Filed by Extended Systems, Incorporated
Pursuant to Rule 425 under the Securities Act of 1933
And deemed filed pursuant to Rule 14a-12
Under the Securities Exchange Act of 1934
Subject Company: ViaFone, Inc.
Commission File No. 132-02238
THE FOLLOWING IS A TRANSCRIPT FROM EXTENDED SYSTEMS' INVESTOR CONFERENCE CALL ON
JULY 11, 2002:
Extended Systems, Inc. (XTND) - Special Investor Call
Thursday, July 11, 2002 11:00 AM ET
THE OPERATOR: Good morning, ladies and gentlemen, and welcome to the Extended
Systems, Incorporated Special Investor Call. At this time, all participants are
in a listen-only mode. A brief question-and-answer session will follow the
formal presentation. If anyone should require operator assistance during the
conference, please press star zero on your telephone keypad. As a reminder, this
conference is being recorded. I would now like to turn the conference over to
your host, Mr. Steve Simpson. Thank you, Mr. Simpson, you may begin.
STEVE SIMPSON: Thank you, John. Thank you, and good morning. As President and
CEO of Extended Systems, I'd like to thank everyone for joining us today. With
me is Karla Rosa, our Chief Financial Officer.
Before I continue the call, I would like to inform you that some of the
statements in today's call may be forward-looking statements. These statements
are subject to risks and uncertainties that may cause actual events or results
to differ materially. These risks and uncertainties are discussed in detail in
Extended Systems' SEC filings, including our fiscal 2001 Form 10-K and our Form
10-Qs for Fiscal 2002.
Early this morning, we issued a press release announcing our preliminary results
for the fourth quarter of fiscal 2002. We expect fourth quarter revenue from
continuing operations in the range of $5.4 million to $5.7 million for the
quarter, down from the revenue from continuing operations of $6.3 million for
the third quarter of fiscal 2002.
We expect to report MIM software revenue in the range of $5.0 million to $5.3
million, down from $5.9 million for the fourth quarter of last year and down
from revenue of $5.9 million for the previous quarter. Revenue from our infrared
hardware product is expected to be approximately $450,000 in the fourth quarter.
During the fourth quarter, we continued the strong adoption of our XTNDConnect
Server product and expect to report a year-over-year revenue growth of
approximately 10 percent. However, as expected, we saw a decline in sales,
year-over-year, of our Bluetooth and Advantage software product.
Due to the current economic climate, we are finding that information technology
organizations and the companies for which they work are being very pragmatic and
conservative. We are pleased that during the fourth quarter we signed a record
number of new XTNDConnect Server enterprise customers, adding over 200 customers
during the quarter, an increase of 3 percent over new enterprise customers added
last quarter and an increase of 37 percent over new enterprise customers added
in the fourth quarter of last year. New customer wins included Prudential from
New York, Novartis, University of South Dakota
Extended Systems, Inc. - Special Investor Call - 5/28/02 1
Medical School, NRE in Australia, in the U.K., AMD, Philips Headquarter, which
we are building on a relationship that we have with Philips Component, BT
Ignite, MM02, which was formerly BT Cellnet, Vodafone in Ireland, Kellogg's in
Ireland, Imperial Tobacco, Invesco, WestLB in Germany, and London Scottish Bank.
We also saw existing customers, including Principal Financial, 3M and TXU
continue to roll out additional users.
While we are pleased in the growth of new customers, we are continuing to see
that the number of licenses customers are purchasing remains conservative. The
up side of that is that we believe Extended Systems has built a strong
foundation of large customers, and that once the purse strings loosen and
corporations start to increase their investments in mobile and wireless
technology, we'll be in an excellent position to capitalize on sales to our
customer base.
We expect operating expenses to be in the range of $6.6 to $6.8 million, down
from $7.2 million for the third quarter of fiscal 2002.
We expect to report an operating loss from continuing operations in the range of
$1.8 million to $2.1 million, compared to the operating loss from continuing
operations of $1.9 million in the prior quarter. Our net loss for the quarter is
expected to be between $0.16 and $0.19 per share, compared to the net loss of
$0.02 a share in the third quarter of fiscal 2002. The net loss in the third
quarter of fiscal 2002 included an accrual for a tax refund of $1.6 million,
which had the effect of reducing the net loss by approximately $0.14 per share.
We have continued to exercise strong cash management and are pleased to end the
fourth quarter with approximately $5.4 million in cash, an increase from $4.6
million at March 31, 2002, primarily as a result of the receipt of the $1.6
million tax refund. In addition, we have no long-term debt at the end of the
fourth quarter, and we have a line-of-credit facility with Silicon Valley Bank
that provides us with access to up to $5 million in cash, subject to current
account receivable balances. We currently have no outstanding balance on this
line.
We will be providing you with more detailed results for the fourth quarter and
our outlook for the first quarter of fiscal 2003 when we report our final
financial results on Wednesday, July 31.
This concludes the formal part of our presentation. We would now like to open
the call for your questions.
OPERATOR: Excuse me, ladies and gentlemen. At this time, we will be conducting a
question-and-answer session. If you would like to ask a question, please press
star one on your telephone keypad. To remove your question from the queue,
please press star two. For those participants using speaker equipment, it may be
necessary to pick up the handset before pressing the star keys.
Our first question comes from Mr. Matt Hoffman from SoundView. Mr. Hoffman,
please state your question.
MATT HOFFMAN: Hey, good morning, Steve.
STEVE SIMPSON: Hi, Matt.
MATT HOFFMAN: How're you doing?
STEVE SIMPSON: Good.
Extended Systems, Inc. - Special Investor Call - 5/28/02 2
MATT HOFFMAN: I don't know if Karla's there or not?
STEVE SIMPSON: Yes, she is.
KARLA ROSA: I am here, Matt. Good morning.
MATT HOFFMAN: Hey, Karla. First, let's drill down a bit into the software
numbers and what's going on with the European weakness. You mentioned in your
prepared remarks that Bluetooth was weak. Is that also tied to the European
weakness you saw, or were we seeing XTNDConnect Server also weak in Europe?
STEVE SIMPSON: It was - XTNDConnect Server was weaker in Europe than we
expected. We did see solid year-over-year growth in Europe for XTNDConnect
Server, but we saw a slowdown in the fourth quarter. Compared to North America,
which continued to have sequential growth compared to the previous quarter.
As far as Bluetooth goes, we really don't delineate that from a geographic point
of view. As you know, much of that business, of course, comes from Asian vendors
as well as vendors all over the world. But a lot of - since a lot of the mobile
device vendors are in Asia, a lot of that business does come out of Asia.
MATT HOFFMAN: So sell-through was weak on those devices, and your royalty
payments then were relatively weak? Or was it the up-front licensing that's weak
on Bluetooth?
STEVE SIMPSON: Well, I think it's a combination. We've seen - we continue to see
a slowness in deployment, as we've been talking about for quite some time, and
we also saw - as a result of that, we've seen year-over-year decline in the
revenue from licensing and the SDKs and from non-recurring engineering charges
and those types of things simply because many of the vendors who will be
deploying Bluetooth devices, we've already provided them with the capability to
do that. And so, of course, in their case, where we will make progress is when
they actually start to ship in volume. The number of vendors looking for new
Bluetooth opportunities had slowed down. Now, we have seen some up-tick in
interest again from other vendors and other projects wanting to do Bluetooth,
but it's - hasn't been reflected yet in the revenue.
MATT HOFFMAN: Okay. So the overall environment for Bluetooth is - its better
days are not behind it? You would still remain -
STEVE SIMPSON: No, I don't believe that better days are behind it, but it is all
tied, as we've talked to on other conference calls, all tied to volume shipments
of devices, and that continues to be pretty slow. And so we've, of course, as we
have talked about and provided guidance, we've assumed that there'd be
relatively low Bluetooth royalty revenue until such time as we see that pick up.
And then, also, we have factored in how much of the up-front type of revenue
will we continue to recognize since many of the customers that we work with have
done their up-front work. And those have been factored in, obviously, into our
numbers, and they're reflective of what we're seeing right now.
MATT HOFFMAN: I've asked this question a couple of times, and you've put me off
or - but I'll ask it again anyway, and can you give us a basket maybe of the
OEMs who are deploying Bluetooth who we should look to? In other words, during
the quarter as we do our checks, who should we - who are the key OEMs that will
drive your Bluetooth development movement forward?
Extended Systems, Inc. - Special Investor Call - 5/28/02 3
STEVE SIMPSON: I might actually - let me introduce Don Baumgartner, who's our VP
of Marketing and is one who really works with the Bluetooth vendors, and he
might give us a little bit of thought on that. Don, are you there?
DON BAUMGARTNER: Yes, I am. Hi, Matt.
MATT HOFFMAN: Hi, Don.
DON BAUMGARTNER: Probably what we're seeing right now is there's certain
segments that are pretty hot from an SDK licensing. Right now, the hottest one
is in the telematics or the automobile industry, and that's where we've laid the
groundwork with a lot of work there with people like Visteon and Johnson
Controls, some people in Japan, as well as we've started some pretty good
progress with some companies in Europe. So we expect that we'll see more
licensing revenue from those, but typically we're not going to see a lot of
deployment there until probably model car 2004. So that's a sector right now
that's going to be hot.
In terms of existing stuff, what we're starting to see is there's enough
deployment at World Congress that was held in Amsterdam in June. You could
really see that, you know, there's actually a lot of usable products, and the
main ones being from the telephone vendors, from Ericsson and Nokia. So that'll
start to drive some applications. I think a couple of those that will get driven
are around access points. Red-M is a customer of ours is a good one to watch.
MATT HOFFMAN: Which one?
DON BAUMGARTNER: Red-M.
MATT HOFFMAN: Red-M, okay.
DON BAUMGARTNER: That's U.K. They're starting to have some good success, maybe
in more vertical-type applications than broad horizontal applications, but they
are starting to have some good success there. And so you might watch them in
terms of their news and how they start to roll things out. That's an interesting
partnership in that one of the activities that we're starting to see more so in
Europe as we're getting some of it available is that people are actually using
the Bluetooth connectivity between a PDA and their cell phone, and that's
allowing them to then use XTNDConnect Server in more wireless applications.
MATT HOFFMAN: Great.
DON BAUMGARTNER: And so that's starting to tie the two things together. I think
that will start to pick up in Europe in the second half as we get more
deployment. But still a majority, I think, if you look at a lot of the analysts
on the Bluetooth side from a semiconductor standpoint, they're still pretty
bullish on Bluetooth, but they really push most of their projections out almost
a year to 18 months still.
MATT HOFFMAN: Okay, move back to Steve and Karla, Brookhaven and the sale of the
Brookhaven. What impact will that have on hardware sales moving forward?
KARLA ROSA: We don't expect it to have any real impact on our guidance related
to the infrared hardware business. We're still looking that we're going to see
infrared hardware of about $250,000 a quarter. They have worked with us out of
Singapore to land some of the OEM deals we have with customers like Casio, but
we do have the direct relationship with those OEM partners out of Boise.
Extended Systems, Inc. - Special Investor Call - 5/28/02 4
MATT HOFFMAN: What did you lose by selling them?
KARLA ROSA: Well, what we lost really, Matt, was an expense base in Singapore
that was really focused on the hardware business. That entity had historically
been responsible for development and sales of hardware products, and it had also
been key in managing our manufacturing relationship in Malaysia for,
historically, both the print server business and the infrared hardware business.
As we've transitioned our business to focus on the software arena, they haven't
been a strategic part of the software business, and it really just made sense to
eliminate them from the consolidated group to help with our streamlining of our
expense structure.
MATT HOFFMAN: And then the last question from me, you own your property in the
building, the structure you guys go to every day there in Boise. What's the
value of that building, and is there a mortgage on the property at all?
KARLA ROSA: There is no mortgage on the property. We own the building outright.
You know, the value of the building - you know, I would estimate, Matt, for the
building and the land associated with the building, it's somewhere in the
neighborhood of seven to ten million.
MATT HOFFMAN: Great. Well, thanks, guys.
STEVE SIMPSON: Okay, thanks, Matt.
KARLA ROSA: Thanks, Matt.
OPERATOR: Our next question comes from Mr. Kevin Giboney from D.A. Davidson and
Company. Mr. Gibony, please state your question.
KEVIN GIBONEY: Hi, Steve and Karla.
STEVE SIMPSON: Hi, Kevin.
KARLA ROSA: Good morning, Kevin.
KEVIN GIBONEY: I was wondering if you could just talk a little bit about the
competitive environment, if you're seeing any changes there, and also just in
terms of your pricing, I know the number of licensings is conservative as the
whole environment is very conservative right now. But in terms of the pricing
that you're seeing to get those licensing deals that you are, are you seeing any
price around the per-seat be there, and, you know, how is that tracked over
time?
STEVE SIMPSON: Okay, Kevin, if you're looking from a competitive point of view,
the picture probably hasn't changed significantly. We have seen some smaller -
very smaller players that were not directly competing with us exit the business
or be acquired because of the current situation and their inability to raise the
further funding. But if we look at the people we typically see in deals, it's
pretty much the same as it has been. I think one change was when Microsoft
indicated they were no longer going to carry MIS forward. That certainly helped
to clear up some uncertainty in the minds of our potential customers, didn't
cause them to suddenly run out and buy from us, but I think that actually
helped.
Extended Systems, Inc. - Special Investor Call - 5/28/02 5
As far as pressure on per-seat pricing, we really have not seen significant
pressure, and I think that's also reflective, of course, because we're not
seeing yet the really large rollouts where it becomes a bigger and bigger issue
for the customer. But as of now, the per-seat pricing has remained quite stable.
And moving forward from a competitive point of view, I think we will see that we
are competing with a somewhat broader range of competitors as we do the
integration of ViaFone into Extended Systems because we will then have a range
of competitors that are like Avant Go, for example, that provide that type of a
wireless real-time kind of connectivity that we will then have that as part of
our kit. But things from a competitive point of view are staying pretty much the
way they've been in our previous discussions, as well as our pricing is, too.
KEVIN GIBONEY: Okay, great. And while on the subject, any update in terms of how
the acquisition is taking place and kind of where you are in terms of
integration and, you know, any kind of detail that you can give in terms of, you
know, what you're seeing going from, I guess, a melting-of-the model standpoint?
I know you're not prepared probably to give details on that, but just kind of
from an accretion standpoint, what you're thinking or expecting out of that?
STEVE SIMPSON: Okay. I'll give a little bit of what's happening with the
integration effort. Then I'd ask Karla to further elaborate on it.
As you know, we filed the S-4, and so with that - that process is rolling with
the SEC. We've been doing a lot of work in planning with the ViaFone team as to
how we will integrate - how we will run the combined company as soon as we do
the close. Of course, as you know, we have to behave as independent companies
right now, but an awful lot of work is being done to make sure that when we have
close that we will be ready to take advantage of the additional capabilities and
team that ViaFone brings to us.
Karla might give a little bit better perspective on the timing because I think
she's been the closest to it most recently because there has been some - I think
some change in that relative to the final review, etcetera, by the SEC.
KARLA ROSA: Yeah, at this point in time, we have not heard back from the SEC,
but we do expect to hear back from them soon. Our best estimate on the timing of
the close is still sometime in the first quarter. We don't have a definitive
date for that and won't until we know when we'll go effective with the S-4.
Kevin, to address your question in terms of what do we expect from an operating
model, we're not prepared to comment on that in detail on this call. We will be
providing additional detail on that on the call on July 31. You may recall that
on the ViaFone announcement at that point in time, we had guided that we
expected ViaFone to add somewhere in the neighborhood of eight -
eight-and-a-half to ten million of revenue if the transaction closes in late
July or early August, and on the bottom line, we would expect them to add three
to four hundred thousand. And, again, we'll be updating our outlook on the July
31 call.
KEVIN GIBONEY: Okay, so that's still tracking on those previous numbers, I guess
is what I was asking, as you get more in detail and more into the integration
process or looking at that, I guess, is what I was asking there.
KARLA ROSA: We don't have any new information on the call today.
Extended Systems, Inc. - Special Investor Call - 5/28/02 6
KEVIN GIBONEY: Okay, great. Fair enough. And the last question then - I know you
probably - another question you can't address to more specifically - but in
terms of the Puma [phonetic] lawsuit, now that you've had a chance to probably
look at that in a little bit more detail and get some advice from counsel,
anything that you can comment on from that? And any kind of progress since the
last announcement about that?
STEVE SIMPSON: Well, the primary thing is that we did review the Puma claims,
and we filed our answer and countersuit a couple weeks ago. And moving through
the process, I can't really comment much further on that other than we are
extremely confident that we are correct in our position that we are not
infringing any of Puma's patent rights.
KEVIN GIBONEY: Good, great. Thank you.
STEVE SIMPSON: Thank you.
KARLA ROSA: Thanks Kevin.
STEVE SIMPSON: John, are there any other questions?
OPERATOR: Our next question comes from Mr. Barry Harrison from Prudential
Securities. Mr. Harrison, please state your question.
BARRY HARRISON: Hey, guys. Actually, I have two questions. The first one I think
is for Don. Ford and Chrysler, do you see them coming out in any of their 2003
models, either at the factory or as dealer add-ons with their hands-free
Bluetooth solution?
And the second one is for Karla, and maybe you can't answer this one, but cash
at the end of June, you guys were at about 5.4 million. Any estimate - or has
the estimate changed for what you guys were expecting to have at the end of
September once the ViaFone acquisition is completed?
DON BAUMGARTNER: Hi, this is Don. In answer to your first question, I don't
expect them to come out with anything integrated out of the factory. They may
have factory add-ons, but I can't confirm that at this time.
KARLA ROSA: Yeah, and, Barry, with regards to the question on cash, we do expect
to report the $5.4 million at the end of June. At this point, we don't have any
new information to give you an estimate of what the cash is going to be at the
end of September. We will have that on July 31.
BARRY HARRISON: Okay. The previous guidance was - I think it would add about
three million? Was that what the previous guidance was?
KARLA ROSA: Yeah.
BARRY HARRISON: Okay.
OPERATOR: Mr. Simpson, there are no further questions at this time.
STEVE SIMPSON: Okay, well, thank you for joining us today, and we look forward
to having a further discussion with you July 31. Thank you very much.
Extended Systems, Inc. - Special Investor Call - 5/28/02 7
OPERATOR: This concludes today's teleconference. Thank you for your
participation.
(CONFERENCE CALL CONCLUDED)
FORWARD LOOKING STATEMENTS
This script contains forward-looking statements, including statements regarding
expected revenue, operating loss and net loss for the company's fourth quarter
of fiscal 2002, its expected cash balance as of June 30, 2002, the execution of
the company's strategy, increased future spending by enterprise customers and
its impact on Extended Systems, expected streamlining of existing operating
model and expected timing to close the company's acquisition of ViaFone and the
timing and ability to realize the benefits thereof. These statements are subject
to risks and uncertainties.
All statements other than statements of historical fact are statements that
could be deemed forward-looking statements, including any statements of the
plans, strategies, and objectives of management for future operations, including
the execution of integration and restructuring plans and the anticipated timing
of filings, approvals, and closings related to the merger; any statements
concerning proposed new products, services, developments, or industry rankings;
any statements regarding future economic conditions or performance; any
statement of belief; and any statement of assumptions underlying any of the
foregoing.
These risks and uncertainties and assumptions referred to above include
adjustments to the financial results which may occur during the closing of the
company's books, the overall economic conditions and the level of information
technology spending by existing and potential customers, the success of key
business relationships, the timing of the close of the ViaFone acquisition and
the timing and ability to realize the benefits thereof, continued growth in the
markets for our products, the perceived and realized benefits of mobile devices
and the company's products, the acceptance of specific industry-wide standards
and protocols, the timely development and acceptance of new products and
technologies, the risks associated with development of new products and product
enhancements, the impact of competitive products and pricing, the risks
associated with acquisitions, the risk associated with international sales and
operations, and other risks as detailed from time-to-time in Extended Systems'
SEC filings, including its 2001 Annual Report on Form 10-K and Quarterly Reports
on Form 10-Q filed in fiscal 2002.
ADDITIONAL INFORMATION AND WHERE TO FIND IT
This transcript does not constitute a solicitation of an offer to sell or a
solicitation of an offer to buy shares of common stock of Extended Systems in
connection with the proposed acquisition of ViaFone. On June 26, 2002, in
connection with the proposed acquisition, Extended Systems filed a registration
statement on Form S-4, including a preliminary joint proxy statement/prospectus,
with the Securities and Exchange Commission. Investors and security holders are
urged to read the registration statement, including the preliminary joint proxy
statement/prospectus, and the definitive joint proxy statement/prospectus, when
it becomes available, because the documents contain important information about
Extended Systems, ViaFone, and the proposed acquisition. Investors should
carefully read the preliminary joint proxy statement/prospectus and the
definitive joint proxy statement/prospectus, when it becomes available, before
making any voting or investment decisions. Investors and security holders may
obtain a free copy of the registration statement, the preliminary joint proxy
statement/prospectus, and the definitive joint proxy statement/prospectus, when
it becomes available, and other documents filed by Extended Systems with the
Securities and Exchange Commission at the Securities and Exchange Commission's
website at http://www.sec.gov/. Free copies of the registration statement and
other documents filed by Extended Systems with the Securities and Exchange
Commission may also be obtained from Extended Systems.
Extended Systems and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from Extended Systems' stockholders
in favor of the proposed acquisition of ViaFone. Security holders may obtain
information regarding the interests of the officers and directors of Extended
Systems in the proposed acquisition by reading the preliminary joint proxy
statement/prospectus filed on June 26, 2002 and the definitive joint proxy
statement/prospectus, when it becomes available. In addition, information
regarding such officers and directors is included in Extended Systems' Proxy
Statement for its 2001 Annual Meeting of Stockholders filed with the Securities
and Exchange Commission on September 17, 2001. This document is available free
of charge at the Securities and Exchange Commission's website at
http://www.sec.gov/ and from Extended Systems.
Extended Systems, Inc. - Special Investor Call - 5/28/02 8