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SECURITIES AND EXCHANGE COMMISSION

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, 2002

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.

Registrant’s telephone number, including area code:  (770) 325-2000

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:

      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 o

      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.     o

      The aggregate market value of the voting stock held by non-affiliates of the Registrant (based upon the closing sale price on The Nasdaq SmallCap Market) on September 16, 2002 was approximately $3.4 million. As of September 16, 2002, there were 2,946,797 shares of common stock, $.01 par value, outstanding.

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SYNQUEST, INC.

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

      The information in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not historical in nature, including statements about beliefs and expectations, are forward-looking statements. Such statements are based upon current expectations that involve risks and uncertainties. For example, words such as “may,” “will,” “should,” “estimates,” “predicts,” “potential,” “continue,” “strategy,” “believes,” “anticipates,” “plans,” “expects,” “intends,” and similar expressions are intended to identify forward-looking statements. Statements regarding future events and developments and our future performance, as well as our expectations, beliefs, plans, estimates or projections relating to the future, are forward-looking statements within the meaning of these laws. Examples of such statements in this report include:

	•	discussions of the effects of our proposed business combination and the related private placement, as described herein;
	•	financial condition;
	•	results of operations;
	•	business plans, including growth plans;
	•	our technology;
	•	business strategies, operating efficiencies or synergies, competitive positions, growth opportunities for existing services and products;
	•	plans and objectives of management;
	•	the market for our securities;
	•	our Nasdaq SmallCap Market listing status;
	•	buying patterns of potential and existing customers;
	•	use of third-party lead sources; and
	•	the financial and regulatory environment in which we operate.

      You should not place undue reliance on these forward-looking statements which speak only as of the date of such statements. These statements are based on current expectations. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of future events, new information or otherwise. All forward-looking statements are subject to risks and uncertainties that could cause actual events to differ materially from those projected. Factors that might cause or contribute to such a discrepancy include, but are not limited to,

	•	the extent of our ability to integrate the operations of Viewlocity with ours;
	•	the effects of vigorous competition with larger and better-established companies in the markets in which we operate;
	•	the impact of technological change on our business, and new entrants and alternative technologies in our respective markets and businesses;
	•	the effect of the proposed business combination and private placement described herein on our Nasdaq SmallCap Market listing status;
	•	the factors discussed under “Risk Factors” in this report; and
	•	other risks referenced from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

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PART I

Item 1.     BUSINESS

Overview

      We are a software company that specializes in providing supply chain planning solutions that enable companies with complex supply chains to improve their profit and customer service. A complex supply chain consists of a large combination of products/parts, plants, warehouses, transport modes and suppliers that are needed to meet diverse customer requirements. For example, the automotive and major home appliance industries typically have complex supply chains. We believe that our approach to supply chain planning is unique because our solutions address supply chain planning problems as business process problems that are optimally solved only when all the relevant financial and operational implications of the problems are adequately considered across the business process. Other products simply define supply chain problems as operational flow problems, or as financial problems for specific functions within a company, such as inventory or transportation. Our software is designed to optimize the financial and operational performance of the supply chain by using mathematically based technology that maximizes profit while meeting customer demand and respecting supply chain restrictions. Unlike other products, our solutions define supply chain problems as financial problems and derive the operational flow as a result of the best financial solution for the entire business process. To produce the best results across strategic, tactical and operational supply chain planning problems, our solutions use our unique financial optimization technology to:

	•	model the total business process which consists of the operational constraints (such as manufacturing capacity, shipping calendars and dock door restrictions) and the financial drivers (such as purchase price, material handling costs, inventory carrying costs and revenue) and
	•	evaluate all the relevant operational and financial trade-offs across the supply chain and determine which combination of activities represents the greatest profit or lowest total cost while meeting customer requirements.

      Our software solutions have broad applicability, but we have initially targeted manufacturing companies in the following industries: automotive original equipment manufacturers (“OEM”) including their tier-one suppliers, the industrial and consumer durables markets and the third party logistics providers (“3PL”) that serve those markets. We believe companies in these markets face considerable competitive pressure to dramatically improve bottom-line performance and they have already optimized the performance of individual functions within their enterprise. Furthermore, they must make these improvements while simultaneously meeting increasingly stringent customer delivery requirements. These companies need solutions that are capable of delivering significant financial benefits by planning across their complex supply chain network for maximum profit. Our software solutions, which are capable of being implemented quickly, address both complex supply chain planning and profit maximization. These same companies are beginning to leverage the Internet to improve the effectiveness of their complex supply chain network. Our solutions are capable of helping these companies seamlessly collaborate with their trading partners to further improve profit and customer service.

      Our solutions readily interface with a broad range of our customers’ existing enterprise applications, as well as the web-based platforms of their trading partners. As of June 30, 2002, we had implemented our solutions for over 100 customers. Our clients include Whirlpool Corporation, Honda Express Co., Penske Logistics LLC, ABB Vetco Gray, Inc., Nissan North America, Goodrich Corporation, Ford Motor Company, HON Industries, Inc., Alcoa, Inc., STMicroelectronics N.V., The Simmons Manufacturing Co., LLC and Titleist and Footjoy Worldwide.

      On August 30, 2002, we entered into a merger agreement with Viewlocity, Inc. (“Viewlocity”), pursuant to which Viewlocity will be merged with and into us. As consideration for the merger, we will

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      In addition, we entered into an amended and restated stock purchase agreement dated as of September 20, 2002, with our majority shareholder, Warburg, Pincus Investors, L.P. (“Warburg”), certain stockholders of Viewlocity and several new investors, who are referred to collectively as the “purchasers.” Pursuant to the stock purchase agreement, we will issue up to 13.2 million shares of our newly created series A preferred stock (the “series A preferred stock”) to the purchasers in a private placement at a price of $2.50 per share, for total consideration between $27.5 million and $33.0 million consisting of cash or the conversion of outstanding loans by the purchasers to us or Viewlocity. Purchasers have subscribed for 11 million shares of series A preferred stock, for total consideration of up to $27.5 million, under the stock purchase agreement. Up to an additional 1 million shares of series A preferred stock, for total consideration of $2.5 million, may be issued under the stock purchase agreement to existing purchasers or other persons if agreed by us and a majority-in-interest of the purchasers. If purchasers extend additional bridge loans prior to closing, up to an additional 1.2 million shares of series A preferred stock could be issued under the stock purchase agreement upon conversion of up to $3 million of such additional loans. The terms of the series A preferred stock to be issued by us in the private placement are described in Item 7 of this report. The proceeds of the private placement will be used for debt repayment, working capital and general corporate purposes.

      Completion of the merger and the private placement are subject to satisfaction of customary closing conditions. We currently anticipate that the transactions will be completed by December 31, 2002.

      Warburg and Timothy Harvey, our president, have executed voting agreements pursuant to which they have agreed, subject to the terms and conditions of the voting agreements, to vote all of their shares of our common stock in favor of the merger, the private placement and any other matter necessary to effect the merger and the private placement. The shares subject to the voting agreements represent in the aggregate slightly more than 50% of the outstanding voting power of our common stock and are sufficient to approve the merger and the private placement.

      We believe the following trends are driving the supply chain planning market forward:

      Continued pressure to reduce costs. Buyers are continually demanding lower prices, which means that companies face constant pressure to reduce costs. In the past, companies with complex supply chains attempted to reduce costs by focusing on one aspect of the supply chain such as manufacturing or transportation. However, these companies now realize that to reduce costs further, they must consider cost reduction from a cross-functional perspective, evaluating the financial trade-offs of the entire supply chain. This type of analysis is complex because there are many potential trade-offs that must be simultaneously evaluated to determine which combination of trade-offs will provide the greatest overall cost reductions. In addition, we believe manufacturers will continue to outsource key components of their products, which will cause their supply chains to become even more complex. Most companies now recognize that they benefit the most from supply chain planning solutions that are capable of simultaneously evaluating the financial trade-offs across the supply chain to determine the lowest overall cost.

      Increased customer service level requirements. Companies are requiring their suppliers to increase the speed and reliability of delivery of orders. They have realized that slow and unreliable delivery of orders now means that not only will they lose orders, but eventually, customers as well. Building inventory in advance of demand or expediting orders are not feasible solutions to the problem because of the high costs associated with both solutions. In order to improve the speed and reliability of order delivery, manufacturers need supply chain planning solutions that can effectively allocate and coordinate the myriad of resources across the complex supply chain network to deliver orders on time and at the lowest possible cost.

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      Increased demand for mass customization. Customers are increasingly demanding goods tailored to their requirements, and companies are seeking to capitalize on this trend by producing unique goods on a large scale. Mass customization inherently increases the complexity of products and processes across the supply chain. Many companies cannot cost-effectively maintain excess inventory levels to meet anticipated demand because of the number of different products. To achieve profitable mass customization, these companies need to implement supply chain planning solutions that are capable of coordinating these processes efficiently and effectively in order to manufacture a wider array of products while producing each order for the lowest total delivered cost.

      Increased collaboration. Companies have realized that delivering value to their customers and leveraging their trading partners over the Internet can only be done effectively through effective integration of the supply chain. Collaborative planning, as opposed to execution, is the core value delivered by Internet-based supply chain integration. The essence of this realization is that the majority of cost savings result from optimizing the allocation and utilization of the supply chain resources, not automating transactions. Companies have also realized that both the internal and external aspects of the supply chain must be taken into account in order to deliver competitive capabilities such as on-time delivery, order reliability and order flexibility. As a result, companies are looking for supply chain planning solutions that are capable of simultaneously coordinating their trading partners as well as their internal operations.

      Increased globalization. The globalization of markets is increasing at an astounding rate. Factors contributing to this increase include the continued reduction in trade barriers, the Internet’s ability to make market information available worldwide virtually instantaneously, increased product specialization, continued market pressure to reduce costs, and the need for quick penetration of new markets to sell existing products. We believe globalization will cause companies to interact with more trading partners and embrace a higher degree of outsourcing, resulting in larger and more complex supply chains. This shift will place more emphasis on the importance of supply chain planning solutions that provide coordination, visibility and control.

      Our objective is to become the leading provider of supply chain planning solutions for companies with complex supply chains. Our solutions focus on improving planning processes versus improving execution processes, because we believe that improved planning can lead to the greatest benefits in the shortest amount of time. We intend to continue to focus on solving high-value supply chain planning problems for companies and their related logistics service providers in the automotive, industrial and consumer durables markets, by using financially-focused technology to enable our clients to maximize profitability. Once we achieve a leadership position in these markets, we plan to extend our supply chain planning capabilities to new target industries.

      Our strategy includes the following key elements:

      Address specific business problems. We focus on solving specific, high-value business problems for companies with complex supply chains. These business problems manifest themselves in the form of low margins, weakening sales, high inventory levels, excessive expediting charges or poor on-time delivery. We believe these problems are indicative of larger, more complex business issues that cut across the organizations within the supply chain. These larger, more complex business issues include cost structures that are too high, inventory that is in the wrong place at the wrong time, or poor overall supply chain order coordination. We will continue to provide supply chain planning solutions that determine the most effective way to address these larger, more complex problems. We believe our solutions to these problems are the most effective and efficient method of providing our clients with significant and rapid return on investment (“ROI”) in our solutions.

      Initially target specific markets. We intend initially to become recognized as the domain expert in supply chain planning solutions for companies with complex supply chains, including markets such as automotive OEMs and their tier-one suppliers, manufacturers in industrial and consumer durables markets, and third-party supply chain providers that offer outsourced logistics services to these types of companies.

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      Focus on next generation supply chain planning technology. We intend to leverage our expertise in supply chain planning by solving problems that have not been addressed and by addressing existing problems in completely new ways. We intend to continue to focus on problems within complex supply chains and place an emphasis on the facets of these problems that will help our customers maximize profit. We intend to build additional functionality into our current solutions that will continue to differentiate us from other supply chain planning vendors. We believe this additional functionality will broaden the applicability of solutions to our customers and may enable us to penetrate new industries. As always, we intend to continue to build new solutions that address emerging trends in supply chain planning.

      Expand our brand awareness. We plan to continue to increase the awareness of our company and our solutions in the industries we have targeted through focused marketing campaigns and additional strategic partnerships. Marketing campaigns may include advertising or public relations programs designed to reach our target audiences effectively. We intend to cultivate additional strategic partnerships with complementary supply chain management companies, such as software solutions providers and systems integrators, to stimulate sales lead generation and offer more comprehensive solutions.

      Pursue strategic acquisition opportunities. We may pursue strategic acquisitions of complementary businesses, technologies, or products that will help accelerate the elements of our strategy. Consistent with this aspect of our strategy, we have entered into definitive agreements to effect the Viewlocity merger and the private placement as described above.

      We believe that existing supply chain planning solutions do not fully address the business challenges arising from the foregoing trends. We believe the primary limitations of existing solutions include the following:

      Limited complex supply chain network modeling capability. Most supply chain solutions do not accurately model the complex supply chain network because they must simplify the problem or model only part of the overall supply chain process. Simplifying the problem inherently produces sub-optimal results that do not maximize financial returns. This approach does not consider the myriad of operations, income and expense structures inherent in a complex supply chain network. Other solutions attempt to break up a complex supply chain network into less complex pieces, such as isolating transportation costs and activities. Supply chain planning solutions that model only one piece at a time cannot produce the lowest overall cost or greatest profit because they do not evaluate the financial trade-offs of the many elements across the complex supply chain network.

      Limited financial optimization capability. Most supply chain planning solutions are capable of only focusing on managing the activities of the supply chain network to meet customer requirements. The financial performance of the complex supply chain network is computed only after the activities of the supply chain network have been determined or only focuses on a limited set of cost drivers. These solutions are not capable of simultaneously considering all revenues, costs and operational constraints. Therefore, they are not capable of maximizing profit while simultaneously meeting customer requirements.

      Difficulty of deployment. In the past, the adoption of most supply chain planning solutions by companies with complex supply chains has been limited due to the complexity of the supply chain

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      Limited scalability. Most supply chain planning solutions currently available were not designed to rapidly process the massive volume of data and associated permutations generated by a complex supply chain network. To circumvent this problem, these solutions attempt to simplify the supply chain model or break up the complex model into several simple models that operate independently of one another. These approaches produce answers that do not simultaneously consider the multiple trade-offs that comprise a complex supply chain network. Therefore, they inherently produce suboptimal results that are not capable of maximizing financial returns or eliminating infeasible answers from consideration.

      Our current complement of supply chain planning solutions provides a robust platform for our customers to take full advantage of the opportunities for financial and operational improvement that exist in the complex supply chain network by solving a number of strategic, tactical and operational planning problems. The key characteristics that differentiate our solutions from other supply chain solutions include the following:

      Designed for the complex supply chain. Our solutions consider all of the relevant variables that exist in a complex supply chain, including the operational and financial drivers related to manufacturing, transportation, distribution, suppliers and customers. Our solutions not only consider the cross-functional business processes of a company’s supply chain, but also the relevant details that exist within each individual entity within the network. They are capable of accommodating the multiple cost structures that are inherent within the complex supply chain network. Therefore, they are not only able to generate an operationally feasible answer, but also actual plans to achieve the greatest possible financial return.

      Financial optimization technology. Our solutions are designed to maximize profit or minimize total costs while simultaneously optimizing a company’s supply chain requirements. We call this process “financial optimization.” Financial optimization enables our solutions to extend beyond simply balancing supply and demand. Financial optimization allows a company to maximize profit or minimize total cost while it balances supply and demand. Our financial optimization technology enables our solutions to directly model the revenues or costs of cross-functional business processes within a complex supply chain instead of only modeling the physical activities. Our solutions simultaneously evaluate the possible combinations of supply chain activities and financial drivers across the business process to determine which unique combination represents the greatest profit or lowest cost while simultaneously meeting customer requirements.

      Fast deployment. Implementation of our software solutions is straightforward and may produce significant results quickly. This is because our solutions are configured via business data. Our solutions require no custom programming for configuration and easily accept changes in business processes. Our solutions interface with most existing enterprise systems and web-based platforms. By interfacing to our clients’ systems, our solutions are capable of using real-time supply chain data to quickly generate financially optimal plans. With little advance preparation and set-up, we are capable of demonstrating a prospective client’s ability to realize significant bottom-line savings using our solutions.

      Comprehensive, high-volume, high-performance solutions. Our solutions are capable of solving complex supply chain problems including handling the large data structures inherent in a complex supply chain. The architecture of our solutions allows our customers to model their business processes in a single view, while producing operationally feasible plans in a timely manner. As a result our products are well suited for large industrial companies, such as automotive OEMs, companies that want to include trading partners in the planning process and companies that must react quickly to changes in their supply chain.

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      All of our solutions use financial optimization technology as part of their core functionality. This underlying financially-focused architecture enables our products to model the cross functional business problems inherent in companies with complex supply chains and deliver solutions that maximize profit or minimize costs while simultaneously optimize customer service. Key aspects of our financial optimization technology are as follows:

      Model all Relevant Operational and Financial Variables of the Business Process. Unlike other supply chain planning vendors whose solutions address cross-functional business process problems by breaking them into pieces such as inventory, transportation or manufacturing problems, our solutions address the total business process problem, which includes the operational capabilities and financial drivers. Our solutions not only take into account the overall facilities and transport modes but also the activities within the facilities, such as manufacturing equipment or storage capacities. Our solutions consider all of the relevant revenues and expenses across the business process including start-up costs, inventory carrying costs, material handling costs, transportation costs and investment costs, to maximize profit or minimize total cost. This unique approach is necessary to produce answers that optimize the operational and financial performance of the entire business process. We believe that we have the only supply chain planning solutions that model simultaneously both the operational and financial variables that are relevant to companies with complex supply chains in our target industries.

      Maximize Profits and Optimize Customer Service. As opposed to supply chain planning solutions that simply balance supply and demand to meet customer requirements, our solutions are designed to explicitly maximize profit or minimize total cost while meeting customer requirements. Our financial optimization technology simultaneously evaluates cost and customer service trade-offs that results in a plan that generates the greatest profit or lowest cost and also meets customer requirements. For example, to determine the lowest total delivered cost, our solutions balance inventory-carrying costs, material handling costs and transportation costs. At the same time, our solutions consider a company’s unique supply chain constraints and, therefore, are capable of also producing operationally feasible solutions.

      Using our financial optimization technology, our solutions solve specific high value strategic, tactical and operational business problems for companies with complex supply chains. Typical categories of business problems include:

      Business Strategy Planning. Companies must continually make strategic business decisions concerning customers, return on invested capital, acquisition, divestitures and the use of strategic trading partners. The timeframe to evaluate and make such decisions continues to decrease and companies look to quickly reposition their business model to maximize overall financial performance despite constantly changing market conditions. To get the best financial returns, these types of decisions require comprehensive analysis of the business and must include for example, revenue models, service level agreements, operating costs and capabilities and working capital. Our solution has the ability to model these complex financial and operational scenarios and produce profit maximized plans based upon strategies that include facility rationalization, supplier sourcing, new product introduction, customer profitability and promotions targeting.

      Profit Margin Planning. The majority of the world’s largest manufacturers make products on a to-stock basis, which means that they must make and store them ahead of actual orders. For these manufacturers, failure to correctly allocate resources in advance of demand can result in a large miss in profit as the right products are not available for sales or inventory is excessive. Traditional supply chain planning solutions focus on only a part of the sales and operations planning problem by either focusing on improving demand accuracy or correctly time phasing replenishment of inventory. Our solution takes a holistic view of sales and operations planning including revenues, volumes, operating costs and capabilities to determine what combination of anticipated demand produces the greatest revenue and lowest fulfillment costs, resulting in the greatest profit. With our solution, make-to-stock manufacturers can determine which

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      Inbound Logistics Planning. Significantly reducing inbound logistics costs while supporting material flow requirement into plants that are employing “lean or flow” manufacturing concepts is a challenge because of the comprehensiveness of the problem. Inventory constraints in the plants, increased delivery frequency requirements, transportation delivery and returnable container strategies are interrelated and impact each other. The traditional way to address this problem has been to break the process into pieces and, for example, focus on transportation planning for a limited number of high cost materials, eliminate operational variances that cause unnecessary costs, or conduct additional rate negotiations with transportation providers. Our solutions address the inbound logistics problem in a holistic manner and organize the inbound flow of all material for the lowest total delivered cost. We accomplish this task by assessing the entire inbound supply chain — from a supplier’s dock door through cross docks and returnable containers to the plant’s demand requirements and inventory constraints. At the same time, we simultaneously consider the transportation, material handling and inventory carrying costs to determine the integrated transportation, material handling and inventory plan that yields the lowest total delivered cost into the manufacturing plant or plants.

      Complex Order Planning. Companies that manufacture products across multiple facilities often struggle with long order lead times, unreliable delivery and high expediting costs. The causes of these problems may range from (i) promising orders without knowing if the supply chain has the capacity to deliver the order by the requested date, (ii) poor synchronization of the order across the network or (iii) the inability to address on-going changes and problems as they occur. When an order is placed, our solutions dynamically search through the complex supply chain network to determine what combination of warehouses, plants, suppliers and transportation methods meets the delivery requirements of the order for the lowest total delivered costs or greatest profit. As activities in the supply chain occur, they are compared in real-time to the planned events to detect any deviations from the sourcing plan, including trading partners connected via the web. As deviations are detected, our solutions are capable of determining the impact of the deviation on the delivery of specific orders. Our solutions are capable of quickly re-planning orders and selecting alternate paths or sequences through the supply chain in order to maintain the delivery schedule and, if possible, original margins.

      Manufacturing Planning. For many make-to-order companies, supply chain performance hinges on the ability of manufacturing plants to produce customer orders quickly, reliably and for the lowest cost. Competitive advantage in many industries has shifted from pure product innovation to speed and reliability, increasing the pressure on manufacturers to dramatically improve the speed and reliability of their manufacturing operations. Our solutions determine how to manufacture orders as fast and reliably as possible at the lowest production costs. Our solutions create a manufacturing plan that includes all aspects of manufacturing such as design and tooling requirements, not just equipment and material, and determines the sequence of production that meets the required order shipment date for the lowest total production costs. This sequence of production is electronically dispatched in real time to the workforce and automated equipment to synchronize the manufacturing process. As activities occur within the plant, our solutions compare them to the planned events to detect the impact of the deviations on order shipment dates. Our solutions are capable of quickly re-planning orders and selecting alternate paths or sequences through the plant in order to maintain the delivery schedule and, if possible, minimize cost variances.

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      The following chart includes each of our products, the categories of typical business problems that each product addresses, and the unique way that we solve each business problem:

Customers

      Our customers are primarily in the automotive, industrial and consumer durables markets. Our solutions address high-value planning problems that these companies face within their complex supply chains. We believe by using our financially focused planning technology to solve specific, high-value supply chain problems for our specific markets, we can increase our value proposition to our customers.

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      A representative list of our customers includes:

Strategic Relationships

      We have a number of alliances, including a global strategic alliance partnership with IBM. Our agreement with IBM involves significant technology and marketing support and places us in an elite group of preferred partners that allows us to not only leverage IBM’s extensive network of sales resources assigned in the United States, but also worldwide and industry accounts. We believe that this partnership provides a distinct opportunity to capitalize on IBM’s leadership position in the industry, and also sends a clear message to the market that our solutions have gained favorable recognition among one of the world’s leading technology providers. IBM Global Services has built an implementation and consulting practice for our solutions.

      As we execute our strategy to become specialists in select industries, we are forming additional alliances with companies that can strengthen our market position. To that end, we have initiated strategic relationships with Penske Logistics LLC and TNT Logistics North America. Both companies are known for their logistics domain expertise in the automotive and industrial markets, with customers such as Ford Motor Company, Whirlpool Corporation and BMW Manufacturing Corp. These partnerships will allow us to expand the applicability of our solutions to those companies that highly value our logistics domain capabilities but want our solutions offered as part of an overall service to design and operate their logistics networks.

Competition

      Supply chain planning is a component of the larger supply chain management market. We differentiate ourselves from other supply chain planning vendors by:

	•	Providing solutions designed specifically for companies with complex supply chains;
	•	Solving cross functional business process problems not addressed by our competitors and/or addressing the same problem in a completely different way;
	•	Using financial optimization technology to maximize profit or minimize cost while meeting customer requirements; and
	•	Using a business data-driven product architecture that enables straightforward implementations and may produce significant results quickly.

      We often compete with supply chain management solutions vendors, including i2 and Manugistics, both of which are significantly larger than us. i2 provides customers with end-to-end software solutions for supply chain management, customer management and product life cycle management. i2 competes across a broad range of vertical markets. Manugistics also provides end-to-end solutions that cover a wide range of supply chain management functions. Neither of these companies focuses specifically on solving supply chain planning problems for companies with complex supply chains, nor do they approach such problems from a business process and financial perspective.

      In addition, most of the major enterprise resource planning vendors offer supply chain planning functionality in their solutions. These companies have very large installed customer bases and have

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      In addition, there are other companies, such as third-party supply chain services providers, that offer planning services that may compete with our solutions. We believe these vendors, including our customer Penske Logistics, may also be potential users of our solutions as they look to expand their supply chain planning capabilities.

      We use an implementation methodology called the “Optimal Performance Path.” Our methodology consists of an end-to-end framework that enables our customers to identify and maximize significant opportunities for business improvement through supply chain planning. 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 involves a “Value Opportunity Assessment,” which is a formal analysis of the potential improvements in each prospect’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 operational improvements, including how our solutions will address the business issues, how to proceed with the actual implementation and how to measure the agreed upon 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 desired results. After the sale is finalized, the opportunities identified in the Value Opportunity Assessment become the benchmark goals for implementation, the second phase of the Optimal Performance Path.

      The implementation phase is designed to achieve rapidly the agreed upon business objectives. We use two teams, an implementation team and a performance team, and the teams work 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. The implementation team addresses business issues that may arise in order to keep the implementation on-track. This two-team approach continues until we have achieved the business goals that were agreed upon during the Value Opportunity Assessment. Due to our implementation process, we are capable of rapidly installing our software and producing results quickly.

      Maintenance. We provide 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 receive all software corrections and release enhancements, both major and minor, as well as customer service support. The customer service support answers technical questions, assists in resolving technical issues, reports solution discrepancies, or requests enhancements. Standard customer service support is available during normal business hours. An extended customer service support option is also available which includes seven-day, 24-hour customer service.

      Strategic Consulting. Our consultants are available to work on select strategic supply chain projects. We are capable of helping our customers develop custom supply chain network plans to help achieve their

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      As of August 31, 2002, our sales and marketing organization consisted of 30 individuals, of whom 22 were based in North America and 8 were based in Europe. Our 10 direct sales representatives are supported by a team of 9 pre-sales consultants for business, product and technical expertise throughout the sales cycle. The majority of our direct sales force is organized by vertical as well as geographical area. Consistent with our strategy to focus on vertical markets, our automotive sales team focuses on the original equipment manufacturers and tier-one automotive suppliers. We may continue to assign some of our sales representatives to additional targeted industries. Our North American sales office is located in Norcross, Georgia and our European sales and marketing office is headquartered in London, England.

      While our software license transactions have principally been the result of direct sales to customers, we intend to continue our initiatives to sell and support our solutions through resellers and distributors in multiple geographic regions. We have established distributor relationships in North America, Latin America and Eastern Europe.

      Our marketing efforts focus on two categories of lead generation programs: programs jointly planned, funded and executed with our strategic partners, and programs designed and implemented by our in-house marketing team. A public relations firm assists our internal team.

      Both types of lead generation programs are used to target prospects throughout North America and Europe. Specific tactics used in these marketing initiatives include: direct mail, telemarketing, events, alliance programs, web-casts, seminars, public relations and advertising. In addition, an internal and external website, product collateral, case studies, white papers and presentations are available to support the sales and marketing programs.

      As of August 31, 2002, we employed 45 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 have used and may use in the future outside programming resources to supplement our base staff from time to time. We spent $7.6 million on research and development expenses in fiscal 2002, $9.8 million in fiscal 2001 and $10.0 million in fiscal 2000.

      Through investments in internal development we have significantly expanded the scope of our solutions over the past 24 months. Due to the evolving nature of the market, we intend to continue to maintain a high level of investment in development of new solutions and 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 comply with 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 believe we are an innovative technology provider in several areas within the supply chain planning 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 external interfaces with other applications are conducted through applications programming interfaces

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      Our products operate on a Windows 2000 Server, IBM AIX, HP-UX, or Sun Solaris servers. Not every product is available for all platforms. Users interact with our products via networked PC clients or Browsers. The Oracle Corporation provides relational database support.

      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.

      As of August 31, 2002, we had 125 full-time employees, of whom 45 were engaged in research and development, 30 in sales and marketing, 36 in service and support and 14 in finance, administration and operations. None of our employees are represented by a labor union. As of August 31, 2002, we had 107 employees located in North America and 18 employees located in Europe. We believe that our employee relations are satisfactory.

Item 2.     PROPERTIES

      We lease 24,145 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; York, Pennsylvania; Arlington, Virginia; London, England; and Gorinchem, Netherlands. We believe that our facilities are adequate for our current operations and that additional leased space can be obtained if needed.

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 July 29, 2002, after our fiscal year end, we held a special meeting of the shareholders to vote on the adoption and approval of an amendment to our Third Amended and Restated Articles of Incorporation which provided for a one-for-ten reverse split of our common stock. The voting results were as follows:

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PART II

      On July 29, 2002, following shareholder approval, we effected a one-for-ten reverse split of our common stock. The reverse stock split did not affect the number of authorized shares. No fractional shares of common stock were issued as a result of the reverse stock split. In lieu of receiving fractional shares, shareholders received a cash payment in U.S. dollars equal to such fraction multiplied by the closing price of the common stock as reported on The Nasdaq SmallCap Market on the effective date of the reverse stock split. In addition, each option and warrant to purchase common stock outstanding on the effective date of the reverse stock split was adjusted so that the number of shares of common stock issuable upon their exercise was divided by ten and the exercise price of each option and warrant was multiplied by ten. The number of shares of common stock reserved under our stock option plans and for issuance pursuant to warrants to purchase our common stock were similarly adjusted. If the adjustments to the options and warrants described above resulted in any right to acquire a fractional share of common stock, such fractional share was disregarded and the number of shares of common stock reserved for issuance under the plans and warrants and the number of shares of common stock subject to any such options and warrants became the next lower number of shares of common stock, rounding all fractions downward.

      Our common stock, $0.01 par value per share, trades on The Nasdaq SmallCap Market under the symbol “SYNQ.” We completed our initial public offering on August 14, 2000, at $70.00 per share, restated to reflect the one-for-ten reverse split of our common stock. From August 15, 2000 through the close of business on June 20, 2002, our common stock traded on the Nasdaq National Market under the symbol “SYNQ.” Prior to our initial public offering, there was no public market for our common stock.

      We received a determination letter from Nasdaq dated February 14, 2002, stating that we failed to meet the minimum $1.00 per share requirement for continued inclusion on The Nasdaq National Market under Marketplace Rule 4450(a)(5). On May 10, 2002, we applied to transfer our listing from The Nasdaq National Market to The Nasdaq SmallCap Market. This transfer was approved and became effective on June 21, 2002. On August 15, 2002, we were notified by Nasdaq that we had not regained compliance with the minimum $1.00 bid price per share requirement and, as a result, we did not comply with the requirement for continued listing of our common stock as a Nasdaq SmallCap Market security. On August 22, 2002, we requested a hearing before Nasdaq’s Listing Qualifications Hearing Panel on the minimum bid price issue and were scheduled to appear before Nasdaq on September 26, 2002. In a letter dated September 17, 2002, Nasdaq informed us that it declared us in compliance with the minimum bid price requirement and cancelled our hearing on that issue. In the September letter, Nasdaq indicated its belief that the merger and the private placement together constitute a “reverse merger” as set forth in Nasdaq Marketplace Rule 4330(f). Nasdaq also stated that we do not comply with the net tangible assets/ shareholders’ equity/ market value requirements under Nasdaq Marketplace Rule 4310(c)(2)(B). A hearing on these matters is scheduled before a Nasdaq Listing Qualifications Hearing Panel on October 17, 2002. If Nasdaq determines that the proposed transactions constitute a “reverse merger” under Nasdaq rules, we will be required to meet the initial listing requirements for inclusion on The Nasdaq SmallCap Market rather than the continued listing requirements in order to remain listed. The initial listing requirements are more stringent than the continued listing requirements. If we are not successful in maintaining our listing on The Nasdaq SmallCap Market, our common stock will be quoted on the Nasdaq-sponsored OTC Bulletin Board Service.

      For the periods indicated, the following table sets forth the high and low per share closing prices for our common stock as reported by The Nasdaq National Market through the close of business on June 20,

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