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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended April 30, 2001
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 000-27071
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AGILE SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
One Almaden Boulevard, San Jose, California 95113-2253
(408) 975-3900
(Address and telephone number of principal executive offices)
Delaware 77-0397905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of each class)
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Indicate by check mark whether the Company (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
Company 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
herein, and will not be contained, to the best of registrant's knowledge, in
definite 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 Agile Software Corporation Common stock, $.001
par value, held by non-affiliates as of June 30, 2001 was $636,904,136 based
upon the last sales price reported for such date on the Nasdaq National Market
System. For purposes of this disclosure, shares of common stock held by persons
who held more than 5% of the outstanding shares of common stock and shares held
by officers and directors of the registrant, have been excluded in that such
persons may be deemed to be affiliates. The determination of affiliate status
is not necessarily a conclusive determination for other purposes.
Number of shares of Common Stock of Agile Software Corporation issued and
outstanding as of June 30, 2001 was 47,795,687
DOCUMENTS INCORPORATED BY REFERENCE
The registrant has incorporated by reference into Part III of this Form 10-K
portions of its proxy statement for the registrant's Annual Meeting of
Stockholders to be held September 26, 2001.
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AGILE SOFTWARE CORPORATION
FORM 10-K
APRIL 30, 2001
TABLE OF CONTENTS
Page
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PART I
ITEM 1. BUSINESS...................................................... 1
ITEM 2. PROPERTIES.................................................... 26
ITEM 3. LEGAL PROCEEDINGS............................................. 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 26
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS...................................................... 26
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.......................... 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 30
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 39
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 41
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 63
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 63
ITEM 11. EXECUTIVE COMPENSATION........................................ 63
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 63
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 63
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K..................................................... 64
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PART I
ITEM 1. BUSINESS
This Annual Report on Form 10-K 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). These
statements involve known and unknown risks, uncertainties, and other factors
that may cause our or our industry's actual results to differ materially from
those implied by the forward-looking statements. We use words such as "may,"
"will," "should," "expects," "estimates," "predicts," "potential," "strategy,"
"believes," "anticipates," "plans" and "intends" and similar expressions to
identify these forward looking statements. We have based these statements on
our current expectations and projections about future events. You should not
place undue reliance on these forward-looking statements, which apply only as
of the date of this Annual Report. Our actual results could differ materially
from those anticipated in these forward-looking statements for many reasons
including those discussed in "Risk Factors" and elsewhere in this Annual
Report. Agile Software Corporation, incorporated on March 13, 1995 under the
laws of California and reincorporated on June 22, 1999 under the laws of
Delaware, is hereinafter sometimes referred to as "the Registrant," "the
Company," "Agile," "We," and "Us."
Overview
We develop and market collaborative manufacturing commerce solutions that
speed the "build" and "buy" process across the virtual manufacturing network.
We believe that our products improve time to volume, customer responsiveness
and cost of goods sold. Our products manage product content and critical
communication, collaboration and commerce transactions among original equipment
manufacturers, electronic manufacturing services providers, customers and
suppliers in real-time. Our products are well suited for participants connected
in outsourced supply chains, as well as those managing multi-site engineering,
manufacturing, sales and distribution via the Internet. Since June 1996, when
we shipped our first product, we have licensed our products to more than 700
customers in the following markets: computers and peripherals, components,
consumer electronics, data networking and telecommunications equipment,
electronics manufacturing, medical equipment and semiconductor equipment. Our
current customers in these markets include, among others, Amkor, Altera, Dell
Computer, Flextronics International, GE Medical Systems, Hewlett-Packard, Jabil
Circuit, Lucent Technologies, Philips, SCI and Texas Instruments.
Industry Background
The competitive environment for companies engaged in the manufacture and
supply of products has intensified dramatically and expanded globally in recent
years. This trend has been driven principally by productivity improvements
arising from advances in technology and growing customer expectations for
feature-rich products delivered quickly and at competitive prices. To remain
competitive, companies are adopting new strategies to address these challenges.
Many companies are shifting from traditional manufacturing approaches, where
a manufacturer controls most phases of the manufacturing process from raw
materials to finished goods, to a manufacturing process where much or all of
the manufacturing process is outsourced to multiple companies as part of a
supply chain.
By outsourcing their production, some companies have created supply chains
that are more efficient, dynamic and flexible than manufacturing operations
that control all phases of the manufacturing process internally. Use of the
outsourced supply chain has afforded companies the flexibility to choose top
suppliers and partners to make each link in the supply chain more competent,
innovative and productive. As companies operate on a global basis, supply
chains can span multiple continents, tying suppliers in one part of the world
with a plant in another to serve customers in a third location. The end result
is that companies can bring their products to market more efficiently while at
the same time achieving higher levels of customer satisfaction.
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Managing the Outsourced Supply Chain
A critical aspect of managing the outsourced supply chain across multiple
suppliers is finding effective ways to store, access, and share information
within the company as well as with all supply-chain partners during each stage
of the production process. Procuring direct materials used in the production
process from a multitude of sources across the globe is also a challenging
task. Different stages of the production process generate many complex types of
data that need to be shared across the supply chain. There are many types of
data and a vast number of information flows that can occur in the production
process.
Product Content. During the product design stage, the company must
communicate large amounts of data within the company as well as to supply-chain
partners. The company begins by designating the content of the finished product
with a list of components known as the bill of materials. The components on
this list can be divided into two classes: "buy" or "make." For the "buy"
components, also called off-the-shelf components, specifications for each part
must be determined and information must be collected and analyzed to determine
if the available components meet the required specifications. Once eligible
components have been selected, the manufacturers of the components are
incorporated into the approved-manufacturers list. For customized, or "make"
components, other data are created, including: assembly drawings, detailing
precisely how the component should be fabricated; work instructions, which
guide the manual assembly process; machine instructions, to drive automated
manufacturing and assembly equipment; art work, for processes such as printed
circuit board fabrication; schematics, for describing electronic components and
assemblies; and test instructions, which enable the suppliers and original
equipment manufacturers to test for conformity to the manufacturer's
specifications.
Direct Materials Sourcing. Manufacturers must eliminate inefficiency in the
sourcing process by speeding the communication between buyers and suppliers,
and by performing the tedious aggregation work, such as compiling and analyzing
hundreds of responses to requests for quotations. Companies desire to remain
competitive by reducing the average quote turnaround time from weeks to hours.
Companies also want to aggregate demand for direct materials across the
enterprise, enabling them to use volume purchasing to negotiate better
procurement contracts. Requests for quotations can be sent to multiple
suppliers simultaneously, with no more effort than sending to a single
supplier, fostering a much more competitive pricing environment, helping
companies procure materials at the lowest possible cost.
New Product Introduction. Prior to commencing volume production, the data
created during the product design stage must be communicated to each relevant
party in the supply chain. One of the complexities of the outsourced supply
chain model is that supply chain members often have multiple discrete roles,
including sourcing parts, fabrication, assembling components, testing and
delivery. In addition, the manufacture of a product such as a personal computer
can involve procurement from several hundred suppliers. Ensuring that accurate
product information is disseminated promptly and to all of the correct parties
is one of the most difficult challenges facing a company employing the
outsourced supply chain model. Further, suppliers may often discover
constraints and/or opportunities for improvements during the prototyping and
pilot production phases--this often prompts a flurry of product changes
requiring rapid collaboration among supply chain partners to avoid delays and
excessive start-up or inventory costs.
Volume Production and Product Changes. Product specifications frequently
change even during volume production. Changes can occur due to a number of
reasons, including:
. changes in design in response to customer requests or market conditions;
. changes required to address a defect in the design or to improve the
manufacturing process; and
. changes in the cost or availability of components.
The communication of information regarding product changes is a dynamic loop
in which members of the supply chain must respond to market-dictated demands
while also reacting to information shared among supply-chain partners. It is
difficult to execute a design change through the manufacturing process
expeditiously
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and effectively, while minimizing cost. A design change requires a company to
create an engineering change order; develop the specifications required by the
engineering change order; secure the necessary approvals to effect the change;
and communicating the change to the supply chain.
This problem is especially complex for companies operating in a market where
product specifications or volume requirements may be changing continuously. For
example, the requirements of a personal computer manufacturer that builds
products to order may change continuously during each day as information
regarding orders is received from customers or its sales force.
To address these challenges, many companies have implemented software
systems that govern supply chain management, electronic data interchange,
product data management and enterprise resource planning. However, many of
these products were not designed to interconnect multiple companies in an
outsourced supply chain, and therefore do not fully address the need for supply
chain collaboration. Electronic data interchange, a software system that
facilitates interconnection and exchange of data, is expensive to install and
maintain and therefore is viable only to large organizations that can justify
the cost. Other methods of communication and collaboration within the supply
chain, including phone, paper-based solutions such as courier or fax, or e-mail
or web page sources, are not linked in real-time and are slow, incomplete and
often inaccurate.
As product changes become more frequent and time-to-market becomes
increasingly important, the ability to manage the manufacturing process
effectively becomes critical to a company's competitiveness. A company that can
disseminate information quickly and accurately to the appropriate supply chain
partners may be in a position to compete effectively. However, a company that
is agile and can effectively collaborate with its supply chain partners in real
time can gain competitive advantage. For example, through collaboration with
its supply chain partners, a company may learn that a component is not readily
available due to lack of supply or that a new component is available which
might substantially reduce costs or improve manufacturing efficiencies. Instead
of continuing to rely on the originally selected component, the company may
incorporate another component in the product design and notify partners before
these components are incorporated into new products. By doing so, the company
has the opportunity to increase revenues by maintaining product availability or
increase profits by taking advantage of lower cost components more quickly.
Impact of the Internet
Companies that have successfully implemented strategies to communicate with
their customers over the Internet now face the challenge of utilizing the
Internet and intranets to gain the same level of increased efficiencies in
their supply chain. An Internet-based software solution can offer scalability,
easier implementation, compatibility across diverse information technology
platforms and reduced incremental infrastructure investments. However, many
companies are wary of major software development projects due to their cost,
together with examples of complications encountered by enterprise application
development projects undertaken in recent years. To compete effectively,
companies must implement a solution which will allow them to interactively
communicate information related to product design, development and
manufacturing within the company and collaborate with their supply chain
partners. At the same time, companies want to implement new software systems
without burdening already over-taxed internal information technology personnel,
while avoiding costs of outside consulting and minimizing incremental
infrastructure-related expenses.
The Agile(TM) Solution
Our collaborative manufacturing commerce solutions consist of product
content management and e-procurement products that enable manufacturers to
collaborate over the Internet with their supply chain partners about new or
changing product content, and then source and procure the required components.
Our solutions are designed for use over the Internet, reduce dependence upon
traditional methods of interaction, and enable supply chain members to link to
each other without requiring substantial investments in additional
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technology infrastructure. We have also designed our products to allow for
rapid implementation by the manufacturer with limited consulting assistance and
by supply chain members with minimal technical expertise.
We believe that our products are well-suited for participants in outsourced
supply chains connected via the Internet, as well as those managing multi-site
engineering, manufacturing and sales and distribution. The Agile solution
delivers the following benefits to companies and their supply chain partners:
Enhanced Productivity and Response Time. With the help of our solutions,
Agile Anywhere(TM) and Agile Buyer(TM), companies can respond more rapidly to
changes in customer and supplier demands, availability of components, market
conditions and manufacturing capacities arising throughout the production
cycle. This ability to effect change even during volume production enables
Agile Anywhere and Agile Buyer users to adjust production strategies, and
produce what they can sell, rather than sell what they can produce. Agile
Anywhere and Agile Buyer also enhance the ability of companies to increase
their sales productivity by being first to market with the right product.
More Cost-Effective Production. The Agile Anywhere and Agile Buyer solutions
are designed to help companies increase output, reduce inventory and compress
the time required to complete the production cycle. Through effective
collaboration, both time to market, design effectiveness and supply chain
efficiency can be improved. Companies can benefit by reducing design and
production errors due to miscommunication within the supply chain, and can
decrease operating efficiencies incurred when obsolete parts are specified and
incorrectly built products must be scrapped.
More Rapid Return on Investment. Because Agile Anywhere and Agile Buyer
solutions are based on existing industry standards and do not require the
implementation of custom data models, Agile Anywhere and Agile Buyer can be
implemented in less time than required to implement traditional enterprise
software applications which require extensive customization.
Lower Costs of Goods Sold. The Agile Buyer solution can enable companies to
aggregate demand for direct materials across the enterprise, a powerful tool
for negotiating better procurement contracts. Requests for quotations can be
sent to multiple suppliers simultaneously, as easily as sending the request to
a single supplier. Our solutions can foster a much more competitive pricing
environment, helping companies procure materials at the lowest possible cost.
The Agile Growth Strategy
Our objective is to be the leading provider of collaborative manufacturing
commerce solutions, enabling business-to-business global collaboration among
supply-chain partners. Key elements of our strategy include:
Provide Superior Customer Satisfaction. We expect to continue to build a
highly referenceable customer base of market leaders in various vertical
markets and we will continue our focus on programs designed to enhance and
maintain customer satisfaction. We will continue to anticipate customer needs
by introducing new product functionality and new technology platforms. We
believe our focus on customer satisfaction will increase customer loyalty and
result in increased follow-on sales opportunities and shorter sales cycles.
Capitalize on Network Effects to Expand Our Customer Base. As users of Agile
Anywhere and Agile Buyer solutions deploy our software across their supply
chains, additional supply chain members will be exposed to our solutions and
the functionality provided by our products. We believe that this exposure,
which allows non-customer participants in the supply chain to benefit from our
solutions, creates a network effect that accelerates industry recognition and
adoption of our products. As additional members of a supply chain deploy our
solutions, the quality and timeliness of available information relevant to the
production and supply of their products improves, which increases the value to
each participant and helps drive greater usage.
Pursue a Vertical Market Strategy. Since inception, we have pursued a
vertical market strategy, developing product features targeted to particular
industries. To date, we have focused on the electronics and
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high technology markets which encompasses original equipment manufacturers,
electronic manufacturing services and component manufacturers, as well as the
medical device market. We seek to further penetrate our current markets while
addressing new vertical markets characterized by high rates of product change,
short product cycles, and extensive supply chains.
Leverage Our Technology Platform. We intend to continue to pioneer new
Internet business applications based on emerging standards supporting
electronic commerce. For example, we have used the Java computer programming
language to deliver a robust, powerful and rapidly deployable Internet business
application to our customers. Further, we have taken the initiative to define a
protocol for supply chains, Product Definition exchange, or PDX, based on
eXtensible Mark-up Language, or XML, and have submitted it to industry
standards groups for approval. We intend to lead technological innovation in
the collaborative manufacturing commerce market, offering our customers
solutions designed to provide a rapid and high return on investment.
Extend Supply Chain Collaboration and Functionality. We believe our solution
provides a robust platform that enables us to extend the functionality and
application of our products to the creation and delivery of new value-added
applications. We will continue to develop enhancements to our products designed
to enable increased collaboration among outsourced supply chain partners. We
will also address new opportunities that result from the creation of new
business processes for Internet-based collaboration and interaction among
supply-chain partners. For example, Agile Buyer extends the functionality of
our solutions to the sourcing and procurement of electronic production
materials. With the combination of Agile Buyer's direct materials sourcing
capabilities and Agile Anywhere's product content management benefits, we
believe that our customers will be able to enhance critical supply chain
processes, including new product introductions and direct materials sourcing.
The Agile Products
Agile Anywhere Product Suite
Agile Anywhere is a suite of product content management and change
collaboration solutions that automate the management of product information and
engineering change orders across the electronic supply chain. Agile Anywhere
manages product content information that is available through our Agile e-
Hub(TM) Server. Agile Anywhere solutions include the Agile Product Definition
Server, Agile Product Change Server, Agile AML Server, Agile Content Manager
(Agile CM(TM)), Agile Internet Content Manager (Agile iCM(TM)), and Agile
ChangeCAST.
Agile Anywhere provides a comprehensive business-to-business solution to the
problem of product change collaboration across the manufacturing supply chain.
Utilizing XML technology, Agile Anywhere allows supply chain partners to share
and collaborate on product content and changes in real time via the Internet.
Agile Anywhere is designed to provide the scalability, security and open
standards that are required in an electronic supply chain. At the core of the
Agile Anywhere suite is the Agile eHub Server, which manages product content,
processes and business rules. Users interact with the product content within
the eHub via the My Agile portal. Enterprises that manage and create the
product content interact with the Agile iCM client. Utilizing the Agile
eXpress(TM) Viewer, product content can also be published to users anywhere
throughout the supply chain. To complete the suite, Agile provides several
integration products that import, export, and publish product content from or
to existing design, manufacturing, finance, and supply chain systems. Following
the initial implementation of Agile Anywhere, subscriptions for additional
users and application-specific modules can be added to expand the scope of the
manufacturer's implementations.
Agile eHub
The foundation of Agile Anywhere is Agile eHub. The Agile eHub comprises
application servers that enable users to define, store, change and manage
product content information. Agile eHub incorporates new technology for high-
speed performance, storage and secure data, and is designed to scale, thus
accommodating
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the needs of supply chain partners of all sizes. The Agile eHub is designed to
facilitate fast, direct Internet access, and is easily implemented. Agile eHub
includes one or more of the following server modules:
Agile Product Definition Server manages parts, documents, bills of materials
and drawings, in a web environment that provides fast, easy access to product
content for all members of the supply chain.
Agile Product Change Server automates the electronic routing, notification
and sign-off processes that are associated with engineering changes. This
functionality can result in reduced ordering errors and costs and improved
cycle times associated with evaluating, approving and implementing changes.
Agile AML Server enables companies to collaborate with supply chain partners
on approved parts and manufacturers at the time of new product introduction as
well as tracking changes throughout the manufacturing process.
Agile Administrator enables companies to easily and rapidly configure and
modify Agile Anywhere components without writing code. Agile Administrator
speeds the implementation of the Agile Anywhere suite and minimizes maintenance
time.
Accessing Agile eHub
Agile customers and their supply chain partners can gain access to product
content for review or modification by the following:
. Access to the e-hub is offered through three options, Agile hCM(TM)
(HTML-based), Agile iCM (Java-based) and Agile CM (Windows-based). These
products are designed for individuals who have responsibility for
managing a product and its content through its entire lifecycle.
. Agile includes a manufacturing hub that allows secure, personalized web
access to product content that is stored in any Agile eHub. It is an
intuitive, easy-to-use portal allowing users to link to any or all of
their supply chain information sources in a customizable interface and
participate in product content-related processes via the Internet.
. Agile eXpress Viewer allows supply chain partners to send and receive
information in the PDX format, a new standard for data exchange that we
first offered with Agile Anywhere. Agile eXpress Viewer is available for
downloading free of charge from the Agile web site, to enable supply
chain partners to share data even if they are not Agile customers.
Agile Integration Products
Product content information flows throughout the supply chain, and is
published to or from Agile Anywhere and a variety of other design,
manufacturing, finance and supply chain systems. Agile Anywhere integration
products provide data exchange between systems, as follows:
. Agile ChangeCAST publishes released engineering change orders, approved
parts lists, approved manufacturers' lists and bills of materials from
Agile to separate enterprise resource planning systems.
. Agile Integration Server(TM) (AIS) is an XML-based integration solution
that makes the valuable product content held in Agile Anywhere available
to a wide variety of business applications and users both internally and
across the global manufacturing network.
. Agile Scan allows customers to scan drawings and documents into the
Agile e-Hub database.
. Agile Import allows customers to import bills of materials produced in
ASCII format or in Microsoft Excel, providing a consolidated database of
product information.
. Agile Export provides a quick and easy method of exporting information
to an ASCII file, allowing information in Agile Anywhere to be shared
with other business applications.
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. Agile Software Development Kit, available with Agile Anywhere, allows
customers and partners to develop complementary applications to
integrate with Agile in Java, Visual Basic and Visual C++.
Initial implementations of the Agile Anywhere suite typically include the
Agile eHub and one or more server modules such as what we now call the Product
Definition Server, Product Change Server and AML Server, together with user
licenses or subscriptions, and one or more of the integration products,
particularly Agile ChangeCAST. The initial order may also include a third-party
adapter for other existing enterprise systems of the customer. Following the
initial implementation, additional user licenses and additional server modules
may be purchased.
Agile EMSdirect(TM) Service
Agile EMSdirect is an electronic service available at MyAgile.com(TM) that
allows an original equipment manufacturer to submit file packages directly to
an Agile system at participating electronics manufacturing service providers.
Submitting file packages using Agile EMSdirect provides assured delivery and
enables collaborative interaction between an electronics manufacturing service
provider and its partners.
Agile Buyer Solution
Agile Buyer is an electronic commerce solution that is designed to enable
companies to efficiently communicate and collaborate with all of their
suppliers, sharing price, inventory, and contract information in order to speed
up and lower the cost of procuring direct materials. Any supplier with access
to the Internet and e-mail can participate. By eliminating tedious and time-
consuming tasks from the procurement process, Agile Buyer enables companies to
focus on the strategic aspects of procurement such as creating and sending
requests for quotes, compiling and analyzing supplier responses, managing the
contract process and tracking supplier performance quickly and easily.
Agile Buyer manages the procurement process for the entire direct materials
supply chain, including new product introduction, strategic sourcing, product
sourcing, and supplier management. Agile Buyer provides a powerful combination
of process workflow, contract and order management, and transaction support
tools. Further, Agile Buyer lets users accomplish these work processes from
their browser, reducing unproductive telephone calls and misplaced faxes.
Agile Buyer is a secure Internet-based supplier solution for sourcing and
procurement of direct (production) materials. Agile Buyer encompasses all
direct materials and all members of a supply chain in a single Internet-based
environment. Agile Buyer automates preparation and dissemination of requests
for quotation, enables buying decision support, allows demand aggregation,
issues purchase orders, permits commodity and contract management, and manages
supplier performance.
Customers
To date, we have licensed our products to over 700 customers, predominantly
within the electronics and medical device manufacturing industries. No customer
accounted for more than ten percent of our total revenues in fiscal 2001,
fiscal 2000 or fiscal 1999.
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The following is a representative list of current customers in our targeted
industry markets that to date have purchased Agile products and services:
Datacom/Telecom
Equipment Computers and Peripherals Medical Equipment
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Alcatel S3/Diamond Multimedia Systems EndoSonics
Aspect Fujitsu Computer Products GE Medical
Telecommunications
Brocade Communications Gateway Guidant
Systems
Lucent Technologies Hitachi Hologic
Nortel Networks Iomega Humphrey Instruments
ADC NEC Visx
Xircom Dell Computer AVE Medtronic
Compaq Computer Johnson & Johnson/Depuy
VeriFone/Hewlett-Packard
Electronics
Manufacturing
Service Providers Components Semiconductor Equipment
- ----------------- ---------- -----------------------
C-MAC Industries Advanced Micro Devices Credence Systems
Flextronics Micron Technology Electro-Scientific Industries
International
Pemstar Reltec Communications FSI International
Solectron Texas Instruments Johnson Matthey Electronics
SCI Systems VLSI Technology Strasbaugh
Jabil Circuits Altera
SMTC Amkor
APW Nvidia
Consumer Electronics
- --------------------
Palm Computing
Dolby Laboratories
Handspring
Microsoft
Nintendo
Philips Mobile Computing
Scientific Atlanta
TiVo
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Product Technology and Architecture
The Agile Anywhere product suite is designed upon open systems based on
software industry standards for scalable Internet applications. The result is a
low cost, low maintenance end-user business application that eliminates the
need for complex custom or in-house development. Agile Anywhere is built on an
Internet-based architecture:
. The core of our architecture is the Agile eHub, the application server,
which currently runs on Microsoft NT. The application server is the
intermediary between the iCM/hCM and My Agile applications and the
database, providing the necessary security for validation of the data,
and the web server, which hosts the Internet access to Agile Anywhere.
We use encryption technology licensed from RSA Security Inc. to maintain
secure data when transported over the Internet.
. The iCM/hCM and MyAgile applications are Java and HTML-based
applications that can run on versions of Microsoft Internet Explorer and
Netscape Navigator. There is also a Windows application for users who
prefer a Windows user interface rather than a web browser interface.
Operating systems supported include Windows 98, Windows NT, Windows 2000
and Sun Solaris. We follow the Microsoft standards for the Windows 98
and 2000 CM clients, and Internet standards for the Java iCM application
running within Microsoft Internet Explorer and Netscape Communicator.
Our products can be integrated with more than 15 enterprise resource
planning systems including, among others, Oracle Applications, J.D.
Edwards and SAP.
. The backend includes the Oracle database server and the Agile Internet
File Server.
The Agile Anywhere suite is enabled for both single-byte and double-byte
localization, and has been localized for French and Japanese. We intend to
provide localization for additional languages.
We have entered into platform alliances to ensure that our products are
based on industry standards and to enable us to take advantage of current and
emerging technologies, including alliances with Sun Microsystems, Oracle and
Microsoft. To promote development, definition, adoption, promotion and
implementation of open standards that can be leveraged by Agile Anywhere, we
work with several industry standards organizations such as the National
Institute of Standards and Technology, National Electronics Manufacturing
Initiative, Institute for Interconnecting and Packaging Electronic Circuits,
RosettaNet, and World Wide Web Consortium. We are involved with Solectron,
Intel, HP, SCI, and other industry participants in an initiative to define an
XML-based protocol called Product Definition Exchange (PDX).
Product Development
Our product development objectives are to:
. be innovative in developing solutions to remove complexity from supply
chain collaboration;
. develop solutions that require little custom code, contain reusable
components and are easy to use, implement, maintain, and upgrade; and
. adopt industry standard technologies.
Our software development staff is divided into teams consisting of
development engineers, project managers, quality assurance engineers, and
technical writers. Working closely with our marketing department, we determine
product functionality based upon market requirements, customer feedback,
available technical support and customer engineering. We also try to
incorporate emerging technologies that will allow us to develop additional
features.
We introduced our first product, Agile Configurator version 1.3, in June,
1996 and have subsequently released nine revisions, adding over a dozen new
modules. During this time, the product has evolved from a 2-tiered client-
server database application running on Oracle to a multi-tiered application
supporting both Windows and Java clients. Our product development activities
are focused on broadening the scalability and
9
functionality of Agile Anywhere. We are also developing application interfaces
to allow customers to more easily integrate Agile Anywhere with other systems.
Our research and development expenses, excluding stock compensation expense,
were $26.5 million, $9.4 million and $4.7 million for fiscal 2001, 2000 and
1999, respectively, and we expect to continue to invest significantly in
research and development in the future.
We cannot be sure that we will complete our existing and future development
efforts within our anticipated schedule or that our new and enhanced products
will have the features to make them successful. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of new or enhanced products. In addition, these new and enhanced
products may not meet the requirements of the marketplace and achieve market
acceptance. Furthermore, despite testing by us, our implementation partners and
our customers, errors might be found in new products or in releases after
shipment, resulting in loss of revenue or delay in market acceptance and sales,
diversion of development resources, injury to our reputation or increased
service and warranty costs.
Sales and Marketing
Our sales and marketing organization is responsible for identifying and
developing vertical markets on which we intend to focus, as well as for
identifying and notifying our research and development staff of product
requirements communicated to us by our customers. We market and sell our
products primarily through our direct sales force located at our headquarters
in San Jose, California, and at regional and local sales offices in the United
States and at offices in France, Germany, Japan, Taiwan and the United Kingdom.
Our direct sales force consists of Major Account Executives who focus entirely
on our major accounts, Senior Account Executives who focus on specific
geographic territories, and Emerging Technology Manufacturers Account
Executives who focus on emerging and smaller-sized companies. We also market
and sell through our direct telesales and telemarketing representatives. Sales
engineers in regional office provide pre-sales technical support. We are also
in the early stages of complementing our direct sales force through additional
distribution channels, including non-exclusive distributors, integrators and
consulting partners.
To support our direct sales efforts and to actively promote our Agile brand,
we engage in a variety of marketing activities. These include co-marketing
strategies with our existing business partners, targeting additional strategic
relationships, managing and maintaining our web site content, advertising in
industry and other publications, conducting public relations campaigns and
establishing and maintaining relationships with recognized industry analysts.
We also actively participate in manufacturing-related trade shows.
A critical element of our sales strategy is to establish marketing alliances
to promote sales and marketing of our products, as well as to increase product
interoperability. We also pursue services alliances with consulting and
integration firms to implement our software, provide customer support services,
create customized customer presentations and demonstrations and endorse our
products during the evaluation stage of the sales cycle. We believe that our
relationships with these service providers may shorten our sales cycle because
these service providers have generated and qualified sales leads, made initial
customer contacts and assessed needs prior to our introduction. We currently
have relationships with Accenture, TSC and Siemens for the implementation of
our solutions, and a reselling agreement with Manugistics.
Customer Service and Support
Consulting and Implementation. We offer services, on a fixed-price or time
and materials basis, to assist in implementation planning, product
installation, implementation assistance, legacy data loading and effectiveness
audits. To facilitate and enhance the integration of our products, we have
entered into alliances to enable integration of our products with existing
design, manufacturing, finance and supply chain systems. This approach allows
us to focus on our core competencies and leverage our partners' domain
knowledge, which helps reduce time to market both for our customers and us.
10
Customer Support. We believe that responsive technical support is a
requirement for our continued growth. We provide technical support and
unspecified product upgrades on a when-and-if available basis through our
annual maintenance program. Our customers are not entitled to new products
under our annual maintenance program. Customers generally purchase the first
year of support at the time they initially license one of our products. After
the initial term of the license is complete, the customer may renew support on
an annual or multi-year basis. Customer support is offered by telephone, email
and fax and we also offer an Internet-based support that features frequently
asked questions, technical alerts, product upgrades and updates, problem
reporting and analysis, and self-help through our on-line knowledge base. In
addition, our consulting and implementation partners provide customer support
and maintenance in some instances. Revenues associated with maintenance
contracts are recognized ratably over the term of the maintenance contract,
which is generally 12 months.
Training. We offer a variety of classes and related materials to train our
customers on system administration, upgrades and new releases. These classes
are also available as part of our Train the Trainer program. Training classes
are offered at our headquarters in San Jose, California, at customer sites, and
at other locations. To improve access to our explanatory materials, we offer
on-line documentation contained on the compact discs for our products and from
our web site for all our products. We also offer on-line help for the majority
of our products. Customers can purchase additional documentation via our web
site.
Competition
The market for collaborative manufacturing commerce and direct materials e-
procurement solutions is highly fragmented, rapidly changing and increasingly
competitive. We expect competition to persist and intensify, which could result
in price reductions, reduced gross margins and loss of market share, any one of
which could seriously harm our business. Competitors vary in size and in the
scope and breadth of the products and services offered.
We believe that our ability to compete depends on many factors both within
and beyond our control, including:
. the performance, functionality, price, reliability and speed of
implementation of our solutions;
. the timing and market acceptance of new products and product
enhancements to our Agile Anywhere suite of products;
. the quality of our customer service; and
. the effectiveness of our sales and marketing efforts.
Although we believe that we currently compete favorably as to each of these
factors, our market is relatively new and our collaborative manufacturing
commerce and e-procurement solutions for direct production materials is a new
category of products. In particular, we believe that we offer a suite of
software that offers collaborative and interactive capabilities that many of
our competitors do not effectively provide. However, we encounter competition
with respect to different aspects of our solution from a variety of vendors. We
currently face three primary sources of competition:
. in-house development efforts by potential customers or partners;
. vendors of engineering information management software, such as
Parametric Technology Corporation, Dassault Systemes S.A., MatrixOne,
Inc, Structural Dynamics Research Corporation and Unigraphics Solutions,
Inc.; and
. Potential competition from providers of enterprise software who seek to
extend the functionality of their products, such as Oracle Corporation,
SAP A.G., and i2 Technologies, Inc.
We may not be able to maintain our competitive position against current and
potential competition, particularly competitors that have longer operating
histories and significantly greater financial, technical,
11
marketing and other resources than we do and therefore may be able to respond
more quickly to new or changing opportunities, technologies and customer
requirements. Also, many current and potential competitors have greater name
recognition and more extensive customer bases that could be leveraged to gain
market share to our detriment. These competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies, and
offer more attractive terms to purchasers than we can. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to enhance their products.
Accordingly it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. We also expect that
competition may increase as a result of industry consolidation. We may not be
able to maintain our competitive position against current and potential
competitors, especially those with significantly greater financial, marketing,
service, support, technical and other resources.
Proprietary Rights
Our success and ability to compete depend upon our proprietary technology.
We rely on patent, copyright, trade secret and trademark law to protect our
proprietary information. We also typically enter into agreements with our
employees, consultants and customers to control their access to and
distribution of our software, documentation and other proprietary information.
Nevertheless, a third party could copy or otherwise obtain our software or
other proprietary information without authorization, or could develop software
competitive to ours. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around patents that may be issued to us or our
other intellectual property. In addition, the laws of some foreign countries do
not protect our proprietary rights to as great an extent as do the laws of the
United States, and we expect that it will become more difficult to monitor the
use of our products if we increase our international presence.
We utilize database management software from Oracle for our database server.
Our customers can purchase this software directly from Oracle or from us. In
addition, we integrate third-party software into our products from RSA Security
Inc. for security and encryption technology, from Actuate for reporting
capability and from Cimmetry Systems for our viewers. This third-party software
may not continue to be available on commercially reasonable terms. If we cannot
maintain licenses to this third-party software at an acceptable cost, shipments
of our products could be delayed until equivalent software could be developed
or licensed and integrated into our products. We do not believe that our
business could be considered to be substantially dependent on any one of these
license agreements, and none of these licenses are responsible for a
significant amount of our revenues.
There has been a substantial amount of litigation in the software and
Internet industries regarding intellectual property rights. It is possible
that, in the future, third parties may claim that we or our current or
potential future products infringe their intellectual property rights. We
expect that software product developers and providers of electronic commerce
solutions will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality of
products in industry segments overlaps. Any claims, with or without merit,
could be time-consuming, result in costly litigation, cause product shipment
delays or require us to enter into royalty or licensing agreements. If our
products were found to infringe a third party's proprietary rights, we could be
required to enter into royalty or licensing agreements in order to continue to
be able to sell our products. Royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all, which could seriously
harm our business.
Employees
As of April 30, 2001, we had a total of 460 employees. Of this total, 125
were in engineering, 148 were in sales and marketing, 138 were in professional
services, including technical support and customer training, and 49 were in
finance and administration. We also retain independent contractors to support
activities such as our professional services and product development. Our
success depends on our ability to attract and retain
12
qualified, experienced employees. None of our employees are represented by a
collective bargaining unit, and we have never experienced a work stoppage. We
consider our relations with our employees to be good.
RISK FACTORS
Our future performance is subject to a variety of risks. If any of the
following risks occur, our business could be harmed and the trading price of
our common stock could decline. In addition to other information in this
report, the following risk factors should be carefully considered in evaluating
Agile and its business.
Risks Related to Our Operations
We Have a History of Losses, We Expect to Incur Losses in the Future and We
May Not Achieve or Maintain Profitability
Since inception, we have funded our business primarily through selling our
stock, not from cash generated from our business. We have incurred quarterly
and annual losses in each of the years since we were formed and we expect to
continue to incur quarterly and annual losses in the near term. We incurred
losses of $125.3 million, $35.2 million and $11.4 million for the fiscal years
ended April 30, 2001, 2000 and 1999. As of April 30, 2001, we had an
accumulated deficit of approximately $187.1 million. We expect to continue to
incur significant sales and marketing, research and development and general and
administrative expenses. We have incurred and expect to continue to incur
substantial non-cash costs relating to the amortization of intangible assets
and stock compensation which will contribute to our net losses. We expect to
incur losses for the foreseeable future. We will need to generate significant
increases in revenues to achieve and maintain profitability, and we may not be
able to do so. Even if we do achieve profitability, we may not be able to
sustain or increase profitability on a quarterly or annual basis in the future.
Because We Have a Limited Operating History, It Is Difficult to Evaluate Our
Business and Prospects
We are still in the early stages of development, so evaluating our business
operations and our prospects is difficult. We incorporated in 1995 and began
shipping our first product in June 1996. The revenues and income potential of
our business and market are unproven. We will encounter risks and difficulties
frequently encountered by early-stage companies in new and rapidly evolving
markets. These risks include the following:
. we need to increase sales to achieve profitability, requiring us to sell
additional licenses and software products to our existing customers and
expand our customer base outside of the electronics and medical device
industries;
. we need to expand our sales and marketing, customer support and
professional services organizations, build strategic relationships and
expand our international operations in order to increase sales; and
. we need to effectively manage our anticipated growth which could lead to
management distractions and increased operating expenses, and will
require us to attract and retain key personnel.
Our business strategy may not be successful and we may not be able to
successfully address these risks. In addition, because of our limited operating
history, we have limited insight into trends that may emerge and affect our
business.
13
Our Quarterly Operating Results Fluctuate and Are Difficult to Predict and, if
Our Future Results Are Below the Expectations of Public Market Analysts or
Investors, the Price of Our Common Stock May Decline
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future, which makes it difficult for us
to predict our future operating results. This quarter-to-quarter fluctuation is
due to a number of factors, including the following:
. fluctuations in demand for Internet collaborative manufacturing commerce
software;
. size and timing of sales and installations of our products;
. entry of new competitors into our market, or the announcement of new
products or product enhancements by competitors;
. our ability to successfully expand our direct sales force and our
international sales organization;
. changes in our sales force incentives;
. unexpected delays in developing or introducing new and enhanced
products;
. unexpected decline in purchases by our existing customers, including
purchases of additional licenses and maintenance contracts;
. delays in our customers' orders due to their priorities;
. variability in the mix of our license and professional services
revenues;
. our ability to accurately price fixed-priced professional services
projects;
. variability in the mix of professional services that we perform versus
those performed for our customers by others; and
. our ability to establish and maintain relationships with our third-party
implementation partners.
Furthermore, we typically receive and fulfill most of our orders within the
same quarter, with the substantial majority of our orders typically received in
the last month of each fiscal quarter. Recently, declining economic conditions
have caused our customers to delay and reduce spending on information
technology, our sales cycle has lengthened and orders are being pushed to the
last day of the quarter. As a result, we may not learn of revenue shortfalls
until late in a fiscal quarter, after it is too late to adjust expenses for
that quarter. Moreover, recent adverse economic conditions in the United
States, particularly those related to the technology industry, may increase the
likelihood that customers will unexpectedly delay or cancel orders causing us
to fail to achieve anticipated revenues for the quarter. A number of technology
companies, particularly software companies that, like Agile, sell enterprise-
wide software solutions, have recently announced that adverse economic
conditions have negatively affected their business and results of operations.
Any revenue shortfall below our expectations could have an immediate and
significant adverse effect on our results of operations.
If, in response to market pressures or other demands, we introduce new
pricing structures for our existing products, we could experience customer
dissatisfaction and loss of sales. In addition, we could introduce products
that are sold in a manner different from how we currently market our products,
or we could recognize revenue differently than under our current accounting
policies. Depending on the manner in which we sell existing or future products,
this could have the effect of extending the length of time over which we
recognize revenues. Furthermore, our quarterly revenues could be significantly
affected based on how applicable accounting standards are amended or
interpreted over time.
In addition, we have accounted for options to purchase common stock granted
to consultants under variable plan accounting. The expense associated with
these options may fluctuate significantly from quarter to quarter through
fiscal 2006 if the price of our stock fluctuates and could cause our operating
results to vary significantly from quarter to quarter.
14
Due to these and other factors, we believe that period-to-period
comparisons of our results of operations are not meaningful and should not be
relied upon as indicators of our future performance. It is possible that in
some future periods our results of operations may be below the expectations of
public market analysts and investors. If this occurs, the price of our common
stock may decline.
The Impact of Changes in Global Economic Conditions on Our Customers May
Cause Us to Fail to Meet Expectations, Which Would Negatively Impact the
Price of Our Stock
Our operating results can vary significantly based upon the impact of
changes in global economic conditions on our customers. More specifically, the
macro-economic environment that we are facing in fiscal 2002 is more uncertain
than in recent periods and has the potentially to materially and adversely
affect us and our operating results. The revenue growth and profitability of
our business depends on the overall demand for enterprise-level software
services, particularly in the areas in which we compete. Because our sales are
primarily to major corporate customers whose business fluctuate with general
economic and business conditions, a softening of demand for computer software
caused by a weakening economy may result in decreased revenues and lower
growth rates. We may be especially prone to this as a result of the relatively
large license transactions we have historically relied upon. Customers may
defer or reconsider purchasing products if they experience a downturn in the
general economy.
We May Not Achieve Anticipated Revenues if the Introduction and Customer
Acceptance of Agile Anywhere or Any Upgrades or Enhancements to Our Products
Is Unsuccessful
Our future financial performance will depend on customer acceptance of
Agile Anywhere products and any upgrades or enhancements that we may make to
our products in the future. We have generated substantially all of our
revenues from licenses and services related to current and prior versions of
our product suite. We believe that revenues from Agile Anywhere, together with
revenues from maintenance and support contracts from Agile Anywhere and prior
versions of our suite, will account for a substantial portion of our revenues
for the foreseeable future. If we are unable to ship or implement any upgrades
or enhancements when planned, or if the introduction of upgrades or
enhancements causes customers to defer orders for our existing products, we
may not achieve anticipated revenues.
We May Need to Make Additional Future Acquisitions to Remain Competitive. Our
Business Could be Adversely Affected as a Result of These Acquisitions
We may encounter risks to our business during our integration of
acquisitions including:
. difficulties in assimilation of acquired personnel, operations,
technologies or products;
. unanticipated costs associated with acquisitions. For example, in fiscal
2001 we recorded a $55.2 million impairment charge relating to goodwill
and other intangible assets as a result of management's decision in
February 2001 to discontinue the further development of the products
acquired in the DMI acquisition;
. diversion of management's attention from other business concerns;
. adverse effects on our existing business relationships with our
customers or the customers of any acquisitions we make; and
. inability to retain employees of acquisitions we make.
As part of our business strategy, we may in the future seek to acquire or
invest in additional businesses, joint venture arrangements, products or
technologies that we believe could complement or expand our business, augment
our market coverage, enhance our technical capabilities or that may otherwise
offer growth opportunities. Management's negotiations of potential
acquisitions or joint ventures and management's integration of acquired
businesses, products or technologies could divert their time and resources.
Future
15
acquisitions could cause us to issue dilutive equity securities, incur debt or
contingent liabilities, amortize goodwill and other intangibles, write off in-
process research and development and other acquisition-related expenses that
could seriously harm our financial condition and operating results. Further, we
may not be able to properly integrate acquired businesses, products or
technology with our existing operations or train, retain and motivate personnel
from the acquired business. If we are unable to fully integrate an acquired
business, product or technology or train, retain and motivate personnel from
the acquired business, we may not receive the intended benefits of that
acquisition.
Recent volatility in the stock markets has made it more difficult to value
acquired businesses where the consideration payable as the purchase price is
stock. We may reach agreement to buy another company using our stock as
consideration. Thereafter, prior to closing the acquisition the relative values
of the capital stock of the acquired company could change, causing the purchase
price to increase. As a result, in periods of market volatility as we are
experiencing, acquisitions are difficult to complete, and we may be unable to
complete beneficial acquisitions of complementary businesses or technologies at
an acceptable price.
Implementation of Our Products By Large Customers May Be Complex and Customers
Could Become Dissatisfied if Implementation of Our Products Proves Difficult,
Costly or Time-Consuming
Our products must integrate with many existing computer systems and software
programs used by our customers. Integrating with many other computer systems
and software programs can be complex, time consuming and expensive, causing
delays in the deployment of our products. Because we are one of the first
companies to offer products designed for collaborative manufacturing commerce
solutions, many customers will be facing these integration issues for the first
time in the context of collaborating with supply chain partners. Customers
could become dissatisfied with our products if implementations prove to be
difficult, costly or time-consuming.
We Currently Perform Most of Our Implementations on a Fixed-Price Basis, Which
Could Cause Us to Incur More Costs Than We Expect
When we install our products or when we have a third party install them, we
typically charge customers a fixed fee for these services. At the time of a
product sale and prior to agreeing to an installation price, we estimate the
amount of work involved for a particular installation project. We have at times
in the past underestimated and may in the future underestimate the amount of
time or resources required to install our products. If we do not correctly
estimate the amount of time or resources required for a large number of
installations, our gross margins could decline.
If We Do Not Sell Additional Licenses or Enhanced Versions or Upgrades of Our
Products to Existing Customers, We May Not Achieve Revenue Growth
The size of a new customer's initial order is relatively small and may
include a limited number of user licenses. In subsequent orders, customers
often add user licenses or additional products designed for specific functions,
such as the AML Server targeted at manufacturers. In order to grow revenues, we
depend on sales of additional user licenses to our existing customers as well
as sales of new licenses to new customers. Therefore, it is important that our
customers are satisfied with their initial product implementations and that
they believe that expanded use of the product they purchased will provide them
with additional benefits. Customers could choose not to purchase any new
products or expand the use of our products. If we do not increase sales to
existing customers, we may not be able to achieve revenue growth.
If We Do Not Establish and Maintain Relationships With Key Partners, We May
Encounter Difficulty in Providing Implementation and Customer Support of Our
Products
We rely heavily on our relationships with consulting and integration
partners to implement our software, provide customer support services and
endorse our products during the evaluation stage of the sales cycle.
16
Currently, a limited number of companies provide implementation services for
our products. We expect to increasingly rely on these types of partners in the
future. These companies are not contractually obligated to continue to provide
implementation services for us or to otherwise promote our products. Although
we seek to develop and maintain relationships with these types of service
providers, they may have similar or more established relationships with our
competitors. If these service providers do not increase this segment of their
business, or reduce or discontinue their relationships with us or their support
of our products, our business could be harmed. We will need to develop new
third party relationships if sales of our products increase and our current
partners cannot fulfill all of our needs for implementation and customer
support services. Without these third parties, we would have to expand our
services organization to increase the consulting and professional services that
we provide to our customers and divert resources from other areas of our
business. If we are required to expand our professional services capabilities,
we may not be able to do so on a timely basis.
We are beginning to implement larger deployments of our products together
with third parties such as Accenture. If we are not successful with these joint
deployments, we may incur increased costs and customer dissatisfaction and may
not achieve increased sales and market acceptance of our products.
To meet customer demand, we might have to outsource services to more costly
independent contractors and other third parties. In addition, if our
implementation partners do not adequately perform implementation services, our
customers could become dissatisfied with our products. In order to avoid
dissatisfaction, we may need to provide supplemental implementation services at
no additional cost to customers. Although we could experience an increase in
services revenues if our service partners are not successful, services revenues
have lower gross margins than license revenues. We could also experience delays
in recognition of license revenue if customer implementation projects fall
behind schedule.
We May Experience Customer Dissatisfaction and Lost Sales if Our Products Do
Not Scale to Accommodate Substantial Increases in the Number of Users
Our strategy requires that our software be highly scalable, or able to
accommodate substantial increases in the number of users. If our customers
cannot successfully implement large-scale deployments, or if they determine
that our products cannot accommodate large-scale deployments, we could
experience customer dissatisfaction and find it more difficult to obtain new
customers or to sell additional products to our existing customers.
We May Not Be Able to Increase Sales of Our Products if We Do Not Expand Our
Direct Sales Organization
We sell our products primarily through our direct sales force. Our ability
to increase our sales will depend on our ability to recruit, train and retain
top quality sales people with the advanced sales skills and technical knowledge
we need. Competition for qualified personnel remains intense in our industry.
In addition, it takes time for our new sales personnel to become productive,
particularly our senior sales and services personnel, who could take up to nine
months to become fully productive. Recent volatility in our stock price could
decrease our ability to hire and retain qualified personnel. If we are unable
to hire or retain qualified sales personnel, or if newly hired personnel fail
to develop the necessary skills or reach productivity more slowly than
anticipated, it would be more difficult for us to sell our products, and we may
experience a shortfall in revenues.
Our Variable Sales Cycle Makes it Difficult For Us to Predict When or if Sales
Will Be Made
Our products have an unpredictable sales cycle that contributes to the
uncertainty of our future operating results. With the recent economic
uncertainties facing our customers, and the decline in the business that they
face, our sales cycle has lengthened. Customers are taking longer to evaluate
our product, and orders may be delayed or postponed. Our collaborative
manufacturing commerce software is a new category of products, and
17
customers often view the purchase of our products as a significant and
strategic decision. As a result, intensive marketing and sales efforts may be
necessary to educate prospective customers regarding the uses and benefits of
our products. Customers may take time to evaluate our products. The sale of our
products may be subject to delays due to the lengthy internal budgeting,
approval and evaluation processes of our customers. We may expend significant
sales and marketing expenses during this evaluation period before the customer
places an order with us. Customers may initially purchase a smaller number of
user licenses before expanding the order to allow a greater number of users to
benefit from the application. Larger customers may purchase our products as
part of multiple simultaneous purchasing decisions, which may result in
additional unplanned administrative processing and other delays in our product
sales. If sales forecasted from a specific customer for a particular quarter
are not realized, we may experience an unplanned shortfall in revenues. As a
result, we have only a limited ability to forecast the timing and size of sales
of our products.
The Success of Our Business Depends on Our Key Personnel, Whose Knowledge of
Our Business and Technical Expertise Would Be Difficult to Replace
Our success depends largely on the continued contributions of our key senior
management, particularly Bryan D. Stolle, our Chief Executive Officer, who is
not bound by an employment agreement, as well as of our key engineering and
sales and marketing personnel. We do not have key-man life insurance on Mr.
Stolle. If one or more members of our senior management or any of our key
employees were to resign, the loss of personnel could result in delays to
product development, loss of sales, and diversion of management resources.
Because of Competition For Additional Qualified Personnel, We May Not Be Able
to Recruit or Retain Necessary Personnel, Which Could Impact Development or
Sales of Our Products
Our success depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, sales and marketing personnel in our industry. The volatility and
current market price of our common stock may make it more difficult for us to
recruit, hire and retain qualified personnel, or cause us to incur higher
salary costs. If we are unable to retain our existing key personnel, or attract
and retain additional qualified personnel, we may from time to time experience
inadequate levels of staffing to perform services for our customers. As a
result, our growth could be limited due to our lack of capacity to develop and
market our products to our customers, or we could experience deterioration in
service levels or decreased customer satisfaction.
Our Efforts to Expand Sales of Our Products to Other Industries May Not
Succeed
We have historically sold our products primarily to companies in the
electronics and medical device manufacturing industries. We intend to market
products to customers in additional industries. Although we have targeted
enterprises in other markets as potential customers, these potential customers
may not be as willing to purchase products like ours as have the electronics
and medical device industries.
The Market For Our Products Is Newly Emerging and Customers May Not Accept Our
Products
The market for software products that allow companies to collaborate with
suppliers on product information and change is newly emerging. Companies have
not traditionally automated collaborative manufacturing commerce solutions like
we offer throughout the supply chain. We cannot be certain that this market
will continue to develop and grow or that companies will elect to utilize our
products rather than attempt to develop applications internally or through
other sources. In addition, the use of the Internet, as well as corporate
intranets, has not been widely adopted for sharing product information as well
as for collaboration among supply chain participants. Companies that have
already invested substantial resources in other methods of sharing product
information during the manufacturing and supply process may be reluctant to
adopt a new
18
approach that may replace, limit or compete with their existing systems or
methods. We expect that we will continue to need to pursue intensive marketing
and sales efforts to educate prospective customers about the uses and benefits
of our products. Therefore, demand for and market acceptance of our products
will be subject to a high level of uncertainty.
Competition Among Providers of Software Enabling Collaboration in a
Manufacturing Supply Chain May Increase, Which Could Cause Us to Reduce
Prices, and Resulting in Reduced Gross Margins or Loss of Market Share
The market for products that enable companies to interactively manage and
share information relating to the manufacture and supply of products is highly
fragmented, rapidly changing and increasingly competitive. We expect
competition to continue to intensify, which could result in price reductions
for our products, reduced margins and loss of market share. Competitors vary
in size and in the scope and breadth of the products and services offered. We
face potential competition from in-house development efforts by potential
customers or partners, vendors of software designed for management of
engineering information, and developers of general purpose groupware software
addressing only limited technology components involved in managing data
generated by changes to the engineering process. We also face potential
competition from providers of enterprise resource planning software and
supply-chain software.
Many of our actual or potential competitors have a number of significant
advantages over us, including:
. longer operating histories;
. significantly greater financial, technical, marketing and other
resources;
. significantly greater name recognition and a larger installed base of
customers; and
. well-established relationships with our actual and potential customers
as well as with systems integrators and other vendors and service
providers.
These competitors may also be able to respond more quickly to new or
emerging technologies and changes in customer requirements, or to devote
greater resources to the development, promotion and sale of their products,
than we can. Some of our actual or potential competitors may also bundle their
products in a manner that may discourage potential customers from purchasing
our products. Accordingly, we may not be able to maintain or expand our sales
if competition increases and we are unable to respond effectively.
We May Experience Difficulties in Introducing New Products and Upgrades Which
Could Result in Negative Publicity, Loss of Sales, Delay in Market Acceptance
or Customer Dissatisfaction
Our future financial performance depends on our successful and timely
development, introduction and market acceptance of new and enhanced products.
The life cycles of our products are difficult to predict because the market
for our products is new and emerging, and is characterized by rapid
technological change, changing customer needs and evolving industry standards.
The introduction of products or computer systems employing new technologies
and emerging industry standards could render our existing products obsolete
and unmarketable. For example, portions of our software are written in the
Java computer programming language. If a new software language becomes
standard in our industry or is considered more robust, we may need to rewrite
portions of our products in another computer language in order to remain
competitive. The introduction of enhancements to our suite of products may
also cause customers to defer orders for our existing products. We may
experience difficulties that could delay or prevent the successful
development, introduction or marketing of new or enhanced products in the
future. In addition, those products may not meet the requirements of the
marketplace and achieve market acceptance.
We expect to add new products to our supply chain applications by
acquisition or internal development and by developing enhancements to our
existing products. We have in the past experienced delays in the
19
planned release dates of our software products and upgrades, and we have
discovered software defects in new products after their introduction. New
products or upgrades may not be released according to schedule, or may contain
defects when released. Either situation could result in negative publicity,
loss of sales, delay in market acceptance of our products or customer claims
against us.
Our Products Might Not Be Compatible With All Platforms, Which Could Inhibit
Sales
We must continually modify and enhance our products to keep pace with
changes in computer hardware and software and database technology, as well as
emerging technical standards in the software industry. For example, we have
designed our products to work with databases such as Oracle. Any changes to
these platforms could require us to modify our products, and could cause us to
delay releasing product enhancements until the updated version of that platform
has been released. Furthermore, third parties develop adapters to integrate our
products with other design, manufacture, finance and supply chain systems used
by our customers. We rely on these third parties to update the adapters to
reflect changes to our products as well as to the targeted platform in order to
maintain the functionality provided by our products. As a result, uncertainties
related to the timing and nature of new product announcements, introductions or
modifications by vendors of operating systems, back-office applications and
browsers and other Internet- related applications could hurt our business, as
customers may not be certain as to how our products will operate with their
existing systems.
In addition, portions of our products are based upon a programming language
that does not offer all of the features available in Windows. Accordingly,
certain features available to products that run on Windows may not be available
in the non-Windows version of our products, and this could result in reduced
customer demand. Furthermore, some of our products do not run on certain types
of popular server computers, such as those that utilize the UNIX operating
system. If another platform becomes more widely used or offers greater
scalability, we could be required to convert, or "port," our product to that
platform. We may not succeed in these efforts, and even if we do, potential
customers may not choose our product. As we extend the functionality of our
products to run on additional platforms, we may incur increased development
costs and increased development lifecycles.
If We Are Unable to Timely Expand Our International Operations, We May Not
Achieve Anticipated Revenue Growth
We believe that expansion of our international operations will be necessary
for our future success, and a key aspect to our business strategy has been and
is to expand our sales and support organizations internationally. Therefore, we
believe that we will need to commit additional significant resources to expand
our international operations. We employ sales professionals in Europe and the
Asia-Pacific market. If we are unable to successfully expand further in these
international markets on a timely basis, we may not be able to achieve
anticipated revenue growth. This expansion may be more difficult or take longer
than we anticipate, and we may not be able to successfully market, sell,
deliver and support our products internationally.
Our international expansion will subject us to a number of risks associated
with international business activities. These risks include:
. difficulty in providing customer support for our software in multiple
time zones;
. the need to develop our software in multiple foreign languages;
. longer sales cycles associated with educating foreign customers on the
benefits of using our products;
. greater difficulty and longer time in collecting accounts receivable
from customers located abroad;
. political and economic instability, particularly in Asia;
. difficulties in enforcing agreements through foreign legal systems; and
. unexpected changes in regulatory requirements that may limit our ability
to export our software or sell into particular jurisdictions or impose
multiple conflicting tax laws and regulations.
20
To date, most of our revenues have been denominated in United States
dollars. If we experience an increase in the portion of our revenues
denominated in foreign currencies, we may incur greater risks in currency
fluctuations, particularly since we translate our foreign currency revenues
once at the end of each quarter. In the future, our international revenues
could be denominated in the Euro, the currency of the European Union. The Euro
is an untested currency and may be subject to economic risks that are not
currently contemplated. We currently do not engage in foreign exchange hedging
activities, and therefore our international revenues and expenses are
currently subject to the risks of foreign currency fluctuations.
We Depend on Licensed Technology and the Loss or Inability to Maintain These
Technology Licenses Could Result in Increased Cost or Delays in Sales of Our
Products
We license technology on a non-exclusive basis from several businesses for
use with our products, including licenses from RSA Security Inc. for security
and encryption technology software, Actuate Corporation for reporting
capability and from Cimmetry Systems Inc. for our viewers. We anticipate that
we will continue to license technology from third parties in the future. Some
of the software we license from third parties would be difficult to replace.
This software may not continue to be available on commercially reasonable
terms, if at all. The loss or inability to maintain any of these technology
licenses could result in delays in the licensing of our products until
equivalent technology, if available, is identified, licensed and integrated.
In addition, the effective implementation of our products depends upon the
successful operation of third-party licensed products in conjunction with our
products, and therefore any undetected errors in these licensed products may
prevent the implementation or impair the functionality of products, delay new
product introductions and/or injure our reputation. The increased use of
third-party software could require us to enter into license agreements with
third parties, which could result in higher royalty payments and a loss of
product differentiation and lower product gross margins.
Defects in Our Software Products Could Diminish Demand For Our Products
Our software products are complex and may contain errors that may be
detected at any point in the life of the product. We have in the past
discovered software errors in certain of our products and as a result have
experienced delays in shipment of products during the period required to
correct these errors. We cannot be sure that, despite testing by us, our
implementation partners and our current and potential customers, errors will
not be found in new products or releases after shipment, resulting in loss of
revenue, delay in market acceptance and sales, diversion of development
resources, injury to our reputation or increased service and warranty costs.
Further, our products are generally used in systems with other vendors'
products, and as a result, our products must integrate successfully with these
existing systems. System errors, whether caused by our products or those of
another vendor, could adversely affect the market acceptance of our products,
and any necessary revisions could cause us to incur significant expenses.
If We Become Subject to Product Liability Litigation, It Could Be Time
Consuming and Costly to Defend
Since our products are used for mission critical applications in the supply
chain, errors, defects or other performance problems could result in financial
or other damages to our customers. For example, our products are designed to
communicate information relating to changes in product specifications during
the manufacturing process. If a supplier or other participant receives
inaccurate or erroneous data, it is possible that it could claim it incurred
damages based on its reliance on that data. Although our license agreements
generally contain provisions designed to limit our exposure to product
liability litigation, existing or future laws or unfavorable judicial
decisions could negate such limitation of liability provisions. Product
liability litigation, even if unsuccessful, would be time-consuming and costly
to defend and could harm our business.
21
In Order to Manage Our Growth and Expansion, We Will Need to Improve and
Implement New Systems, Procedures and Controls
We have recently experienced a period of rapid growth and expansion that
has placed a significant strain on our management information systems and our
administrative, operational and financial resources. For example, we have
grown from 289 employees at April 30, 2000 to 460 employees at April 30, 2001.
If we are unable to manage our growth and expansion in an efficient or timely
manner, our business will be seriously harmed. In addition, we have recently
hired a significant number of employees and plan to further increase our total
headcount. We also plan to expand the geographic scope of our operations. This
expansion has resulted and continues to result in substantial demands on our
management resources. To accommodate continued anticipated growth and
expansion, we will be required to:
. improve existing and implement new operational and financial systems,
procedures and controls;
. hire, train, manage, retain and motivate qualified personnel; and
. enter into relationships with strategic partners.
These measures may place additional burdens on our management and our
internal resources.
If We Are Unable to Protect Our Intellectual Property We May Lose a Valuable
Asset, Experience Reduced Market Share or Incur Costly Litigation to Protect
Our Rights
Our success and ability to compete depend upon our proprietary technology,
including our brand and logo and the technology underlying our products. We
rely on patent, trademark, trade secret and copyright laws to protect our
intellectual property. Despite our efforts to protect our intellectual
property, a third party could copy or otherwise obtain our software or other
proprietary information without authorization, or could develop software
competitive to ours. Our means of protecting our proprietary rights may not be
adequate and our competitors may independently develop similar technology,
duplicate our products or design around patents that may be issued to us or
our other intellectual property. In addition, the laws of some foreign
countries do not protect our proprietary rights to as great an extent as do
the laws of the United States, and we expect that it will become more
difficult to monitor the use of our products if we increase our international
presence.
We may have to resort to litigation to enforce our intellectual property
rights, to protect our patents, trade secrets or know-how or to determine
their scope, validity or enforceability. Enforcing or defending our
proprietary technology is expensive, could cause the diversion of our
resources, and may not prove successful. Our protective measures may prove
inadequate to protect our proprietary rights, and any failure to enforce or
protect our rights could cause us to lose a valuable asset.
We May Be Subject to Intellectual Property Infringement Claims That, With or
Without Merit, Could Be Costly to Defend or Settle
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own intellectual property
rights are invalid. There has been a substantial amount of litigation in the
software and Internet industries regarding intellectual property rights. It is
possible that, in the future, third parties may claim that we or our current
or potential future products infringe their intellectual property. We expect
that software product developers and providers of electronic commerce
solutions will increasingly be subject to infringement claims as the number of
products and competitors in our industry segment grows and the functionality
of products in industry segments overlaps. Any infringement claims made
against us, with or without merit, could be time-consuming, result in costly
litigation, cause product shipment delays or negative publicity. In addition,
if our products were found to infringe a third party's proprietary rights, we
could be required to enter into royalty or licensing agreements in order to
continue to be able to sell our products. Royalty or licensing agreements, if
required, may not be available on terms acceptable to us or at all.
22
We Will Rely on Third Parties to Manage System and Network Environments for
Hosted Customers
We will rely on third parties to manage system and network environments
running the Agile Anywhere and Agile Buyer solutions and related solutions for
customers requiring hosting. Services provided by these third parties will
include managing the hosted servers, maintaining communications lines and
managing network data centers, which are the locations where the Agile
solutions reside. Since the hosting of the Agile solutions for certain
customers will depend on these third parties, it is possible that these third
parties may not be able to meet our and our customers' service level
requirements. Dissatisfaction or problems with our service or the service of
the third parties that host our solutions or delays or interruptions or other
problems with service due to mechanical failure, human error, security
breaches, power loss and other facility failures, natural disasters, sabotage,
vandalism, or other similar events could result in a reduction of business
generated by the hosted environment. In the event that we choose to use
alternative hosting sources, this may result in a temporary degradation of the
service level for hosting services that may be unacceptable to our customers.
We Are Subject to Employer Payroll Taxes When Our Employees Exercise Their
Stock Options That Could Adversely Affect Our Results of Operations
Employer payroll taxes are assessed on each employee's gain on the sale of
stock received upon exercise of options, which is the difference between the
price of our common stock on the date of exercise and the exercise price.
During a particular period, these payroll taxes could be material. These
employer payroll taxes would be recorded as an expense and are assessed at tax
rates that varies depending upon the employee's taxing jurisdiction in the
period such options are exercised based on actual gains realized by employees.
However, because we are unable to predict how many stock options will be
exercised, at what price and in which country during any particular period, we
cannot predict the amount, if any, of employer payroll expense will be recorded
in a future period or the impact on our future financial results.
Power Outages In California May Adversely Affect Us
We have significant operations, including our headquarters, in the state of
California and are dependent on a continuous power supply. California's current
energy crisis could substantially disrupt our operations and increase our
expenses. California has recently implemented, and may in the future continue
to implement, rolling blackouts throughout the state. If blackouts interrupt
our power supply, we may be temporarily unable to continue operations at our
California facilities. Any such interruption in our ability to continue
operations at our facilities could delay the development and delivery of our
products and services and otherwise disrupt communications with our customers
or other third parties on whom we rely. Furthermore, shortages in wholesale
electricity supplies have caused power prices to increase. If energy prices
continue to increase, our operating expenses will likely increase which could
have a negative effect on our operating results.
Some of Our Customers are Small Emerging Growth Companies that May Represent
Credit Risks
We have expanded our customer base to include licenses to small emerging
growth companies. Many of these companies have limited operating histories, are
operating at a loss and have limited access to capital. With the significant
slowdown in U.S. economic growth in the past several months and uncertainty
relating to the prospects for near-term U.S. economic growth, some of these
customers may represent a credit risk. If our customers experience financial
difficulties or fail to experience commercial success, we may have difficulty
collecting on our accounts.
23
Risks Related to the Internet on Our Business and Prospects
If Use of the Internet Does Not Continue to Develop and Reliably Support the
Demands Placed on It by Electronic Commerce, We May Experience Loss of Sales
Our success depends upon continued growth in the use of the Internet as a
medium of collaboration and commerce. Although the Internet is experiencing
rapid growth in the number of users, this growth is a recent phenomenon and may
not continue. Furthermore, despite this growth in usage, the use of the
Internet for commerce is relatively new. As a result, a sufficiently broad base
of companies and their supply chain partners may not adopt or continue to use
the Internet as a medium for collaboration for product content information. Our
business would be seriously harmed if:
. use of the Internet does not continue to increase or increases more
slowly than expected;
. the infrastructure for the Internet does not effectively support
enterprises and their supply chain partners;
. the Internet does not create a viable commercial marketplace, inhibiting
the development of electronic collaborative manufacturing commerce and
reducing the demand for our products;
. concerns over the secure transmission of confidential information over
public networks and general disruption could inhibit the growth of the
Internet as a means of conducting commercial transactions; or
. concerns about third parties using the Internet to create interference
with the use of our products over the Internet.
Capacity Restraints May Restrict the Use of the Internet as a Commercial
Marketplace, Resulting in Decreased Demand For Our Products
The Internet infrastructure may not be able to support the demands placed on
it by increased usage or the limited capacity of networks to transmit large
amounts of data. Other risks associated with commercial use of the Internet
could slow its growth, including:
. outages and other delays resulting from the inadequate reliability of
the network infrastructure;
. slow development of enabling technologies and complementary products;
and
. limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or
increased governmental regulation, could cause the Internet to lose its
viability as a means of communication between manufacturers and their supply
chain partners. If these or any other factors cause use of the Internet for
commerce to slow or decline, the Internet may not prove viable as a commercial
marketplace, resulting in decreased demand for our products.
Increasing Governmental Regulation of the Internet Could Limit the Market for
Our Products
As Internet commerce continues to evolve, we expect that federal, state and
foreign governments will adopt laws and regulations covering issues such as
user privacy, taxation of goods and services provided over the Internet,
pricing, content and quality of products and services. It is possible that
legislation could expose companies involved in electronic commerce to
liability, taxation or other increased costs, any of which could limit the
growth of electronic commerce generally. Legislation could dampen the growth in
Internet usage and decrease its acceptance as a communications and commercial
medium. If enacted, these laws and regulations could limit the market for our
products.
24
Risks Related to Control
Our Executive Officers, Directors and Major Stockholders Will Retain
Significant Control, Which May Lead to Conflicts With Other Stockholders Over
Corporate Governance Matters
Currently executive officers, directors and holders of 5% or more of our
outstanding common stock own, in the aggregate, approximately 17% of our
outstanding common stock. These stockholders would be able to significantly
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of significant corporate transactions.
This concentration of ownership may also delay, deter or prevent a change in
our control and may make some transactions more difficult or impossible to
complete without the support of these stockholders.
Our Stock Price Has Been and May Continue to Be Extremely Volatile, Which May
Lead to Losses By Investors and to Securities Litigation
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet- related companies including us, have been highly volatile. Investors
may not be able to resell their shares purchased in this offering at or above
the offering price. The market price of our common stock may decrease
significantly in response to a number of factors, some of which are beyond our
control, including the following:
. variations in our quarterly operating results;
. announcements that our revenues or income are below securities analysts'
expectations;
. changes in securities analysts' estimates of our performance or industry
performance;
. changes in market valuations of similar companies;
. sales of large blocks of our common stock;
. fluctuations in stock market price and volume, which are particularly
common among highly volatile securities of software and Internet-based
companies.
In the past, securities class action litigation has often been instituted
against a company following periods of volatility in the company's stock
price. This type of litigation, if filed against us, could result in
substantial costs and could divert our management's attention and resources.
Provisions Contained in Our Charter Documents May Delay or Prevent a Change
in Our Control
Provisions of our Delaware certificate of incorporation and bylaws and of
Delaware law could make it more difficult for a third party to acquire us,
even if a change in control would be beneficial to our stockholders. These
provisions also may prevent changes in our management. We are subject to the
provision of Section 203 of the Delaware General Corporation Law, which
restricts certain business combinations with interested stockholders. The
combination of these provisions may inhibit a non-negotiated merger or other
business combination.
We Have Adopted Certain Anti-Takeover Measures That May Make it More
Difficult For a Third Party to Acquire Us
Our board of directors has the authority to issue up to 10,000,000 shares
of preferred stock and to determine the price, rights, preferences and
privileges of those shares without any further vote or action by the
stockholders. The rights of the holders of common stock will be subject to,
and may be adversely affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of shares of preferred
stock, while potentially providing desirable flexibility in connection with
possible acquisitions and for other corporate purposes, could have the effect
of making it more difficult for a third party to acquire a
25
majority of our outstanding voting stock. We have no present intentions to
issue shares of preferred stock. Further, on March 2001, our board of directors
adopted a preferred stock purchase rights plan intended to guard against
certain takeover tactics. The adoption of this plan was not in response to any
proposal to acquire us, and the board is not aware of any such effort. The
existence of this plan could also have the effect of making it more difficult
for a third party to acquire a majority of our outstanding voting stock. In
addition, certain provisions of our certificate of incorporation may have the
effect of delaying or preventing a change of control, which could adversely
affect the market price of our common stock.
ITEM 2. PROPERTIES
Our headquarters are currently located in four leased facilities in San
Jose, California, consisting of approximately 142,000 square feet under leases
expiring in 2005 with expansion and renewal options, of which approximately
18,000 square feet is currently sublet to tenants on short-term subleases. In
March 2000, we entered into a lease expiring in 2005 for an additional
approximately 5,000 square feet of office space located in Scotts Valley,
California. We also lease offices for sales and service personnel in eight
locations in the United States as well as in Paris, France, Stuttgart, Germany,
London, United Kingdom, Tokyo, Japan and Taipei, Taiwan. We believe our current
facilities will be adequate to meet our needs for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market under the symbol
"Agil." The price range per share reflected in the table below represents the
highest and lowest sale prices for our stock as reported by the Nasdaq National
Market during each quarter the stock has been publicly traded since August 20,
1999, the date of our initial public offering.
High Low
------- ------
Fiscal 2001:
Quarter Ended April 30, 2001.............................. $ 49.94 $ 9.00
Quarter Ended January 31, 2001............................ $ 88.25 $24.00
Quarter Ended October 31, 2000............................ $ 98.00 $46.56
Quarter Ended July 31, 2000............................... $ 75.50 $33.88
Fiscal 2000:
Quarter Ended April 30, 2000.............................. $ 91.19 $18.31
Quarter Ended January 31, 2000............................ $112.50 $46.59
Quarter Ended October 31, 1999............................ $ 51.80 $17.13
All information in this Item 5 has been restated to reflect a two-for-one
stock split, effected in the form of a stock dividend to each stockholder of
record as of March 17, 2000.
Our present policy is to retain earnings, if any, to finance future growth.
We have never paid cash dividends and have no present intention to pay cash
dividends. At June 30, 2001, there were 424 stockholders of record (there were
a substantially greater number of Agile Software beneficial owners) and the
price per share of our common stock was $16.03.
26
During fiscal 2001 we issued an aggregate of 8,615,000 shares of our common
stock upon the exercise of outstanding options to purchase our common stock. A
portion of those shares was issued pursuant to an exemption by reason of Rule
701 under the Securities Act of 1933.
In August 2000, we issued a warrant to purchase 50,000 shares of our common
stock in connection with the establishment of a marketing alliance with a
business partner. The warrant was vested and immediately exercisable upon the
date of grant. The warrant expires upon the termination of the agreement. The
offer and sale of the warrant was exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Section 4(2) thereof. We
relied on the following criteria to make such exemption available: the number
of offerees, the size and manner of the offering, the sophistication of the
offerees and the availability of material information.
In September 2000, we issued an aggregate of 82,222 shares of our common
stock upon the exercise of an outstanding warrant on a net exercise basis, at
an exercise price of $74.92 per share. The offer and sale of the warrant and
the common stock issuable upon exercise thereof, was exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant
to Section 4(2) thereof. We relied on the following criteria to make such
exemption available: the number of offerees, the size and manner of the
offering, the sophistication of the offerees and the availability of material
information.
On January 29, 2001, we issued an option to acquire up to 9,396,941 shares
of our common stock at an exercise price per share of $54.00, to Ariba, Inc.,
under the terms of the Agreement and Plan of Merger and Reorganization between
Agile and Ariba in connection with Ariba's proposed acquisition of Agile. The
option was cancelled on April 4, 2001 when the proposed acquisition was
cancelled.
27
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data set forth below for
the fiscal years ended April 30, 2001, 2000 and 1999 and the consolidated
balance sheet data as of April 30, 2001 and 2000 are derived from our
consolidated financial statements, which have been audited by
PricewaterhouseCoopers LLP, independent public accountants, and are included
elsewhere in this Annual Report on Form 10-K. The selected consolidated
statement of operations data for the fiscal years ended April 30, 1998 and 1997
and the consolidated balance sheet data as of April 30, 1999, 1998 and 1997 are
derived from our audited consolidated financial statements that are not
included in this Annual Report on Form 10-K. The following selected
consolidated financial data should be read in conjunction with, and are
qualified by reference to, our consolidated financial statements and related
notes and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Fiscal Years Ended April 30,
-----------------------------------------------
2001 2000 1999 1998 1997
--------- -------- -------- ------- -------
(in thousands, except per share amounts)
Consolidated Statement of
Operations Data (1):
Revenues:
License..................... $ 64,978 $ 21,463 $ 10,859 $ 6,102 $ 1,143
Professional services....... 9,182 4,787 3,665 1,385 187
Maintenance................. 12,899 5,948 2,283 516 22
--------- -------- -------- ------- -------
Total revenues............ 87,059 32,198 16,807 8,003 1,352
--------- -------- -------- ------- -------
Cost of revenues:
License..................... 3,830 1,451 819 543 113
Professional services....... 6,986 3,718 3,823 1,347 88
Maintenance................. 4,875 2,510 1,343 278 65
Stock compensation.......... 663 562 162 61 --
--------- -------- -------- ------- -------
Total cost of revenues.... 16,354 8,241 6,147 2,229 266
--------- -------- -------- ------- -------
Gross profit................. 70,705 23,957 10,660 5,774 1,086
--------- -------- -------- ------- -------
Operating expenses:
Sales and marketing:
Other sales and marketing... 61,951 26,657 13,495 8,070 2,149
Stock compensation.......... 7,294 5,820 457 416 --
Research and development:
Other research and
development................ 26,451 9,411 4,742 3,788 2,510
Stock compensation.......... 4,346 3,281 858 185 --
General and administrative:
Other general and
administration............. 6,255 3,411 1,938 1,995 1,333
Stock compensation.......... 3,749 2,182 776 194 --
Amortization of goodwill and
other intangible assets..... 35,974 14,911 -- -- --
Acquired in-process
technology.................. -- 1,300 -- -- --
Impairment of goodwill and
other intangible assets..... 55,224 -- -- -- --
Merger related expenses...... 4,985 -- -- -- --
--------- -------- -------- ------- -------
Total operating expenses.. 206,229 66,973 22,266 14,648 5,992
--------- -------- -------- ------- -------
Loss from operations......... (135,524) (43,016) (11,606) (8,874) (4,906)
Impairment of equity
investments................. (8,561) -- -- -- --
Interest income (expense).... 18,749 7,823 178 (68) 70
--------- -------- -------- ------- -------
Net loss..................... $(125,336) $(35,193) $(11,428) $(8,942) $(4,836)
========= ======== ======== ======= =======
Net loss per share:
Basic and diluted........... $ (2.74) $ (1.14) $ (1.94) $ (2.10) $ (1.86)
========= ======== ======== ======= =======
Weighted average shares
(2)........................ 45,703 30,967 5,904 4,258 2,600
========= ======== ======== ======= =======
As of April 30,
-----------------------------------------------
2001 2000 1999 1998 1997
--------- -------- -------- ------- -------
Consolidated Balance Sheet
Data:
Cash, cash equivalents and
short-term investments...... $ 300,525 $299,875 $ 10,003 $ 2,160 $ 3,292
Working capital (deficit).... 293,839 294,251 4,174 (930) 2,617
Total assets................. 355,191 43,801 17,948 7,531 5,366
Long-term obligations........ 134 1,015 3,224 782 626
Stockholders' equity......... 313,640 412,646 3,291 177 3,154
28
- --------
(1) The consolidated statement of operations data reflects reclassifications to
allocate the non-cash stock compensation related to the issuance of stock
options from a single-line item presentation within operating expenses to
the individual amounts related to cost of revenues, sales and marketing,
research and development, and general administration expenses.
(2) Reflects the two-for-one stock split effective March 2000.
29
ITEM 7. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
Overview
We develop and market collaborative manufacturing commerce solutions that
speed the "build" and "buy" process across the virtual manufacturing network.
We believe that our products improve time-to-volume, customer responsiveness
and cost of goods sold. Our solutions manage product content and critical
communication, collaboration and commerce transactions among original equipment
manufacturers, electronic manufacturing services providers, customers and
suppliers in real-time. We were founded in March 1995 and in June 1996 we began
selling our first products and delivering related services. We currently
license our products in the United States through our direct sales force, and
in Europe and Asia through our direct sales force and distributors. To date,
revenues from international sales have not been material. We have derived our
revenues principally from the licenses of our products, the delivery of
professional services and from maintenance contracts.