<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[_] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File number
SAGENT TECHNOLOGY, INC
(Exact name of registrant as specified in its charter)
DELAWARE 94-3225290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 W. El Camino Real, Suite 300
Mountain View, California 94040
(Address of principal executive offices) (Zip Code)
(650) 815-3100
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The number of shares of the Registrant's Common Stock, $.001 par value per
share, outstanding at June 30, 1999 was 25,258,921.
Page 1 of 21
<PAGE> 2
<TABLE>
<CAPTION>
SAGENT TECHNOLOGY, INC.
FORM 10-Q
INDEX
PAGE
<S> <C>
PART I. CONSOLIDATED CONDENSED FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Condensed Financial Statements:
Consolidated Condensed Statements of Operations
Three and six months ended June 30, 1999 and 1998 3
Consolidated Condensed Balance Sheets
June 30, 1999 and December 31, 1998 4
Consolidated Condensed Statements of Cash Flows
Six months ended June 30, 1999 and 1998 5
Notes to Unaudited Consolidated Condensed Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-17
Item 3. Quantitative and Qualitative Disclosure about Market Risk 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
</TABLE>
Page 2 of 21
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SAGENT TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues, net:
Licenses $ 4,968 $ 2,111 $ 9,228 $ 3,909
Services 2,489 1,568 4,729 2,767
-------- -------- -------- --------
Total revenues, net 7,457 3,679 13,957 6,676
-------- -------- -------- --------
Cost of revenues:
Licenses 89 25 132 61
Services 1,197 1,386 2,195 2,115
-------- -------- -------- --------
Total cost of revenues 1,286 1,411 2,327 2,176
-------- -------- -------- --------
Gross profit 6,171 2,268 11,630 4,500
-------- -------- -------- --------
Operating expenses:
Sales and marketing 4,317 3,007 8,116 5,210
Research and development 1,793 1,401 3,390 2,917
General and administrative 969 1,321 1,919 2,520
Acquired in-process technology 2,425
-------- -------- -------- --------
Total operating expenses 7,079 5,729 13,425 13,072
-------- -------- -------- --------
Loss from operations (908) (3,461) (1,795) (8,572)
-------- -------- -------- --------
Interest income, net 356 34 284 58
-------- -------- -------- --------
Net loss before income taxes (552) (3,427) (1,511) (8,514)
-------- -------- -------- --------
Provision for income taxes 46 2 118 4
Net loss $ (598) $ (3,429) $ (1,629) $ (8,518)
======== ======== ======== ========
Basic net loss per share $ (0.02) $ (0.89) $ (0.11) $ (2.24)
======== ======== ======== ========
Number of shares used in calculation of
basic net loss per share 25,136 3,867 14,725 3,799
Diluted net loss per share $ (0.02) $ (0.98) $ (0.11) $ (2.48)
======== ======== ======== ========
Number of shares used in calculation of
diluted net loss per share 24,852 3,501 14,441 3,432
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 3 of 21
<PAGE> 4
SAGENT TECHNOLOGY, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 34,124 $ 3,093
Marketable securities 11,725
Accounts receivable, net 5,750 5,376
Other current assets 1,734 832
-------- --------
Total current assets 53,333 9,301
Property and equipment, net 3,042 3,044
Other assets 3,708 851
-------- --------
Total assets $ 60,083 $ 13,196
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,614 $ 1,478
Accrued liabilities 5,257 4,216
Deferred revenue 1,740 1,304
Obligations under capital leases 1,521 1,181
-------- --------
Total current liabilities 10,132 8,179
Long-term portions of capital lease obligations 1,188 3,346
-------- --------
Total liabilities 11,320 11,525
-------- --------
Commitments and contingencies (see Part II Item I)
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.001 per share:
Authorized: 5,000 in 1999 and 15,556 in 1998
Issued and outstanding: none in 1999 and
14,544 in 1998 15
Common stock, par value $.001 per share:
Authorized: 70,000 in 1999 and 25,000 in 1998
Issued and outstanding: 25,259 in 1999 and
4,125 shares in 1998 25 4
Additional paid-in capital 80,565 30,699
Notes receivable from stockholders (1,655) (522)
Cumulative translation adjustment 82 101
Accumulated deficit (30,254) (28,626)
-------- --------
Total stockholders' equity 48,763 1,671
-------- --------
Total liabilities and stockholders' equity $ 60,083 $ 13,196
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 4 of 21
<PAGE> 5
SAGENT TECHNOLOGY, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1999 1998
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (1,629) $ (8,518)
Adjustments to reconcile net loss to net cash used in operating activities:
Acquired in-process technology 2,425
Depreciation and amortization 671 548
Change in operating assets and liabilities, net of acquisition:
Accounts receivable (374) (953)
Other current assets (902) (185)
Other assets (2,857) (559)
Accounts payable 136 162
Accrued liabilities 1,041 1,661
Deferred revenue 436 97
-------- --------
Net cash used in operating activities (3,478) (5,322)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (669) (1,129)
Acquisition of Talus Incorporated (2,696)
-------- --------
Net cash used in investing activities (669) (3,825)
-------- --------
Cash flows from financing activities:
Proceeds from capital lease financing 3,974 760
Payment of principal under capital lease obligations (5,792) (102)
Proceeds from issuance of common stock (net of repurchases) 48,740 216
Proceeds from issuance of preferred stock (net of
issuance costs and repurchases) 11,660
-------- --------
Net cash provided by financing activities 46,922 12,534
-------- --------
Effect of exchange rate changes in cash (19) 22
-------- --------
Net increase in cash and cash equivalents 42,756 3,409
Cash and cash equivalents beginning of the period 3,093 3,813
-------- --------
Cash and cash equivalents end of the period $ 45,849 $ 7,222
-------- --------
Supplemental disclosure of cash flow information:
Cash payments for interest: 60 46
Supplemental non-cash financing activities:
Issuance of common stock for notes and interest receivable 522
Liabilities assumed in connection with acquisition of Talus,
Incorporated:
Fair value of assets acquired 3,526
Cash paid (1,170)
Preferred stock issued (1,400)
--------
Liabilities assumed $ 956
========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
Page 5 of 21
<PAGE> 6
Sagent Technology, Inc.
Notes To Unaudited Consolidated Condensed Financial Statements
(In thousands, except per share data)
NOTE 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Sagent Technology, Inc., develops, markets and supports software designed
to address organizations' information access, analysis and delivery needs.
Sagent was incorporated under the laws of the State of California in April
1995 under the name of Savant Software, Inc. In June 1995, Sagent changed its
name to Sagent Technology, Inc. Sagent was reincorporated under the laws of the
State of Delaware in September 1998.
Basis of Presentation:
The unaudited consolidated condensed financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. Certain prior year amounts have been reclassified to conform to the
current year presentation. In the opinion of Sagent, the financial statements
reflect all adjustments, consisting only of normal recurring adjustments
necessary for a fair presentation of the financial position at June 30, 1999 and
December 31, 1998 the operating results for the three months and six months
ended June 30, 1999 and 1998 and cash flows for the six months ended June 30,
1999 and 1998. These financial statements and notes should be read in
conjunction with Sagent's audited financial statements and notes thereto for the
year ended December 31, 1998, included in the Company's Form S-1 filed with the
Securities and Exchange Commission in April 1999. The results of operations for
the three months and six months ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1999.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of Sagent
Technology, Inc., and its wholly-owned subsidiaries, Japan KK, Sagent Technology
UK, Ltd., and Sagent Technology (Canada) Inc. collectively ("Sagent" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Marketable Securities:
Marketable securities are classified as available-for-sale securities
and are reported at fair value. Unrealized holding gains and losses, if
material, are included as a separate component of stockholders' equity until
realized.
Page 6 of 21
<PAGE> 7
Revenue Recognition:
Sagent's revenues are derived from two sources, product licenses and
services. License revenues are derived from product sales to end users,
resellers and distributors and enterprise application vendors as well as
royalties from enterprise application vendors. For enterprise application
vendors, Sagent receives quarterly reports from these vendors on sell-through of
Sagent's products to end users. The reports also indicate the amount of royalty
revenue the enterprise application vendor owes to Sagent. License revenues are
based on the number and capacity of servers on which a product is installed, as
well as on a per user basis. Service revenues are derived from providing
consulting and training, maintenance and support services to end users.
Page 7 of 21
<PAGE> 8
Sagent Technology, Inc.
Notes To Unaudited Consolidated Condensed Financial Statements
(In thousands, except per share data)
Sagent recognizes revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 97-2, "Software Revenue
Recognition." License revenues from sales to end users are recognized on
shipment of the product, if a signed contract exists, the fee is fixed and
determinable and collection is deemed probable. If an acceptance period is
provided, revenue is recognized upon the earlier of customer acceptance or the
expiration of that period. Sagent recognizes royalties as revenues based on an
enterprise application vendor's sell-through of Sagent's products. Fees for
services are recognized upon completion of the work to be performed. Revenues
from maintenance and support agreements which includes product updates are
deferred and recognized on a straight-line basis as service revenues over the
term of the related agreement, which is typically one year.
Sagent performs ongoing credit evaluations of its customer's financial
condition and does not require collateral. Sagent maintains allowances for
potential credit losses and the amount of such losses have been within
management's expectations.
Recent Accounting Pronouncements:
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. There was no difference between Sagent's net loss and its total
comprehensive loss for the quarters ended June 30, 1999 and 1998, and the six
month periods ended June 30, 1999 and 1998.
The American Institute of Certified Public Accountants issued Statement of
Position No. 98-1, "Software for Internal Use, " which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. Statement of Position No. 98-1 is effective for financial statements for
fiscal years beginning after December 15, 1998. The adoption of Statement of
Position No. 98-1 has had no material effect on Sagent's business, financial
condition and operating results for the first or second quarter of 1999.
In June 1998 the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 is
effective for all fiscal quarters of all years beginning after June 15, 1999.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at their fair value. Sagent does not currently engage in hedging
activities and had no holdings of derivative financial or commodity instruments
at June 30, 1999. Sagent does not expect that the adoption of SFAS No. 133 will
have a material impact on its financial statements.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities." This standard requires companies to expense
the costs of start-up activities and organization costs as incurred. In general,
Statement of Position 98-5 is effective for fiscal years beginning after
December 15, 1998. Sagent believes the adoption of Statement of Position 98-5
will not have a material impact on its results of operations.
Net Loss Per Share:
Sagent computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share," and Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Under the provisions of SFAS No. 128 and SAB 98, basic net loss
per share is computed by dividing the net loss available to common stockholders
for the period by the weighted average number of common shares outstanding
during the period. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period. Options, warrants and
convertible preferred stock were not included in the computation of diluted net
loss per share because the effect would be antidilutive.
Page 8 of 21
<PAGE> 9
Sagent Technology, Inc.
Notes To Unaudited Consolidated Condensed Financial Statements
(In thousands, except per share data)
A reconciliation of shares used in the calculation of historical basic and
diluted net loss per share follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -----------------------
1999 1998 1999 1998
---------- -------- -------- --------
<S> <C> <C> <C> <C>
Historical net loss per share, basic and diluted:
Net loss $ (598) $ (3,429) $ (1,629) $ (8,518)
========== ======== ======== ========
Shares used in computing net loss per share, basic 25,135 3,867 14,725 3,799
---------- -------- -------- --------
Net loss per share, basic $ (0 .02) $ (0.89) $ (0.11) $ (2.24)
========== ======== ======== ========
Shares used in computing net loss per share, diluted 24,851 3,500 14,441 3,433
---------- -------- -------- --------
Net loss per share, diluted $ (0.02) $ (0.98) $ (0.11) $ (2.48)
========== ======== ======== ========
Antidilutive securities including options, warrants and
preferred stock not included in historical net loss per
share calculations 1,018 15,817 16,014 15,817
========== ======== ======== ========
</TABLE>
NOTE 3. MARKETABLE SECURITIES
Maturities of debt securities at market value at June 30, 1999 are all
one year or less and consisted of:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ----- ------ -----
<S> <C> <C> <C> <C>
Debt securities:
Corporate commercial paper $11,725 11,725
</TABLE>
Proceeds from sales or maturities of investments during the three or six
months ended June 30, 1999 and 1998 were not material. Gross gains and losses
realized on sales or maturities were not material for the three or six months
ended June 30, 1999 and 1998. The cost of investments sold is determined by the
specific identification method.
NOTE 4. INITIAL PUBLIC OFFERING ("IPO")
On April 13, 1999, Sagent issued 5,750,000 shares of its common stock
(including 750,000 shares issued upon the exercise of the underwriter's over
allotment option) at an initial public offering price of $9.00 per share. The
net proceeds to Sagent from the offering, net of offering costs were
approximately $47.2 million. In connection with the IPO, warrants were exercised
to purchase 110,308 shares of common stock at prices ranging from $3.18 to $6.48
per share, resulting in additional capital proceeds to the Company totaling
$656,000. Concurrent with the IPO, each outstanding share of the Company's
convertible preferred stock was automatically converted into one share of common
stock and remaining preferred stock warrants for 135,317 shares were
automatically converted into warrants for the purchase of 135,317 shares of
common stock.
NOTE 5. ACQUISITION OF BUSINESS
On June 11, 1999, Sagent acquired all of the stock of Sagent U.K., Ltd.,
its distributor in the United Kingdom, for cash of approximately $1.0 million,
259,000 shares of common stock valued at $1.0 million, stock options valued
at approximately $212,000 and the assumption of certain liabilities for an
aggregate purchase price of $2.4 million. Sagent accounted for the acquisition
under the purchase method and, accordingly, the purchase price was allocated to
the fair value of tangible and intangible assets acquired and liabilities
assumed.
Page 9 of 21
<PAGE> 10
The allocation of Sagent's aggregate purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed in connection
with this acquisition is summarized below:
<TABLE>
<S> <C>
Current assets .................................. $ (672)
Fixed assets .................................... 102
Goodwill ........................................ 2,945
------
Total purchase price ........................ $2,375
======
</TABLE>
The excess of the purchase price over the fair value of the net tangible
assets acquired has been recorded as goodwill, which is being amortized on a
straight-line basis over a period of five years.
Page 10 of 21
<PAGE> 11
Sagent Technology, Inc.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All statements, trend analysis and other information contained in the
following discussion relative to markets for Sagent's products and trends in
revenues, gross margins and anticipated expense levels, as well as other
statements including words such as "anticipate," "believe," "plan," "estimate,"
"expect," "intend" and other similar expressions constitute forward-looking
statements. These forward-looking statements are subject to business and
economic risks and uncertainties, and Sagent's actual results of operations may
differ materially from those contained in the forward-looking statements.
OVERVIEW
Sagent develops, markets and supports Enterprise Intelligence software
designed to address organizations' rapidly growing information access, analysis
and delivery needs. Sagent also provides design, systems engineering and
education services to facilitate the successful implementation of its Sagent DMS
product suite. Sagent was incorporated in April 1995, commenced operations in
June 1995 and began selling the first products of the Sagent DMS product suite
during the fourth quarter of 1996. Although Sagent's revenues have grown
significantly during these periods, there can be no assurance that such growth
will continue, nor that Sagent can achieve or sustain profitability in the
future.
Sagent's revenues are derived from two sources, product licenses and
services. License revenues are derived from product sales to end users,
resellers, distributors and enterprise application vendors as well as royalties
from enterprise application vendors. License revenues are based upon the number
and capacity of servers on which a product is installed, as well as on a per
user basis. Service revenues are derived from providing consulting and training,
maintenance and support services to end-users.
On February 28, 1998, Sagent acquired Talus, Incorporated, a privately held
company that has significant experience in the design and implementation of
Enterprise Intelligence applications. The total purchase price was $3.5 million,
and the acquisition was recorded under the purchase method of accounting. In
connection with the acquisition, Sagent expensed $2.4 million of in-process
technology in the quarter ended March 31, 1998. In addition, Sagent recorded
other intangible assets of $587,000, which are being amortized on a
straight-line basis over the six months to three years following the
acquisition.
Sagent sells its products and services to corporations in North America
primarily through its direct sales and services organization. Sagent has
domestic sales offices in seventeen states. A separate group within Sagent's
direct sales organization, targets strategic partnerships with industry-leading
enterprise application vendors such as Siebel Systems and Advent Software. These
vendors embed all or a portion of Sagent's products within their own
applications and sell the integrated products to their customers. Sagent also
utilizes resellers such as Unisys Corporation, USinternetworking, Inc., and Cap
Gemini Group, which remarket Sagent's products to their customer base.
Page 11 of 21
<PAGE> 12
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Sagent also sells its products internationally through distributors located
in France, Germany, Spain, Benelux, Japan, South Africa and the United Kingdom
and through a direct sales subsidiary in Canada, Sagent Technology Canada. On
June 11, 1999 Sagent acquired its distributor in the United Kingdom, Sagent
U.K., Ltd., and as a result became the owner of all of the issued and
outstanding shares of Sagent U.K. Ltd. The total purchase price amounted to $2.4
million and consisted of cash, Sagent common stock, stock options and the
assumption of certain liabilities. The acquisition was recorded under the
purchase method of accounting and Sagent recorded intangible assets of $2.9
million, which are being amortized, on a straight-line basis over the five-year
period subsequent to the acquisition.
Revenues from licenses and services to customers outside the United States
were $2.9 million and $344,000 in the three months ended June 30, 1999 and 1998,
respectively, and $2.6 million and $573,000 for the six months ended June 30,
1999 and 1998, respectively. Historically, as a result of the relatively small
amount of international sales, fluctuations in foreign currency exchange rates
have not had a material effect on Sagent's business, financial condition and
operating results. Sagent has agreements with its distributors in Spain and
Benelux and the parent company of its French and German distributors, under each
of which Sagent has an option to acquire such distributors. In the event of a
change of control, Sagent could be required to acquire the German distributor.
Any such acquisition may have the effect of diluting existing stockholders,
reducing Sagent's available cash for working capital and other purposes,
requiring substantial management attention, increasing annual amortization
expense or imposing costs on Sagent associated with integrating the acquired
entity.
Sagent recognizes revenues in accordance with the American Institute of
Certified Public Accountants Statement of Position No. 97-2. License revenues
from sales to end users are recognized upon shipment of the product, if a signed
contract exists, the fee is fixed and determinable and collection is deemed
probable. If an acceptance period is provided, revenue is recognized upon the
earlier of customer acceptance or the expiration of that period. Sagent
recognizes royalties as revenues based on an enterprise application vendor's
sell-through of Sagent's products. Fees for services are charged separately from
licenses. Service revenues from consulting and training are recognized upon
completion of the work to be performed. Revenues from maintenance and support
agreements which includes product updates are deferred and recognized on a
straight-line basis as service revenues over the term of the related agreement,
which is typically one year.
Since inception, Sagent has incurred substantial research and development
costs to develop its product suite and has invested heavily in the expansion of
sales, marketing and professional services organizations to support increased
annual revenue. In addition, Sagent has invested significantly in general and
administrative areas to build an infrastructure to support its growth strategy.
The number of full-time employees increased from 142 as of June 30, 1998, to 166
as of June 30, 1999, representing an increase of 17%. As a result of these
investments, Sagent has incurred a net accumulated deficit of $30.3 million as
of June 30, 1999. Sagent expects to continue to incur significant sales and
marketing, research and development and general and administrative expenses. As
a result, we may experience losses and negative cash flows. If Sagent does
achieve profitability, it may not be able to sustain or increase profitability
on a quarterly or annual basis in the future.
Sagent believes that period-to-period comparisons of its operating results
are not a good indication of future performance. Although our operating results
have generally improved from quarter to quarter in the past, Sagent's future
operating results may not follow any past trends. Our prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in new and rapidly evolving markets. There can be no
assurance we will be successful in addressing such risks and difficulties.
Page 12 of 21
<PAGE> 13
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX ENDED JUNE 30, 1999 AND 1998
The following table sets forth for the periods indicated certain financial
data, derived from Sagent's unaudited consolidated statements of operations, as
a percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues, net:
Licenses 66.6% 57.4% 66.1% 58.6%
Services 33.4 42.6 33.9 41.4
-------- -------- -------- --------
Total revenues, net 100.0 100.0 100.0 100.0
Cost of revenues
Licenses 1.2 0.7 0.9 0.9
Services 16.1 37.7 15.7 31.7
-------- -------- -------- --------
Total cost of revenues 17.2 38.4 16.7 32.6
-------- -------- -------- --------
Gross margin 82.8 61.6 83.3 67.4
-------- -------- -------- --------
Operating expenses:
Sales and marketing 57.9 81.7 58.2 78.0
Research and development 24.0 38.1 24.3 43.7
General and administrative 13.0 35.9 13.7 37.7
-------- -------- -------- --------
Total operating expenses 94.9 155.7 96.2 159.5
-------- -------- -------- --------
Loss from operations (12.2) (94.1) (12.9) (92.1)
Other income (expense):
Acquired in-process technology 36.3
Other income (expense), net 4.8 (0.9) (2.0) (0.9)
Net loss before income taxes (7.4) (93.2) (10.8) (127.5)
-------- -------- -------- --------
Provision for income taxes 0.6 0.1 0.8 0.1
-------- -------- -------- --------
Net loss (8.0)% (93.2)% (11.7)% (127.6)%
======== ======== ======== ========
</TABLE>
REVENUES
Total revenues: Sagent's revenues were derived from software licenses and
related services. Total revenues increased 103% from $3.7 million for the three
months ended June 30, 1998 to $7.5 million for the three months ended June
30, 1999. Total revenue also increased 109% from $6.7 million for the six months
ended June 30,1998 to $14.0 million for the six months ended June 30, 1999.
International revenues were $1.9 million and $344,000 for the three months ended
June 30, 1999 and 1998, respectively, an increase of 464%, and for the six
months ended June 30, 1999 international revenues increased 361% to $2.6 million
from $573,000 for the same period in the prior year. For quarter ended June 30,
1999, international revenues were delivered primarily from Europe and Japan and
accounted for 25% of total revenue for the period, up to 14 points from the
prior quarter ended March 31, 1998. No single customer accounted for more than
10% of Sagent's total revenues for the three and six months ended June 30, 1999.
License revenues: Sagent's license revenues increased 135% from $2.1
million for the three months ended June 30, 1998 to $5.0 million for the same
three month period in 1999, and represented 57% and 67% of total revenues for
the three months ended June 30, 1998 and 1999, respectively. For the six month
period ended June 30, 1999 revenues increased 136% to $9.2 million, from $3.9
million for the same six month period in the prior year. The increase in
revenues from the comparable period in the prior year was primarily attributed
to a substantial increase in sales of the Sagent DMS product suite reflecting
the increased market acceptance of the products. Approximately $3.0 million of
revenue for the current quarter and $5.3 million of the revenue for the six
month period in the current year was from sales to new customers. Sagent
anticipates that license revenues, which have represented a significant portion
of Sagent's total revenue to date, will continue to represent the substantial
majority of its revenues for the foreseeable future.
Page 13 of 21
<PAGE> 14
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Service revenues: Sagent's service revenues increased to $2.5 million and
$4.7 million for the three months and six month periods ended June 30, 1999 and
1998, respectively, representing an increase of 59% and 71% respectively. The
increases were primarily due to growth in training and consulting services as a
result of the acquisition of Talus, Incorporated on February 28, 1998. Service
revenues consist primarily of revenues from consulting and implementation
service fees, maintenance and to a lesser extent, training services. Service
revenues represented 34% and 41% of total revenues for the three months ended
June 30, 1999 and 1998 respectively and 33% and 43% for the six months ended
June 30, 1999 and 1998 respectively.
COST OF REVENUES
Cost of license revenues: Cost of license revenues consists primarily of
product packaging, shipping, media and documentation costs and to a lesser
degree, license fees for sub-licensing third-party software. Sagent's cost of
license revenue increased to $89,000 or 1% of revenue, for the three months
ended June 30, 1999 from $25,000, or 1% of revenue, for the three months ended
June 30, 1998. Cost of license revenue for the six months ended June 30, 1999
was $132,000 or 1% of revenue and $61,000, or 1% of revenue for the six month
period ended June 30, 1998.
Cost of services: Cost of services consists primarily of personnel costs
associated with providing software maintenance, technical support, training and
consulting services. Sagent's cost of service revenues was $1.2 million and $1.4
million for the three months ended June 30, 1999 and 1998, respectively,
representing a decrease of $14% and for the six months ended June 30, 1999 and
1998 cost of service revenues was $2.2 million and $2.1 million, respectively.
Cost of service revenues was 52% and 88% of service revenues for the three
months ended June 30, 1999 and 1998, respectively, and 46% and 76% for the six
months ended June 30, 1999 and 1998 respectively. The improvement in service
costs as a percent of service revenues was primarily due to providing higher
margin consulting services during the current year.
GROSS MARGIN
Gross margins improved 21 points to 83% for the three months ended June 30,
1999 from 62% for the same period in the prior year. For the six month period
ended June 30, 1999, gross margin improved 16 points to 83% from 67% for the
same period in the prior year. The improvement was primarily due to an increase
in license revenues as a per cent of total revenue, providing higher margin
consulting services, improved utilization rates and the completion of
amortization of intangible assets recorded in connection with the acquisition of
Talus. In the future, Sagent's total gross margin percentages may be adversely
affected by mix of software products and services revenue and increased
competition.
OPERATING EXPENSES
Sales and marketing: Sales and marketing expenses consist primarily of
salaries, benefits, commissions, bonuses and travel expenses for sales and
marketing personnel as well as marketing programs costs. Sales and marketing
expenses increased 44% to $4.3 million for the three months ended June 30, 1999
from $3.0 million for the three months ending June 30, 1998. During the six
month period ended June 30, 1999, sales and marketing expenses increased 56% to
$8.1 million from $5.2 million for the same six month period in the prior year.
This increase reflects the overall increase in expenses such as those related to
new hires, for commissions and promotional activities associated with the
increase in revenues. Sales and marketing expenses represented 58% and 82% of
total revenues for the three months ended June 30, 1999 and 1998 respectively, a
decline of 24 points. For the six month period ended June 30, 1999 sales and
marketing expenses declined to 58% from the 78% for the six month period ended
June 30, 1998. This decrease was attributable to Sagent's increased revenues.
Sagent believes that as it continues to expand its direct sales force, its third
party partnering relationships and its indirect channel sales organization on a
worldwide basis, sales and marketing expenses will continue to increase in
absolute dollars, although such expenses may vary as a percentage of revenue.
Page 14 of 21
<PAGE> 15
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Research and development: Research and development expenses consist
primarily of personnel and related costs associated with the development of new
products, the enhancement and localization of existing products, quality
assurance and testing. Research and development expenses increased 28% to $1.8
million for the three months ended June 30, 1999 from $1.4 million for the three
months ended June 30, 1998. For the six month period ended June 30, 1999,
research and development expenses increased 16% to $3.4 million from $2.9
million for the three month period ended June 30, 1998. Research and development
costs represented 24% and 38% of total revenues for the three months ended June
30, 1999 and 1998, respectively and 24% and 44% for the six months ended June
30, 1999 and 1998 respectively. Sagent anticipates that it will continue to
invest significantly in product research and development for the foreseeable
future, and research and development expenses are likely to increase in absolute
dollars in future periods, although such expenses may vary as a percentage of
total revenues. In the development of Sagent's new products and enhancements of
existing products, the technological feasibility of the software is not
established until substantially all product development is complete.
Historically, Sagent's software development costs eligible for capitalization
have been insignificant, and all costs related to internal research and
development have been expensed as incurred.
General and administrative: General and administrative expenses consist
primarily of personnel costs for Sagent's executive, finance, human resources,
information systems and other administrative departments. General and
administrative expenses decreased 28% to $969,000 for the three months ended
June 30, 1999 from $1.3 million for the same period in the prior year. During
the six month period ended June 30, 1999, general and administrative expenses
decreased 24% to $1.9 million from $2.5 million for the same period in the
previous year. The decrease for the six months was primarily attributable to
lower reserve requirements for bad debts as a result of improved credit and
collection processes and reduced expenses incurred for various professional
services for which Sagent's need declined as some of the capabilities were added
internally during the period. General and administrative expenses represented
13% and 36% of total revenues for the three months ended June 30, 1999 and 1998,
respectively and 14% and 38% for the six months ended June 30, 1999 and 1998,
respectively. The decrease was due to the increase in total revenue and reduced
spending. Sagent believes that general and administrative expenses will increase
in the future in absolute dollars as a result of the continued expansion of
administrative staff and expenses associated with being a public company,
including public reporting expenses, investor relations programs and
professional services fees.
ACQUIRED IN PROCESS TECHNOLOGY
In connection with the February 1998 acquisition of Talus, Incorporated, a
privately held company with experience in the design and implementation of
Enterprise Intelligence applications, Sagent acquired certain in-process
technology. This technology under development consisted of analytical software
applications for manufacturing, food service and hospitality, and high
technology industries. After considering such factors as degree of completion,
technological uncertainties, costs incurred and projected costs to complete,
Sagent expensed $2.4 million of in-process technology in February 1998. No such
expense occurred in the first six months of 1999. Acquired in process technology
projects continue to progress consistent with management's original assumptions
used to value the acquired in-process technology.
INTEREST INCOME
Interest income consists of interest earned on invested cash less interest
expense related to borrowings. Interest income increased $406,000 to $490,000
for the quarter ended June 30, 1999, from $84,000 earned in the quarter ended
June 30, 1998. The increase is due to a greater amount of cash available for
investing as a result of the IPO. Increased borrowings under the credit lines,
primarily related to equipment financing, resulted in an increase in interest
expense of $84,000 to $134,000 for the quarter ended June 30, 1999, from $50,000
for the quarter ended June 30, 1998.
Page 15 of 21
<PAGE> 16
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
INCOME TAXES
Income taxes: As of December 31, 1998 Sagent had available net operating
loss carryforwards for federal and state income tax purposes of approximately
$21 million and $18 million, respectively, which expire from 2003 to 2018. The
Tax Reform Act of 1986 imposes limitations on the use of net operating loss
carryforwards if certain stock ownership changes have occurred or could occur in
the future. For the six months ended June 30, 1999 a provision for $118,000 was
recorded for withholding taxes payable in connection with payments from Sagent's
customers in Japan.
OBLIGATIONS UNDER CAPITAL LEASES
During the six months ended June 30, 1999 capital lease obligations
decreased by $1.8 million as a result of principal payments made to pay off one
of the obligations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999 Sagent had cash and cash equivalents totaling $45.8
million, an increase of $42.7 million from December 1998. Since inception,
Sagent has funded its operations primarily through the private sales of equity
securities, the use of equipment leases, a bank line of credit, and the initial
public offering of common stock not from cash generated by operations. As of
June 30, 1999, Sagent had raised $30.5 million, net of offering costs, from the
issuance of preferred stock and the exercise of stock options and warrants,
financed equipment purchases totaling $2.7 million and on April 13, 1999, and
completed its initial public offering of common stock receiving approximately
$47.2 million in cash, net of underwriting discounts, commissions and other
offering costs. This includes the overallotment of 750,000 shares exercised by
the underwriters on April 15, 1999.
Net cash used in operating activities was $3.5 million and $5.3 million in
the six months ended June 30, 1999 and 1998 respectively, representing a
decrease of 34%. The decrease was primarily the result of increased revenues.
Sagent's investing activities included capital expenditures for property
and equipment including those under capital leases totaling $4.0 million and
$760,000 for the six months ended June 30, 1999 and 1998, respectively. Capital
leases have been used to finance the majority of Sagent's acquisition of
property and equipment Sagent anticipates that it will experience an increase in
its capital expenditures and lease commitments consistent with its anticipated
growth in operations, infrastructure and personnel. Investing activities
associated with the acquisition of Talus, Inc. on February 28, 1998 amounted to
$2.7 million.
Sagent's financing activities provided $46.9 million and $12.5 million in
the six month period ending June 30, 1999 and 1998, respectively, an increase of
$34.4 million or 416%. Sagent's financing activities have primarily included the
sales of its common and preferred stock and the use of its bank credit lines.
Net proceeds from the sale of common stock in its initial public offering in
April 1999 amounted to $47.2 million, and from the sale of preferred stock in
February 1998, totaled $10.5 million, net of issuance costs.
Page 16 of 21
<PAGE> 17
Sagent Technology, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Sagent currently anticipates that for the foreseeable future it will
continue to experience significant growth in its operating expenses related to
expansion of its distribution channels, improving operational and financial
systems, possibly acquiring or investing in complementary businesses, products
or technologies or investing in joint ventures. Such expenditures will be a
material use of our cash resources. Sagent believes that its sources of
liquidity as of June 30, 1999 together with the net proceeds from its initial
public offering, will be sufficient to meet its working capital and anticipated
capital expenditure requirements for at lease the next 12 months. Thereafter,
Sagent may require additional funds to support its working capital requirements
or for other purposes, and may seek, even before such time, to raise additional
funds through public or private equity financing or from strategic
relationships, bank debt, financing under leasing arrangements, or other
sources. There can be no assurance that additional financing will be available
at all, or that if available, such financing will be obtainable on terms
acceptable to Sagent or that are not dilutive to its stockholders. If adequate
funds are not available or are not available on acceptable terms, Sagent may be
unable to develop or enhance its products, take advantage of future
opportunities, or respond to competitive pressures or unanticipated
requirements, which could have a material adverse effect on its business,
financial condition and operating results.
YEAR 2000 ISSUES
Sagent has completed its assessment of the potential overall impact of the
impending century change on Sagent's business, financial condition and operating
results. Based on Sagent's current assessment, Sagent believes the current
versions of its products are year 2000 compliant, that is, they are capable of
adequately distinguishing 21st century dates from 20th century dates. However
Sagent's products operate in complex network environments and directly or
indirectly interact with a number of other hardware and software systems that
Sagent cannot adequately evaluate for year 2000 compliance. Sagent may face
claims based on year 2000 problems in other companies' products or issues
arising for the integration of multiple products within an overall system.
Sagent has not been a part to any litigation or arbitration proceeding involving
Sagent's products or services related to year 2000 compliance issues.
Sagent has reviewed its internal management information and other critical
business systems to identify any year 2000 problems. Sagent also has
communicated with the external vendors that supply it with material software and
information systems and with significant suppliers to determine their year 2000
readiness. Based on Sagent's vendors' representations, Sagent believes that the
third-party hardware and software Sagent uses is year 2000 compliant except for
the applications Sagent uses to track technical support request. The application
vendor is currently undertaking modification of this application for Sagent, and
Sagent estimates that the modification will be complete in the third quarter of
1999 and will cost approximately $20,000. Although Sagent does not believe that
the cost of such modifications will materially affect its operating results, if
Sagent is not able to modify the technical support application in a timely and
successful manner Sagent may not be able to process technical support reports
effectively, which may adversely affect Sagent's business. Sagent currently
anticipates conducting additional year 2000 testing in the second half of 1999
when it replaces servers in its internal network.
Sagent did not incur any material costs directly associated with year 2000
compliance in the first quarter of 1999. Sagent does not expect the total cost
of year 2000 problems to be material to its business, financial condition and
operating results. However during the months prior to the century change, Sagent
will continue to evaluate new version of its products, new software and
information systems provided by third parties and any new infrastructure systems
that Sagent acquires, to determine whether they are year 2000 compliant. Despite
Sagent's current assessment Sagent may not identify and correct all significant
year 2000 problems on a timely basis. Year 2000 compliance efforts may involve
significant time and expense and unremediated problems could harm Sagent's
business, financial condition and operating results. Sagent currently has no
contingency plans to address the risks associated with unremediated year 2000
problems.
Page 17 of 21
<PAGE> 18
Sagent Technology, Inc.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
OUR FUTURE OPERATING RESULTS MAY NOT FOLLOW PAST TRENDS DUE TO MANY FACTORS AND
ANY OF THESE COULD CAUSE OUR STOCK PRICE TO FALL
WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW PRODUCTS
CHANGES IN INTERNET TECHNOLOGY AND OPERATING SYSTEM STANDARDS MAY IMPEDE MARKET
ACCEPTANCE FOR OUR PRODUCTS
THE GROWTH OF OUR BUSINESS DEPENDS ON THE GROWTH OF THE MARKET FOR ENTERPRISE
INTELLIGENCE SOFTWARE
IF OUR RELATIONSHIPS WITH CHANNEL PARTNERS ARE NOT SUCCESSFUL AND IF WE CANNOT
RECRUIT ADDITIONAL CHANNEL PARTNERS WE MAY NOT BE ABLE TO EXPAND OUR SALES
WE NEED TO EXPAND OUR MANAGEMENT SYSTEMS AND CONTROLS TO SUPPORT OUR ANTICIPATED
GROWTH
WE INTEND TO EXPAND INTERNATIONAL OPERATIONS BUT WE MAY ENCOUNTER A NUMBER OF
PROBLEMS IN DOING SO WHICH COULD LIMIT OUR FUTURE GROWTH
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL PRODUCTS AND SERVICES AND REDUCE OUR MARKET SHARE
OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY DUE TO OUR LENGTHY SALES AND
IMPLEMENTATION CYCLES FOR OUR PRODUCTS WHICH COULD CAUSE OUR STOCK PRICE TO FALL
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS AND THESE
OFFICERS AND KEY PERSONNEL MAY NOT REMAIN WITH US IN THE FUTURE
OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
DILUTE STOCKHOLDER VALUE
FAILURE OF COMMERCIAL USERS TO ACCEPT INTERNET SOLUTIONS COULD LIMIT OUR FUTURE
GROWTH
OUR PROPRIETARY TECHNOLOGY MAY BE SUBJECTED TO INFRINGEMENT CLAIMS OR MAY BE
INFRINGED UPON AND TIMELINE, INC., HAS FILED AN INFRINGEMENT SUIT AGAINST US.
IF WE LOSE KEY LICENSES WE MAY BE REQUIRED TO DEVELOP OR LICENSE ALTERNATIVES
WHICH MAY CAUSE DELAYS OR REDUCTIONS IN SALES
IF WE DISCOVER SOFTWARE DEFECTS WE MAY HAVE PRODUCT-RELATED LIABILITIES WHICH
MAY LEAD TO LOSS OF REVENUE OR DELAY IN MARKET ACCEPTANCE FOR OUR PRODUCTS
POTENTIAL YEAR 2000 PROBLEMS WITH OUR PRODUCTS OR INTERNAL SYSTEMS MAY INVOLVE
SIGNIFICANT TIME AND EXPENSE AND MAY REDUCE OUR FUTURE SALES
Page 18 of 21
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
On March 22, 1999 Timeline, Inc. filed a complaint against Sagent in
the United States District Court for the Western District of Washington at
Seattle. Timeline alleges that the Sagent DMS product suite infringes one or
more of the claims of a Timeline patent. Timeline is seeking relief in the form
of an injunction, damages, punitive damages, attorney's fees, prejudgment and
postjudgment interest and costs. On April 19, 1999 Sagent filed its answer
denying Timeline's allegations. The case. has been set for trial on July 10,
2000. Sagent believes it has meritorious defenses. Sagent is not currently a
party to any other legal proceedings.
ITEM 2. Changes in Securities and Use of Proceeds
Since January 1, 1999 the Registrant has issued and sold unregistered
securities as follows:
(a) Between January 1, 1999 and June 30, 1999, an aggregate of 628,280
shares of Common Stock were issued to employees upon exercise of
options net of repurchases. The net aggregate consideration received
for such shares was $2,627,071. Included in these exercises were
246,362 shares where the employees took out notes with Sagent for an
aggregate of approximately $1.9 million.
(b) Between January 1, 1999 and June 30, 1999 an aggregate of 22,000
shares were issued to holders of warrants. The aggregate
consideration received for such shares was $118,800.
Sagent's registration statement (Registration No. 333-71369) under the
Securities Act of 1933, as amended, for its initial public offering became
effective April 13, 1999. Sagent issued 5,750,000 shares of its common stock
(including 750,000 shares issued upon the exercise of the underwriter's over
allotment option) at an initial public offering price of $9.00 per share.
Offering proceeds net of aggregate expenses to the Registrant, were
approximately $47.2 million. The principal underwriters were Donaldson, Lufkin &
Jenrette, Hambrecht & Quist and U.S. Bancorp Piper Jaffray. The aggregate
underwriting fees were approximately $3.6 million. The Registrant expects to use
the net offering proceeds for general corporate purposes, including working
capital, capital expenditures and has subsequently repaid $3.4 million in
long-term debt. A portion of the proceeds may also be used to acquire licenses
or in vest in complementary businesses or products, although there are no
current plans, negotiations, or discussions relating to any such transactions.
In connection with the IPO warrants were exercised to purchase 110,308 shares of
common stock at prices ranging from $3.18 to $6.48 per share, resulting in
additional capital proceeds to the Company totaling $656,000. Concurrent with
the IPO, each outstanding share of the Company's redeemable convertible
preferred stock was automatically converted into one share of common stock and
remaining preferred stock warrants for 135,317 shares were automatically
converted into warrants for the purchase of 135,317 shares of common stock.
In connection with the acquisition of Sagent U.K., Ltd. on June 11, 1999,
Sagent issued 259,000 shares of Common Stock valued at $1.0 million.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
The registrant hereby includes financial statements and pro forma
financial information as it pertains to Sagent UK,Ltd., a subsidiary
acquired on June 11, 1999.
(a) Financial Statements of Business Acquired
The financial statements of Sagent UK LTD are attached hereto
as exhibit 99.1 and incorporated herein by this reference.
(b) Pro forma Financial Information
The unaudited pro forma financial information are attached
hereto as exhibit 99.2 and incorporated herein by this
reference.
(c) Exhibits
Page 19 of 21
<PAGE> 20
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1 Financial Statements of Sagent U.K.
99.2 Pro forma Financial Information
99.3 Employee Note Agreement for Malcolm Hobbs
99.4 Employee Note Agreement for Thomas Lounibos
</TABLE>
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on June 11, 1999 related to the
acquisition of Sagent UK, Ltd.
Page 20 of 21
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SAGENT TECHNOLOGY, INC.
(Registrant)
/s/ Virginia Walker
-------------------
VIRGINA WALKER
Executive Vice President, Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
May 20, 1999
Page 21 of 21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27.1 Financial Data Schedule
99.1 Financial Statements of Sagent U.K.
99.2 Pro forma Financial Information
99.3 Employee Note Agreement for Malcolm Hobbs
99.4 Employee Note Agreement for Thomas Lounibos
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 34,142
<SECURITIES> 11,725
<RECEIVABLES> 6,258
<ALLOWANCES> (508)
<INVENTORY> 0
<CURRENT-ASSETS> 53,333
<PP&E> 5,914
<DEPRECIATION> (2,872)
<TOTAL-ASSETS> 60,083
<CURRENT-LIABILITIES> 10,132
<BONDS> 0
0
0
<COMMON> 25
<OTHER-SE> 1,573
<TOTAL-LIABILITY-AND-EQUITY> 60,083
<SALES> 4,968
<TOTAL-REVENUES> 7,457
<CGS> 89
<TOTAL-COSTS> 1,286
<OTHER-EXPENSES> 7,079
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> (552)
<INCOME-TAX> 46
<INCOME-CONTINUING> (548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (598)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
<PAGE> 1
EXHIBIT 99.1
SAGENT (UK) LIMITED
REPORT AND
FINANCIAL STATEMENTS
FOR THE PERIOD
FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
REGISTERED NUMBER : 3489107
<PAGE> 2
SAGENT (UK) LIMITED
FINANCIAL STATEMENTS
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTENTS PAGES
<S> <C>
Company Information 3
Directors report 4
Auditors report 5
Balance sheet 6
Notes to the financial statements 9-12
</TABLE>
<PAGE> 3
SAGENT (UK) LIMITED
COMPANY INFORMATION
AS AT 31 DECEMBER 1998
- --------------------------------------------------------------------------------
DIRECTORS
V De Gennaro
M L Lewis-Jones
M J Saich
A L Thorpe
SECRETARY
A Thorpe
REGISTERED OFFICE
21 Warple Way
London
W3 ORQ
BUSINESS ADDRESS
21 Warple Way
London
W3 ORQ
AUDITORS
R M T
Accountants and Business Advisors
3 Portland Terrace
Newcastle Upon Tyne
Ne2 1QQ
PRINCIPAL BANKERS
National Westminster Bank
PO Box 3142
5 Broad Street
Wokingham
Berkshire
RG40 1FH
<PAGE> 4
SAGENT (UK) LIMITED
DIRECTORS' REPORT
- --------------------------------------------------------------------------------
The directors present their annual report with the financial statements of the
company for the period ended 31 December 1998.
PRINCIPAL ACTIVITIES
The principal activity of the company in the period under review was the
provision of The Sagent Data Mart Solution to a broad spectrum of data
consumers. The company was incorporated on 6 January 1998 and started trading
from this date.
DIRECTORS AND THEIR INTERESTS
The directors in office in the period and their beneficial interests in the
company at the balance sheet date (or on appointment if later) were as follows:
<TABLE>
<CAPTION>
Number of Shares
1999
<S> <C> <C>
V De Gennaro Ordinary shares 425
M L Lewis-Jones Ordinary shares 100
M J Saich Ordinary shares 50
A L Thorpe Ordinary shares
Directors appointed since period end
A L Thorpe 7 January 1999
M J Saich 7 January 1999
Directors appointed during the period
M L Lewis Jones 1 March 1998
V De Gennaro 1 July 1998
</TABLE>
DIRECTORS' RESPONSIBILITIES
Company law requires the directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company as at the end of the financial year and of the profit or loss of the
company for that period. In preparing those financial statements, the directors
are required to
- select suitable accounting policies and then apply them consistently.
- make judgements and estimates that are reasonable and prudent.
- prepare the financial statements on the going concern basis unless it is
appropriate to presume that the company will continue in business.
The directors are responsible for maintaining proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
company and to enable them to ensure that the financial statements comply with
the Companies Act 1985. They are also responsible for safeguarding the assets of
the company and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
<PAGE> 5
SAGENT (UK) LIMITED
AUDITORS REPORT TO THE SHAREHOLDERS
- --------------------------------------------------------------------------------
We have audited the financial statements on pages 5 to 10 which have been
prepared in accordance with the Financial Reporting Standard for Smaller
Entities, under the historical cost convention and on the basis of accounting
policies set out on page 7.
RESPECTIVE RESPONSIBILITIES OF THE DIRECTORS AND AUDITORS
As described in the directors' report the company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the company's circumstances consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance as to whether the financial
statements are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
GOING CONCERN
In forming our opinion, we have considered the adequacy of the disclosure made
in note 1 of the financial statements. We consider that this information should
be drawn to your attention but our opinion is not qualified in this respect.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the company as at 31 December 1998 and of its loss for the period
then ended and have been properly prepared in accordance with the provisions of
the Companies Act 1985.
R M T
Accountants and Business Advisors
Registered Auditors
3 Portland Terrace
Newcastle Upon Tyne
NE2 1QQ
Date 5 May 1999
<PAGE> 6
SAGENT (UK) LIMITED
BALANCE SHEET
AT DECEMBER 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
L L
<S> <C> <C>
FIXED ASSETS
Tangible assets 19,898
CURRENT ASSETS
Debtors 303,133
CREDITORS: AMOUNTS FALLING DUE (334,746)
WITHIN ONE YEAR --------
NET CURRENT LIABILITIES (31,613)
--------
TOTAL ASSETS LESS CURRENT
LIABILITIES (11,715)
ACCRUALS AND DEFERRED
INCOME (27,857)
NET LIABILITIES (39,572)
--------
CAPITAL AND RESERVES
Called up share capital 2
Profit and loss account (39,574)
--------
TOTAL SHAREHOLDERS' FUNDS (39,572)
--------
</TABLE>
The financial statements have been prepared in accordance with the special
provisions of Part VII of the Companies Act 1985 relating to small companies and
with the Financial Reporting Standard for Smaller Entities.
<PAGE> 7
SAGENT (UK) LIMITED
DETAILED TRADING AND PROFIT AND LOSS ACCOUNT
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
L L
<S> <C> <C>
SALES
License revenue 388,091
Consultancy revenue 110,682
Training revenue 23,500
Maintenance revenue 22,498
-------
544,771
COST OF SALES
License expenditure 155,400
Consultancy expenditure 192,010
Commissions payable 13,934
-------
331,344
-------
(331,344)
--------
GROSS PROFIT 39.2% 213,427
ADMINISTRATIVE EXPENSES (251,864)
OPERATING LOSS (38,437)
OTHER INCOME AND EXPENSES
Interest payable
Bank loans and overdrafts (1,137)
--------
NET LOSS FOR THE PERIOD (39,574)
</TABLE>
<PAGE> 8
SAGENT (UK) LIMITED
ADMINISTRATIVE EXPENSES
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998
L
ADMINISTRATIVE EXPENSES
<S> <C>
Wages and salaries 46,536
Directors remuneration 96,697
Employer's N.I. contributions 13,998
Staff training 750
Ront and rates 14,998
Insurance 540
Repairs and maintenance 5,315
Printing, postage, and stationary 4,603
Marketing 2,125
Software support 5,662
Telephone 10,105
Motor running expenses 9,073
Traveling expenses 16,102
Entertaining 6,324
Legal and professional fees 7,852
Accountancy 2,661
Audit fees 2,500
Bank charges 149
Subscriptions 606
Depreciation 5,268
-------
251,864
-------
</TABLE>
<PAGE> 9
SAGENT (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
1. STATEMENT OF ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention and in accordance with the Financial Reporting Standard for
Smaller Entities.
TURNOVER
Turnover represents the total invoice value, including value added tax,
of goods sold and services rendered during the period.
DEPRECIATION OF TANGIBLE FIXED ASSETS
Depreciation is provided at the following annual rates in order to
write off each asset over its useful life:
Furniture and fittings 33.3% straight line
Office equipment 33.3% straight line
Equipment software 50% straight line
DEFERRED TAXATION
Deferred taxation is provided using the liability method on all timing
differences to the extent that they are expected to reverse in the
future without being replaced, calculated at the rate at which it is
anticipated the timing differences will reverse.
FOREIGN CURRENCIES
Assets and liabilities in foreign currencies are translated into
sterling at the rates of exchange ruling at the balance sheet date.
Transactions in foreign currencies are translated into sterling at the
rate of exchange ruling at the date of the transaction. Exchange
differences are taken into the profit and loss account for the year.
LEASING AND HIRE PURCHASE COMMITMENTS
Assets held under finance leases and hire purchase contracts are
capitalised in the balance sheet and are depreciated over their
estimated useful lives. The interest element of the rental obligations
is charged to the profit and loss account over the period of the lease.
Lease payments under operating leases, where substantially all the
risks and benefits remain with the lessor, are charged as expenses in
the periods in which they are incurred.
GOING CONCERN
As at 31 December 1998 the company had net liabilities amounting to
Pound Sterling 39,572. This is a result of start up costs incurred
during the first accounting period. The company has commenced to trade
profitably since the year end and the directors expect this to continue
in the future and accordingly the financial statements have been
prepared on a going concern basis.
2. OPERATING LOSS
<TABLE>
<CAPTION>
1998
Operating loss is stated L
<S> <C>
AFTER CHARGING:
Depreciation of fixed assets 5,268
Auditors' remuneration 2,500
=====
</TABLE>
<PAGE> 10
SAGENT (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
3. INFORMATION ON DIRECTORS
1998
L
Directors emoluments
Total remuneration 96,697
4. TANGIBLE FIXED ASSETS
PLANT AND
MACHINERY
ETC.
L
COST:
Additions 25,166
------
DEPRECIATION:
Charge for period 5,268
-----
NET BOOK VALUE:
At 31 December 1998 19,898
------
5. DEBTORS
1998
L
Trade debtors 193,017
Other debtors 110,116
-------
303,133
Included within other debtors is L3,000 owed by M Lewis-Jones and
L4,000 owed by M Saich, both directors of the company. These balances
represent the maximum amount outstanding during the period. No interest
has been charged on these amounts, which were cleared after the year
end.
<PAGE> 11
SAGENT (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
6. CREDITORS: amounts falling due within one year
1998
L
Bank loans and overdrafts 21,416
Trade creditors 158,785
Taxation and social security 31,136
Other creditors 123,409
-------
334,746
=======
7. SHARE CAPITAL
1998
L
Authorised:
Equity interests:
1,000 Ordinary shares of L1 each 1,000
Allotted, called up and fully paid:
Equity interests
2 Ordinary share of L1 each 2
During the period 2 ordinary L1 shares were issued at pat
for cash consideration, on the incorporation of the company. On 7
January 1999 a further 998 ordinary L1 shares were issued
at par for cash consideration.
8. PROFIT AND LOSS ACCOUNT
1998
L
Loss for the period (39,574)
-------
Accumulated loss at 31 December 1998 (39,574)
========
8. RELATED PARTY TRANSACTIONS
Included within creditors at the period end is an amount of L14,235
which is owed to Infomart Consultants Limited. Included within
prepayment at the period end is an amount of L23,800 due from Infomart
Consultants Limited, a company which is controlled by the directors of
Sagent, UK Limited. The company purchased consultancy services from
Infomart Consultants Limited during the period amounting to L14,220.
<PAGE> 12
SAGENT (UK) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
FOR THE PERIOD FROM 6 JANUARY 1998 TO 31 DECEMBER 1998
- --------------------------------------------------------------------------------
10 REVENUE COMMITMENTS
At the period end the company was committed to making the following
payments during the next year in respect of operating leases with
expiry dates as follows:
1998
L
More than five years 22,500
======
<PAGE> 1
EXHIBIT 99.2
SAGENT TECHNOLOGY, INC,
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The Company completed its acquisition of Sagent UK LTD on June 11, 1999.
The accompanying unauditied pro forma combined condensed balance sheet combines
the historical financial statements of Sagent Technology, Inc. and the balance
sheet of Sagent UK LTD as if the acquisition occurred on March 31, 1999.
The accompanying unaudited pro forma combined condensed statement of operations
for the three months ended March 31, 1999 includes the historical statement of
operations of Sagent Technology, Inc. for the three months ended March 31, 1999
and the historical statement of operations of Sagent UK LTD for the three months
ended March 31, 1999 as if the acquisition occurred on January 1, 1999.
The accompanying unaudited pro forma combined condensed statement of operations
for the year ended December 31, 1998 includes the historical statement of
operations of Sagent Technology, Inc. for the year ended December 31, 1998 and
the historical statement of operations of Sagent UK LTD for the year ended
December 31, 1998 as if the acquisition occurred on January 1, 1998.
The unaudited pro forma combined condensed statements of operations give effect
to the acquisition using the purchase method of accounting, and are based on
allocation of the purchase price and include the adjustments described in the
notes there to.
The unaudited pro forma combined condensed financial statements do not purport
to represent what the Company's results of operations had the acquisition
occurred on the date indicated or in any future period or date. The proforma
adjustments give effect to available information and assumptions that the
Company believes are reasonable. The unaudited pro forma combined condensed
financial statements should be read in conjunction with the Company's historical
financials statements and the financial statements of Sagent UK limited and the
notes thereto included or incorporate elsewhere herein.
<PAGE> 2
SAGENT TECHNOLOGY, INC.
PRO FORMA BALANCE SHEETS
AS OF MARCH 31, 1999
(in thousands, except share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Sagent Sagent UK Adjustments Consolidated
------ --------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,261 $ 11 $ -- $ 3,272
Accounts receivable, net 5,704 142 (120) [1] 5,726
Other current assets 1,402 67 (33) [2] 1,436
-------- -------- ----- --------
Total current assets 10,367 220 (153) 10,434
Other asset 6,010 120 457 [3] 6,587
-------- -------- ----- --------
Total assets $ 16,377 $ 340 $ 304 $ 17,021
======== ======== ===== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,497 $ 291 $(120)[1] $ 1,668
Accrued liabilities 4,602 392 4,994
Deferred revenue 1,859 81 1,940
Obligations under capital leases 1,073 -- -- 1,073
-------- -------- ------ --------
Total current liabilities 9,031 764 (120) 9,675
Long-term portions of capital lease obligations 5,208 -- -- 5,208
-------- -------- ------ --------
Total liabilities 14,239 764 (120) 14,883
STOCKHOLDERS' EQUITY:
Convertible preferred stock, par value $.001
per share:
Authorized: 15,556 in 1999 and 1998
Issued and outstanding: 14,544 in 1999 and 1998 15 -- -- 15
Common stock, par value $.001 per share:
Authorized: 25,000 in 1999 and 1998
Issued and outstanding: 4,545 in 1999 and
4,125 shares in 1998 5 2 (2)[3] 5
Additional paid-in capital 33,342 1 (1)[3] 33,342
Notes receivable from stockholders (1,655) -- (1,655)
Cumulative translation adjustment 87 (9) 9 [2][3] 87
Accumulated deficit (29,656) (418) 418 (29,656)
-------- -------- ----- --------
Total stockholders' equity 2,138 (424) 424 2,138
-------- -------- ----- --------
Total liabilities and stockholders' equity $ 16,377 $ 340 $ 304 $ 17,021
======== ======== ===== ========
</TABLE>
Description of pro forma adjustments:
[1] To eliminate Sagent's intercompany accounts receivable due from Sagent UK
and Sagent UK's accounts payable due to Sagent.
[2] To eliminate profit in Sagent UK inventory.
[3] To eliminate Sagent's investment in Sagent UK, record goodwill and
eliminate Sagent U.K.'s equity.
<PAGE> 3
SAGENT TECHNOLOGY, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THREE MONTHS ENDED MARCH 31,1999
(In thousands, except per share data)
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Sagent Sagent UK Adjustments Consolidated
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues, net $ 6,500 $ 169 $(120)[1] 5,549
------- ------- ------- -------
Total cost of revenues 1,041 190 (120)[1] 1,111
------- ------- ------- -------
Gross Profit 5,459 (21) -- 5,438
------- ------- ------- -------
Operating Expenses:
Sales and marketing 3,799 149 -- 3,947
Research and development 1,597 -- -- 1,597
General and Administrative 950 184 119[2] 1,254
------- ------- ------- -------
Total operating expenses 6,346 333 119 6,798
Loss from operations (887) (354) (119) (1,360)
------- ------- ------- -------
Interest expense/income (72) 1 -- (71)
------- ------- ------- -------
Net loss before income taxes (959) (353) (119) (1,431)
------- ------- ------- -------
Provision for income taxes 72 -- -- 72
Net loss $(1,031) $ (353) $ (119) $ 1,503
======= ======= ======= =======
Basic net loss per share $ (0.34) $ (0.34)
======= =======
Number of shares used in
calculation of basic net 4,313 147 4,460
loss per share
Diluted net loss per share $ (.26) 147 $ (0.36)
======= ======= =======
Number of shares used in
calculation of diluted net
loss per share 4,017 4,160
</TABLE>
Description of pro forma adjustments:
[1] To eliminate intercompany revenues and costs of revenues related to sales
by Sagent to Sagent UK.
[2] To record amortization of goodwill.
<PAGE> 4
SAGENT TECHNOLOGY, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE 12 MONTHS ENDED DECEMBER 31,1998
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Sagent Sagent UK Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total revenues, net $ 17,043 $ 910 $(308)[1] 17,645
-------- -------- -------- --------
Total cost of revenues 5,066 554 (319)[1][2] 5,301
-------- -------- -------- --------
Gross Profit 11,977 356 (11) 12,344
-------- -------- -------- --------
Operating Expenses:
Sales and marketing 12,037 359 -- 12,396
Research and development 6,013 -- -- 5,013
General and Administrative 5,186 62 475[3] 5,723
Acquired in-process technology 2,425 -- -- 2,425
-------- -------- -------- --------
Total operating expenses 25,661 421 475 26,557
Loss from operations (13,684) (65) (464) (14,213)
-------- -------- -------- --------
Other expense (17) (2) -- (19)
-------- -------- -------- --------
Net loss $(13,701) $ (67) $ (464) $(14,232)
======== ======== ======== ========
Basic net loss per share $ (3.47) $ (3.47)
======== ========
Number of shares used in
calculation of basic net
loss per share 3,951 146 4,097
Diluted net loss per share $ (3.68) $ (3.68)
======== ========
Number of shares used in
calculation of diluted net
loss per share 3,722 146 3,868
</TABLE>
Description of pro forma adjustments:
[1] To eliminate intercompany revenues and costs of revenues related to sales
by Sagent to Sagent UK.
[2] To eliminate profit in Sagent UK cost of goods.
[3] To record amortization of goodwill.
<PAGE> 1
EXHIBIT 99.3
NOTE
Mountain View, CA
June 28, 1999
FOR VALUE RECEIVED, Malcolm Hobbs, promises to pay to Sagent Technology,
Inc., a California corporation (the "Company"), the principal sum of Five
Hundred and Eighty Thousand Dollars ($580,000), together with interest on the
unpaid principal hereof from the date hereof at the rate of percent (5.47%) per
annum, compounded semiannually.
Principal and interest shall be due and payable on June 20, 2004. Payment
of principal and interest shall be made in lawful money of the United States of
America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of April 12,
1999. This Note is secured in part by a pledge of the Company's Common Stock
under the terms of a Security Agreement of even date herewith and is subject to
all the provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
Signature
------------------------------------
Malcolm Hobbs
<PAGE> 1
EXHIBIT 99.4
NOTE
Mountain View, CA
February 5, 1999
FOR VALUE RECEIVED, Thomas Lounibos, promises to pay to Sagent Technology,
Inc., a California corporation (the "Company"), the principal sum of Three
Thousand Four Hundred Forty Two dollars and Ninety Five cents ($3,442.95),
together with interest on the unpaid principal hereof from the date hereof at
the rate of percent (4.66%) per annum, compounded semiannually.
Principal and interest shall be due and payable on January 28, 2002.
Payment of principal and interest shall be made in lawful money of the United
States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of March 6, 1996.
This Note is secured in part by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
The holder of this Note shall have full recourse against the undersigned,
and shall not be required to proceed against the collateral securing this Note
in the event of default.
In the event the undersigned shall cease to be an employee, director or
consultant of the Company for any reason, this Note shall, at the option of the
Company, be accelerated, and the whole unpaid balance on this Note of principal
and accrued interest shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
------------------------------------
Signature
------------------------------------
Thomas Lounibos
