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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission file number 000-25374
GENERAL MAGIC, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0250147
(State of incorporation) (IRS Employer Identification Number)
420 NORTH MARY AVENUE
SUNNYVALE, CALIFORNIA 94085
(408) 774-4000
(Address and telephone number of principal executive offices)
Indicate by check mark whether 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, and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]
70,938,684 shares of the registrant's Common Stock, $0.001 par value, were
outstanding as of August 7, 2001.
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EXPLANATORY NOTE
On August 14, 2001, General Magic, Inc. (the Company) filed with the Securities
and Exchange Commission (the Commission) a report on Form 10-Q for the quarter
ending June 30, 2001, and attached as Exhibit 10.1 the Services Agreement (the
Agreement), effective January 1, 2001, between the Company and OnStar
Corporation, portions of which were redacted and filed separately with the
Commission. The Company is hereby refiling the Agreement to disclose terms of
the Agreement that were previously redacted.
In addition, the Company is amending Item 2 of the report on Form 10-Q to
provide more information about the Company's relationship with OnStar
Corporation, and about the Company's liquidity and capital resources.
Item 2 is amended to substitute the following language for the second, third,
fourth and fifth paragraphs immediately following the Item 2 heading:
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
General Magic, Inc.'s software products and services are designed to enable
businesses to rapidly and efficiently develop and deliver automated services
over the telephone using personality-rich conversational voice user interfaces
that provide mobile access to enterprise, Internet and telecommunication
information and services. Our open standards based magicTalk(TM) Enterprise
Platform and patented personality rich voice user interface design features and
methodology provide the foundation for our products, which are supported by our
speech and language services and voice hosting services. Our principal target
market is businesses that desire to offer automated voice access to information
and services over the telephone.
MAGIC TALK ENTERPRISE PLATFORM
The magicTalk Enterprise Platform is designed to enable businesses to
rapidly design and deploy automated, integrated, personalized, scenario-driven
voice and web applications. With the magicTalk Enterprise Platform, businesses
can add automated but conversational voice-access to enterprise systems while
leveraging existing e-business infrastructure investments and reducing internal
application development time.
At the core of the magicTalk Enterprise Platform is the magicTalk Voice
Gateway, our scalable, server software that enables telephone access to large
enterprise and e-commerce applications. The magicTalk Voice Gateway integrates
VoiceXML, the emerging standard for developing voice applications, and a choice
of speech recognition, text to speech and telephony technologies and provides
ready integration with web-based enterprise systems.
We offer our speech and language services to businesses developing voice
applications on the magicTalk Enterprise Platform. These speech and language
services focus on software tools and techniques for developing socially
engineered voice user interfaces. Based on our patented design features and
methodology for developing voice user interfaces with personality and our
experience in combining language, logic and personality, we strive to enable
businesses to develop voice user interfaces to mirror their company brand and
services and to build customer trust and loyalty.
ONSTAR VIRTUAL ADVISOR
One of the Company's main sources of revenue is its relationship with
OnStar Corporation, a subsidiary of General Motors Corporation, a stockholder of
the Company that may be deemed an affiliate, and the Company's primary customer.
For the six-month period ended June 30, 2001 OnStar Corporation accounted for
95% of the Company's total revenue. The service delivered by OnStar is an
in-vehicle safety, security and information service using Global Positioning
System (GPS) satellite network and wireless technologies to provide, through
live advisors, accident assistance, stolen vehicle tracking, emergency services,
roadside assistance with location, remote door unlock, remote diagnostics, route
support, OnStar Concierge and other convenience and information services to
OnStar subscribers. The OnStar service includes a Personal Calling feature that
allows OnStar subscribers who have purchased wireless minutes to make and
receive hands-free, voice-activated phone calls through a nationwide wireless
network. OnStar subscribers who have activated the Personal Calling feature may
also access the Virtual Advisor service. The Virtual Advisor is an automated
voice-activated network service developed by the Company and hosted in the
Company's network operations center, that allows OnStar subscribers to access
email, stock quotes, weather updates, traffic reports and up-to-the-minute news
content, including sports, financial, headline, business and world news.
OnStar's roll-out of the Virtual Advisor service to the approximately one
million 2001 and 2002 Acura, General Motors and Saab vehicles equipped to allow
Personal Calling is expected to be completed early in 2002.
Relationship with OnStar Corporation
On November 9, 1999, the Company entered into a Preferred Stock and
Warrant Purchase Agreement and a Development and License Agreement with OnStar
Corporation for total consideration in the amount of $20 million. Approximately
$13.8 million of that sum has been allocated to OnStar's purchase of the
Company's Series G Preferred Stock and associated warrants, and the balance,
approximately $6.2 million, has been allocated to the development services and
license rights provided to OnStar under the Development and License Agreement.
Pursuant to OnStar's acquisition of the Company's Series G Preferred Stock,
OnStar acquired beneficial ownership of more than 10% of the Company's
outstanding common stock and has the right to elect one director to our board
of directors.
Development and License Agreement with OnStar
Pursuant to the Development and License Agreement, the Company agreed
to commit a minimum of 315 person-months to develop the OnStar Virtual Advisor
service and to integrate that service with the existing OnStar service. All
development effort required beyond the minimum commitment was charged to OnStar
at mutually agreed upon rates. The portion of the $6.2 million development and
license fee recognized as revenue in 2000, together with the amount charged to
OnStar for the development effort beyond the minimum 315 person-hour commitment
and recognized as revenue in 2000, totaled $9.8 million, comprising 93% of the
Company's revenues for the year.
Under the Development and License Agreement, the Company also granted
OnStar a world-wide, perpetual, non-transferable and irrevocable license to
operate the Virtual Advisor for use primarily through equipment installed
onboard vehicles. The license is exclusive for a period of one year following
first commercial availability of the Virtual Advisor (which occurred January 1,
2001). The Company further agreed to refrain for five years from the date of
first commercial availability from transferring or sublicensing its
rights to those elements of the voice user interface developed by the Company
specifically for the OnStar Virtual Advisor to any vehicle manufacturer or
supplier for use in services designed primarily for use through equipment
installed onboard vehicles.
Services Agreement with OnStar
The Development and License Agreement provides that the Company
initially will operate the service, which it has done pursuant to a Services
Agreement entered into on May 2, 2001, and effective as of January 1, 2001.
Under the Services Agreement, the Company is to (i) operate the Virtual Advisor
service 24 hours a day, seven days a week, for a period of two years from the
first commercial availability of the Virtual Advisor service, (ii) maintain
compliance with designated performance levels, and (iii) provide second level
support to OnStar. The Company also is to contract with service providers for
the delivery of content, such as news and weather, to the Virtual Advisor. In
consideration, OnStar is to pay the Company a minimum of $95,000 per month for
utilization of the service up to 4 million minutes per month. Utilization of the
services in excess of 4 million minutes per month is subject to incremental per
minute rate increases, ranging from $.056 per minute for the first half million
minutes in excess of 4 million minutes of use per month to $.018 per minute for
minutes in excess of 20 million minutes of use per month. Should the Company
fail to attain the performance levels to which it has committed, other than for
reasons beyond its control, it may be obligated to credit OnStar up to
approximately $75,000 of the monthly service fee for any month in which such
failure occurs, depending upon the extent and duration of any such failure, and
further depending upon the Company's average performance for the calendar
quarter in which such failure occurs. The Services Agreement is automatically
renewable for successive ninety-day periods unless either party gives the other
notice of nonrenewal ninety days prior to the expiration of the then-current
term.
Amendment to Development and License Agreement and Services Addendum
The Development and License Agreement also provides that, following
first commercial availability of the OnStar Virtual Advisor service, OnStar may
request that the Company develop additional features and functionality for the
service, which it has done from time to time, generally pursuant to change order
requests. On August 1, 2001, and in order both to ensure OnStar a committed
level of resources to support continued development and enhancement of the
Virtual Advisor and to allow the Company an opportunity to better predict
demands on its resources and related revenues and returns on revenues, OnStar
and the Company entered into Amendment Number One to the Development and License
Agreement, which provides that the Company will undertake such efforts pursuant
only to a Services Addendum that describes the work to be performed, resources
to be made available to OnStar by the Company, and the payment terms for such
services.
Under a Services Addendum executed contemporaneously with Amendment
Number One, the Company agreed to dedicate a minimum of eighteen people over a
period of one year to develop and implement enhancements to the Virtual Advisor
service, and to support
and maintain the Virtual Advisor software. In consideration, OnStar agreed to
pay the Company a minimum of approximately $484,000 for each month during the
term of the Services Addendum, subject to reduction only to the extent that the
Company is unable to supply the resources committed. The term of the Services
Addendum is renewable for subsequent one-year periods upon agreement of the
parties.
Item 2 is amended to include the following paragraphs at the beginning of the
section captioned "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
For the three-month period ended June 30, 2001, the cash assets used by the
Company averaged $1.6 million per month. The Company expects that its average
monthly cash requirement will increase during the third and fourth quarters of
2001, and that the Company will require a net amount of approximately $11.6
million to fund its operations through the end of the year.
The Company expects that, absent additional funding, it will have a balance of
cash and cash equivalents of approximately $4 million as of the end of the year
2001. The Company believes it will be necessary to raise additional funds
totaling approximately $15 million to $20 million to fund its operations through
the end of 2002, and expects to raise these monies in the fourth quarter of 2001
and the first half of 2002.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits have been filed with this report:
EXHIBIT
NUMBER DESCRIPTION
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10.1(1) Services Agreement dated effective January 1, 2001 between the Company and OnStar Corporation
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(1) Certain portions of this document have been omitted pursuant to an
Application for Confidential Treatment filed with the Securities and
Exchange Commission. Such portions have been provided separately to the
Commission.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: November 9, 2001 /s/ KATHLEEN M. LAYTON
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Name: Kathleen M. Layton
Title: President and Chief Executive Officer
(Principal Executive Officer)
DATE: November 9, 2001 /s/ DAVID H. RUSSIAN
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Name: David H. Russian
Title: Chief Financial Officer
(Principal Financial and Accounting Officer)
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
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10.1(1) Services Agreement dated effective January 1, 2001 between the Company and OnStar Corporation
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(1) Certain portions of this document have been omitted pursuant to an
Application for Confidential Treatment filed with the Securities and
Exchange Commission. Such portions have been provided separately to the
Commission.