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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 0-30719
HANDSPRING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 77-0490705
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
189 BERNARDO AVENUE
MOUNTAIN VIEW, CA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(650) 230-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
As of April 25, 2001 there were 129,640,388 shares of the Registrant's
common stock outstanding.
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HANDSPRING, INC.
FORM 10-Q
TABLE OF CONTENTS
PAGE
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets....................... 1
Condensed Consolidated Statements of Operations............. 2
Condensed Consolidated Statements of Cash Flows............. 3
Notes to Condensed Consolidated Financial Statements........ 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 22
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings........................................... 23
Item 2. Changes in Securities and Use of Proceeds................... 23
Item 3. Defaults Upon Senior Securities............................. 23
Item 4. Submission of Matters to a Vote of Security Holders......... 23
Item 5. Other Information........................................... 23
Item 6. Exhibits and Reports on Form 8-K............................ 23
SIGNATURES............................................................ 25
Exhibit List.......................................................... 26
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HANDSPRING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
MARCH 31, 2001 JULY 1, 2000
-------------- ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................. $ 107,091 $196,548
Short-term investments.................................... 52,213 --
Accounts receivable, net.................................. 36,630 20,484
Prepaid expenses and other current assets................. 12,939 1,776
Inventories............................................... 6,799 40
--------- --------
Total current assets.............................. 215,672 218,848
Long-term investments....................................... 69,082 2,664
Property and equipment, net................................. 14,812 8,280
Intangibles and other assets................................ 1,355 680
--------- --------
Total assets...................................... $ 300,921 $230,472
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 45,369 $ 20,152
Accrued liabilities....................................... 51,836 16,034
--------- --------
Total current liabilities......................... 97,205 36,186
--------- --------
Long-term liabilities....................................... -- 57
--------- --------
Stockholders' equity:
Common stock.............................................. 130 125
Additional paid-in capital................................ 367,761 321,116
Deferred stock compensation............................... (37,312) (58,268)
Accumulated other comprehensive income (loss)............. 613 (64)
Accumulated deficit....................................... (127,476) (68,680)
--------- --------
Total stockholders' equity........................ 203,716 194,229
--------- --------
Total liabilities and stockholders' equity........ $ 300,921 $230,472
========= ========
See accompanying notes to condensed consolidated financial statements.
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HANDSPRING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
MARCH 31, 2001 APRIL 1, 2000 MARCH 31, 2001 APRIL 1, 2000
-------------- ------------- -------------- -------------
(UNAUDITED)
Revenue............................... $123,820 $ 34,321 $309,953 $ 50,111
-------- -------- -------- --------
Costs and operating expenses:
Cost of revenue..................... 84,416 23,349 212,207 34,171
Research and development............ 7,120 2,115 16,786 6,733
Selling, general and
administrative................... 38,950 13,512 107,479 23,888
In-process research and
development...................... 12,225 -- 12,225 --
Amortization of deferred stock
compensation and
intangibles(*)................... 8,336 16,997 24,911 26,420
-------- -------- -------- --------
Total costs and operating
expenses.................. 151,047 55,973 373,608 91,212
-------- -------- -------- --------
Loss from operations.................. (27,227) (21,652) (63,655) (41,101)
Interest and other income, net........ 748 149 7,109 337
-------- -------- -------- --------
Loss before taxes..................... (26,479) (21,503) (56,546) (40,764)
Income tax provision.................. 750 -- 2,250 --
-------- -------- -------- --------
Net loss.............................. $(27,229) $(21,503) $(58,796) $(40,764)
======== ======== ======== ========
Basic and diluted net loss per
share............................... $ (0.26) $ (0.61) $ (0.58) $ (1.34)
-------- -------- -------- --------
Shares used in calculating basic and
diluted net loss per share.......... 106,702 35,391 101,402 30,403
======== ======== ======== ========
(*) Amortization of deferred stock compensation and intangibles:
Cost of revenue.................. $ 1,127 $ 3,036 $ 3,540 $ 4,131
Research and development......... 1,808 2,578 4,964 6,789
Selling, general and
administrative.................... 5,401 11,383 16,407 15,500
-------- -------- -------- --------
$ 8,336 $ 16,997 $ 24,911 $ 26,420
======== ======== ======== ========
See accompanying notes to condensed consolidated financial statements.
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HANDSPRING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
-------------------------------
MARCH 31, 2001 APRIL 1, 2000
-------------- -------------
(UNAUDITED)
Cash flows from operating activities:
Net loss.................................................. $ (58,796) $(40,764)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization.......................... 4,954 1,456
Amortization of deferred stock compensation and
intangibles........................................... 24,911 26,420
In-process research and development.................... 12,225 --
Amortization of costs associated with financing
agreement............................................. -- 453
Amortization of premium or discount on
available-for-sale securities, net.................... (1,217) (100)
Gain on sale of available-for-sale securities.......... (165) --
Stock compensation to non-employees.................... -- 15
Changes in assets and liabilities:
Accounts receivable.................................. (17,100) (13,736)
Prepaid expenses and other current assets............ (11,564) (1,435)
Inventories.......................................... (6,760) (56)
Intangibles and other assets......................... (90) (173)
Accounts payable..................................... 25,908 15,799
Accrued liabilities.................................. 35,342 9,435
--------- --------
Net cash provided by (used in) operating
activities..................................... 7,648 (2,686)
--------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities................ (202,040) (1,968)
Sales and maturities of available-for-sale securities..... 136,649 8,308
Purchases of investments for collateral on operating
lease.................................................. (51,287) (400)
Purchases of property and equipment....................... (11,517) (5,359)
Cash acquired from acquisitions........................... 29 --
--------- --------
Net cash provided by (used in) investing
activities..................................... (128,166) 581
--------- --------
Cash flows from financing activities:
Principal payments on borrowings.......................... (83) (7)
Issuance of Series B redeemable convertible preferred
stock, net............................................. -- 9,990
Net proceeds from issuance of common stock upon exercise
of underwriters' over-allotment........................ 27,969 --
Proceeds from issuance of common stock.................... 2,704 1,982
Repurchase of common stock................................ (41) --
--------- --------
Net cash provided by financing activities......... 30,549 11,965
--------- --------
Effect of exchange rate changes on cash........... 512 14
--------- --------
Net increase (decrease) in cash and cash equivalents........ (89,457) 9,874
Cash and cash equivalents:
Beginning of period....................................... 196,548 7,533
--------- --------
End of period............................................. $ 107,091 $ 17,407
========= ========
See accompanying notes to condensed consolidated financial statements.
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HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and generally accepted accounting principals. However, certain
information or footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed, or omitted, pursuant to such rules and regulations. In the opinion of
management, the statements include all adjustments necessary (which are of a
normal and recurring nature) for the fair presentation of the results of the
interim periods presented. These financial statements should be read in
conjunction with our audited consolidated financial statements and the notes
thereto for the year ended July 1, 2000. The results of operations for the three
months and nine months ended March 31, 2001 are not necessarily indicative of
the operating results for the full fiscal year or any future period.
The Company's fiscal year ends on the Saturday closest to June 30, and each
fiscal quarter ends on the Saturday closest to the end of each calendar quarter.
Certain prior period balances have been reclassified to conform to current
period presentation.
2. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative investments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. The Company adopted SFAS No. 133 at the beginning of fiscal
2001. The adoption did not have a material impact on the Company's financials
statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), Revenue Recognition in Financial
Statements. SAB 101 provides guidance for revenue recognition under certain
circumstances. SAB 101 is effective beginning in the fourth quarter of fiscal
2001. Implementation of SAB 101 is not expected to require the Company to change
existing revenue recognition policies and therefore is not expected to have a
material effect on the Company's financial position or results of operations.
In March 2000, the FASB issued Interpretation No. 44 ("FIN 44") Accounting
for Certain Transactions Involving Stock Compensation, an Interpretation of APB
Opinion No. 25. FIN 44 clarifies the application of Opinion No. 25 for (a) the
definition of employee for purposes of applying Opinion No. 25, (b) the criteria
for determining whether a plan qualifies as a noncompensatory plan, (c) the
accounting consequences of various modifications to the terms of a previously
fixed stock option or award, and (d) the accounting for an exchange of stock
compensation awards in a business combination. FIN 44 became effective July 1,
2000, but certain conclusions cover specific events that occurred after either
December 15, 1998, or January 12, 2000. FIN 44 did not have a material effect on
the Company's financial position or results of operations.
3. NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS No. 128, Earnings
per Share. Under the provisions of SFAS No. 128, basic net loss per share is
computed by dividing the net loss applicable to common stockholders for the
period by the weighted average number of common shares outstanding during the
period (excluding shares subject to repurchase). Diluted net loss per share is
computed by dividing the net
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HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
loss applicable to common stockholders for the period by the weighted average
number of common and potential common shares outstanding during the period if
their effect is dilutive.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
MARCH 31, 2001 APRIL 1, 2000 MARCH 31, 2001 APRIL 1, 2000
-------------- ------------- -------------- -------------
Net loss...................... $(27,229) $(21,503) $(58,796) $(40,764)
======== ======== ======== ========
Basic and diluted:
Weighted average common
shares outstanding....... 128,584 73,104 127,444 71,096
Weighted average common
shares subject to
repurchase............... (21,882) (37,713) (26,042) (40,693)
-------- -------- -------- --------
Weighted average common shares
used to compute basic and
diluted net loss per
share....................... 106,702 35,391 101,402 30,403
======== ======== ======== ========
Basic and diluted net loss per
share....................... $ (0.26) $ (0.61) $ (0.58) $ (1.34)
======== ======== ======== ========
Diluted net loss per share does not include the effect of the following
potential common shares at the dates indicated as their effect is anti-dilutive
(in thousands):
MARCH 31, 2001 APRIL 1, 2000
-------------- -------------
Common stock subject to repurchase................ 20,295 36,581
Shares issuable under stock options............... 29,260 20,685
Shares issuable pursuant to right to purchase
redeemable convertible preferred stock.......... -- 895
Shares of redeemable convertible preferred stock
on an "as if converted" basis................... -- 40,524
The weighted average repurchase price of unvested stock was $0.05 and $0.06
as of March 31, 2001 and April 1, 2000, respectively. The weighted-average
exercise price of stock options outstanding was $11.25 and $0.99 as of March 31,
2001 and April 1, 2000, respectively.
4. COMPREHENSIVE LOSS
The components of comprehensive loss are as follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
MARCH 31, 2001 APRIL 1, 2000 MARCH 31, 2001 APRIL 1, 2000
-------------- ------------- -------------- -------------
Net loss...................... $(27,229) $(21,503) $(58,796) $(40,764)
Other comprehensive income:
Unrealized gain on
securities............... 97 34 393 40
Foreign currency translation
adjustments.............. 394 14 284 14
-------- -------- -------- --------
Comprehensive loss............ $(26,738) $(21,455) $(58,119) $(40,710)
======== ======== ======== ========
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HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. BUSINESS SEGMENT REPORTING
The Company operates in one operating segment, handheld computing, with its
headquarters and most of its operations located in the United States. The
Company also conducts sales, marketing and customer service activities
throughout the world. Geographic revenue information is based on the location of
the end customer. Geographic long-lived assets information is based on the
physical location of the assets at the end of each period. Revenue from
unaffiliated customers and long-lived assets by geographic region are as follows
(in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------------- -------------------------------
MARCH 31, 2001 APRIL 1, 2000 MARCH 31, 2001 APRIL 1, 2000
-------------- ------------- -------------- -------------
Revenue:
North America............... $ 99,774 $34,321 $251,806 $50,111
Rest of the world........... 24,046 -- 58,147 --
-------- ------- -------- -------
Total............... $123,820 $34,321 $309,953 $50,111
======== ======= ======== =======
MARCH 31, 2001 JULY 1, 2000
Property and equipment: -------------- ------------
North America................................... $82,817 $ 9,914
Rest of the world............................... 2,432 1,710
------- -------
Total................................... $85,249 $11,624
======= =======
6. ACQUISITIONS
In February 2001, the Company completed its acquisition of BlueLark
Systems, Inc. ("BlueLark"), a provider of software designed to power the
delivery of content and services to mobile handheld devices, notably a Palm OS
proxy-based browser. Under the terms of the agreement related to this
acquisition, the Company issued 450,000 shares and options to purchase the
Company's common stock in exchange for all of BlueLark's outstanding shares and
options for a total purchase price of $16.4 million. The acquisition was
accounted for as a purchase in accordance with the provisions of APB Opinion No.
16. Of the total purchase price, $82,000 was allocated to the net tangible
assets acquired offset by $177,000 of liabilities assumed, $3.9 million was
recorded as deferred compensation, $300,000 was recorded as assembled workforce,
$312,000 was recorded as goodwill, and the remainder was allocated to in-process
research and development. The deferred compensation charge relates to the
intrinsic value of unvested stock options and restricted stock assumed in the
transaction. This amount is being amortized, using the multiple option method,
over the vesting period of the related options or restricted stock. The total
amount allocated to goodwill and assembled workforce is being amortized on a
straight-line basis over three years. In-process research and development was
immediately expensed as of the date of the acquisition. The historical
operations of BlueLark were not material to the Company's financial position or
results of operations and accordingly, proforma information has not been
presented. Results of operations for BlueLark have been included with those of
the Company subsequent to the acquisition date.
7. COMMITMENTS AND CONTINGENCIES
In February 2001, the Company entered into two operating lease agreements
for its new corporate headquarters, consisting of approximately 340,000 square
feet, to be constructed in Sunnyvale, California. Both leases have initial terms
of twelve years with options to renew for an additional six years, subject to
certain conditions. Rent obligations of $1.7 million per month are expected to
commence during the second quarter of fiscal 2003, with annual increases
determined in part by the Consumer Price Index. In conjunction with these lease
transactions, the Company pledged a portion of its investment securities as
collateral for
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HANDSPRING, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
specified obligations of the lessor under the leases. As of March 31, 2001, a
total of $54.0 million was pledged in accordance with the Company's building
lease agreements. This amount has been classified as a long-term investment in
the accompanying condensed consolidated balance sheets. The pledged assets will
be reduced upon completion of the Company's build-out obligation for its new
corporate headquarters. In addition, the pledged assets may be further reduced
if certain financial criteria are met.
8. LITIGATION
On March 14, 2001, NCR Corporation filed suit against Handspring and Palm,
Inc. in the United States District Court for the District of Delaware. The
complaint alleges infringement of two U.S. Patents. The complaint seeks
unspecified compensatory and treble damages and to permanently enjoin the
defendants from infringing the patents in the future. The Company filed an
answer on April 30, 2001, denying NCR's allegations and asserting counterclaims
for declaratory judgements that the Company does not infringe the patents in
suit, that the patents in suit are invalid, and that they are unenforceable. The
Company believes that the claims are without merit and intends to defend
vigorously against them.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We may make statements in this Form 10-Q, such as statements regarding our
plans, objectives, expectations and intentions that are forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. We may identify these statements by the use of words
such as "believe", "expect", "anticipate", "intend", "plan", and similar
expressions. These forward-looking statements involve risks and uncertainties.
Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of these risks and uncertainties,
including those we discuss in "Factors Affecting Future Results" and elsewhere
in this Form 10-Q. These forward-looking statements speak only as of the date of
this Form 10-Q, and we caution you not to rely on these statements without also
considering the risks and uncertainties associated with these statements and our
business as addressed in this Form 10-Q.
OVERVIEW
We were incorporated in July 1998 to develop innovative handheld computers
that are fun, smart, approachable, compelling and personal. We are focused on
becoming a global market leader in the handheld computing and communications
marketplace. Shipments of our first Visor products began in October 1999 for
orders received through our Web site. Today we sell our Visor line of handhelds
through our Web site and through select distributors, retailers and e-commerce
partners in Asia Pacific, Canada, Europe, Japan, the Middle East and the United
States.
BLUELARK ACQUISITION
In February 2001, we completed our acquisition of BlueLark Systems, Inc.
("BlueLark"), a provider of software designed to power the delivery of content
and services to mobile handheld devices, notably a Palm OS proxy-based browser.
Under the terms of the agreement related to this acquisition, we issued 450,000
shares and options to purchase the Company's common stock in exchange for all of
BlueLark's outstanding shares and options for a total purchase price of $16.4
million. The acquisition was accounted for as a purchase.
RESULTS OF OPERATIONS
Revenue. Revenue is comprised almost entirely of sales of our handheld
computer devices, modules and related accessories. Retail sales orders are
placed in our internal order processing system. Product orders placed by end
user customers are received via our Web site or over the telephone via our third
party customer support partner. All orders are then transmitted to our logistics
partner. We take title at the point of transfer from this logistics partner to
the common carrier. Title generally then transfers once the carrier has received
the products. We recognize revenue when a purchase order has been received, the
product has been shipped, the sales price is fixed or determinable and
collection of the resulting receivable is probable. No significant post-delivery
obligations exist with respect to revenue recognized. Provisions are made at the
time the related revenue is recognized for estimated product returns and
warranty. Also included in revenue are shipping and handling charges billed to
our customers.
As is typical for other companies in our industry, we have experienced
seasonality in the sales of our products with strong demand occurring in our
second fiscal quarter due in part to increased consumer spending on electronic
devices during the holiday season. Although we did not experience a sequentially
down quarter after the second quarter holiday season of fiscal 2001, there is no
guarantee that we will repeat this performance next year. In addition, we expect
that demand for our products will decline in our first quarter of fiscal 2002
compared to the fourth quarter of fiscal 2001 due to slower consumer spending
during the summer months, particularly in Europe. These seasonal variations in
our sales may lead to fluctuations in our quarterly operating results.
Revenue grew to $123.8 million during the third quarter of fiscal 2001 from
$34.3 million during the third quarter of fiscal 2000. Revenue for the nine
months ended March 31, 2001 was $310.0 million, compared with $50.1 million
during the nine months ended April 1, 2000. Shipping and handling charges
represented $419,000 and $1.2 million of revenue during the three and nine
months ended March 31, 2001, respectively,
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and $932,000 and $1.5 million during the three and nine months ended April 1,
2000, respectively. The increase in revenue between both periods was primarily
due to three factors:
- We expanded our distribution channels. Our first product shipments began
during the second quarter of fiscal 2000, and were only for orders
received through our Web site. Toward the end of the third quarter of
fiscal 2000 we began selling our products through select retailers.
During the following four quarters we added additional retailers,
distributors and e-commerce partners throughout the United States.
- We entered into a number of international markets. During the fourth
quarter of fiscal 2000 and the first three quarters of fiscal 2001, we
launched our products in Asia Pacific, Canada, Europe, Japan and the
Middle East. As a result of this global expansion, revenue outside North
America represented 19.4% of revenue during the three months ended March
31, 2001 and 18.8% of revenue during the nine months ended March 31,
2001, while revenue during the same periods of the previous fiscal year
was entirely from North America.
- We added several new products to our Visor family of handheld computers
during the second and third quarters of fiscal 2001, including Visor
Prism, Visor Platinum, and our most recently announced product, Visor
Edge.
Cost of revenue. Cost of revenue consists primarily of materials, labor,
royalty expenses, warranty expenses and shipping and handling. Cost of revenue
was $84.4 million during the quarter ended March 31, 2001 and $212.2 million
during the nine months ended March 31, 2001, compared with $23.3 million and
$34.2 million recorded during the three and nine months ended April 1, 2000,
respectively. These increases are attributable to an increase in revenue.
Shipping and handling costs represented $1.8 million and $5.7 million during the
three and nine months ended March 31, 2001 and $965,000 and $1.6 million of the
cost of revenue during the three and nine months ended April 1, 2000,
respectively. Cost of revenue excluding amortization of deferred stock
compensation resulted in a gross margin of 31.8% and 31.5% during the three and
nine months ended March 31, 2001, compared with 32.0% and 31.8% during the three
and nine months ended April 1, 2000, respectively. The slight decrease in gross
margins between the comparable three and nine month periods is due primarily to
a larger percentage of our revenue being generated from retail channels versus
our Web site, partially offset by our introduction of products with higher
average sales prices during the second and third quarters of fiscal 2001. We
expect our gross margins to fluctuate in the future due to channel mix,
competitor pricing actions, new product introductions and seasonal effects. We
also expect our gross margins to decline during the fourth quarter of fiscal
2001 due primarily to pricing pressure resulting from Palm reducing prices on
some of its older devices.
Research and development. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of materials and software used in product development. Research and
development expenses increased to $7.1 million during the quarter ended March
31, 2001 from $2.1 million during the quarter ended April 1, 2000, and to $16.8
million during the nine months ended March 31, 2001 from $6.7 million during the
nine months ended April 1, 2000. These increases were primarily associated with
the hiring of personnel devoted to the development of new products. We believe
that continued investment in research and development is critical to attaining
our strategic objectives.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of promotional and advertising costs, salaries and
related expenses, customer and technical support, accounting and administrative
expenses, costs for legal and professional services and general corporate
expenses. Selling, general and administrative expenses increased to $39.0
million during the three months ended March 31, 2001 from $13.5 million during
the same period of the previous fiscal year, and to $107.5 million during the
nine months ended March 31, 2001 as compared with $23.9 million in the same
period of the previous fiscal year. These increases reflect the additional costs
and expenses relating to the overall expansion in the Company's level of
operations, including increased sales and marketing activities for the Company's
products and growth in the number of the Company's employees from 80 at January
1, 2000 to 414 at March 31, 2001. In addition, the nine months ended March 31,
2001 included expenses for selected promotional programs that occurred during
the holiday season.
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In-process research and development. In connection with the acquisition of
BlueLark, we recorded a $12.2 million charge for in-process research and
development during the third quarter of fiscal 2001 for projects that had not
reached technological feasibility and had no alternative future use.
An independent valuation was performed to assist the Company in determining
the fair value of the total purchase price to allocate to the assets acquired
and liabilities assumed from BlueLark, including in-process research and
development. The amount allocated to in-process research and development was
determined by assessing the stage and expected date of completion of the
research and development efforts at the acquisition date, and calculating the
net present value of cash flows expected to result from the new technology. The
estimated net present value of cash flows took into account the characteristics
and applications of the technologies, the size and growth rate of existing and
future markets and an evaluation of past and anticipated technology and product
life cycles. These cash flows included the after-tax effects of future revenues,
cost of revenues, operating expenses, working capital charges, and expenditures
for capital and intangibles. Both the estimated stage of completion and the
discount rate used to calculate the net present value factored into account the
uncertainty surrounding the successful deployment of the new technology
resulting from the in-process research and development effort.
Amortization of deferred stock compensation and intangibles. We recognized
$8.3 million of amortization of deferred stock compensation and intangibles
during the quarter ended March 31, 2001 compared with $17.0 million during the
quarter ended April 1, 2000, and $24.9 million during the nine months ended
March 31, 2001 compared with $26.4 million during the same period of the
previous fiscal year. This amortization is primarily related to the stock
options that we granted to our officers and employees prior to our initial
public offering on June 20, 2000, at prices subsequently deemed to be below the
fair value of the underlying stock. The cumulative difference between the fair
value of the underlying stock at the date the options were granted and the
exercise price of the granted options was $102.0 million. In addition, in
February 2001, we recorded $3.9 million of deferred stock compensation in
relation to the unvested stock options and restricted stock assumed in the
acquisition of BlueLark. All of the deferred stock compensation is being
amortized, using the multiple option method, over the vesting period of the
related options and restricted stock. Accordingly, our results of operations
will include amortization of deferred stock compensation through fiscal 2004.
As part of the acquisition of BlueLark, we also recorded goodwill and other
intangible assets of $612,000. The goodwill and intangibles are being amortized
on a straight-line basis over three years.
Future amortization of deferred stock compensation and intangibles is
estimated to be $32.8 million, $20.2 million, $8.4 million, and $1.4 million for
the fiscal years ending 2001, 2002, 2003 and 2004, respectively. However, the
amortization of deferred stock compensation and intangibles may be higher than
these expected amounts if we acquire additional companies or technologies.
Interest and other income, net. Interest and other income, net increased to
$748,000 during the quarter ended March 31, 2001 from $149,000 during the same
period of the previous fiscal year, and increased to $7.1 million during the
nine months ended March 31, 2001 from $337,000 during the same period of the
previous fiscal year. The primary reason for the increase during these periods
was the interest income earned on the proceeds received from our initial public
offering in June 2000, and the subsequent exercise of the underwriter's
over-allotment in July 2000.
At March 31, 2001 we held commercial paper issued by PG&E with a maturity
date of February 20, 2001 and a face value of $7.0 million. Although we are
evaluating all alternatives to recover this investment in full, as a result of
PG&E's recent bankruptcy filing we have reserved a portion of this investment.
This reserve partially offset the interest income earned on our other
investments during the quarter and the nine months ended March 31, 2001.
Income Tax Provision. Provision for income taxes increased from zero during
the three and nine months ended April 1, 2000 to $750,000 during the three
months ended March 31, 2001 and $2.3 million during the nine months ended March
31, 2001. The provision for income taxes consists of foreign taxes which were
provided for when we generated our first international revenues during the
fourth quarter of fiscal 2000. No
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provision for federal and state income taxes has been recorded because we have
experienced significant net losses, which have resulted in deferred tax assets.
In light of our recent history of operating losses, we have provided a full
valuation allowance for all deferred tax assets as we are presently unable to
conclude that it is more likely than not that the deferred tax asset will be
realized.
LIQUIDITY AND CAPITAL RESOURCES
Prior to our initial public offering on June 20, 2000, we funded our
operations primarily from the sale of preferred stock, through which we raised
net proceeds of $28.0 million. Net proceeds from the initial public offering and
the exercise of the underwriter's over-allotment option were $184.9 million and
$28.0 million, respectively. As of March 31, 2001 we had $159.3 million in cash
and cash equivalents and short-term investments compared with $196.5 million at
July 1, 2000. The decrease was mainly attributable to a long-term investment
made in connection with the Company's operating lease for its new corporate
headquarters during the third quarter of fiscal 2001, offset in part by the net
proceeds received from the underwriters' exercise of their over-allotment option
during the first quarter of fiscal 2001.
During the nine months ended March 31, 2001 net cash provided by operating
activities was $7.7 million, as compared with net cash used of $2.7 million
during the nine months ended April 1, 2000. Net cash provided by operating
activities during the nine months ended March 31, 2001 was attributable to an
increase in current liabilities of $61.3 million due to the general increase in
the level of operations during the period. This was offset by net losses of
$58.8 million reduced by non-cash charges of $42.1 million representing
depreciation, amortization of deferred stock compensation and intangibles, and
the write off of in-process research and development associated with our
acquisition of BlueLark Systems, Inc. In addition, we experienced a $17.1
million increase in accounts receivable, a $11.6 million increase in prepaid
expenses and other current assets, and a $6.8 million increase in inventories
balances during the period, respectively attributable primarily to our growth in
revenue, prepayment of foreign taxes, and purchase of long lead-time, Handspring
specific, product components. Net cash used in operating activities during the
nine months ended April 1, 2000 was primarily attributable to our net loss of
$40.8 million and increase in accounts receivable of $13.7 million, offset by
the non-cash charge of $26.4 million for the amortization of deferred
compensation and intangibles. This usage of cash was offset in part by an
increase in current liabilities of $25.2 million.
In February 2001, the Company entered into two operating lease agreements
for its new corporate headquarters, consisting of approximately 340,000 square
feet, to be constructed in Sunnyvale, California. Both leases have initial terms
of twelve years with options to renew for an additional six years, subject to
certain conditions. Rent obligations of $1.7 million per month are expected to
commence during the second quarter of fiscal 2003, with annual increases
determined in part by the Consumer Price Index. In conjunction with these lease
transactions, the Company pledged a portion of its investment securities as
collateral for specified obligations of the lessor under the leases. Under these
new operating leases and the Company's other building lease agreements a total
of $54.0 million was pledged as of March 31, 2001. This amount has been
classified as a long-term investment in the accompanying condensed consolidated
balance sheets. The pledged assets will be reduced upon completion of the
Company's build-out obligation for its new corporate headquarters. In addition,
the pledged assets may be further reduced if certain financial criteria are met.
Net cash used for investing activities was $128.2 million during the nine
months ended March 31, 2001, primarily due to purchases of available-for-sale
securities of $202.0 million and purchases of investments of $51.3 million for
collateral on our new operating lease and, to a smaller extent, purchases of
property and equipment of $11.5 million. These uses of cash were partially
offset by proceeds of $136.6 million received upon the sale and maturity of
available-for-sale securities during the period. During the nine months ended
April 1, 2000, investing activities provided net cash of $581,000 primarily due
to $8.3 million of proceeds received from the sale and maturities of
available-for-sale securities. This source of cash was largely offset by
purchases of available-for-sale securities of $2.0 million, purchases of
investments of $400,000 for collateral on an operating lease, and purchases of
property and equipment of $5.4 million.
At March 31, 2001 we held commercial paper issued by PG&E with a maturity
date of February 20, 2001 and a face value of $7.0 million. Although we are
evaluating all alternatives to recover this investment in full,
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as a result of PG&E's recent bankruptcy filing we have reserved a portion of
this investment. In the event that we do not recover this investment in full,
our cash equivalents would be reduced by the amount of principal then
outstanding.
Net cash provided by financing activities was $30.5 million during the nine
months ended March 31, 2001 compared with $12.0 million during the nine months
ended April 1, 2000. The $30.5 million provided by financing activities during
the nine months ended March 31, 2001 resulted primarily from the underwriters of
our initial public offering exercising their over-allotment to purchase
1,500,000 shares of common stock in July 2000 for net proceeds of $28.0 million.
During the nine months ended April 1, 2000, the most significant component of
cash provided by financing activities was $10.0 million of net proceeds that we
received from the issuance of Series B preferred stock. In addition, we received
proceeds of $2.7 million and $2.0 million from the issuance of common stock
during the nine months ended March 31, 2001 and April 1, 2000, respectively.
Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and expansion of our
marketing efforts. We believe that our cash and cash equivalents will be
sufficient to meet our working capital needs for at least the next 12 months. To
the extent that we grow more rapidly than expected in the future, we may need
additional cash to finance our operating and investing needs. We intend to
invest the cash in excess of current operating requirements in interest-
bearing, investment-grade securities with maturities no greater than two years.
FACTORS AFFECTING FUTURE RESULTS
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO
REDUCED PRICES FOR OUR STOCK.
Given our lack of operating history, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. In some future periods, our results of operations could
be below the expectations of investors and public market analysts. In this
event, the price of our common stock would likely decline. Factors that are
likely to cause our results to fluctuate include the following:
- uncertain economic conditions and declining consumer confidence;
- increased competition from new devices such as those from Palm and Sony;
- Palm's price reductions on older devices that could cause reduced sales
of Handspring Visor products;
- the timely introduction of new Handspring products by us and our
competitors;
- market acceptance of existing and future versions of our products and
compatible Springboard modules;
- fluctuations in manufacturing costs we pay to produce our handheld
computers;
- the seasonality of our product sales;
- our success in developing and marketing products for the wireless voice
and data markets;
- the price of products that both we and our competitors offer; and
- the mix of products that we offer.
A GENERAL DECLINE IN ECONOMIC CONDITIONS COULD LEAD TO REDUCED DEMAND FOR OUR
PRODUCTS.
The recent downturn in general economic conditions has led to reduced
demand for a variety of goods and services, including many technology products.
If conditions continue to decline, or fail to improve, we could see a
significant decrease in the overall demand for our products that could harm our
operating results. Moreover, frequent blackouts due to the energy crisis in
California could harm the economy and put our productivity at risk.
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WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MIGHT NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
Our accumulated deficit as of March 31, 2001 was approximately $127.5
million. We had net losses of approximately $58.8 million for the nine month
period ended March 31, 2001 and $40.8 million during the same period of the
previous fiscal year. To date we have funded our operations primarily through
product sales and the sale of equity securities. We also expect to continue to
incur substantial non-cash costs relating to the amortization of deferred
compensation and intangibles, which will contribute to our net losses. As of
March 31, 2001, we had a total of $37.9 million of deferred compensation and
intangibles to be amortized. As a result, we expect to continue to incur losses
for most of calendar year 2001. Even if we ultimately do achieve profitability,
we may not be able to sustain or increase profitability on a quarterly or annual
basis. If our revenue grows more slowly than we anticipate, or if our operating
expenses exceed our expectations and cannot be adjusted accordingly, our
business will be harmed.
WE DEPEND HEAVILY UPON OUR LICENSE FROM PALM, INC. AND OUR FAILURE TO MAINTAIN
THIS LICENSE COULD SERIOUSLY HARM OUR BUSINESS.
We rely on technologies that we license or acquire from third parties,
including Palm. Our failure to maintain these licenses could seriously harm our
business. The Palm OS operating system is integrated with our
internally-developed software and hardware, and is used to enhance the value of
our products. Our license of the Palm OS operating system is critical to our
Visor handheld computers. The license agreement was renewed in April 2001 and
extends until April 2009. Upon expiration or termination of the Palm OS
operating system license agreement, other than due to our breach, we may choose
to keep the license granted under the agreement for two years following the
expiration or termination. However, the license during this two-year period is
limited and does not entitle us to upgrades to the Palm OS operating system. If
we were not a licensee of the Palm OS operating system, we would be required to
license a substitute operating system, which could be less desirable and could
be costly in terms of cash and other resources. In the alternative, we could
develop our own operating system, which would take considerable time, resources
and expense, would divert our engineers' attention from product innovations and
likely would not have the advantage of Palm OS operating system applications
compatibility. In addition, there are limitations on our ability to assign the
Palm license agreement to a third party. The existence of these license
termination provisions and limitations on assignment may have an anti-takeover
effect in that it could discourage competitors of Palm from acquiring us.
OUR BUSINESS COULD BE HARMED BY LAWSUITS THAT HAVE BEEN FILED OR MAY IN THE
FUTURE BE FILED AGAINST PALM INVOLVING THE PALM OS OPERATING SYSTEM.
Suits against Palm involving the Palm OS operating system, which we license
from Palm, could adversely affect us. A disruption in Palm's business because of
these suits could disrupt our operations and cost us money. Palm is a defendant
in several intellectual property lawsuits involving the Palm OS operating
system. Although we are not a party to these cases and we are indemnified by
Palm for damages arising from lawsuits of this type, we could still be adversely
affected by a determination adverse to Palm as a result of market uncertainty or
product changes that could arise from such a determination.
WE ARE HIGHLY DEPENDENT ON RETAILERS AND DISTRIBUTORS TO SELL OUR PRODUCTS, AND
DISRUPTIONS IN THESE CHANNELS AND OTHER ADVERSE EFFECTS OF SELLING THROUGH
RETAILERS AND DISTRIBUTORS WOULD HARM OUR ABILITY TO GENERATE REVENUES FROM THE
SALE OF OUR HANDHELD COMPUTERS.
We sell our products through retailers and distributors as well as online
through our handspring.com Web site and e-commerce partners. Disruptions to
these channels would adversely affect our ability to generate revenues from the
sale of our handheld devices. We began using retailers in March 2000 when we
entered into agreements with Best Buy, CompUSA and Staples, currently our three
largest retail partners, to resell our products in their stores in the United
States. Since that time we have added retailers or distributors in Asia Pacific,
Canada, Europe, Japan and the Middle East. We have also added additional retail
partners in the United States and recently entered into a distribution agreement
with Ingram Micro focused on the enterprise
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market. We expect to add additional retailers and distributors worldwide as we
continue to expand our business.
We are subject to many risks relating to the distribution of our products
by retailers and distributors including the following:
- retailers and distributors may not maintain inventory levels sufficient
to meet customer demand;
- if we reduce the prices of our products, we may have to compensate
retailers and distributors for the difference between the higher price
they paid to buy their inventory and the new lower prices;
- product returns could increase as a result of our strategic interest in
assisting retailers and distributors in balancing inventories;
- retailers and distributors may emphasize our competitors' products or
decline to carry our products; and
- conflicts may develop between the retail and distribution channels and
direct sales of our products through our handspring.com Web site and by
our e-commerce partners.
In addition, to the extent our revenues through the retail and distribution
channel increase as a percentage of total revenues, our gross margins may
decrease because sales through retailers and distributors typically are made at
lower margins than sales through our Web site and by our e-commerce partners. A
higher percentage of sales by retailers and distributors also could negatively
impact our cash cycle.
A PORTION OF OUR REVENUE HAS BEEN DERIVED FROM SALES ON OUR WEB SITE AND SYSTEM
FAILURES OR DELAYS HAVE IN THE PAST AND MIGHT IN THE FUTURE HARM OUR BUSINESS.
A portion of our revenue is generated through our Web site. As a result, we
must maintain and expand our computer systems and protect our computer systems
against damage from fire, water, power loss, telecommunications failures,
computer viruses, vandalism and other malicious acts and similar unexpected
adverse events. In particular, any blackouts due to the energy crisis in
California could put our productivity at risk or cause delay in our production
timetables. Despite precautions we have taken and improvements that we have
made, unanticipated problems affecting our systems have in the past and could in
the future cause temporary interruptions or delays in the services we provide.
Sustained or repeated system failures or delays would affect our reputation,
which would harm our business. While we carry business interruption insurance,
it might not be sufficient to cover any serious or prolonged emergencies.
OUR PRODUCTION COULD BE SERIOUSLY HARMED IF WE EXPERIENCE COMPONENT SHORTAGES OR
IF OUR SUPPLIERS ARE NOT ABLE TO MEET OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT
AVAILABLE.
Our products contain components, including liquid crystal displays, touch
panels, connectors, memory chips and microprocessors, that are procured from a
variety of suppliers. We rely on our suppliers to deliver necessary components
to our contract manufacturers in a timely manner based on forecasts that we
provide. At various times, some of the key components for handheld computers
have been in short supply due to high industry demand. Shortages of components
would harm our ability to deliver our products on a timely basis.
In addition, some components, such as power supply integrated circuits,
microprocessors and certain discrete components, come from sole or single source
suppliers. Alternative sources are not currently available for these sole and
single source components. If suppliers are unable to meet our demand for sole
source components and if we are unable to obtain an alternative source or if the
price for an alternative source is prohibitive, our ability to maintain timely
and cost-effective production of our handheld computer products would be
seriously harmed.
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IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, intense
competition and frequent new product introductions. If we fail to modify or
improve our products in response to changes in technology or industry standards,
our products could rapidly become less competitive or obsolete. Our future
success will depend, in part, on our ability to:
- use leading technologies effectively;
- continue to develop our technical expertise;
- enhance our current products and develop new products that meet changing
customer needs;
- time new product introductions in a way that minimizes the impact of
customers delaying purchases of existing products in anticipation of new
product releases;
- adjust the prices of our existing products to increase customer demand;
- successfully advertise and market our products; and
- influence and respond to emerging industry standards and other
technological changes.
We must respond to changing technology and industry standards in a timely
and cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products on a
timely basis. These new technologies or enhancements may not achieve market
acceptance. Our pursuit of necessary technology may require substantial time and
expense. We may need to license new technologies to respond to technological
change. These licenses may not be available to us on terms that we can accept.
Finally, we may not succeed in adapting our products to new technologies as they
emerge.
IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS,
DEMAND FOR OUR PRODUCTS COULD DECREASE.
We depend on our ability to develop new or enhanced products that achieve
rapid and broad market acceptance. We may fail to identify new product
opportunities successfully and develop and bring to market new products in a
timely manner. In addition, our product innovations may not achieve the market
penetration or price stability necessary for profitability. If we are
unsuccessful at developing and introducing new products that are appealing to
customers, our business and operating results would be negatively impacted.
As the use of our Visor handheld computer and Springboard slot continue to
evolve, we plan to develop additional complementary products and services as
additional sources of revenue are available. Accordingly, we may change our
business model to take advantage of new business opportunities, including
business areas in which we do not have extensive experience. For example, during
the quarter ending December 30, 2000 we began selling VisorPhone, our GSM cell
phone module that relies on a wireless infrastructure, and during the quarter
ending March 31, 2001 we completed the acquisition of BlueLark Systems, Inc., a
provider of software designed to deliver content and services to mobile handheld
devices. If we fail to further develop and commercialize these or other products
or services successfully, our business would be harmed.
IF SPRINGBOARD MODULES FOR OUR VISOR HANDHELD COMPUTER ARE NOT SUCCESSFULLY
DEVELOPED AND MARKETED, DEMAND FOR OUR PRODUCTS MAY BE LIMITED.
To differentiate our products from competitors and attract large numbers of
consumer purchasers of our products, we and third parties need to continue to
develop compelling Springboard modules for our Visor handheld computer. We may
also need to assist in marketing and distributing Springboard modules on behalf
of third party developers who may not have the financial means and distribution
network to do so on their own. If we or Springboard module developers fail to
anticipate market needs in a timely manner, or if there is not a successful
distribution outlet for the sale of Springboard modules, demand for our Visor
handheld computer may diminish.
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OUR REPUTATION COULD BE HARMED IF THE SPRINGBOARD MODULES DEVELOPED BY THIRD
PARTIES ARE DEFECTIVE.
Because we offer an open development environment, third party developers
are free to design, market and sell modules for our Springboard slot without our
consent, endorsement or certification. Nevertheless our reputation is
inextricably tied to the Springboard modules designed for our Visor handheld
computer. If modules sold by third parties are defective or are of poor quality,
our reputation could be harmed and the demand for our Visor handheld computer
and modules could decline.
IF THE EXPANDABLE DESIGN OF OUR PRODUCTS IS NOT ACCEPTED BY CONSUMERS, OUR
REVENUES WILL FAIL TO MEET OUR EXPECTATIONS.
Much of the perceived value of our Visor handheld computer lies in the
Springboard expansion slot, which enables users to add functions by inserting
modules into the base device. Many of these modules will perform functions that
are today generally performed by a dedicated standalone device. While we believe
that the simple customization provided by the Springboard slot will be
attractive to users, the uniqueness of the feature combined with the relatively
recent introduction of the product make it unclear whether consumers will prefer
our approach as compared either to multiple dedicated devices or to other
designs for multifunction devices. For example, a number of companies, including
Palm, are developing products that will feature the Secure Digital (SD) card
slot for expansion.
IF WE FAIL TO ACCURATELY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE
TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD
COMPUTERS OR WE COULD HAVE COSTLY EXCESS PRODUCTION.
The demand for our products depends on many factors and is difficult to
forecast. We experienced product shortages when we first introduced our Visor
handheld computer because we underestimated initial demand. Demand for our
products will be more difficult to forecast with multiple products and increased
competition. Significant unanticipated fluctuations in demand could cause
problems in our operations.
If demand does not develop as expected, we could have excess production
resulting in excess finished products and components and may be required to
incur excess and obsolete inventory changes. We have limited capability to
reduce manufacturing capacity once a purchase order has been placed, and we
could incur cancellation charges or other liabilities to our manufacturing
partners if we cancel or reschedule purchase orders. Moreover, if we reduce
manufacturing capacity, we would incur higher per unit costs based on smaller
volume purchases.
If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturers. Our suppliers will also need to
provide additional volumes of components, which may not be possible within our
timeframes. Even if our third-party manufacturers are able to obtain enough
components, they might not be able to produce enough of our products as fast as
we need them. The inability of either our manufacturers or our suppliers to
increase production rapidly enough could cause us to fail to meet customer
demand. In addition, rapid increases in production levels to meet unanticipated
demand could result in higher costs for manufacturing and supply of components
and other expenses. These higher costs would lower our profit margins.
IF ANY OF OUR MANUFACTURING PARTNERS FAIL TO PRODUCE QUALITY PRODUCTS ON TIME
AND IN SUFFICIENT QUANTITIES, OUR REPUTATION AND RESULTS OF OPERATIONS WOULD
SUFFER.
We depend on third-party manufacturers to produce sufficient volume of our
handheld devices, modules and accessories in a timely fashion and at
satisfactory quality levels. The cost, quality and availability of third-party
manufacturing operations are essential to the successful production and sale of
our products. We currently have manufacturing agreements with Flextronics,
Solectron and Option under which we order products on a purchase order basis in
accordance with a forecast. The absence of dedicated capacity under our
manufacturing agreements means that, with little or no notice, our manufacturers
could refuse to continue to manufacture all or some of the units of our devices
that we require or change the terms under which they manufacture our devices. If
they were to stop manufacturing our devices, it could take from three to six
months to secure alternative manufacturing capacity and our results of
operations could be harmed. In
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addition, if our manufacturers were to change the terms under which they
manufacture for us, our manufacturing costs could increase and our results of
operations could suffer.
Our reliance on third-party manufacturers exposes us to risks outside our
control, including the following:
- unexpected increases in manufacturing and repair costs;
- interruptions in shipments if one of our manufacturers is unable to
complete production;
- inability to control quality of finished products;
- inability to control delivery schedules;
- unpredictability of manufacturing yields; and
- potential lack of adequate capacity to fill all or a part of the services
we require.
WE RELY ON THIRD PARTIES FOR ORDER FULFILLMENT, REPAIR SERVICES AND TECHNICAL
SUPPORT. OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE HARMED BY OUR
INABILITY TO CONTROL THEIR OPERATIONS.
We rely on third parties to package and ship customer orders, repair units
and provide technical support. If our order fulfillment services, repair
services or technical support services are interrupted or experience quality
problems, our ability to meet customer demands would be harmed, causing a loss
of revenue and harm to our reputation. Although we have the ability to add new
service providers or replace existing ones, transition difficulties and lead
times involved in developing additional or new third party relationships could
cause interruptions in services and harm our business.
THE SUCCESS OF VISORPHONE, AND OTHER VOICE AND DATA ENABLED DEVICES THAT WE MAY
DEVELOP IN THE FUTURE, IS DEPENDENT ON OUR ABILITY TO EVOLVE OUR BUSINESS BEYOND
TRADITIONAL HANDHELD COMPUTERS, AND EFFECTIVELY MARKET AND SELL SUCH PRODUCTS IN
A BROADER, MORE COMPETITIVE MARKET.
During the quarter ended December 30, 2000 we introduced the VisorPhone, a
Springboard expansion module that allows a Visor to be used as a GSM mobile
telephone. Our sales of VisorPhone have been modest to date. During our third
fiscal quarter, we expanded service activation for VisorPhone to include
VoiceStream Wireless and Powertel in addition to Cingular. We also started to
sell VisorPhone on regional basis through Staples', Best Buy's and Cingular's
retail stores. In addition, we are working on programs to enhance VisorPhone's
data capabilities and to sell the product in Europe. The success of this product
is highly dependent on these new initiatives and our failure to improve sales of
this product would adversely affect our business.
Entering the voice and data market presents many significant risks and
uncertainties as we expand our business beyond traditional handheld computers,
including our need to develop additional marketing and engineering expertise and
establish appropriate relationships with the wireless carriers on reasonable
terms. The success of VisorPhone, and other voice and data enabled devices that
we may develop in the future, would be impaired if we are not able to evolve our
business to effectively compete in this broader market.
WE FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY OPERATING
RESULTS TO FLUCTUATE.
As is typical for other companies in our industry, we have experienced
seasonality in the sales of our products with strong demand occurring in our
second fiscal quarter due in part to increased consumer spending on electronic
devices during the holiday season. Although we did not experience a sequentially
down quarter after the second quarter holiday season of fiscal 2001, there is no
guarantee that we will repeat this performance next year. In addition, we expect
that demand for our products will decline in our first fiscal quarter of 2002
compared to the fourth fiscal quarter of 2001 due to slower consumer spending
during the summer months, particularly in Europe. These seasonal variations in
our sales may lead to fluctuations in our quarterly operating results.
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OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR
OUR PRODUCTS.
We believe that continuing to strengthen our brand will be critical to
increasing demand for, and achieving widespread acceptance of, our handheld
computer products. Some of our competitors and potential competitors have better
name recognition and powerful brands. Promoting and positioning our brand will
depend largely on the success of our marketing efforts, our ability and the
ability of third party developers to deliver Springboard modules, software and
accessories that are engaging to our users and our ability to provide high
quality support. To promote our brand, we expect to continue our marketing
expenditures and financial commitment to creating and maintaining brand loyalty
among users. Brand promotion activities may not yield increased revenues or
customer loyalty and, even if they do, any increased revenues may not offset the
expenses we incur in building and maintaining our brand.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE.
The market for handheld computing and voice and data communication products
is highly competitive and we expect competition to increase in the future. Some
of our competitors or potential competitors have significantly greater
financial, technical and marketing resources than we do. These competitors may
be able to respond more rapidly than we can to new or emerging technologies or
changes in customer requirements. They may also devote greater resources to the
development, promotion and sale of their products than we do.
Our handheld computers compete with a variety of handheld devices,
including keyboard-based devices, sub-notebook computers, smart phones and
two-way pagers. Our principal competitors include:
- Palm, from whom we license the Palm OS operating system;
- licensees of the Microsoft Windows CE operating system for devices such
as the PocketPC, including Casio, Compaq and Hewlett-Packard;
- members of the Symbian consortium, including Psion, Ericsson and
Motorola;
- other Palm OS operating system licensees, including IBM, Kyocera, Nokia,
Samsung and Sony;
- Research In Motion Limited, a provider of devices and services that
enable wireless email, instant messaging and Internet connectivity; and
- Smart phones manufactured by Kyocera, Ericsson, Motorola, Nokia and other
handset producers.
We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies.
Successful new product introductions or enhancements by our competitors could
result in price reductions, fewer customer orders, reduced market acceptance of
our products, reduced gross margins and loss of market share.
Our failure to compete successfully against current or future competitors
could seriously harm our business. To be competitive, we must continue to invest
significant resources in research and development, sales and marketing and
customer support. We cannot be sure that we will have sufficient resources to
make these investments or that we will be able to make the technological
advances necessary to be competitive.
OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS THAT COULD RESULT IN THE REJECTION OF
OUR PRODUCTS AND DAMAGE TO OUR REPUTATION, AS WELL AS LOST REVENUES, DIVERTED
DEVELOPMENT RESOURCES AND INCREASED SERVICE COSTS AND WARRANTY CLAIMS.
Our handheld computers and Springboard modules are complex and must meet
stringent user requirements. We must develop our products quickly to keep pace
with the rapidly changing handheld computing and communications market. Products
as sophisticated as ours are likely to contain detected and undetected errors or
defects, especially when first introduced or when new models or versions are
released. In the future, we may experience delays in releasing new products as
problems are corrected. From time to time, we have become aware of problems with
components and other defects. Errors or defects in our products that are
significant, or are perceived to be significant, could result in the rejection
of our products, damage to our reputation, lost
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revenues, diverted development resources and increased customer service and
support costs and warranty claims. In addition, some undetected errors or
defects may only become apparent as new functions are added to our handheld
computers through the use of future Springboard modules. Currently, consumers
that purchase through our Web site may return their handheld computers for any
reason within 30 days after purchase. In addition, we warrant that our hardware
will be free of defects for one year after the date of purchase. Delays, costs
and damage to our reputation due to product defects could harm our business.
OUR PRODUCTS ALSO COULD BE AFFECTED BY VIRUSES AND SECURITY RISKS.
There have been reports of computer viruses and security risks impacting
handheld device operating systems and wireless networks. It is possible that
these viruses and security risks may become more prevalent, particularly as
handheld computers and communication devices are more commonly used for wireless
applications that facilitate the sharing of files and other information. Such
viruses and security risks, and their attendant publicity, may adversely impact
sales of our products.
IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS
SUCCESSFULLY.
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel and their ability to
execute our growth strategy. In particular, we rely on Jeffrey C. Hawkins, our
Chief Product Officer, Donna L. Dubinsky, our Chief Executive Officer, and
Edward T. Colligan, our Senior Vice President, Marketing and Sales. The loss of
the services of any of our senior level management, or other key employees,
could harm our business.
IF WE FAIL TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED EMPLOYEES, OUR ABILITY TO
EXECUTE OUR BUSINESS PLAN WOULD BE COMPROMISED.
Our future success depends on our ability to attract, retain and motivate
highly skilled employees. Competition for employees in our industry is intense.
Although we provide compensation packages that include stock options, cash
incentives and other employee benefits, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. Further, when our common stock price is less than the exercise
price of stock options granted to employees, turnover may increase, which could
harm our results of operations or financial condition. In order to help retain
employees, we are in the process of implementing a program pursuant to which we
will grant new options to existing employees on an ongoing basis where the size
of each grant will be determined based on performance and grade level. The first
grant under this program will also take into consideration the extent to which
the employee's existing options are at an exercise price above market price. If
we fail to retain, hire and integrate qualified employees and contractors, we
will not be able to maintain and expand our business.
WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY.
Our success and ability to compete substantially depends on our internally
developed proprietary technologies, which we protect through a combination of
trade secret, trademark, copyright and patent laws. While we have patent
applications pending, to date no U.S. or foreign patents have been granted to
us.
Patent applications or trademark registrations may not be approved. Even if
they are approved, our patents or trademarks may be successfully challenged by
others or invalidated. In addition, any patents that may be granted to us may
not provide us a significant competitive advantage. If our trademark
registrations are not approved because third parties own these trademarks, our
use of these trademarks would be restricted unless we enter into arrangements
with the third-party owners, which might not be possible on commercially
reasonable terms or at all. If we fail to protect or enforce our intellectual
property rights successfully, our competitive position could suffer.
We may be required to spend significant resources to protect, monitor and
police our intellectual property rights. We may not be able to detect
infringement and may lose competitive position in the market before we do so. In
addition, competitors may design around our technology or develop competing
technologies.
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WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.
Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. From time to time, third parties have in the past and
may in the future assert patent, copyright, trademark or other intellectual
property rights to technologies that are important to our business. On March 14,
2001, NCR Corporation filed suit against Handspring and Palm, Inc. in the United
States District Court for the District of Delaware. The complaint alleges
infringement of U.S. Patent Nos. 4,634,845 and 4,689,478, entitled,
respectively, "Portable Personal Terminal for Use in a System for Handling
Transactions" and "System for Handling Transactions Including a Portable
Personal Terminal" (the "patents in suit"). We filed an answer on April 30,
2001, denying NCR's allegations and asserting counterclaims for declaratory
judgments that Handspring does not infringe the patents in suit, that the
patents in suit are invalid, and that they are unenforceable. We believe that
the claims are without merit and intend to defend vigorously against them.
We may in the future receive other notices of claims that our products
infringe or may infringe intellectual property rights. Any litigation to
determine the validity of such claims, including claims arising through our
contractual indemnification of our business partners, regardless of their merit
or resolution, would likely be costly and time consuming and divert the efforts
and attention of our management and technical personnel. We cannot assure that
we would prevail in such litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If such litigation
resulted in an adverse ruling, we could be required to:
- pay substantial damages and costs;
- cease the manufacture, use or sale of infringing products;
- discontinue the use of certain technology; or
- obtain a license under the intellectual property rights of the third
party claiming infringement, which license may not be available on
reasonable terms, or at all.
OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.
We now sell our products in Asia Pacific, Canada, Europe, Japan and the
Middle East in addition to the United States. We expect to enter additional
international markets over time. If our revenue from international operations
increases as a percentage of our total revenue, we will be subject to increased
exposure to international risks. In addition, the facilities where our Visor
handheld computers are, and will be, manufactured are located outside the United
States. A substantial number of our material suppliers also are based outside of
the United States, and are subject to a wide variety of international risks.
Accordingly, our future results could be harmed by a variety of factors,
including:
- changes in foreign currency exchange rates;
- development risks and expenses associated with customizing our products
for local languages;
- difficulty in managing widespread sales and manufacturing operations;
- potentially negative consequences from changes in tax laws;
- trade protection measures and import or export licensing requirements;
- less effective protection of intellectual property; and
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets.
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WE MAY PURSUE STRATEGIC ACQUISITIONS AND WE COULD FAIL TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES.
In February 2001, we completed the acquisition of BlueLark Systems, Inc. We
expect to evaluate future acquisition opportunities that could provide us with
additional product or services offerings, technologies or industry expertise.
Integration of acquired companies may result in problems relating to integrating
technology and management teams. Management's attention may also be diverted
away from other business issues and opportunities while focusing on the
acquisitions. If we fail to integrate the operations, personnel or products that
we may acquire in the future, our business could be materially harmed.
WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT
NOT BE AVAILABLE.
We currently anticipate that our available cash resources will be
sufficient to meet our anticipated working capital and capital expenditure
requirements for at least the next 12 months. However, our resources may prove
to be insufficient for these working capital and capital expenditure
requirements. We may need to raise additional funds through public or private
debt or equity financing in order to:
- take advantage of opportunities, including the purchase of technologies
or acquisitions of complementary businesses;
- develop new products or services; or
- respond to competitive pressures.
Depending on market conditions, any additional financing we need may not be
available on terms acceptable to us, or at all. If adequate funds are not
available or are not available on acceptable terms, we might not be able to take
advantage of unanticipated opportunities, develop new products or services or
otherwise respond to unanticipated competitive pressures, and our business could
be harmed.
THE PRICE OF OUR COMMON STOCK HAS BEEN AND IS LIKELY TO CONTINUE TO BE VOLATILE
AND SUBJECT TO WIDE FLUCTUATIONS.
The market price of our common stock has been and is likely to continue to
be subject to wide fluctuations, particularly given that securities of
technology-related companies are typically volatile and only a small portion of
our outstanding shares currently are publicly traded. Our stock price fell below
our initial public offering price for the first time this quarter.
Among the factors that could affect our stock price are:
- quarterly variations in our operating results;
- changes in revenues or earnings estimates or publication of research
reports by analysts;
- speculation in the press or investment community;
- reactions to events that affect other companies in our industry,
particularly Palm, even if these events do not directly affect us;
- actions by institutional stockholders;
- negative developments in the market for technology related stock or the
stock market in general; and
- domestic and international economic factors unrelated to our performance.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. If
we were to become the subject of securities class action litigation, it could
result in substantial costs and a diversion of management's attention and
resources.
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER A COMPANY FROM ACQUIRING US.
We have a classified board of directors. In addition, our stockholders are
unable to call special meetings of stockholders, to act by written consent, or
to remove any director or the entire board of directors without a super majority
vote or to fill any vacancy on the board of directors. Our stockholders must
also meet advance
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notice requirements for stockholder proposals. Our board of directors may also
issue preferred stock without any vote or further action by the stockholders.
These provisions and other provisions under Delaware law could make it more
difficult for a third party to acquire us, even if doing so would benefit our
stockholders.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.
Our executive officers, our directors and entities affiliated with them
together beneficially own a substantial portion of our outstanding common stock.
As a result, these stockholders are able to exercise substantial influence over
all matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control that may be viewed as beneficial by other stockholders.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE.
If our existing stockholders sell substantial amounts of our common stock
in the public market, the market price of our common stock could decline. The
lock-up agreements pertaining to our initial public offering expired in December
2000 and a large number of our shares now are eligible for sale in the public
market. Many of these shares are held by directors, executive officers and other
affiliates, and are subject to volume limitations under Rule 144 of the
Securities Act of 1933 and various vesting agreements. In addition, shares
subject to outstanding options, and shares reserved for future issuance under
our stock option and purchase plans, will continue to become eligible for sale
in the public market to the extent permitted by the provisions of various
vesting agreements and the securities rules and regulations applicable to these
shares.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. We maintain a portfolio of short-term and
long-term investments consisting mainly of fixed income securities with an
average maturity of less than one year. These securities may fall in value if
interest rates rise and if liquidated prior to their maturity dates. We have the
ability to hold our fixed income investments until maturity, and therefore we do
not anticipate our operating results or cash flows to be significantly affected
by any increase in market interest rates. We do not hedge interest rate
exposures.
Foreign Currency Exchange Risk. Revenue and expenses of our international
operations are denominated in various foreign currencies and, accordingly, we
are subject to exposure from movements in foreign currency exchange rates. In
March 2001, we began utilizing derivative financial instruments to manage this
type of foreign currency exchange risk. We do not use derivative financial
instruments for speculative or trading purposes.
The company enters into foreign exchange forward contracts to hedge certain
balance sheet exposures and intercompany balances against future movements in
foreign exchange rates. Gains and losses on the forward contracts are largely
offset by the underlying transactions' exposure and, consequently, a sudden or
significant change in foreign exchange rates is not expected to have a material
impact on future net income or cash flows.
We do not currently hedge the foreign currency exposure that results from
the translation of foreign subsidiary financial statements into U.S. dollars in
consolidation, nor do we currently hedge any anticipated or firmly committed
transaction. We intend to asses the need to utilize financial instruments to
hedge these types of foreign currency exposures on an ongoing basis. The company
is exposed to credit-related losses in the event of nonperformance by counter
parties to these financial instruments, but does not expect any counter party to
fail to meet its obligation.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising from our operations. On March 14, 2001, NCR Corporation filed suit
against Handspring and Palm, Inc. in the United States District Court for the
District of Delaware. The complaint alleges infringement of U.S. Patent Nos.
4,634,845 and 4,689,478, entitled, respectively, "Portable Personal Terminal for
Use in a System for Handling Transactions" and "System for Handling Transactions
Including a Portable Personal Terminal" (the "patents in suit"). The complaint
seeks unspecified compensatory and treble damages and to permanently enjoin the
defendants from infringing the patents in the future. We filed an answer on
April 30, 2001, denying NCR's allegations and asserting counterclaims for
declaratory judgments that Handspring does not infringe the patents in suit,
that the patents in suit are invalid, and that they are unenforceable. We
believe that the claims are without merit and intend to defend vigorously
against them.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Our Registration Statement on Form S-1 (File No. 333-33666) related to our
initial public offering was declared effective by the SEC on June 20, 2000. A
total of 11,500,000 shares of our Common Stock were registered on our behalf.
Net offering proceeds to us (after deducting underwriting discounts and
commissions and offering expenses) were approximately $212.9 million. We have
used, and expect to continue to use, the net proceeds for general working
capital. Funds not used for general working capital are invested in available-
for-sale, interest-bearing, investment-grade securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
William E. Kennard, former Chairman of the Federal Communications
Commission, was elected to the Board of Directors of the Company effective as of
April 9, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
10.20 Lease Agreement (Building 2) between Registrant and M-F
Downtown Sunnyvale, LLC, dated as of February 14, 2001++
10.21 Lease Agreement (Building 3) between Registrant and M-F
Downtown Sunnyvale, LLC, dated as of February 14, 2001++
10.22 Standby Letter of Credit (Building 2, Security Deposit)
between Registrant and Wells Fargo Bank, National
Association
10.23 Standby Letter of Credit (Building 2, Tenant Improvements)
between Registrant and Wells Fargo Bank, National
Association
10.24 Standby Letter of Credit (Building 3, Security Deposit)
between Registrant and Wells Fargo Bank, National
Association
10.25 Standby Letter of Credit (Building 3, Tenant Improvements)
between Registrant and Wells Fargo Bank, National
Association
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EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
10.26 Form of Addendum to Standby Letter of Credit between
Registrant and Wells Fargo Bank, National Association
10.27 Securities Account Control Agreement among Registrant, Wells
Fargo Bank, National Association, acting through its
Investment Group, and Wells Fargo Bank, National
Association, acting through its Peninsula Technology RCBO
Office, dated as of February 16, 2001
10.28 Security Agreement between Registrant and Wells Fargo Bank,
National Association, dated as of February 16, 2001
10.29 Addendum to Security Agreement between Registrant and Wells
Fargo Bank, National Association, dated as of February 16,
2001
(b) Reports on Form 8-K.
We did not file any reports on Form 8-K during the quarter.
++ Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this
filing and are filed separately with the Securities and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 4, 2001 HANDSPRING, INC.
By: /s/ BERNARD J. WHITNEY
------------------------------------
Bernard J. Whitney
Vice President and Chief Financial
Officer
(Principal Financial Officer and
Duly Authorized Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
10.20 Lease Agreement (Building 2) between Registrant and M-F
Downtown Sunnyvale, LLC, dated as of February 14, 2001++
10.21 Lease Agreement (Building 3) between Registrant and M-F
Downtown Sunnyvale, LLC, dated as of February 14, 2001++
10.22 Standby Letter of Credit (Building 2, Security Deposit)
between Registrant and Wells Fargo Bank, National
Association
10.23 Standby Letter of Credit (Building 2, Tenant Improvements)
between Registrant and Wells Fargo Bank, National
Association
10.24 Standby Letter of Credit (Building 3, Security Deposit)
between Registrant and Wells Fargo Bank, National
Association
10.25 Standby Letter of Credit (Building 3, Tenant Improvements)
between Registrant and Wells Fargo Bank, National
Association
10.26 Form of Addendum to Standby Letter of Credit between
Registrant and Wells Fargo Bank, National Association
10.27 Securities Account Control Agreement among Registrant, Wells
Fargo Bank, National Association, acting through its
Investment Group, and Wells Fargo Bank, National
Association, acting through its Peninsula Technology RCBO
Office, dated as of February 16, 2001
10.28 Security Agreement between Registrant and Wells Fargo Bank,
National Association, dated as of February 16, 2001
10.29 Addendum to Security Agreement between Registrant and Wells
Fargo Bank, National Association, dated as of February 16,
2001
- ---------------
++ Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this
filing and are filed separately with the Securities and Exchange Commission.
26