2004, as
compared to fiscal 2003. 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 fiscal 2004 represent
maintenance costs associated with our contract with Toshiba our only remaining
customer.
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 $15,945,000, or 84% to $3,067,000, during fiscal 2003, as
compared to fiscal 2002. The reductions in these operating expenses reflect the
cost reductions and restructuring efforts made in order to reduce our cost
structure to meet the decreasing levels of revenues. By fiscal 2003, these
operating expenses were solely to support our efforts to realize the value of
our professional services business, and were primarily incurred in the UK. Sales
and marketing and research and development expenses were decreased in fiscal
year 2002 and then essentially eliminated in fiscal 2003.
17
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS
Amortization of goodwill and other intangible assets was attributable to the
amortization of goodwill and other purchased intangible assets resulting from
our July 2000 acquisition of AirBoss. The rates of amortization per year
decreased in each successive year because the underlying intangibles base was
reduced during fiscal 2002 and 2003 by writedowns due to value impairments
discussed below and in the Notes to Consolidated Financial Statements.
WRITE-DOWN OF GOODWILL AND OTHER LONG-LIVED ASSETS
We review long-lived and intangible assets for impairment in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets," (which superceded SFAS 121 in
fiscal 2003) whenever events or circumstances indicate the carrying value of an
asset may not be recoverable. As a result of these reviews, write-downs of
goodwill and other long-lived assets of $0, $1,158,000 and $27,557,000 were
recorded for fiscal 2004, 2003 and 2002, respectively, as discussed below.
During fiscal 2002, non-cash asset impairment charges of $3,391,000 were
recorded to write down equipment no longer being used in operations as a result
of the reorganizations and headcount reductions made during the year. The
remaining impairment charges for fiscal 2002 of $24,166,000 related to our
AirBoss acquisition. During fiscal 2003, non-cash asset impairment charges of
$1,158,000 were recorded to write down the remaining carrying value of certain
assets related to our AirBoss acquisition. We performed quarterly assessments of
the carrying values of intangible assets recorded in connection with our
acquisition of AirBoss. The assessments were performed in light of the
significant negative industry and economic trends impacting current operations,
the decline in our stock price, expected future revenue growth rates, and
continued operating losses. When such an event occurs, management determines
whether there has been impairment by comparing the anticipated undiscounted
future net cash flows to the related asset's carrying value. If an asset is
considered impaired, the asset is written down to fair value, which is
determined based either on discounted cash flows or residual value, depending on
the nature of the asset. As a result of these assessments, we concluded that the
decline in market conditions was significant and "other than temporary."
RESTRUCTURING CHARGES.
During the fourth quarter of fiscal 2003 severance charges of $96,000 were
reversed per the terms of a settlement agreement with a former CEO of the
Company.
During fiscal 2002, we recorded restructuring charges of $3,272,000. These
charges relate to the cost-cutting measures we adopted and announced in June
2001, October 2001 and January 2002. The Board of Directors approved these
actions and the resulting restructuring charges which consisted of severance
cost for a total of 153 terminated employees and an accrual for related lease
and contract termination costs.
OTHER INCOME, PRINCIPALLY ASSET SALES AND GAIN
During fiscal 2003, the Company recorded gains from the sale of certain patents
and assets of $313,000 and recorded a net gain of $333,000 from the Teleca
release as more fully described in Note 1 to the Consolidated Financial
Statements.
During fiscal 2002, the Company recorded gains from the sale of certain patents
of approximately $500,000.
For further discussion of the elements of discontinued operations, see the Notes
to the Consolidated Financial Statements.
SIGNIFICANT ACCOUNTING POLICY JUDGMENTS AND ESTIMATES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires that we make estimates and
judgments, which affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, we believe our risks are subject to maximizing the value of
our assets and reducing liabilities and expenses.
18
LIQUIDITY AND CAPITAL RESOURCES
Our cash and cash equivalents were $37,000 at March 31, 2004, compared with
$729,000 at March 31, 2003. As of March 31, 2004, we also hold $400,000 in short
term U.S. Treasury Bills and $200,000 in restricted cash pursuant to the stock
sale to Newcastle. Our net loss of $136,000 and reductions in accounts payable
and accrued liabilities of $559,000 for fiscal 2004 are the primary reasons for
the decline in our cash balance from fiscal 2003 to fiscal 2004. We expect to
incur additional operating losses at least through fiscal 2005, which will
continue to have a negative impact on liquidity and capital resources.
Purchases of property and equipment totaled $0, $33,000 and $1,802,000 in fiscal
years 2004, 2003 and 2002, respectively. Capital spending in 2002 was made in
connection with our business plans at that time.
As of March 31, 2004, 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 fiscal 2004 and is currently projected to
generate all of our limited revenue in the near future. 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 for October 31, 2003 and are also currently due total royalty
payments of approximately $84,000 for the last three quarters of fiscal 2004. We
have not recognized any revenue for the $150,000 annual maintenance payment
since we have been discussing a sale of our MS+ technology source code to
Toshiba. Currently we anticipate receiving an amount of approximately $250,000
for the sale of the MS+ technology source code.
We currently anticipate that our available funds will be sufficient to meet our
projected needs to fund operations through fiscal 2006. 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. Moreover, our efforts over the last several months to raise funds
through the sale of our legacy assets have been disappointing. As a result of
the foregoing, any projections of future cash needs and cash sources are subject
to substantial uncertainty.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have derived and expect to continue to derive most of our revenue from
international customers. Although our invoices to customers are generally
denominated in U.S. dollars, our international subsidiary uses the local
currency as its functional currency. Our cash accounts in foreign countries are
kept at the minimal levels necessary for operations. As the result of the above,
we are exposed to foreign exchange rate fluctuations and as these exchange rates
vary, when translated, they may adversely impact our results of operations.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Geoworks Corporation
We have audited the accompanying consolidated balance sheets of Geoworks
Corporation as of March 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Geoworks
Corporation at March 31, 2004 and 2003, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with U.S.
generally accepted accounting principles.
/s/ Novogradac & Company LLP
Roswell, Georgia
June 5, 2004
20
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Geoworks Corporation
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Geoworks Corporation for the year ended
March 31, 2002. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Geoworks Corporation for the year ended March 31, 2002, in conformity with U.S.
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company's recurring
losses from operations and the cash required to fund such losses raise
substantial doubt about its ability to continue as a going concern. Management's
plans as to these matters are described in Note 1. The consolidated financial
statements for the year ended March 31, 2002 do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
/s/ Ernst & Young LLP
San Francisco, California
May 1, 2002,
except for Note 14, as to which the date is
June 11, 2002
and the reclassification of discontinued operations discussed in Note 2,
as to which the date is June 23, 2003
21
GEOWORKS CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31
2004 2003
-----------------------------
Assets
Current assets:
Cash and cash equivalents $ 37 $ 729
Restricted cash and short-term investments 201 --
Short-term investments 400 --
Accounts receivable, net of allowances $0 in 2004 and 2003,
respectively 84 31
Prepaid expenses and other current assets 7 476
-----------------------------
Total current assets 729 1,236
Other assets 18 --
-----------------------------
Total assets $ 747 $ 1,236
=============================
Liabilities and stockholders' equity Current liabilities:
Accounts payable $ 1 $ 228
Accrued liabilities 244 576
Deferred revenue 26 179
-----------------------------
Total current liabilities 271 983
Stockholders' equity:
Preferred stock, no par value; 2,000 shares authorized;
no shares issued and outstanding in 2003 and 2002 -- --
Common stock, no par value; 80,000 shares authorized; 29,869 in
2004 and 22,134 in 2003 shares issued and outstanding 157,464 157,110
Accumulated deficit (156,993) (156,857)
Accumulated other comprehensive income 5 --
-----------------------------
Total stockholders' equity 476 253
-----------------------------
Total liabilities and stockholders' equity $ 747 $ 1,236
=============================
SEE ACCOMPANYING NOTES.
22
GEOWORKS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED MARCH 31
----------------------------------------------
2004 2003 2002
----------------------------------------------
Operating expenses:
Legal $ 46 $ 887 $ 701
Other general and administrative 361 1,699 3,073
----------------------------------------------
Total operating expenses 407 2,586 3,774
----------------------------------------------
Operating loss (407) (2,586) (3,774)
Other income:
Other income 3,994
Interest income 3 15 191
Interest expense (8)
----------------------------------------------
Total other income 3 15 4,177
----------------------------------------------
Income (loss) before discontinued operations (404) (2,571) 403
Income (loss) from discontinued operations - net of
income taxes 268 (576) (43,003)
----------------------------------------------
Net loss $ (136) $ (3,147) $(42,600)
==============================================
Per share-basic and diluted:
Income (loss) before discontinued operations $ (0.02) $ (0.11) $ .02
Income (loss) from discontinued operations 0.01 (0.03) (1.83)
----------------------------------------------
Net loss per share $ (0.01) $ (0.14) $ (1.81)
==============================================
Shares used in net loss per share
computation -basic and diluted 29,024 22,718 23,555
==============================================
SEE ACCOMPANYING NOTES.
23
GEOWORKS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
-------------------- ACCUMULATED
SHARES AMOUNT DEFICIT
---------------------------------------
Balances at March 31, 2001 23,423 $ 157,082 $(111,110)
Common stock issued under stock option and
stock purchase plans 153 161 --
Stock options granted for services -- 21 --
Amortization of deferred compensation -- -- --
Comprehensive income (loss):
Realized gains on investment and
derivative instruments -- -- --
Unrealized loss on investment -- -- --
Foreign currency translation adjustment -- -- --
Net loss -- -- (42,600)
Comprehensive loss -- -- --
--------- --------- ---------
Balances at March 31, 2002 23,576 157,264 (153,710)
Common stock cancelled in connection with
software license agreement (1,392) (153) --
Settlement of shareholder note receivable (50) (1) --
Amortization of deferred compensation -- -- --
Comprehensive income (loss): -- -- --
Foreign currency translation
adjustment -- -- --
Net loss -- -- (3,147)
Comprehensive loss -- -- --
--------- --------- ---------
Balances at March 31, 2003 22,134 157,110 (156,857)
COMMON STOCK ISSUED UNDER
STOCK OPTION PLANS 357 29 --
COMMONS STOCK ISSUANCE TO NEWCASTLE
AND AFFILIATES 7,378 325 --
COMPREHENSIVE INCOME (LOSS):
UNREALIZED GAIN ON INVESTMENT -- -- --
NET LOSS -- -- (136)
COMPREHENSIVE LOSS -- -- --
-----------------------------------------
BALANCES AT MARCH 31, 2004 29,869 $ 157,464 $(156,993)
=========================================
24
NOTES ACCUMULATED
RECEIVABLE OTHER TOTAL
FROM DEFERRED COMPREHENSIVE STOCKHOLDERS'
STOCKHOLDERS COMPENSATION INCOME EQUITY
------------------------------------------------------------------
Balances at March 31, 2001 $ (88) $ (318) $ 4,165 $ 49,731
Common stock issued under stock option and
stock purchase plans -- (11) -- 150
Stock options granted for services -- -- -- 21
Amortization of deferred compensation -- 112 -- 112
Comprehensive income (loss):
Realized gains on investment and
derivative instruments -- -- (3,994) (3,994)
Unrealized loss on investment -- -- (43) (43)
Foreign currency translation adjustment -- -- (80) (80)
Net loss -- -- -- (42,600)
---------
Comprehensive loss -- -- -- (46,717)
---------- --------- --------- ---------
Balances at March 31, 2002 (88) (217) 48 3,297
Common stock cancelled in connection with
software license agreement -- -- -- (153)
Settlement of shareholder note receivable 88 -- -- 87
Amortization of deferred compensation -- 217 -- 217
Comprehensive income (loss): -- -- --
Foreign currency translation
adjustment -- -- (48) (48)
Net loss -- -- -- (3,147)
---------
Comprehensive loss -- -- -- (3,195)
---------- --------- --------- ---------
Balances at March 31, 2003 -- -- -- 253
COMMON STOCK ISSUED UNDER
STOCK OPTION PLANS -- -- -- 29
COMMONS STOCK ISSUANCE TO NEWCASTLE
AND AFFILIATES -- -- -- 325
COMPREHENSIVE INCOME (LOSS):
UNREALIZED GAIN ON INVESTMENT -- -- 5 5
---------
NET LOSS -- -- -- (136)
---------
COMPREHENSIVE LOSS -- -- -- (131)
---------------------------------------------------------
BALANCES AT MARCH 31, 2004 $ -- $ -- $ 5 $ 476
=========================================================
SEE ACCOMPANYING NOTES.
24a
GEOWORKS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED MARCH 31
2004 2003 2002
-------------------------------------
OPERATING ACTIVITIES
Income (loss) from continuing operations $ (404) $ (2,571) $ 403
Adjustments to reconcile loss to net cash used in operating
activities:
Depreciation -- 25 200
Amortization of deferred compensation -- 217 112
Gain on sale of long-term investments and other assets -- -- (3,994)
(Gain) loss on other assets -- 2 29
Stock options granted for services -- -- 21
Shareholder note -- 87 --
Changes in assets and liabilities - continuing operations (244) (253) (400)
------------------------------------
Cash used in operating activities - continuing operations (648) (2,493) (3,629)
------------------------------------
Income (loss) from discontinued operations 268 (576) (43,003)
Adjustments to reconcile income (loss) to net cash used in
operating activities:
Depreciation -- 174 1,094
Amortization of goodwill and other intangible assets -- 487 5,227
Provision for doubtful accounts -- -- 100
Non-cash restructuring charges (reversal) -- (97) 214
Write-down of goodwill and other long-lived assets -- 1,158 27,557
Gain on sale of assets and other income -- (326) (500)
Changes in assets and liabilities - discontinuing operations (250) (958) (358)
------------------------------------
Cash provided by (used in) operating activities - discontinued operations 18 (138) (9,669)
------------------------------------
Net cash used in operating activities (630) (2,631) (13,298)
INVESTING ACTIVITIES
Purchases of property and equipment -- (33) (1,802)
Proceeds from sales and disposals of property and equipment -- 25 75
Sales of long-term investments -- -- 3,994
Purchase of investments and marketable securities (416) -- --
Proceeds from sales of equipment and other assets -- 280 500
------------------------------------
Net cash provided by (used in) investing activities (416) 272 2,767
FINANCING ACTIVITIES
Proceeds from issuance of common stock 354 -- 150
Payments under capital lease obligations -- -- (114)
------------------------------------
Net cash provided by financing activities 354 -- 36
-------------------------------------
Foreign currency translation adjustments -- (48) (82)
------------------------------------
Net decrease in cash and cash equivalents (692) (2,407) (10,577)
Cash and cash equivalents, beginning of year 729 3,136 13,713
------------------------------------
Cash and cash equivalents, end of year $ 37 $ 729 $ 3,136
====================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
====================================
Cash paid for income taxes $ 12 $ 46 $ 129
====================================
Cash paid for interest $ -- $ -- $ 8
====================================
SEE ACCOMPANYING NOTES
25
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
COMPANY
Geoworks Corporation ("the Company") provided software design and engineering
services to the mobile and handheld device industry. With nearly two decades of
experience developing operating systems, related applications and wireless
server technology, the Company worked with many of the industry leaders in
mobile phones and mobile data applications.
During fiscal 2002, various reorganizations and restructurings were implemented.
Although the Company provided software design and engineering services through
its professional services teams for several years, prior to the reorganization
announced in January 2002, the Company focused on providing carrier-class mobile
Internet infrastructure software enabling personalized real-time access to
corporate and Internet data. This business model was built around the licensing
of proprietary software platforms for mobile solutions, in particular the
Geoworks AirBoss Application Platform, to wireless carriers and enterprises
around the world and is no longer being pursued.
During fiscal 2003, the Company ceased 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 in
February 2003 and the balance after ninety days. Also, Teleca separately agreed
to assume the UK subsidiary's remaining lease obligations in exchange for the
subsidiary's equipment, which had a net book value of approximately $190,000.
The proceeds received by the Company in connection with the release exceed the
carrying value of the UK subsidiary's net assets and the Company recorded a net
gain of $333,000 for the year ended March 31, 2003 as a result of the release.
On May 1, 2003, the Company sold approximately 7.4 million newly issued shares
of its common stock to Newcastle Partners, L.P. and Mark E. Schwarz, an
affiliate of Newcastle, for $325,000. $200,000 of the proceeds from the newly
issued shares are being held in escrow pursuant to the stock purchase agreement.
As a result, the purchasers now own 25% of the Company's securities. In
conjunction with the investment, two of the Company's three board members
resigned and Mark E. Schwarz and Steven J. Pully, both of Newcastle, were
appointed to fill their board seats. In addition, the remaining management team
of the Company agreed to step down. Mark E. Schwarz and John Murray, also of
Newcastle, assumed the positions of CEO and CFO, respectively.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries located in Japan, New Jersey, and the United
Kingdom. All significant intercompany balances and transactions have been
eliminated. During fiscal 2003, operations in the wholly-owned subsidiaries were
discontinued; therefore information in fiscal years 2004, 2003 and 2002 may not
be comparable.
FOREIGN CURRENCY TRANSLATION
The Company's international subsidiaries use the local currency as their
functional currency. Assets and liabilities are translated at exchange rates in
effect at the balance sheet date, and revenue and expense accounts are
translated at average exchange rates during each period. Resulting translation
adjustments are recorded directly to a separate component of stockholders'
equity. Foreign currency transaction gains and losses have not been material.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. For the Company, these estimates include allowances, and
certain assets and liabilities. Actual results could differ from those
estimates, and such difference could be material to the consolidated financial
position and results of operations.
26
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of demand deposits with original maturities of
three months or less and are stated at cost, which approximates fair value.
CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents, restricted cash and trade
accounts receivable. Cash and cash equivalents and restricted cash are held in
federally insured or well-established financial institutions. As a general
policy, collateral is not required for accounts receivable; however, the Company
periodically monitors the need for an allowance for doubtful accounts based upon
expected collections of accounts receivable and specific identification of
uncollectible accounts. Additionally, customers' financial condition and credit
worthiness are regularly evaluated. There were no allowances for doubtful
accounts accrued at March 31, 2004 and March 31, 2003. Historical losses have
not been material.
DERIVATIVE FINANCIAL INSTRUMENTS, SHORT-TERM INVESTMENTS AND INVESTMENTS
The Company invests its excess cash in money market accounts, U.S. Treasury
bills, and short-term debt securities. Investments with an original maturity at
the time of purchase over three months but less than a year are classified as
short-term investments. Investments with an original maturity at the time of
purchase of greater than one year are classified as long-term investments.
Management determines the appropriate classification of investments at the time
of purchase and reevaluates such designations at the end of each period. At
March 31, 2004, short-term investments are classified as available-for-sale and
consist principally of U.S. Treasury bills.
27
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE FINANCIAL INSTRUMENTS, SHORT-TERM INVESTMENTS AND INVESTMENTS
(CONTINUED)
Derivative financial instruments entered into in November 2000 were designated
to hedge the fair value of the Company's investment in Wink Communications
common stock. Derivative instruments were recorded at fair value as determined
by the difference between the market value of the underlying hedged securities
and their stated selling prices per the derivative contracts. Any unrealized
gain or loss on the derivative instruments were recorded in accumulated other
comprehensive income. The amount of the ineffectiveness of the hedge was not
material; thus, no amounts were recorded in the consolidated statement of
operations.
During September 2001, the Company sold the Wink investment and converted the
related derivative instruments to cash. A total of 480,000 common shares of Wink
were sold at a realized gain, including the effect of liquidating the related
derivative instruments, of $3,994,000. The derivative instruments were
liquidated shortly before their scheduled maturity or expiration dates; hence
the realized value was below the minimum value.
CAPITALIZED SOFTWARE
The Company has not capitalized any software development expenses for its
products as such expenses have been incurred prior to the Company's products
attaining technological feasibility or such costs have been reimbursed by third
parties in connection with OEM license agreements. Software development expenses
incurred for product enhancements after the product has reached technological
feasibility have not been material and, accordingly, have been charged to
operations as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost or at fair value after certain asset
write-downs. Depreciation and amortization are computed using the straight-line
method over estimated useful lives of three to four years. Assets acquired under
capital lease obligations and leasehold improvements are amortized using the
straight-line method over the shorter of the useful lives of the assets or the
terms of the leases.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," long-lived
assets (primarily property, plant and equipment, goodwill, and other intangible
assets) held and used by the Company or to be disposed of are reviewed for
impairment whenever events or changes in circumstances indicate that the net
book value of the asset may not be recoverable. When such an event occurs,
management determines whether there has been impairment by comparing the
anticipated undiscounted future net cash flows to the related asset's carrying
value. If an asset is considered impaired, the asset is written down to fair
value, which is determined based either on discounted cash flows or residual
value, depending on the nature of the asset.
During fiscal 2003, the Company identified such possible impairment indicators
to include, but not limited to, the significant negative industry and economic
trends impacting current operations, declines in the Company's stock price,
expected future growth rates, and continued operating losses. Forecasted
undiscounted cash flows from the AirBoss business unit were determined to be
less then the carrying values of the related assets. Accordingly the Company
performed a discounted cash flow analysis to determine fair value, which
resulted in non-cash write-downs totaling $1,158,000 and $24,166,000 in fiscal
2003 and 2002, of the goodwill and other intangible assets resulting from the
Company's acquisition of the AirBoss business unit from Telcordia Technologies,
Inc. in July 2000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which include cash
equivalents, restricted cash, and short-term investments, approximate their fair
values based on quoted market values of the instruments.
28
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MAJOR CUSTOMERS IN DISCONTINUED OPERATIONS
Revenues from one major customer accounted for 100%, 12% and 2% respectively of
net revenues for fiscal 2004, 2003 and 2002. One other customer accounted for
72% and 28% of net revenues for fiscal 2003 and 2002.
STOCK COMPENSATION
The Company has adopted the disclosure-only provisions of SFAS No. 123 as
amended by SFAS 148 and applies APB Opinion No. 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, 2003 and 2002, the Company's net loss and net
loss per share would have been increased to the pro forma amounts indicated
below (in thousands, except per share amounts):
YEAR ENDED MARCH 31
2004 2003 2002
-------- ---------- ----------
Net income, as reported $ (136) $ (3,147) $ (42,600)
Net loss, pro forma $ (161) $ (4,981) $ (51,541)
Loss per share:
Basic and diluted - as reported $ (0.01) $ (0.14) $ (1.81)
Basic and diluted - pro forma $ (0.01) $ (0.22) $ (2.19)
The weighted-average fair value for stock options granted were calculated using
the Black-Scholes option-pricing model based on the following assumptions:
2004 2003 2002
------- ------- --------
Volatility 6.014 4.756 2.149
Weighted-average estimated life 5 years 5 years 5 years
Weighted-average risk-free interest rate 2.99% 3.45% 2.41%
Dividend yield -- -- --
NET LOSS PER SHARE
Basic and diluted net income (loss) per share information for all periods is
presented in accordance with the requirements of SFAS No. 128, "Earnings per
Share." 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. 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.
If the Company had reported net income for fiscal 2004, 2003 and 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. For fiscal ended 2004, 2003 and 2002, the calculation would have
included the common stock equivalent effect of -0-, -0- and 138,000 shares,
respectively.
29
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SEGMENT INFORMATION
In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," public business enterprises are required to report
financial and other information about operating segments of the entity for which
such information is available and is utilized by the chief operating decision
maker. SFAS No. 131 also establishes standards for related disclosures about
products and services, geographic area, and major customers. The Company
operates as one business segment.
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.
2. DISCONTINUED OPERATIONS
In February 2003, we ceased ongoing business activity at our last 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. Also, Teleca separately agreed to assume the UK subsidiary's
remaining lease obligations in exchange for the subsidiary's equipment, which
had a net book value of approximately $190,000. The proceeds received in
connection with the release exceeded the carrying value of the UK subsidiary's
net assets and the Company recorded a net gain of approximately $333,000.
As a result of these restructurings (see Note 10) 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 income 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 the sale of patents.
Financial information previously reported in the statement of operations and
cash flows for the year ended March 31, 2002 has 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 years ended March 31, 2004
and 2003.
30
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
2. DISCONTINUED OPERATIONS (CONTINUED)
Summarized financial information for the results of discontinued operations is
as follows (in thousands):
YEAR ENDED MARCH 31
2004 2003 2002
-------- -------- --------
Total net revenues $ 296 $ 3,440 $ 11,694
Operating expenses (excluding items discussed below) 11 3,067 19,012
Amortization of goodwill and other intangible assets -- 487 5,227
Restructuring charges (reversal) -- (96) 3,272
Write-down of goodwill and other long-lived assets -- 1,158 27,557
-----------------------------------
Total operating expenses 11 4,616 55,068
-----------------------------------
Operating income (loss) from discontinued operations 285 (1,176) (43,374)
Other income, principally asset sales and gain -- 646 500
-----------------------------------
Income (loss) before income taxes 285 (530) (42,874)
Provision for income taxes 17 46 129
-----------------------------------
Income (loss) from discontinued operations - net of taxes $ 268 $ (576) $(43,003)
-----------------------------------
-----------------------------------
Revenues from related parties $ 296 $ 413 $ 737
===================================
Assets and liabilities attributable to the discontinued businesses were as
follows (in thousands):
MARCH 31
2004 2003
----------------------
Current assets $ 90 $325
Noncurrent assets -- --
Current liabilities 133 318
Noncurrent liabilities -- --
3. ACCOUNTS RECEIVABLE
Our only customer, Toshiba, a diversified electronics company located in Japan,
accounted for 100% of our revenues in fiscal 2004, and is currently projected to
generate all of our limited revenue in the near future. 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 $84,000 for the last three quarters of fiscal 2004. We have not
recognized any revenue for the $150,000 annual maintenance payment since we have
been discussing a sale of our MS+ technology source code to Toshiba.
31
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
4. ACQUISITION OF AIRBOSS
On July 24, 2000, the Company acquired substantially all of the assets of an
established, separate, and unincorporated division of Telcordia Technologies,
Inc. ("Telcordia"), a subsidiary of Science Applications International
Corporation ("SAIC"). The acquired division consisted of Telcordia's AirBoss
Business Unit, which operated a software and wireless technology services
business ("AirBoss").
The acquisition was accounted for as a purchase business combination.
Accordingly, the purchase consideration was allocated to the tangible and
identifiable intangible assets acquired based on fair values as of the closing
date. No liabilities were assumed in the transaction. The valuation of
intangible assets acquired was determined in conjunction with an independent
valuation report.
The total purchase price of approximately $39.9 million consisted of
approximately 3,018,000 shares of Geoworks' common stock. The fair value per
share of common stock issued is based on an average of the closing prices
adjacent the May 16, 2000 announcement of the acquisition. The acquisition
expenses of $250,000 consisted mainly of legal, accounting, and financial
advisory fees.
The intangible assets related to the July 2000 acquisition of the AirBoss
business unit were amortized over two to four years. Amortization expense was
$487,000 for the year ended March 31 2003. The Company recorded additional
non-cash, asset impairment charges of $1,158,000 in fiscal 2003, based on its
analysis of the goodwill and other intangible assets related to the July 2000
AirBoss acquisition. Forecast undiscounted cash flows from this business were
less that the carrying values of the related assets. Accordingly the Company
performed discounted cash flow analyses, which has resulted in the non-cash
write-downs in those years.
In August 2002, the Company agreed to settle an obligation of approximately
$290,000 to Telcordia for $100,000, to be paid in installments of $50,000 on
August 2, 2002, $25,000 by December 31, 2002 and an additional $25,000 by March
31, 2003. Telcordia is a wholly owned subsidiary of Science Applications
International Corporation ("SAIC"), a shareholder in the Company. The Company
also assigned to Telcordia any future amounts payable to Geoworks from SAIC
under a non exclusive, object code license to the AirBoss technology with SAIC
executed in October 2001. Management believes that these amounts would be
negligible and subject to offset. Additionally, Geoworks and Telcordia agreed to
terminate their AirBoss value added reseller agreement early.
In a separate transaction, the Company and SAIC revised an existing license
agreement to grant SAIC a non-exclusive source code license to the AirBoss
technology and the right to make derivative works based on AirBoss. The
agreement also terminated the Company's maintenance obligations and eliminated
both parties' ability to terminate the agreement early. In return, SAIC agreed
to transfer 1,391,440 shares of Geoworks stock back to the Company for
cancellation. The carrying value of the Company's intangible assets was reduced
by the fair value of the liabilities relieved and the Geoworks common stock
returned in these transactions. The Geoworks common shares returned were valued
based on the market value of Geoworks shares at August 21, 2002, the date of the
agreement. The Board of Directors approved these transactions based on the
recommendation of the Audit Committee.
In addition, the Company recorded non-cash, asset impairment charges of
$3,391,000 in fiscal 2002 in order to write down equipment that was no longer
being used in operations, net of estimated recoveries. These charges were
primarily attributable to the corporate restructurings described in Note 10.
32
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
MARCH 31
2004 2003
-------- -------
Accrued compensation $ -- $231
Accrued restructuring costs 28 91
Accrued professional fees 148 152
Other accrued liabilities 68 102
---- ----
Total $244 $576
==== ====
6. INCOME TAXES
The income tax provisions of $17,000, $46,000 and $129,000 for fiscal 2004, 2003
and 2002, respectively, consist primarily of foreign withholding tax payments
made with respect to royalties and maintenance payments from original equipment
manufacturers. The fiscal 2003 and 2002 provisions also include $18,000 and
$50,000 for foreign withholding tax payments on sale of patents.
Significant components of the Company's net deferred income tax assets are as
follows (in thousands):
MARCH 31,
2004 2003
------------- -------------
Operating loss carryforwards $ 52,759 $ 49,652
Tax credit carryforwards 4,932 4,932
Purchased intangible assets 17,472 19,207
Capitalized research expenditures 1,802 2,292
Deferred revenue 11 74
-------- --------
Total deferred tax assets 76,976 76,157
Valuation allowance on deferred tax assets (76,976) (76,157)
-------- --------
Net deferred tax assets $ -- $ --
======== ========
The changes in the valuation allowance for fiscal 2004 and 2003 were $819,000
and $2,284,000, respectively.
Deferred tax assets relating to net operating loss carryforwards as of March 31,
2004 include approximately $4,900,000 associated with stock option activity for
which any subsequently recognized tax benefits will be credited directly to
stockholders' equity.
As of March 31, 2004, the Company has net operating loss carryforwards for U.S.
federal income tax purposes of approximately $132,000,000, U.K. income tax
purposes of approximately $3,860,000, and state income tax purposes of
approximately $32,000,000. The Company also has federal and state research and
development credit carryforwards of approximately $3,426,000 and $1,506,000,
respectively. The net operating loss and the research and development tax credit
carryforwards expire in various years from 2005 through 2021.
Utilization of the Company's U.S. net operating loss and tax credit
carryforwards could be subject to an annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. An annual limitation
may result in the expiration of net operating loss and tax credit carryforwards
before utilization.
33
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
7. COMMITMENTS
During fiscal 2004, the Company leased office facilities and certain equipment
under operating lease agreements. Lease expense was $3,400, $176,000 and
$971,000 for fiscal 2004, 2003 and 2002, respectively. There are no
noncancellable lease commitments at March 31, 2004.
In connection with the Company's January 2002 restructuring and reorganization,
a ten-year operating lease for a facility in Morganville, New Jersey was
renegotiated and terminated in a cash and non-cash settlement totaling $767,000.
This cost has been included in restructuring charges for the quarter ended March
31, 2002. The irrevocable standby letter of credit for $500,000 associated with
the lease was cancelled and the funds collateralizing the letter of credit were
released to Geoworks and paid to the landlord. In March 2002, the Company
vacated its facilities in Alameda, California and accrued $400,000 for lease
termination costs.
In conjunction with restructuring in 2002, various equipment under
non-cancelable operating leases has been returned to the respective lessors. The
potential future lease liability would have been approximately $209,000 as of
March 31, 2002 under the terms of the original contracts. The amounts estimated
by the Company to settle these leases have been included in the restructuring
charges. There are no remaining lease commitments under these leases.
8. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company's Articles of Incorporation authorizes the issuance of two million
shares of preferred stock, none of which is issued or outstanding. The Board of
Directors has the authority to issue the preferred stock with rights,
preferences, privileges and restrictions, including vesting rights, without any
further vote or action by the shareholders. A total of 500,000 shares of
Preferred Stock have been reserved for issuance under the Company's Shareholder
Rights Plan.
SHAREHOLDER RIGHTS PLAN
On March 1, 2001, the Board of Directors adopted a Shareholder Rights Plan
("Rights Plan") pursuant to which preferred stock purchase rights were
distributed as a dividend at the rate of one right for each share of Geoworks
common stock held as of March 9, 2001. Each right will entitle the holders of
the company's common stock to purchase one one-thousandth of a share of Series A
Junior Participating Preferred Stock at an exercise price of $20, subject to
adjustment in certain cases to prevent dilution. The rights are evidenced by the
common stock certificates and are not exercisable or transferable apart from the
common stock until the earlier of ten days after the date on which a person or
group of affiliated persons has acquired beneficial ownership of 15% or more of
the common stock (an "Acquiring Entity"), such date as determined by the Board
of Directors after the public announcement of the commencement of a bona fide
tender or exchange offer (as determined by the Board of Directors) that would
result in the Acquiring Entity owning 15% or more of the common stock on March
9, 2011 (the "Expiration Date"). Further, in the event a person or group of
affiliates persons becomes an Acquiring Entity, the rights generally entitle
each right holder (except the Acquiring Entity) to purchase that number of
shares of the company's common stock which equals the exercise price of the
right divided by one-half of the current market price of the common stock if any
person becomes the beneficial owner of 15% or more of the common stock. If an
Acquiring Entity purchases at least 15% of the Company's common stock, but has
not acquired 50%, the Board of Directors may exchange the rights (except those
of the Acquiring Entity) for one share of common stock per right. In addition,
under certain circumstances, if the Company is involved in a merger or other
business combination in which the company is not the surviving corporation, the
rights entitle the holder to buy common stock of the Acquiring Entity with a
market value of twice the exercise price of each right.
On May 15, 2003, the Company amended the Rights Plan to amend the definition of
Acquiring Entity as the Beneficial Owner of 4.99% or more of the common stock
and the definition of Exempt Person to be the Beneficial Owner of 4.99% or more
of common stock as of May 9, 2003. The purpose of the amendment to the Rights
Agreement is to seek to prevent possible limitations on the Company's use of its
Federal net operating loss carryforwards and certain income tax credits.
34
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
8. STOCKHOLDERS' EQUITY (CONTINUED)
SHAREHOLDER RIGHTS PLAN (CONTINUED)
The Company is generally entitled to redeem the rights for $.005 per right at
any time on or prior to the earlier of the close of business on the tenth day
following a public announcement that a person or group of affiliated persons has
become an Acquiring Entity or the Expiration Date. The rights, which do not have
voting rights, will expire on the Expiration Date, unless redeemed or exchanged
earlier by the Company pursuant to the Rights Plan.
STOCK OPTION PLANS
Under the Company's stock option plans, incentive and nonqualified stock options
may be granted to employees, consultants and outside directors, to purchase a
maximum of 9,435,000 common shares. The exercise price of the stock options is
determined by the Company's Board of Directors on the date of grant and is at
least equal to the fair market value of the stock on the grant date. Options for
new employees generally vest monthly over a one to four year time period.
The following table summarizes activity under the Company's stock option plans:
OPTIONS OUTSTANDING
NUMBER WEIGHTED-AVERAGE
OF SHARES EXERCISE PRICE
Balance at March 31, 2001 5,841,000 $ 8.30
Granted 4,509,000 1.31
Exercised (10,000) 1.22
Forfeited (7,327,000) 6.33
---------- --------
Balance at March 31, 2002 3,013,000 2.64
Granted 2,879,000 0.11
Exercised -- --
Forfeited (2,048,000) 1.07
---------- --------
Balance at March 31, 2003 3,844,000 1.15
Granted -- --
Exercised (250,500) 0.11
Forfeited (2,518,500) 1.70
---------- --------
Balance at March 31, 2004 1,075,000 $ 0.11
========== ========
Options available for grant at March 31, 2004 8,109,052
=========
The weighted average fair value at grant date of options granted during fiscal
2004, 2003 and 2002 was $0, $0.11 and $1.20 per share, respectively.
The following table summarizes information concerning currently outstanding and
exercisable options:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------
WEIGHTED
AVERAGE WEIGHTED
REMAINING WEIGHTED AVERAGE
EXERCISABLE CONTRACTUAL AVERAGE EXERCISE
PRICES SHARES LIFE (YEARS) EXERCISE PRICE SHARES PRICE
- --------------------------------------------------------------------------------------------
$ 0.11 1,075,000 8.20 $ 0.11 1,075,000 $ 0.11
35
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
8. STOCKHOLDERS' EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's employee stock purchase plan, employees meeting certain
eligibility criteria may purchase shares of the Company's common stock, subject
to certain limitations, at not less than 85% of fair market value as defined in
the plan. A total of 950,000 shares have been reserved for issuance under the
plan. In fiscal 2004 and 2003 no shares were issued under the plan. At March 31,
2004, a total of 391,000 shares were available for issuance under the plan.
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
Common stock reserved for future issuance as of March 31, 2004 is as follows:
Employee stock options outstanding 1,075,000
Employee stock options available for grant 8,109,052
Employee stock purchase plan shares available for grant 391,000
---------
Total 9,575,052
=========
OTHER
In January 2003, the Company settled a dispute regarding a note receivable from
a stockholder who was formerly an employee of the Company. The note was
cancelled, the 50,000 shares of Company common stock held as collateral for the
note were returned and cancelled, the Company was paid the interest receivable
on the note, and the stockholder and the Company agreed to release each other
from all claims. The Company recorded a loss of approximately $87,000
representing the difference between the value of the collateral and the face
value of the note at the time of the settlement. This non-cash expense is
included in general and administrative expense for the year ended March 31,
2003.
9. RETIREMENT PLAN
The Company has a deferred compensation plan for substantially all employees.
Under this plan, which qualifies under Section 401(k) of the Internal Revenue
Code, eligible employees may contribute up to 15% of their pretax salary,
subject to certain limitations. Employer contributions were $0, $0 and $179,000
during fiscal 2004, 2003 and 2002, respectively.
10. RESTRUCTURING CHARGES
In June 2001, the Company reorganized its operations, exited the Mobile ASP
(Application Service Provider) market, and accelerated the integration of its
two software platforms, Mobile Server+ and the AirBoss Application Platform,
into a single integrated product offering for enterprise applications. In
connection with this reorganization, the Company terminated 43 employees, or
approximately 22% of its workforce, and recorded restructuring charges of
$2,291,000 for the three months ended June 30, 2001. Most of the terminated
employees were from the Alameda, California location. The remaining Alameda
employees were consolidated into a portion of the Company's Alameda facility and
the vacated portion of the facility became available for sublease.
In October 2001, the Company implemented a number of cost-cutting measures to
conserve its resources. The Company terminated 70 employees, or 45% of its
workforce, and recorded restructuring charges of $400,000 for the three months
ended December 31, 2001.
36
GEOWORKS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2004
10. RESTRUCTURING CHARGES (CONTINUED)
In January 2002, the Company announced the implementation of a number of
additional cost-cutting measures to further conserve its resources. The Company
terminated an additional 40 employees, or 45% of its workforce between January
and April 2002, primarily from its AirBoss and headquarters staff. The Company
relocated its headquarters from Alameda, California to smaller, less expensive
space in Emeryville, California. As a result of the reorganization, the Company
recorded additional restructuring and related charges of $581,000 in the three
months ended March 31, 2002 and announced changes in its management and Board of
Directors.
The restructuring charges consist of severance payments to the terminated
employees, accrual for related contract termination costs (related primarily to
computer hosting capacity for the Mobile ASP business) and the lease termination
costs as a result of these actions.
The following table summarizes the restructuring activity (in thousands):
SEVERANCE LEASE CONTRACT
AND RELATED TERMINATION TERMINATION
CHARGES COSTS COSTS TOTAL
---------------------------------------------------------------
Total restructuring expense for 2002 $ 1,713 $ 1,388 $ 171 $ 3,272
Amounts paid (1,160) (664) -- (1,824)
Assets written-off -- (214) -- (214)
-------------------------------------------------------------
Balance, March 31, 2002 $ 553 $ 510 $ 171 $ 1,234
Amounts paid (456) (510) (80) (1,046)
Reversal of accruals from settlement agreement (97) -- -- (97)
-------------------------------------------------------------
Balance, March 31, 2003 -- -- 91 91
Amounts paid -- -- (63) (63)
-------------------------------------------------------------
Balance, March 31, 2004 $ -- $ -- $ 28 $ 28
=============================================================
The reversal of severance charges occurred during the fourth quarter of fiscal
2003 when the liability to a former CEO was reduced per the terms of a
settlement agreement.
Asset impairment charges resulting from these restructuring actions are further
described in Note 1.
37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in the Company's reports
under the Exchange Act, such as this Form 10-K, is reported in accordance with
the SEC's rules. Disclosure controls are also designed with the objective of
ensuring that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer as appropriate
to allow timely decisions regarding required disclosure.
As of the end of the period covered by this Form 10-K, the Company carried out
an evaluation under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and
15d-15(e). Based on this evaluation, the Chief Executive Officer and Chief
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 Exchange
Act, within the time periods specified in the SEC's rules and forms. The Chief
Executive Officer and Chief 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 were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
Certifications of the Chief Executive Officer and Chief Financial Officer
regarding, among other items, disclosure controls and procedures are included as
exhibits to this Form 10-K.
38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical Information for Directors
The names of the members of the Board of Directors (the "Board") of the
"Company" as of August 2, 2004, and certain information about them are set forth
below.
Director
Name Age Position with the Company Since
---- --- ------------------------- -----
Mark E. Schwarz 43 Chief Executive Officer, President and Director May 2003
Steve W. Mitchell 42 Director April 2002
Steven J. Pully 44 Executive Vice President, General Counsel, May 2003
Secretary and Director
MARK E. SCHWARZ. Mr. Schwarz joined the Board in May 2003. As of May 2003 until
the present, Mr. Schwarz has been serving as the Company's President and Chief
Executive Officer. Since 1993, Mr. Schwarz has served, directly or indirectly
through entities he controls, as the sole general partner of Newcastle, a
private investment firm. Since 2000, he has also served as the Chief Executive
Officer of Newcastle Capital Management, L.P., a private investment management
firm. From 1995 until 1999, Mr. Schwarz was also a Vice President of Sandera
Capital Management, L.L.C., a private investment firm associated with the Lamar
Hunt family. Mr. Schwarz presently serves as Chief Executive Officer and
Chairman of the Board of Hallmark Financial Services, Inc., a property and
casualty insurance company. Mr. Schwarz also presently serves as a director of
Bell Industries, Inc., a company primarily engaged in providing computer systems
integration services; Nashua Corporation, a manufacturer of specialty papers,
labels and printing supplies; Pizza Inn, Inc., an operator and franchisor of
pizza restaurants; SL Industries, Inc., a developer of power systems used in a
variety of aerospace, computer, datacom, industrial, medical, telecom,
transportation and utility equipment applications; WebFinancial Corporation, a
banking and specialty finance company, Pinnacle Frames and Accents, Inc., a
private company engaged in mass production of picture frame products and New
Century Equity Holdings Corp., an investment holding company.
STEVE W. MITCHELL. Mr. Mitchell joined the Board in April 2002. From April 2002
through April 2003, Mr. Mitchell served as the Company's President, Chief
Executive Officer and Director. Mr. Mitchell joined the Company in November 2000
as Vice President of Human Resources. From January 1999 to April 2002, Mr.
Mitchell served as chief operating officer for Aureal Inc., a semiconductor and
software firm specializing in 3-D audio for the PC industry. From June 1993 to
November 1998, Mr. Mitchell held various management positions at Nextel
Communications, a telecommunications company, where he was involved in driving
and supporting the rapid growth of the company and was responsible for
integration efforts with several acquisitions. Mr. Mitchell also had management
recruiting responsibilities at Pacific Gas and Electric and Management
Recruiters International. Mr. Mitchell holds a B.A. in English from the
California State University at Hayward.
STEVEN J. PULLY. Mr. Pully joined the Board in May 2003. Since June 2003, Mr.
Pully has served as the Company's Secretary, Executive Vice President and
General Counsel. Mr. Pully has served as the president of Newcastle Capital
Management, L.P., a private investment management firm since January 2003; and
is currently a director of Pizza Inn, Inc., an operator and franchisor of pizza
restaurants, and privately-held Pinnacle Frames and Accents, Inc., a company
engaged in mass production of picture frame products. Since June 2004, he has
served as the Chief Executive Officer and a Director of New Century Equity
Holdings Corp., an investment holding company. Prior to becoming affiliated with
Newcastle Capital Management, L.P., from May 2000 to December 2001, Mr. Pully
was a managing director in the mergers and acquisitions department of Banc of
America Securities and from January 1997 to May 2000 was a senior managing
director at Bear Stearns. Prior to becoming an investment banker, Mr. Pully
practiced securities and corporate law at Baker & Botts. Mr. Pully is a CPA and
a member of the Texas Bar. He graduated with a BSBA from Georgetown University
and a J.D. from The University of Texas.
39
In January 2003, the following directors of the Company resigned from the Board:
Mr. John B. Balousek, Mr. Frank S. Fischer, Mr. Stephen T. Baker and Mr. James
M. Judge. In connection with these resignations and recognizing that the Company
was no longer required to comply with Nasdaq's continued listing standards as a
result of the delisting of the Company's common stock from the Nasdaq National
Market System and the Nasdaq SmallCap Market, the Board deemed it was advisable
and in the best interest of the Company and its stockholders to terminate the
Compensation and Audit Committees of the Board and to conduct all businesses of
the Board at the Board level. Board members Mr. David J. Domeier and Mr. David
L. Grannan resigned from the Board on April 30, 2003.
Effective April 30, 2003, in connection with the sale of our common stock to
Newcastle (the "Stock Sale") and Mark E. Schwarz, Mr. Mitchell agreed to step
down from his position as President and Chief Executive Officer of the Company.
Mr. Mitchell continues to serve on the Board. Although the Company does not have
an audit committee, Mr. Mitchell acts as the financial expert on the Board
because of his professional experience and knowledge of the books and records of
the Company.
Biographical Information for Other Executive Officers
The following table sets forth the name, age and position of the other executive
officer of the Company as of August 2, 2004 of the Company. The Company's
executive officers are appointed by and serve at the discretion of the Board.
Name Age Position
- ---- --- --------
John P. Murray 35 Vice President and Chief
Financial Officer
JOHN P. MURRAY has been Chief Financial Officer of the Company since May 2003.
Mr. Murray has also served as the Chief Financial Officer of Newcastle Capital
Management, L.P., a private investment management firm which is an affiliate of
Newcastle Partners, L.P., since January 2003, and New Century Equity Holdings
Corp., an investment holding company, since June 2004. From January 1998 until
June 2001, Mr. Murray served as a partner at Speer & Murray, Ltd, a Dallas based
accounting firm. From October 1991 until November 1995, Mr. Murray served as an
accountant with Ernst & Young, LLP. Mr. Murray has been a Certified Public
Accountant since January 1992.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act, as amended, requires the Company's officers
and directors, and persons who own more than ten percent of a registered class
of the Company's equity securities, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or Form 5 with the SEC. Such officers and
directors and 10% stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the fiscal year ended March 31, 2004, there was compliance with the
Form 3, Form 4 and Form 5 filing requirements applicable to its officers,
directors and 10% stockholders.
CODE OF ETHICS
The Company has not yet adopted a code of ethics that applies to our principal
executive officers, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, due to the relatively low
level of activity in the Company. At a later time, the Board of Directors may
adopt such a code of ethics.
40
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth annual compensation received for services
rendered to the Company for the last three fiscal years ended March 31, 2002,
2003 and 2004 by the Chief Executive Officer and each of the following executive
officers (collectively, the "Named Executive Officers") who served with the
Company during the fiscal year ended March 31, 2004 (the "Last Fiscal Year").
Summary Compensation Table
- --------------------------------------------------------------------------------
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
AWARDS
NUMBER OF
SECURITIES
UNDERLYING
NUMBER OF
FISCAL 401(K) MATCHING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS($)(1) CONTRIBUTIONS($) OPTIONS(#)(2)
--------------------------- ------ ---------- ----------- ---------------- -------------
Mark E. Schwarz (3) 2004 $ 0 $ 0 $ 0 0
President and Chief Executive Officer 2003 $ 0 $ 0 $ 0 0
2002 $ 0 $ 0 $ 0 0
Steve W. Mitchell (4) 2004 $ 99,117 $ 0 $ 0 0
Former President and Chief Executive Officer 2003 $ 180,707 $ 60,000 $ 0 500,000
2002 $ 145,000 $ 29,084 $ 3,756 150,000
John P. Murray (5) 2004 $ 15,625 $ 0 $ 0 0
Vice President and Chief Financial Officer 2003 $ 0 $ 0 $ 0 0
2002 $ 0 $ 0 $ 0 0
Steven J. Pully (6) 2004 $ 0 $ 0 $ 0 0
Secretary and General Counsel 2003 $ 0 $ 0 $ 0 0
2002 $ 0 $ 0 $ 0 0
- -------------------------------------------------------------------------------------------------------------------------------
(1) Includes regular cash bonuses earned for the Last Fiscal Year, whether
accrued or paid.
(2) Mr. Mitchell was granted 500,000 of stock options, with an exercise price
of $.11 per share, in June 2002.
(3) In May 2003, Mr. Schwarz was appointed to President and Chief Executive
Officer and joined the Board.
(4) Mr. Mitchell joined the Company in November 2000 as Vice President of
Human Resources. Mr. Mitchell was promoted to President and Chief
Executive Officer and joined the Board in April 2002. Effective April 30,
2003, in connection with the Stock Sale, Mr. Mitchell agreed to step down
from his position as President and Chief Executive Officer. He continues
to serve on the Board.
(5) In May 2003, Mr. Murray was appointed Vice President and Chief Financial
Officer.
(6) In May 2003, Mr. Pully was appointed Secretary and General Counsel and
joined the Board.
41
Option Grants in Last Fiscal Year
None of the Company's Named Executive Officers were granted any options during
the fiscal year ended March 31, 2004.
The following table provides information with respect to the Named Executive
Officers' unexercised options at March 31, 2004.
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ACQUIRED OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
ON VALUE YEAR-END YEAR-END
NAME EXERCISE REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- ----------- ----------- ------------- ----------- -------------
(#) (1) (#) (#) (#) (#)
--- --- --- --- --- ---
Mark E. Schwarz -- $ -- -- -- $ -- $ --
Steve W. Mitchell -- $ -- 500,000 -- $ 0 $ 0
John P. Murray -- $ -- -- -- $ -- $ --
Steven J. Pully -- $ -- -- -- $ -- $ --
(1) No options were exercised by Named Executive Officers during the Last Fiscal
Year.
The Company does not have any Long Term Incentive Plans.
Employment Contracts, Terms of Employment and Change in Control Arrangements
In May 2003, in accordance with the Company's severance policy and employment
agreements, Mr. Mitchell was paid $85,000, as a result of the changes in the
Board and management that resulted from the Stock Sale.
Chief Executive Officer Compensation
As Chief Executive Officer, Mr. Schwarz currently has no annual salary. Mr.
Schwarz is entitled, at the discretion of our Board, to performance bonuses
which may be based upon a variety of factors and to participate in our stock
incentive plans and other bonus plans adopted by us based on his performance and
the Company's performance.
Change in Control Arrangements
On June 11, 2002, the Company granted 2,879,000 options. 250,500 of such options
were exercised and 1,553,500 of such options expired. Each of the remaining
1,075,000 options granted on June 11, 2002 provides that 50% of the unvested
portion of the option will vest in full upon a Change of Control (as defined
below) and the remainder of the option will vest in full in the event that the
optionee's employment with the Company is terminated upon the Change of Control.
As defined in each of the new options, "Change of Control" means:
A merger or consolidation in which securities possessing more than 50% of the
total combined voting power of the Company's outstanding securities are
transferred to one or more persons who were not stockholders of the Company
immediately before such merger or consolidation; or
The sale, transfer or other disposition of all or substantially all of the
Company's assets.
A transaction shall not constitute a Change of Control if its sole purpose is to
change the Company's state of incorporation or to create a holding company that
will be owned in substantially the same proportions by the persons who held the
Company's securities immediately before such transaction.
42
Director Compensation
The Company provides cash compensation of $1,000 per quarter to each of its
non-employee directors for service as directors and has reimbursed their travel
expenses for attending meetings. Non-employee directors are also eligible to
receive discretionary stock option grants under the Company's 1994 Stock Plan.
During the Last Fiscal Year, the Company's non-employee directors did not
receive any discretionary stock option grants.
Compensation Committee Interlocks and Insider Participation
As previously discussed, as a result of the delisting of the Company's common
stock from the Nasdaq National Market System and the Nasdaq SmallCap Market, and
the resignation of four members of the Board in January 2003, the Board deemed
it was advisable and in the best interest of the Company and its stockholders to
terminate the Compensation Committee of the Board and to conduct all businesses
of the Board at the Board level.
43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth certain information known to the Company
regarding the beneficial ownership of the Company's common stock as of August 2,
2004, by (a) each stockholder who is known by the Company to beneficially own
more than 5% of the Company's common stock, (b) the Company's Chief Executive
Officer and the Named Executive Officers, (c) each director of the Company, and
(d) all current directors and executive officers of the Company as a group. To
the Company's knowledge, except as otherwise indicated in the footnotes to this
table, each person has sole voting and investment power with respect to all
shares shown as beneficially owned by them, subject to community property laws
where applicable. The percentages in the column entitled "Percentage of Common
Stock Outstanding" were determined using 29,869,808 shares of common stock, the
number of outstanding shares of common stock on August 2, 2004.
SHARES BENEFICIALLY PERCENTAGE OF COMMON
BENEFICIAL OWNER OWNED STOCK OUTSTANDING
---------------- ----- -----------------
Newcastle Partners, L.P. 3,788,952 12.68%
Mark E. Schwarz (1) 7,477,905 25.03%
Steve W. Mitchell (2) 500,000 1.67%
John P. Murray 0 0
Steven J. Pully 0 0
All directors and executive officers 7,977,905 26.71%
as a group (4 persons)(3)
(1) Includes 3,788,952 shares owned by Newcastle Partners, L.P., which Mr.
Schwarz may be deemed to beneficially own as the sole general partner of
Newcastle Partners, L.P., directly or indirectly through entities he controls.
Mr. Schwarz disclaims beneficial ownership of the shares owned by Newcastle
Partners, L.P., except to the extent of his pecuniary interest therein.
(2) Represents 500,000 shares issuable upon the exercise of options that were
exercisable as of August 2, 2004.
(3) Includes 500,000 shares issuable upon exercise of options that were
exercisable as of August 2, 2004. Includes 3,788,952 shares owned by Newcastle
Partners, L.P.
DISCLOSURE WITH RESPECT TO THE COMPANY'S EQUITY COMPENSATION PLANS
The following table gives information about the existing equity compensation
plans as of March 31, 2004, including, the 1994 Stock Plan, the 1996
Supplemental Plan (the "1996 Plan") and the 1997 Supplemental Plan for UK
Employees (the "UK Plan"), collectively referred to as the "Plans".
(a) (b) (c)
Number of securities remaining
Number of securities to Weighted-average exercise available for future issuance
be issued upon exercise price of outstanding under equity compensation plans
Plan Category of outstanding options, options, (excluding securities reflected in
warrants and rights warrants and rights column (a))
Plan Approved by Stockholders 750,000 $0.11 4,658,947
Plans Not Approved by Stockholders 325,000 $0.11 3,450,105
Total 1,075,000 $0.11 8,109,052
44
The 1996 Plan and the UK Plan
In 1996 and 1997, the Board approved the 1996 Plan and the UK Plan (the
"Non-Stockholder Approved Plans"), respectively. These Plans were not required
to be and were not approved by the Company's stockholders. The purpose of the
Non-Stockholder Approved Plans is to attract and retain the best available
personnel for positions of substantial responsibility and to provide additional
incentives. Under the 1996 Plan, grants may be made to officers, employees or
consultants of the Company. Grants may not be made under the 1996 Plan to
members of the Company's Board. Under the UK Plan, grants may be made to
employees or consultants of the Company. Grants may not be made under the UK
Plan to members of the Company's Board. Each of the Non-Stockholder Approved
Plans authorizes the grant of non-qualified stock options with terms not to
exceed ten years from the date of grant. Historically, options granted under the
Non-Stockholder Approved Plans vested ratably over a four-year period beginning
at the grant date and expired ten years from the date of grant; however, as a
result of the grants made in June 2002, all of the outstanding options under the
Non-Stockholder Approved Plans vest over a twelve-month period beginning on the
date of grant. The Board may amend or terminate the Non-Stockholder Approved
Plans without stockowner approval, but no amendment or termination of either of
the Non-Stockholder Approved Plans may adversely affect any award previously
granted under the plan without the written consent of the award recipient.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements require the Company to
indemnify such individuals to the fullest extent permitted by Delaware law for
certain liabilities to which they may become subject as a result of their
affiliation with the Company. As a matter of policy, all transactions between
the Company and any of its officers, directors or principal stockholders are
approved by a majority of the disinterested members of the Board, on terms no
less favorable to the Company than could be obtained from unaffiliated third
parties and must serve the bona fide business purposes of the Company.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Novogradac & Company LLP served as Geoworks Corporation's independent auditor
for the fiscal years ended March 31, 2004 and 2003.
AUDIT FEES:
The aggregate fees billed for each of the last two fiscal years ended March 31,
2004 and March 31, 2003 for professional services rendered by Novogradac &
Company LLP for the audit of the annual financial statements of the Company and
the review of the financial statements included in the Company's Forms 10-Q for
such fiscal years were approximately $34,650 and $30,000, respectively.
AUDIT-RELATED FEES:
No audit-related fees were billed for each of the last two fiscal years ended
March 31, 2004 and March 31, 2003 by Novogradac & Company LLP, other than the
fees reported above.
TAX FEES:
No tax fees were billed for each of the last two fiscal years ended March 31,
2004 and March 31, 2003 by Novogradac & Company LLP, other than the fees
reported above.
ALL OTHER FEES:
No fees were billed for each of the last two fiscal years ended March 31, 2004
and March 31, 2003 for products and services of Novogradac & Company LLP, other
than the fees reported above.
Before Novogradac & Company LLP was engaged by the Company to render audit
services, the engagement was approved by the Company's Directors. The Board of
Directors approved in advance any and all audit services provided to the Company
by its independent auditors as required by applicable law.
45
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
1. FINANCIAL STATEMENTS.
The following Consolidated Financial Statements of Geoworks and
Report of Independent Auditors are included in Item 8 of this
report on Form 10-K.
Report of Independent Auditors
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted, because they are not required, are not
applicable, or the information is included in the consolidated
financial statements and notes thereto.
3. EXHIBITS.
The following exhibits are filed as part of, or incorporated by
reference into, this report on Form 10-K:
EXHIBIT NUMBER /DESCRIPTION OF DOCUMENT
3.1a Certificate of Incorporation of Registrant (incorporated by
reference to Exhibit 3.01 to Registrant's report on Form 8-K filed
October 27, 1997.)
3.1b Certificate of Amendment of Certificate of Incorporation of the
Registrant, filed November 3, 2000, with the Secretary of State of
the State of Delaware (incorporated by reference to Exhibit 3.1.a to
Registrant's report on Form 10-Q filed for the quarter ending
September 30, 2000 on November 14, 2000.)
3.1c Certificate of Designations of Series A Junior Participating
Preferred Stock of the Registrant, filed March 12, 2001, with the
Secretary of State of the State of Delaware (incorporated by
reference to Exhibit 1 to the Registrant's registration statement on
Form 8-A, filed March 12, 2001.)
3.2a Bylaws of the Registrant (incorporated by reference to Exhibit to
Registrant's report on Form 8-K filed October 27, 1997.)
3.2b Amendment to Bylaws of the Registrant to separate the executive
positions of Chief Executive Officer and President (incorporated by
reference to Exhibit 4.1 on Form 10-Q filed on February 14, 2001.)
4.1a Shareholder Rights Plan, dated as of March 9, 2001, between the
Registrant and Mellon Investor Services, L.L.C. (incorporated by
reference to Exhibit 1 to the Registrant's registration statement on
Form 8-A, filed March 12, 2001.)
4.1b Amendment to Shareholder Rights Plan, dated as of May 15, 2003,
between the Registrant and Mellon Investor Services, L.L.C.
(incorporated by reference to Exhibit 4.1 to the Registrant's
registration statement on Form 8-K, filed May 15, 2003.)
46
4.1c Specimen Stock Certificate (incorporated by reference to Exhibit 4.1
to Registrant's Registration Statement on Form S-1 (File No.
33-78104), effective June 22, 1994.)
10.1 Form of Indemnification Agreement between the Registrant and each of
its officers and directors (incorporated by reference to Exhibit
10.1 to Registrant's report on Form 10-Q for the quarter ended
September 30, 1997.)
10.2 1994 Stock Plan, as amended through May 27, 1997 (incorporated by
reference to Exhibit 4.03 to Registrant's Registration Statement on
Form S-8 (File No. 333-39863) filed November 10, 1997.)*
10.3 Form of Stock Option Agreement under the 1994 Stock Plan.*
10.4 Employee Stock Purchase Plan and Form of Subscription Agreement
(incorporated by reference to Exhibit 10.4 to Registrant's
Registration Statement on Form S-1 (File No. 33-78104), effective
June 22, 1994.)*
10.5 Supplemental Stock Option Plan effective August 5, 1996
(incorporated by reference to Exhibit 4.1 filed with the
Registrant's Registration Statement on Form S-8 filed August 5,
1996.) *
10.6 Form of Stock Option Agreement under the Supplemental Stock Option
Plan (incorporated by reference to Exhibit 4.2 filed with
Registrant's Registration Statement on Form S-8 filed August 5,
1996.) *
10.7 1997 Supplemental Stock Plan (incorporated by reference to Exhibit
4.1 to Registrant's Registration Statement on Form S-8 filed March
25, 1997.)*
10.8 Form of Stock Option Agreement under the 1997 Supplemental Stock
Plan (incorporated by reference to Exhibit 4.2 to Registrant's
Registration Statement on Form S-8 filed March 25, 1997.) *
10.11 Agreement for Software Development Subcontracting, dated November 4,
1999, between Nokia Mobile Phones Ltd. and Geoworks Corporation
(incorporated by reference to exhibit 10.29 to Registrant's report
on Form 10-Q for the quarter ended December 31, 1999.) ###
10.12 Intellectual Property Assignment Agreement dated March 15, 2002 with
Access Co., Ltd. (incorporated by reference to Exhibit 10.12 to the
Registrant's report on Form 10K for the year ended March 31, 2002.)
10.13 Lease dated December 30, 1993 for facilities located at 960 Atlantic
Avenue, Alameda, California (incorporated by reference to Exhibit
10.16 to Registrant's Registration Statement on Form S-1 (File No.
33-78104), effective June 22, 1994.)
10.14 Settlement Agreement and Release dated May 31, 2002 between Alameda
Real Estate Investments, a California limited partnership, and
Geoworks Corporation (incorporated by reference to Exhibit 10.12 to
the Registrant's report on Form 10K for the year ended March 31,
2002.)
10.15 Lease dated November 21, 2000 between Toubin Realty II, LLC and
Geoworks (incorporated by reference to Exhibit 10.27 on Form 10-K
for the year ended March 31, 2001 filed June 29, 2001.)
10.16 Termination of Lease dated March 27, 2002 between Toubin Realty II,
LLC, First Washington State Bank and Geoworks Corporation
(incorporated by reference to Exhibit 10.16 to the Registrant's
report on Form 10K for the year ended March 31, 2002.)
10.17 Exhibit 1, 2 & 3 to the Joint motions to terminate proceedings in
the US District Court and the ITC. The exhibits constitute the
publicly filed versions of the settlement between Geoworks
Corporation and Openwave Systems Inc., formally Phone.com entered
into December 28, 2000 (Incorporated by reference to Exhibit 10.35
to Registrant' Report Form 10Q for the quarter ended December 31,
2000 filed on February 14, 2001.) ###
10.18 Mutual Release between Teleca and Geoworks dated February 1, 2003.
10.19 Exchange Agreement between Teleca and Geoworks Ltd. dated February
1, 2003.
47
10.20 Settlement Agreement and Mutual General Release between Geoworks
Corporation and Geoworks Ltd. and Donald G. Ezzell and DGE Capital
Group dated January 8, 2003.
10.21 Stock Purchase Agreement dated as of April 30, 2003 by and between
Newcastle Partners, L.P., Mark E. Schwarz and Geoworks Corporation
(incorporated by reference to Exhibit 99.2 from the Form 8-K/A dated
April 30, 2003.)
10.22 Letter agreement dated August 2, 2002 between Telcordia
Technologies, Inc. and Geoworks Corporation (incorporated by
reference to Exhibit 10.20 from Form 10Q for the period ended
6/30/02.)
10.23 Amended License Agreement by and between Geoworks Corporation and
Science Applications International, dated August 23, 2002 filed as
an exhibit to Form 8-K on August 29, 2002 (incorporated by reference
to Exhibit 10.2 from the Form 10Q for the period ending 9/30/02.)
21.1 List of Subsidiaries (incorporated by reference to Exhibit 21.1 to
Registrant's Form 10-K for the year ended March 31, 2001 filed on
July 2, 2001.)
23.1 Consent of Novogradac & Company LLP.
23.2 Consent of Ernst & Young LLP
24.1 Power of Attorney (see Page 49)
31.1 Section 302 Certification of Principal Executive Officer.
31.2 Section 302 Certification of Principal Financial Officer.
32.1 Section 906 Certification of Principal Executive Officer.
32.2 Section 906 Certification of Principal Financial Officer.
### Confidential treatment has been granted as to portions thereof
* Management contract or compensatory plan or arrangement
(b) Reports on Form 8-K.
There were no reports on Form 8-K were filed during the quarter
ended March 31, 2004:
(c) Exhibits.
See Item 15 (a) 3 above.
(d) Financial Statement Schedules.
See Item 15 (a) 2 above
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Date: August 12, 2004
GEOWORKS CORPORATION
By: /s/ Mark E. Schwarz
-----------------------
Mark E. Schwarz
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Schwarz and Steven J. Pully each of them
acting individually, as such person's true and lawful attorneys-in-fact and
agents, each with full power of substitution, for such person, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this report on Form 10-K, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his or her substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Mark E. Schwarz President, Chief Executive Officer, August 12, 2004
- ------------------- and Director (Principal Executive
Mark E. Schwarz Officer)
/s/ Steven J. Pully Director and Secretary August 12, 2004
- -------------------
Steven J. Pully
/s/ Steve W. Mitchell Director August 12, 2004
- ---------------------
Steve W. Mitchell
/s/ John P. Murray Chief Financial Officer August 12, 2004
- ------------------ (Principal Financial Officer)
John P. Murray
49