General Magic 4th Qtr and Year-end Results
General Magic Announces Fourth Quarter and Year-End 1998 Results
SUNNYVALE, Calif.--(BUSINESS WIRE)--March 10, 1999--
Company Expects Revenue Boost and Expansion of Network Operations Center to Accommodate up to 500,000 Active Users by Year-End
General Magic, Inc. (Nasdaq:GMGC) today announced its operating results for the fourth quarter and year ended December 31, 1998.
During 1998, General Magic furthered its progress in delivering voice-enabled services to the market. Highlights included the on-time release of the company's strategic offering, the Portico virtual assistant service; the start of Portico market trials with telecommunications carriers; entry into the emerging market for voice-enabled Web content; and the raising of more than $44 million in capital.
"In 1998, we achieved many milestones," said Steve Markman, chairman, president and CEO of General Magic. "We met our product delivery goals and executed our business strategy in both our virtual assistant service and voice-enabling Web content businesses. We were pleased with the response by partners and customers to our innovative magicTalk voice user interface, which lets Portico subscribers interact with our service using conversational language. We will build off this solid foundation in 1999 by deploying our services and anticipate significant revenue gains beginning in the second half of this year." Fourth Quarter and Year-End Financial Results
For the fourth quarter of 1998, revenue was $126 thousand compared to $374 thousand in the third quarter of 1998. The decline in revenue from the third quarter is attributable to the company's divestiture of the DataRover group. Revenue for sales of the Portico service increased modestly from the third quarter to the fourth quarter. The company incurred a net loss of $15.1 million, or $0.51 per share, in the fourth quarter of 1998, compared to a net loss of $10.0 million, or $0.34 per share, in the third quarter of 1998.
Operating expense for the fourth quarter was $15.3 million, compared to $11.9 million in the third quarter of 1998. Operating expense for the fourth quarter included $1.6 million of compensation expense related to the DataRover divestiture and a $0.8 million write-off of in-process research and development associated with the company's acquisition of NETalk, Inc. Excluding these items, ongoing operating expense increased modestly, as anticipated, to $12.9 million, due to marketing expense to promote the Portico service and company staffing increases. Cash and short-term investments totaled $33.9 million as of December 31, 1998, compared to $46.8 million as of September 30, 1998.
For the fiscal year ended December 31, 1998, revenue was $2.3 million compared to $3.5 million in fiscal year 1997. The overall decline in revenue was the result of decreased royalty revenue from the company's legacy Magic Cap technology, offset by the receipt of $1.5 million in Microsoft Corp. licensing fees, sales of DataRover 840 devices, and subscriptions to the Portico service in fiscal year 1998.
The company incurred a net loss of $38.9 million, or $2.09 per share, in the fiscal year ended December 31, 1998, compared to a net loss of $28.4 million, or $1.06 per share, in fiscal year 1997. The net loss per share for fiscal year 1998 included the net loss for the year and $22.9 million in adjustments to accumulated deficit related to preferred stock sold during the period with favorable conversion and redemption rights and dividends.
Excluding the effect of these adjustments, the net loss per share for the fiscal year 1998 would have been $1.31. Operating expense for fiscal year 1998 was $47.9 million, compared to $34.2 million in fiscal year 1997. The increase in operating expense was due to the launch of the company's Portico service, staffing increases, and development efforts for existing and future partnerships.
Net interest and other income was $6.8 million for the fiscal year 1998 compared to $2.3 million for fiscal year 1997. During 1998, the company recognized a $4.7 million gain from the sale of AltoCom and a $1.3 million gain from the sale of its minority interest in Starfish Software, Inc. Excluding these transactions, net interest and other income declined primarily due to a decrease in the company's interest income as a result of lower average cash balances during 1998. Fourth Quarter Progress
During the fourth quarter, telecommunications carrier Qwest Communications moved into a market trial with a private label offering of the Portico service. This market trial with a test group of customers began in December and is expected to run through the second quarter of 1999.
In its Web business, General Magic announced an agreement with Intuit to provide voice access to the personal financial information on Intuit's Quicken.com Web site, which has over 2 million registered users. The company anticipates that the Quicken.com service will be available to customers in the middle of the year. Working with Internet companies allows General Magic to diversify its potential revenue base and quickly build mindshare in the consumer marketplace.
"With the intense competition in the Internet marketplace, companies need to differentiate themselves to attract and retain customers," added Markman. "General Magic offers these growing companies an ideal solution and, at the same time, we can benefit from the Web's broad reach, which could contribute to more rapid market acceptance of our voice-enabled services."
General Magic continued to maintain a high level of reliability and performance of the Portico service, which is critical to meet the needs of the mobile professionals who use the service. Total system availability was 99.92 percent of scheduled uptime during the quarter, compared to 99.83 percent during the third quarter. Voice recognition accuracy -- the measurement of the Portico service's ability to recognize the natural language commands spoken by subscribers -- was 92 percent, compared to 91 percent in the third quarter.
Effective October 1, 1998, General Magic divested its DataRover device business. This has allowed the company to focus its resources on the success of the Portico service and the development of strategic partners. General Magic retains ownership of the Magic Cap technology used in the DataRover business and holds a significant ownership interest in the new entity. Ongoing Business Strategy
General Magic is in the business of delivering world-class, voice-enabled services that make it easy and convenient for users to keep in touch with and act upon important information. The company's flagship offering, the Portico virtual assistant service, is distinguished by the breadth of its feature set, its ease of use and engaging personality made possible by the magicTalk platform, the de facto standard for voice user interfaces.
The company also builds value-added, voice-enabled applications targeted at partners, including telecommunications carriers, Internet companies and data providers. The company maintains a state-of-the-art network operations center. General Magic receives revenue based on value-added services that drive minutes of use on its network operations center. The company expects to expand its network operations to accommodate up to 500,000 active users by the end of 1999.
The company sells the Portico service through a nationwide network of resellers. During the first half of 1999, General Magic plans to focus its efforts on the most productive resellers and to provide additional training and sales tools to grow the subscriber base through these resellers. The company also plans to enhance the feature set of the Portico service in response to feedback from customer focus groups. The company recently introduced online sign-up for the Portico service through its Web site. General Magic will continue its investment in advertising and marketing programs with targeted initiatives including Internet advertising.
The company continues to develop private-labeled distribution of the Portico service through telecommunications carriers. To date, the company has extended its ongoing internal trial program to numerous carriers, including wireless, wireline and competitive local exchange carriers. "We have approached this channel by maximizing carrier participation in internal trials," said Markman. "We expect a select subset of these to advance to market trials and ultimately to launch commercial services."
The company also intends to sign additional agreements to voice-enable Web content, as well as introduce its own Internet initiatives. The Web offers a broad base of potential subscribers, including consumers who would find voice access a very convenient way to keep in touch with their favorite Web content and personal information.
Voice access to Web content is an emerging growth opportunity and, earlier this month, General Magic joined other industry leaders including AT&T, Lucent and Motorola in announcing the VXML Forum. This group plans to develop a common specification to help spur development of voice-enabled Web content. About General Magic
General Magic offers integrated voice-enabled services that make communication and access to information easy and convenient for people, no matter where they are. The company's development efforts are founded on its patented agent technology and innovative voice user interface to provide simple, yet effective ways for people to keep in touch with the information they need to be successful. For more information on General Magic, visit the company's Web site at generalmagic.com.
General Magic notes that this press release contains forward-looking statements. These statements are subject to risks and uncertainties that may cause actual results to vary materially. These risks and uncertainties include, but are not limited to, the challenges inherent in the development and delivery of complex technologies; the uncertainty that the company's Portico service will attract significant users or generate significant revenues, if any; the uncertainty that the company will be able to establish arrangements to provide voice-enabled services through major Internet companies, telecommunications carriers or other partners, or that these arrangements will generate significant revenues, if any; the risk that the company will not complete the expansion of its network operations center on a timely basis; the company's need to raise additional capital to execute its business plan; the company's ability to respond to competitive developments; and the company's reliance on attracting, retaining and motivating key technical, marketing and management personnel. These and other risk factors are detailed in General Magic's 1997 Form 10-K, and third quarter 1998 Form 10-Q filed with the Securities and Exchange Commission.
General Magic, Portico and magicTalk are registered trademarks of General Magic, Inc.
Intuit is the registered trademark of Intuit Inc. or one of its subsidiaries and Quicken.com is a trademark and/or service mark of Intuit Inc. or one of its subsidiaries.
General Magic, Inc.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
Three-Month Periods Ended Years Ended
December 31, December 31,
(unaudited)
1998 1997 1998 1997
Revenue $ 126 $ 117 $ 2,286 $ 3,456
Costs and expenses:
Cost of other revenue 93 100 482 928
Research and development 4,758 5,600 21,133 20,548
Sales, general and
administrative 8,025 3,498 21,861 12,676
Write-off of in-process
research and development 777 -- 2,827 --
Compensation expense associated
with DSI divestiture 1,634 -- 1,634 --
Total costs and expenses 15,287 9,198 47,937 34,152
Loss from operations (15,161) (9,081) (45,651) (30,696)
Total other income, net 59 60 6,762 2,329
Loss before income taxes (15,102) (9,021) (38,889) (28,367)
Income taxes -- -- 19 17
Net loss (15,102) (9,021) (38,908) (28,384)
Basic and diluted
loss per share $ (0.51) $ (0.34) $ ( 2.09) $ (1.06)
Shares used in
computing basic and
diluted loss per share 31,902 26,887 29,630 26,778
Note: Net loss per share for the three-month period ended
December 31, 1998 includes the effect of $1.0 million related to
dividends earned on the preferred stock issued during 1998. Net loss
per share for 1998 includes the effect of adjustments totaling $22.9
million related to preferred stock issuances with favorable conversion
and redemption rights and preferred stock dividends.
General Magic, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except per share data)
December 31,
Assets 1998 1997
Current assets:
Cash and cash equivalents
(including restricted cash of
$2,280 and $3,300 $ 21,845 $ 17,414
in 1998 and 1997, respectively)
Short-term investments 12,075 11,387
Other current assets 1,700 1,206
Total current assets 35,620 30,007
Property and equipment, net 7,507 5,148
Other assets 4,171 1,142
--------- ---------
$ 47,928 $ 36,297
Liabilities and Stockholders'
(Deficit) Equity
Current liabilities:
Accounts payable $ 1,348 $ 952
Accrued expenses 9,980 7,191
Current portion of long-term debt 2,333 801
Other current liabilities 54 224
Total current liabilities 13,715 9,168
Deferred revenue 2,000 4,186
Long-term debt 3,778 3,199
Other long-term liabilities 683 2,446
Total liabilities 20,176 18,999
Commitments
Redeemable, convertible Series C
preferred stock, $0.001 par value
Stated at involuntary liquidation
preference
Authorized: 3 shares
Issued and outstanding: 1998 - 2;
1997 - None 20,658 --
Redeemable, convertible Series B
preferred stock, $0.001 par value
Stated at involuntary liquidation
preference
Authorized: 12 shares
Issued and outstanding: 1998 - 6;
1997 - None 7,577 --
Stockholders' (deficit) equity:
Convertible Series A preferred stock,
$0.001 par value
Liquidation preference: 1998 - $4,500;
1997 - None
Authorized: 50 shares
Issued and outstanding: 1998 - 50;
1997 - None -- --
Preferred stock, $0.001 par value
Authorized: 435 shares
Issued and outstanding:
1997 and 1996 - None -- --
Common stock, $0.001 par value
Authorized: 60,000 shares
Issued and outstanding: 1998 - 33,400;
1997 - 26,892 33 27
Additional paid-in capital 208,557 165,039
Deferred compensation -- (58)
Accumulated other comprehensive loss -- 7
Deficit accumulated during
development stage (209,500) (147,717)
--------- ---------
(910) 17,298
Less treasury stock, at cost:
1998 - 46; 1997 - 0 (203) --
Total stockholders' (deficit) equity (1,113) 17,298
--------- ---------
$ 47,298 $ 36,297
CONTACT: General Magic, Inc.
Wendy Carhart
408 774-4457
wendy_carhart@generalmagic.com
or
The Financial Relations Board
Catherine Kawakami
415 296-2243
clr@sf.frbd.com
Copyright 1999, Business Wire. All of the releases provided by Business Wire are protected by copyright and other applicable laws, treaties and conventions. Information contained in the releases is furnished by Business Wire's members, who are solely responsible for their content, accuracy and originality. All reproduction, other than for an individual user's reference, is prohibited without prior written permission.
© Copyright 1999, The Nasdaq Stock Market, Inc. All Rights Reserved.
Please read our Disclaimer, Trademarks, and Privacy Statement.
|
