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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
x
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
¨
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-30881
CLICK COMMERCE, INC.
(Exact name of registrant as specified in its charter)
| Delaware
(State or other jurisdiction of
incorporation or organization)
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36-4088644
(I.R.S. Employer
Identification Number)
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200 East Randolph Drive, Suite 4900
Chicago, Illinois 60601
(Address of principal executive offices)
(312) 482-9006
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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 ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ¨
As of March 26, 2001, there were 38,416,067 shares of the registrant’s common shares issued and
outstanding. The aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant (9,446,499 shares) as of March 26, 2001 was $80,295,242. The aggregate market value was calculated by using the closing price of
the stock as of that date on the Nasdaq National Market.
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 2001 Annual Meeting of Shareholders to
be held on May 16, 2001 are incorporated by reference in Part III of this report.
CLICK COMMERCE, INC.
INDEX
PART I
This report and the documents incorporated herein by reference contain forward-looking statements that
involve risks and uncertainties. Actual results may differ significantly from those indicated in such forward-looking statements. Some of the factors that may cause actual results to differ include, but are not limited to, those discussed in
“Risk Factors” contained in Item I of this report, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Item 7 of this report and “Quantitative and Qualitative Disclosures
About Market Risk” contained in Item 7a of this report.
We were incorporated in Delaware in August of 1996 under the name Click Interactive, Inc. In December 1999,
we changed our name to Click Commerce, Inc. Our principal executive offices are located in Chicago, Illinois. We completed our initial public offering on June 30, 2000 and our common stock is listed on the Nasdaq National Market under the symbol
“CKCM.” As used herein, Click Commerce includes Click Commerce, Inc. and its wholly owned subsidiaries.
We provide business-to-business channel management software products and integration services that use the
Internet to connect large, global companies with their distribution channel partners. Our software products and integration services enable large, global companies to effectively manage and engage in collaborative business-to-business e-commerce
throughout their distribution channels. We develop, implement and support private e-marketplace extranets, which are secure systems that use the Internet to connect companies with all participants in the chain of distribution who have a password and
an Internet browser. These channel partners include:
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original equipment manufacturers;
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service centers and contractors;
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channel partners’ employees; and
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channel partners’ customers.
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By providing an easy way for channel partners to communicate and transact business, our software products
enable companies to take advantage of the speed and power of the Internet to strengthen and broaden their relationships with their channel partners, as well as their customers, through real-time, twenty-four hour access to information and ability to
process transactions.
Many global companies provide sales, service and after-market support for their goods and services through
complex distribution channels. While the Internet may alter many historic distribution channels, we believe that certain products, particularly complex or specialized manufactured goods, will continue to require regional and/or local sales, service
and after-market support. Accessed through readily available Internet browsers, our software products permit faster and more accurate transaction processing and communication than traditional methods such as paper, phone and fax communications,
because information need not be transcribed by employees. Our software products reduce the hidden costs of errors and delays in information delivery by reducing the need for human involvement. We believe that providing information and transacting
business over the Internet can
improve the commercial relationships among a company and its distribution channel partners and provide benefits to all participants in the distribution channel by improving efficiency, financial performance, customer service and brand
loyalty.
The Click Commerce extranet system, comprised of the Relationship Manager and a portfolio of
e-commerce applications, automates communication and business processes across the distribution channel. The Click Commerce extranet system is personalized to each individual user, accommodating, for example, each user’s language, time zone and
currency preferences. Companies using our software products can receive and track orders, provide warranty information and provide product and pricing information to their channel partners. Our extranet system is specifically designed for the
Internet and integrates with existing back-office computer systems, without requiring significant additional technology expenditures.
We currently market our products and integration services through our direct sales force and our joint
marketing relationships, primarily to large, global companies, typically with revenues in excess of $1 billion or divisions with revenues in excess of $500 million, and that have large distribution networks. We believe our joint marketing agreements
with business consultants and resellers who have expertise in the industry and existing client contacts will help increase the market penetration and acceptance of our software products and integration services.
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Growth of the Internet and Business-to-Business Electronic Commerce
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The emergence of the Internet is changing the way businesses and consumers communicate and transact
business. We believe that Internet-based business-to-business e-commerce is poised for rapid growth. In a recent study, AMR Research (“AMR”) stated its belief that every enterprise with revenue exceeding $1 billion should build a private
trading exchange. AMR further stated that if only one-third of such companies did so, the software market for these applications would grow to $34 billion by 2005. In another AMR study, 94% of surveyed senior executives said they will sustain or
increase their budget on trading exchange/business-to-business marketplace activities.
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Limitations of Existing Channel Management Products and Services
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Traditional phone, fax and paper-based communications systems are inherently labor intensive, inefficient
and prone to error. Companies must allocate significant resources and time to the manual entry of information from faxed or phoned-in purchase orders and the manual processing of paper checks, invoices and shipping notices. Further, the large volume
of paper generated by these transactions and the mass of information to be sorted and processed frequently results in hidden costs such as errors and delays in information delivery. Change is also difficult to implement on a timely basis without
incurring significant costs. For example, if a manufacturer produces a paper-based catalog, it cannot quickly or inexpensively inform customers of changes in product offerings, availability or pricing. In addition, the manufacturer and members of
its distribution network have limited capability to track orders, inventory, warranties and other information or to compile useful databases using paper-based or semi-automated processes. Using these standard forms of communication, manufacturers
and their business partners are unable to exchange information on a real-time basis, and as a result, potential customers do not have easy access to the information needed to transact business with the manufacturer or its channel partners.
Manufacturers may also be unable to tap into new revenue streams that exist due to restraints imposed by differences in language and time zone, barriers that traditional methods cannot easily overcome.
Companies have worked to develop technologies and software to overcome the problems and limitations
presented by traditional forms of communication and processes to transact business. Many companies have developed internally or purchased enterprise resource planning software as a means to better manage their businesses. Enterprise resource
planning software systems are used for identifying and planning a company’s resources needed to fill customer orders. These systems, however, have not traditionally been Web-enabled and
were not originally designed to communicate outside of an enterprise, and therefore do not provide real-time communication with business partners. In addition, enterprise resource planning software systems are expensive and take a significantly long
time to implement, typically anywhere from 12 to 24 months depending on the complexity of the system and the size of the company. Electronic data interchange attempted to solve the problem of facilitating real-time communication by providing a means
for the paperless exchange of documents between a company and its customers, such as purchase orders, shipment authorizations, advanced shipment notices and invoices.
Electronic data interchange is inflexible because it is based on pre-defined, fixed data formats that are
not easily adjusted. Electronic data interchange systems also typically require the use of expensive and proprietary communications networks, and electronic data interchange software often requires difficult and time-consuming point-to-point
integration. In addition, electronic data interchange is not readily “scalable,” or able to run on multiple servers to accommodate a larger number of users, for large numbers of small business partners, and because information is stored
and sent at specific time intervals, known as batched processes, it lacks real-time data exchange capability.
We believe that the e-commerce system that manufacturers, and businesses in general, require is one that
allows them to conduct commerce through a communications network that integrates all aspects of the distribution channel and takes advantage of existing back-office computer systems. In addition, companies need to be able to easily exchange
information and conduct transactions across the Internet securely, reliably and in real-time. The e-commerce system must be flexible enough to meet the unique business process requirements of large, multi-national organizations with complex
distribution channels and must be highly scalable and rapidly deployable.
Our objective is to create the most comprehensive business-to-business e-commerce channel management
software products that automate the business processes between large, global companies and their channel partners. Key elements of our strategy to achieve this objective include:
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Targeting Large, Global Enterprises. We believe, based on the number
and breadth of applications we offer, we have developed the most comprehensive business-to-business extranet software products and integration services currently available for large, global companies. By focusing on the complex needs of large,
global companies, we provide them with significant competitive advantages, such as improved efficiency, financial performance, customer service and brand loyalty, through effectively managing their complex distribution networks. We specifically
target divisions of these large companies. Once we have sold to a division, there are numerous opportunities to sell to other divisions within the organization. We believe that this provides us with significant leverage in our sales model. We intend
to continue to primarily target large, multi-national corporations and to benefit from our first-mover advantage with many of these organizations. In addition, we intend to expand into new industry verticals. Once we have entered a new vertical, we
leverage our expertise to sell to new, potential customers within that vertical.
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Expanding International Presence. We plan to aggressively pursue a
global strategy that leverages our products’ strengths as well as our existing customer relationships with multinational corporations. We believe significant international opportunities exist for our software and integration services due to the
distribution channel complexity that arises from multicurrency and multilingual business environments. We also believe that the multi-national focus of our existing customer base will provide us with a strong foothold in the international market. We
have sales and telemarketing representatives currently located in Munich, Paris, London and Amsterdam selling our software products and integration services. We currently have sales offices open in Munich, Paris and Amsterdam and will continue to
expand our international marketing efforts to address the range of international markets and applications for our software products and integration services.
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Developing Joint Marketing and Business Development Relationships. We
believe that in order to fully take advantage of our capabilities, rapidly increase our revenues and enhance our suite of software
applications, we will need to continue to seek to enter into agreements with a number of business consultants and resellers that provide for joint marketing of our products. By entering into these relationships, we intend not only to take advantage
of the expertise of these business associates but also to market our products and services to their client base. In addition, we have entered into agreements with technology companies to provide components for our software products and we intend to
pursue additional relationships as new technologies and standards emerge to further improve our software and the rapid implementation of our extranet system.
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Providing Value-Added Services To Our Customers. We plan to introduce
new products and service offerings that will deliver additional value to our customers, extending the scope of the applications that are available to them and increasing the depth of certain applications to deliver new capabilities. It is our intent
that the results of these new product development initiatives will be attractive to both new and existing customers, strengthening the business case for sales to new customers and providing a stream of revenue through additional sales to current
customers. The product areas in which we intend to focus include:
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analytical, data exploration and mining tools which will enhance our customers’ understanding of how their partners use
the services that they provide;
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content management and catalog management tools that improve the process of collecting, consolidating and presenting
information; and
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workflow tools that automate business processes within our customers’ companies and provide a framework for
collaboration between partners.
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In addition, we will continue to conduct research and develop products that take advantage of new distributed computing models, where
applications and data are distributed among partners and are connected using the Internet. We are working closely with Microsoft Corporation in areas including the Microsoft.Net computing initiative, which we expect will deliver new products and
capabilities.
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The Click Commerce Solution
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We deliver channel management products and integration services that enable global corporations to create a
competitive advantage by collaborating with their trading partners via the Internet in a private marketplace. Our software creates the infrastructure and applications that global enterprises can use to extend their organizations to any member of
their partner network. Using our products, dealers, distributors, retailers, original equipment manufacturers, resellers, service centers and independent contractors, along with each of their respective employees and all of their customers can
engage in collaborative commerce. Our software products and integration services provide our customers with the following benefits:
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Improved Relationships with Channel Partners and Consumers. Our
software products help global companies build stronger relationships with their channel partners by making it easier to exchange information and transact business with each other. With our extranet system, our customers can effectively maintain a
direct relationship with even the smallest of their channel partners. In addition, our extranet system is capable of allowing our customers and their channel partners to make a direct connection with consumers where one might not have previously
existed by providing consumers with direct access to the extranet. This allows our customers to effectively build brand awareness and brand loyalty and potentially target consumers with ancillary sales such as parts, accessories and financing. We
believe that the ease with which channel partners can securely transact business and exchange information quickly translates into a significant competitive advantage for our customers.
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Improved Efficiency and Reduced Operating Cost. The direct connection
with channel partners and the automation of multiple processes afforded by our software products enables our customers to reduce personnel costs in areas such as call centers, regional offices, sales support and administration. Transaction costs
should also be lowered by the reduced need for manual entry of information from faxed and phoned-in purchase orders and manual processing of paper checks, invoices and shipping notices. In addition, error rates should be reduced by the reduction in
human involvement. The fact that our customers can communicate and transact business in real-time with their channel partners may also allow them to reduce the time it takes them to fulfill orders and to maintain lower inventories.
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Improved Revenue Opportunities. Our products and integration
services can help companies increase market share by making them more accessible to channel partners, which facilitates follow-on sales. We believe that companies often lose sales to competitors not because of pricing, quality or availability, but
due to the fact that it may be more convenient for the channel partner to do business with a competitor. The greater reach and broader access companies have to new and existing customers using our extranet also enables them to conduct focused
marketing and promotional campaigns, as well as targeted add-on sales, such as repair, maintenance and other value-added services. Because of the closer relationships through improved communications that our extranet builds, we believe that our
customers are able to capture a larger portion of these follow-on sales.
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Business-To-Business Collaboration over the Internet
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Our products and integration services harness the power of the Internet and allow our customers to create a
collaborative environment in which access to information and applications is shared by all members of distribution networks. Using our technology, it is easy for partners and customers to do business through a seamless, real-time information
exchange that delivers high value to every participant.
Our software allows our customers to:
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Leverage the extensive investments that they have made in back end systems, such as enterprise resource planning
(“ERP”), supply chain planning (“SCP”), and customer relationship management (“CRM”). Our products draw upon the capabilities and information contained within these systems to provide a uniform experience to partners
and customers.
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Manage complex channel relationships in order to streamline business processes and speed information flow. Our
software provides the technical infrastructure that models and manages the relationships that exist in a partner network. We deliver a customized, personalized experience to our customers based upon the relationships that their businesses have with
the rest of their partner network. This ability to handle complex relationships greatly increases the efficiency and effectiveness of each transaction.
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Extend their brands to reach new customers. Our software provides an environment that ensures consistent treatment of
corporate branding and marketing messages, but also permits controlled distribution of product information to a broad audience of partners, customers and prospects.
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Improve visibility of critical information throughout the channel. Our software provides personalized access to
critical business information including inventory levels, pricing schedules, and customer information.
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Deliver new products to market rapidly, lengthening product lifecycles and increasing the return on investment in new
product development. Our software allows virtually instantaneous distribution of critical product launch materials, product specifications, configuration guides and pricing to all members of a distribution system, eliminating the weeks and months of
delays commonly found in traditional systems.
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Our software is specifically designed for the Internet and can be readily integrated with back office
systems such as ERP systems, SCP systems and CRM systems. As the Company’s software is Internet-centric, partners and end-customers using simple Internet browsers can access the Company’s products. There are no additional technical
requirements for customers and partners to work with a Click Commerce-based solution. In some cases, customers have requested that the software inter-operate with systems at partner businesses, typically ERP or dealer management systems. The open
architecture of the Click Commerce products supports this integration. The software uses a modular design that allows rapid configuration of solutions that meet the needs of a wide variety of customers.
Our software consists of five primary components, which manage the relationships in the partner network and
deliver applications that manage the partner lifecycle, and pre-sales, sales and post-sales transactions. These components are:
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Relationship Manager: As the cornerstone of every installation, the
Relationship Manager models and records all of the relevant information about partner relationships as well as the hundreds of thousands of
transactions that form the core of each of our customers channel. This software ensures that private e-marketplaces are tailored to conform to the needs and interests of each partner. The Relationship Manager also allows our customers’ trading
partners and employees to administer and maintain content using only a Web browser and enables every member of the channel to transact real-time business, twenty-four hours a day.
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Partner: Our applications offer flexible registration, integrated
training and a hosted, tailored Web presence for all partners. Access to comprehensive, real-time statistics on the status and performance of each partner leads to better collaborative business planning, improved partner relationships and increased
performance for the channel as a whole. Applications offered under our Partner component include, among others, Partner Registration, Partner Locator, Partner Web Site Builder, Account Status, Account Lookup, Rebate Status, Invoice Lookup, Message
Center, Chat, Discussion Forum, Training and Testing, Survey Builder and Cost Catalog.
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Market: Our application suite gives our customers the power to
coordinate targeted promotions, manage marketing funds and drive traffic directly to the partners who need information the most. We believe Internet-based channel management applications win more business by ensuring error-free proposals and quotes
that increase revenue, even as they cut the cost of keeping our customers up-to-date. Applications offered under our Market component include, among others, Quotations Manager, Product Configurator, Promotions Manager, My Homepage, Lead Manager,
Dynamic Newsletter, Proposal Builder, Literature Fulfillment and Contact Manager.
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Sell: Buyers receive the personalized shopping experience they want
with our software, complete with accurate, context-sensitive pricing, rapid execution of orders and automated features such as favorite orders and prior shopping lists. Authorized partners can monitor inventory, orders and shipments by simply
logging on to our customers’ web sites. Applications offered under our Sell component include, among others, Internet Price Manager, Product Catalog, Shopping Cart, Shopping List, Favorite Orders, Price Inquiry, Order Notification, Order
Status, Ship Status, Inventory Status, Inventory Locator, Auction and Auto Reorder.
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Service: Our customers’ e-marketplaces transform labor-intensive
post-sale activities into a competitive advantage through a real-time service and warranty center. The software allows our customers’ entire channel to build true customer satisfaction and increased brand loyalty by empowering partners to
manage service and warranty records, remain up-to-date and trained on new product information, and administer returns and reports with ease. Applications offered under our Service component include, among others, Publication Selector, Service Repair
Status, Demand Forecasting, Service Repair History, Service Work Order, Purchase History, Warranty, Warranty Claims, Warranty Registration, Return Authorization and Extended Warranty Order.
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We deliver our solutions through tightly integrated, high-performance technologies designed for maximum
compatibility with customers’ existing systems and computing environments. Proven, scalable, fault-tolerant architecture and best-of-breed integration methods ensure that Click Commerce software works with database, ERP, wireless technology,
field dispatch systems or financial systems, as well as hardware and software from all major vendors. The Click Commerce solution uses standard scripting languages, allowing functionality to be easily woven into complex business
processes.
Our Relationship Manager is built upon open and scalable technology. Microsoft’s platform, including
Active Server Pages (“ASP”), Common Object Model (“COM”), Internet Information Server (“IIS”) and Windows 2000, provides a robust foundation. Constructed upon this technology is our layered and extensible platform. Our
Relationship Manager provides a data access abstraction technology between applications and the information repositories or middleware products with which they interact. This allows business logic to be developed independently of the information
source accessed. This is critical in large multi-division companies and marketplaces where different formats, systems, and communication requirements are required. In addition, the Relationship Manager provides a complete set of COM components to
access personalization information, the complex model of the channel, and other services critical to creating a complete solution.
We utilize eXtensible Markup Language (“XML”) to communicate with external systems, as well as
between the components within the Relationship Manager and our suite of applications. For example, our robust and extensible personalization repository allows application developers to quickly query for user and company information using XML and
eXtensible Stylesheet Language (“XSL”). XML is used as the common communication paradigm between all layers of our architecture. From the display layer, to business components, to data access, XML provides a consistent and open technology
for interoperating with our platform.
Our applications provide full-featured functionality and are built using the same layered approach as the
Relationship Manager. Each application consists of a display layer built using Microsoft’s ASP technology. This allows for rapid deployment and tailoring of the product to specific client requirements. In addition, business logic drawn from
years of experience in complex channels is encapsulated in COM components that are easily reused and integrated. Each application uses the Click Commerce Relationship Manager to understand the complex business relationships between large, global
companies and their distribution channels. For example, our catalog application can display customized catalog views based on a user’s role, location and business partners.
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Professional Services and Customer Support
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We offer a variety of professional services in connection with our channel management software, including
integration services, training, and maintenance and customer support. Beginning in the third quarter of 2000, we began to enter into contracts in which we sold our professional services separately from our software. Prior to that, our software and
integration services were sold together as one deliverable under fixed price contracts.
Project consulting and implementation services. Our professional services are delivered under our
Click Start Methodology developed from a collection of best practices collected from our experience with previous customer implementations. The Click Start Methodology utilizes several tools and templates to effectively leverage our knowledge
capital, including resource and project planning, scheduling, timing and piloting the engagement. Our professional services teams are staffed with project managers and developers who are experienced in both the underlying programming language of our
software as well as the customer system and Internet technologies surrounding our product implementations. We have also entered in agreements with outside consulting firms to implement our software, including Accenture (formerly Andersen Consulting,
LLP) and Cap Gemini Ernst & Young. In implementations performed by these outside firms, we may provide technical support through our professional services organization.
Training. We believe that customer education is essential to fully understand the system functions
and technology. To assist our customers in this area, we have developed a curriculum of courses specifically designed for our customers’ key users and technical staff. Our course offerings can be performed either at our facilities or at the
customer’s site and are usually between two and four days long, depending on the specific class.
Maintenance and customer support. We provide, depending on our customer’s needs, a dedicated
extranet and voice support line which supplies our customers with access to our team of knowledgeable specialists twenty four hours a day, seven days a week. Our customer support specialists work closely with our developers so that our customers are
assured of receiving the latest, most accurate product information. We offer our customers maintenance services and periodically provide them with updates to ensure that they have the most robust and up-to-date channel management capabilities. These
maintenance services are typically a standard part of our product licenses.
We have established a portfolio of global 2000 clients in a wide range of industries. Our clients are alike
in that they have complex products and multi-level, hierarchical relationships with a broad range of channel partners. Our customers include many of the well-known names in the automotive, chemical, discrete manufacturing, high tech, industrial
equipment and recreation industries. The following is a partial list of the companies that have licensed our software and that we believe are representative of our overall customer base.
We do not intend the identification of these customers to imply that these customers are actively endorsing or promoting our products.
| Automotive
Ÿ Delphi Automotive
Systems
Ÿ Hyundai Motor Company
Ÿ PACCAR, Inc.
Ÿ Volvo Truck & Bus
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Chemical
Ÿ Equistar
Ÿ Lubrizol
Ÿ Lyondell
Ÿ Nalco
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Industrial Equipment
Ÿ Alstom Power
Ÿ Komatsu
Ÿ Otis Elevator
Ÿ Volvo Construction
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| Discrete Manufacturing
Ÿ American Standard
Ÿ Black & Decker
Ÿ Emerson
Ÿ EPT
Ÿ Fisher-Rosemount
Ÿ IDEX
Ÿ Johns Manville
Ÿ PH Glatfelter
Ÿ Trane
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High Tech
Ÿ Compaq Aerro
Ÿ Mitsubishi
Ÿ Motorola
Ÿ Qualcomm
Ÿ Tyco Electronics
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Recreation
Ÿ Acushnet
Ÿ Bombardier
Ÿ Callaway Golf
Ÿ Kawasaki
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We have made and will continue to make substantial investments in research and development through internal
development, technology acquisitions and joint marketing and business development relationships. In fiscal 2000, 1999 and 1998, we spent approximately $6,895,000, $729,000 and $149,000, respectively, on research and development. Our research and
development staff is responsible for enhancing our existing products and services and expanding our product line and services offered. Our current product development activities focus on product enhancements to increase the robustness, functionality
and ease of integration of our customized applications and the Relationship Manager and the integration of external services and partner technology.
We market our products and services through our direct sales force and also through our joint marketing
relationships. Our sales force is assisted throughout the sales process by a team consisting of a Click Commerce business consultant, a project manager and a creative developer. This team oversees the project from start to finish and is responsible
for ensuring that the client receives the best e-commerce channel management solutions in the shortest period of time. To complement our direct sales efforts, we also use methods such as telemarketing, direct mail campaigns, Web site marketing and
speaking engagements to build market awareness of Click Commerce and our products and to generate leads for potential customers. We also have successfully implemented a “viral” selling model whereby divisions of large companies become
references for other divisions, as well as other companies in similar industries. In addition, our clients become references for their channel partners.
We strive to identify “qualified prospects,” who are potential customers that meet a majority of
the following criteria:
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Global enterprise with over $1 billion in revenues or a division with over $500 million in revenues;
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Complex sales/distribution network;
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Senior management sponsorship for the e-commerce system; and
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Desire for a rapid implementation of an e-commerce system.
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We focus our marketing efforts toward educating our target market, generating new sales opportunities and
creating awareness of our products and integration services through telemarketing and direct mail efforts. We have engaged in marketing activities such as industry conferences and trade shows, industry analyst programs
and advisory councils. Our marketing professionals also produce marketing materials to support sales to prospective customers that include data sheets, brochures and white papers.
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Strategic Relationships and Alliances
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To further penetrate the market for our products and integration services, we have established strategic
relationships with industry-leading firms whose products and services add value to our channel management solutions. We work together with our partners to address the business-to-business e-commerce needs of customers, providing a best-of-breed
solution that is mutually rewarding to all parties. Our partners fall broadly into the categories of consulting/systems integration and technology.
We have system integrator relationships with Accenture and Cap Gemini Ernst & Young. These relationships
assist us in sales lead generation and also in the integration of our products. We have trained consultants in these organizations for the integration and operation of our products.
We have developed key technology relationships with ARI Network Services, Actuate, Primus, TimesTen and
Vitria Technology. These technology relationships enhance our ability to base our products on industry standards and to take advantage of current, emerging technologies.
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Intellectual Property and Other Proprietary Rights
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Our success and ability to compete is affected by our ability to develop and maintain the proprietary
aspects of our technology and operate without infringing on the proprietary rights of others. We rely primarily on a combination of copyright, trade secret and trademark laws, confidentiality and nondisclosure procedures, contractual provisions and
other similar measures to protect our proprietary information. For example, we license rather than sell our software to customers and require licensees to enter into license agreements that impose certain restrictions on licensees’ ability to
utilize the software. Modifications to the software or customizations made for a particular client may be owned by that client. We have two registered trademarks and one pending trademark application in the United States. We seek to protect our
source code for our software, documentation and other written materials under trade secret and copyright laws. We do not patent our products because we believe patents would provide little long-term protection as the technology used is constantly
changing and improving. As part of our confidentiality procedures, we enter into nondisclosure agreements with virtually all of our employees, directors, contractors, consultants, corporate partners, customers and prospective customers. We also
typically enter into license agreements with respect to our technology, documentation and other proprietary information. These legal protections, however, afford only limited protection for our technology. Due to rapid technological change, we
believe that factors such as the technological and creative skills of our personnel, new product developments and enhancements to existing products are more important than the various legal protections of our technology to establishing and
maintaining a technology leadership position.
Despite our best efforts to protect our proprietary rights, unauthorized parties may attempt to copy or
otherwise obtain and use our products or technology that we consider proprietary and third parties may attempt to develop similar technology independently. Policing unauthorized use of our products is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. While we are unable to determine the extent to which piracy of our software exists, we expect software piracy to be a
persistent problem. In addition, effective protection of proprietary rights may be unavailable or limited in certain countries. The laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United
States. Overall, the protection of our proprietary rights may not be adequate and our competitors may independently develop similar technology.
We are not aware that our products, trademarks, copyrights or other proprietary rights infringe the
proprietary rights of third parties, however we have not reviewed existing patents and patent applications in order to determine whether grounds exist for an infringement claim against us. Third parties may assert infringement claims against us in
the future with respect to current or future products. Further, we expect that software product
developers will increasingly be subject to infringement claims as the number of products and competitors in our industry segment grows and the functionality of products in different industry segments overlaps. From time to time, we hire or retain
employees or consultants who have worked for independent software vendors or other companies developing products similar to those offered by us. Those prior employers may claim that our products are based on their products and that we have
misappropriated their intellectual property. Any claims of that variety, with or without merit, could cause a significant diversion of management attention, result in costly and protracted litigation, cause product shipment delays or require us to
enter into royalty or licensing agreements. Those royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all, which would have a material adverse effect on our business.
The market for our products is intensely competitive, subject to rapid technological change and is
significantly affected by new product introductions and other market activities of industry participants. There are relatively few barriers to entry in the channel management market and we expect competition to persist and intensify in the future.
We currently have four primary sources of competition: in-house development teams of our potential clients; large software and enterprise resource planning vendors that directly address e-commerce products and services; consultants and system
integrators; and independent software vendors. In the past, when competing for customers, we have directly competed with providers of alternative products and services, including Allegis, Channelwave, Comergent, Haht Commerce, NetVendor, SAP, Siebel
Systems and Spaceworks. We have non-exclusive agreements with Accenture and Cap Gemini Ernst & Young, whereby each party will jointly market and promote each other’s products and services. Although we expect these agreements to reduce the
amount of competition there might otherwise have been between us, Accenture and Cap Gemini Ernst & Young, we may compete with them in the future. The number and nature of competitors and the competition we will experience are likely to change
substantially in the future.
We believe that the principal competitive factors affecting our market include speed of implementation,
price, knowledge of the industry vertical and its respective distribution channel, core technology, an ability to implement an e-commerce system with existing technology and the financial capacity of the respective vendor. Although we believe that
our products and integration services currently compete favorably with respect to most of these factors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources.
Many of our competitors have longer operating histories in related markets, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition and a larger installed base of customers in related markets. Moreover, a number of our competitors, particularly major business software companies, have
well-established relationships with our current and potential customers as well as with independent systems consultants and other vendors and service providers. In addition, these competitors may be able to respond more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products, than we can.
Such competition could materially and adversely affect our ability to obtain revenues from either license or
maintenance and service fees from new or existing customers on terms favorable to us. Further, competitive pressures may require us to reduce the price of our products and services. In either case, our business, operating results and financial
condition would be materially and adversely affected. There can be no assurance that we will be able to compete successfully with existing or new competitors or that competition will not have a material adverse effect on our business, financial
condition and operating results.
As of December 31, 2000, our full-time headcount was 265. Our employees are not represented by a labor
union, and we consider our relations with our employees to be good. In order to provide benefits to our
employees in a cost-effective manner, we have entered into a client services agreement with Administaff Companies, Inc. under which Administaff provides us with certain personnel management services, such as payroll, medical and dental insurance and
the administration of our 401(k) plan. Under the agreement, we and Administaff are intended to be co-employers of all of our employees. Co-employment is necessary for Administaff to administer payroll and sponsor and maintain benefit
plans
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Risks Related To Our Business
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We have incurred net losses in nine of our past twelve quarters and we may experience losses in the future, which could cause the market price of our stock to
decline.
We have incurred net losses in nine of our past twelve quarters. We can provide no assurance that we will
achieve profitability in 2001. If we do achieve profitability in 2001, we may not sustain or increase profitability in the future. If we do not become profitable within the timeframe expected by investors, the market price of our common stock will
likely decline.
We are dependent on the success of the Relationship Manager and our suite of applications and related services for our success.
To date, substantially all of our revenues have been attributable to sales of licenses of the Relationship
Manager and our suite of applications and related services, consisting of implementation, integration with a customer’s existing back-office computer systems and maintenance and support of our software products. We currently expect the
Relationship Manager and our suite of applications and related services to account for most of our future revenues. Accordingly, factors adversely affecting the pricing of or demand for the Relationship Manager and our suite of applications, such as
competition or technological change, could have a material adverse effect on our business, financial condition, and operating results. Our future financial performance will depend, in significant part, on the successful development, introduction and
customer acceptance of new and enhanced versions of the Relationship Manager and our suite of applications and of new products and services we develop. We cannot assure you that we will be successful in upgrading and continuing to market the
Relationship Manager and our suite of applications or that we will successfully develop new products and services or that any new products and services will achieve market acceptance.
Our business is subject to quarterly fluctuations in operating results which may negatively impact the price of our common stock.
Our quarterly operating results have varied significantly in the past and we expect that they will continue
to vary significantly from quarter to quarter in the future. We have difficulty predicting the volume and timing of contracts, and short delays in closing contracts or implementation of products can cause our operating results to fall substantially
short of anticipated levels for that quarter. This is in part due to the fact that our products have a long sales and implementation cycle which makes it difficult to predict the periods in which we will recognize revenue and may cause operating
results to vary significantly. Additionally, we began selling our software products separately from our integration services during fiscal 2000. As a result of these and other factors, we believe that period-to-period comparisons of our historical
results of operations are not necessarily meaningful and are not a good predictor of our future performance. We may not be successful in generating recurring revenue streams to offset the above effects.
In addition, we may incur expenses in order to develop products and service offerings ancillary to our
existing line of products and services. These expenses may affect our earnings and may result in losses in particular quarterly or annual periods.
For all of these reasons, in some future quarters or years our operating results may be below the
expectations of investors, which could cause volatility or a decline in the price of our common stock.
If we are unable to complete a substantial number of sales contracts when anticipated or experience delays
in the process on a project or problems with satisfying contract terms, we may have to defer or not recognize revenue, causing our quarterly results to fluctuate and fall below anticipated levels.
For contracts in which revenue is recognized used a percentage of contract completed method, we may not be
able to recognize all or a portion of the revenue until milestones are achieved. If we are unable to complete one or more substantial anticipated license sales or experience delays in the progress of a project or product or problems with satisfying
contract terms required for revenue recognition in a particular quarter, we may not be able to recognize revenue when anticipated, and we would nonetheless recognize marketing and other expenses, causing our quarterly results to fluctuate and fall
below anticipated levels. This could cause our stock price to decline.
If our relationships with system integrators and business consultants terminate, we may lose important sales and marketing opportunities.
We have established relationships with system integrators and business consultants. We expect that these
relationships, though not exclusive, will expose our software to many potential customers to which we may not otherwise have access. If our relationships with any of these organizations do not develop as we expect or are terminated, or any of these
organizations begin promoting the products of our competitors instead of our products, we might lose important opportunities, including sales and marketing opportunities, and our business may suffer.
We are becoming increasingly reliant on our relationships with system integrators and business consultants.
We have begun to sell our software products separately from our integration services. If the third parties
who implement our software products for our customers do so ineffectively, our reputation and our business may be harmed.
We may not be able to expand overseas successfully.
In order to expand overseas, we have opened sales offices in Munich, Paris and Amsterdam. Our plans to
expand internationally are subject to risks, including:
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the impact of economic fluctuations in economies outside of the United States;
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greater difficulty in accounts receivable collection and longer collection periods;
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unexpected changes in regulatory requirements, tariffs and other trade barriers;
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difficulties and costs of staffing and managing foreign operations due to distance, as well as language and cultural
differences; and
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political instability, currency exchange fluctuations and potentially adverse tax consequences.
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We cannot predict whether the expansion of our business internationally will be successful. The results of
our efforts may prove not to have been worth the associated expense and opportunity cost.
It is difficult for us to attract and retain qualified software programmers.
Our future growth depends on the ability of our software programmers to develop new products and improve
existing products. Our ability to develop new products and services and enhance our existing products and services will depend on our ability to recruit and retain top quality software programmers. There is a shortage of the programming personnel we
need, and competition for qualified programmers is intense. If we are unable to hire and retain sufficient numbers of qualified programming personnel, we may not be able to develop new products and services or improve our existing products and
services in the time frame necessary to execute our business plan. Our inability to hire qualified programmers could also negatively impact our ability to customize and implement our extranet system as rapidly as we do today.
We have recently experienced and currently anticipate rapid growth in our business, and any inability to manage this growth could harm our
business.
In order to execute our business plan, we must grow significantly. Our full-time headcount grew from 85 as
of December 31, 1999 to 265 as of December 31, 2000. We expect that the number of our employees will continue to increase for the foreseeable future, in particular with respect to persons engaged in product development, professional services and
sales activities. We expect that we will need to continue to improve our financial and managerial controls and reporting systems and procedures. We will also need to continue to expand and maintain close coordination among our technical, finance,
sales and marketing groups. If we are unsuccessful in these efforts, our business and operations could be adversely affected.
We will not be able to execute our business plan and achieve desired growth in our business if we cannot increase our direct and indirect sales channels, which
could negatively affect our stock price.
We need to expand substantially our direct and indirect sales operations, both domestically and
internationally, in order to increase market awareness and sales of our products and services. Our products and services require a sophisticated sales effort targeted at several people within our prospective clients’ organizations. Competition
for qualified sales personnel is intense, and we might not be able to hire the quality and number of sales personnel we are targeting. In addition, we believe that our future success is dependent upon establishing and maintaining productive
relationships with a variety of distributors, resellers, system integrators and other joint marketing relationships with third parties. We cannot be sure that we will be successful in establishing these desired relationships or that these third
parties will devote adequate resources or have the technical and other sales capabilities to sell our products.
Acquisitions or investments in other technology companies may disrupt or otherwise have a negative impact on our business and dilute stockholder
value.
We may acquire or make investments in complementary businesses, technologies, services or products, or enter
into relationships with parties who can provide access to those assets, if appropriate opportunities arise. From time to time we have had discussions and negotiations with companies regarding our acquiring, investing in or partnering with their
businesses, products, services or technologies, and we regularly engage in these discussions and negotiations in the ordinary course of our business. We may not identify suitable acquisition, investment or relationship candidates, or if we do
identify suitable candidates, we may not complete those transactions on commercially acceptable terms or at all. If we acquire another company, we could have difficulty in assimilating that company’s personnel, operations, technology and
software. In addition, the personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in integrating the acquired products, services or technologies into our operations. These
difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may incur indebtedness or issue equity securities to pay for any future acquisitions. The issuance of equity securities
would dilute the ownership interests of the holders of our common stock.
We face competition and may face future competition.
The market for software products and services that enable business-to-business e-commerce is intensely
competitive, highly fragmented and rapidly changing. There are relatively few barriers to entry in the channel management market. We expect competition to persist and intensify, which could result in our losing market share or lowering our
prices.
Some of our competitors have advantages over us.
Some of our existing competitors, as well as potential future competitors, have longer operating histories
in markets related to ours, greater name recognition, larger customer bases and significantly greater financial, technical and marketing resources than our company. These advantages may allow them to respond more quickly
and effectively to new or emerging technologies and changes in customer requirements. It may also allow them to engage in more extensive research and development, undertake farther-reaching marketing campaigns, adopt more aggressive pricing
policies, implement their products and services more rapidly, and make more attractive offers to potential employees and other business associates. One or more of these companies could adopt a different business strategy for achieving profitability
which could allow them to charge fees that are lower than ours, in order to attract clients. Our competitors custom-build software products or use technology tools to develop their products; processes that we believe require substantially more time
than our approach. These competitors may reduce the amount of time it currently takes them to implement the products and services that compete with ours, eliminating an important advantage that we believe we currently enjoy. In addition, current and
potential competitors have established or may establish cooperative relationships among themselves or with third parties to increase the ability of their products or services to address the needs of our current and prospective clients.
Our executive officers are critical to our business and these officers may not remain with us in the future.
Our future success largely depends upon the continued service of our executive officers. If we lose the
services of one or more of our executive officers operating results and financial condition could be harmed. In particular, Michael W. Ferro, Jr., our founder, chairman of the board of directors and chief executive officer, would be extremely
difficult to replace.
If we fail to protect our intellectual property rights or face a claim of intellectual property infringement by a third party, we could lose our intellectual
property rights or be liable for significant damages.
Our success depends significantly upon our proprietary technology. We have no patents and no plans to apply
for any patents. Unauthorized parties may copy aspects of our products or services or obtain and use information that we regard as proprietary. Our means of protecting our proprietary rights may not be adequate, and our competitors may independently
develop similar technology or duplicate our products or our other intellectual property rights. Our failure to protect our proprietary rights adequately or our competitors’ successful duplication of our technology could negatively affect our
operating results and cause the price of our common stock to decline.
In addition, we have agreed, and may agree in the future, to indemnify certain of our customers against
claims that our software infringes upon the intellectual property rights of others. We could incur substantial costs in defending ourselves and our customers against infringement claims. In the event of a claim of infringement, we and our customers
may be required to obtain one or more licenses from third parties. We or our customers may be unable to obtain necessary licenses from third parties at a reasonable cost, or at all. Defense of any lawsuit or failure to obtain any such required
licenses could harm our business, operating results and financial condition.
Litigation over intellectual property rights could disrupt or otherwise have a negative impact on our business.
There has been frequent litigation in the computer industry regarding intellectual property rights. Third
parties may make claims of infringement by us with respect to current or future products, trademarks or other proprietary rights. These claims could be time-consuming, result in costly litigation, divert management’s attention, cause product or
service release delays, require us to redesign our products or services or require us to enter into costly royalty or licensing agreements. Any of these effects could have a material and adverse effect on our financial condition and results of
operations.
If we become subject to product liability litigation, it could be costly and time consuming to defend.
Since our products are used for company-wide, integral computer applications with potentially strong impact
on our customers’ sales of their products, errors, defects or other performance problems could result in
financial or other damages to our customers. Although we have contractual limits to our liability, product liability litigation, would be time consuming and costly to defend, even if we are successful.
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Risks Related To Our Industry
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We are highly dependent on the acceptance and effectiveness of the Internet as a medium for business-to-business commerce.
Our future revenues and the success of a number of our products and services is dependent in large part on
an increase in the use of the Internet for business-to-business commerce. The failure of the Internet to continue to develop as a commercial or business medium could harm our business, operating results and financial condition. The acceptance and
use of the Internet for business-to-business commerce could be limited by a number of factors, such as the growth and the use of the Internet in general, the threat of illegal activity that causes performance degradations at unprotected sites across
the Internet, the relative ease of conducting business on the Internet, the efficiencies and improvements that conducting commerce on the Internet provides, concerns about transaction security and taxation of transactions on the
Internet.
We depend on the speed and reliability of the Internet.
The recent growth in Internet traffic has caused frequent periods of decreased performance. If Internet
usage continues to grow rapidly, its infrastructure may not be able to support these demands and its performance and reliability may decline. Decreased performance at some unprotected Internet sites has also been attributed to illegal attacks by
third parties. If outages or delays on the Internet occur frequently or increase in frequency, or businesses are not able to protect themselves adequately from such illegal attacks, business-to-business e-commerce could grow more slowly or decline,
which may reduce the demand for our software products and services. The ability of our products to satisfy our customers’ needs is ultimately limited by and depends upon the speed and reliability of the Internet. Consequently, the emergence and
growth of the market for our software products and services depends upon improvements being made to the entire Internet to alleviate overloading and congestion. If these improvements are not made, the ability of our customers to benefit from our
products and services will be hindered, and our busi