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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 000-30963
SYNQUEST, INC.
(Exact name of registrant as specified in governing instrument)
GEORGIA 14-1683872
(State of organization) (IRS Employer Identification No.)
3500 PARKWAY LANE, SUITE 555, NORCROSS, GEORGIA 30092
(Address of Principal Executive Offices -- Zip Code)
Registrant's telephone number, including area code: (770) 325-2000
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, $.01 PER SHARE THE NASDAQ STOCK MARKET
Title of each class Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: NONE
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 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. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant (based upon the closing sale price on The Nasdaq Stock Market) on
September 22, 2000 was approximately $82.6 million. As of September 22, 2000,
there were 28,541,407 shares of common stock, $.01 par value, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its Annual
Meeting of Shareholders to be held November 16, 2000 are incorporated by
reference in Part III.
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SYNQUEST, INC.
TABLE OF CONTENTS
ITEM NO. PAGE NO.
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PART I
ITEM 1. BUSINESS.................................................... 1
Overview.................................................... 1
Market Opportunity.......................................... 1
Limitations of Existing Supply Chain Management Solutions... 2
The SynQuest Solution....................................... 3
Our Strategy................................................ 3
Core Functionality of Our Solutions......................... 5
Our SynQuest One2One Solutions.............................. 7
Professional Services....................................... 9
Customers................................................... 9
Case Studies................................................ 10
Sales and Marketing......................................... 11
Strategic Relationships..................................... 12
Competition................................................. 13
Research and Development.................................... 13
Intellectual Property....................................... 14
Employees................................................... 14
ITEM 2. PROPERTIES.................................................. 14
ITEM 3. LEGAL PROCEEDINGS........................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT........................ 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 18
General..................................................... 18
Recent Sales of Unregistered Securities..................... 18
Use of Proceeds............................................. 19
ITEM 6. SELECTED FINANCIAL DATA..................................... 20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 22
Overview.................................................... 22
Recent Developments......................................... 24
Results of Operations....................................... 24
Fiscal Year Ended June 30, 2000 Compared to Fiscal Year
Ended June 30, 1999......................................... 25
Fiscal Year Ended June 30, 1999 Compared to Fiscal Year
Ended June 30, 1998......................................... 26
Quarterly Results of Operations............................. 27
Liquidity and Capital Resources............................. 29
Recent Accounting Pronouncements............................ 31
Year 2000 Computer Issues................................... 31
Forward-Looking Statements.................................. 31
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET
RISK........................................................ 38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.................................... 39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 40
ITEM 11. EXECUTIVE COMPENSATION...................................... 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K.................................................... 41
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PART I
ITEM 1. BUSINESS
OVERVIEW
We provide advanced e-business solutions designed to optimize the financial
and operational performance of the supply chain. Our SynQuest One2One suite of
software solutions enables our customers to fulfill each order they receive in
the most profitable manner and to enhance competitiveness through improved
customer service. Our solutions consider the relevant variables that affect the
performance of the entire supply chain, including materials supply,
manufacturing, distribution, transportation and trading partners. We help our
customers improve their business performance, increase market share and enhance
customer service by:
- providing real-time management of every customer order to help achieve
fast and reliable fulfillment; and
- selecting the financially optimal, or profit maximizing, means of order
fulfillment within the supply chain constraints and customer
requirements.
Our scalable solutions are designed for business-to-business e-commerce. We
target traditional bricks and mortar companies with annual revenues between $100
million and $2 billion, web-based companies and market exchanges. We believe
these companies face complex supply chain management challenges, but their
limited resources and expertise require them to select solutions that are easy
to use and quick to deploy. Our turnkey suite of products can be quickly
implemented to deliver bottom-line savings and incremental revenue opportunities
for customers. Our solutions readily interface with a broad range of our
customers' existing enterprise applications, as well as the platforms of their
web-based trading partners. As of June 30, 2000, we had implemented our
solutions for over 100 customers. Our customers include The B.F. Goodrich
Company, Ford Motor Company, Herman Miller, Inc.'s SQA Division, Nordstrom.com,
Pioneer Electronic Corp., Reynolds Metals Company, STMicroelectronics N.V., and
Titleist and Footjoy Worldwide.
MARKET OPPORTUNITY
OUR ADDRESSABLE MARKET
The supply chain management software and services market is projected to
grow at a 40% compounded annual rate from $3.8 billion in 1999 to $20.3 billion
by 2004, according to AMR Research, Inc., an independent market research
company. In addition, we expect that as business-to-business e-commerce
develops, supply chain management solutions will gain share in e-commerce
application budgets. This will further increase the size of the potential market
for supply chain management solutions. The e-commerce applications market is
estimated to grow from $1.7 billion in 1999 to $16.0 billion by 2004, at a
compounded annual rate of 56%, according to AMR Research.
TRENDS DRIVING THE IMPORTANCE OF SUPPLY CHAIN MANAGEMENT IN THE E-BUSINESS
SOLUTIONS MARKET
Competitive pressure driven by the Internet. The Internet has allowed new
competitors to emerge and existing competitors to compete in new ways. Today's
increasingly competitive business environment and shareholder expectations have
forced many companies to become more efficient while improving their flexibility
and responsiveness to changing market conditions. In addition to facing higher
product standards for quality, variety and price, businesses also recognize the
need to shorten lead times, adjust production for frequent changes in customer
requirements and quote more accurate and reliable delivery dates. Many companies
seek to achieve growth through new distribution channels and superior customer
service, rather than through product innovation. In response to these market
forces, many companies are implementing supply chain management software
solutions to improve the efficiency of their business processes.
Growth of direct materials transactions through e-commerce. The volume of
nonfinancial goods and services sold through business-to-business e-commerce is
expected to reach $7.3 trillion worldwide in 2004,
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according to the GartnerGroup, a technology consulting and research firm. We
believe that approximately 80% of this e-commerce will consist of direct
materials, which are mission-critical materials, parts or components that are an
element of an enterprise's finished product. Buyers of direct materials
generally seek to exchange information with sellers across the life cycle of
their relationship. For example, buyers may need to assess a supplier's ability
to support potential business scenarios, such as the ability to meet volumes and
delivery dates, before committing to purchase a product. These customers seek to
make sourcing decisions that result in the lowest total delivered cost, which
involves many factors other than price, and to easily ascertain the current
status of each other. A typical manufacturing, distribution or retail company
executes thousands of direct materials buy and sell transactions annually, many
of which require coordinated execution. The supply chain management solutions
used today by the majority of companies do not readily support high volume
direct materials e-commerce.
The need for mass customization. As customers increasingly demand goods
tailored to their requirements, businesses seek to grow revenue by producing
unique goods on a large scale. However, manufacturers often cannot
cost-effectively maintain large inventory levels to meet anticipated demand. In
addition, customers are demanding that mass customized products be delivered
reliably and in less time, especially as the Internet raises expectations of
delivery speed. To achieve fast, reliable and profitable mass customization,
manufacturers will need to implement supply chain management solutions that can
address each order and manage it profitably in real-time.
The growth of market exchanges. Market exchanges, which are on-line
intermediaries that connect fragmented buyers and sellers, represent a new and
rapidly growing class of customers for supply chain management solutions. As of
April 2000, there were over 600 market exchanges, which are expected to grow to
10,000 by 2003, according to NetMarketMakers.com, a market research firm.
According to the GartnerGroup, 37% of the expected $7.3 trillion of
business-to-business e-commerce transactions, or $2.7 trillion, will occur
through market exchanges in 2004. As market exchanges move further into high
volume direct materials transactions, they will face increasing supply chain
coordination and customer satisfaction issues.
Globalization. Several factors are increasing the globalization of
markets, including the continued reduction in trade barriers, the Internet's
ability to make market information available worldwide, increasing
specialization and continued pressure to reduce costs and quickly penetrate new
markets to sell existing products. Globalization will lead to companies
interacting with more trading partners and a higher degree of outsourcing,
resulting in larger and more varied supply chains. This shift will place more
emphasis on the importance of supply chain management solutions that provide
visibility and control.
LIMITATIONS OF EXISTING SUPPLY CHAIN MANAGEMENT SOLUTIONS
We believe that existing supply chain management solutions do not fully
address the business imperatives arising from the foregoing trends. We believe
the primary limitations of existing solutions include the following:
- Limited financial optimization capability. Most supply chain management
solutions have limited capability to consider the financial impacts of
supply chain decisions. Typically, these solutions consider financial
impacts at an aggregate level, not on an order-by order basis, and
therefore do not select a financially optimal result.
- Lack of real-time management capability. Most supply chain management
solutions address planning and execution as two separate activities. This
limits effective decision-making over the supply chain and does not
account for real-time events which impact the plan and, therefore,
optimal execution.
- Difficulty of deployment. The adoption of most supply chain management
solutions has been limited due to the complexity of its implementation
process. Successful implementation of these solutions often requires
programming by operations research experts, which few companies have in-
house.
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THE SYNQUEST SOLUTION
Our software solutions are designed to address the limitations of current
supply chain management solutions and provide a comprehensive platform for our
customers to address the trends shaping their businesses. The key elements of
our solutions are as follows:
Financial optimization. Each product in our SynQuest One2One suite of
solutions is designed to achieve a single goal: financial optimization. Our
solutions carry this financial optimization principle from developing a
supply chain management strategy down to the individual order level and
allow our customers to determine the profit margin contribution of each
potential order before they accept it. This focus typically allows our
customers to recover their investment in our products quickly.
Real-time management. Our solutions are designed to create the plan,
coordinate the execution and continuously control each order to facilitate
fast and reliable fulfillment. After analyzing all relevant variables and
selecting the financially optimal means of fulfillment, our software
creates time-stamped operational plans that are disseminated for execution
throughout the supply chain. As execution occurs, our software analyzes the
events of the supply chain in real-time, publishes the impact of the events
on order delivery, and re-plans as necessary to keep the orders on
schedule. Our solutions analyze real-time changes in fulfillment
constraints to redetermine the optimal means of fulfillment.
Turnkey solutions. We offer turnkey solutions that are easy to
deploy, interface readily with most existing enterprise systems and
e-commerce platforms, and require little or no custom programming to
implement. After easily linking to our customers' systems, our solutions
use existing customer supply chain data to generate financially optimal
fulfillment plans. In addition, the turnkey nature of our solutions is a
competitive advantage because we can demonstrate, with little advance
preparation and set-up, a prospective customer's ability to realize
significant bottom-line savings with our solutions.
Comprehensive, high-volume, high-performance solutions. Our solutions
are comprehensive and operate robustly in a variety of environments. Our
solutions cover the entire array of supply chain issues that arise from
both short, vertical supply chains contained largely within a single
enterprise to distributed, complex supply chains crossing numerous
enterprises. As a result, our products are well suited for the most
traditional industrial companies as well as newer web-based businesses and
market exchanges. Our products are built to address the performance
requirements of large, complex supply chains and business-to-business
e-commerce, and to operate in mission-critical situations. We combine
advanced computing technologies, such as mixed integer programming and
genetic algorithms, with multiple modeling techniques designed to maximize
profitability and responsiveness.
OUR STRATEGY
Our objective is to become the leading provider of advanced e-business
solutions that optimize supply chain performance. We seek to enable our
customers to successfully transform their businesses to maximize profitability
and competitiveness. Our strategy to achieve this goal includes the following
key elements:
Increase our brand awareness. We focus on three types of customers:
bricks and mortar companies, web-based companies and market exchanges. We
plan to boost awareness of our company and our solutions through new
marketing campaigns and additional strategic partnerships. Marketing
campaigns may include advertising or public relations programs designed to
reach our target audiences effectively. We will cultivate strategic
partnerships with complementary business-to-business e-commerce companies,
such as software solutions providers and systems integrators, to stimulate
sales lead generation and offer more comprehensive solutions.
Expand and deepen market coverage. We plan to expand our market
coverage by increasing our direct sales force and building strategic
alliances. We intend to increase our coverage of existing markets and to
penetrate new geographic areas throughout Europe, Asia and the Pacific Rim.
In
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certain markets, we plan to partner with resellers to expand our presence
and support indirect sales efforts. We will also continue to market our
software products aggressively to businesses that have already licensed one
or more of our products. We believe that, as a result of the return on
investment that we deliver to our customers, customers will encourage the
use of our products throughout their enterprises and supply chains.
Broaden and enhance our suite of products. We intend to leverage our
expertise in supply chain management to build additional functionality into
our products, increase their competitiveness and broaden their
applicability for existing and new markets. We also plan to continue to
build new solutions that address emerging trends in supply chain management
and business-to-business e-commerce.
Target additional vertical markets. We plan to further penetrate our
current target industries and leverage our existing products' capabilities
into new vertical markets. We intend to support these new verticals by
hiring industry experts and expanding our products to address the specific
challenges presented by each new market. We also expect that successful
implementations in our existing vertical industries will present
significant opportunities to license our products to our customers' trading
partners in other vertical markets.
Pursue strategic acquisition opportunities. We may pursue strategic
acquisitions of complementary businesses, technologies, or products that
will accelerate any of the elements of our strategy. We currently have no
understandings, arrangements or agreements with respect to any potential
acquisitions.
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CORE FUNCTIONALITY OF OUR SOLUTIONS
All of our solutions share a core functionality, the two key features of
which are financial optimization and real-time management.
FINANCIAL OPTIMIZATION
Our products' financial optimization capability provides our customers with
the ability to maximize profitability of each individual order or minimize costs
while meeting order fulfillment constraints. Our customers view their supply
chains as beginning with their customers and ending with suppliers. Those supply
chains have many elements, including manufacturing plants, warehouses, suppliers
and modes of transportation. Each supply chain element has certain capabilities,
limitations and costs. When an order is placed, our solutions dynamically search
through the supply chain to determine what combination of warehouses, plants,
suppliers and transportation methods meets the delivery requirements of the
order, taking into account the capabilities and limitations of each supply chain
element and the impact of existing orders on those elements. That dynamic search
includes assessing alternative paths through the supply chain to find the single
path that meets the delivery requirements with the lowest combined warehousing,
manufacturing, transportation and supplier costs. The diagram below illustrates
financial optimization.
FINANCIAL OPTIMIZATION OF AN ORDER
The order sourcing route is dynamically chosen based upon the capacity,
lead time and cost of all of the supply chain's resources.
(Chart)
Result: The order is sourced for the required or best possible delivery date
and the lowest total delivered cost.
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REAL-TIME MANAGEMENT
Real-time management means planning, execution and control. The real-time
management capability of our solutions allows our customers to create the plan,
coordinate the execution and continuously control an order to facilitate its
fulfillment with the highest reliability in the shortest possible time. After an
order is dynamically sourced, all required actions, timing and
interrelationships are established and tracked throughout the supply chain. As
events in the supply chain occur, they are compared in real-time to the planned
events to detect any deviations from the sourcing plan. As deviations are
detected, our solutions project the impact of a deviation on the delivery of the
order. For instance, if a supplier were expected to deliver 100 input materials
on a particular date but actually delivered only 50, our solutions would project
the impact on the order and automatically determine its new delivery date. Our
solutions can quickly replan orders and select alternate paths or sequences
through the supply chain in order to maintain the delivery schedule if possible.
By constantly tracking the order through its life cycle, real-time management
also improves the speed of an order by minimizing order idle time. The diagram
below illustrates real-time management.
REAL-TIME MANAGEMENT OF AN ORDER
Our solutions track execution of the order, analyze performance deviations
for their impact on the delivery date, and re-plan, if necessary, to place the
impacted order back on schedule.
(Chart)
Result: Orders are reliably delivered within the shortest possible time.
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OUR SYNQUEST ONE2ONE SOLUTIONS
PRODUCT PRIMARY BENEFIT FEATURES/FUNCTIONALITY
SUPPLY CHAIN DESIGN Designed to assemble supply - Determines the supply chain
ENGINE chains to optimize delivery network and product flow
performance and - Optimizes on-time delivery
profitability and demand fulfillment
profitability
- Considers trade-offs between
capital investment and
operational costs
INBOUND PLANNING ENGINE Designed to determine how - Considers supplier,
to move inbound materials transportation and customer
through the supply chain to constraints and costs
result in the lowest total - Creates a transportation plan
delivered cost that minimizes the
combination of
transportation, inventory and
customer handling costs
- Synchronizes inbound
logistics with production or
outbound distribution
requirements
TACTICAL PLANNING ENGINE Designed to produce a plan - Models costs, capacities and
that maximizes margin lead times throughout the
contribution across the supply chain
supply chain - Determines what combination
of products should be sold to
maximize margin contribution
- Selects suppliers and
allocates supply chain's
resources to support the
sales plan
OPEN DEMAND ENGINE Designed to generate an - Manages multiple demand
accurate, unified customer streams, including
demand forecast for sales, collaboration with web-
marketing, manufacturing, enabled trading partners
distribution, finance and - Maintains unconstrained and
trading partners profit-constrained sales
forecasts
- Monitors sales activities
against forecasts and tracks
forecasting accuracy
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PRODUCT PRIMARY BENEFIT FEATURES/FUNCTIONALITY
DYNAMIC SOURCING ENGINE Designed to manage multiple - Models supply chain wide
orders across the supply costs, inventories,
chain capacities and lead times
- Dynamically selects the most
cost-efficient path across
the supply chain for each
customer order
- Tracks the progress of an
order through the supply
chain
- Allows trading partners to
allocate capacity, inventory,
set pricing, receive
commitments and respond with
actual performance over the
Internet
ORDER PROMISING ENGINE Designed to determine the - Considers the availability of
fastest and lowest total materials, manufacturing,
cost way to deliver an distribution, transportation
order capacity, costs and lead
times and finished goods
inventories
- Allows customers via the web
to determine delivery dates
for orders
- Allows manufacturers to
understand the potential
margin of that order before
making commitments
VIRTUAL PRODUCTION Designed to provide - Creates and publishes to-
ENGINE real-time management of the-second production
production orders schedules that optimize order
fulfillment based on cost,
on-time shipment and total
order cycle time
- Monitors and projects the
impact of production events
as they occur on order
shipment
- Re-plans instantly to put
order shipment times back on
track
CUSTOMER SERVICE ENGINE Designed to provide - Accesses and translates up-
real-time visibility to to-the-second supply chain
customer order status information into customer
across the supply chain information
- Creates personalized views of
the supply chain information
for individual customers
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PROFESSIONAL SERVICES
IMPLEMENTATION METHODOLOGY
We use an implementation methodology that we call the SynQuest Optimal
Performance Path. Our methodology consists of an end-to-end framework that
enables our customers to identify, maximize and take advantage of significant
opportunities for business improvement through supply chain management. We begin
the Optimal Performance Path program at the first meeting with each prospective
customer, and we continue it until our customers have achieved their desired
business results. We believe the continuity of our approach helps our customers
achieve measurable benefits quickly.
The initial phase of the Optimal Performance Path process centers around a
Value Opportunity Assessment, which is a formal analysis of the potential
improvements in each prospective customer's supply chain. Our industry
consultants conduct a site visit with the prospect, evaluate current conditions
and produce a report that outlines a value proposition specific to each
prospect's business goals. The value proposition specifically identifies
achievable financial and operations improvements, including how our software
will address the business issues, how to proceed with the actual implementation
and how to measure the delivered performance improvements. By using this
approach, we are able to ensure that we understand and agree upon our prospect's
opportunities for improvement as well as the solutions that are necessary to
produce the anticipated results. After we finalize the sale, the opportunities
identified in the Value Opportunity Assessment become the benchmark goals for
implementation, the second phase of the Optimal Performance Path process.
The implementation phase is designed to rapidly achieve the agreed upon
business objectives. We use two teams, an implementation team and a performance
team, working together to achieve the business objectives. The implementation
team installs and integrates the software to support the new business processes.
The performance team consists of senior management of the customer, our partners
and ourselves and addresses business issues that arise to keep the
implementation progressing as quickly as possible. This two team process
continues until we have achieved the business goals that were identified during
the Value Opportunity Assessment. Because of our implementation process, we are
able to install the software and produce results in as little as 90 days.
MAINTENANCE AND OTHER SERVICES
Maintenance. We provide full maintenance and support of our solutions to
our customers who choose to purchase an annual maintenance agreement. As long as
a maintenance agreement is in effect, our customers will receive all software
fixes and release enhancements as agreed upon in the contract documents and
license agreements. The maintenance program also includes up to 24-hour customer
service support to answer technical questions, assist in solving technical
issues, report product discrepancies, or request enhancements. Standard customer
service support is available during normal business hours. An extended customer
service support option is available which includes seven-day, 24-hour customer
service.
Strategic Consulting. Our consultants are available to work on select
strategic supply chain projects. We can help our customers develop custom supply
chain network plans to achieve their business goals. We apply these resources as
necessary to solve a wide range of complex supply chain problems.
CUSTOMERS
We target three types of customers: bricks and mortar companies, web-based
companies and market exchanges.
- Bricks and mortar companies typically attempt to differentiate themselves
from their competitors through responsiveness and reliability while
achieving a competitive cost advantage. Targeted bricks and mortar
companies have complex products or supply chain processes, such as
multiple suppliers, plants and warehouses, complex orders, significant
inventory carrying costs and alternative transportation modes. They are
also producing or distributing mass customized products.
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- Web-based companies have a strong web presence and accept orders over the
Internet but rely heavily on the supply chain assets of other companies.
Targeted web-based companies have complex order requirements and seek to
fulfill orders as profitably as possible. They must have intimate
knowledge of the capabilities and current status of the supply chain
assets of their trading partners to profitably service their customers.
- Market exchanges are typically businesses that have a web presence and
offer direct materials procurement services to buyers and sellers using
their exchange. Targeted market exchanges offer services for coordination
of complex orders, sourcing of materials for lowest total delivered costs
and/or have sellers that seek to sell excess capacity.
As of June 30, 2000, we had over 100 customers, operating in vertical
markets such as automotive and aerospace, electronics and electrical,
fabrication and assembly, printing and packaging, industrial and general
business industries. The following chart highlights representative customers in
these industries:
AUTOMOTIVE/AEROSPACE ELECTRONICS/ELECTRICAL FABRICATION/ASSEMBLY
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The B.F. Goodrich Company Pioneer Electronic Corp. Eaton Corporation
Ford Motor Company Ryobi North America, Inc. Herman Miller, Inc.'s SQA
Reynolds Metals Company STMicroelectronics N.V. Division
Sagem SA State Industries, Inc. Ingersoll-Rand Company
Tenneco Automotive Inc. Irwin Seating Company
Sauder Woodworking Co., Inc.
PRINTING/PACKAGING INDUSTRIAL GENERAL BUSINESS
------------------------------- ----------------------------- -----------------------------
CCL Custom Manufacturing, Inc. Commonwealth Industries, Inc. AmBev
Chesapeake Corporation Pfaudler, Inc. Cara Operations Limited
Crane Plastics Company Wolverine Tube, Inc. Kellogg Company
Graphic Packaging Corporation Nordstrom.com
Titleist and Footjoy Worldwide Sara Lee Corporation
United Parcel Service, Inc.
We have historically derived a significant portion of our revenues from
relatively few customers. In fiscal 2000, Ford Motor Company accounted for 21%
of our total revenues. In fiscal 1999, Moore Corporation, Limited accounted for
20% of our total revenues and, in fiscal 1998, Moore Corporation, Limited
accounted for 17% of our total revenues.
CASE STUDIES
The following case studies illustrate the benefits that our solutions have
provided to sample customers.
HERMAN MILLER'S SQA DIVISION
Company Background. Herman Miller's SQA Division manufactures and
distributes custom office furniture. The typical delivery time in the custom
office furniture industry is four to eight weeks, with little on-time
reliability. Herman Miller's SQA Division had already achieved delivery times of
as little as two weeks using streamlined methods and the deployment of a
PC-based order configuration system.
Issue. Herman Miller's SQA Division receives an average of 300 customer
orders daily, which results in more than 3,000 work orders for production.
Manufacturing companies typically perform work sequentially, with a product
moving from department to department until it is completed. This method of
manufacturing wastes time as products are moved from station to station with
idle time at each station. Herman Miller realized that to reduce lead times
significantly, it needed to coordinate assembly and reduce product idle time.
SynQuest Solution. To accomplish these tasks, Herman Miller's SQA Division
selected our Virtual Production Engine in 1996 to enable it to keep pace with
growing demand for its products and to create a
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paperless, real-time environment for improved manufacturing flexibility. Herman
Miller's SQA Division implemented our software at its Holland, Michigan facility
within 28 weeks. A second implementation was deployed in Rocklin, California
eight weeks later. In 1999, Herman Miller's SQA Division used the Internet to
integrate its suppliers with Virtual Production Engine to speed delivery of
materials to its production facilities.
Results. During the first 18-month period of live use, Herman Miller's SQA
Division gained the following performance improvements:
- On-time shipment reliability increased from 87% to over 99%;
- Average order cycle time dropped from 16 days to five days;
- Herman Miller's SQA Division ranked first in the furniture industry for
quick and complete delivery, delivery when promised and service,
according to an independent survey referenced by Supply Chain Management
Review, an industry publication;
- Annual inventory turns increased by approximately 250% to over 50; and
- Herman Miller's SQA Division reduced its direct materials lead-time to
four hours prior to use in production.
CHESAPEAKE DISPLAY AND PACKAGING COMPANY
Company Background. Chesapeake Display and Packaging Company, or CD&P, is
a provider of global merchandising services and a wholly owned subsidiary of
Chesapeake Corporation, a specialty packaging and merchandising service
provider. The company converts paperboard and other materials into displays,
produces packaging products and offers merchandising services such as
fulfillment. Since 1990, CD&P has experienced double-digit growth annually while
adding services and facilities. The company's network of sales, design,
manufacturing, custom packaging and fulfillment facilities is strategically
positioned across the United States, Canada and Western Europe to ensure
responsiveness and efficiency.
Issue. CD&P's retail customers began to dictate not only what the company
should deliver, but when and how it should make these deliveries. CD&P began the
search for a supply chain software vendor to help reduce inventory, accommodate
last-minute customer changes and maintain its competitive advantage.
SynQuest Solution. To accomplish these tasks, CD&P purchased our Virtual
Production Engine, Tactical Planning Engine and Dynamic Sourcing Engine in early
1998 for three manufacturing facilities, two sub-assembly facilities and six
fulfillment facilities.
Results. Using our software, CD&P has reduced cycle times, inventory and
work-in process, and is linking to its suppliers via the Internet. For example,
the company builds ahead of time some of the displays and individualizes them
after the customer's order is received. It does this at multiple sites in
multiple states and regions. Its previous system could not provide inventory
status on work-in-process, making inventory difficult to manage. Prior to
implementing our solution, the company's inventory covered one million square
feet. By reducing work-in-process and finished goods inventory, the company has
been able to close four warehouses, resulting in a substantial reduction of
overhead.
Additional improvements include:
- CD&P cut manufacturing cycle time by up to 50% and
- CD&P improved scheduling of work centers and reduced overrun quantities
by up to 50%.
SALES AND MARKETING
As of June 30, 2000, our sales and marketing organization consisted of 71
individuals, of whom 57 were based in North America and 14 were based in Europe.
Our 26 direct sales representatives are supported by a team of 18 pre-sales
consultants for business, product and technical expertise throughout
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the sales cycle. The majority of our direct sales force is organized by
geographical areas. Consistent with our strategy to focus on vertical markets,
we intend to continue to assign some of our sales representatives to specific
industries. Our North American sales offices are located in Atlanta and Chicago.
Our European sales and marketing office is headquartered in London, with an
additional sales office in Paris.
We will continue our initiatives to sell and support our software through
resellers and distributors for specified product types and in multiple
geographic regions. We have established distributor relationships in Latin
America and Eastern Europe.
Our marketing efforts focus on two categories of lead generation programs:
programs that are jointly planned, funded and executed with our strategic
partners; and programs that are designed and implemented by our in-house
marketing team. An advertising agency and a public relations firm assist our
internal team.
Both types of lead generation programs are used to target audiences
throughout North America and Europe. Specific tactics used in these marketing
initiatives include public relations, advertising, trade shows, alliance
programs, seminars, direct mail and telemarketing. In addition, an internal and
external website, product collateral, case studies, white papers and
presentations are available to support the marketing programs.
STRATEGIC RELATIONSHIPS
We are building and maintaining significant working relationships with
complementary vendors. We believe this will contribute considerably to our
success through lead generation and improving our implementation capabilities.
We are an IBM Business Partner, working with multiple organizations within
IBM. We have marketing relationships with the Global Midmarket Business unit and
the AS/400 Server Group, through jointly funded lead generation and awareness
programs. The IBM Manufacturing Industry Solutions Unit develops, installs and
supports a SynQuest/J.D. Edwards World integration product. IBM Global Services
has built an implementation and consulting practice for our products with more
than ten trained and deployed IBM consultants. We are also in the process of
developing additional relationships with other IBM organizations.
We have entered into formal strategic partnership agreements with leading
systems integrators and consulting companies including Deloitte & Touche
Management Solutions and BORN Information Services. These companies complement
our expertise in integrating and implementing SynQuest One2One e-business
solutions. We expect that these companies may become implementation partners in
the future.
We have been a business partner of J.D. Edwards for over three years and,
as of September 1999, we were named its preferred advanced planning and
scheduling partner for discrete manufacturing. We have also created a joint
offering with IBM and J.D. Edwards for the industrial fabrication and assembly
market called Supply Chain Advantage. With J.D. Edwards, we have developed
standard integration for its OneWorld solution and our SynQuest One2One
solutions.
We have relationships with several enterprise resource planning vendors and
are a certified SAP Complementary Software Partner and a member of the Oracle
Partner Program. Our solution has been certified for integration compliance with
SAP R/3, an enterprise resource planning system. Participation in the Oracle
Partner Program entitles us to benefits that reach beyond basic development
capabilities and product support. In addition to the technical aspect of our
relationship, we have access to a large number of Oracle resources such as
discounted education, training and sales and marketing tools. We are an
authorized reseller of Oracle Application Specific Database products, which
further enhances our ability to sell a complete solution to our customers.
As we increasingly work with web-based companies and market exchanges, we
seek to partner with companies that can strengthen our market position. We have
joint marketing relationships with InterWorld, a web-based sell side solution,
BEA Systems, an Internet infrastructure provider, Arborex, a
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packaging materials market exchange, and WebPLAN, a high-tech electronics supply
chain solution vendor.
COMPETITION
The e-business supply chain management solutions market is relatively new
and growing rapidly. We generally differentiate ourselves from our competitors
through our explicit ability to optimize financial performance, our real-time
management and ease of deployment.
We compete primarily with supply chain management solutions vendors,
including i2 and Manugistics, both of which are significantly larger than us. i2
provides customers with software solutions for supply chain management, customer
management and product life cycle management. i2 competes across a broad range
of vertical markets. Manugistics offers a wide range of supply chain management
products targeted towards consumer products companies.
A large number of traditional software vendors, including Demantra,
Descartes and Manhattan Associates, provide specialized applications that
generally fall into the broad category of supply chain management. This includes
vendors of full function demand forecasting, transportation planning and
management, warehouse management and other logistics related applications.
Others provide finite capacity scheduling, geared either to process or discrete
manufacturers. Some of these solutions, such as warehouse management, are
complementary and we have plans to expand our partnerships in those areas. We
believe that most customers prefer to have a broader set of applications that
can solve an entire business process.
A number of web-based solution vendors, including Commerce One and Ariba,
have entered the supply chain management market. We believe that these vendors
fall into three categories: competitors, potential partners and prospects.
Web-based competitors face the same issue as enterprise resource planning
vendors, acquiring domain expertise. We believe that many of the emerging
web-based supply chain management solutions represent strong opportunities for
partnerships that can provide more value to our customers and prospects. These
same vendors are also potential users of our solutions to expand their
capabilities. Further, some companies have relied on in-house development to
satisfy their needs for supply chain management solutions. Typically, these
companies have focused on developing specialized supply chain solutions, not a
broad suite of capabilities. We believe that the number of companies pursuing
in-house development of supply chain management solutions will become
insignificant as companies seek to deploy a broad range of supply chain
capabilities and do not have the required domain expertise.
In addition most of the major enterprise resource planning vendors offer,
or have announced plans to offer, advanced planning and supply chain
functionality into their solutions. SAP, PeopleSoft, Baan, Oracle and J.D.
Edwards rely on supply chain management software to enhance their product
offerings. Their supply chain planning products are designed for integration
with their transaction applications and not for the heterogeneous application
environments of our prospective customers. These companies have very large
installed customer bases and they have substantially greater financial,
technical and marketing resources than we do.
RESEARCH AND DEVELOPMENT
As of June 30, 2000, we employed 78 individuals in our research and
development groups located in Clifton Park, New York and Arlington, Virginia
including a core group of operations research specialists focused on new and
better technologies for solving supply chain problems. In addition, we use
outside programming resources to supplement our base staff from time to time. We
spent $10.0 million on research and development expenses in fiscal 2000, $10.2
million in fiscal 1999 and $9.4 million in fiscal 1998.
Through a combination of investments in internal development, outsourcing
and alliances, we have significantly expanded the scope of our products over the
past 18 months. Due to the evolving nature of the market, we intend to continue
to maintain a high level of investment in new product development and
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enhancements, either internally or through external sources. Periodically, we
undertake advanced development projects, which may be partially or wholly funded
by customers that wish to deploy technology that sets them apart from their
competition. These projects have led to breakthroughs that emerge as new
standard products for the broader market, such as the Inbound Planning Engine,
which we developed in conjunction with Ford Motor Company.
We adhere to industry standard methods whenever possible. Our products are
built to support standards such as J2EE and Microsoft COM. We use industry
standard languages such as Java, Microsoft Visual C++ and Visual Basic. We rely
on component and object oriented engineering methodologies to develop our
products.
We are an innovative technology provider in several areas within the supply
chain management market, including product architecture and communications. We
use a multi-tier, component based architecture for scalability and ease of
deployment. Our architecture separates data, business logic and
presentation/communication services to make distribution of the systems across
multiple entities easier. All communications with the business logic is
conducted through applications programming interfaces. These interfaces allow us
to offer our customers the ability to use one solution to interact through
browsers and Microsoft Windows-based interfaces, as well as connect to legacy
applications and web-based business-to-business e-commerce solutions. Along with
the industry standards, we use proprietary technology where necessary to provide
added value. For example, we have developed our own code generation technology
that allows us to rapidly build a large number of application programming
interfaces simultaneously supporting XML and C-based communications.
Our products operate on IBM RS/6000 AIX, IBM AS/400, HP-UX, Sun Solaris
and/or Microsoft NT servers and browsers or networked PC clients with Microsoft
Windows 95(R) and NT(R), although not every product is yet available for all
platforms. The Oracle Corporation and the IBM Corporation provide relational
database support.
INTELLECTUAL PROPERTY
Our success and ability to compete are dependent upon continuous
improvements of our existing product portfolio and the continued development of
new solutions. To protect our technology, we rely primarily on copyright, trade
secret and trademark laws. In the ordinary course of business, we enter into
confidentiality or license agreements with our employees, consultants and
corporate partners that control access to and distribution of our software,
documentation and other proprietary information. In addition, we license our
products to end users in object code, machine-readable format and our license
agreements generally allow the use of our products solely by the customer for
internal purposes without the right to sublicense or transfer the products.
EMPLOYEES
As of June 30, 2000, we had 209 full-time employees, of whom 78 were
engaged in research and development, 71 in sales and marketing, 44 in service
and support and 16 in finance, administration and operations. None of our
employees are represented by a labor union. As of June 30, 2000, we had 184
employees located in North America and 25 employees located in Europe. We
believe that our employee relations are satisfactory.
ITEM 2. PROPERTIES
We lease 18,452 square feet of office space for our executive offices in
Norcross, Georgia under a lease that expires in January 2006. We also lease
office space in Clifton Park, New York; Chicago, Illinois; York, Pennsylvania;
Arlington, Virginia; Paris, France; London, England; and Gorinchem, Netherlands.
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ITEM 3. LEGAL PROCEEDINGS
We currently are not a party to any litigation that we believe could have a
material adverse effect on us or our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 21, 1999, we held an annual meeting of the shareholders to
elect Joseph Trino, Paul Bender, Henry Kressel, Joseph Landy and Alfred Grunwald
as directors until the annual meeting in 2000 and to increase the number of
shares of common stock authorized for issuance under the 1997 option plan to
3,800,000 shares. Our holders of common stock voted as one class with the
holders of our Series B preferred stock, Series D preferred stock, Series F
preferred stock and Series G preferred stock. The voting results were as
follows:
FOR WITHHELD ABSTAIN
--- -------- -------
Joseph Trino............................................. 6,972,466 8,052 --
Paul Bender.............................................. 6,972,466 8,052 --
Henry Kressel............................................ 6,972,466 8,052 --
Joseph Landy............................................. 6,972,466 8,052 --
Alfred Grunwald.......................................... 6,972,466 8,052 --
FOR AGAINST ABSTAIN
--- ------- -------
Amendment to Stock Option Plan........................... 6,750,514 82,994 157,010
On May 17, 2000, we held a special meeting of the shareholders to amend and
restate the Amended and Restated Articles of Incorporation to increase the
number of authorized shares of common stock, to eliminate the authorized shares
of Class A common stock and to make Series C preferred stock convertible into
common stock. Shareholders of Series C preferred stock voted as a separate
class. The holders of all of 2,376,651 shares of Series C preferred stock voted
for the proposal. Holders of common stock, Series B preferred stock, Series D
preferred stock, Series F preferred stock and Series G preferred stock voting as
a group voted 8,344,647 shares for the proposal, 37,562 shares against the
proposal and 3,744 shares abstained from voting.
On June 26, 2000, we held a special meeting of the Series B, D and G
preferred shareholders to authorize and approve the payment of the accrued and
unpaid dividends on our outstanding preferred stock in the form of a newly
created Series H junior convertible preferred stock. Holders of Series B, D and
G preferred stock all voted as separate classes. The holders of all of 540,016
shares Series B preferred stock voted for the proposal. The holders of all of
3,692,618 shares Series D preferred stock voted for the proposal. Holders of
Series G preferred stock voted 3,706,382 shares for the proposal, no shares
against the proposal and 25,057 shares abstained from voting.
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ITEM X. EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers are as follows:
NAME AGE POSITION
- ---- --- --------
Joseph Trino........................... 51 Chairman of the Board and Chief
Executive Officer
Timothy Harvey......................... 44 President and Chief Operating Officer
Paul Bender............................ 64 President, Bender Consulting Division
John Bartels........................... 56 Executive Vice President, Finance and
Administration
Christopher Jones...................... 41 Executive Vice President, Corporate
Development and Marketing
Ronald Nall............................ 53 Executive Vice President, Product
Delivery
Mark Simcoe............................ 43 Chief Financial Officer and Treasurer
Fred Brown............................. 47 Senior Vice President, Field Services
Joseph Trino has been our Chairman of the Board since September 2000 and
our Chief Executive Officer since July 1996. He was our President from May 1994
to December 1999. From April 1992 to December 1993, Mr. Trino was President of
Kaseworks, Inc., an Atlanta-based provider of application development tools.
From January 1980 to April 1992, he was employed at Dun & Bradstreet Software
Inc. From December 1988 to April 1992, Mr. Trino was President of Dun &
Bradstreet Software's Manufacturing Systems Business Unit. Mr. Trino received a
B.S. in Finance and Administration from Syracuse University.
Timothy Harvey has been our President since December 1999 and our Chief
Operating Officer since July 1998. From July 1996 to June 1998, he served as our
Executive Vice President, Field Operations. From March 1988 to June 1996, Mr.
Harvey was Vice President of worldwide field operations at Datalogix
International, an enterprise resource planning vendor. From November 1982 to
March 1988, Mr. Harvey held various positions at Management Science America,
Inc., an enterprise applications provider in Atlanta, Georgia, later acquired by
Dun & Bradstreet Software. Mr. Harvey also served for four years as an officer
in the United States Marine Corps. Mr. Harvey received a B.S. in Business
Administration from the University of Florida.
Paul Bender has been President of Bender Consulting, a consulting division
of our company, since June 1997 and a director since March 1998. From 1982 to
June 1997, Dr. Bender was President of Bender Management, which was the
predecessor to Bender Consulting. He is a founding member of the Council of
Logistics Management and the Institute of Management Consultants. Dr. Bender
received a B.A. and an M.S. in Electrical Engineering and a Ph.D. in Mathematics
from the Swiss Institute of Technology.
John Bartels has been our Executive Vice President, Finance and
Administration since November 1997. He is responsible for our worldwide
financial operations, including investor relations and human resources. From
November 1995 to October 1997, Mr. Bartels was Senior Vice President and Chief
Financial Officer of TSW International, Inc., an enterprise asset management
software company that has since been acquired by Indus International, Inc. From
1993 until October 1995, he was Chief Financial Officer of Boral, Inc., a
manufacturer of construction materials. From March 1974 to June 1991, Mr.
Bartels was employed at Fuqua Industries, Inc., a diversified holding company,
as its Senior Vice President and Chief Financial Officer. He is a certified
public accountant. Mr. Bartels received a B.S. in Accounting and an M.B.A. from
Florida State University.
Christopher Jones has been our Executive Vice President, Corporate
Development and Marketing since January 2000. From September 1998 to January
2000, he was our Senior Vice President, Marketing and Corporate Development.
From May 1994 to September 1998, Mr. Jones was Vice President of enterprise
applications, manufacturing and logistics research for GartnerGroup, Inc., a
provider of
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information technology advisory services. From July 1981 to May 1994, he was
employed by Kraft Foods in a variety of information technology and management
roles. Mr. Jones received a B.S. in Electrical Engineering from Lehigh
University.
Ronald Nall has been our Executive Vice President, Product Delivery since
July 2000. Mr. Nall has more than 20 years experience in the application
software industry working for companies such as Oracle, EDS, Texas Instruments
and Computer Associates. From March 1997 to April 1999, Mr. Nall served as
Senior Vice President, Services and Products for PowerCerv, Inc., an integrated
enterprise response provider. From June 1995 to March 1997, he was employed by
Datalogix International as Senior Vice President, Product Research, Marketing
and Development. Mr. Nall received a B.S. in Management and an M.B.A. from the
University of West Florida.
Mark Simcoe has been our Chief Financial Officer and Treasurer since July
1994. From April 1994 to June 1994, Mr. Simcoe was a consultant to us in the
role of acting chief financial officer. From May 1992 to April 1994, Mr. Simcoe
served as Executive Vice President and Chief Financial Officer of Kaseworks,
Inc. He is a certified public accountant. Mr. Simcoe received a B.S. in
Accounting, an M.B.A. and an M.S. in Tax Accounting from the University of
Florida.
Fred Brown has been our Senior Vice President, Field Services since January
2000. From November 1996 to December 1999, he was our Vice President, Field
Services. From December 1991 to September 1996, Mr. Brown was Vice President,
Pre-Sales at Datalogix. Mr. Brown attended North Carolina State University.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
GENERAL
SynQuest completed its initial public offering on August 14, 2000 at $7.00
per share and, since August 15, 2000, its common stock has traded on the Nasdaq
National Market under the symbol "SYNQ." During fiscal 2000, SynQuest's common
stock was not publicly traded.
On September 22, 2000, the last sale price of the common stock as reported
on the Nasdaq National Market was $8.38 per share, and there were 227 holders of
record of our common stock.
Except for cash dividends payable in lieu of fractional shares of a
preferred stock dividend, we have never declared or paid any cash dividends on
our capital stock. We currently intend to retain all available funds and any
future earnings for use in the operation and expansion of our business and do
not anticipate declaring or paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
From July 1, 1997 through August 31, 2000, we issued the following
securities that were not registered under the Securities Act of 1933, as
amended:
ISSUANCES OF CAPITAL STOCK
In September 1997, we issued 2,500 shares of our common stock to a former
independent consultant in consideration of the execution and delivery of a
Release and Covenant Not to Sue.
In January 1998, we issued 15,000 shares of our common stock to the
shareholders of Manufacturing Execution Systems Associates, Inc. in
consideration of their continued employment with us.
In January 1999, we issued 15,000 shares of our common stock to the
shareholders of Manufacturing Execution Systems Associates, Inc. in
consideration of their continued employment with us.
In March 1999, we issued and sold an aggregate of 5,636,071 shares of our
Series G preferred stock to several accredited and institutional investors for
an aggregate offering price of $35.0 million. Deutsche Bank Alex. Brown
(formerly BT Alex. Brown Incorporated) served as exclusive placement agent for
this offering. As consideration for its services, we paid Deutsche Bank Alex.
Brown $2.2 million.
In May 2000, we issued and sold an aggregate of 112,500 shares of common
stock to Edward Scott, Jr., a member of our board of directors, for an aggregate
purchase price of $900,000.
In May 2000, we issued and sold an aggregate of 12,500 shares of common
stock to Carolina Gutierrez for an aggregate purchase price of $100,000.
In August 2000, we issued the following shares upon completion of our
initial public offering of common stock:
- 14,349,721 shares of common stock issued upon conversion of all of our
outstanding redeemable preferred stock, plus accrued and unpaid
dividends;
- 3,246,280 shares of common stock issued upon conversion of our
outstanding subordinated promissory notes held by E.M. Warburg, Pincus &
Co. in the aggregate principal amount of $15.0 million plus accrued
interest thereon; and
- 3,430,835 shares of common stock issued upon the cashless exercise of
warrants to purchase common stock held by E.M. Warburg, Pincus.
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No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering.
ISSUANCES OF NOTES AND WARRANTS
On July 20, 1997, we issued and sold a $2.5 million subordinated promissory
note and a warrant to purchase an aggregate of 714,286 shares of our common
stock to Warburg, Pincus Investors, L.P. at an exercise price of $3.50 per
share.
In November 1998, we issued and sold a subordinated promissory note to
Warburg, Pincus Investors, L.P. in an aggregate principal amount of $5.0
million. In accordance with its terms, the note was converted into an aggregate
of 805,153 shares of Series G preferred stock upon the closing of the sale of
the Series G preferred stock discussed above.
In May 2000, we issued a warrant to purchase 400,000 shares of common stock
at an exercise price of $8.00 per share in connection with a software license
agreement.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering.
GRANTS AND EXERCISES OF STOCK OPTIONS
From July 1, 1997 through August 31, 2000, we have granted stock options to
purchase an aggregate of 4,028,153 shares of common stock with exercise prices
ranging from $2.75 to $8.00 per share, to employees, directors and consultants
pursuant to our 1997 stock option plan. Of the options granted pursuant to our
1987 and 1997 stock option plans, 434,853 have been exercised for an aggregate
consideration of $405,353 as of August 31, 2000. The issuance of common stock
upon exercise of the options was exempt either pursuant to Rule 701, as a
transaction pursuant to a compensatory benefit plan, or pursuant to Section
4(2), as a transaction by an issuer not involving a public offering.
USE OF PROCEEDS
On August 11, 2000, registration statement no. 333-37518 was declared
effective by the Securities and Exchange Commission. We received approximately
$37.4 million of proceeds, net of underwriting discounts and commissions, from
the sale of 5,750,000 shares of common stock under that registration statement.
To date, we have used approximately $10.5 million of these net proceeds to repay
outstanding indebtedness. The remaining proceeds will be used for working
capital and general corporate purposes.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are qualified by reference to and
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and notes thereto included elsewhere in this annual report. The
selected financial data presented below have been derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors.
The following acquisitions occurred during the periods presented:
- In September 1995, we purchased the intellectual property rights to
Mandis software from Mandis International Limited. Management
considered the intellectual property rights to be in-process
research and development with no alternative future use and expensed
the $2.5 million purchase price in fiscal 1996.
- In February 1996, we purchased Log'In, S.A. We accounted for this
acquisition under the purchase method of accounting. Management
considered $3.1 million of the purchase price attributable to
in-process research and development with no alternative future use
and expensed this amount in fiscal 1996. The results of Log'In's
operations subsequent to the date of acquisition are included in our
operating results.
- In November 1996, we purchased Manufacturing Execution Systems
Associates, Inc., or MESAi, and accounted for this transaction under
the purchase method of accounting. The results of MESAi's operations
are included in our financial statements effective November 1, 1996.
- In June 1997, we purchased Bender Management Consultants Inc. This
acquisition was accounted for under the purchase method of
accounting. Management considered $2.0 million of the purchase price
to be in-process research and development with no alternative future
use and expensed this amount in fiscal 1997. The results of
operations of Bender Management Consultants are included in our
financial statements effective June 1, 1997.
FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ----------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees...... $ 4,813 $ 4,333 $ 10,392 $ 10,521 $ 13,181
Services................... 1,702 3,887 8,014 12,760 12,034
---------- ----------- ------------ ------------ ------------
Total revenue...... 6,515 8,220 18,406 23,281 25,215
Operating expenses:
Cost of license fees....... -- 11 524 576 497
Cost of services........... 1,194 4,419 6,714 9,308 7,535
Research and development... 5,193 6,320 9,368 10,179 10,002
Purchased in-process
research and
development............. 5,568 2,083 -- -- --
Sales and marketing........ 3,553 6,344 9,485 13,731 14,351
General and
administrative.......... 1,918 3,663 3,984 4,850 5,200
Provision for doubtful
accounts................ 242 1,600 373 753 767
---------- ----------- ------------ ------------ ------------
Total operating
expenses......... 17,668 24,440 30,448 39,397 38,352
---------- ----------- ------------ ------------ ------------
Operating loss............... (11,153) (16,220) (12,042) (16,116) (13,137)
Other income (expense):
Interest expense........... (658) (1,501) (3,539) (3,526) (2,723)
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FISCAL YEAR ENDED JUNE 30,
---------------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ----------- ------------ ------------ ------------
(IN THOUSANDS, EXCEPT SHARE DATA)
Other income (expense)..... 70 (6) 52 82 87
---------- ----------- ------------ ------------ ------------
Total other
expense.......... (588) (1,507) (3,487) (3,444) (2,636)
Loss before income taxes..... (11,741) (17,727) (15,529) (19,560) (15,773)
---------- ----------- ------------ ------------ ------------
Net loss........... (11,741) (17,727) (15,529) (19,560) (15,773)
Accretion of redeemable
preferred stock............ (790) (1,309) (1,833) (2,534) (3,659)
---------- ----------- ------------ ------------ ------------
Net loss attributable to
common stock............... $ (12,531) $ (19,036) $ (17,362) $ (22,094) $ (19,432)
========== =========== ============ ============ ============
Basic and diluted net loss
per common share........... $ (18.77) $ (16.02) $ (13.98) $ (15.21) $ (12.58)
========== =========== ============ ============ ============
Weighted average number of
shares used in computing
basic and diluted net loss
per common share........... 667,492 1,188,204 1,242,381 1,452,363 1,544,265
========== =========== ============ ============ ============
Pro forma basic and diluted
net loss per common share
(unaudited)(1)............. $ (0.88)
============
Weighted average number of
common shares used in
computing pro forma basic
and diluted net loss per
common share (unaudited)... 22,114,460
============
- ---------------
(1) Reflects the August 2000 conversion of the following into shares of common
stock at the initial public offering price of $7.00 per share, less
underwriting discounts and commissions: (1) all outstanding redeemable
preferred stock, plus accrued and unpaid dividends; (2) outstanding
subordinated promissory notes, held by E.M. Warburg, Pincus in the aggregate
principal amount of $15.0 million, plus accrued interest; and (3) the
cashless exercise by E.M. Warburg, Pincus of all of its warrants. Does not
include the 5,750,000 shares of common stock sold in connection with the
initial public offering.
AS OF JUNE 30,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 296 $ 700 $ 900 $ 638 $ 457
Working capital (deficit)................... (5,231) (19,560) (35,012) (22,423) (36,686)
Total assets................................ 4,761 6,532 9,844 11,656 8,923
Long-term debt, less current portion........ 369 389 224 266 163
Redeemable preferred stock.................. 15,334 20,706 22,051 57,256 60,916
Shareholders' deficit....................... (19,968) (38,546) (55,411) (77,523) (94,413)
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We develop, market and support supply chain management software that
enables enterprises to optimize financial and operational performance across
their supply chains. Since early 1999, we have begun to leverage our core
competencies in supply chain management software by developing additional
e-business products, as well as web-enabling our current products for use across
customer supply chains. The addition of e-business products to our SynQuest
One2One suite of solutions enables us to offer products that integrate and
financially optimize a customer's web-enabled supply chain.
Our fiscal year end is June 30. We generate revenues from two principal
sources:
- license fees derived from software products; and
- professional services fees and maintenance and support fees derived from
consulting, implementation, training and maintenance services and other
technical support related to our software products.
Software License Fees. Customers typically pay a one-time fee for a
perpetual license to use our software products. The amount of the fee is based
on the number of licensed sites, users and products. We require a written
software license contract that typically provides for an initial payment upon
execution of the license contract, followed by one or more periodic payments on
dates specified in the contract. Payments are required to be made within one
year of the contract date. Our initial software license arrangements with
customers typically provide for a fee for the first year of maintenance and
support services. We often negotiate contracts for specific implementation and
training services following the initial software license contract.
Our software licenses have principally been the result of direct sales to
customers, and we expect that direct sales will continue to represent our
principal selling method in the future. However, we have used and expect to
continue to use independent resellers of our products in geographic areas where
we do not believe it is cost-effective to establish a direct sales force. We
rely on third parties such as business process improvement consultants,
implementers of software systems and complementary software application
providers to provide us with leads for potential new customers. Prior to
mid-1999, we primarily depended on J.D. Edwards for our leads. During fiscal
2000, we entered into relationships with several new lead sources, substantially
reducing our dependence on any single lead source.
The sales cycle for our products is typically six to nine months, and
software license revenues for a particular period are substantially dependent on
orders received in that period. Furthermore, we have experienced, and expect to
continue to experience, significant variation in the size of individual
licensing transactions.
We recognize software license revenue when a signed contract is obtained,
shipment of the product has occurred, the license fee is fixed and determinable,
collectibility is probable, and remaining obligations under the license
agreement are insignificant. For software licenses which result from resellers
or distributors sublicensing our products to end users, we do not recognize
software license revenue until our products are licensed to the final end user
and all other conditions for revenue recognition outlined in the previous
sentence have been met. Our software arrangements often include multiple
elements, each of which is available for sale and often is sold separately. If a
software arrangement includes multiple elements, such as multiple software
products, specified upgrades, maintenance and support and/or other services, we
allocate the total software arrangement fee among each element of the
arrangement. We use the residual method, as defined in Statement of Position No.
98-9, to allocate revenue to delivered elements once we have established our
objective evidence for the value of all undelivered elements. Our objective
evidence of fair value for undelivered maintenance and support services is based
upon the then current standard renewal rate for these services and is not
discounted. Our objective evidence of fair value for undelivered implementation
and training services is based on our then current standard hourly rates for
such services as they are sold separately and is not discounted. The remaining
portion of the arrangement
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fee is allocated to the licensed software products. As a result, all discounts
negotiated with our customers in multiple element arrangements are reflected as
discounts to the license fee portion of the arrangement and are prorated across
multiple software products, if there are multiple products, based on their list
prices established by authorized management. Our revenue recognition is in
accordance with the American Institute of Certified Public Accountants Statement
of Position No. 97-2, "Software Revenue Recognition," as amended by Statement of
Position Nos. 98-4 and 98-9. Prior to fiscal 1999, we recognized software
license revenue in accordance with Statement of Position No. 91-1, meaning that
we then recognized software license revenue upon shipment, provided we had a
signed contract, that we had no remaining significant obligations to perform and
that collection of payment was probable. Our adoption of the new standards in
fiscal 1999 has not had a material effect on our revenue recognition.
Services Revenue. Our services revenue consists principally of revenue
derived from professional services associated with implementing our products and
educating and training our customers' employees on the use of our products. In
addition and to a lesser extent, our services revenue includes fees for ongoing
maintenance and support, consisting primarily of customer technical support
services and product upgrades and enhancements.
Our implementation and training services are typically delivered on a
time-and-materials basis or occasionally on a fixed-price basis. We recognize
revenue from the services delivered on a time-and-materials basis as the
services are performed. Revenue from fixed-price arrangements are recognized
using a percentage-of-completion method based upon the cost incurred to date as
a percentage of the total expected cost. Out-of-pocket expense incurred by our
personnel performing professional services are reimbursed by the customer.
Implementation and training services are generally completed four to nine months
following execution of the license contract. However, implementations for
customers licensing multiple products for numerous locations may take place over
a longer period of time.
As part of our maintenance and support services, we provide our customers
with product upgrades and enhancements as well as user and technical support
services for an annual fee. Most of our maintenance and support contracts are
invoiced annually in advance, are renewable at the discretion of the customer
and allow for future fee increases. The revenue from our maintenance and support
services is recognized ratably over the term of the maintenance and support
contract, which is generally 12 months. While a 90-day warranty is included in
the initial software license, our maintenance and support contracts typically
are entered into as of the date of the initial software license. Warranty claims
are typically not material and customers are charged for support during the
warranty period.
Cost of License Fees. Our cost of license fees consists primarily of
commissions or finder fees which we pay to third parties for providing us with a
new customer lead and sub-license fees paid by us to third parties for software
owned by a third party which we have licensed along with our products. Also
included is the amortization of software acquired through business acquisition.
We believe that our continued expansion of strategic alliances for sales lead
generation may increase the future cost of license fees over historical levels
both in dollars and as a percentage of total revenue.
Cost of Services. Our cost of services consists primarily of personnel
costs, including third-party consultants, and travel associated with providing
consulting, implementation, training and maintenance and support services
associated with our products.
Research and Development. Our research and development costs consist
primarily of personnel costs, travel, training and office facilities costs. We
maintain a development staff to enhance our products and to develop new
products. In accordance with Statement of Financial Accounting Standards No. 86,
we expense software costs as incurred until technological feasibility of the
software is determined and the recovery of the cost can reasonably be expected,
after which any additional costs are capitalized. To date, we have expensed all
software development costs because development costs incurred subsequent to the
establishment of both technological feasibility and the reasonable expectations
of cost recovery have been minimal.
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Sales and marketing. Our sales and marketing expenses consist primarily of
personnel costs, commissions to employees, travel, promotional events such as
trade shows, seminars and technical conferences and advertising and public
relations programs.
General and Administrative. Our general and administrative expenses
consist primarily of personnel and other costs of our finance and human
resources activities, as well as legal and audit fees, depreciation and other
general corporate expenses.
Backlog. Our product delivery lead times are very short and, consequently,
substantially all of our license fee revenue in each quarter may result from
contracts entered into in that quarter. Accordingly, we generally only maintain
a significant backlog for our professional services and maintenance and support
activities.
RECENT DEVELOPMENTS
On August 11, 2000, a registration statement on Form S-1 for the initial
public offering of our common stock was declared effective by the Securities and
Exchange Commission. We received approximately $37.4 million of proceeds, net of
underwriting discounts and commissions, from the sale of 5,750,000 shares of our
common stock in the initial public offering at a price of $7.00 per share. Upon
completion of the offering, all of the outstanding redeemable preferred stock,
plus accrued and unpaid dividends as of August 13, 2000 converted into
14,349,721 shares of common stock. Our outstanding subordinated promissory notes
held by E.M. Warburg, Pincus & Co., our principal shareholder, in the principal
amount of $15.0 million plus accrued interest as of August 14, 2000 converted
into 3,246,280 shares of common stock. We issued 3,430,835 shares of common
stock upon the cashless exercise of warrants held by E.M. Warburg, Pincus which
E.M. Warburg, Pincus had agreed to exercise upon completion of the offering.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of our total revenue for the respective periods.
FISCAL YEAR ENDED JUNE 30,
---------------------------
1998 1999 2000
------- ------ ------
Revenue:
Software license fees..................................... 56.5% 45.2% 52.3%
Services.................................................. 43.5 54.8 47.7
------ ----- -----
Total revenue..................................... 100.0 100.0 100.0
Operating expenses:
Cost of license fees...................................... 2.8 2.5 2.0
Cost of services.......................................... 36.5 40.0 29.9
Research and development.................................. 50.9 43.7 39.7
Sales and marketing....................................... 51.5 59.0 57.0
General and administrative................................ 21.7 20.8 20.6
Provision for doubtful accounts........................... 2.0 3.2 3.0
Total operating expenses.......................... 165.4 169.2 152.2
------ ----- -----
Operating loss.............................................. (65.4) (69.2) (52.2)
Other income (expense):
Interest expense.......................................... (19.3) (15.1) (10.8)
Other income (expense).................................... 0.3 0.3 0.4
------ ----- -----
Total other expense............................... (19.0) (14.8) (10.4)
------ ----- -----
Loss before income taxes.................................... (84.4) (84.0) (62.6)
------ ----- -----
Net loss.......................................... (84.4)% (84.0)% (62.6)%
====== ===== =====
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FISCAL YEAR ENDED JUNE 30, 2000 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1999
Software License Fees Revenue. Revenue from software license fees
increased 25.3% to $13.2 million in fiscal 2000 from $10.5 million in fiscal
1999. The increase was due to increased market acceptance of our software
solutions, as well as the expansion of our sales force. During the fourth
quarter of fiscal 2000, we entered into a $9.4 million agreement with Ford Motor
Company. The agreement provided for the license of five of our standard software
products, maintenance for one year and a warrant to purchase 400,000 shares of
our common stock. We allocated approximately $6.9 million of the total fee to
software licenses, $1.2 million to maintenance and $1.3 million to the fair
value of the warrant. We shipped a portion of the software in June 2000 and
recognized approximately $4.7 million of software license revenue. We expect to
ship the balance of the products in the quarter ending September 30, 2000.
During the first half of fiscal 2000, we believe that our software license
revenue was negatively impacted by the following factors:
- our traditional sources of customer leads did not meet our growth
expectations during the period of transition to other lead-generation
sources; and
- during calendar 1999 potential customers' short-term focus of financial
and manpower resources on Year 2000 issues postponed some potential
customers' licensing decisions.
In order to increase the quantity and quality of customer leads, we have
entered into and continue to pursue relationships with third-party lead sources
such as business process improvement consultants, implementers of software
systems and complementary software application providers. During fiscal 2000,
these efforts resulted in an increase in the quantity and quality of customer
leads. We believe the increases in our partner relationships with third-party
lead sources and the elimination of Year 2000 issues will continue to have a
positive effect on our future revenues.
Services Revenue. Revenue from services decreased 5.7% to $12.0 million in
fiscal 2000 from $12.8 million in fiscal 1999. This decrease was the result of a
decrease in our revenue from implementation and training services due to our
implementation service provider partners performing a portion of the
implementation services for our software customers, partially offset by an
increase in maintenance and support revenue resulting from license contracts
entered into during the past year. Management expects that the continued use of
third-party software implementation providers as lead sources will have the
future effect of reducing our implementation services revenue from customers
referred to us by the implementation service provider.
Total Revenue. Total revenue increased 8.3% to $25.2 million in fiscal
2000 from $23.3 million in fiscal 1999.
Cost of License Fees. Cost of license fees decreased 13.7% to $497,000 in
fiscal 2000 from $576,000 in fiscal 1999. This decrease resulted from a decrease
in sub-license fees paid to third parties as a result of fewer products
sub-licensed to our customers that were owned by third parties.
Cost of Services. Cost of services decreased 19.1% to $7.5 million in
fiscal 2000 from $9.3 million in fiscal 1999. This decrease was due to our
decreased use of higher cost third-party consultants for implementation
services.
Research and Development. Research and development expenses were
relatively consistent at $10.0 million in fiscal 2000 and $10.2 million in
fiscal 1999. Although we have been developing additional e-business products and
web-enabling our existing products over the past year, our research and
development costs have remained stable. We were able to utilize existing
resources and core competencies of our employees without adding additional
personnel costs to develop these new products and enhancements to our existing
products.
Sales and Marketing. Sales and marketing expenses increased 4.5% to $14.4
million in fiscal 2000 from $13.7 million in fiscal 1999. This increase was due
to an increase in compensation and related
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expenses associated with an increase in the number of sales personnel and
presales consultants as we expanded our direct sales force to allow for future
growth.
General and Administrative. General and administrative expenses increased
7.2% to $5.2 million in fiscal 2000 from $4.9 million in fiscal 1999. This
increase was the result of higher costs associated with the increase in our
infrastructure to support our recent and anticipated growth.
Provision for Doubtful Accounts. Our provision for doubtful accounts was
relatively consistent at $767,000 in fiscal 2000 and $753,000 in fiscal 1999.
Operating Loss. As a result of the above factors, our operating loss
decreased 18.5% to $13.1 million in fiscal 2000 from $16.1 million in fiscal
1999.
Other Income (Expense). Other income (expense) decreased 23.5% to $2.6
million in fiscal 2000 from $3.4 million in fiscal 1999. Other income (expense)
consists almost entirely of interest expense. This decrease was due to lower
average borrowings during fiscal 2000 as a result of the use of a portion of the
proceeds from the sale of Series G preferred stock in March 1999 to reduce debt
under our line of credit.
Income Taxes. During fiscal 2000 and 1999, we reported losses for both
financial reporting and income tax purposes. As a result, we made no significant
provision for income taxes in either period. At the end of fiscal 2000, we had
net operating loss carryforwards of approximately $74.1 million and tax credits
of approximately $1.1 million that expire principally in years 2001 through
2015. Total net operating loss carryforwards at June 30, 2000 includes
approximately $13.2 million of net operating losses related to our foreign
operations that may be carried forward indefinitely.
Net Loss. As a result of the above factors, our net loss decreased 19.4%
to $15.8 million in fiscal 2000 compared to $19.6 million in fiscal 1999.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Software License Fees Revenue. Revenue from software license fees were
$10.5 million in fiscal 1999 and $10.4 million in fiscal 1998. While our
software license fee revenue increased in the first two quarters of fiscal 1999
compared to fiscal 1998, we experienced a decline in license fees in the last
two quarters of fiscal 1999. We believe this decline in license fees revenue in
the last half of fiscal 1999 was due in large part to our traditional sources of
customer leads not increasing during the period of transition to other
lead-generation sources and postponement of some potential customers' licensing
decisions due to Year 2000 issues.
Services Revenue. Revenue from services increased 59.2% to $12.8 million
in fiscal 1999 from $8.0 million in fiscal 1998. This increase was primarily the
result of an increase in revenue from customer implementations and an increase
in support revenue, both resulting from the increase in new licenses during the
fourth quarter of fiscal 1998 and the fist two quarters of fiscal 1999.
Total Revenue. Total revenue increased 26.5% to $23.3 million in fiscal
1999 from $18.4 million in fiscal 1998. The increase was due to the increase in
services revenue described above.
Cost of License Fees. Cost of license fees increased 9.9% to $576,000 in
fiscal 1999 from $524,000 in fiscal 1998. This increase was due to higher
third-party finder fees partially offset by a decrease in sub-license fees paid
to third parties as a result of a reduction in the number of products owned by
third parties that we sub-licensed to our customers.
Cost of Services. Cost of services increased 38.6% to $9.3 million in
fiscal 1999 from $6.7 million in fiscal 1998. The increase resulted from
increased costs associated with the addition of personnel, including the
increased use of higher cost third-party consultants necessary to provide our
implementation services.
Research and Development. Research and development expenses increased 8.7%
to $10.2 million in fiscal 1999 from $9.4 million in fiscal 1998. This increase
resulted from greater costs associated with additional personnel required to
support our product development activities and plans.
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Sales and Marketing. Sales and marketing expenses increased 44.8% to $13.7
million in fiscal 1999 from $9.5 million in fiscal 1998. This increase resulted
from increased costs associated with additional personnel in our sales and
marketing organization, including additional direct sales and marketing
personnel.
General and Administrative. General and administrative expenses increased
21.7% to $4.9 million in fiscal 1999 from $4.0 million in fiscal 1998. This
increase resulted from increased costs associated with the addition of personnel
and other costs related to the increase in business activity over the past year.
Provision for Doubtful Accounts. Our provision for doubtful accounts
increased 101.9% to $753,000 in fiscal 1999 from $373,000 in fiscal 1998. This
increase resulted from an increase in year-end as well as average outstanding
accounts receivable resulting from increased business activity.
Operating Loss. As a result of the above factors, our operating loss
increased 33.8% to $16.1 million in fiscal 1999 compared to $12.0 million in
fiscal 1998.
Other Income (Expense). Other income (expense), which consists primarily
of interest expense, was $3.4 million in fiscal 1999, approximately equal to the
$3.5 million in fiscal 1998. Although interest expense decreased in the fourth
quarter of fiscal 1999 as result of the use of a portion of the proceeds from
the sale of our Series G preferred stock in March 1999 to reduce borrowings
under our line of credit, the decrease was offset by increased borrowings during
the first three quarters of fiscal 1999.
Income Taxes. During fiscal 1999 and fiscal 1998 we reported losses for
both financial reporting and income tax purposes. As a result, we made no
significant provision for income taxes in either year.
Net Loss. As a result of the above factors, our net loss increased 26.0%
to $19.6 million in fiscal 1999 compared to $15.5 million in fiscal 1998.
QUARTERLY RESULTS OF OPERATIONS
The following tables contain quarterly financial information. The unaudited
consolidated quarterly financial statements have been prepared on substantially
the same basis as the audited consolidated financial statements contained in
this annual report. They include all adjustments, consisting only of normal
recurring accruals, that we consider necessary to present fairly this
information when read in conjunction with our consolidated financial statements
and the related notes appearing elsewhere in this annual report.
QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 2000 2000
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Software license fees................................... $ 253 $ 3,563 $ 3,905 $ 5,460
Services................................................ 3,304 2,899 3,226 2,605
------- ------- ------- -------
Total revenue................................... 3,557 6,462 7,131 8,065
Operating expenses:
Cost of license fees.................................... 125 42 248 82
Cost of services........................................ 2,227 1,755 1,887 1,666
Research and development................................ 2,591 2,591 2,507 2,313
Sales and marketing..................................... 3,228 3,480 3,369 4,274
General and administrative.............................. 1,160 1,415 1,218 1,407
Provision for doubtful accounts......................... 325 147 124 171
------- ------- ------- -------
Total operating expenses........................ 9,656 9,430 9,353 9,913
------- ------- ------- -------
Operating loss............................................ (6,099) (2,968) (2,222) (1,848)
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QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1999 1999 2000 2000
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Other income (expense):
Interest expense........................................ (568) (721) (680) (754)
Other income (expense).................................. 29 16 11 31
------- ------- ------- -------
Total other expense............................. (539) (705) (669) (723)
------- ------- ------- -------
Loss before income taxes.................................. (6,638) (3,673) (2,891) (2,571)
------- ------- ------- -------
Net loss........................................ (6,638) (3,673) (2,891) (2,571)
------- ------- ------- -------
Accretion of redeemable convertible preferred stock....... (1,076) (731) (959) (893)
------- ------- ------- -------
Net loss attributable to common stock..................... $(7,714) $(4,404) $(3,850) $(3,464)
======= ======= ======= =======
Basic and diluted net loss per common share............... $ (5.16) $ (2.93) $ (2.38) $ (2.01)
======= ======= ======= =======
Weighted average number of shares used in computing basic
and diluted net loss per common share................... 1,495 1,501 1,621 1,720
======= ======= ======= =======
QUARTER ENDED
------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1999 1999
--------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenue:
Software license fees................................... $ 1,900 $ 4,000 $ 1,093 $ 3,528
Services................................................ 2,708 2,874 3,664 3,514
------- ------- ------- -------
Total revenue................................... 4,608 6,874 4,757 7,042
Operating expenses:
Cost of license fees.................................... 33 397 47 99
Cost of services........................................ 1,910 2,224 2,401 2,773
Research and development................................ 2,469 2,470 2,675 2,565
Sales and marketing..................................... 3,126 3,524 3,598 3,483
General and administrative.............................. 1,144 1,307 1,162 1,237
Provision for doubtful accounts......................... 45 45 186 477
------- ------- ------- -------
Total operating expenses........................ 8,727 9,967 10,069 10,634
Operating loss............................................ (4,119) (3,093) (5,312) (3,592)
Other income (expense):
Interest expense........................................ (980) (1,141) (959) (446)
Other income (expense).................................. 6 14 28 34
------- ------- ------- -------
Total other expense............................. (974) (1,127) (931) (412)
------- ------- ------- -------
Loss before income taxes.................................. (5,093) (4,220) (6,243) (4,004)
------- ------- ------- -------
Net loss........................................ (5,093) (4,220) (6,243) (4,004)
------- ------- ------- -------
Accretion of redeemable convertible preferred stock....... (485) (493) (629) (927)
------- ------- ------- -------
Net loss attributable to common stock..................... $(5,578) $(4,713) $(6,872) $(4,931)
======= ======= ======= =======
Basic and diluted net loss per common share............... $ (3.87) $ (3.26) $ (4.68) $ (3.33)
======= ======= ======= =======
Weighted average number of shares used in computing basic
and diluted net loss per common share................... 1,441 1,447 1,469 1,480
======= ======= ======= =======
Our quarterly operating results have varied in the past and may vary
significantly in the future depending on many factors including:
- the volume of orders;
- competitor activities;
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- changes in strategic relationships;
- customer budget constraints;
- the mix of products sold; and
- general economic conditions.
Historically, we have experienced very large individual license
transactions, which can cause substantial variances in quarterly license fee
revenue. In addition, we typically enter into a significant portion of our new
license contracts in the last two weeks of the quarter. Furthermore, we believe
that the purchase of our products is relatively discretionary and generally
involves a significant commitment of capital. As a result, purchases of our
products may be deferred or canceled in the event of a downturn in any potential
customer's business or in the economy in general or any potential customer's
focus of financial and manpower resources on other areas such as Year 2000
issues.
Historically, we have recognized greater revenue from license fees in the
fourth quarter of each fiscal year than in each of the preceding quarters, and
the first quarter license fees revenue typically has declined from such revenue
in the fourth quarter of the preceding year. We believe that this concentration
of licensing activity is caused primarily by our sales commission policies,
which compensate sales personnel for meeting or exceeding annual performance
quotas. Any change in these policies could result in a change in this pattern of
licensing activity and, therefore, the portion of annual revenue reported in
each quarter of the year. Furthermore, because we generally ship our software
products within a few days after receipt of a contract, we historically have not
had a material backlog of unfilled software orders and license fees revenue in
any quarter is generally substantially dependent on orders received and shipped
in that quarter.
A substantial portion of our operating expense level, particularly
personnel and facilities costs, is based, in part on our expectations as to
future revenue and is relatively fixed in advance of any particular quarter. As
a result of the foregoing factors, we believe that our quarterly revenue,
expenses and operating results likely will vary significantly in the future and
period-to-period comparisons of our operating results may not be meaningful. In
any event, such comparisons should not be relied upon as indicators of future
performance.
Revenue from software license fees increased in the quarter ended June 30,
2000 primarily as a result of our license agreement with Ford Motor Company.
Revenue from software license fees decreased in the quarter ended September 30,
1999 due in part to our potential customer's focus on Year