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Filed Pursuant to Rule 424(b)(2)
Registration Statement No. 333-81227
LOGO
1,709,946 SHARES
COMMON STOCK
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Concur Technologies, Inc.'s common stock currently trades on the Nasdaq
National Market. The last reported sale price of our common stock on June 15,
1999 was $25.875 per share. The trading symbol of our common stock is CNQR.
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THE OFFERING
Under this prospectus, the selling stockholders named on pages 69 to 72 of
this prospectus are offering and selling shares of our common stock that they
acquired as a result of our merger with Seeker Software, Inc.
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INVESTING IN OUR COMMON STOCK INVOLVES RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
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THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JULY 23, 1999
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE THESE OFFERS AND SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN THIS PROSPECTUS, REFERENCES TO
"CONCUR," "WE," "OUR" AND "US" REFER TO CONCUR TECHNOLOGIES, INC., TOGETHER WITH
ITS SUBSIDIARIES.
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TABLE OF CONTENTS
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PAGE
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Summary..................................................... 1
Risk Factors................................................ 4
Special Notice Regarding Forward-Looking Statements......... 15
Use of Proceeds............................................. 16
Price Range of Common Stock................................. 16
Dividend Policy............................................. 16
Selected Consolidated Financial Data........................ 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Business.................................................... 35
Management.................................................. 51
Certain Transactions........................................ 63
Principal Stockholders...................................... 67
Selling Stockholders........................................ 69
Plan of Distribution........................................ 73
Description of Capital Stock................................ 79
Legal Matters............................................... 81
Experts..................................................... 81
Where You Can Find More Information......................... 81
Index to Consolidated Financial Statements.................. F-1
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We own or have rights to the product names, trade names and trademarks that
we use in conjunction with the sale of our products, including Concur(TM),
Concur Technologies(TM), Xpense Management Solution(TM), XMS(TM),
CompanyStore(TM), EmployeeDesktop(TM), The Seeker Workplace(TM) and
QuickXpense(R). This prospectus also contains product names, trade names and
trademarks that belong to other organizations.
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SUMMARY
Because this is only a summary, it does not contain all the information
that may be important to you. You should read the entire prospectus, especially
"Risk Factors" and the consolidated financial statements and notes, before
deciding to invest in shares of our common stock.
CONCUR TECHNOLOGIES, INC.
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. Our EmployeeDesktop
product integrates XMS and CompanyStore through a common user interface and
provides a business portal through which corporate customers and third parties
can deliver other information and services to employees. We believe we are the
leading provider of travel and entertainment expense management solutions, based
on a combination of the number of customers we serve and the features our
solutions provide. Through our acquisition of Seeker Software, Inc. in June
1999, we added The Seeker Workplace, a comprehensive suite of Web-based employee
and managerial human resource self-service applications, to our suite of
products. We plan to incorporate The Seeker Workplace into EmployeeDesktop and
to provide a comprehensive automation and transaction processing suite,
including travel expense management, front-office procurement and human
resources self-service solutions, fully integrated into a single business
portal. Since 1996, we have licensed products to over 225 enterprise customers
for use by over 1,500,000 end users. By automating manual, paper-based
processes, our products reduce processing costs and enable customers to
consolidate purchases with preferred vendors and negotiate vendor discounts.
We sell our products primarily through our direct sales organization. We
also have a number of strategic referral relationships. For example, American
Express has referred corporate charge card customers seeking a travel and
entertainment expense management solution to us. American Express owns a
minority equity stake in us and is an affiliate. Automatic Data Processing, or
ADP, jointly markets our XMS product and refers potential customers to us as
well.
Given the broad applicability of our products, we have licensed
applications to numerous customers in a wide range of industries. Our customers
include:
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ADP Eastman Kodak Motorola
AT&T Exxon The New York Times
Allied Signal Federal Express Northrop Grumman
American Airlines Gillette Pfizer
Anheuser-Busch Guardian Industries Pharmacia & Upjohn
Bell South Hearst Corporation Revlon
Bristol-Myers Squibb J.C. Penney Seagate Technology
Case Corporation John Hancock Solutia
Clorox Knight-Ridder Sprint
Computer Sciences Corporation Lehman Brothers Texaco
DaimlerChrysler Corporation Levi Strauss Texas Instruments
Dell Computer Lucent Technologies Visio
DuPont Monsanto
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OUR ADDRESS
Our principal executive offices are located at 6222 185th Avenue NE,
Redmond, Washington 98052 and our telephone number is (425) 702-8808.
Information in our Web site is not part of this prospectus.
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THE OFFERING
All of the shares offered under this prospectus were originally issued by
us to former Seeker Software stockholders in connection with our acquisition of
Seeker Software. These shares are being offered on a continuous basis under Rule
415 of the Securities Act of 1933 during the period commencing on the effective
date of the registration statement of which this prospectus is a part and ending
on the first anniversary of the effective date, or as specified in our shelf
registration agreement dated May 26, 1999 with the Seeker Software stockholders.
COMMON STOCK THAT MAY BE
OFFERED BY SELLING
STOCKHOLDERS............. 1,709,946 shares
COMMON STOCK TO BE
OUTSTANDING AFTER THIS
OFFERING................. 22,619,337 shares. This is based on the actual
number of shares outstanding on June 15, 1999. The
number excludes 5,630,186 shares subject to
outstanding options or reserved for issuance under
our stock and option plans and 2,224,267 shares
subject to outstanding warrants.
USE OF PROCEEDS............ We will not receive any proceeds.
NASDAQ NATIONAL MARKET
SYMBOL................... CNQR
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Our consolidated financial data reflects our acquisition of 7Software, Inc.
in June 1998 which resulted in a charge for acquired in-process technology, but
does not reflect our merger with Seeker Software, Inc. in June 1999. See Note 3
to Notes to our Consolidated Financial Statements and see the separate financial
statements of 7Software included in this prospectus. Supplemental financial
information provided below is derived from the Supplemental Consolidated
Financial Statements which combine our results with those of Seeker Software.
See Note 20 to Notes to our Consolidated Financial Statements and see the
separate financial statements of Seeker Software included in this prospectus.
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SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
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1994 1995 1996 1997 1998 1998 1999
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CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues, net....................... $ -- $ 2,128 $ 1,959 $ 8,270 $ 17,159 $ 7,074 $ 13,591
Loss from operations................ (602) (2,895) (4,958) (5,505) (17,760) (3,867) (11,461)
Net loss............................ (602) (2,890) (4,953) (5,524) (18,074) (4,063) (11,263)
Basic and diluted net loss per
share............................ $(0.43) $ (1.29) $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
Shares used in calculation of basic
and diluted net loss per share... 1,400 2,234 2,282 2,288 2,425 2,309 11,294
SUPPLEMENTAL CONSOLIDATED STATEMENT
OF OPERATIONS DATA:
Revenues, net....................... $ -- $ 2,128 $ 1,970 $ 9,003 $ 20,128 $ 8,418 $ 16,814
Net loss............................ (602) (2,890) (5,104) (7,559) (26,224) (7,337) (16,525)
Basic and diluted net loss per
share............................ $(0.43) $ (1.29) $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
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MARCH 31, 1999
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HISTORICAL SUPPLEMENTAL
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CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $46,156 $47,404
Working capital............................................. 33,425 30,156
Total assets................................................ 60,719 64,640
Long-term obligations, net of current portion............... 6,579 8,757
Redeemable convertible preferred stock...................... -- 8,201
Total stockholders' equity.................................. 32,788 20,156
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RISK FACTORS
You should carefully consider the risks described below before making any
investment decision. The risks described below are not the only ones we face.
Additional risks that we are unaware of or that we currently believe are
immaterial may become important factors that affect our business. If any of the
following risks actually occur, our business, results of operations and
financial condition would be materially adversely affected. In such case, the
trading price of our common stock could decline, and you may lose all or a part
of your investment.
OUR OPERATING RESULTS FLUCTUATE WIDELY AND ARE DIFFICULT TO PREDICT.
In the past our quarterly operating results have fluctuated significantly,
and we expect them to continue to fluctuate in the future. Many of the factors
causing the fluctuations are listed in "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
Our products are typically shipped when orders are received, so license backlog
at the beginning of any quarter in the past represented only a small portion of
that quarter's expected license revenues. This makes license revenues in any
quarter difficult to forecast because they are dependent on orders booked and
shipped in that quarter. Moreover, we typically recognize a substantial
percentage of revenues in the last month of the quarter, frequently in the last
week or even the last days of the quarter. Since our expenses are relatively
fixed in the near term, any shortfall from anticipated revenues or any delay in
the recognition of revenues could result in significant variations in operating
results from quarter to quarter. We find it difficult to forecast quarterly
license revenues because our sales cycle, from initial evaluation to delivery of
software, is lengthy and varies substantially from customer to customer. If
revenues fall below our expectations in a particular quarter, our business could
be harmed. See "--Our lengthy sales cycle could adversely affect our revenue
growth."
OUR EXPANSION INTO THE FRONT-OFFICE PROCUREMENT APPLICATION AND HUMAN RESOURCE
SELF-SERVICE APPLICATION MARKETS IS RISKY.
We recently added the CompanyStore front-office procurement application and
The Seeker Workplace human resource self-service application to our product
line. To date, we have licensed our front-office procurement and human resource
self-service applications, collectively, to less than 40 customers. Our future
revenue growth depends on our ability to license CompanyStore and The Seeker
Workplace to new customers and our existing base of XMS customers. Potential and
existing customers may not purchase CompanyStore or The Seeker Workplace for a
number of reasons, including:
- an absence of desired functionality;
- the costs of and time required for implementation;
- possible software defects; and
- a customer's lack of the necessary hardware, software or Intranet
infrastructure.
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Further, we must overcome certain significant obstacles to expand into the
front-office procurement application and human resource self-service application
markets, including:
- competitors that have more experience and better name recognition;
- the limited experience of our sales and consulting personnel in the
front-office procurement application and human resource self-service
application markets; and
- our limited reference accounts in the front-office procurement
application and human resource self-service application markets.
Our business could be harmed if we fail to deliver the enhancements to
CompanyStore and The Seeker Workplace that customers want. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
YEAR 2000 CONSIDERATIONS AMONG OUR CUSTOMERS AND POTENTIAL CUSTOMERS MAY REDUCE
OUR SALES.
We may experience reduced sales of products as customers and potential
customers put a priority on correcting Year 2000 problems and therefore defer
purchases of our products until later in 2000. Accordingly, demand for our
products may be particularly volatile and unpredictable for the remainder of
1999 and early 2000.
WE RELY HEAVILY ON SALES OF ONE PRODUCT.
Since 1997, we have generated substantially all of our revenues from
licenses and services related to our XMS product. We believe that XMS revenues
will continue to account for a large portion of our revenues for the foreseeable
future. Our future financial performance will depend upon the successful
development, introduction and customer acceptance of new and enhanced versions
of XMS and our business could be harmed if we fail to deliver the enhancements
to XMS that customers want. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
WE HAVE LIMITED EXPERIENCE SELLING OUR PRODUCTS AS A SUITE AND OUR
EMPLOYEEDESKTOP MODEL MAY FAIL.
We recently introduced EmployeeDesktop, which integrates XMS and
CompanyStore as a suite of applications. Through our acquisition of Seeker
Software, Inc. in June 1999, we added The Seeker Workplace to our suite of
products. We plan to incorporate The Seeker Workplace into EmployeeDesktop.
Until recently we have not sold our products as a suite, and we do not know
whether customers will prefer to buy our products this way. In an effort to
increase overall revenues, we expect to offer our integrated suite of
applications at prices that will be lower than would be the case for the
applications sold separately. This may have the effect of reducing per-user
revenues. We also expect that selling our products as a suite will lengthen our
sales cycle because the sale is more complex and is more likely to involve
information technology specialists at the prospective customer. Because we are
inexperienced selling our products this way, we cannot predict whether it will
hurt our business. See "--Our lengthy sales cycle could adversely affect our
revenue growth."
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WE FACE SIGNIFICANT COMPETITION.
The market for our products is intensely competitive and rapidly changing.
Direct competition comes from independent software vendors of travel and
entertainment expense management, front-office procurement and human resource
self-service applications, and from providers of enterprise resource planning,
or ERP, software applications that have or may be developing travel and
entertainment expense management, front-office procurement and human resource
self-service products. Many of our competitors in the travel and entertainment
expense management, front-office procurement and human resource self-service
markets have longer operating histories, significantly greater financial,
technical, marketing and other resources, significantly greater name recognition
and a larger installed base of customers than we do. Moreover, a number of our
competitors, particularly major ERP vendors, have well-established relationships
with our current 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. We also face indirect competition from
potential customers' internal development efforts and have to overcome their
reluctance to move away from existing paper-based systems. See
"Business--Competition."
WE MAY EXPERIENCE DIFFICULTIES IN INTRODUCING NEW PRODUCTS AND UPGRADES.
Through our acquisition of Seeker Software in June 1999, we added The
Seeker Workplace to our product suite. We expect to add additional
employee-facing applications to our product suite by acquisition or internal
development, and to develop enhancements to our existing applications. We have
experienced delays in the 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
adverse publicity, loss of sales, delay in market acceptance of our products or
customer claims against us, any of which could harm our business. If we do not
develop, license or acquire new software products, or deliver enhancements to
existing products on a timely and cost-effective basis, our business will be
harmed.
YEAR 2000 COMPLIANCE COSTS ARE DIFFICULT TO ASSESS.
Based on our assessment to date, we believe the current versions of our
software products are capable of adequately distinguishing 21st century dates
from 20th century dates. However, our products are generally integrated into
enterprise systems involving sophisticated hardware and complex software
products, which may not be Year 2000 compliant. We may in the future be subject
to claims based on Year 2000 problems in others' products, Year 2000 problems
alleged to be found in our products, Year 2000-related issues arising from the
integration of multiple products within an overall system, or other Year
2000-related claims. In addition, earlier versions of our products were not Year
2000 compliant, and we do not intend to make them Year 2000 compliant. We also
need to ensure Year 2000 compliance of our own internal computer and other
systems, to continue testing our software products, to audit the Year 2000
compliance status of our suppliers and business partners, and to conduct a legal
audit. We have not completed our Year 2000 investigation and overall compliance
initiative, and the total cost of Year 2000 compliance may be material and may
harm our business. See "--Year 2000 considerations
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among our customers may reduce our sales" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000
Compliance."
OUR PLAN TO SELL PRODUCTS AS AN INTERNET-BASED ENTERPRISE SERVICE PROVIDER MAY
FAIL.
In addition to licensing our software applications, we plan to offer them
as an Internet-based enterprise service provider, or ESP. We would price
solutions on a per-transaction basis or on a subscription basis to companies
seeking to outsource their employee-facing business applications. This business
model is unproven and represents a significant departure from the strategies
traditionally employed by us and other enterprise software vendors. We have no
experience selling products or services as an ESP, and our efforts to develop
this ESP business may significantly divert our revenues and management time and
attention. In connection with our planned ESP business model, we will engage
third-party service providers to perform many of the necessary services as
independent contractors, and we will be responsible for monitoring their
performance. We have limited experience outsourcing services or other important
business functions in the past, and independent contractors may not perform
those services adequately. If any service provider delivers inadequate support
or service to our customers, our reputation could be harmed. In addition, we
plan to use resellers to market ESP products. We have no experience utilizing
resellers and we may not be successful in this effort.
If customers determine that our products are not scalable, do not provide
adequate security for the dissemination of information over the Internet, or are
otherwise inadequate for Internet-based use, or if for any other reason
customers fail to accept our products for use on the Internet or on a
per-transaction or subscription basis, our business will be harmed. As an
outsourced ESP provider, we may regularly receive large amounts of confidential
information, including credit card, travel booking and other financial and
accounting data through the Internet or extranets, and there can be no assurance
that this information will not be subject to computer break-ins, theft and other
improper activity that could jeopardize the security of information for which we
are responsible. Even if our strategy of offering products to customers over the
Internet is successful, some of those Internet customers may be ones that
otherwise might have bought our software and services through our traditional
licensing arrangements. Any such shift in potential license revenues to the ESP
model, which is unproven and potentially less profitable, could harm our
business.
WE HAVE LIMITED EXPERIENCE WITH LARGE-SCALE DEPLOYMENT, WHICH IS IMPORTANT TO
OUR FUTURE SUCCESS.
To date only a limited number of customers have deployed XMS and The Seeker
Workplace on a large scale, and no customer has deployed CompanyStore on a large
scale. We think that the ability of large customers to roll out our products
across large numbers of users is critical to our success. If our customers
cannot successfully implement large-scale deployments, or they determine that
our products cannot accommodate large-scale deployments, our business would be
harmed.
IT IS IMPORTANT FOR US TO ESTABLISH AND MAINTAIN STRATEGIC RELATIONSHIPS.
To offer products and services to a larger customer base than we can reach
through direct sales, telesales and internal marketing efforts, we depend on
strategic referral relationships. If we were unable to maintain our existing
strategic referral relationships or enter
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into additional strategic referral relationships, we would have to devote
substantially more resources to the distribution, sale and marketing of our
products and services. We would also lose anticipated customer introductions and
co-marketing benefits. Our success depends in part on the ultimate success of
our strategic referral partners and their ability to market our products and
services successfully. A significant number of our new XMS sales have come
through referrals from American Express, but American Express is not obligated
to refer any potential customers to us, and it may enter into strategic
relationships with other providers of expense reporting and front office
procurement applications.
Many of our strategic partners have multiple strategic relationships, and
they may not regard us as significant for their businesses. In addition, our
strategic partners may terminate their respective relationships with us, pursue
other partnerships or relationships, or attempt to develop or acquire products
or services that compete with our products or services. Further, our existing
strategic relationships may interfere with our ability to enter into other
desirable strategic relationships. See "Business--Sales," "--Marketing" and
"--Competition."
FUTURE ACQUISITIONS MIGHT HARM OUR BUSINESS.
As part of our business strategy, we might seek to acquire or invest in
businesses, products or technologies that we feel could complement or expand our
business. If we identify an appropriate acquisition opportunity, we might not be
able to negotiate the terms of that acquisition successfully, finance it, or
integrate it into our existing business and operations. We have completed only
two acquisitions to date, 7Software, Inc. and Seeker Software. We may not be
able to select, manage or absorb any future acquisitions successfully. Further,
the negotiation of potential acquisitions, as well as the integration of an
acquired business, would divert management time and other resources. We may have
to use a substantial portion of our available cash to consummate an acquisition.
On the other hand, if we consummate acquisitions through an exchange of our
securities, our stockholders could suffer significant dilution. In addition, we
cannot assure you that any particular acquisition, even if successfully
completed, will ultimately benefit our business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
WE MAY NOT MEET OUR EXPECTATIONS FOR THE SEEKER SOFTWARE ACQUISITION.
Our acquisition of Seeker Software in June 1999 was a significant
investment. The purchase price for Seeker Software included shares of our common
stock and options to purchase shares of our common stock, together representing
an aggregate of approximately 18% of our outstanding common stock as of June 15,
1999. In connection with the acquisition, we recorded in the third quarter a
charge to operating expenses of approximately $7.9 million for direct and other
acquisition-related costs pertaining to the transaction. Acquisition costs
consisted primarily of financial advisor fees for both companies, attorneys,
accountants, financial printing and other related charges. We may incur
additional costs in the future in integrating the business of Seeker Software
with our business. We were willing to pay such costs to acquire a company and
products which we believe will allow us to provide a comprehensive automation
and transaction processing suite, including travel expense management,
front-office procurement and human resources self-service solutions, fully
integrated into a single business portal. We plan to integrate the Seeker
Software business with our own, including product development efforts focused on
fully integrating The Seeker Workplace into EmployeeDesktop. We also expect to
be able
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to sell our newly-acquired The Seeker Workplace applications to some of the
existing customers of our EmployeeDesktop, XMS and CompanyStore products, and to
sell EmployeeDesktop, XMS and CompanyStore to existing customers of The Seeker
Workplace. We may not, however, be able to meet our expectations for the
acquisition. We may encounter substantial difficulties and financial risks such
as:
- difficulty assimilating the operations, technology and personnel of the
combined companies;
- disruption of our ongoing business;
- potential difficulties in completing projects;
- problems retaining key technical and managerial personnel;
- additional operating losses and expenses of the acquired business; and
- impairment of relationships with existing customers, business partners
and employees.
In addition, recent actions and comments from the Securities and Exchange
Commission have indicated that they are scrutinizing the application of the
pooling of interest method of accounting for business combinations. While we
believe we are in compliance with the rules and related guidance as they
currently exist, we can provide no assurance that the Commission will not
challenge our conclusions and ultimately seek to treat this transaction under
the purchase method of accounting for business combinations. This could result
in the restatement of financial statements requiring the recording of goodwill
and related amortization expense and as such could have a material negative
impact on our financial results for the periods subsequent to the acquisition.
We cannot assure you that we will be successful in overcoming these or any
other problems or risks in connection with the acquisition of Seeker Software.
Mergers and acquisitions of high-technology companies are inherently risky, and
no assurance can be given that our previous or future acquisitions will be
successful and will not adversely affect our financial condition or results of
operations.
OUR SHORT OPERATING HISTORY AND SIGNIFICANT LOSSES MAKE OUR BUSINESS DIFFICULT
TO EVALUATE.
We are still in the early stages of our development, so evaluating our
business operations and our prospects is difficult. We incorporated in 1993 and
have incurred net losses in each quarter since then. We shipped our first
product in fiscal 1995, and since fiscal 1997 have derived substantially all of
our revenues from licenses of our XMS product and related services. To compete
effectively, we expect to devote substantial cash, financial and other resources
to expanding our sales and marketing, research and development, and professional
services organizations. These investments may never produce a profit. We
incurred net losses of $5.0 million for fiscal 1996, $5.5 million for fiscal
1997, $18.1 million for fiscal 1998 and $11.3 million for the six months ended
March 31, 1999. As of March 31, 1999, we had an accumulated deficit of $43.3
million. We expect to continue to incur net losses for the foreseeable future.
Despite substantial net operating loss carryforwards as of March 31, 1999, tax
laws may limit their use in the future upon the occurrence of certain events,
including a significant change in ownership interests. See "--Our operating
results fluctuate widely and are difficult to predict," "Selected
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Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
OUR LENGTHY SALES CYCLE COULD ADVERSELY AFFECT OUR REVENUE GROWTH.
Because of the high costs involved, customers for enterprise software
products typically commit significant resources to an evaluation of available
software applications and require us to expend substantial time, effort and
money educating them about the value of our products and services. The time
between initial contact with a potential customer and the ultimate sale, our
sales cycle, typically ranges between six and nine months. As a result of our
lengthy sales cycle, we have only a limited ability to forecast the timing and
size of specific sales. Any delay in completing, or failure to complete, sales
in a particular quarter or fiscal year could harm our business and could cause
our operating results to vary significantly. See "--Our operating results
fluctuate widely and are difficult to predict," and "--Year 2000 considerations
among our customers and potential customers may reduce our sales."
WE DEPEND ON OUR KEY EMPLOYEES.
Our success depends on the performance of our senior management,
particularly S. Steven Singh, our President and Chief Executive Officer, who is
not bound by an employment agreement. Although we maintain key person life
insurance on Mr. Singh in the amount of $1 million, the loss of his services
would harm our business. If one or more members of our senior management or any
of our key employees were to resign, particularly to join or form a competitor,
the loss of that personnel and any resulting loss of existing or potential
customers to that competitor would harm our business. See
"Business--Competition," "--Employees" and "Management."
WE MUST ATTRACT AND RETAIN QUALIFIED PERSONNEL, PARTICULARLY SERVICE PERSONNEL.
Our success depends on our ability to attract and retain qualified,
experienced employees. There is substantial competition for experienced
engineering, sales and consulting personnel in the market segments in which we
compete. Many of our competitors for experienced personnel have greater
financial and other resources. In particular, we compete for personnel with
Microsoft Corporation, which is located in the same geographic area as our
headquarters. We also compete for personnel with other software vendors,
including ERP vendors, and with consulting and professional services companies.
In addition, our customers generally purchase consulting and implementation
services. While we have recently established relationships with some third-party
providers, we continue to be the primary provider of these consulting and
implementation services. It is difficult and expensive to recruit, train and
retain qualified personnel to perform these services, and we may from time to
time have inadequate levels of staffing to perform these services. As a result,
our growth could be limited due to our lack of capacity to provide such
services, or we could experience deterioration in service levels or decreased
customer satisfaction, any of which would harm our business. See "--We depend on
service revenues to increase our overall revenues" and "Business--Employees."
WE DEPEND ON OUR DIRECT SALES MODEL.
We sell our products primarily through our direct sales force. We believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical
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knowledge we need. Our inability to hire competent sales personnel, or our
failure to retain them, would harm our business. See "--We depend on our key
employees" and "--We must attract and retain qualified personnel, particularly
service personnel."
In addition, by relying primarily on a direct sales model, we may miss
sales opportunities that might be available through other sales channels, such
as domestic and international resellers. In the future, we intend to develop
indirect distribution channels through third-party distribution arrangements,
but we may not be successful in establishing those arrangements, or they may not
increase revenues. Furthermore, we plan to use resellers to market our ESP
products in particular. We have no experience utilizing resellers to date. The
failure to develop indirect channels may place us at a significant competitive
disadvantage. See "Business--Competition" and "--Sales."
WE DEPEND ON SERVICE REVENUES TO INCREASE OUR OVERALL REVENUES.
Our service revenues, excluding the impact of the Seeker Software
acquisition, have increased each year as a percentage of total revenues. Service
revenues represented 12.4% of total revenues for fiscal 1996, 23.3% of total
revenues for fiscal 1997, 31.8% of total revenues for fiscal 1998 and 32.0% of
total revenues for the six months ended March 31, 1999. We anticipate that
service revenues will continue to represent a significant percentage of total
revenues. To a large extent, the level of service revenues depends upon the
ongoing renewals of customer support contracts by our growing installed customer
base. Customer support contracts might not be renewed. And, if third-party
organizations such as systems integrators become proficient in installing or
servicing our products, consulting revenues could decline. Our ability to
increase service revenues will depend in large part on our ability to increase
the scale of our services organization, including our ability to successfully
recruit and train a sufficient number of qualified services personnel. See "--We
depend on our key employees," "--We must attract and retain qualified personnel,
particularly service personnel" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
THERE ARE RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
Our international operations are subject to a number of risks, including:
- costs of customizing products for foreign countries;
- laws and business practices favoring local competition;
- dependence on local vendors;
- compliance with multiple, conflicting and changing governmental laws and
regulations;
- longer sales cycles;
- greater difficulty in collecting accounts receivable;
- import and export restrictions and tariffs;
- difficulties staffing and managing foreign operations;
- multiple conflicting tax laws and regulations; and
- political and economic instability.
Our international operations also face foreign currency-related risks. To
date, most of our revenues have been denominated in U.S. Dollars, but we believe
that an increasing
11
<PAGE> 14
portion of our revenues will be denominated in foreign currencies. In
particular, we expect that an increasing portion of our international sales may
be Euro-denominated. 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. See "--Our operating results fluctuate widely and are difficult to
predict" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Revenues from customers outside the United States, excluding the impact of
the Seeker Software acquisition, primarily in the United Kingdom, Canada and
Australia, were insignificant prior to fiscal 1997, and represented
approximately $1.3 million in fiscal 1997, $810,000 in fiscal 1998 and $665,000
in the six months ended March 31, 1999. A key component to our business strategy
is to expand our sales and support operations internationally. We employ sales
professionals in London and Sydney and intend to establish additional
international sales offices, expand our international management, sales and
support organizations, and enter into relationships with additional
international remarketers. We are in the early stages of developing our indirect
distribution channels in markets outside the United States. We may not be able
to attract remarketers that will be able to market our products effectively.
We must also customize our products for local markets. For example, our
ability to expand into the European market will depend on our ability to develop
a travel and entertainment expense management solution that incorporates the tax
laws and accounting practices followed in Germany and other European countries,
and to develop employee-facing applications that support the Euro. Further, if
we establish significant operations overseas, we may incur costs that would be
difficult to reduce quickly because of employee practices in those countries.
OUR PRODUCTS MIGHT NOT BE COMPATIBLE WITH ALL MAJOR PLATFORMS, WHICH COULD
INHIBIT SALES.
We must continually modify and enhance our products to keep pace with
changes in hardware and software platforms and database technology. 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. In addition, our products are not currently based upon the Java
programming language, an increasingly widely-used language for developing
Internet applications. We have made a strategic decision not to develop a fully
Java-based product at this time. Accordingly, certain features available to
products written in Java may not be available in our products, and this could
result in reduced customer demand. See "Business--Products and Technology."
WE RELY ON THIRD-PARTY SOFTWARE THAT IS DIFFICULT TO REPLACE.
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 sale of our products and
services until equivalent technology, if available, is identified, licensed and
integrated, which could harm our business.
12
<PAGE> 15
OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY IS LIMITED AND OUR PRODUCTS MAY
BE SUBJECT TO INFRINGEMENT CLAIMS BY THIRD PARTIES.
We are dependent upon our proprietary technology. We rely primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures and contractual provisions to protect our proprietary information. In
some cases, we are using marks to which we do not have federal trademark
registration and certain of these marks for which we have filed for federal
registration may not be ultimately be registrable and we may have incomplete
rights to use these marks. We have also taken steps to avoid disclosure of our
proprietary technology by generally restricting customer access to our products'
source code and requiring all employees and contractors to enter into
confidentiality and invention assignment agreements. However, certain of our
customers and partners have received access to source code versions of our
products in order to facilitate more extensive testing of our products and
certain of our former technical personnel and contractors did not execute such
confidentiality and invention assignment agreements. Further, we only recently
began requiring contractors and temporary employees to execute our
confidentiality agreement rather than executing the confidentiality agreements
maintained by temporary agencies or not executing any such agreements. We
presently have no patents or patent applications pending. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as proprietary.
In addition, the laws of some foreign countries do not protect our proprietary
rights to as great as extent as do the laws of the United States, and we expect
that it will become more difficult to monitor use of our products as we increase
our international presence. There can be no assurance that our means of
protecting these proprietary rights will be adequate, nor that our competitors
will not independently develop similar technology. In addition, we cannot assure
you that third parties will not claim infringement by us with respect to current
or future products or other intellectual property rights. Any such claims could
have a material adverse effect on our business, results of operations and
financial condition. See "Business--Intellectual Property Rights."
OUR ABILITY TO MAINTAIN A SATISFACTORY LEVEL OF INTEROPERABILITY OF OUR PRODUCTS
WITH THOSE OF OTHER SOFTWARE VENDORS MAY BE LIMITED.
Our products are designed to operate on a variety of hardware and software
platforms employed by our customers. We must continually modify and enhance our
products to keep pace with changes in hardware and software platforms and
database technology. As a result, uncertainties related to the willingness of
the various vendors of these platforms to work with us, the timing and nature of
new product announcements, introductions or modifications by vendors of
operating systems (particularly Microsoft), by vendors of back-office
applications (particularly SAP, Oracle and PeopleSoft) and by vendors of
browsers and other Internet-related applications (particularly Netscape and
Microsoft) could harm our business, results of operations and financial
condition. See "Business--Products and Technology."
OUR REVENUE RECOGNITION POLICY MAY CHANGE WHEN DEFINITIVE GUIDANCE IS AVAILABLE.
We recognize revenues from sales of software licenses when we sign a
non-cancelable license agreement with a customer, the software is shipped, no
significant post-delivery vendor obligations remain and collection is deemed
probable. We recognize customer support revenues ratably over the contract term
(which is typically one year) and
13
<PAGE> 16
recognize revenues for consulting services as such services are performed. We
believe our current revenue recognition policies and practices are consistent
with applicable accounting standards. However, full guidelines for recently
introduced software revenue recognition standards have not yet been issued. Once
available, such guidance could lead to unanticipated changes in our current
revenue accounting practices, and such changes could significantly reduce our
future revenues and earnings. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview" and "--Results of
Operations."
WE HAVE BEEN PUBLIC FOR ONLY A SHORT TIME AND OUR STOCK PRICE HAS BEEN VOLATILE.
We completed our initial public offering in December 1998. Prior to this
there was no trading market for our stock. The market price of our common stock
has been highly volatile and is subject to wide fluctuations. We expect our
stock price to continue to fluctuate:
- in response to quarterly variations in operating results;
- in reaction to announcements of technological innovations or new products
by us or our competitors;
- because of market conditions in the enterprise software industry; and
- in reaction to changes in financial estimates by securities analysts, and
our failure to meet or exceed the expectations of analysts or investors.
OUR CORPORATE GOVERNANCE STRUCTURE MAY DELAY OR PREVENT OUR ACQUISITION BY
ANOTHER COMPANY.
Our staggered board of directors makes a takeover less likely. Our
certificate of incorporation and bylaws divide the board of directors into three
classes to serve staggered three-year terms, prohibit the stockholders from
taking action by written consent and restrict the ability of stockholders to
call special meetings. These provisions may make it more difficult for a third
party to acquire a majority of our voting stock or effect a change in control of
us. Agreements with American Express also contain provisions making it more
difficult for third parties to acquire a substantial amount of our voting stock
or effect a change in control of us. In addition, our board of directors is
authorized to issue 5,000,000 shares of preferred stock, without further
stockholder approval, that could have preference over the common stock with
respect to the payment of dividends and upon our liquidation, dissolution or
winding-up. See "Management--Executive Officers and Directors," "Description of
Capital Stock" and "Certain Transactions."
FUTURE SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO DECLINE.
If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, in the
public, the market price of our common stock could fall. These sales could also
impair our ability to raise capital through the sale of equity securities in the
future at a price we deem appropriate.
As of June 15, 1999, we had outstanding approximately 22,619,337 shares of
common stock. Of these shares, approximately 7,117,753 were eligible for sale in
the public market on that date. Approximately 3,419,929 are shares we issued to
former stockholders of
14
<PAGE> 17
Seeker Software in exchange for their Seeker Software stock, which are eligible
for sale in the public market beginning on the effective date of this
prospectus, but only in accordance with the restrictions set forth in the "Plan
of Distribution" section. Approximately 11,184,835 shares of our common stock
are subject to lock-up agreements between the holders of those shares and the
representatives of the underwriters of our secondary public offering, pursuant
to which the holders have agreed not to sell, contract to sell or grant any
option to purchase or otherwise dispose of common stock until 90 days after the
effective date of the registration statement filed in connection with the
secondary offering (July 16, 1999). Of the shares subject to the lock-up with
the representatives of the underwriters, approximately 10,966,919 shares are
also subject to a lock-up agreement with us in connection with our acquisition
of Seeker Software that will expire when we have publicly released the combined
financial results of Concur and Seeker Software covering a period of at least 30
days of our post-merger combined operations. We expect this announcement to
occur in July 1999. Following the expiration of these periods, substantially all
the shares subject to the lock-up agreements will become available for immediate
sale in the public market, subject to volume and other limitations of Rule 144.
The underwriters have informed us that they reserve the right without
announcement to release shares from the lock-up agreements prior to the
expiration of their terms.
SPECIAL NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate" and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
expectations about our future performance, contain projections of our future
operating results of our future financial condition, or state other "forward-
looking" information. We believe it is important to communicate our expectations
to our investors. There may be events in the future, however, that we are not
accurately able to predict or over which we have no control. The risk factors
listed in this prospectus, as well as any other cautionary language in this
prospectus, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from the expectations we describe in our
forward-looking statements. Before you invest in our common stock, you should be
aware that the occurrence of any of the events described in these risks factors
and elsewhere in this prospectus could have a material and adverse effect on our
business, results of operations and financial condition and that upon the
occurrence of any of these events, the trading price of our common stock could
decline and you could lose all or part of your investment.
15
<PAGE> 18
USE OF PROCEEDS
We will not receive any proceeds from sales of our common stock by the
selling stockholders under this prospectus.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"CNQR." The following table sets forth the range of the high and low closing
sale prices by quarter as reported on the Nasdaq National Market since December
16, 1998, the date our common stock commenced public trading.
<TABLE>
<CAPTION>
HIGH LOW
FISCAL YEAR ENDING SEPTEMBER 30, 1999: ---- -----
<S> <C> <C>
First quarter (since December 16, 1998)................ $30 1/2 $19 1/2
Second quarter......................................... $45 1/8 $25
Third quarter (through June 15, 1999).................. $55 $25 1/4
</TABLE>
On June 15, 1999, the last reported sale price for our common stock on the
Nasdaq National Market was $25.875 per share.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not expect to do so in the foreseeable future. We anticipate that any future
earnings will be retained by us to develop and expand our business. Any future
determination with respect to the payment of dividends will be at the discretion
of our board of directors and will depend upon, among other things, operating
results, financial condition and capital requirements, the terms of
then-existing indebtedness, general business conditions and such other factors
as our board of directors deems relevant. In addition, we have credit facilities
in place that prohibit the payment of cash dividends without the lender's
consent. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
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<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and related Notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statement of
operations data for the years ended September 30, 1996, 1997 and 1998, and the
consolidated balance sheet data as of September 30, 1997 and 1998, are derived
from our consolidated financial statements that have been audited by Ernst &
Young LLP, independent auditors, which are included elsewhere in this
prospectus. The consolidated statement of operations data for the year ended
September 30, 1995 and the consolidated balance sheet data as of September 30,
1995 and 1996 are derived from our audited consolidated financial statements
that are not included in this prospectus. The consolidated statement of
operations data for the year ended September 30, 1994, and the consolidated
balance sheet data as of September 30, 1994, are derived from our unaudited
consolidated financial statements not included in this prospectus. The
consolidated statement of operations data for the six months ended March 31,
1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 are
derived from unaudited consolidated financial statements included elsewhere in
this prospectus. The unaudited consolidated financial statements reflect all
normal recurring adjustments that, in the opinion of our management, are
necessary for a fair presentation of our financial position at March 31, 1999
and for the six month periods ended March 31, 1998 and 1999. The results of
operations for the six month period ended March 31, 1999 are not necessarily
indicative of future results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Quarterly Results of Operations."
Our consolidated financial data reflects our acquisition of 7Software in
June 1998 which resulted in a charge for acquired in-process technology, but
does not reflect our merger with Seeker Software in June 1999. See Note 3 of
Notes to Consolidated Financial Statements and see the separate financial
statements of 7Software and Seeker Software included in this prospectus. See
Note 13 of Notes to Consolidated Financial Statement for an explanation of the
number of shares used in computing pro forma net loss per share.
Our supplemental consolidated financial statement information is derived
from the supplemental consolidated financial statements included in this
prospectus which reflects the retroactive restatement of our accounts to reflect
the accounting for the merger with Seeker Software as a pooling of interests.
17
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------------ -------------------
1994 1995 1996 1997 1998 1998 1999
------- -------- ------- -------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA
Revenues, net:
Licenses................. $ -- $ 2,104 $ 1,717 $ 6,347 $ 11,696 $ 4,854 $ 9,243
Services................. -- 24 242 1,923 5,463 2,220 4,348
------- -------- ------- -------- -------- ------- --------
Total revenues..... -- 2,128 1,959 8,270 17,159 7,074 13,591
------- -------- ------- -------- -------- ------- --------
Cost of revenues:
Licenses................. -- 728 386 394 558 172 573
Services................. -- 673 839 2,269 5,684 2,212 5,139
------- -------- ------- -------- -------- ------- --------
Total cost of
revenues......... -- 1,401 1,225 2,663 6,242 2,384 5,712
------- -------- ------- -------- -------- ------- --------
Gross profit............... -- 727 734 5,607 10,917 4,690 7,879
------- -------- ------- -------- -------- ------- --------
Operating expenses:
Sales and marketing...... 111 2,363 2,936 5,896 12,353 4,606 10,401
Research and
development............ 425 744 1,793 3,401 6,434 2,278 5,505
General and
administrative......... 66 515 963 1,815 4,687 1,673 3,434
Acquired in-process
technology............. -- -- -- -- 5,203 -- --
------- -------- ------- -------- -------- ------- --------
Total operating
expenses......... 602 3,622 5,692 11,112 28,677 8,557 19,340
------- -------- ------- -------- -------- ------- --------
Loss from operations....... (602) (2,895) (4,958) (5,505) (17,760) (3,867) (11,461)
Other income (expense),
net...................... -- 5 5 (19) (314) (196) 198
------- -------- ------- -------- -------- ------- --------
Net loss................... $ (602) $ (2,890) $(4,953) $ (5,524) $(18,074) $(4,063) $(11,263)
======= ======== ======= ======== ======== ======= ========
Basic and diluted net loss
per share................ $ (0.43) $ (1.29) $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======== ======= ======== ======== ======= ========
Shares used in calculation
of basic and diluted net
loss per share........... 1,400 2,234 2,282 2,288 2,425 2,309 11,294
======= ======== ======= ======== ======== ======= ========
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues, net.............. $ -- $ 2,128 $ 1,970 $ 9,003 $ 20,128 $ 8,418 $ 16,814
Net loss................... (602) (2,890) (5,104) (7,559) (26,224) (7,337) (16,525)
Basic and diluted net loss
per share................ (0.43) (1.29) $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
----- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities...................................... $ 277 $ 2,541 $ 5,685 $ 6,695 $ 15,629 $46,156
Working capital (deficit)......................... (175) 1,839 4,073 6,183 8,474 33,425
Total assets...................................... 345 3,058 6,759 12,364 25,031 60,719
Long-term obligations, net of current portion..... 233 125 215 3,687 8,092 6,579
Redeemable convertible preferred stock and
warrants........................................ -- 4,903 12,386 17,345 30,129 --
Total stockholders' equity (deficit).............. (353) (3,234) (8,186) (13,710) (26,219) 32,788
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
----- ------- ------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA
Cash, cash equivalents and marketable
securities...................................... $ 277 $ 2,541 $ 5,702 $ 7,721 $ 17,058 $47,404
Working capital (deficit)......................... (175) 1,839 4,292 7,074 8,450 30,156
Total assets...................................... 345 3,058 7,022 14,180 28,622 64,640
Long-term obligations, net of current portion..... 233 125 415 3,687 8,605 8,757
Redeemable convertible preferred stock and
warrants........................................ -- 4,903 12,386 17,345 37,956 8,201
Total stockholders' equity (deficit).............. (353) (3,234) (8,330) (12,503) (33,551) 20,156
</TABLE>
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included elsewhere in this
prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Risk Factors" and elsewhere in this prospectus.
The following discussion of financial condition and results of operations
generally excludes the impact of our merger with Seeker Software except as
otherwise noted and as discussed under the caption "Supplemental Management's
Discussion and Analysis."
OVERVIEW
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. Our EmployeeDesktop
product integrates XMS and CompanyStore through a common user interface and
provides a business portal through which corporate customers and third parties
can deliver other information and services to employees. We believe we are the
leading provider of travel and entertainment expense management solutions, based
on a combination of the number of customers we serve and the features our
solutions provide. Since 1996, we have licensed products to over 225 enterprise
customers for use by over 1,500,000 end users. By automating manual, paper-based
processes, our products reduce processing costs and enable customers to
consolidate purchases with preferred vendors and negotiate vendor discounts.
Through our merger with Seeker Software in June 1999, we added The Seeker
Workplace, a comprehensive suite of Web-based employee and managerial human
resource self-service applications, to our suite of products. We plan to
incorporate The Seeker Workplace into EmployeeDesktop.
We were incorporated in 1993 and commenced operations in fiscal 1994,
initially developing QuickXpense, a retail, shrink-wrapped application that
automated travel and entertainment expense reporting for individuals. We first
shipped QuickXpense in fiscal 1995 and sold QuickXpense through a combination of
retail channels and direct marketing, utilizing a small sales force and no
consulting or implementation staff. In response to inquiries from businesses
seeking to automate the entire travel and entertainment expense reporting
process, including back-office processing and integration to financial systems,
we significantly expanded our product development efforts and released XMS, a
client-server based enterprise travel and entertainment expense management
solution in July 1996. In March 1998, we shipped an Intranet-based version of
XMS. While we continue to sell the client-server version of XMS, since its
release the Intranet-based version has accounted for a majority of XMS license
revenues. We expect to continue to focus product development efforts on the
Intranet-based versions of our products.
On June 30, 1998, we acquired 7Software, a privately-held software company
and the developer of CompanyStore. 7Software was incorporated in May 1997.
7Software was selling the initial version of its product through a single sales
representative at the time we acquired it. In connection with the acquisition,
we issued 708,918 shares of our common stock in exchange for all the outstanding
shares of 7Software. We also converted all of
19
<PAGE> 22
7Software's outstanding options into options to purchase up to 123,921 shares of
our common stock, paid $130,000 to 7Software, and agreed to pay $500,000 to
certain shareholders of 7Software. Our total purchase price was valued at $6.2
million, including direct costs of the acquisition. The total purchase price was
determined by our management and board of directors based on an assessment of
the value of 7Software and as a result of negotiations with 7Software. In
determining the purchase price, we estimated the fair value of our common stock
and our stock options issued in the transaction. We also entered into employment
and bonus agreements with certain officers of 7Software. The acquisition was
recorded under the purchase method of accounting and the results of operations
of 7Software and the fair value of the assets acquired and liabilities assumed
were included in our consolidated financial statements beginning on the
acquisition date. In connection with this acquisition, we recorded $5.2 million
for in-process technology as an expense in the quarter ended June 30, 1998. In
addition, we recorded capitalized technology and other intangible assets of
$960,000 that will be amortized on a straight-line basis over the three years
following the acquisition. See Note 3 of Notes to Consolidated Financial
Statements.
In January 1999 we introduced EmployeeDesktop, which provides a common user
interface and a common technology platform to integrate our current products and
future applications. We plan to offer our products as an Internet-based
enterprise service provider on a per-transaction or subscription basis to
companies seeking to outsource their employee-facing business applications.
On June 1, 1999, we exchanged all of the outstanding capital stock of
Seeker Software for our shares in a merger to be accounted for as a pooling of
interests. In connection with the merger, we issued approximately 3,419,929
shares of common stock in exchange for all of the outstanding capital stock and
warrants of Seeker Software, and we converted all of Seeker Software's
outstanding options into options to purchase up to 680,234 shares of our common
stock. Seeker Software, based in Oakland, California, provides a comprehensive
suite of Web-based employee and managerial human resource self-service
applications called The Seeker Workplace. See "-- Supplemental Management's
Discussion and Analysis."
In connection with the acquisition, we recorded in the third quarter a
charge to operating expenses of approximately $7.9 million for direct and other
acquisition-related costs pertaining to the transaction. Acquisition costs
consisted primarily of financial advisors fees for both companies, attorneys,
accountants, financial printing and other related charges.
We expect that for the foreseeable future the significant majority of our
revenues will continue to be derived from our XMS product line and related
services. Our revenues, which consist of software license revenues and service
revenues, totaled $2.0 million, $8.3 million and $17.2 million in fiscal 1996,
1997 and 1998, respectively, and $13.6 million in the six months ended March 31,
1999. Through June 1996, our revenues were derived from licenses of QuickXpense
and related services. In July 1996, we released XMS. Substantially all of our
revenues since the fourth quarter of fiscal 1996 have been derived from licenses
of XMS and related services. Our product pricing is based on the number of users
or employees of the purchasing enterprise. Service revenues consist of
consulting, customer support and training. See "Risk Factors--Our short
operating history
20
<PAGE> 23
and significant losses make our business difficult to evaluate," "--Our
operating results fluctuate widely and are difficult to predict" and "--We rely
heavily on sales of one product."
We market our software and services primarily through our direct sales
organization in the United States, Canada, the United Kingdom and Australia.
Revenues from XMS licenses and services to customers outside the United States
were insignificant prior to fiscal 1997, and represented approximately $1.3
million and $810,000 in fiscal 1997 and 1998, respectively, and $665,000 in the
six months ended March 31, 1999. 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 our business. See "Risk Factors--There
are risks associated with international operations" and Note 15 of Notes to
Consolidated Financial Statements.
For fiscal 1998 and prior years, we recognized revenues in accordance with
the American Institute of Certified Public Accountants Statement of Position
91-1. Software license revenues are recognized when a non-cancelable license
agreement has been signed with a customer, the software is shipped, no
significant post delivery vendor obligations remain and collection is deemed
probable. Maintenance revenues are recognized ratably over the contract term,
typically one year. Revenues for consulting services are recognized as such
services are performed. Commencing with fiscal 1999, we recognize revenues in
accordance with the American Institute of Certified Public Accountants Statement
of Position 97-2, "Software Revenue Recognition," or SOP 97-2. SOP 97-2 has been
subject to certain modifications and interpretations since its release in
October 1997. Most recently in December 1998, the American Institute of
Certified Public Accountants issued Statement of Position 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions"
which has been adopted by us without any significant effect on revenue
recognition. Further implementation guidelines relating to SOP 97-2 and related
modifications may result in unanticipated changes in our revenue recognition
practices and such changes could affect our future revenues and earnings.
Since inception, we have incurred substantial research and development
costs and have invested heavily in the expansion of our sales, marketing and
professional services organizations to build an infrastructure to support our
long-term growth strategy. The number of our full-time employees increased from
150 as of March 31, 1998, to 281 as of March 31, 1999, representing an increase
of 87%. As a result of investments in our infrastructure, we have incurred net
losses in each fiscal quarter since inception and, as of March 31, 1999, had an
accumulated deficit of $43.3 million. We anticipate that our operating expenses
will increase substantially for the foreseeable future as we expand our product
development, sales and marketing and professional services staff. In addition,
we expect to incur substantial expenses associated with sales personnel,
referral fees and marketing programs in future periods as a result of our joint
marketing agreements with TRS and ADP. Accordingly, we expect to incur net
losses for the foreseeable future.
We have recorded aggregate deferred stock compensation of $861,000.
Deferred stock compensation is amortized over the life of the options, generally
four years. During fiscal 1998, we recorded amortization of deferred stock
compensation of $409,000 and during the six month period ended March 31, 1999,
we recorded amortization of deferred stock compensation of $133,000.
We believe that period-to-period comparisons of our operating results are
not meaningful and should not be relied upon as indicative of future
performance. Our
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<PAGE> 24
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in early stages of development, particularly
companies in new and rapidly evolving markets. There can be no assurance we will
be successful in addressing such risks and difficulties. In addition, although
we have experienced significant revenue growth recently, this trend may not
continue. In addition, we may not achieve or maintain profitability in the
future. See "Risk Factors--Our short operating history and significant losses
make our business difficult to evaluate" and "--Our operating results fluctuate
widely and are difficult to predict."
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data as a
percentage of total revenues for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------- --------------
1996 1997 1998 1998 1999
------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.......................... 87.6% 76.7% 68.2% 68.6% 68.0%
Services.......................... 12.4 23.3 31.8 31.4 32.0
------ ----- ------ ----- -----
Total revenues............ 100.0 100.0 100.0 100.0 100.0
------ ----- ------ ----- -----
Cost of revenues:
Licenses.......................... 19.7 4.8 3.3 2.4 4.2
Services.......................... 42.8 27.4 33.1 31.3 37.8
------ ----- ------ ----- -----
Total cost of revenues.... 62.5 32.2 36.4 33.7 42.0
------ ----- ------ ----- -----
Gross margin........................ 37.5 67.8 63.6 66.3 58.0
------ ----- ------ ----- -----
Operating expenses:
Sales and marketing............... 149.9 71.3 72.0 65.1 76.5
Research and development.......... 91.5 41.1 37.5 32.2 40.5
General and administrative........ 49.2 21.9 27.3 23.6 25.3
Acquired in-process technology.... -- -- 30.3 -- --
------ ----- ------ ----- -----
Total operating
expenses............... 290.6 134.3 167.1 120.9 142.3
------ ----- ------ ----- -----
Loss from operations................ (253.1) (66.5) (103.5) (54.6) (84.3)
Other income (expense), net......... 0.3 (0.2) (1.9) (2.8) (1.5)
------ ----- ------ ----- -----
Net loss............................ (252.8)% (66.7)% (105.4)% (57.4)% (82.8)%
====== ===== ====== ===== =====
</TABLE>
SIX MONTHS ENDED MARCH 31, 1998 AND 1999
Revenues
Our revenues are derived from software licenses and related services. Our
revenues were $7.1 million and $13.6 million for the six months ended March 31,
1998 and 1999, respectively, representing an increase of $6.5 million, or 92%.
International revenues were $329,000 and $665,000 for the six months ended March
31, 1998 and 1999, respectively.
Our license revenues were $4.9 million and $9.2 million for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of $4.3
million, or 90%. License revenues represented 68.6% and 68.0% of total revenues
for the six months ended March 31, 1998 and 1999, respectively. This increase
consisted primarily of increased sales
22
<PAGE> 25
of XMS, and the sales of CompanyStore and EmployeeDesktop in fiscal 1999. This
increase was also due to the sales related to referrals attributable to our
strategic marketing alliance agreements with American Express and ADP.
Our service revenues were $2.2 million and $4.3 million for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of $2.1
million, or 96%. Service revenues represented 31.4% and 32.0% of total revenues
for the six months ended March 31, 1998 and 1999, respectively. This increase
reflected increased licenses of XMS in fiscal 1999 as well as revenues
recognized with respect to maintenance agreements entered into in the current
and prior periods. We believe that the percentage of total revenues represented
by service revenues in prior fiscal periods is not indicative of levels to be
expected in future periods. In addition, we expect that the proportion of our
service revenues to total revenues will fluctuate in the future, depending in
part on our use of third-party consulting and implementation service providers
as well as market acceptance of our outsourced enterprise service provider, or
ESP, solution.
Cost of Revenues
Cost of License Revenues. Our cost of license revenues was $172,000 and
$573,000 for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $401,000, or 233%. This increase was principally a
result of the amortization of capitalized technology and other intangible assets
recorded in connection with the June 1998 acquisition of 7Software, increased
expenses associated with sub-licensing of third-party software due to increased
sales of XMS, and the costs of production, manuals and other media associated
with the release of both EmployeeDesktop 5.0 and CompanyStore 5.0 during the
second quarter of fiscal 1999. Cost of license revenues represented 3.5% and
6.2% of license revenues for the six months ended March 31, 1998 and 1999,
respectively. We expect that the cost of license revenues may increase
significantly as a percentage of total revenues and as a percentage of license
revenues upon the introduction of our outsourced ESP solution and will fluctuate
in the future depending in part on the demand for our current products and our
outsourced ESP solution.
Cost of Service Revenues. Our cost of service revenues was $2.2 million and
$5.1 million for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $2.9 million, or 132%. This increase was primarily
due to an increase in professional service support personnel to manage and
support our growing customer base. Cost of service revenues was 100% and 118% of
service revenues for the six months ended March 31, 1998 and 1999, respectively.
Cost of service revenues as a percentage of service revenues may vary between
periods due to the mix of services provided by us and the resources used to
provide such services.
Costs and Expenses
Sales and Marketing. Our sales and marketing expenses were $4.6 million and
$10.4 million for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $5.8 million, or 126%. This increase primarily
reflects the overall increase in our revenues as well as our continuing
investment in our sales and marketing infrastructure, which included significant
personnel-related costs to recruit and hire sales personnel, trade show
expenses, and sales referral fees under our agreements with our referral
partners, principally American Express and ADP. Sales and marketing expenses
represented 65.1% and 76.5% of total revenues for the six months ended
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<PAGE> 26
March 31, 1998 and 1999, respectively. We believe that a significant increase in
our sales and marketing efforts is essential for us to maintain our market
position and further increase acceptance of our products, especially for
CompanyStore and EmployeeDesktop. Accordingly, we anticipate we will continue to
invest significantly in sales and marketing for the foreseeable future, and
sales and marketing expenses will increase in future periods.
Research and Development. Our research and development expenses were $2.3
million and $5.5 million for the six months ended March 31, 1998 and 1999,
respectively, representing an increase of $3.2 million, or 142%. This increase
was primarily related to the increase in software developers, program management
and quality assurance personnel and outside contractors to support our expanded
product lines and our ongoing product development of XMS, CompanyStore and
EmployeeDesktop. Research and development costs represented 32.2% and 40.5% of
total revenues for the six months ended March 31, 1998 and 1999, respectively.
We believe that a significant increase in our research and development
investment is essential for us to maintain our market position, to continue to
expand our product line and to enhance the common technology platform for our
suite of products. Accordingly, we anticipate that we will continue to invest
significantly in product research and development for the foreseeable future,
and research and development expenses are likely to increase in future periods.
In the development of our new products and enhancements of existing products,
the technological feasibility of the software is not established until
substantially all product development is complete. Historically, 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. Our general and administrative expenses were
$1.7 million and $3.4 million for the six months ended March 31, 1998 and 1999,
respectively, representing an increase of $1.7 million, or 105%. This increase
was primarily the result of additional general and administrative personnel to
support the growth of our business, an increase of outside contractors expense
associated with increased recruiting efforts, and an increase in the allowance
for doubtful accounts related to our increase in revenues. General and
administrative costs represented 23.6% and 25.3% of our total revenues for the
six months ended March 31, 1998 and 1999, respectively. We believe that our
general and administrative expenses will continue to increase as a result of the
continued expansion of our administrative staff and expenses associated with
being a public company, including public reporting expenses, directors' and
officers' liability insurance, investor relations programs and professional
services fees.
Interest Income and Interest Expense. Our interest income was $91,000 and
$847,000 for the six months ended March 31, 1998 and 1999, respectively,
representing an increase of $756,000, or 831%. This increase reflects interest
income earned on the higher cash and short-term investment base as a result of
proceeds we received in December 1998 from our initial public offering of our
common stock. Interest expense was $210,000 and $537,000 for the six months
ended March 31, 1998 and 1999, respectively, representing an increase of
$327,000, or 156%. This increase was due to additional bank borrowings and
higher capital lease obligations during the six months ended March 31, 1999.
Provision for Income Taxes. No provision for federal and state income taxes
has been recorded because we have experienced net losses since inception which
has resulted in deferred tax assets. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance.
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<PAGE> 27
YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
Revenues
Our revenues were $2.0 million, $8.3 million and $17.2 million in fiscal
1996, 1997 and 1998, respectively, representing increases of $6.3 million, or
322%, from fiscal 1996 to fiscal 1997 and $8.9 million, or 107%, from fiscal
1997 to fiscal 1998. We had no customer that accounted for more than 10% of our
revenues in fiscal 1996, 1997 or 1998.
Our license revenues were $1.7 million, $6.3 million and $11.7 million in
fiscal 1996, 1997 and 1998, respectively, representing increases of $4.6
million, or 271%, from fiscal 1996 to fiscal 1997 and $5.4 million, or 84%, from
fiscal 1997 to fiscal 1998. The increase in our license revenues from fiscal
1996 to fiscal 1997 was due to increased market acceptance of the client-server
version of XMS and increases in both the size and productivity of the sales
force. The increase in license revenues from fiscal 1997 to fiscal 1998 was a
result of the continued impact of those same factors, as well as the release of
the Intranet version of XMS, and the strategic marketing alliance agreement
signed with American Express in December 1997. Virtually none of the increase in
revenues was attributable to increased prices.
Our service revenues were $242,000, $1.9 million and $5.5 million in fiscal
1996, 1997 and 1998, respectively, representing increases of $1.7 million from
fiscal 1996 to fiscal 1997 and $3.5 million, or 184%, from fiscal 1997 to fiscal
1998. Prior to fiscal 1997, service revenues consisted primarily of customizing
electronic versions of expense report forms in connection with sales of
QuickXpense. In fiscal 1997 and fiscal 1998, service revenues consisted
primarily of consulting service fees, customer support and, to a lesser extent,
training services, associated with the increasing license revenues during these
periods. Service revenues represented 12.4%, 23.3% and 31.8% of our total
revenues in fiscal 1996, 1997 and 1998, respectively. The increase in absolute
service revenues from fiscal 1997 to fiscal 1998 reflects increasing licenses of
XMS as well as service revenues recognized with respect to licenses entered into
in prior periods.
Cost of Revenues
Cost of License Revenues. Our cost of license revenues was $386,000,
$394,000 and $558,000 in fiscal 1996, 1997 and 1998, respectively, representing
increases of $8,000, or 2%, from fiscal 1996 to fiscal 1997 and $164,000, or
42%, from fiscal 1997 to fiscal 1998. Cost of license revenues remained
relatively constant from fiscal 1996 to fiscal 1997 as a result of a shift in
the mix of revenues from QuickXpense and XMS. The increase from fiscal 1997 to
fiscal 1998 was a result of increased expenses associated with sub-licensing of
third party software due to increased sales of XMS and the costs of production,
manuals and other media associated with the release of the Intranet version of
XMS in March 1998. Cost of license revenues as a percentage of license revenues
was 22.5%, 6.2% and 4.8% for fiscal 1996, 1997 and 1998, respectively. A portion
of the capitalized technology and other intangible assets recorded in connection
with the acquisition of 7Software will be amortized on a straight-line basis
over three years as cost of license revenues.
Cost of Service Revenues. Our cost of service revenues was $839,000, $2.3
million and $5.7 million in fiscal 1996, 1997 and 1998, respectively,
representing increases of $1.4 million, or 170%, from fiscal 1996 to fiscal 1997
and $3.4 million, or 151%, from fiscal 1997 to fiscal 1998. The increase from
fiscal 1996 to fiscal 1997 was a result of hiring and training a consulting
organization to implement XMS and retraining existing personnel, in connection
with the shift in our product line from QuickXpense to XMS. The increase
25
<PAGE> 28
from 1997 to 1998 was primarily due to an increase in professional services
personnel to support our growing XMS customer base. Cost of service revenues as
a percentage of service revenues was 346.7%, 118.0% and 104.1% for fiscal 1996,
1997 and 1998, respectively. The decrease in cost of service revenues as a
percentage of service revenues from fiscal 1996 through fiscal 1998 was
primarily due to economies of scale realized as a result of higher levels of
consulting services activity and increased experience of the professional
services personnel.
Costs and Expenses
Sales and Marketing. Our sales and marketing expenses were $2.9 million,
$5.9 million and $12.4 million in fiscal 1996, 1997 and 1998, respectively,
representing increases of $3.0 million, or 101%, from fiscal 1996 to fiscal 1997
and $6.5 million, or 110%, from fiscal 1997 to fiscal 1998. The increases from
fiscal 1996 through fiscal 1998 primarily reflect our investment in our sales
and marketing infrastructure, which included significant personnel-related
expenses such as salaries, benefits and commissions, recruiting fees, travel and
entertainment expenses, and related costs of hiring sales management, sales
representatives, sales engineers and marketing personnel. Sales and marketing
employees totaled 21, 42 and 66 as of September 30, 1996, 1997 and 1998,
respectively, representing increases of 100% and 57%, respectively. The increase
in sales and marketing expenses from fiscal 1997 to fiscal 1998 also reflected
increased hiring rates to replace and support promoted regional sales managers,
public relations and trade show expenses, and sales referral fees made under our
agreement with our referral partners, principally American Express. Sales and
marketing expenses represented 149.9%, 71.3% and 72.0% of our total revenues for
fiscal 1996, 1997 and 1998, respectively. The decreases in sales and marketing
expenses as a percentage of total revenues from fiscal 1996 through 1998
primarily reflects the more rapid growth of revenues compared to the growth of
sales and marketing expenses in this period due to the increase in service
revenues as a percentage of total revenues and a maturing sales force.
Research and Development. Our research and development expenses were $1.8
million, $3.4 million and $6.4 million in fiscal 1996, 1997 and 1998,
respectively, representing increases of $1.6 million, or 90%, from fiscal 1996
to fiscal 1997 and $3.0 million, or 89% from fiscal 1997 to fiscal 1998. The
increases from fiscal 1996 through fiscal 1998 were primarily related to the
increase in the number of software developers and quality assurance personnel
and outside contractors to support our product development and testing
activities related to the development and release of both the client-server and
Intranet versions of XMS. Our research and development employees totaled 22, 38
and 64 as of September 30, 1996, 1997 and 1998, respectively, representing
increases of 73% and 68%, respectively. Research and development costs
represented 91.5%, 41.1% and 37.5% of our total revenues in fiscal 1996, 1997
and 1998, respectively.
General and Administrative. Our general and administrative expenses were
$963,000, $1.8 million and $4.7 million in fiscal 1996, 1997 and 1998,
respectively, representing increases of $852,000, or 88%, from fiscal 1996 to
1997 and $2.9 million, or 158%, from fiscal 1997 to 1998. The increases from
fiscal 1996 through 1998 were primarily the result of additional finance,
executive and administrative personnel to support the growth of our business
during these periods. In addition to increased compensation and related
expenses, the increase in general and administrative expenses from fiscal 1997
to fiscal 1998 reflects an increase in the allowance for doubtful accounts
related to our increase in revenues, and stock compensation expense, during the
period. During fiscal 1998, we recorded deferred
26
<PAGE> 29
stock compensation for the differences between the exercise prices and the
deemed fair values of our common stock with respect to certain options, and
recorded amortization of deferred stock compensation of $409,000. General and
administrative costs represented 49.2%, 21.9% and 27.3% of our total revenues in
fiscal 1996, 1997 and 1998, respectively.
Income Taxes. As of September 30, 1998, we had net operating loss
carryforwards for federal and state income tax reporting purposes of
approximately $19.1 million and tax credit carryforwards of $262,000, which
expire at various dates from 2009 to 2013. The U.S. tax laws contain provisions
that limit the use in any future period of net operating loss and credit
carryforwards upon the occurrence of certain events, including a significant
change in ownership interests. We had deferred tax assets, including our net
operating loss carryforwards and tax credits, totaling approximately $8.8
million as of September 30, 1998. A valuation allowance has been recorded for
the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance. See Note 8 of Notes to Consolidated Financial
Statements.
QUARTERLY RESULTS OF OPERATIONS
Our quarterly operating results have fluctuated significantly in the past,
and will continue to fluctuate in the future, as a result of a number of
factors, many of which are outside our control. These factors include:
- demand for our products and services;
- size and timing of specific sales;
- delays in customer orders due to customers' Year 2000 priorities;
- level of product and price competition;
- timing and market acceptance of new product introductions and product
enhancements by us and our competitors;
- delays in our new product introductions and enhancements;
- changes in pricing policies by us or our competitors;
- our ability to hire, train and retain sales and consulting personnel;
- the length of our sales cycle;
- our ability to establish and maintain relationships with third-party
implementation services providers and strategic partners;
- the mix of products and services sold, including an anticipated shift to
providing our solutions as an ESP;
- mix of distribution channels through which products are sold;
- changes in our sales force incentives;
- software defects and other product quality problems;
- personnel changes;
- changes in our strategy, including the anticipated development of an ESP
strategy; and
- budgeting cycles of our customers.
We have in the past experienced delays in the planned release dates of our
new software products or upgrades, and have discovered software defects in our
new products after their introduction. Our new products or upgrades may not be
released according to
27
<PAGE> 30
schedule, or when released may contain defects. Either of these situations could
result in adverse publicity, loss of revenues, delay in market acceptance or
claims by customers brought against us, any of which could harm our business. In
addition, the timing of individual sales has been difficult for us to predict,
and large individual sales have, in some cases, occurred in quarters subsequent
to those anticipated by us. The loss or deferral of one or more significant
sales may harm our quarterly operating results.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily through sales of
equity securities and to a lesser degree the use of long-term debt and equipment
leases. Prior to our initial public offering, we had raised approximately $29.7
million, net of offering costs, from the issuance of preferred stock, and
approximately $8.0 million from the issuance of long-term debt, and had
financial equipment purchases totaling approximately $3.6 million.
In December 1998, we completed our initial public offering of common stock
and received approximately $37.4 million in cash, net of underwriting discounts,
commissions and other offering costs. In April 1999, we completed a follow-on
offering and received approximately $82.5 million in cash, net of underwriting
discounts, commissions and other offering costs. Our sources of liquidity as of
March 31, 1999 consisted principally of cash and cash equivalents and
investments in corporate bonds, commercial paper and money market securities,
all totaling $46.2 million, and approximately $4.0 million of available
borrowings under a line of credit.
Net cash used in operating activities was $4.1 million, $6.6 million and
$8.5 million in fiscal 1996, 1997 and 1998, respectively, and $8.3 million in
the six months ended March 31, 1999. For such periods, net cash used by
operating activities was primarily a result of funding ongoing operations.
Since 1995, our investing activities have consisted of purchases of
property and equipment. Capital expenditures, including those under capital
leases, totaled $420,000, $1.0 million and $1.6 million in fiscal 1996, 1997 and
1998, respectively, and $1.1 million in the six months ended March 31, 1999. We
finance the acquisition of property and equipment, primarily computer hardware
and software for our increasing employee base as well as for our management
information systems, primarily through capital leases. We anticipate that we
will experience an increase in our capital expenditures and lease commitments
consistent with our anticipated growth in operations, infrastructure and
personnel. We do not expect to incur significant costs to make our products or
internal information systems Year 2000 compliant because we believe such
products and information systems are designed to function properly through and
beyond the year 2000. See "Risk Factors--Year 2000 considerations among our
customers and potential customers may reduce our sales" and "--Year 2000
compliance costs are difficult to assess."
Our financing activities provided $7.7 million, $8.6 million and $17.6
million in fiscal 1996, 1997 and 1998, respectively, and $38.9 million in the
six months ended March 31, 1999. In fiscal 1996, cash provided by financing
activities consisted primarily of $7.5 million received in connection with the
sale of Series C redeemable convertible preferred stock and $563,000 in proceeds
from long-term debt borrowings, partially offset by principal payments on
long-term debt totaling $380,000. In fiscal 1997, cash provided by financing
activities consisted primarily of $4.6 million received in connection with the
sale of Series D redeemable convertible preferred stock, $3.1 million in
proceeds from long-term debt, and $1.9 million in proceeds from sales leaseback
transactions and capital
28
<PAGE> 31
lease financing, offset in part by principal payments on long-term debt of
$925,000. In fiscal 1998, cash provided by financing activities consisted
primarily of $12.7 million received in connection with the sale of Series E
redeemable convertible preferred stock and $5.5 million in proceeds from
long-term borrowings, offset by $335,000 in principal payments on long-term debt
and $500,000 in payments on capital lease obligations. In the six months ended
March 31, 1999, cash provided by financing activities consisted primarily of
$37.4 million from our initial public offering of common stock and $2.6 million
from the exercise of warrants offset in part by principal payments on long-term
debt of $572,000 and payments on capital lease obligations of $513,000.
Prior to March 15, 1999, we had a line of credit with a bank for $2.0
million. On March 15, 1999, the credit facility was amended to increase the
borrowing amount to $4.0 million and to extend the expiration date to March
2000. This $4.0 million line of credit bears interest at the lending bank's
prime rate plus 1.5%. Borrowings are limited to the lesser of 80% of eligible
accounts receivable or $4.0 million and are secured by substantially all of our
non-leased assets. As of March 31, 1999, we had not borrowed under the line of
credit; however, there were approximately $500,000 in standby letters of credit
outstanding. Approximately $3.5 million remains available under this line as of
March 31, 1999.
In September 1997, we entered into a $1.0 million senior term loan facility
with the same bank with which we have the line of credit, pursuant to the terms
of a security and loan agreement. In April 1998, the loan agreement was amended
to allow for additional borrowings up to a total of $3.0 million. The facility,
which bears interest at the lending bank's prime rate less 1.0%, matures on
February 15, 2001. Payments were interest only through February 15, 1999, at
which time we started to pay off the facility in 24 equal monthly principal
payments plus interest. The loan agreement contains certain financial
restrictions and covenants, with which we are currently in compliance. As of
March 31, 1999, the outstanding indebtedness under the loan agreement was $2.9
million.
In July 1997, we entered into a subordinated loan and security agreement
with an equipment lessor in the principal amount of $1.5 million which bears
interest at an annual rate of 8.5%. In May 1998, the subordinated loan agreement
was amended to allow for additional borrowings of $5.0 million bearing interest
at an annual rate of 11% on the first $3.5 million and 12.5% on the remaining
$1.5 million, which expired on December 31, 1998. The notes are due in varying
monthly installments through April 2002, and contain certain restrictions and
covenants, with which we are currently in compliance. As of March 31, 1999, the
outstanding indebtedness under the subordinated loan agreement was $4.2 million.
On August 11, 1998, we issued a warrant to TRS to purchase shares of our
Series E preferred stock which, in connection with our initial public offering
in December 1998, converted into a warrant to purchase 2,325,000 shares of our
common stock. In December 1998, TRS partially exercised the warrant to purchase
225,000 shares at $11.625 per share. Additionally, under the warrant, TRS may
acquire 700,000 shares at any time on or before October 15, 1999 at a cash
purchase price of $33.75 per share, 700,000 additional shares at any time on or
before January 15, 2001 at a cash purchase price of $50.625 per share, and
700,000 shares at any time on or before January 15, 2002 at a cash purchase
price of $85.00 per share.
We currently anticipate that for the foreseeable future we will continue to
experience significant growth in our operating expenses related to augmenting
our sales and marketing
29
<PAGE> 32
operations, increasing research and development and extending our professional
service capabilities. We also anticipate developing new distribution channels,
improving our operational and financial systems, entering new markets for our
products and services and 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. We may also incur
costs in the future in integrating the business of Seeker Software with our
business. We believe that our existing cash and cash equivalents and available
bank borrowings, will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
Thereafter, we may require additional funds to support our working capital
requirements or for other purposes and may seek to raise such additional funds
through private or public sales of securities, strategic relationships, bank
debt, financing under leasing arrangements, or otherwise. If additional funds
are raised through the issuance of equity securities, stockholders may
experience additional dilution, or such equity securities may have rights,
preferences, or privileges senior to those of the holders of our common stock.
There can be no assurance that additional financing will be available on
acceptable terms, if at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results.
Qualitative and Quantitative Disclosures about Market Risk
Our operating results are sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of its cash equivalents are
invested in short-term debt instruments while certain portions of its
outstanding long-term debt bear interest at variable rates.
SUPPLEMENTAL MANAGEMENT'S DISCUSSION AND ANALYSIS
On June 1, 1999, pursuant to an Agreement and Plan of Reorganization dated
May 26, 1999 among the Company, ConStar Acquisition Corp. and Seeker Software,
we acquired all of the outstanding capital stock of Seeker Software. We issued
3,419,929 shares of common stock in exchange for all outstanding preferred
stock, common stock and warrants to purchase preferred stock of Seeker Software,
and we assumed all outstanding options of Seeker Software which resulted in the
issuance of options to purchase up to 680,234 shares of our common stock. The
supplemental consolidated financial information has been prepared to reflect the
restatement of all periods presented to include the accounts of Seeker Software
and Concur after accounting for the merger with Seeker Software as a pooling of
interests. The historical results of the pooled entities have been combined and
presented as supplemental financial statements which reflect each of their
actual operating cost structures and, as a result, do not necessarily reflect
the cost structure of the newly combined entity. The historical results do not
purport to be indicative of results, which may occur in the future. Prior to the
acquisition, Seeker Software had a fiscal year-end of December 31.
Seeker Software develops, markets and sells Web-based self-service human
resources workplace solution applications which allow employees within an
organization to access update and share information from their desktop
computers. Seeker Software's product is referred to as The Seeker Workplace.
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The supplemental consolidated financial statements have been prepared by
combining our consolidated balance sheets as of September 30, 1997 and 1998 and
the consolidated statements of operations, shareholder equity and cash flows for
each of the three years in the period ended September 30, 1998 with the Seeker
Software financial statements as of the same periods. The supplemental
consolidated balance sheet as of March 31, 1999 and the supplemental
consolidated statements of operations, stockholders' equity and cash flows, for
the six month periods ended March 31, 1998 and 1999 reflect the combined results
of each company for each such period. We have presented the supplemental
consolidated financial statements to comply with the regulations of the
Securities and Exchange Commission. These supplemental consolidated financial
statements will become the historical financial statements of the Company after
financial statements covering the date of consummation of the merger are issued.
The supplemental consolidated results of operations are impacted primarily
by our operations as discussed in the preceding sections. The supplemental
consolidated results of operations were impacted by the operations of Seeker
Software by the following results:
Revenues
Seeker Software's revenues were $3.0 million in the year ended September
30, 1998, of which $1.5 million was attributable to license fees and $1.5
million was attributable to service revenues. Total fiscal 1998 revenues
represent an increase of 409% in total revenues as compared to $733,000 of total
revenues in fiscal 1997. Seeker Software's revenues in fiscal 1998 and 1997
represent 15% and 8% of supplemental consolidated revenues, respectively. The
increase in fiscal 1998 revenues represents increased market acceptance of The
Seeker Workplace, which was initially released in April 1998. As Seeker Software
commenced operations in March 1996, revenues attributable to Seeker Software's
applications were relatively insignificant to the supplemental consolidated
revenues in 1996.
Cost of Revenues
Seeker Software's cost of revenues increased from $37,000 in fiscal year
ended September 30, 1996 to $452,000 in fiscal 1997 and to $2.4 million in
fiscal 1998. The related gross margin percentage declined from 38% in fiscal
1997 to 20% in fiscal 1998. The increase in the cost of revenues from fiscal
1996 to fiscal 1998 was primarily attributable to an increase in the number of
personnel performing consulting and training services. The impact of Seeker
Software's gross margins on supplemental consolidated gross margins may
fluctuate in future periods due to the potential for significant variations in
the mix between license fees and service revenues, however, such variations will
be mitigated by the more significant operations of Concur. For fiscal 1998,
Seeker cost of revenues represented 28% of supplemental consolidated cost of
revenues.
Operating Expenses
Operating expenses attributable to Seeker Software's operations represent
2%, 18%, 23% and 25% of supplemental consolidated operating costs in fiscal
1996, 1997, 1998 and the six months ended March 31, 1999, respectively. Seeker
Software's operating costs increased from $125,000 in fiscal 1996 to $2.4
million in fiscal 1997 and $8.8 million in fiscal 1998. These increases are
primarily due to increases in total personnel which was 8 at September 30, 1996,
39 at September 30, 1997, 85 at September 30, 1998, and 96 at March 31, 1999.
Also included in operating expenses is stock compensation related to
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<PAGE> 34
stock option grants during fiscal 1998 and fiscal 1999. Stock compensation
expense recognized in fiscal 1998 and during the six months ended March 31, 1999
was $12,000 and $321,000, respectively.
Liquidity
Since inception, Seeker Software has been financed primarily through the
issuance of preferred stock, common stock, long-term debt and notes payable to
shareholders. At March 31, 1999, liabilities exceeded assets by $4.4 million. As
described in Note 19 to the Supplemental Consolidated Financial Statements, in
April 1999, Seeker Software issued 972,944 shares of redeemable convertible
preferred stock in exchange $9,434,000 and the conversion notes payable to
shareholders and related accrued interest aggregating $2,566,000. In connection
with our acquisition of Seeker Software in June 1998, all capital stock of
Seeker Software, including the redeemable convertible preferred stock, was
exchanged for our common stock.
YEAR 2000 COMPLIANCE
Background of Year 2000 Issues
Many currently installed computer systems and software products are unable
to distinguish between twentieth century dates and twenty-first century dates
because such systems were developed using two digits rather than four to
determine the applicable year. For example, computer programs that have
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This error could result in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As a result, many companies' software and
computer systems may need to be upgraded or replaced to comply with such "Year
2000" requirements.
State of Readiness
Our business is dependent on the operation of numerous systems that could
potentially be affected by Year 2000-related problems. Those systems include,
among others:
- hardware and software systems used by us to deliver products and services
to customers, including our proprietary software systems as well as
software supplied by third parties;
- communications networks such as the Internet and private intranets;
- the internal systems of our customers and suppliers;
- software products sold to customers;
- the hardware and software systems used internally by us in the management
of our business; and
- non-information technology systems and services, such as power, telephone
systems and building systems.
Our Year 2000 Compliance Task Force, composed of high-level representatives
of the product, management and information systems and legal departments, is
formulating and
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implementing the Year 2000 readiness of our operations, products and
relationships. The phases of our Year 2000 program include:
(1) assignment of responsibility for external issues, such as products
developed by us and licensed to customers, and internal issues, such as
systems, facilities, equipment, software and legal audit;
(2) inventory of all aspects of our operations and relationships subject to
the Year 2000 problem;
(3) comprehensive analysis, including impact analysis and cost analysis, of
our Year 2000 readiness; and
(4) remediation and subsequent testing.
We have tested our software products and have determined that the currently
shipping versions of all of our software products are Year 2000 compliant,
consistent with the Year 2000 compliance specifications established by the
British Standards Institute's DISC PD-2001. Some product versions no longer
shipping had Year 2000 issues that have already been resolved with patches or
updates provided at no charge to authorized licensees. Some earlier product
versions no longer shipping that have Year 2000 issues will be patched or
updated timely with no charge to authorized licensees. Some remaining older
versions not currently shipping may not be supported beyond December 1999;
however, those customers will be timely notified and will be timely provided a
free upgrade to at least the next current Year 2000 compliant version.
We are evaluating the Year 2000 compliance of our products currently under
development. We plan to continue to test our current and future products by
applying our Year 2000 compliance criteria and to include any necessary
modifications the compliance process reveals. We have completed Phases 1 and 2
of our program. We anticipate completing Phase 3 by July 1999 and Phase 4 by
August 1999.
Risks Related to Year 2000 Issues
Our products are generally integrated into enterprise systems involving
sophisticated third-party hardware and software products which may not
themselves be Year 2000 compliant. In addition, in some cases even certain
earlier Year 2000 compliant versions of our software, while compatible with
earlier, non-Year 2000 compliant versions of other software products with which
our software was integrated, are not compatible with certain more recent Year
2000 compliant versions of such other third-party software providers. While we
do not believe we have any obligation under this circumstance (because customers
using our older versions of our software would have to upgrade in order to be
compatible with newer versions of third parties' products) there can be no
assurance that we will not be subject to claims or complaints by our customers.
We sell our products to companies in a variety of industries, each of which is
experiencing different Year 2000 compliance issues. Customer difficulties with
Year 2000 issues might require us to devote additional resources to resolve
their underlying problems. However, our Year 2000 compliance efforts cannot
assure the success of our customers in dealing with their Year 2000 issues.
Although we have not been a party to any litigation or arbitration
proceeding to date involving our products or services and related to Year 2000
compliance issues, there can be no assurance that we will not in the future be
required to defend our products or services in such proceedings, or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000-related disputes, regardless of the merits of
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<PAGE> 36
such disputes, and any liability for Year 2000-related damages, including
consequential damages, would have a material adverse effect on our business,
results of operations and financial condition. In addition, we believe that
purchasing patterns of customers and potential customers may be affected by Year
2000 issues as companies expend significant resources to correct or upgrade
their current software systems for Year 2000 compliance or defer additional
software purchases until after 2000. As a result, some customers and potential
customers may have more limited budgets available to purchase software products
such as those offered by us, and others may choose to refrain from changes in
their information technology environment until after 2000. To the extent Year
2000 issues cause significant delay in, or cancellation of, decisions to
purchase our products or services, our business would be materially adversely
affected.
We are also reviewing our internal management information and other systems
in order to identify any products, services or systems that are not Year 2000
compliant, in order to take corrective action. To assist us in this initiative,
we have retained the services of a Year 2000 consulting firm. To date, we have
not encountered any material Year 2000 problems with our computer systems or any
other equipment that might be subject to such problems. Our plan for the Year
2000 calls for compliance verification of external vendors supplying software
and information systems to us and communication with significant suppliers to
determine the readiness of third parties' remediation of their own Year 2000
issues. As part of our assessment, we are evaluating the level of validation we
will require of third parties to ensure their Year 2000 compliance and are in
process of circulating letters to our suppliers and other business partners
requesting their Year 2000 compliance status. We are taking steps with respect
to new supplier agreements to ensure that the suppliers' products and internal
systems are Year 2000 compliant. In the event that any such third parties'
products, services or systems do not meet the Year 2000 requirements on a timely
basis, our business could be materially adversely affected. We could also
experience material adverse effects on our business if we fail to identify all
Year 2000 dependencies in our systems and in the systems of our suppliers,
customers and financial institutions. Therefore, we plan to develop contingency
plans for continuing operations in the event such problems arise, but do not
presently have a contingency plan for handling Year 2000 problems that are not
detected and corrected prior to their occurrence. We have not completed our Year
2000 investigation, and there can be no assurance that the total cost of Year
2000 compliance will not be material to our business. We may not identify and
remediate all significant Year 2000 problems on a timely basis, remediation
efforts may involve significant time and expense, and unremediated problems may
have a material adverse effect on our business. See "Risk Factors--Year 2000
considerations among our customers and potential customers may reduce our sales"
and "--Year 2000 compliance costs are difficult to assess."
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BUSINESS
The following description contains forward-looking statements that involve
risks and uncertainties. Our actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that may cause such
results to differ include those discussed in "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
OVERVIEW
We are a leading provider of Intranet-based employee-facing software
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. Our
Xpense Management Solution, or XMS, and CompanyStore products automate the
preparation, approval, processing and data analysis of travel and entertainment
expense reports and front-office procurement requisitions. Our EmployeeDesktop
product integrates XMS and CompanyStore through a common user interface and
provides a business portal through which corporate customers and third parties
can deliver other information and services to employees. We believe we are the
leading provider of travel and entertainment expense management solutions, based
on a combination of the number of customers we serve and the features our
solutions provide. Through our acquisition of Seeker Software in June 1999, we
added The Seeker Workplace, a comprehensive suite of Web-based employee and
managerial human resource self-service applications, to our suite of products.
We plan to incorporate The Seeker Workplace into EmployeeDesktop and to provide
a comprehensive automation and transaction processing suite, including travel
expense management, front-office procurement and human resources self-service
solutions, fully integrated into a single business portal. Since 1996, we have
licensed our products to over 225 enterprise customers for use by over 1,500,000
end users. By automating manual, paper-based processes, our products reduce
processing costs and enable customers to consolidate purchases with preferred
vendors and negotiate vendor discounts.
PRODUCTS AND TECHNOLOGY
Our current product line consists of:
- EmployeeDesktop, which provides a common user interface to integrate our
current products;
- XMS, our market-leading travel and entertainment expense management
application;
- CompanyStore, our easy-to-use front-office procurement application; and
- The Seeker Workplace, our Web-based employee and manager self-service
applications focused on human resources.
Substantially all revenues to date have been derived from XMS and related
services. We shipped an enterprise-wide, client-server based version of XMS in
July 1996, and shipped the Intranet-based version of XMS in March 1998. For
customers without corporate Intranets or for users not connected to the
Internet, we provide a disconnected Windows-based version of XMS, which is
interoperable with the Intranet version of XMS. Since 1996, we have licensed our
products to over 225 companies for use by over 1,500,000 end users. We generally
offer licenses for our software based on the number of
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users or employees at a given enterprise. The typical order size for our
products and services ranges from $50,000 to $500,000, with certain transactions
that have been greater than $1 million.
EmployeeDesktop
EmployeeDesktop provides a common user interface to integrate XMS and
CompanyStore, and provides a business portal through which corporate customers
and third parties can deliver other information and services to employees. We
plan to incorporate our newly acquired The Seeker Workplace into
EmployeeDesktop. EmployeeDesktop improves employee productivity by integrating
XMS and CompanyStore with common features, such as the user interface,
applications icons, approval reminders, status updates and passwords. Features
include frequently asked questions and helpful tips about the applications. It
enables IT personnel to easily administer employee-facing applications that are
integrated into EmployeeDesktop, because all the data is captured in a central
database, eliminating the need to support, maintain and manage multiple servers
and software programs. In addition, IT personnel can deploy the applications in
our suite, and deliver updates to those applications from a central location. We
plan to offer application programming interfaces to allow third party vendors
and customers to integrate other employee-facing applications into the
EmployeeDesktop framework.
Xpense Management Solution
XMS automates the travel and entertainment expense management process,
including report preparation, approval, processing and data analysis. Version
5.0 of XMS enables integration with EmployeeDesktop.
Report Preparation. XMS includes a number of features that facilitate
report preparation for the end-user. The application uses corporate charge or
credit card information to prepopulate a user's expense report with transaction
data covering a variety of the information required for the expense report,
including transaction date, type of expense, vendor, location, method of
payment, currency amount and foreign currency conversion. Using a graphical user
interface, the employee supplies additional expense-related information by using
pull-down menus. To eliminate the task of sorting receipts, XMS allows the user
to enter data in any order. The HotelXpert feature of the program automates the
complicated process of itemizing hotel receipts. With each use of XMS, the
application retains commonly incurred expense information and uses this
information to help complete the next expense report. Other ease-of-use features
include simple "checkbook" style input screens, the ability to create
"attendees" lists, mileage reimbursement tracking and automatic flagging of
non-compliant and incomplete entries.
Report Approval. XMS allows each enterprise to determine how expense
reports should be processed, whether by submission to a manager for approval
before processing or by submission to the accounting department for immediate
review and payment. Once the report is submitted, the approver receives an
e-mail message containing an Intranet link to XMS, where all reports awaiting
approval are listed. XMS can be configured to route the report for approval
based on cost center, dollar limit or other criteria. Items that do not comply
with corporate policy can be automatically flagged for review, allowing
approvers to focus on problematic items. Approvers can reject individual line
items, while allowing the rest of the report to continue in the approval
process. Once approved, the report is
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automatically forwarded to the next phase in the process or to the enterprise's
accounting department, and the user is notified of the action.
Report Processing. XMS streamlines back-office processing of expense
reports in a number of ways. Because all expense reports are prepared
electronically, the processing department no longer needs to check the
arithmetic of each report manually. Moreover, businesses can greatly reduce the
time spent auditing reports by choosing to audit only those reports flagged by
XMS as not compliant with corporate travel and entertainment expense policies.
In addition, XMS reduces the number of status inquiries between employees and
processing departments by automatically updating the status of reports in the
database, and alerting employees via e-mail to the status of their reports. XMS
allows significant time savings by automatically posting expense report
information to the enterprise's ERP or accounting package, eliminating the
manual re-entry of these data. XMS further simplifies processing by producing
bar-coded receipt submission cover pages to validate delivery of receipts
associated with expense reports. XMS also helps companies claim reimbursement of
tax credits by tracking VAT, GST and other international taxes.
Data Analysis. XMS utilizes business intelligence software to analyze
expense data. This information can be presented graphically in various display
formats and allows travel managers to determine total spending according to
vendor, location or other user-defined criteria. Informed by this data, managers
can analyze trends and determine methods for controlling costs or negotiating
more favorable terms with vendors. Managers can also analyze the data to monitor
compliance with corporate travel policies and determine if policy modifications
are appropriate.
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The following table describes significant features and potential benefits
of XMS:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------
REPORT PREPARATION
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Prepopulates report with corporate credit Speeds report preparation time
card transactions
Retains commonly incurred expense Reduces input mistakes
information
Simplifies receipt entry Reduces queries and dependence on
Itemizes hotel receipts automatically accounting department
Prevents submission of incomplete reports
Built-in attendee lists, mileage Ensures submission of all applicable
reimbursement tracking, foreign currency expenses
translation
Integrates with American Express online Increases employee use of corporate credit
travel booking application card
- ------------------------------------------------------------------------------------------
REPORT APPROVAL
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Automatic routing of reports Speeds approval time
Flags non-compliant expenses Increases compliance with corporate
policies
Line-item approval of reimbursement data
Facilitates more efficient use of
Approver notification management resources
- ------------------------------------------------------------------------------------------
REPORT PROCESSING
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Integrates travel expense data with Facilitates more efficient use of
back-office systems processing resources
Flags non-compliant expenses Speeds report processing and employee
reimbursement
Provides automatic status updates
Reduces human error
Bar-codes receipt submissions
Reduces queries and dependence on
Tracks VAT, GST and other foreign taxes accounting department
Verifies arithmetic Identifies tax credits
- ------------------------------------------------------------------------------------------
DATA ANALYSIS
- ------------------------------------------------------------------------------------------
FEATURES BENEFITS
Presents travel expense data graphically Supplies data needed for vendor rate
negotiation
Allows customer to sort data by employee,
vendor and type of expense Facilitates vendor consolidation
Drill-down capability Identifies trends and problem areas
Allows monitoring of compliance with
vendor commitments and corporate travel
policies
- ------------------------------------------------------------------------------------------
</TABLE>
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CompanyStore
CompanyStore automates the front-office procurement process, including
order preparation, approval, processing and data analysis. CompanyStore has been
licensed to five customers. Version 5.0 of CompanyStore enables integration with
EmployeeDesktop and adds new features and functionality. See "Risk
Factors--Future acquisitions might harm our business" and "--Our expansion into
the front-office procurement application and human resource self-service
application markets is risky."
Order Preparation. CompanyStore utilizes a customer-specific electronic
catalog of preferred vendors and commonly requested goods and services such as
office supplies, computers and other equipment. Using a graphical user
interface, requisitioners browse the catalog to select and order items and place
them in an electronic "shopping basket." Catalog materials can be updated by
either the enterprise or the vendor. CompanyStore contains links to vendor Web
sites, allowing the requisitioner to obtain detailed product information. To
make the ordering process easier, CompanyStore retains information about the
user, including name, employee identification, shipping address, accounting
information and frequently ordered products. To reduce delays and unnecessary
processing iterations, CompanyStore prevents submission of incomplete orders.
Order Approval. CompanyStore allows an enterprise to determine how
requisitions should be processed, whether by submission to a manager for
approval before processing or by submission to the purchasing department for
immediate processing. Once the order is submitted, an e-mail notification of the
order is automatically sent to the specified approver. The e-mail contains a
link to an "approval" Web page, which lists all purchase requisitions that are
awaiting approval by the particular approver. Using the Web page, the approver
specifies which requisitions to approve in each order. CompanyStore enables the
customer to configure approval rules based on cost center, dollar limit,
material type or other criteria. CompanyStore enables authorization of orders
based on digital signatures and prohibits the release of orders without required
approval.
Order Processing. CompanyStore streamlines processing of front-office
requisitions in a number of ways. The customer's purchasing department selects
the items and vendors to be included in the CompanyStore electronic catalog.
After approval, orders are sent to the purchasing department to be processed and
progress reports are delivered to the requisitioner automatically, reducing the
number of status inquiries between the requisitioner and the purchasing
department. CompanyStore can be integrated into the customer's enterprise
resource planning application package so that the order can be entered into the
purchasing system automatically, allowing significant time savings. CompanyStore
allows approved requisitions to be sent directly to vendors via fax, e-mail or
electronic data interchange.
Data Analysis. CompanyStore consolidates purchasing data, allowing managers
to determine spending according to cost center, time period, employee and
supplier. This data allows managers to determine how best to control costs,
negotiate more favorable supplier arrangements and consolidate vendors. Managers
can analyze the data to monitor compliance with corporate purchasing policies
and vendor commitments.
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The following table describes significant features and potential benefits
of CompanyStore:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
ORDER PREPARATION
- -------------------------------------------
FEATURES BENEFITS
Simple point-and-click ordering Speeds order time
Customer-specific electronic catalog Directs orders to preferred vendors
stores preferred vendors and commonly
requested goods and services Reduces errors
Retains user information, including Detailed product descriptions available
shipping information, frequently ordered
products and purchasing card information Reduces queries and dependence on
purchasing department
Prevents submission of incomplete orders
Internet links to vendor Web sites
- ----------------------------------------------------------------------------------------
ORDER APPROVAL
- -------------------------------------------
FEATURES BENEFITS
Automatically e-mails order to designated Speeds approval time
approver
Reduces errors
Digital signatures for order authorization
Decreases purchasing in violation of
Automated approval controls based on user company procedures
signing authority
Facilitates more efficient use of
management resources
Increases compliance with corporate
policies
- ----------------------------------------------------------------------------------------
ORDER PROCESSING
- -------------------------------------------
FEATURES BENEFITS
Integrates purchasing data with Speeds fulfillment time
back-office systems
Reduces lost orders
Sends approved requisitions directly to
vendor or to enterprise's purchasing Facilitates more efficient use of
system processing resources
Updates requisitioner on order progress Improves consistency of items ordered
Purchasing department determines items Allows vendor consolidation
available in catalog
Prohibits release of orders without
required approval
- ----------------------------------------------------------------------------------------
DATA ANALYSIS
- -------------------------------------------
FEATURES BENEFITS
Allows customers to track spending by Identifies trends and problem areas
multiple factors, including cost center,
time period, employee and supplier Supplies data needed for vendor rate
negotiation
Allows monitoring of compliance with vendor
commitments
Facilitates vendor consolidation
- -------------------------------------------
</TABLE>
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The Seeker Workplace
The Seeker Workplace automates employee and managerial human resources
processes for enterprise customers. It allows employees and managers to access
and update information easily, and to process everyday human resources
transactions quickly. The Seeker Workplace employee self-service applications
are Seeker Core, Payroll and Paid-Time-Off, and Benefits Open Enrollment and
Modeling. Its managerial self-service applications are Events@Work and
Compensation and Salary Management. The Seeker Workplace allows employees and
managers to conduct many everyday transactions themselves, without the
involvement of human resources personnel. This reduces administrative costs and
allows the human resources staff to maximize employee productivity and
efficiency.
Employee Self-Service Applications. The Seeker Workplace allows employees
to review and modify information in the human resources, payroll and benefits
management systems. Seeker Core, which is a foundation component of The Seeker
Workplace, provides security, navigation, search, display and maintenance
capabilities, and allows employees to access information about company
personnel. The Seeker Workplace's Payroll and Paid-Time-Off application allows
employees to access their payroll and W-4 data, view their pay stubs and perform
updates to deductions, withholdings and direct deposit data. The Seeker
Workplace's Benefits Enrollment and Modeling application allows employees to
access information about the employer's benefit plans, and to complete
enrollment forms, 24 hours a day, seven days a week. The Seeker Workplace's
employee self-service applications are "role based" in that each user's access
rights, views and workflow are tailored to that user's role in the organization.
Managerial Self-Service Applications. The Seeker Workplace also automates
manager-centric processes. The Seeker Workplace's Events@Work provides managers
the convenience of a single access point to manage planning and day-to-day
transactions such as performance reviews, salary planning, position management
(interdepartmental transfers, salary changes, promotions and terminations). The
Seeker Workplace's Compensation and Salary Management application also provides
managers with easy access to decision-critical information such as compensation
data and department compensation plans, modeling and approvals. These
applications reduce the time that managers must spend on routine administrative
functions, allowing them to spend more time on core business matters. Like The
Seeker Workplace employee self-service applications, The Seeker Workplace's
managerial self-service applications are role based.
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The following table describes significant features and potential benefits
of applications of The Seeker Workplace:
<TABLE>
<S> <C>
- ----------------------------------------------------------------------------------------
EMPLOYEE SELF-SERVICE APPLICATIONS
- -------------------------------------------
FEATURES BENEFITS
Security, navigation, search, display and Speeds processing time
maintenance capabilities
Timely access to up-to-date information,
Access to information about company reducing errors from using obsolete
personnel information
Facilitates name and address changes Reduces queries and dependence on human
resources, accounting and other departments
Access to payroll and W-4 data, including
performing updates to deductions, Information available 24 X 7
withholdings and direct deposit data
More efficient use of processing resources
Benefit plan enrollment information and
forms Reduces administrative costs
Benefit plan updates
User-specific access rights
- ----------------------------------------------------------------------------------------
MANAGERIAL SELF-SERVICE APPLICATIONS
- -------------------------------------------
FEATURES BENEFITS
Allows managers to facilitate position Facilitates more efficient use of
management (transfers, salary changes, management resources
promotions, terminations)
Improves access to information
Access to compensation data and department
compensation plans, modeling and approvals Increases productivity
User-specific access rights Reduces administrative costs
Identifies trends and problem areas
- -------------------------------------------
</TABLE>
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Product Architecture
The following diagram illustrates the key features of our product
architecture:
[DIAGRAM]
EmployeeDesktop, XMS, CompanyStore and The Seeker Workplace operate on
advanced IT platforms and are scalable and configurable. These products are
built on multi-tiered architectures and have a separate client, application
server and database server built using message based architectures. All products
house common business logic, including workflow, user management, security,
business rules, business intelligence and messaging in a distributed application
model. EmployeeDesktop, XMS and CompanyStore use a distributed application model
referred to as the Concur Common Technology Platform. The Seeker Workplace uses
a similar distributed application model referred to as the Seeker Framework.
The Concur Common Technology Platform contains all of the business logic,
is COM-based and is built using Microsoft Visual C++. The application server
layer can be extended using off-the-shelf tools such as Microsoft Visual Basic.
The application server operates on Windows NT 4.0 and, for browser-based
clients, supports both the Microsoft Internet Information Server and the
Netscape Enterprise Server.
The Seeker Framework contains all of the business logic, is based upon
objects embedded in HTML documents and is built using C++. Seeker Framework
applications can be extended by embedding objects and logic in application
documents using an HTML editor. The Seeker Framework application server operates
on Windows NT and Sun Solaris operating systems using Microsoft Internet
Information Server or Netscape Enterprise Server.
The XMS application server supports Oracle, Sybase and Microsoft SQL server
databases and integrates with multiple ERP systems, including SAP, PeopleSoft,
Oracle and existing legacy systems. The CompanyStore application server supports
the Microsoft SQL server database and Oracle databases and integrates with SAP
R/3 and Oracle Financials 11.0. We intend to integrate the CompanyStore
application server with other database and ERP systems in the future.
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The Seeker Framework supports Oracle, Sybase and Microsoft SQL server
databases and integrates with multiple ERP systems, including SAP, PeopleSoft,
Oracle and existing legacy systems.
Browser-based clients run on versions of Microsoft Internet Explorer 3.02
and above and Netscape Navigator 3.0 and above, utilizing primarily HTML and
JavaScript. Operating systems supported include Microsoft Windows 3.11, Windows
95, Windows 98 and Windows NT 4.0. The Windows-based XMS client is written
utilizing Microsoft Visual C++, and is fully functional in a disconnected
environment.
SERVICES
Our professional services organization was formed in 1996 to offer
consulting, customer support and training in connection with licenses of XMS. We
believe that services are an important part of our success and consequently we
have expanded our professional services organization to offer similar services
in connection with licenses of EmployeeDesktop, CompanyStore and The Seeker
Workplace. See "Risk Factors--We depend on service revenues to increase our
overall revenues."
Consulting. We offer a variety of consulting services in connection with
licenses of our products. Our consulting staff meets with customers prior to
product implementation to review the customer's existing business processes and
IT infrastructure, and to provide advice on ways to improve these processes
using industry best practices. Thereafter, our consultants install, configure
and test the application and integrate it with the customer's existing ERP and
employee reimbursement systems. Our consultants also help customers implement
bar-coding processes and develop a strategy for the customers' enterprise-wide
deployment of the application.
Customer Support. We provide product upgrades and customer support through
our "CustomerOne" customer support program. Customers generally purchase the
first year of the CustomerOne program at the time they license an application;
thereafter, support may be renewed on an annual basis. Customer support
personnel are available 24 hours a day, seven days a week. We also offer
Internet-based support that features an on-line knowledge base.
Training. We offer a variety of training programs for our products. These
classes are tailored to particular user groups, such as end users, help desk
personnel and trainers. Training classes are offered at customer sites and also
at our headquarters in Redmond, Washington. We also provide training classes for
third-party service providers, such as systems integrators.
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CUSTOMERS
We have licensed our applications to over 225 enterprise customers in a
wide range of industries. The following table lists a selection of our
significant customers since fiscal 1996:
TECHNOLOGY/TELECOMMUNICATIONS/MEDIA
ADP, Inc.
AT&T Corp.
American Management Systems, Inc.
Bell South Corporation
Cambridge Technology Partners
Computer Sciences Corporation
Dell Computer Corporation
The Hearst Corporation
Knight-Ridder, Inc.
Lucent Technologies, Inc.
Motorola, Inc.
The New York Times Company
Quantum Corporation
Reuters Limited
Seagate Technology, Inc.
Sprint Corporation
Texas Instruments Incorporated
The Times Mirror Company
Tivoli Systems, Inc.
Visio Corporation
INDUSTRIAL/MANUFACTURING
Allied Signal Inc.
Case Corporation
E.I. du Pont de Nemours and Company
Guardian Industries Corporation
Monsanto Company
Northrop Grumman Corporation
PPG Industries, Inc.
Solutia, Inc.
PHARMACEUTICAL/HEALTH CARE
Baxter Heathcare Corporation
Bristol-Myers Squibb Company
Columbia/HCA Healthcare Corporation
Merck, Sharpe & Dohme Limited
Pfizer Inc.
Pharmacia & Upjohn Co.
Tenet Healthcare Corporation
CONSUMER
Anheuser-Busch Companies Inc.
Avon Products, Inc.
The Clorox Company
DaimlerChrysler Corporation
Eastman Kodak Company
The Gap, Inc.
The Gillette Company
J.C. Penney Company, Inc.
Levi Strauss & Co.
Maytag Corporation
Revlon, Inc.
FINANCIAL SERVICES
ABN Amro Holding N.V.
Bear Stearns & Co. Inc.
Comdisco, Inc.
Dresdner Kleinwort Benson
John Hancock Financial Services
J & H Marsh & McLennan, Inc.
Lehman Brothers Inc.
Royal Insurance
Wells Fargo Bank, N.A.
ENERGY AND NATURAL RESOURCES
Amerada Hess Corporation
Baltimore Gas & Electric Company
Broken Hill Proprietary Company Limited
Exxon Corporation
Florida Power & Light Company
Occidental Petroleum Corporation
Southern California Edison Company
Texaco Inc.
OTHER
American Airlines, Inc.
Battelle Memorial Institute
Federal Express Corporation
Harvard College
J. Walter Thompson
Ontario Ministry of Labour
No customer accounted for 10% or more of our total revenues in fiscal 1996,
1997 and 1998.
SALES
We sell our software primarily through our domestic direct sales
organization, with sales professionals located in the metropolitan areas of
Atlanta, Baltimore, Boston, Chicago, Columbus, Dallas, Denver, Los Angeles, New
York, Oakland, Philadelphia, Raleigh, Redmond, St. Louis, San Francisco and
Washington, D.C. We also have sales
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professionals in Toronto, London and Sydney. The field sales force is
complemented by direct telesales and telemarketing representatives based at our
headquarters in Redmond, Washington. Technical sales support is provided by
sales engineers located in several of the field offices. We currently intend to
add a significant number of sales representatives and sales engineers in other
domestic and international locations. We use a remarketer in New Zealand and
plan to expand our remarketing channel to other international markets. The
remarketer receives a referral fee from us for marketing our products, and
provides post-sale implementation and support of the Company's products. See
"Risk Factors--We depend on our direct sales model."
Since our products affect employees throughout the enterprise, our sales
effort involves multiple decision makers and frequently includes the chief
financial officer, vice president of finance, controller and vice president of
purchasing. While the average sales cycle varies substantially from customer to
customer, for initial sales it has generally ranged from six to nine months. See
"Risk Factors--Our lengthy sales cycle could adversely affect our revenue
growth."
Strategic Marketing and Referral Relationships
We have developed a number of strategic referral relationships. Under
arrangements with American Express, the largest corporate charge card issuer in
the United States, and its subsidiary TRS, American Express may, at its sole
discretion, refer corporate charge card customers that seek a travel and
entertainment expense management software solution to us. TRS has agreed to be a
strategic marketer for the ESP version of XMS. ADP, Inc., a subsidiary of
Automatic Data Processing, Inc., has agreed to refer potential customers for
travel and entertainment expense management software products and services
exclusively to us. We and ADP also agreed to jointly market our travel and
entertainment expense report processing products and services to ADP customers.
Our existing strategic relationships generally do not, and any future
strategic relationships may not, afford us any exclusive marketing or
distribution rights. Many of our strategic partners have multiple strategic
relationships, and we may not be regarded as significant for their own
businesses. In addition, our strategic partners may terminate their respective
relationships with us, pursue other partnerships or relationships, or attempt to
develop or acquire products or services that compete with our products or
services. Further, our existing strategic relationships may interfere with our
ability to enter into other desirable strategic relationships. Any inability to
maintain our strategic relationships or to enter into additional strategic
relationships may have a material adverse effect on our business. See "Risk
Factors--It is important for us to establish and maintain strategic
relationships" and "Certain Transactions."
MARKETING
Our marketing efforts are directed at promoting our integrated suite of
applications under EmployeeDesktop, extending our leadership position in travel
and entertainment expense management applications and increasing our market
share for CompanyStore and The Seeker Workplace. Our marketing programs are
targeted at accounting, finance, purchasing, human resources and travel
executives, and are focused on creating awareness of, and generating interest
in, our products.
We engage in a variety of marketing activities, including developing and
executing co-advertising and co-marketing strategies designed to leverage our
existing strategic
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relationships, targeting additional strategic relationships, managing and
maintaining our Web site, issuing newsletters and direct mailings, creating and
placing advertisements, conducting public relations campaigns, and establishing
and maintaining close relationships with recognized industry analysts. We are an
active participant in technology-related conferences and demonstrate our
products at trade shows targeted at accounting, finance, purchasing, human
resources and travel executives.
We believe that demand is increasing, and will continue to increase, for
employee-facing applications such as those sold by us. We may not be able to
expand our sales and marketing staff, either domestically or internationally, to
take advantage of any increase in demand for employee-facing applications. Our
failure to expand our sales and marketing organization or other distribution
channels could materially adversely affect our business. See "Risk Factors--We
depend on our key employees" and "--We must attract and retain qualified
personnel, particularly service personnel."
PRODUCT DEVELOPMENT
We have been an innovator and leader in the development of employee-facing
enterprise applications. We believe that we were one of the first to introduce
an integrated suite of employee-facing applications, and one of the first to
introduce a commercially successful travel and entertainment expense reporting
application. We also believe that we pioneered a number of features that are now
common throughout the travel and entertainment expense reporting field, such as
prepopulation with corporate credit card transactions and automatic itemization
of hotel bills. Our software development staff is responsible for enhancing our
existing products and expanding our product line. We believe that a technically
skilled, quality oriented and highly productive software development
organization will be a key component of the continued success of new product
offerings. We expect that we will increase our product development expenditures
substantially in the future.
Our current product development activities focus on product enhancements to
EmployeeDesktop, XMS, CompanyStore, The Seeker Workplace and the Concur Common
Technology Platform and the Seeker Framework that standardize the software
architecture underlying all applications in the suite. We plan to offer our
applications through the Internet as an outsourced ESP starting with XMS in the
second half of calendar 1999 and to provide CompanyStore, EmployeeDesktop and
The Seeker Workplace as ESP offerings in fiscal 2000.
These development efforts may not be completed within our anticipated
schedules, and if completed, they may not have the features necessary to make
them successful in the marketplace. Future delays or problems in the development
or marketing of product enhancements or new products could result in a material
adverse effect on our business. See "Risk Factors--We may experience
difficulties in introducing new products and upgrades" and "--Our plan to sell
products as an Internet-based enterprise service provider may fail."
COMPETITION
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Our primary source of direct competition
comes from independent software vendors of travel and entertainment expense
management, front-office procurement and
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human resource self-service applications, and from providers of enterprise
resource planning, or ERP, software applications that have or may be developing
travel and expense management, front-office procurement and human resource
self-service products. We also face indirect competition from potential
customers' internal development efforts and have to overcome their reluctance to
move away from existing paper-based systems.
Our major competitors in the travel and entertainment expense management
field include Captura Software, Inc., Extensity, Inc., International Business
Machines Corporation and Necho Systems Corporation. In addition, several major
ERP vendors such as SAP AG, Oracle Corporation and PeopleSoft, Inc. have already
developed or have announced plans to develop travel and entertainment expense
management and human resource self-service products, and Oracle Corporation has
developed a front-office procurement product. These companies have begun to sell
these products along with their ERP application suites. Our major competitors in
the front-office procurement field include Ariba Technologies, Inc., Clarus
Corporation, Commerce One, Inc., Harbinger Corporation, Intelisys Electronic
Commerce, LLC, Netscape Communications Corporation, Trilogy Development
Corporation and TRADE'ex Electronic Commerce Systems, Inc. Our major competitors
in the human resource self-service field include ProBusiness Services, Inc.,
Edify Corporation and Employease, Inc. We also expect to face competition from
new entrants including those ERP providers that do not already market travel and
entertainment expense management and human resource self-service products. Most
of the major ERP providers have a significant installed customer base and have
the opportunity to offer additional products to those customers as additional
components of their respective ERP application suites.
We believe that the principal competitive factors considered in selecting
travel and entertainment expense management, front-office procurement and human
resource self-service applications are functionality, interoperability with
existing IT infrastructure, price and an installed referenceable base of
customers. We learned from our customers that XMS tends to be 20% to 200% more
expensive than other competing solutions, depending on the size and the nature
of the transaction. Despite the disparity in price, we believe that we have a
competitive advantage relative to competing solutions. With respect to
functionality, we believe that we offer a product with more features than other
competing products, and that we have often been the first to offer new and
innovative features, such as prepopulation of transaction reports based on
credit card information. Significantly, we believe we were one of the first
providers of a suite of employee-facing applications, and we were the first
provider of an Intranet-based travel and entertainment expense management
solution. In addition, XMS was designed and built to interoperate with existing
IT systems and can often be deployed on an enterprise customer's existing IT
infrastructure. Many of our competitors have chosen to develop their
Intranet-based applications using Java, which we believe is difficult to deploy
on a large scale within today's corporate IT infrastructure. With respect to
price, we position XMS as the premium product compared to the competition. We
believe that this positioning does cause us to lose some potential transactions
to competitors based on price. Finally, we believe that we have a larger
customer base, spread across a wider variety of industries, than our primary
competitors. We believe that this large installed customer base helps us to
secure additional customers.
Many of our competitors in the travel and entertainment expense management,
front-office procurement and human resource self-service markets have longer
operating histories, significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger installed
base of customers. Moreover, a
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number of our competitors, particularly major ERP vendors, have well-established
relationships with our current and potential customers as well as with systems
integrators and other vendors and service providers. In addition, these
competitors may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products, than we can.
It is also possible that new competitors or alliances among competitors or
other third parties may emerge and rapidly acquire significant market share. We
expect that competition in our markets will increase as a result of
consolidation and the formation of alliances in the industry. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect our business. We
may not be able to compete successfully against current or future competitors
and the competitive pressures we face may materially adversely affect our
business. See "Risk Factors--Our expansion into the front-office procurement
application and human resource self-service application markets is risky," "--We
face significant competition" and "--It is important for us to establish and
maintain strategic relationships."
INTELLECTUAL PROPERTY RIGHTS
Our success depends upon our proprietary technology. We rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
procedures, contractual provisions and other similar measures to protect our
proprietary information. For example, we license rather than sell our software
to customers and require licensees to enter into license agreements that impose
certain restrictions on licensees' ability to utilize the software. We currently
hold no patents and do not have any patent applications pending. There can be no
assurance that any of our copyrights or trademarks will not be challenged and
invalidated.
As part of our confidentiality procedures, we enter into non-disclosure
agreements with certain of our employees, consultants, corporate partners,
customers and prospective customers. We also enter into license agreements with
respect to our technology, documentation and other proprietary information. Such
licenses are generally non-transferable and have a perpetual term. Despite our
efforts to protect our proprietary rights, unauthorized parties may attempt to
copy or otherwise obtain and use our products or technology that we consider
proprietary and third parties may attempt to develop similar technology
independently. In particular, we provide our licensees with access to object
code versions of our software, and to other proprietary information underlying
our licensed software. In a small number of instances, we have provided our
licensees with access to source code versions of our software in order to
facilitate more extensive testing of such products. Policing unauthorized use of
our products is difficult, particularly because the global nature of the
Internet makes it difficult to control the ultimate destination or security of
software or other data transmitted. While we are unable to determine the extent
to which piracy of our software products exists, software piracy can be expected
to be a persistent problem. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain countries. The laws of
some foreign countries do not protect our proprietary rights to the same extent
as do the laws of the United States. Overall, the protection of our proprietary
rights may not be adequate and our competitors may independently develop similar
technology.
We are not aware that our products, trademarks, copyrights or other
proprietary rights infringe the proprietary rights of third parties. Third
parties may assert infringement claims
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against us in the future with respect to current or future products. Further, we
expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. From time to time, we hire or retain employees or consultants,
including through acquisition, who have worked for independent software vendors
or other companies developing products similar to those offered by us. Such
prior employers may claim that our products are based on their products and that
we have misappropriated their intellectual property. Any such claims, with or
without merit, could cause a significant diversion of management attention,
result in costly and protracted litigation, cause product shipment delays or
require us to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
us or at all, which would have a material adverse effect upon our business. See
"Risk Factors--We have only limited protection for our proprietary technology
and we may be subject to claims of infringement."
EMPLOYEES
As of June 15, 1999, we had approximately 407 full-time employees, of whom
11 were based in the United Kingdom, one in Canada and two in Australia. These
employees included 124 engaged in research and development, 118 in sales and
marketing, 124 in consulting, training and technical support and 41 in
administration and finance. No employees are known by us to be represented by a
collective bargaining agreement and we have never experienced a strike or
similar work stoppage. We consider our relations with our employees to be good.
Our ability to achieve our financial and operational objectives depends in large
part upon our continuing ability to attract, integrate, retain and motivate
highly qualified sales, technical and managerial personnel. Competition for such
qualified personnel in our industry is intense, particularly in the Seattle area
in which our headquarters is located and in the San Francisco Bay Area in which
our Seeker Software operations are located, and particularly with respect to
software development, marketing and management personnel. In addition,
competitors may attempt to recruit our key employees. There can be no assurance
that we will be able to attract or retain employees in the future. We are a
party to employment agreements with certain of our employees. See "Risk
Factors--We depend on our key employees," "--We must attract and retain
qualified personnel, particularly service personnel" and "Management--Employment
Agreements."
FACILITIES
Our principal administrative, sales, marketing and research and development
facility is located in Redmond, Washington and consists of approximately 80,000
square feet of office space held under a lease that expires in May 2005. Our
wholly owned subsidiary, Seeker Software, will continue to operate out of our
facility located in Oakland, California consisting of approximately 19,500
square feet of office space held under a lease that expires in October 2001. As
of June 15, 1999, we also leased sales offices in Atlanta, Baltimore, Boston,
Chicago, Dallas, Los Angeles, New York, Philadelphia, Raleigh, St. Louis, San
Francisco, Sydney and London. For a discussion of certain risks associated with
our anticipated need for additional office space.
LEGAL PROCEEDINGS
We are not a party to any currently pending material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding our executive
officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
S. Steven Singh..................... 38 President, Chief Executive Officer
and Director
Michael W. Hilton................... 35 Chairman of the Board and Chief
Technical Officer
Jon T. Matsuo....................... 39 Executive Vice President of
Worldwide Sales
Sterling R. Wilson.................. 40 Chief Financial Officer and
Executive Vice President of
Operations
Rajeev Singh........................ 31 Executive Vice President of Products
Michael Watson...................... 51 Executive Vice President of
Professional Services
Bruce A. Chatterley................. 36 Executive Vice President and General
Manager, eService
Alan A. Brown....................... 36 Executive Vice President of Global
Marketing
Robert K. Reid...................... 48 Executive Vice President and General
Manager, Human Resources Division
Gary L. Durbin...................... 56 Chief Technical Officer, Human
Resources Division
Jeffrey D. Brody (1)................ 39 Director
Norman A. Fogelsong (1)............. 47 Director
Michael J. Levinthal (2)............ 44 Director
James D. Robinson III (2)........... 63 Director
Russell P. Fradin................... 43 Director
Edward P. Gilligan.................. 39 Director
</TABLE>
- -------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
S. Steven Singh has served as our President and Chief Executive Officer
since February 1996. Mr. Singh served as our Chairman of the board of directors
from our inception until February 1996. Prior to joining us as an officer, Mr.
Singh was General Manager of the Contact Management Division at Symantec
Corporation from June 1993 to February 1996. From February 1992 to June 1993,
when it was acquired by Symantec, Mr. Singh was Vice President of Development
for Contact Software International, or CSI, a personal computer software
publisher. Prior to joining CSI, Mr. Singh co-founded Eshani Corporation, where
he was President and Chief Executive Officer. Mr. Singh holds a B.S. in
Electrical Engineering from the University of Michigan. Mr. Singh is the brother
of Rajeev Singh, our Executive Vice President of Products.
Michael W. Hilton co-founded Concur in August 1993 and has served as our
Chief Technical Officer since 1996. Mr. Hilton has served as a member of our
board of directors since our founding, and as Chairman of the board since
February 1996. Before co-founding
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Concur, Mr. Hilton served as Senior Development Manager at Symantec during 1993.
Prior to his employment at Symantec, Mr. Hilton served as Director of Product
Development for CSI's California office. Mr. Hilton also was a co-founder of
Eshani, where he was Vice President of Product Development. Mr. Hilton holds a
B.A. in Computer and Information Sciences and a B.S. in Mathematics from the
University of California at Santa Cruz.
Jon T. Matsuo joined us in July 1994 and currently serves as our Executive
Vice President of Worldwide Sales. Prior to joining us, Mr. Matsuo served as
General Manager, Consumer Software Division of Delrina Corporation from June
1993 to July 1994. Mr. Matsuo's experience also includes senior marketing
positions with CSI and Bluebird Systems, as well as eight years of experience
with Deloitte Haskins & Sells in auditing, consulting and product management.
Mr. Matsuo holds a B.B.A. in Accounting from the University of San Diego and is
a Certified Public Accountant.
Sterling R. Wilson joined us in May 1994 and currently serves as our Chief
Financial Officer and Executive Vice President of Operations. Prior to joining
us, Mr. Wilson served as Vice President of Operations and Chief Financial
Officer at IntelliQuest, Inc., a leading provider of market research
information, from July 1993 to May 1994. Mr. Wilson also served as Chief
Financial Officer at CSI from 1992 to 1993. Mr. Wilson holds a B.B.A. in
Accounting from California State University at Bakersfield, formerly California
State College at Bakersfield, and is a Certified Public Accountant.
Rajeev Singh co-founded Concur in August 1993 and currently serves as our
Executive Vice President of Products. Previously, Mr. Singh acted as our
Director of Product Management. Prior to co-founding Concur, Mr. Singh served as
a Software and Manufacturing Engineer at General Motors Corporation from July
1986 to January 1990 and he served as a Software Project Manager for the
development of complex computer simulations at Ford Motor Company from January
1991 to March 1993. Mr. Singh holds a B.S. in Mechanical Engineering from
Kettering University (formerly GMI Engineering and Management Institute). Mr.
Singh is the brother of S. Steven Singh, our President and Chief Executive
Officer.
Michael Watson joined us in August 1998 and currently serves as our
Executive Vice President of Professional Services. Prior to joining us, Mr.
Watson was Vice President of Consulting Services from June 1995 to August 1998
at Hyperion Software, where he also held various roles in the sales organization
from October 1990 to June 1995. Mr. Watson also served as the National Director
of Price Waterhouse's Applied Technology Center from 1986 to 1990. Mr. Watson
holds a B.A. in Business Studies from Lanchester University (U.K.) and an M.B.A.
from the Babcock Graduate School of Management at Wake Forest University.
Bruce A. Chatterley joined us in March 1999 and currently serves as our
Executive Vice President and General Manager of eService. Prior to joining us,
Mr. Chatterley served in various positions, most recently Vice President of
Product Management, at Ameritech Corporation, a telecommunications company, from
July 1994 to March 1999. Mr. Chatterley also served as Director of New
Opportunity Development, Small Business Group, at US West, a telecommunications
company, from February 1989 to June 1994. Mr. Chatterley holds a B.S.S.A. in
Business Public Affairs from Central Michigan University and an M.B.A. from The
American University, Kogod College of Business Administration.
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Alan A. Brown joined us in May 1999 and currently serves as our Executive
Vice President of Global Marketing. Prior to joining us, Mr. Brown was Vice
President of Global Corporate Products and Travel and Entertainment Marketing at
MasterCard International Incorporated from May 1996 to May 1999. From October
1993 to May 1996, Mr. Brown served as Vice President of Marketing and Product
Development for U.S. Bancorp (formerly First Bank System, Inc.). Mr. Brown holds
a B.A. in Economics and Political Science from Stanford University.
Robert K. Reid joined us in June 1999 and currently serves as our Executive
Vice President and General Manager, Human Resources Division. Prior to joining
us, Mr. Reid served as President and Chief Executive of Seeker Software, our
wholly owned subsidiary, from January 1999 to May 1999. From January 1997 to
December 1998, Mr. Reid was the Vice President of the Applications Group of
Documentum, Inc., a document management software company. Mr. Reid also served
as Documentum's Vice President of Marketing from August 1993 to January 1997.
Mr. Reid holds a B.S. in Communications from the University of Tennessee.
Gary L. Durbin joined us in June 1999 and currently serves as our Chief
Technical Officer, Human Resources Division. Mr. Durbin has served as a director
of Adpac Corporation since 1994. Prior to joining us, Mr. Durbin served as
Chairman and Chief Technical Officer of Seeker Software from February 1999 to
May 1999. Mr. Durbin also served as Seeker Software's Chairman and Chief
Executive Officer from January 1997 to January 1999, and as its Chief Executive
Officer from January 1996 to December 1996. Before joining Seeker Software, Mr.
Durbin was an Executive Vice President for Ceridian Employer Services, a payroll
service company, from August 1993 to October 1995.
Jeffrey D. Brody has served as a member of our board of directors since
October 1994. Since April 1994, Mr. Brody has been employed by Brentwood Venture
Capital, a venture capital firm, where he has been a General Partner of
Brentwood since October 1995. From 1988 to April 1994, Mr. Brody was Senior Vice
President of Comdisco Ventures, a venture leasing company. Mr. Brody holds a
B.S. in Engineering from the University of California at Berkeley and an M.B.A.
from the Graduate School of Business at Stanford University. Mr. Brody is a
member of the boards of directors of several private technology companies.
Norman A. Fogelsong has served as a member of our board of directors since
July 1996. Since March 1989, Mr. Fogelsong has been a General Partner of
Institutional Venture Partners, a venture capital firm. Between March 1980 and
February 1989, Mr. Fogelsong was a General Partner of Mayfield Fund, a venture
capital firm. Mr. Fogelsong holds a B.S. in Industrial Engineering from Stanford
University, an M.B.A. from Harvard Business School and a J.D. from Harvard Law
School. Mr. Fogelsong is a member of the boards of directors of Aspect
Telecommunications Corporation and several private technology companies.
Michael J. Levinthal has served as a member of our board of directors since
April 1998. Since 1984, Mr. Levinthal has been a General Partner or managing
director of various entities associated with Mayfield Fund, a venture capital
firm. Mr. Levinthal holds a B.S. in Engineering, an M.S. in Industrial
Engineering and an M.B.A. from the Graduate School of Business at Stanford
University. Mr. Levinthal is a member of the boards of directors of Focal, Inc.,
InControl, Inc., Symphonix Devices, Inc., and several private technology
companies.
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James D. Robinson III has served as a member of our board of directors
since July 1998. Since 1994, Mr. Robinson has been the Chairman and Chief
Executive Officer of RRE Investors, LLC, a private information technology
venture investment firm. From 1977 to 1993, Mr. Robinson served as Chairman and
Chief Executive Officer of American Express Company. Mr. Robinson holds a B.S.
in Industrial Management from the Georgia Institute of Technology and an M.B.A.
from Harvard Business School. Mr. Robinson is a member of the boards of
directors of The Coca-Cola Company, Bristol-Myers Squibb Company, Cambridge
Technology Partners, First Data Corporation, and several private companies.
Russell P. Fradin has served as a member of our board of directors since
March 1999. In 1996, Mr. Fradin joined ADP, where he served first as Senior Vice
President before becoming President, Employer Services North America. Prior to
joining ADP, Mr. Fradin was a senior partner of McKinsey & Company, and was
associated with that firm for 18 years. Mr. Fradin holds a B.S. in Economics
from the Wharton School of the University of Pennsylvania and an M.B.A. from the
Harvard Business School.
Edward P. Gilligan has served as a member of our board of directors since
February 1999. Mr. Gilligan has been President, Corporate Services Division, for
TRS, since February 1996. From June 1995 to February 1996, Mr. Gilligan served
as Executive Vice President of Travel Management Services for TRS. From
September 1992 to June 1995, Mr. Gilligan was Senior Vice President and General
Manager, Eastern Region, of American Express Travel Management Services. Mr.
Gilligan holds a B.S. in Economics and Management from New York University.
Our bylaws provide for the division of the board of directors into three
classes as nearly equal in size as possible with staggered three-year terms. The
classification of the board of directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Compensation Committee of the board of directors consists of Mr. Brody
and Mr. Fogelsong. The Compensation Committee makes decisions regarding all
forms of salary, bonus and stock compensation provided to our executive
officers, the long-term strategy of employee compensation, the types of stock
and other compensation plans to be used by us and the shares and amounts
reserved thereunder, and any other compensation matters as from time to time
directed by the board.
The Audit Committee of the board of directors consists of Mr. Levinthal and
Mr. Robinson. The Audit Committee meets with our independent auditors to review
the adequacy of our internal control systems and financial reporting procedures,
reviews the general scope of annual audits and the fees charged by the
independent accountants, as well as the performance of non-audit services by our
auditors, and reviews and makes recommendations to the board of directors
regarding the fairness of any proposed transaction between us and any officer,
director or other affiliate.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee of the board of directors
was at any time since our formation an officer or employee of the Company. None
of our executive officers serves as a member of the board of directors or
compensation committee
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of any entity that has one or more executive officers serving on our board of
directors or the Compensation Committee of our board of directors.
Mr. Brody is a Managing Member of Brentwood VIII Ventures, LLC, the General
Partner of Brentwood Affiliates Fund II, L.P. Brentwood Affiliates Fund II, L.P.
purchased 68,252, shares of our Series E preferred stock at a price of $7.75 per
share. Mr. Brody also purchased 3,871 shares of our Series E preferred stock at
a price of $7.75 per share.
Mr. Brody is also a limited partner of Brentwood VI Ventures, L.P., the
General Partner of Brentwood Associates VI, L.P. Between October 1, 1994 and
July 30, 1997, Brentwood Associates VI, L.P. purchased 1,529,636 shares of our
Series A preferred stock at a price of $1.30 per share, 312,500 shares of our
Series B preferred stock at a price of $1.60 per share, 237,500 shares of our
Series C preferred stock at a price of $2.00 per share and 135,378 shares of our
Series D preferred stock at a price of $3.65 per share.
Mr. Fogelsong is a General Partner of Institutional Venture Management VII,
L.P., the General Partner of Institutional Venture Partners VII, L.P. and IVP
Founders Fund I, L.P. Between October 1, 1994 and October 31, 1998 Institutional
Venture Management VII, L.P., Institutional Venture Partners VII, L.P. and IVP
Founders Fund I, L.P. purchased in the aggregate 2,000,000 shares of our Series
C preferred stock at a price of $2.00 per share, 130,193 shares of our Series D
preferred stock at a price of $3.65 per share and 72,090 shares of our Series E
preferred stock at a price of $7.75 per share.
All of our outstanding preferred stock converted into our common stock upon
our initial public offering in December 1998.
DIRECTOR COMPENSATION
Our directors do not receive any cash compensation for their services as
directors but are reimbursed for their reasonable travel expenses in attending
meetings of the board of directors.
Our board of directors adopted the 1998 Directors Stock Option Plan in
August 1998 and reserved a total of 240,000 shares of our common stock for
issuance thereunder. Our stockholders approved this Directors Plan in September
1998. Members of our board of directors who are not our employees are eligible
to participate in the Directors Plan. Option grants under the Directors Plan are
automatic and the exercise price of the options must equal the fair market value
of our common stock on the date of grant.
Each eligible director is automatically granted an option for 20,000 shares
of our common stock on the date he or she becomes a member of the board of
directors. Eligible directors who were members of our board of directors prior
to our initial public offering each received an option for 20,000 shares on the
effective date of the initial public offering. To date, Messrs. Brody,
Fogelsong, Levinthal, Robinson and Fradin have each received options for 20,000
shares of our common stock. Mr. Gilligan is not permitted to accept such stock
option grants under policies of his employer, TRS.
On the date of each annual meeting of stockholders, each eligible director
who has served continuously as a member of our board of directors since the date
of his or her original option grant is automatically granted an option for 8,000
shares of our common stock.
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<PAGE> 58
All options granted under the Directors Plan vest as to 25% of the shares
on the first anniversary of the date of grant and as to an additional 2.0833% of
the shares each month thereafter. Options will cease to vest if the individual
ceases to provide services to us either as a director or a consultant.
In the event of a merger or consolidation in which we are not the surviving
corporation, the sale of all or substantially all of our assets, or certain
other corporate transactions as set forth in the Directors Plan, the vesting of
all options granted under the Directors Plan accelerates and the options become
exercisable in full. If a director does not exercise his or her options within
seven months after the corporate transaction, the options will expire. Options
may be granted pursuant to the Directors Plan until December 2008. The board of
directors may terminate or amend the Directors Plan at any time. The Directors
Plan may be administered by the full board of directors or by the board's
Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
awarded to, earned by or paid for services rendered to us in all capacities
during fiscal 1998 by our Chief Executive Officer and our four other most highly
compensated executive officers who were serving as executive officers as of
September 30, 1998 and whose compensation was in excess of $100,000 in fiscal
1998 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------------
-------------------- SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
--------------------------- -------- -------- ------------------
<S> <C> <C> <C>
S. Steven Singh........................ $200,000 $140,529 200,000
President and Chief Executive Officer
Sterling R. Wilson..................... 150,000 83,459 52,000
Chief Financial Officer and Executive
Vice President of Operations
Jon T. Matsuo.......................... 150,000 157,989 52,000
Executive Vice President of Worldwide
Sales
Michael W. Hilton...................... 132,000 95,330 52,000
Chairman of the Board and Chief
Technical Officer
Rajeev Singh........................... 115,000 108,027 52,000
Executive Vice President of Products
</TABLE>
OPTION GRANTS IN FISCAL 1998
The following table sets forth information regarding stock option grants
during fiscal 1998 to each of the Named Executive Officers. We have not granted
any stock appreciation rights. All options granted in fiscal 1998 were granted
pursuant to the 1994 Plan and become exercisable with respect to 25% of the
shares subject to the option on the
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<PAGE> 59
first anniversary of the date of grant and with respect to an additional 2.0833%
of these shares each month thereafter, subject to acceleration upon certain
changes in control of Concur. See "--Employee Benefit Plans." All options were
granted at an exercise price equal to the fair market value of our common stock
at the time of grant. We granted a total of 746,414 options to all employees
during fiscal 1998.
The potential realizable values were computed by (a) multiplying the number
of shares of common stock subject to a given option by our initial public
offering price of $12.50 per share in December 1998, (b) assuming that the
aggregate stock value derived from that calculation compounds at the annual 5%
or 10% rate shown in the table for the remainder of the ten-year term of the
option and (c) subtracting from that result the aggregate option exercise price.
The 5% and 10% assumed annual rates of stock price appreciation are mandated by
the rules of the Securities and Exchange Commission and do not represent our
estimate or projection of future common stock prices.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED ANNUAL
NUMBER OF PERCENTAGE OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
S. Steven Singh........... 200,000 26.8% $0.375 10/22/07 $3,803,321 $5,819,869
Sterling R. Wilson........ 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Jon T. Matsuo............. 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Michael W. Hilton......... 52,000 7.0 0.375 10/22/07 988,863 1,513,166
Rajeev Singh.............. 52,000 7.0 0.375 10/22/07 988,863 1,513,166
</TABLE>
On December 14, 1998, we granted options to purchase 100,000 shares of our
common stock at an exercise price of $12.50 per share, to each of Messrs. S.
Singh, Wilson, Matsuo, Hilton and R. Singh.
AGGREGATE OPTION EXERCISES IN FISCAL 1998 AND FISCAL YEAR-END VALUES
The following table sets forth information concerning unexercised options
held at September 30, 1998 with respect to each of the Named Executive Officers.
Mr. Matsuo exercised options to purchase 8,000 shares of our common stock at
$0.10 per share in June 1998. The fair market value of our common stock at the
time of such exercise was $6.20, as determined by the board of directors. The
value of unexercised in-the-money options are based on an assumed fair market
value of our common stock at September 30, 1998 of $12.50 per share less the
exercise price.
<TABLE>
<CAPTION>
VALUE REALIZED NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES (MARKET PRICE UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED AT EXERCISE OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END($)
ON LESS EXERCISE --------------------------- ---------------------------
NAME EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
S. Steven Singh....... -- $ -- 116,250 263,750 $1,434,525 $3,211,675
Sterling R. Wilson.... -- -- 4,983 57,417 61,291 697,129
Jon T. Matsuo......... 8,000 48,800 176,983 57,417 2,194,091 697,129
Michael W. Hilton..... -- -- -- 52,000 -- 630,500
Rajeev Singh.......... -- -- 4,792 57,208 58,942 694,558
</TABLE>
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<PAGE> 60
EMPLOYMENT AGREEMENTS
We and Mr. Matsuo are parties to a letter agreement dated June 20, 1994
governing his employment with us. Under the agreement, we paid to Mr. Matsuo an
initial annual salary of $90,000, which was to be increased to $105,000
following our initial equity financing, with possible bonuses of up to $50,000
per year. The compensation for Mr. Matsuo was subsequently increased. In
addition, Mr. Matsuo was given benefits that we make available to employees in
comparable positions, and was granted an option to purchase 104,000 shares of
common stock. Mr. Matsuo's employment is voluntary and may be terminated by us
or Mr. Matsuo at any time with or without cause or notice.
We and Mr. Wilson are parties to a letter agreement dated April 21, 1994
governing his employment with us. Under the agreement, we paid to Mr. Wilson an
annual initial salary of $90,000, which was to be increased to $105,600
following our initial equity financing, with possible bonuses of up to $36,000
per year. The compensation for Mr. Wilson was subsequently increased. In
addition, Mr. Wilson was given benefits that we make available to employees in
comparable positions, and was granted an option to purchase 80,000 shares of
common stock. We also paid Mr. Wilson's costs to relocate to Seattle. Mr.
Wilson's employment is voluntary and may be terminated by us or Mr. Wilson at
any time with or without cause or notice.
We and Mr. Watson are parties to a letter agreement dated June 24, 1998
governing his employment with us. Under the agreement, we agreed to pay Mr.
Watson an annual salary of $160,000, with possible bonuses of up to $80,000 per
year. In Mr. Watson's first year of employment by us, $10,000 per quarter of the
possible bonus will be guaranteed provided that Mr. Watson is an employee of
Concur on the bonus payment dates. In addition, Mr. Watson was granted an option
to purchase 80,000 shares of common stock. We also agreed to pay a one-time
relocation allowance of $20,000.
We and Mr. Chatterley are parties to a letter agreement dated March 2, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr.
Chatterley an annual salary of $200,000, with a target bonus of $100,000 per
year. In addition, we agreed to grant Mr. Chatterley an option to purchase up to
225,000 shares of our common stock at an exercise price equal to market value on
his first day of employment with us which was in March 1999. The option became
exercisable as to 80,000 shares on the first day of his employment with us, and
the remainder will become exercisable as to 25% after one year and as to the
balance in equal monthly increments over the next three years. We also agreed to
reimburse Mr. Chatterley for relocation expenses and up to $20,000 in real
estate closing costs associated with acquiring a home in the Seattle area.
We and Mr. Reid are parties to a letter agreement dated May 26, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr. Reid
an annual salary of $225,000, with a target bonus of $75,000 per fiscal year. In
Mr. Reid's first year of employment by us, he will be eligible for a pro rata
bonus for fiscal 1999 based on nine-twelfths of $75,000. Mr. Reid will be
eligible for consideration for the award of options to purchase our common stock
on a basis commensurate with similarly situated executives when our Compensation
Committee reviews compensation packages in October 1999.
We and Mr. Durbin are parties to a letter agreement dated May 26, 1999
governing his employment with us. Under the agreement, we agreed to pay Mr.
Durbin an annual salary of $165,000, with a target bonus of $75,000 per fiscal
year. In Mr. Durbin's first year of employment by us, he will be eligible for a
pro rata bonus for fiscal 1999 based on
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<PAGE> 61
nine-twelfths of $75,000. Mr. Durbin will be eligible for consideration for the
award of options to purchase our common stock on a basis commensurate with
similarly situated executives when our Compensation Committee reviews
compensation packages in October 1999.
EMPLOYEE BENEFIT PLANS
1994 Stock Option Plan
Our board of directors and stockholders approved the 1994 Stock Option Plan
in April 1994. Just prior to our December 1998 initial public offering, there
were 2,760,000 shares of our common stock reserved for issuance under this plan.
The 1994 Plan provides for grants of both incentive stock options and
non-qualified stock options. The 1994 Plan terminated in December 1998, when the
1998 Equity Incentive Plan became effective. As a result, no further options
have been granted or will be granted under the 1994 Plan. However, termination
of the 1994 Plan did not affect outstanding options, and as of June 15, 1999,
options to purchase 1,336,285 shares of our common stock were outstanding under
the 1994 Plan.
1997 Stock Option Plan of 7Software
In connection with our acquisition of 7Software, we assumed the 1997 Stock
Option Plan of 7Software and all options outstanding under that plan at the
closing of the acquisition. No options will be granted in the future under the
7Software Plan. As of June 15, 1999, options to purchase 35,216 shares of our
common stock were outstanding under the 7Software Plan.
1998 Equity Incentive Plan
Our board of directors adopted the 1998 Equity Incentive Plan in August
1998, and our stockholders approved it in September 1998. The 1998 Plan became
effective in December 1998. Our board of directors reserved 3,240,000 shares of
our common stock for issuance under the 1998 Plan, and the following additional
shares will become available for issuance under the 1998 Plan:
- any shares that are subject to options granted under the 1994 Plan or the
1998 Plan that expire or terminate for any reason without being
exercised;
- any shares that are issued pursuant to an option under the 1994 Plan or
the 1998 Plan that we repurchase upon termination of the optionholder's
employment;
- any shares that are issued under a restricted stock award under the 1998
Plan that we repurchase or that are forfeited upon the termination of the
awardholder's employment;
- any shares that are subject to a stock bonus award under the 1998 Plan
that terminates without shares being issued.
In addition, all of the shares of our common stock which remained available
for issuance under the 1994 Plan when the 1998 Plan became effective, became
available for issuance under the 1998 Plan.
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<PAGE> 62
The 1998 Plan will terminate in August 2008, unless it is terminated sooner
in accordance with the terms of the 1998 Plan.
The 1998 Plan authorizes the award of incentive stock options,
non-qualified stock options, restricted stock awards and stock bonuses.
Incentive stock options may be granted only to our employees, including officers
and directors who are also employees. All other awards may be granted to our
employees, officers, directors, consultants, independent contractors and
advisors, subject to applicable federal securities laws. The exercise price of
incentive stock options must be at least equal to the fair market value of our
common stock on the date of grant. The exercise price of non-qualified stock
options must be equal to at least 85% of the fair market value of the common
stock on the date of grant. The maximum term of options granted under the 1998
Plan is ten years.
The 1998 Plan is administered by the Compensation Committee, which
currently consists of Mr. Brody and Mr. Fogelsong, both of whom are
"non-employee directors" under applicable federal securities laws and "outside
directors" as defined under applicable federal tax laws. The Compensation
Committee has the authority to construe and interpret the 1998 Plan and any
agreement made thereunder, to grant awards and to make all other determinations
necessary or advisable for the administration of the 1998 Plan. The Compensation
Committee may, with the consent of optionees, issue new options in exchange for
the surrender and cancellation of any outstanding options.
The Compensation Committee in its discretion may permit payment for stock
options or restricted stock:
- in cash;
- by cancellation of our indebtedness to the participant;
- by surrender of shares that meet specific criteria set forth in the 1998
Plan;
- by tender of a full recourse promissory note;
- by waiver of compensation due or accrued to the participant for services
rendered;
- or, with respect to purchases upon exercise of an option only, through a
"same day sale" or a "margin" commitment.
The Compensation Committee may also guarantee third-party loans in order to
help recipients of stock option grants or restricted stock awards pay the
exercise price or purchase price of those options or awards.
Awards granted under the 1998 Plan generally may not be transferred other
than by will or by the laws of descent and distribution. In the event of our
dissolution or liquidation or a "change in control" transaction, outstanding
awards may be assumed by the successor corporation. If the successor corporation
does not assume outstanding awards, they will expire. In the discretion of the
Compensation Committee, the vesting of such awards may accelerate upon such
transaction. As of June 15, 1999, options to purchase 1,925,381 shares of our
common stock were outstanding under the 1998 Plan.
1998 Employee Stock Purchase Plan
Our board of directors adopted the 1998 Employee Stock Purchase Plan in
August 1998, and reserved a total of 320,000 shares of our common stock for
issuance under this plan at that time. Our stockholders approved the Purchase
Plan in September 1998. The Purchase Plan became effective in December 1998. On
each January 1, the aggregate
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<PAGE> 63
number of shares reserved for issuance under the Purchase Plan increases
automatically by a number of shares equal to 1% of our total outstanding shares
as of the immediately preceding December 31. Such annual increase may not exceed
320,000 shares per year. On January 1, 1999, the number of shares of our common
stock reserved for issuance under the Purchase Plan was automatically increased
by 170,297 shares, to 490,297. The Purchase Plan is administered by the
Compensation Committee, which has the authority to construe and interpret the
Purchase Plan. Our employees generally will be eligible to participate in the
Purchase Plan if they are:
- customarily employed by us for more than 20 hours per week and more than
five months in a calendar year, and
- are not and would not as a result of their participation in the Purchase
Plan become 5% stockholders of us.
The Purchase Plan provides for offering periods of 24 months. After the
first offering period, which will be shorter, each offering period comprises of
four six-month purchase periods. Eligible employees may acquire shares of our
common stock at the end of each six-month purchase period through payroll
deductions in an amount between 2% and 15% of their cash compensation, subject
to purchase limitations as described in the Purchase Plan.
The first offering period under the Purchase Plan began in December 1998.
The first purchase period of the first offering period was shorter than six
months and ended on April 30, 1999. Offering periods and purchase periods
thereafter begin on each May 1 and November 1. The purchase price for our common
stock under the Purchase Plan is 85% of the lesser of:
- the fair market value of our common stock on the first day of the
applicable offering period, or
- the fair market value of our common stock on the last day of each
purchase period.
In the event of a "change in control" transaction, the Purchase Plan will
continue for the duration of each offering period that commenced prior to the
closing of such proposed transaction and stock will be purchased on the purchase
dates based on the fair market value of the surviving corporation's stock,
unless otherwise provided by the Compensation Committee.
The Purchase Plan will terminate in August 2008 unless earlier terminated
pursuant to its terms. The board of directors may amend, terminate or extend the
term of the Purchase Plan, except that the board of directors may not adversely
affect any rights previously granted under the Purchase Plan. If the financial
accounting treatment for the Purchase Plan changes in any way, the board of
directors may make any amendments to the Purchase Plan as it determines to be
necessary or advisable, even if the amendments affect rights which were
previously granted.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our bylaws provide that we are required to indemnify our directors and
executive officers to the fullest extent permitted by Delaware law. We may also
indemnify our other officers, employees and agents. Our bylaws also required us
to advance expenses to our directors and executive officers in connection with a
legal proceeding to the fullest extent permitted by Delaware law.
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<PAGE> 64
We have also entered into indemnity agreements with each of our current
directors and executive officers to give them additional contractual assurances
regarding the scope of the indemnification set forth in our bylaws and to
provide additional procedural protections.
In addition, our certificate of incorporation limits the liability of
directors to the maximum extent permitted by Delaware law. Consistent with
Delaware law, we have eliminated the personal liability of our directors for
monetary damages for breach of their fiduciary duties as directors except for
liability for:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; or
- any transaction from which the director derived an improper personal
benefit.
We also maintain directors' and officers' liability insurance.
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<PAGE> 65
CERTAIN TRANSACTIONS
Loan Repayment. On September 21, 1994, we entered into a repayment
agreement with S. Steven Singh, our President, Chief Executive Officer and a
director, and Michael W. Hilton, our Chairman of the Board and Chief Technical
Officer. Pursuant to the repayment agreement, we agreed to repay loans
previously made to us by Mr. Singh for $111,500 and Mr. Hilton for $121,500.
Under the terms of the repayment agreement, we agreed to repay the loans on the
date two years following the commencement date, as defined in the repayment
agreement, together with interest at the rate of 7% per annum. In December 1996,
we agreed to issue 64,530 shares of our Series C preferred stock to Mr. Singh
and 70,390 shares of our Series C preferred stock to Mr. Hilton in consideration
for the cancellation of indebtedness under the repayment agreement at a purchase
price of $2.00 per share.
Preferred Stock Financings. From October 1, 1994 through August 15, 1998,
we sold:
- 1,529,636 shares of our Series A preferred stock at a price of $1.30 per
share;
- 1,874,999 shares of our Series B preferred stock at a price of $1.60 per
share;
- 3,884,920 shares of our Series C preferred stock at a price of $2.00 per
share, which includes the 134,920 shares of Series C preferred stock
issued to Mr. Singh and Mr. Hilton in consideration for the cancellation
of indebtedness under the repayment agreement;
- 1,275,338 shares of our Series D preferred stock at a price of $3.65 per
share; and
- 1,648,660 shares of our Series E preferred stock at a price of $7.75 per
share.
Each share of preferred stock converted into one share of common stock upon
the completion of our initial public offering. The purchasers of the preferred
stock included the following holders of 5% or more of our common stock,
directors and entities associated with directors:
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK PURCHASED
-------------------------------------------------------
INVESTOR SERIES A SERIES B SERIES C SERIES D SERIES E
-------- --------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
American Express Travel Related
Services Company, Inc........ -- -- -- -- 645,161
Brentwood Associates VI,
L.P.......................... 1,529,636 312,500 237,500 135,378 --
Institutional Venture Partners
VII, L.P. and affiliates..... -- -- 2,000,000 130,193 72,090
Mayfield VIII and affiliates... -- -- 1,250,000 807,308 69,872
RRE Investors, L.P. and
affiliates................... -- -- -- -- 645,161
US Venture Partners IV L.P. and
affiliates................... -- 1,562,499 250,000 159,993 --
Jeffrey D. Brody and Brentwood
Affiliates Fund II, L.P. .... -- -- -- -- 72,123
Michael W. Hilton.............. -- -- 70,390 -- 3,871
S. Steven Singh................ -- -- 64,530 -- 3,871
</TABLE>
Transactions with American Express. In August 1998, we sold an aggregate of
645,161 shares of our Series E preferred stock, at a cash purchase price of
$7.75 per share, and issued a warrant exercisable for an aggregate of 2,400,000
shares of Series E preferred stock, to TRS, a subsidiary of American Express.
Upon our initial public offering, the warrant issued to TRS automatically became
exercisable for 2,325,000 shares of common
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stock. In December 1998, TRS partially exercised the warrant to purchase 225,000
shares at $11.625 per share. Additionally, under the warrant, TRS may acquire
700,000 shares at any time on or before October 15, 1999 at a cash purchase
price of $33.75 per share, 700,000 additional shares at any time on or before
January 15, 2001 at a cash purchase price of $50.625 per share, and 700,000
shares at any time on or before January 15, 2002 at a cash purchase price of
$85.00 per share. As was permitted by the warrant, our board of directors
originally determined to cancel 25% of the shares that could have been acquired
under the warrant at the time of our initial public offering or on or before
October 15, 1999. In connection with an amendment to the standstill agreement
described below, the board of directors subsequently rescinded its 25%
reduction. Under a voting agreement entered into by holders of our Series E
preferred stock, TRS designated Edward Gilligan to be a member of our board of
directors. We appointed Mr. Gilligan to the board in February 1999. The voting
agreement terminated upon the completion of our initial public offering.
Under a standstill agreement, TRS has agreed not to acquire beneficial
ownership of additional shares of our capital stock prior to April 10, 2000 if
such purchase would result in TRS owning more than 16% of our capital stock,
including shares issuable upon exercise of their warrant. TRS has also agreed
not to solicit proxies to vote any of our voting stock if at the time we are
publicly traded and subject to the proxy rules.
In December 1997, we entered into a strategic marketing alliance agreement
with American Express, providing for the marketing of XMS to corporate card
clients of American Express. Under the agreement, we agreed to pay American
Express a fee for referrals of American Express corporate card clients that
become XMS customers within 12 months after the referral. The referral fee
ranges from 10% to 22.5% of license revenue realized by us from these clients.
The percentage referral fee applicable to a particular customer is higher than
the 10% base rate if the referral is converted into a customer relationship in a
particularly short amount of time, or if annual license revenues realized by us
from all American Express referrals have exceeded certain levels. In fiscal
1998, we paid or owed to American Express an aggregate of approximately $204,000
under the agreement. In the six months ended March 31, 1999, we paid or owed to
American Express an aggregate of approximately $367,000 under this agreement.
In connection with the strategic marketing alliance agreement, American
Express terminated certain customer licenses of its own travel and entertainment
expense management product, and we agreed to offer to license XMS to those
former American Express customers on our standard terms. We also agreed to
provide a special license rate to American Express for a specified number of end
users. That special license rate reflected a quantity discount comparable to
discounts we make available to orders of similar size to non-affiliated
customers. We negotiated license arrangements with the former American Express
customers, and where American Express chose to do so it agreed to pay some or
all of the cost of the former customer's XMS license at the special license
rate. American Express may also choose to pay the costs of maintenance for a
specified number of end users on behalf of its former customers. In fiscal 1998,
American Express paid or owed to us an aggregate of $193,000 under the marketing
agreement. In the six months ended March 31, 1999, American Express did not pay
or owe us fees under the marketing agreement. As of March 31, 1999, the maximum
amount of XMS license fees that American Express may choose to pay at the
special license rate on behalf of such former American Express customers was
approximately $3.1 million.
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<PAGE> 67
Under the strategic marketing alliance agreement, we also granted American
Express an option to license XMS for its internal use at our generally
prevailing rates. The option expired in June 1998 without being exercised. We
and American Express also agreed to develop certain product features enabling a
higher level of integration between XMS and certain American Express services
and products. The marketing agreement includes cross-indemnification,
proprietary information and confidentiality provisions, has a three year term
and automatically renews for successive two-year terms unless terminated by
either party. The marketing agreement may be terminated by either party upon an
acquisition of us by any competitor of American Express and by American Express
upon the acquisition of 20% or more of our securities by any competitor of
American Express.
In August 1998, we entered into a co-branded service marketing agreement
with TRS, under which TRS will market to its clients a co-branded ESP version of
XMS. The agreement provides that we will develop this co-branded service and
that both Concur and TRS will develop certain special features for integration
into the co-branded service. For 12 months following the release of a co-branded
service containing a special feature, we have agreed not to include such special
feature in any product or service offered by or on behalf of us or any of our
licensees. TRS determines the prices at which the co-branded service will be
offered, and may market the co-branded service initially in the United States
and Canada, and eventually in other geographical areas as we complete our
localization efforts in those areas. We have agreed to offer service contracts
for the co-branded service to TRS clients at terms not materially less favorable
than those offered to our own customers, and we have responsible for providing
warranty and customer support services to these TRS clients. Revenue other than
consulting revenue, direct costs and taxes associated with the co-branded
service will be shared 55% to us and 45% to TRS, provided that we are entitled
to payment of no less than 55% of certain minimum base prices, some or all of
which may be paid by TRS on behalf of the customer, and no more than 55% of
certain higher suggested prices. We are also entitled to 55% of consulting
revenue associated with the co-branded service, after deduction of our direct
and indirect costs, expenses and taxes associated with providing consulting
services. We are also obligated to provide TRS with certain "most favored
pricing" rights.
We also agreed, for the term of the co-branded agreement and for one year
thereafter, not to solicit any TRS client that is a co-branded service customer
to become a customer of a corporate card product or a travel and booking product
offered by a TRS competitor. TRS agreed not to solicit any of its clients who
are co-branded service customers to become a customer of a business and expense
management service offered by one of our competitors. The co-branded agreement
also includes cross-indemnification, intellectual property rights and
confidentiality provisions. TRS has the right to terminate the agreement if the
co-branded service is not available for general commercial distribution to TRS
clients by August 1, 1999. Otherwise, the co-branded agreement has a term of 18
months from the launch date of the co-branded service, and automatically renews
for successive two-year terms unless terminated by either party. The co-branded
agreement may be terminated at any time by TRS if a TRS competitor acquires a
controlling interest in us or if any officer, director or other designee of a
TRS competitor is appointed to our board of directors. No payments were made
under the co-branded agreement in fiscal 1998 or in the six months ended March
31, 1999.
We believe that the terms of the agreements with American Express and TRS,
taken as a whole, are no less favorable to us than we could have obtained from
unaffiliated third parties.
65
<PAGE> 68
Transactions with Former Stockholders of Seeker Software. On June 1, 1999,
in connection with our acquisition of Seeker Software, we issued shares of our
common stock in exchange for all of the outstanding capital stock and warrants
of Seeker Software held by Seeker Software's former stockholders immediately
prior to the acquisition. We also issued options to purchase our common stock in
exchange for options to purchase Seeker Software's common stock held immediately
prior to the acquisition. Among the recipients of these shares of our common
stock and options to purchase our common stock were Mr. Reid, Mr. Durbin,
Brentwood Affiliates Fund, L.P. and Brentwood Associates VIII, L.P.
Mr. Durbin, who received 122 shares of our common stock and options to
purchase up to 46,736 shares of our common stock in exchange for his Seeker
Software warrants and options, has served as our Chief Technical Officer, Human
Resources since our acquisition of Seeker Software in June 1999. Mr. Durbin is
also a trustee for the Gary Lee Durbin and Loretta Ann Durbin Trust, which
received 269,589 shares of our common stock in the acquisition. Mr. Durbin's
children, Nathan E. Durbin, Samantha A. Durbin and Tadish C. Durbin received an
aggregate of 53,034 shares of our common stock in the acquisition.
Mr. Reid, our Executive Vice President and General Manager, Human Resources
Division since the acquisition, received options to purchase 293,708 shares of
our common stock in exchange for his Seeker Software options. In addition, one
year of Mr. Reid's unvested options may have become fully vested in connection
with the transaction.
Brentwood Affiliates Fund, L.P. and Brentwood Associates VIII, L.P.
received 21,334 shares and 512,034 shares, respectively, of our common stock in
exchange for their Seeker Software stock. Mr. Brody, one of our directors, is a
Managing Member of Brentwood VIII Ventures, LLC, which is the General Partner of
Brentwood Associates VIII, L.P. Mr. Brody is also a General Partner of Brentwood
VII Ventures, L.P., which is the General Partner of Brentwood Affiliates Fund,
L.P.
Mr. Brody and Brentwood Affiliates Fund II, L.P., each stockholders of
Concur prior to the acquisition, owned of record 3,871 shares and 68,252 shares,
respectively, of our common stock. Prior to the acquisition, Mr. Brody and
Brentwood Affiliates Fund II, L.P. together held approximately 0.3% of our
common stock. Following the acquisition, as of June 15, 1999, Mr. Brody,
Brentwood Affiliates Fund II, L.P., Brentwood Affiliates Fund, L.P. and
Brentwood Associates VIII, L.P. together hold approximately 2.7% of our
outstanding common stock.
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<PAGE> 69
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of June 15, 1999 by the following individuals
or groups:
- each person or entity who is known by us to own beneficially more than 5%
of our common stock;
- each of our directors;
- each of the Named Executive Officers; and
- all current executive officers and directors as a group.
Unless otherwise indicated, the address for each listed stockholder is c/o
Concur Technologies, Inc., 6222 185th Avenue NE, Redmond, Washington 98052.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
NAME AND ADDRESS --------------------------
OF BENEFICIAL OWNER NUMBER PERCENT+
------------------- ------------ ----------
<S> <C> <C>
Edward P. Gilligan.......................................... 2,970,161 12.0%
American Express Travel Related Services Company, Inc. (1)
Norman A. Fogelsong......................................... 2,202,283 9.7
Institutional Venture Partners VII, L.P. and affiliates
(2)
Michael J. Levinthal........................................ 2,127,180 9.4
Mayfield VIII and affiliates (3)
US Venture Partners IV, L.P. and affiliates (4)............. 1,972,492 8.7
Brentwood Associates VI, L.P. (5)........................... 1,715,014 7.6
S. Steven Singh (6)......................................... 1,007,305 4.4
Michael W. Hilton (7)....................................... 898,094 4.0
Jeffrey D. Brody............................................ 605,491 2.7
Brentwood Affiliates Fund, L.P., Brentwood Associates
VIII, L.P. and
Brentwood Affiliates Fund II, L.P. (8)
James D. Robinson III....................................... 322,581 1.4
RRE Investors, L.P. and affiliates (9)
Jon T. Matsuo (10).......................................... 240,963 1.1
Sterling R. Wilson (11)..................................... 208,591 *
Rajeev Singh (12)........................................... 179,888 *
Russell P. Fradin........................................... -- *
ADP, Inc. (13)
All current executive officers and directors as a group (15
persons) (14)............................................. 11,291,290 44.3%
</TABLE>
- ------------
* Less than 1%.
+ Percentage ownership is based on 22,619,337 shares outstanding as of June
15, 1999. Unless otherwise indicated below, the persons and entities named
in the table have sole voting and sole investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable. Shares of common stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of June 15, 1999 are
deemed to be outstanding and to be beneficially owned by the person holding
such options or warrants for the purpose of computing the percentage
ownership of such person, but are not treated as outstanding for the
purpose of computing the percentage ownership of any other person.
(1) Represents 870,161 shares held of record by TRS and 2,100,000 shares
subject to a warrant held by TRS that is exercisable within 60 days of June
15, 1999, expiring in three tranches through January 2002, at cash purchase
prices of $33.75, $50.625 and $85.00, respectively. 700,000 shares may be
acquired at any time on or before October 15, 1999 at a cash purchase price
of $33.75 per share; 700,000 shares may be acquired at any time on or
before January 15, 2001 at a cash purchase price of $50.625 per share; and
the remaining 700,000 shares may be acquired at any time on or before
January 15, 2002 at a cash purchase price of $85.00 per share. Edward P.
Gilligan, who is a director of Concur, is President of the Corporate
Services Division for TRS. Mr. Gilligan disclaims beneficial ownership of
the shares held by TRS. The address for American Express and TRS is
American Express Tower, World Financial Center, New York, New York 10285.
See "Certain Transactions."
67
<PAGE> 70
(2) Represents 2,092,961 shares held of record by Institutional Venture
Partners VII, L.P., 75,276 shares held of record by IVP Founders Fund I,
L.P., and 34,046 shares held of record by Institutional Venture Management
VII, L.P. Norman A. Fogelsong, a director of Concur, is the General Partner
of Institutional Venture Management VII, L.P. (which is the General Partner
of Institutional Venture Partners VII, L.P.) and Institutional Venture
Management VI, L.P. (which is the General Partner of IVP Founders Fund I,
L.P.). Mr. Fogelsong disclaims beneficial ownership of the shares held by
Institutional Venture Partners VII, L.P., IVP Founders Fund I, L.P. and
Institutional Venture Management VII, L.P. The address for Mr. Fogelsong,
Institutional Venture Partners VII, L.P., IVP Founders Fund I, L.P. and
Institutional Venture Management VII, L.P. is c/o Institutional Venture
Management VII, L.P., 3000 Sand Hill Road, Building 2, Suite 290, Menlo
Park, California 94025.
(3) Represents 2,020,822 shares held of record by Mayfield VIII and 106,358
shares held of record by Mayfield Associates Fund III. Michael J.
Levinthal, a director of Concur, is the Managing Member of Mayfield VIII
Management, L.L.C., the General Partner of Mayfield VIII and Mayfield
Associates Fund III. Mr. Levinthal disclaims beneficial ownership of the
shares held by Mayfield VIII and Mayfield Associates Fund III. The address
for Mr. Levinthal, Mayfield VIII and Mayfield Associates Fund III is c/o
Mayfield Fund, 2800 Sand Hill Road, Suite 250, Menlo Park, California
94025.
(4) Represents 1,706,206 shares held of record by U.S. Venture Partners IV,
L.P., 59,175 shares held of record by USVP Entrepreneur Partners II, L.P.,
and 207,111 shares held of record by Second Ventures II, L.P. William K.
Bowes, Jr., Irwin Federman, Steven Krausz, Lucio Lanza and Philip Young are
the General Partners of Presidio Management Group IV, L.P., the General
Partner of each of U.S. Venture Partners IV, L.P. USVP Entrepreneur
Partners II, L.P. and Second Ventures II, L.P. Messrs. Bowes, Federman,
Krausz, Lanza and Young disclaim beneficial ownership of the shares held by
U.S. Venture Partners IV, L.P., USVP Entrepreneur Partners II, L.P. and
Second Ventures II, L.P. The address for U.S. Venture Partners IV, L.P.,
USVP Entrepreneur Partners II, L.P. and Second Ventures II, L.P. is c/o
Presidio Management Group IV, L.P., 2180 Sand Hill Road, Suite 300, Menlo
Park, California 94025.
(5) The address for Brentwood Associates VI, L.P. is c/o Brentwood Venture
Capital, 3000 Sand Hill Road, Building 1, Suite 260, Menlo Park, California
94025.
(6) Represents 758,138 shares held of record by S. Steven Singh and 249,167
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Singh. Mr. Singh is the President, Chief Executive Officer and a
director of Concur.
(7) Represents 874,261 shares held of record by Michael W. Hilton and 23,833
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Hilton. Mr. Hilton is the Chairman of the Board and Chief Technical
Officer of Concur.
(8) Represents 512,034 shares held of record by Brentwood Associates VIII,
L.P., 68,252 shares held of record by Brentwood Affiliates Fund II, L.P.,
21,334 shares held of record by Brentwood Affiliates Fund, L.P. and 3,871
shares held of record by Jeffery D. Brody. Mr. Brody, a director of Concur,
is a Managing Member of Brentwood VIII Ventures, LLC, the General Partner
of Brentwood Affiliates Fund II, L.P. and Brentwood Associates VIII, L.P.
Mr. Brody is also a General Partner of Brentwood VII Ventures, L.P., the
General Partner of Brentwood Affiliates Fund, L.P. Mr. Brody disclaims
beneficial ownership of all shares except the shares he holds of record.
The address for Mr. Brody, Brentwood Affiliates Fund II, L.P., Brentwood
Associates VIII, L.P. and Brentwood Affiliates Fund, L.P. is c/o Brentwood
Venture Capital, 3000 Sand Hill Road, Building 1, Suite 260, Menlo Park,
California 94025.
(9) Represents 208,044 shares held of record by RRE Investors, L.P. and 114,537
shares held of record by RRE Investors Fund, L.P. James D. Robinson III, a
director of Concur, is a member of RRE Investors II, LLC, which indirectly
exercises exclusive control over RRE Investors, L.P. and RRE Investors
Fund, L.P. Mr. Robinson disclaims beneficial ownership of the shares held
by RRE Investors, L.P. and RRE Investors Fund, L.P. 208,043 of the shares
are being offered by RRE Investors, L.P. and 114,537 of the shares are
being offered by RRE Investors Fund, L.P. The address for Mr. Robinson, RRE
Investors, L.P. and RRE Investors Fund, L.P. is 126 East 56th Street, 22nd
Floor, New York, New York 10022.
(10) Represents 37,980 shares held of record by Jon T. Matsuo and 202,983 shares
subject to options exercisable within 60 days of June 15, 1999 held by Mr.
Matsuo. Mr. Matsuo is the Executive Vice President of Worldwide Sales of
Concur.
(11) Represents 177,608 shares held of record by Sterling R. Wilson and 30,983
shares subject to options exercisable within 60 days of June 15, 1999 held
by Mr. Wilson. Mr. Wilson is the Chief Financial Officer and Executive Vice
President of Operations of Concur.
(12) Represents 149,180 shares held of record by Rajeev Singh and 30,708 shares
subject to options exercisable within 60 days of June 15, 1999 held by Mr.
Singh. Mr. Singh is the Executive Vice President of Products of Concur.
(13) Russell P. Fradin is President, Employer Services North America, of ADP,
Inc.
(14) Represents 8,395,074 shares held of record by current executive officers
and directors as a group and 2,896,216 shares subject to options or
warrants exercisable within 60 days of June 15, 1999 held by current
executive officers and directors as a group.
68
<PAGE> 71
SELLING STOCKHOLDERS
The following table presents information with respect to the selling
stockholders and the shares of our common stock that each may offer under this
prospectus. Each of the selling stockholders named below was formerly a
stockholder or warrant holder of Seeker Software who acquired their shares as a
result of our acquisition of Seeker Software. To our knowledge, none of the
selling stockholders has, or within the past three years has had, any position,
office or other material relationship with us or any of our predecessors or
affiliates, except as noted in the footnotes to the table below.
Under an escrow agreement, a portion of each selling stockholder's shares
is being held in escrow. Although we list these shares as shares that may be
offered in the table below, these shares may only be offered and sold under this
prospectus if and when these shares are released from escrow and returned to the
selling stockholders.
Furthermore, under a shelf registration agreement, the selling shareholders
are subject to volume and manner of sale restrictions. See "Plan of
Distribution." The maximum aggregate number of shares that may be sold under
this prospectus is 1,709,946, a number that equals approximately 50% of the
aggregate number of shares currently owned by the selling stockholders. As
described in the "Plan of Distribution" section of this prospectus, each selling
stockholder is permitted under a shelf registration agreement to sell under this
prospectus only a limited portion of such stockholder's total shares during
specified periods, and the aggregate number of shares that the stockholder may
sell under this prospectus during the period of this offering is limited to 50%
of the stockholder's total shares, except for certain adjustments that are
permitted during the first 90 days following the date of this prospectus (see
footnote 2 to the table below). The table assumes that each selling stockholder
sells the maximum number of shares eligible to be sold by that stockholder under
the shelf registration agreement described in the "Plan of Distribution" section
of this prospectus.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY MAXIMUM NUMBER SHARES BENEFICIALLY
OWNED PRIOR OF SHARES TO BE OWNED AFTER
TO THE OFFERING OFFERED BY EACH THE OFFERING (2)(3)
----------------------- SELLING -----------------------
NAME NUMBER PERCENT (1) STOCKHOLDER (2) NUMBER PERCENT (1)
---- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Advanced Technology Ventures IV, L.P...... 585,777 2.6% 292,888 292,889 1.3%
Information Technology Ventures, L.P. and
affiliates (4).......................... 585,776 2.6 292,888 292,888 1.3
Brentwood Associates VIII, L.P. and
Brentwood Affiliates Fund, L.P.(5)...... 533,368 2.4 266,684 266,684 1.2
Norwest Venture Partners VII L.P.......... 468,229 2.1 234,114 234,115 1.0
Gary L. Durbin, Gary L. Durbin and Loretta
A. Durbin as Trustees of the Gary Lee
Durbin and Loretta Ann Durbin Trust
(6)..................................... 316,447 1.4 134,855 181,592 *
Jon T. Blankmeyer, Jon T. Blankmeyer,
Trustee of the Blankmeyer Family Trust
(7)..................................... 218,408 * 102,322 116,086 *
David A. Duffield, Trustee of the David A.
Duffield Trust.......................... 124,406 * 62,203 62,203 *
Jan Wesemann (8).......................... 110,769 * 22,657 88,112 *
Platinum Venture Partners II, L.P......... 81,215 * 40,607 40,608 *
Jerome E. Stanton......................... 63,165 * 31,582 31,583 *
Inga S. Blankmeyer........................ 50,349 * 25,174 25,175 *
Olivia R. Blankmeyer...................... 50,349 * 25,174 25,175 *
Michael G. Deverell, Trustee of the
Deverell Family Revocable Trust......... 48,552 * 24,276 24,276 *
</TABLE>
69
<PAGE> 72
<TABLE>
<CAPTION>
SHARES BENEFICIALLY MAXIMUM NUMBER SHARES BENEFICIALLY
OWNED PRIOR OF SHARES TO BE OWNED AFTER
TO THE OFFERING OFFERED BY EACH THE OFFERING (2)(3)
----------------------- SELLING -----------------------
NAME NUMBER PERCENT (1) STOCKHOLDER (2) NUMBER PERCENT (1)
---- --------- ----------- --------------- --------- -----------
<S> <C> <C> <C> <C> <C>
David J. Hanson (9)....................... 39,229 * 18,377 20,852 *
Philippe J. Chouraki...................... 36,144 * 18,072 18,072 *
Michael G. Deverell, Trustee of the Adele
H. Deverell Irrevocable Trust........... 35,981 * 17,990 17,991 *
Baan Investment B.V....................... 27,972 * 13,986 13,986 *
Tadish C. Durbin (10)(11)................. 19,468 * 9,734 9,734 *
Comdisco, Inc............................. 18,441 * 9,220 9,221 *
Kevin G. Hall, Trustee of Kevin G. Hall
Revocable Trust......................... 18,242 * 9,121 9,121 *
Nathan R. Durbin.......................... 16,783 8,391 8,392
Samantha A. Durbin........................ 16,783 * 8,391 8,392 *
ITV Affiliates Fund, L.P. ................ 15,217 * 7,608 7,609 *
Deepak Natarajan.......................... 14,615 * 7,307 7,308 *
Umang Gupta............................... 11,188 * 5,594 5,594 *
Jeffrey Saenger (12)...................... 10,314 * 4,501 5,813 *
Diane Helton.............................. 8,391 * 4,195 4,196 *
Eric Kiebler (13)......................... 7,779 * 2,797 3,845 *
Carol Friedman............................ 5,874 * 2,937 2,937 *
Deanna Wargowski (10)(11)(14)............. 5,547 * 2,365 3,182 *
Patrick Flanigan (10)(11)(15)............. 5,547 * 2,202 3,345 *
John Cuellar.............................. 3,356 * 1,678 1,678 *
Mark A. Potenzone (10)(11)(16)............ 2,778 * 874 1,904 *
James W. Hunter (10)(11)(17).............. 2,097 * 786 1,311 *
Michael C. Phillips....................... 1,949 * 974 975 *
Linda Villers (10)(11)(18)................ 1,788 * 582 909 *
Baharak Bavand (10)(11)(19)............... 1,724 * 606 839 *
Don Hackett............................... 1,468 * 734 734 *
Teresa O'Keefe (10)(11)(20)............... 1,468 * 419 1,049 *
William Champion (10)(11)(21)............. 1,458 * 209 454 *
Janet Alvies.............................. 1,305 * 652 653 *
Nancy McCune (10)(11)(22)................. 1,170 * 314 559 *
Eugene R. Lopez (10)(11)(23).............. 1,118 * 419 699 *
Carrie Pedraza (10)(11)(24)............... 1,102 * 115 296 *
James Colby Kraybill...................... 587 * 293 294 *
Susan MacLeod (10)(25).................... 489 * 209 280 *
Patrick Welsh (10)(11)(26)................ 523 * 209 328 *
Nan Ayers (10)(11)(27).................... 422 * 41 136 *
Lavinia Hong.............................. 419 * 209 314 *
Murray Warner (10)(11)(28)................ 411 * 20 399 *
</TABLE>
- -------------------------
* Less than 1%
(1) Percentage ownership is calculated based on 22,619,337 shares outstanding
as of June 15, 1999. Unless otherwise noted below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Shares of common stock subject to options
or warrants that are currently exercisable within 60 days of June 15,
1999 are deemed to be outstanding and to be beneficially owned by the
person holding such options or warrants for the purposes of computing the
percentage ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other
person. All warrants held by the selling stockholders were converted into
shares of our common stock pursuant to the Agreement and Plan of
Reorganization as described in the "Plan of Distribution" section of this
prospectus.
(2) Under the shelf registration agreement, each selling stockholder is
permitted to sell under this prospectus during specified periods up to
certain portions of the total shares of Concur owned by such stockholder
(excluding any Concur shares acquired upon the exercise of stock options)
("Total Shares"). For example,
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<PAGE> 73
during the first 90 days following the effective date of this prospectus,
a selling stockholder is permitted to sell up to 15% of such
stockholder's Total Shares (the "Initial Allotment"). With one exception,
the maximum amount a selling stockholder may sell in all periods under
this prospectus is 50% of such stockholder's Total Shares. The exception
is that, during the first 90-day period following the date of this
prospectus, each selling stockholder may assign all or a portion of such
stockholder's Initial Allotment to other selling stockholders. Thus, if a
selling stockholder receives assignments of Initial Allotments from other
selling stockholders, the recipient could sell under this prospectus more
than the number of shares shown for that stockholder in the table, but no
more than such stockholder's Total Shares.
(3) Because the selling stockholders are not obligated to sell shares and
because the selling stockholders may also acquire publicly traded shares
of our common stock, we can only estimate how many shares each selling
stockholder will beneficially own after this offering by assuming that
each such stockholder will sell its maximum allotment under the shelf
registration agreement.
(4) Represents 570,559 shares held of record by Information Technology
Ventures, L.P. and 15,217 shares held of record by ITV Affiliates Fund,
L.P.
(5) Represents 512,034 shares held of record by Brentwood Associates VIII,
L.P. and 21,334 shares held of record by Brentwood Affiliates Fund, L.P.
Mr. Brody, a director of Concur, is a Managing Member of Brentwood VIII
Ventures, LLC, a General Partner of Brentwood Associates VIII, L.P. Mr.
Brody is also a General Partner of Brentwood VII Ventures, L.P., a
General Partner of Brentwood Affiliates Fund, L.P. Mr. Brody disclaims
beneficial ownership of all shares.
(6) Represents 269,589 shares held of record by Gary L. Durbin and Loretta A.
Durbin as Trustees of the Gary Lee Durbin and Loretta Ann Durbin Trust,
122 shares held of record by Gary Durbin and 46,736 shares subject to
options exercisable within 60 days of June 15, 1999 held by Mr. Durbin.
Mr. Durbin's children, Nathan E. Durbin, Samantha A. Durbin and Tadish C.
Durbin beneficially own an aggregate of 53,034 additional shares. Mr.
Durbin is the Chief Technical Officer, Human Resources Division of
Concur, and served as the Chief Technical Officer and Chairman of Seeker
Software.
(7) Represents 77,933 shares held of record by Jon T. Blankmeyer, 126,713
shares held of record by Jon T. Blankmeyer, Trustee of the Blankmeyer
Family Trust U/D/T dated February 18, 1993 and 13,762 shares subject to
options exercisable within 60 days of June 15, 1999 held by Mr.
Blankmeyer. Mr. Blankmeyer's children, Inga S. Blankmeyer and Olivia R.
Blankmeyer beneficially own an aggregate of 100,698 additional shares.
(8) Represents 45,314 shares held of record by Jan Wesemann and 65,455 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Wesemann. Ms. Wesemann was the Vice President of Sales of Seeker
Software.
(9) Represents 36,755 shares held of record by David J. Hanson and 2,475
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Hanson. Mr. Hanson was the Vice President of Finance and the
Chief Financial Officer of Seeker Software.
(10) The selling stockholder formerly had an employment relationship with
Seeker Software.
(11) The selling stockholder is an employee of Concur, with an address at
Concur Technologies, Inc., 6222 185th Avenue NE, Redmond, Washington
98052.
(12) Represents 9,003 shares held of record by Jeffrey Saenger and 1,311
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Saenger. Mr. Saenger is the Vice President of Consulting
Services of Concur and served as the Vice President of Customer Service
of Seeker Software.
(13) Represents 5,594 shares held of record by Eric Kiebler and 2,185 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Kiebler. Mr. Kiebler is the Vice President of Engineering, Human
Resources Division of Concur and served as the Vice President of
Engineering of Seeker Software.
(14) Represents 4,731 shares held of record by Deanna Wargowski and 816 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Wargowski.
(15) Represents 4,405 shares held of record by Patrick Flanigan and 1,142
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Flanigan.
(16) Represents 1,748 shares held of record by Mark A. Potenzone and 1,030
shares subject to options exercisable within 60 days of June 15, 1999
held by Mr. Potenzone.
(17) Represents 1,573 shares held of record by James W. Hunter and 524 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Hunter.
(18) Represents 1,165 shares held of record by Linda Villers and 623 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Villers.
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<PAGE> 74
(19) Represents 1,213 shares held of record by Baharak Bavand and 511 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Bavand.
(20) Represents 839 shares held of record by Teresa O'Keefe and 629 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. O'Keefe.
(21) Represents 419 shares held of record by William Champion and 244 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Champion.
(22) Represents 629 shares held of record by Nancy McCune and 541 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. McCune.
(23) Represents 839 shares held of record by Eugene R. Lopez and 279 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Lopez.
(24) Represents 230 shares held of record by Carrie Pedraza and 872 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Ms. Pedraza.
(25) Represents 419 shares held of record by Susan MacLeod, 70 shares of which
were acquired pursuant to the exercise of options after the completion of
our acquisition of Seeker Software.
(26) Represents 419 shares held of record by Patrick Welsh and 104 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Welsh.
(27) Represents 83 shares held of record by Nan Ayers and 339 shares subject
to options exercisable within 60 days of June 15, 1999 held by Ms. Ayers.
(28) Represents 41 shares held of record by Murray Warner and 370 shares
subject to options exercisable within 60 days of June 15, 1999 held by
Mr. Warner.
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<PAGE> 75
PLAN OF DISTRIBUTION
GENERAL
The shares covered by this prospectus will be offered and sold only by the
selling stockholders and not by us. We will not receive any of the proceeds of
the sale of these shares.
Shares Covered
In connection with our acquisition of Seeker Software, we entered into a
shelf registration agreement with the selling stockholders. Shares may be
offered and sold under this prospectus only in accordance with the terms of that
agreement. Pursuant to that agreement, only shares of our common stock issued at
the time of the acquisition (upon conversion of Seeker Software stock or
warrants) may be sold pursuant to this prospectus.
Selling Stockholders Are Not Required to Sell
The selling stockholders may decide not to sell any of the shares covered
by this prospectus, and the selling stockholders might transfer the shares other
than pursuant to this prospectus by gift or other transfer, to the extent
permitted by law.
RESALE RESTRICTIONS
The shelf registration agreement imposes a number of restrictions on the
resale of shares pursuant to this prospectus. These are summarized below.
Volume Limits
No selling stockholder may sell shares under this prospectus in excess of
the following:
(a) Initial Period. During the 90-day period beginning with the date
of this prospectus (the "Initial Period"), each selling stockholder will
sell under this prospectus no more than 15% of the total number of shares
of our common stock that such stockholder received in connection with our
acquisition of Seeker Software upon conversion of such stockholder's Seeker
Software stock and warrants (the "Total Shares"). During the Initial Period
only, any selling stockholder may assign to any other selling stockholder
all or any portion of the right (the "allotment") that the assigning
stockholder would otherwise have had to sell shares during the Initial
Period. By receiving such assignment of allotments from other selling
stockholders, a selling stockholder would have the right to sell under this
prospectus more than 15% of such stockholder's Total Shares during the
Initial Period. In no event could a selling stockholder sell under this
prospectus more than such stockholder's Total Shares.
(b) Second Period. During the next 90-day period, each selling
stockholder may sell under this prospectus additional shares up to 15% of
such stockholder's Total Shares plus any unsold and unassigned allotment
from the Initial Period.
(c) Third Period. During the next 90-day period (or until June 1, 2000
if that date is within this period), each selling stockholder may sell
under this prospectus
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<PAGE> 76
additional shares up to 10% of such stockholder's Total Shares plus any
unsold and unassigned allotments from earlier periods.
(d) Fourth Period. During any remaining period prior to June 1, 2000,
each selling stockholder may sell under this prospectus additional shares
up to 10% of such stockholder's Total Shares plus any unsold allotments
from earlier periods.
Adjustment of Trading Limits
If during the period from the date of this prospectus to June 1, 2000, any
selling stockholder sells shares in an underwritten public offering pursuant to
the Third Amended and Restated Registration Rights Agreement (under which
certain stockholders have additional demand and piggyback registration rights),
the number of shares that the selling stockholder will be permitted to sell
under this prospectus will be reduced by the number of shares that such
stockholder sells in the underwritten offering. That reduction will be allocated
ratably over the trading periods referred to above (in proportion to the number
of shares that the stockholder could otherwise have sold during those periods).
For example, if the stockholder sold 70,000 shares in the underwritten public
offering during the second period referred to above and if the stockholder would
otherwise have been permitted to sell 150,000, 100,000 and 100,000 shares during
the second, third and fourth periods, respectively, then the number of shares
the stockholder could sell under this prospectus during those periods would be
reduced by 30,000, 20,000 and 20,000, respectively.
Permitted Windows
In addition to the volume limitations summarized above, each selling
stockholder is permitted to make sales under this prospectus only during certain
permitted windows.
To initiate a permitted window, the stockholder must give notice to us of
the stockholder's intention to sell under this prospectus, indicating the number
of shares the stockholder proposes to sell and the method of sale to be used. We
have agreed to notify the stockholder promptly within two business days (1) that
this prospectus is current and may be used for the sale or (2) that the
prospectus must be supplemented or amended. If the prospectus must be
supplemented, we have committed to file the supplement and notify the
stockholder within five business days (seven business days from the
stockholder's notice) that the prospectus may be used as supplemented. If we
consider it necessary to amend the prospectus, we have agreed to file the
amendment within 15 days and to use our best efforts to cause the amendment to
become effective as soon as practicable and to notify the stockholder when it is
effective. After receiving notice from us that the prospectus may be used, as
described above (either in two business days, seven business days or upon
effectiveness of an amendment), the stockholder will then have a window of 20
consecutive calendar days in which to sell shares under this prospectus.
A stockholder may initiate as many permitted windows as the stockholder
wishes, provided the stockholder has a bona fide intention to sell during the
permitted window the shares indicated in the stockholder's notice.
Suspension of Sales
We may suspend the use of the prospectus if we learn of any event that is
required to be disclosed in this prospectus before it is used for any further
sale. We have agreed that, if such a suspension occurs, we will supplement the
prospectus within five business days or
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<PAGE> 77
file an amendment within 15 days. In addition, if in the good faith judgment of
our board of directors there is a material development or potential material
development which should be disclosed in our prospectus before it is used for
further sales but which disclosure would be premature and would have a material
adverse effect on us and our stockholders, then we can furnish the selling
stockholders a certificate to this effect and interrupt any permitted selling
windows that may have been initiated. In no event will any such interruption
continue for longer than 45 days, and all such interruptions together may not
exceed 60 days. The effective period of this prospectus will be extended after
June 1, 2000 by a number of days equal to the aggregate number of days during
which use of this prospectus was suspended or interrupted as described above.
The extension will apply to the particular trading period during which the
suspension or interruption occurs (i.e., the Initial Period, Second Period,
Third Period or Fourth Period described above under "--Volume Limits").
Broker Limitations
If any selling stockholder sells more than 1,000 shares in any week under
this prospectus, the shelf registration agreement requires the stockholder to
make such sales only through BancBoston Robertson Stephens Inc., Hambrecht &
Quist LLC or U.S. Bancorp Piper Jaffray Inc. or any other broker that is one of
the three largest market makers in our common stock (in volume of market making
transactions) during the 90 days immediately preceding that week.
Trading Windows Under Our Insider Trading Policy
In addition to the resale restrictions under the shelf registration
agreement, resales by selling stockholders who are our employees are further
restricted by our insider trading policy. Under this policy:
- Employees may sell shares only during normal quarterly trading windows
specified in the policy. Typically, these windows begin on the third
trading day after we publicly report our operating results for the
previous calendar quarter and end on the 15th day before the end of the
then-current quarter (in the case of certain employees, the window
typically ends on the last day of the second month of the then-current
quarter).
- In addition, our compliance officer may specify other blackout periods
during which employees may not trade.
- Certain employees must obtain trading approval from the compliance
officer.
- No trading is permitted by an employee while the employee in the
possession of material nonpublic information.
- No employee may trade in our stock at any time by means of any put, call
or short sale (including a short sale "against the box") or by means of
any other interest or position relating to the future prices of our
stock.
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MANNER OF SALE
Variety of Methods of Sale
Subject to the above restrictions, the selling stockholders will act
independently from us in making decisions regarding the timing, manner and size
of their sales of shares under this prospectus. In general, we expect sales to
be made in ordinary brokerage transactions over the Nasdaq National Market at
then prevailing market prices. However, sales might be made from time to time in
other types of transactions as well, including sales in the over-the-counter
market, in negotiated transactions (with or without a broker), in block trades
or in any combination of these methods. The shares may be sold at prevailing
market prices, at prices relating to prevailing market prices or at negotiated
prices.
Transactions with Broker-Dealers
The selling stockholders may sell their shares directly to purchasers or
through broker-dealers. The broker-dealers may act as agents or principals. If
they purchase the shares as principals, they may resell the shares for their own
accounts under this prospectus. Sales may occur in ordinary broker transactions
or in transactions in which the brokers solicit purchasers. In effecting sales,
broker-dealers that are engaged by selling stockholders may arrange for other
broker-dealers to participate. The broker-dealers may engage in block
transactions in which they may attempt to sell the shares as agents but may
position and resell a portion of the block as principals.
The selling stockholders may enter into hedging transactions with
broker-dealers. In connection with these transactions, broker-dealers may engage
in short sales of the registered shares in the course of hedging the positions
they assume with selling stockholders. The selling stockholders may also sell
shares short and redeliver the shares to close out their short positions. The
selling stockholders may enter into option or other transactions with
broker-dealers which require the delivery to the broker-dealer of the registered
shares. The broker-dealer may then resell or transfer these shares under this
prospectus. A selling stockholder may also loan or pledge the registered shares
to a broker-dealer and the broker-dealer may sell the shares so loaned or, upon
a default, the broker-dealer may effect sales of the pledged shares under this
prospectus.
In addition, certain of the Selling Stockholders are venture capital funds,
corporations or trusts which may in the future, distribute their shares to their
partners, shareholders or trust beneficiaries, respectively, which distributees
may likewise distribute such shares to their partners, shareholders or trust
beneficiaries. Those shares may later be sold by those partners, shareholders or
trust beneficiaries, or by any of their respective distributees.
The broker-dealers may receive compensation in the form of discounts,
concessions or commissions from the selling stockholders and/or the purchasers
of the shares for whom the broker-dealers may act as agents or to whom they sell
as principals, or both.
To our knowledge, the selling stockholders have not entered into any
agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their shares, and no underwriter or
coordinating broker is acting in connection with the selling stockholders'
proposed sale of their shares.
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Statutory Liabilities
The selling stockholders and any brokers, dealers or agents who participate
in the distribution of the shares may be deemed to be underwriters. Any profit
on the sale of the shares by them and any discounts, commissions or concessions
received by any broker, dealer or agent might be deemed to be underwriting
discounts and commissions under the Securities Act. To the extent the selling
stockholders may be deemed to be underwriters, the selling stockholders may be
subject to statutory liabilities, including, but not limited to, Sections 11, 12
and 17 of the Securities Act and Rule 10b-5 under the Exchange Act.
Prospectus Delivery
The selling stockholders will be subject to the prospectus delivery
requirements of the Securities Act.
Exchange Act Regulations
SOME PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF OUR COMMON STOCK, INCLUDING
THE ENTRY OF STABILIZING BIDS OR SYNDICATE COVERING TRANSACTIONS OR THE
IMPOSITION OF PENALTY BIDS. The selling stockholders and any other person
participating in a distribution will be subject to applicable provisions of the
Exchange Act and its rules and regulations, including Regulation M. This
regulation may limit the timing of purchases and sales of any of the shares by
the selling stockholders and any other person. The anti-manipulation rules under
the Exchange Act may apply to sales of shares in the market and to the
activities of the selling stockholders and their affiliates. Furthermore,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the shares to engage in market-making activities with
respect to the particular shares being distributed for a period of up to five
business days before the distribution. All of the foregoing may affect the
marketability of the shares and the ability of any person or entity to engage in
market-making activities with respect to the shares.
EXPENSES ASSOCIATED WITH REGISTRATION
We have agreed to pay the expenses of registering the shares under the
Securities Act, including registration and filing fees, printing expenses,
administrative expenses and legal and accounting fees. Each of the selling
stockholders will bear its pro rata share of all discounts, commissions or other
amounts payable to dealers or agents as well as fees and disbursements for any
legal counsel retained by any selling stockholder.
INDEMNIFICATION
In the shelf registration agreement, we and the selling stockholders have
agreed to indemnify each other and specified other persons against some
liabilities in connection with the offering of the shares, including liabilities
arising under the Securities Act. The selling stockholders may also agree to
indemnify any broker-dealer or agent that participates in transactions involving
sales of the shares against some liabilities, including liabilities arising
under the Securities Act.
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TERMINATION OF THIS OFFERING
The shelf registration agreement requires that we use our best efforts to
keep the registration statement effective until June 1, 2000, or later in
limited circumstances. Therefore, this offering will terminate on the earlier of
(1) the expiration of this period, (2) the date on which all shares offered
under this prospectus have been sold by the selling stockholders or (3) in
certain circumstances, if we are acquired by another party.
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<PAGE> 81
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 60,000,000 shares of common stock,
$0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par
value per share.
COMMON STOCK
As of June 15, 1999 there were 22,619,337 shares of common stock
outstanding, held of record by 126 stockholders. Subject to preferences that may
be applicable to any preferred stock outstanding at the time, the holders of
outstanding shares of common stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the board
of directors may from time to time determine. See "Dividend Policy." Each
stockholder is entitled to one vote for each share of common stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not provided for in our certificate of incorporation, which
means that the holders of a majority of the shares voted can elect all of the
directors then standing for election. Our stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Subject to the rights of
creditors and holders of preferred stock which may be outstanding at the time,
upon our liquidation, dissolution or winding-up, the assets legally available
for distribution to stockholders would be distributable ratably among the
holders of the common stock.
PREFERRED STOCK
No shares of preferred stock are outstanding. Our board of directors is
authorized, subject to any limitations prescribed by Delaware law, to issue the
preferred stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the rights, preferences and
privileges of the shares of each wholly unissued series and to designate any
qualifications, limitations or restrictions thereon, without any further vote or
action by the stockholders. Our board of directors may authorize the issuance of
preferred stock with voting or conversion rights that could adversely affect the
voting power or other rights of the holders of common stock. Thus, the issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Concur. We have no current plan to issue any shares of
preferred stock.
WARRANTS
As of June 15, 1999 we had outstanding warrants to purchase an aggregate of
2,224,267 shares of our common stock.
ANTI-TAKEOVER PROVISIONS
We are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, the statute prohibits a publicly-held Delaware
corporation from entering into a "business combination" with any "interested
stockholder" for a three-year period after the date of the transaction in which
the person became an interested stockholder unless the business combination is
approved in a prescribed manner. A "business combination" includes a merger,
asset sale or transaction resulting in a financial benefit to an interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns, or within three years prior, did own, 15% or
more of
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Concur's voting capital stock. Our certificate of incorporation and bylaws do
not exclude us from the restrictions imposed under Section 203. The provisions
of Section 203 may encourage companies interested in acquiring us to negotiate
in advance with our board of directors since the stockholder approval
requirement would be avoided if a majority of the directors then in office
approve either the business combination or the transaction which resulted in the
stockholder's becoming an interested stockholder. These provisions may have the
effect of deterring hostile takeovers or delaying changes in control of Concur,
which could depress the market price of our common stock and which could deprive
the stockholders of opportunities to realize a premium on shares of our common
stock held by them.
Our certification of incorporation and bylaws also divide the board of
directors into three classes to serve staggered three-year terms, prohibit the
stockholders from taking action by written consent and restrict the ability of
stockholders to call special meetings. These provisions make it more difficult
for a third party to acquire a majority of our voting stock or effect a change
in control of Concur. See "Risk Factors--Our corporate governance structure may
delay or prevent our acquisition by another company."
REGISTRATION RIGHTS
Beginning in December 1999, the holders of 13,707,626 shares of our common
stock not including shares of our common stock the offer and sale of which are
being registered by this prospectus, but including 2,224,267 shares issuable
upon exercise of warrants, have rights to require the registration of such
shares under the Securities Act. Subject to certain limitations, if requested by
holders of such shares, we must file a registration statement under the
Securities Act covering all securities requested to be included by all holders
with registration rights. In addition, if we propose to register any of our
common stock, the holders of stock with registration rights may include all or a
portion of their shares in such registration, subject to certain rights of the
underwriter's representatives in an underwritten offering to limit the number of
shares in any such offering. All expenses incurred in connection with such
registrations will be borne by us.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Norwest Bank
Minnesota, National Association.
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LEGAL MATTERS
The validity of the issuance of the shares of common stock offered by this
prospectus will be passed upon for us by Fenwick & West LLP, Palo Alto,
California. Attorneys at Fenwick & West LLP own an aggregate of 4,190 shares of
our common stock.
EXPERTS
The consolidated financial statements and the related financial statement
schedule of Concur as of September 30, 1997 and 1998 and for each of the three
years in the period ended September 30, 1998; the financial statements of Seeker
Software, Inc. as of December 31, 1997 and 1998 and for each year then ended and
the financial statements of 7Software as of December 31, 1997 and for the period
then ended; and the supplemental consolidated financial statements and related
supplemental financial statement schedule of Concur as of September 30, 1997 and
1998 and for each of the three years in the period ended September 30, 1998
appearing in this prospectus and the registration statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere in this prospectus, and are included in reliance upon such
reports, given upon the authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all of the information set forth in
the registration statement and its exhibits and schedule. For further
information with respect to us and our common stock being offered, see the
registration statement and its exhibits and schedule. A copy of the registration
statement and its exhibits and schedule may be inspected without charge at the
public reference facilities maintained by the SEC located at Room 1024, 450
Fifth Street, Washington, D.C. 20549 and at the SEC's regional offices located
at the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of all or any part of the registration statement may be obtained
from such offices upon the payment of the fees prescribed by the SEC.
Information on the operation of the public reference room may be obtained by
calling the SEC at 1-800-SEC-0330. The SEC maintains a World Wide Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants, including as, that file electronically
with the SEC.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act and we file periodic reports, proxy statements and
other information with the SEC. These periodic reports, proxy statements and
other information are available for inspection and copying at the SEC's public
reference rooms and the Web site of the SEC referred to above.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONCUR TECHNOLOGIES, INC.
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-3
Consolidated Balance Sheets as of September 30, 1997 and
1998 and March 31, 1999................................... F-4
Consolidated Statements of Operations for the years ended
September 30, 1996, 1997, and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended September 30, 1996, 1997, and 1998 and
for the six months ended March 31, 1999................... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1997 and 1998 and for the six months
ended March 31, 1998 and 1999............................. F-7
Notes to Consolidated Financial Statements.................. F-8
SEEKER SOFTWARE, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-29
Balance Sheets as of December 31, 1997 and 1998 and March
31, 1999.................................................. F-30
Statements of Operations for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1998 and 1999............................................. F-31
Statements of Redeemable Convertible Preferred Stock and
Shareholders' Deficit for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1999...................................................... F-32
Statements of Cash Flows for the years ended December 31,
1997 and 1998 and for the three months ended March 31,
1998 and 1999............................................. F-33
Notes to Financial Statements............................... F-34
7SOFTWARE, INC. (A DEVELOPMENT STAGE COMPANY)
Report of Ernst & Young LLP, Independent Auditors........... F-45
Balance Sheets as of December 31, 1997 and June 30, 1998.... F-46
Statements of Operations for the Period May 30, 1997 (Date
of Incorporation) to December 31, 1997 and the six months
ended June 30, 1998....................................... F-47
Statements of Shareholders' Equity (Deficit) for the period
May 30, 1997 (Date of Incorporation) to December 31, 1997
and the six months ended June 30, 1998.................... F-48
Statements of Cash Flows for the period May 30, 1997 (Date
of Incorporation) to December 31, 1997 and the six months
ended June 30, 1998....................................... F-49
Notes to Financial Statements............................... F-50
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF CONCUR
TECHNOLOGIES, INC. (RESTATED TO GIVE RETROACTIVE EFFECT TO
A MERGER ACCOUNTED FOR IN A POOLING OF INTERESTS)
Report of Ernst & Young LLP, Independent Auditors........... F-54
Supplemental Consolidated Balance Sheets as of September 30,
1997 and 1998 and March 31, 1999.......................... F-55
Supplemental Consolidated Statements of Operations for the
years ended September 30, 1996, 1997 and 1998 and for the
six months ended March 31, 1998 and 1999.................. F-56
Supplemental Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended September 30, 1996, 1997,
and 1998 and for the six months ended March 31, 1999...... F-57
</TABLE>
F-1
<PAGE> 85
<TABLE>
<S> <C>
Supplemental Consolidated Statements of Cash Flows for the
years ended September 30, 1996, 1997 and 1998 and for the
six months ended March 31, 1998 and 1999.................. F-58
Notes to Supplemental Consolidated Financial Statements..... F-59
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Consolidated Financial Statements................. F-83
Pro Forma Consolidated Balance Sheet as of March 31, 1999... F-84
Pro Forma Consolidated Statements of Operations for the year
ended September 30, 1998.................................. F-85
Notes to Pro Forma Consolidated Financial Statements........ F-86
</TABLE>
F-2
<PAGE> 86
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Concur Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Concur
Technologies, Inc. (the Company) as of September 30, 1997 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the three years in the period ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Concur
Technologies, Inc. at September 30, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1998 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Seattle, Washington
October 27, 1998, except as
to Note 18, as to which the
date is December 9, 1998
F-3
<PAGE> 87
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 6,695 $ 15,629 $ 8,612
Marketable securities.............................. -- -- 37,544
Accounts receivable, net of allowance for doubtful
accounts of $170 and $547 at September 30, 1997
and 1998, respectively; $720 at March 31, 1999... 4,365 4,988 7,111
Prepaid expenses and other current assets.......... 165 536 1,160
Notes receivable from stockholders................. -- 167 167
-------- -------- --------
Total current assets........................ 11,225 21,320 54,594
Equipment and furniture, net......................... 1,088 2,162 2,640
Deposits and other assets............................ 51 336 2,432
Notes receivable from stockholders, net of current
portion............................................ -- 333 333
Capitalized technology and other intangible assets... -- 880 720
-------- -------- --------
Total assets................................ $ 12,364 $ 25,031 $ 60,719
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 1,082 $ 1,838 $ 4,900
Accrued liabilities................................ 1,294 3,850 6,827
Accrued commissions................................ 509 902 1,067
Current portion of accrued payment to
stockholders..................................... -- 167 167
Current portion of long-term debt.................. 329 2,033 2,757
Current portion of capital lease obligations....... 351 1,004 1,681
Deferred revenues.................................. 1,477 3,052 3,770
-------- -------- --------
Total current liabilities................... 5,042 12,846 21,169
Accrued payment to stockholders, net of current
portion............................................ -- 333 333
Long-term debt, net of current portion............... 2,171 5,632 4,336
Capital lease obligations, net of current portion.... 1,516 2,127 1,910
Deferred rental expense.............................. -- 183 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
8,564,893 and 10,213,553 in 1997 and 1998,
respectively (Note 11) and no shares at March
31, 1999...................................... 17,264 29,685 --
Redeemable convertible preferred stock warrants...... 81 444 --
Commitments
Stockholders' equity (deficit):
Preferred stock, par value $0.001 per share:
Authorized shares -- 5,000,000, no shares issued
and outstanding............................... -- -- --
Common stock, par value $0.001 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 2,289,493 and
3,098,543 at September 30, 1997 and 1998,
respectively; 17,103,430 at March 31, 1999.... 259 6,276 76,413
Deferred stock compensation........................ -- (452) (319)
Accumulated deficit................................ (13,969) (32,043) (43,306)
-------- -------- --------
Total stockholders' equity (deficit)........ (13,710) (26,219) 32,788
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 12,364 $ 25,031 $ 60,719
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 88
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses........................ $ 1,717 $ 6,347 $ 11,696 $ 4,854 $ 9,243
Services........................ 242 1,923 5,463 2,220 4,348
------- ------- -------- ------- --------
Total revenues............... 1,959 8,270 17,159 7,074 13,591
Cost of revenues:
Licenses........................ 386 394 558 172 573
Services........................ 839 2,269 5,684 2,212 5,139
------- ------- -------- ------- --------
Total cost of revenues....... 1,225 2,663 6,242 2,384 5,712
------- ------- -------- ------- --------
Gross profit...................... 734 5,607 10,917 4,690 7,879
Operating expenses:
Sales and marketing............. 2,936 5,896 12,353 4,606 10,401
Research and development........ 1,793 3,401 6,434 2,278 5,505
General and administrative...... 963 1,815 4,687 1,673 3,434
Acquired in-process technology
(Note 3)..................... -- -- 5,203 -- --
------- ------- -------- ------- --------
Total operating
expenses............. 5,692 11,112 28,677 8,557 19,340
------- ------- -------- ------- --------
Loss from operations.............. (4,958) (5,505) (17,760) (3,867) (11,461)
Interest income................... 92 130 331 91 847
Interest expense.................. (43) (88) (467) (210) (537)
Other expense, net................ (44) (61) (178) (77) (112)
------- ------- -------- ------- --------
Net loss.......................... $(4,953) $(5,524) $(18,074) $(4,063) $(11,263)
======= ======= ======== ======= ========
Pro forma basic and diluted net
loss per share (unaudited)...... $ (1.58) $ (0.37) $ (0.73)
======== ======= ========
Shares used in calculation of pro
forma basic and diluted net loss
per share (unaudited)........... 11,419 10,874 15,503
======== ======= ========
Historical basic and diluted net
loss per share.................. $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======= ======== ======= ========
Shares used in calculation of
historical basic and diluted net
loss per share.................. 2,282 2,288 2,425 2,309 11,294
======= ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 89
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK DEFERRED TOTAL
-------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
---------- ------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Balance at October 1, 1995.... 2,280,028 $ 258 $ -- $ (3,492) $ (3,234)
Issuance of common stock
from exercise of stock
options.................. 8,217 1 -- -- 1
Net loss.................... -- -- -- (4,953) (4,953)
---------- ------- ----- -------- --------
Balance at September 30,
1996........................ 2,288,245 259 -- (8,445) (8,186)
Issuance of common stock
from exercise of stock
options.................. 1,248 -- -- -- --
Net loss.................... -- -- -- (5,524) (5,524)
---------- ------- ----- -------- --------
Balance at September 30,
1997........................ 2,289,493 259 -- (13,969) (13,710)
Issuance of common stock
from exercise of stock
options.................. 100,132 13 -- -- 13
Deferred stock
compensation............. -- 861 (861) -- --
Amortization of deferred
stock compensation....... -- -- 409 -- 409
Issuance of common stock in
connection with
acquisition
(Note 3)................. 708,918 4,378 -- -- 4,378
Assumption of stock options
in connection with
acquisition (Note 3)..... -- 765 -- -- 765
Net loss.................... -- -- -- (18,074) (18,074)
---------- ------- ----- -------- --------
Balance at September 30,
1998........................ 3,098,543 6,276 (452) (32,043) (26,219)
Proceeds from initial public
offering, net of offering
costs (unaudited)........ 3,365,000 37,369 -- -- 37,369
Conversion of redeemable
convertible preferred
stock into common stock
(unaudited).............. 10,213,553 29,685 -- -- 29,685
Conversion of redeemable
convertible preferred
warrants into common
stock warrants
(unaudited).............. -- 444 -- -- 444
Proceeds from issuance of
common stock from
exercise of common stock
warrants (unaudited)..... 225,000 2,616 -- -- 2,616
Issuance of common stock
from exercise of common
stock warrants
(unaudited).............. 44,052 -- -- -- --
Issuance of common stock
from exercise of stock
options (unaudited)...... 157,282 23 -- -- 23
Amortization of deferred
stock compensation
(unaudited).............. -- -- 133 -- 133
Net loss (unaudited)........ -- -- -- (11,263) (11,263)
---------- ------- ----- -------- --------
Balance at March 31, 1999
(unaudited)................. 17,103,430 $76,413 $(319) $(43,306) $ 32,788
========== ======= ===== ======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 90
CONCUR TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.............................................. $(4,953) $(5,524) $(18,074) $(4,063) $(11,263)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.................... -- -- 5,203 -- --
Amortization of acquired in-process technology.... -- -- 80 -- 160
Amortization of deferred stock compensation....... -- -- 409 189 133
Warrant expense................................... 5 53 23 -- --
Depreciation...................................... 144 393 549 231 580
Provisions for bad debts.......................... 91 45 453 86 172
Other............................................. 17 -- (231) -- --
Changes in operating assets and liabilities:
Accounts receivable............................ (451) (3,901) (1,040) (484) (2,295)
Notes receivable from stockholders............. -- -- (500) (60) --
Prepaid expenses and other assets.............. 63 (84) (616) (32) (2,720)
Accounts payable............................... (24) 454 756 (478) 3,062
Accrued liabilities and accrued commissions.... 597 927 2,949 1,038 3,142
Deferred revenues.............................. 412 1,026 1,575 (13) 718
------- ------- -------- ------- --------
Net cash used in operating activities................. (4,099) (6,611) (8,464) (3,586) (8,311)
------- ------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture.................. (420) (1,020) (40) (29) (85)
Purchase of marketable securities..................... -- -- -- -- (37,544)
Payment in connection with acquisition of 7Software... -- -- (130) -- --
------- ------- -------- ------- --------
Net cash used in investing activities................. (420) (1,020) (170) (29) (37,629)
------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from initial public offering................. -- -- -- -- 37,369
Proceeds from exercise of common stock warrants....... -- -- -- -- 2,616
Proceeds from sales leaseback transaction............. -- 1,800 192 192 --
Proceeds from capital lease financing................. -- 67 -- -- --
Proceeds from borrowings.............................. 563 3,087 5,500 -- --
Payments on borrowings................................ (380) (925) (335) (164) (572)
Payment on capital leases............................. -- -- (500) (170) (513)
Issuance of common stock.............................. 1 -- 13 4 23
Issuance of redeemable convertible preferred stock and
warrants............................................ 7,479 4,612 12,698 -- --
------- ------- -------- ------- --------
Net cash provided by (used in) financing activities... 7,663 8,641 17,568 (138) 38,923
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 3,144 1,010 8,934 (3,753) (7,017)
Cash and cash equivalents at beginning of period...... 2,541 5,685 6,695 6,695 15,629
------- ------- -------- ------- --------
Cash and cash equivalents at end of period............ $ 5,685 $ 6,695 $ 15,629 $ 2,942 $ 8,612
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest................................ $ 27 $ 76 $ 398 $ 157 $ 443
Issuance of redeemable convertible preferred stock in
exchange for cancellation of notes payable.......... -- 267 -- -- --
Issuance of warrants in connection with financing
activity............................................ -- 30 75 -- --
Equipment and furniture obtained through capital
leases.............................................. -- -- 1,572 818 973
Conversion of redeemable convertible preferred stock
and warrants into common stock and common stock
warrants............................................ -- -- -- -- 29,992
Assets and liabilities recorded in connection with
acquisition of 7Software:
Operating assets.................................. -- -- 85 -- --
Accounts payable and accrued expenses............. -- -- (15) -- --
Intangible assets................................. -- -- 960 -- --
</TABLE>
See accompanying notes.
F-7
<PAGE> 91
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Concur Technologies, Inc. (the "Company," formerly Portable Software
Corporation) is a leading provider of Intranet-based employee-facing
applications that extend automation to employees throughout the enterprise and
to partners, vendors and service providers in the extended enterprise. The
Company's Xpense Management Solution ("XMS") and CompanyStore products automate
the preparation, approval, processing and data analysis of travel and
entertainment ("T&E") expense reports and front-office procurement requisitions.
The Company was originally incorporated in the State of Washington on August 19,
1993 and reincorporated in Delaware on November 25, 1998. Operations commenced
during 1994.
Unaudited Interim Financial Information
The financial information as of March 31, 1999 and for the periods ended
March 31, 1998 and 1999 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such dates and the operations and
cash flows for the periods then ended. Operating results for the period ended
March 31, 1999 are not necessarily indicative of results that may be expected
for the entire year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Concur Technologies (UK) Ltd., Concur
Technologies Pty. Limited, and 7Software, Inc. ("7Software"). All significant
intercompany accounts and transactions are eliminated in consolidation.
Revenue Recognition Policy
The Company generates revenues from licensing the rights to use its
software products directly to end users. The Company also generates revenues
from sales of customer support contracts and integration services performed for
customers who license the software.
Software license revenues are recognized when a non-cancelable license
agreement has been signed with a customer, the software is shipped, no
significant post-delivery vendor obligations remain, and collection is deemed
probable. Customer support revenues are recognized ratably over the term of the
customer support contract, typically one year. Revenues for consulting services
and other post-sales revenues are recognized when the services are performed.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2").
The Company adopted SOP 97-2 beginning in fiscal 1999. SOP 97-2 has been
modified by SOP 98-4 and SOP 98-9 as it relates to certain transactions. These
standards generally require revenues earned on software arrangements involving
multiple elements such as software products, upgrades, enhancements,
postcontract customer support, installation and
F-8
<PAGE> 92
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
training to be allocated to each element based on the relative fair values of
the elements. The fair value of an element must be based on evidence that is
specific to the vendor. Evidence of the fair value of each element is based on
the price charged when the element is sold separately or, if the element is not
being sold separately, the price for each element established by management
having relevant authority. The revenues allocated to software products,
including specified upgrades or enhancements, generally are recognized upon
delivery of the products. The revenues allocated to unspecified upgrades,
updates and other postcontract customer support generally are recognized ratably
over the term of the contract. If evidence of the fair value for all elements of
the arrangement does not exist, all revenues from the arrangement are deferred
until such evidence exists or until all elements are delivered. Full guidelines
for SOP 97-2 and related modifications have not been issued. Once available,
such guidelines could lead to unanticipated changes in the Company's current
revenue accounting practices, and such changes could materially adversely affect
the Company's future revenues and earnings.
Cash and Cash Equivalents
All highly liquid financial instruments purchased with an original maturity
of three months or less are reported as cash equivalents.
Marketable Securities
The Company's marketable securities consist primarily of corporate bonds
and commercial paper. Marketable securities are stated at fair value. By policy,
the Company invests primarily in high-grade marketable securities. Marketable
securities are defined as available-for-sale securities under the provisions of
Statement of Financial Accounting Standards No. ("SFAS") 115, "Accounting for
Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale, which are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders'
equity. At March 31, 1999, the fair value of marketable securities approximates
their cost. Therefore, no comprehensive income or loss has been reported.
Fair Values of Financial Instruments
At September 30, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, accrued commissions, long-term debt and capital lease obligations,
bank line of credit ("LOC"), and standby letters of credit. At March 31, 1999,
the Company also had marketable securities. The carrying value of cash and cash
equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities and accrued commissions approximates fair
F-9
<PAGE> 93
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
value based on the liquidity of these financial instruments or based on their
short-term nature. The carrying value of long-term debt, LOC, standby letters of
credit, and capital lease obligations approximates carrying value based on the
market interest rates available to the Company for debt of similar risk and
maturities.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of software development costs. Financial accounting standards require
the capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying statements of operations.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $711,000, $569,000 and $1,762,000 in fiscal 1996, 1997
and 1998, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
utilizes the liability method of accounting for income taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
Stock-Based Compensation
In fiscal 1997, the Company implemented the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). In accordance with the provisions of SFAS 123, the
Company has elected to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" and related interpretations.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the market price of the Company's common stock at the date of grant over
the stock option exercise price.
F-10
<PAGE> 94
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from two to five years.
Depreciation expense includes amounts amortized for assets recorded under
capital leases.
Net Loss per Share
Basic and diluted net loss per share is calculated using the average number
of shares of common stock outstanding. Other common stock equivalents, including
stock options and warrants, are excluded from the computation as their effect is
antidilutive. See Note 13.
Upon the completion of the Company's proposed initial public offering, all
redeemable convertible preferred stock will either automatically convert into
common stock or it is assumed that the preferred stockholders will voluntarily
convert into common stock. Accordingly, pro forma net loss per share is computed
using the weighted average number of shares of common stock outstanding and the
weighted average redeemable convertible preferred stock outstanding as if such
shares were converted to common stock at the time of issuance.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed across many different geographic
areas throughout the world in a variety of industries. No single customer
accounted for more than 10% of the Company's sales in any of the periods
presented. The Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on historical
experience and specific identification.
The Company is subject to concentrations of credit risk from its cash and
cash equivalents. Under terms of certain of its debt agreements, the Company is
required to maintain its cash and cash equivalents primarily at one financial
institution.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing
F-11
<PAGE> 95
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
during the year. The translation adjustment resulting from this process was
insignificant at September 30, 1997 and 1998, respectively and at March 31,
1999. Gains and losses on foreign currency transactions are included in the
consolidated statement of operations as incurred. To date, gains and losses on
foreign currency transactions have not been significant.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year presentation.
Recently Issued Accounting Standards
In 1997, the following accounting standards were issued: SFAS No. 129,
"Disclosure of Information About Capital Structure," requiring supplemental
disclosure of capital structure, SFAS No. 130, "Reporting Comprehensive Income"
(this statement establishes standards for reporting and disclosure of
comprehensive income and its components, including revenues, expenses, gains,
and losses, in a full set of general-purpose financial statements), SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information;" and
SOP 97-2, "Software Revenue Recognition." Each of these standards became
effective for the Company in fiscal 1999. The adoption of these standards is not
expected to have a significant impact upon the Company's financial statements or
disclosures. Also, in June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued and is required to be adopted by
the Company in fiscal 2001. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.
2. EQUIPMENT AND FURNITURE
Equipment and furniture consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software................. $ 319 $ 48
Furniture and equipment........................ 33 38
Leased equipment............................... 789 2,607
------ ------
1,141 2,693
Less accumulated depreciation.................. (53) (531)
------ ------
$1,088 $2,162
====== ======
</TABLE>
In July 1997, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), a preferred stockholder, under which Comdisco
agreed to provide the
F-12
<PAGE> 96
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
2. EQUIPMENT AND FURNITURE (CONTINUED)
Company lease financing, up to an aggregate purchase price of $2.5 million. In
connection with this Master Lease Agreement the Company entered into several
sale leaseback transactions in September and October of 1997 under which the
Company sold assets with a total net book value of $970,000. No gain or loss was
recognized in connection with these sale leaseback transactions because the fair
value of the equipment sold approximated net book value. Leases executed
pursuant to this loan agreement aggregated approximately $2 million and provide
for equal monthly payments over a four-year term with an imputed interest rate
of 8.2%.
In February 1998, the Company entered into a second Master Lease Agreement,
whereby the total financing commitment extended by Comdisco was increased by an
additional $1.0 million, to a total of $3.5 million. In July 1998, the Company
entered into a third Master Lease Agreement with Comdisco, whereby the total
financing commitment was increased by an additional $1.5 million for a total of
$5.0 million. As of September 30, 1998, approximately $1,369,000 was available
under this agreement. The Company accounts for its obligations under these
Master Lease Agreements as capital leases.
3. ACQUISITION OF 7SOFTWARE, INC.
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. The Company issued 708,918 shares of
its common stock in exchange for all outstanding shares of 7Software and also
assumed all outstanding 7Software options, which were converted to options to
purchase approximately 123,921 shares of the Company's common stock. The total
7Software purchase price of $6,233,000 includes the estimated fair value of the
common stock ($4,378,000), the estimated fair value of converted options issued
($765,000), $500,000 payable to certain former 7Software shareholders, cash
payments of $130,000 and other direct acquisition costs of $460,000. The amount
due to former 7Software shareholders is payable in the amount of $167,000 per
year for three years. The acquisition was accounted for as a purchase.
Therefore, the results of operations of 7Software and the fair value of the
assets acquired and liabilities assumed were included in the Company's financial
statements beginning on the acquisition date.
In connection with the purchase of 7Software, the Company assumed
7Software's 1997 stock option plan. All outstanding options to purchase the
stock of 7Software on the acquisition date were converted into options to
purchase 123,921 shares of common stock of the Company. The outstanding options
can be exercised at a price of approximately $0.025 per share, vest over four
years, and are exercisable for a period not to exceed ten years.
The allocation of the purchase price resulted in intangible assets
(primarily developed software and the value of an acquired workforce) of
$960,000, which has been capitalized and is being amortized on a straight line
basis over three years. Amortization expense for the year ended September 30,
1998 was $80,000. Acquired in-process technology has been valued using the
income approach, resulting in a charge of $5,203,000.
Values assigned to acquired in-process research and development, developed
technology, and trademarks were determined using a discounted cash flow
analysis. The value
F-13
<PAGE> 97
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
assigned to the acquired workforce was based on replacement cost. To determine
the value of the in-process research and development, the Company considered,
among other factors, the state of development of each project, the time and cost
needed to complete each project, expected income, and associated risks, which
included the inherent difficulties and uncertainties in completing the project
and thereby achieving technological feasibility and risks related to the
viability of and potential changes to future target markets. This analysis
resulted in amounts assigned to in-process research and development projects
that had not yet reached technological feasibility or do not have alternative
future uses. To determine the value of the developed technology, the expected
future cash flows of the existing technology product were discounted taking into
account risks related to the characteristics and applications of each product,
existing and future markets, and assessments of the life cycle stage of each
product. Based on this analysis, the existing technology that had reached
technological feasibility was capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning platforms, (iii) multiple catalog support, (iv)
fundamental redesign of the user interface, and (v) redesign and rewriting of
the administrative functionality. Based on management's initial estimates, the
remaining research and development efforts relating to the completion of the
CompanyStore technology were expected to continue into the first quarter of
fiscal 1999, the anticipated product release date. Accordingly, the cost to
complete the in-process technology was estimated based on the number of
man-months required to reach technological feasibility for the CompanyStore
technology, the type of professional and engineering staff involved in the
completion process and their fully burdened monthly salaries. Management
estimated the direct costs to achieve technological feasibility to be
approximately $307,000. Beyond this period, management estimated significantly
less expense in supporting and maintaining active products identified at the
acquisition date to be in-process technology. If the in-process projects
contemplated in management's forecast are not successfully developed, future
revenue and profitability might be adversely affected. Additionally, the value
of other intangible assets acquired may become impaired.
The unaudited pro forma combined historical results, as if 7Software had
been acquired on October 1, 1997, excluding the non-recurring one-time charge
for acquired in-process technology, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
--------------------
PRO
ACTUAL FORMA
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues, net...................... $ 17,159 $ 17,356
Net loss................................. (18,074) (13,350)
Pro forma net loss per share............. (1.58) (1.14)
</TABLE>
F-14
<PAGE> 98
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in the event of
termination. These shares were issued in exchange for 7Software shares that
included the same restrictions. These restrictions lapse at various rates
through June 2000. The estimated fair value of these shares has been included in
the purchase price referred to above.
4. LINE OF CREDIT
In fiscal 1998, the Company had a $2.0 million line of credit for operating
needs. Borrowings under the credit line bear interest at the lending bank's
prime interest rate plus 1.5%, which can be reduced to the bank's prime rate
plus 1.0% following the achievement and maintenance of after-tax operating
profitability for two consecutive quarters. The line is limited to $500,000 for
the issuance of standby and commercial letters of credit. The borrowing base for
the line is to be monitored on a monthly basis and is to consist of the sum of
up to 80% of eligible domestic accounts receivable and any letter of credit
backed or insured by foreign accounts receivable; and up to 80% of approved
eligible foreign accounts receivable with a limit of the aggregate funds
advanced against such accounts, not to exceed $300,000. Interest is due monthly
and principal is due upon maturity.
There were no outstanding borrowings under this line at September 30, 1998.
The bank had issued standby letters of credit on behalf of the Company at
September 30, 1998 in the amount of $465,000, and the amount available under the
line of credit on that date was $1,535,000. The line is secured by all
non-leased assets of the Company, including intellectual property. The line of
credit agreement requires the Company to meet certain financial covenants,
including limitations on the Company's ability to pay dividends. See Note 11 for
a discussion of warrants issued in conjunction with the line of credit and other
debt. In March 1999, the line of credit was increased to $4.0 million under
substantially similar terms and was amended to expire in March 2000.
F-15
<PAGE> 99
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note; and
(iii) a $3.5 million subordinated promissory note. The subordinated promissory
notes are held by Comdisco. The proceeds from these obligations may be used for
equipment purchases and general corporate purposes.
The senior term loan facility bears interest at the lending bank's prime
rate less 1.0% (7.5% at September 30, 1998) and matures on February 15, 2001.
Payments are interest only through February 15, 1999. At February 15, 1999, the
outstanding balance under the facility will be paid in 24 equal monthly
principal payments, plus applicable interest. The loan is secured by a perfected
senior security interest in all non-leased assets of the Company with specific
filings for intellectual property (both the line of credit and senior term loan
were issued by the same lender and include the same financial covenants and
restrictions discussed above).
The subordinated promissory notes (which are subordinated to both the line
of credit and senior term loan) are secured by the Company's receivables,
equipment, general intangibles, inventory, and all other goods and personal
property of the Company. The $1.5 million note bears interest at 8.5%, has
principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution expired on
December 31, 1998.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal year ending September 30:
1999........................... $2,033
2000........................... 2,857
2001........................... 2,094
2002........................... 681
------
$7,665
======
</TABLE>
6. NOTES PAYABLE TO STOCKHOLDERS
In December 1996, the Company agreed to exchange two notes payable to
stockholders totaling $233,000, plus accrued interest, for 134,920 shares of
Series C Preferred Stock. At the time of the conversion to Series C Preferred
Stock, the outstanding balance of the notes plus accrued interest was $267,000.
F-16
<PAGE> 100
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
7. COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases and capital leases. In October 1997, the Company signed a five-year lease
for a new corporate headquarters in Redmond, Washington, which commenced
February 1998. The Company has the option to extend the lease for one additional
five-year term. The Company is required to provide a $450,000 letter of credit
as security for the lease. The letter of credit may be reduced by specified
amounts in the lease agreement after 36 months or upon the Company's achieving
certain economic goals. In January and February 1998, the Company signed
two-year subleases for its former corporate headquarters.
Future minimum rental payments under noncancelable leases, net of the
future minimum rentals of $274,000 to be received under the subleases, are as
follows at September 30, 1998:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year ending September 30:
1999..................................... 1,234 883
2000..................................... 1,244 727
2001..................................... 1,036 754
2002..................................... 27 754
2003..................................... -- 276
------- ------
3,541 $3,394
======
Less amount representing interest.......... (410)
-------
Present value of net minimum capital lease
obligations.............................. 3,131
Less current portion....................... (1,004)
-------
Capital lease obligations, less current
portion.................................. $ 2,127
=======
</TABLE>
Total rent expense for the years ended September 30, 1996, 1997 and 1998
was $162,000, $254,000 and $1,055,000 respectively.
8. INCOME TAXES
The Company did not provide an income tax benefit for any period presented
because it has experienced operating losses since inception. At September 30,
1998, the Company has net operating loss carryforwards of $19,142,000 and tax
credit carryforwards of $262,000, all of which expire between 2009 and 2013.
As a result of prior equity financings, the Company has incurred and will
incur "ownership changes" pursuant to applicable regulations in effect under the
Internal Revenue Code of 1986, as amended. Accordingly, the Company's use of net
operating loss carryforwards incurred through the date of these ownership
changes will be limited during the carryforward period. To the extent that any
single year loss is not utilized to the full
F-17
<PAGE> 101
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. INCOME TAXES (CONTINUED)
amount of the limitation, such unused loss is carried over to subsequent years
until the earlier of its utilization or the expiration of the relevant
carryforward period.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1997 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................. $ 3,410 6,508
Tax credit carryforwards......................... 152 262
Deferred revenues................................ 502 1,038
Expenses not currently deductible and other...... 630 947
------- -------
Total deferred tax assets................ 4,694 8,755
Valuation allowance................................ (4,694) (8,755)
------- -------
$ -- $ --
======= =======
</TABLE>
Since the Company's utilization of these deferred tax assets is dependent
on future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased approximately $2,635,000 and $4,061,000 during the years ended
September 30, 1997 and 1998.
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
issuance of options to acquire 2,760,000 shares of common stock. The 1994 Plan
provides for the granting of incentive stock options to employees and
nonqualified stock options to employees, directors and other eligible
participants. Options granted under the 1994 Plan vest at variable rates,
typically four years, determined by the Board of Directors, and remain
exercisable for a period not to exceed ten years. At September 30, 1998, 354,768
shares were available for future grant.
On August 21, 1998, the Board adopted the 1998 Equity Incentive Plan, the
Director Stock Option Plan and the Employee Stock Purchase Plan. The Equity
Incentive Plan authorizes issuance of 3,240,000 shares of common stock upon the
exercise of stock options or otherwise pursuant to the plan. The Director Stock
Option Plan authorizes the issuance of 240,000 shares of common stock upon the
exercise of stock options that may be granted pursuant to the plan. The Employee
Stock Purchase Plan authorizes the issuance of 320,000 shares of Common Stock.
There were no options granted under these plans as of September 30, 1998.
F-18
<PAGE> 102
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
A summary of the Company's stock option activity under the 1994 Plan and
the options issued in exchange for options of 7Software and related weighted
average exercise prices is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year.... 324,100 $ 0.11 622,879 $ 0.15 794,777 $0.16
Granted....................... 360,400 0.18 196,580 0.22 746,414 1.82
Issued in exchange for options
of 7Software................ -- -- -- -- 123,921 0.03
Exercised..................... (8,218) 0.13 (1,248) 0.18 (100,132) 0.13
Canceled...................... (53,403) 0.14 (23,434) 0.37 (25,459) 0.37
---------- ---------- ----------
Balance at end of year.......... 622,879 0.15 794,777 0.16 1,539,521 0.95
========== ========== ==========
Exercisable at end of year...... 199,157 0.10 391,815 0.16 498,378 0.13
========== ========== ==========
Weighted average fair value of
options granted during the
year
Granted at fair value....... $0.18 $0.22 $1.45
Granted at below fair
value..................... -- -- 1.96
</TABLE>
Information regarding the weighted average remaining contractual life and
weighted average exercise price of options outstanding and options exercisable
at September 30, 1998 for selected exercise price ranges is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES LIFE (IN YEARS) SHARES SHARES PRICE
--------------- --------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.03 - 0.20 7.22 776,882 493,180 $ 0.13
0.37 9.07 585,619 5,123 0.37
1.88 - 11.63 9.75 177,020 75 3.13
--------- ---------
$0.03 - 11.63 8.22 1,539,521 498,378 $ 0.13
========= =========
</TABLE>
During the six months ended March 31, 1999, common stock options for
1,212,192 shares were granted with a weighted average exercise price of $18.42;
options for 157,282 shares were exercised with a weighted average exercise price
of $0.10; and options for 25,060 shares were canceled with a weighted average
exercise price of $7.64; thereby resulting in 2,569,371 options outstanding at
March 31, 1999 with a weighted average exercise price of $9.17; of which 756,382
options were exercisable with a weighted average exercise price of $3.25.
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. Accordingly, no compensation
cost has been recognized for its stock options in the accompanying consolidated
financial statements because the fair value of the underlying common stock
equals or exceeds the exercise price of the stock options at the date of grant,
except with respect to certain options granted during the year ended September
30, 1998. The Company has recorded deferred stock
F-19
<PAGE> 103
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
compensation expense of $861,000 relating to options granted during the year
ended September 30, 1998. This amount represents the difference between the
exercise price and the deemed fair value for financial reporting purposes of the
Company's common stock during the periods in which such options were granted.
Amortization of deferred stock compensation of $409,000 was recognized during
the year ended September 30, 1998.
The following pro forma information regarding stock-based compensation has
been determined as if the Company had accounted for its employee stock options
under the fair market value method of SFAS 123. The fair value of these options
was estimated at the date of grant using a minimum value option pricing model
with the following weighted average assumptions: risk-free interest rates range
from 5.5% to 6.5% in 1996, 1997, and 1998; a dividend yield rate of 0% for all
periods; and the options will be exercised one year after they vest.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net loss as reported............................ $(4,953) $(5,524) $(18,074)
Incremental pro forma compensation expense under
SFAS 123...................................... (2) (7) (37)
------- ------- --------
Pro forma net loss.............................. $(4,955) $(5,531) $(18,111)
======= ======= ========
Pro forma loss per share........................ $ (2.17) $ (2.42) $ (7.47)
======= ======= ========
</TABLE>
Under SFAS 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of amortization of multiple awards would be reflected in
pro forma earnings.
10. STOCKHOLDER NOTES RECEIVABLE
In October 1994, certain stockholders exercised options to purchase shares
of common stock. In connection with the issuance, the Company accepted
promissory notes totaling $80,000. These notes are due in October 1999 and bear
interest at the higher of 5% or the minimum interest rate required to avoid
implied interest under the Internal Revenue Code, payable annually. These notes
are full recourse and are secured by the common stock purchased with the
proceeds thereof.
F-20
<PAGE> 104
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Redeemable Convertible Preferred Stock
In October 1994, the Company designated and issued 1,529,636 shares of
Series A redeemable convertible preferred stock ("Series A Preferred Stock")
through a private offering. Net proceeds from the financing amounted to
$1,963,000.
In July 1995, the Company designated and issued 1,874,999 shares of Series
B redeemable convertible preferred stock ("Series B Preferred Stock") through a
private offering. Net proceeds from the financing amounted to $2,939,000.
In July 1996, the Company designated 3,909,920 shares and issued 3,750,000
shares of Series C redeemable convertible preferred stock ("Series C Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$7,479,000. In December 1996, the Company agreed to issue an additional 134,920
shares of Series C Preferred Stock in exchange for the cancellation of notes
payable totaling $267,000.
In July 1997, the Company designated 1,343,159 shares and issued 1,275,338
shares of Series D redeemable convertible preferred stock ("Series D Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$4,612,000.
In June 1998, the Company designated 1,800,000 shares and issued 1,003,499
shares of Series E redeemable convertible preferred stock ("Series E Preferred
Stock") through a private offering. In August 1998, the Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") was amended for the sale of an
additional 645,161 shares of the Company's Series E Preferred Stock and Series E
Preferred Stock Warrants to purchase an additional 2,400,000 shares of Series E
Preferred Stock for $4,999,999 to American Express Travel Related Services
Company, Inc. ("TRS"). The total number of shares of Series E Preferred Stock
issued was 1,648,660. Total net proceeds from the Series E Preferred Stock
financing amounted to $12,698,000.
In connection with the initial public offering referred to in Note 19, all
redeemable convertible preferred stock automatically converted into common
stock.
Following is a summary of terms and conditions for each series of
redeemable convertible preferred stock as of September 30, 1998:
<TABLE>
<CAPTION>
ANNUAL
AGGREGATE DIVIDEND
SHARES STATED LIQUIDATION RATE --
OUTSTANDING VALUE VALUE NONCUMULATIVE
----------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Issues and outstanding:
Series A.................... 1,529,636 $1.30 $ 2,000,000 $0.0915
Series B.................... 1,874,999 1.60 3,000,000 0.1120
Series C.................... 3,884,920 2.00 7,770,000 0.1400
Series D.................... 1,275,338 3.65 4,655,000 0.2550
Series E.................... 1,648,660 7.75 12,777,000 0.5425
---------- -----------
10,213,553 $30,202,000
========== ===========
</TABLE>
F-21
<PAGE> 105
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
Warrants to Purchase Preferred Stock
In May 1996, the Company issued warrants to purchase 28,125 shares of
Series C Preferred Stock in conjunction with a renewal and increase in the bank
line of credit (see Note 4). The warrants were immediately exercisable at a
price of $2.00 per share, expiring May 2001. The estimated fair value of these
warrants of $5,000 has been recorded as debt issuance costs. At the time of the
initial public offering, the warrants were exercised.
In July 1997, the Company issued warrants to Comdisco to purchase 44,827
and 22,988 shares of Series D Preferred Stock in conjunction with the Company's
receipt of financing commitments relating to the promissory note and lease
agreement, respectively (see Note 2). Each has a purchase price of $3.65 per
share. The warrants become immediately exercisable on the effective date of the
agreements and remain exercisable for a period of five years; or two years from
the effective date of the Company's initial public offering, whichever is
longer. The estimated fair values of these warrants of $30,000 and $16,000,
respectively, has been recorded as debt issuance costs.
In September 1997, the Company issued warrants to purchase 14,000 shares of
Series D Preferred Stock in conjunction with a new loan facility and an
increase/renewal in the bank line of credit (see Note 4). The warrants have an
initial exercise price of $3.65 per share, a five-year maturity inclusive of
certain provisions to include, but not limited by, a net exercise provision,
antidilution protection and a $30,000 put option. The right to exercise the put
option expires two years from the issue date of the warrants. The estimated fair
value of these warrants of $30,000 has been recorded as debt issuance costs. At
the time of the initial public offering, the warrants were exercised.
In April 1998, the Company issued warrants to purchase 13,187 shares of
Series E Preferred Stock in conjunction with the increase to the senior loan
facility (see Note 4). The warrants have an initial exercise price of $7.75 per
share. The warrants became immediately exercisable on the effective date of the
agreements and are exercisable for a period of five years. Additionally, the
agreement provides for a $75,000 put option, which expires in April 2000. The
estimated fair value of these warrants of $75,000 has been recorded as debt
issuance costs. The warrants were exercised in February 1999.
In May 1998, the Company issued warrants to Comdisco to purchase 56,451
shares of Series E Preferred Stock in conjunction with the new subordinated
promissory note (see Note 2). The warrants are immediately exercisable at a
price of $7.75 per share and are exercisable for a period of five years; or two
years from effective date of the Company's initial public offering, whichever is
longer. The estimated fair value of these warrants of $11,000 has been recorded
as debt issuance costs. Under the terms of this subordinated debt agreement, the
Company had an outstanding commitment to issue additional warrants to purchase
as many as 27,096 shares of Series E Preferred Stock at an exercise price of
$7.75 per share if it utilized the $1.5 million additional financing available
under the agreement. This commitment expired December 31, 1998 under the terms
of the agreement.
F-22
<PAGE> 106
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
In connection with the sale of an additional 645,161 shares of Series E
Preferred Stock, the Company issued a warrant to TRS and its assignees to
purchase an additional 2,400,000 shares of Series E Preferred Stock. As all of
the shares of Series E Preferred Stock are converted into shares of common stock
in connection with the initial public offering of the Company's common stock,
this warrant will automatically be converted into common stock warrants
exercisable for 2,325,000 shares of the Company's common stock. The terms of the
warrant provide that it is exercisable in four tranches as follows: 300,000
shares may be acquired at the time of the Company's initial public offering at a
cash purchase price per share equal to the initial public offering price per
share less 7%; 700,000 shares may be acquired at any time on or before October
15, 1999 at a cash purchase price of $33.75 per share; 700,000 shares may be
acquired at any time on or before January 15, 2001 at a cash purchase price of
$50.63 per share; and the remaining 700,000 shares may be acquired at any time
on or before January 15, 2002 at a cash purchase price of $85.00 per share. As
was permitted by the warrant, the Company exercised its option to cancel 25% of
the shares that could have been acquired under the warrant at the time of the
initial public offering or on or before October 15, 1999. In connection with an
amendment to a standstill agreement with TRS, the Board of Directors
subsequently rescinded its 25% reduction in the number of shares that can be
acquired on or before October 15, 1999. At the time of the initial public
offering, the initial traunch of this warrant was exercised for 225,000 shares
of common stock. The estimated fair value of this warrant, determined based on a
Black Scholes fair value model, is approximately $278,000, which has been
recorded as redeemable convertible preferred stock warrants.
All preferred stock warrants automatically converted into common stock
warrants upon the closing of the initial public offering of the Company's common
stock.
F-23
<PAGE> 107
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ---------
<S> <C> <C>
Outstanding stock options................... 1,539,521 2,569,371
Stock Options available for grant:
1994 Stock Option Plan................. 354,768 334,230
1998 Equity Incentive Plan............. 3,240,000 2,173,406
Director Stock Option Plan............. 240,000 140,000
Employee Stock Purchase Plan................ 320,000 490,297
Conversion of redeemable convertible
preferred stock:
Series A............................... 1,529,636 --
Series B............................... 1,874,999 --
Series C............................... 3,909,920 --
Series D............................... 1,343,159 --
Series E............................... 1,800,000 --
Warrants to purchase Series C Preferred
Stock that are convertible to common
stock..................................... 28,125 --
Warrants to purchase Series D Preferred
Stock that are convertible to common
stock..................................... 81,815 --
Warrants to purchase Series E Preferred
Stock that are convertible to common
stock..................................... 2,219,638 --
Warrants to purchase common stock........... -- 2,224,267
---------- ---------
Total............................. 18,481,581 7,931,571
========== =========
</TABLE>
All of the shares of our common stock which remained available for issuance
under the 1994 Stock Option Plan when the 1998 Equity Incentive Plan became
effective, became available for issuance under the 1998 Equity Incentive Plan.
F-24
<PAGE> 108
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
13. NET LOSS PER SHARE
Basic and diluted net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding. Pro forma net
loss per share is computed using the weighted average number of shares used for
basic and diluted per share amounts and the weighted average convertible
redeemable preferred stock outstanding as if such shares were converted to
common stock at the time of issuance.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net loss........................ $(4,953) $(5,524) $(18,074) $ (4,063) $(11,263)
======= ======= ======== ======== ========
Basic and diluted net loss per
common share.................. $ (2.17) $ (2.41) $ (7.45) $ (1.76) $ (1.00)
======= ======= ======== ======== ========
Weighted average number of
common shares used for basic
and diluted per share
amounts....................... 2,282 2,288 2,425 2,309 11,294
======= ======= -------- -------- --------
Weighted average common shares
issuable upon pro forma
conversion of preferred
stock......................... 8,994 8,565 4,209
-------- -------- --------
Weighted average number of
shares used for pro forma per
share amounts................. 11,419 10,874 15,503
======== ======== ========
Pro forma basic and diluted net
loss per share................ $ (1.58) $ (0.37) $ (0.73)
======== ======== ========
</TABLE>
Options to purchase 2,569,371 shares of common stock with exercise prices
of $0.03 to $38.81 per share and warrants to purchase 2,224,267 shares of common
stock at a range of $3.65 to $85.00 per share were outstanding at March 31,
1999. These options and warrants were excluded from the computation of diluted
earnings per share because their effect was anti-dilutive.
14. RETIREMENT 401(k) PLAN
The Company sponsors a 401(k) Profit Sharing and Trust Plan that is
available to substantially all employees. Each employee may elect to contribute
up to 20% of his or her pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions
to the Plan are subject to statutory limitations regarding maximum
contributions. There are no Company matching contributions.
F-25
<PAGE> 109
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
15. INTERNATIONAL REVENUES
The Company licenses and markets its products primarily in the United
States, and operates in a single industry segment. Information regarding
revenues in different geographic regions is as follows:
<TABLE>
<CAPTION>
REVENUES
---------------------------
COUNTRY 1996 1997 1998
------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States.............................. $1,959 $6,981 $16,349
Europe..................................... -- 612 364
Canada..................................... -- 677 31
Australia.................................. -- -- 398
Asia....................................... -- -- 17
------ ------ -------
Total............................ $1,959 $8,270 $17,159
====== ====== =======
</TABLE>
From the inception of the Company to September 30, 1996, there were no
significant export sales or operations in countries outside of the United
States.
16. SIGNIFICANT AGREEMENTS
Strategic Marketing Alliance Agreement with American Express
In December 1997, the Company entered into a strategic alliance agreement
with American Express Company ("American Express"), a related party, under which
American Express refers to the Company its corporate charge card customers that
seek a T&E expense management software solution. Under the terms of the
agreement, American Express receives a fee for referring to the Company clients
of American Express who become XMS customers. The fee varies based upon
licensing revenue realized from referred customers. Except for the referral, the
Company is responsible for the entire sales effort and also for customer support
and warranty service. Under the agreement, the Company and American Express have
also agreed to develop certain product features enabling a higher level of
integration between XMS and certain American Express services and products.
Strategic Marketing Alliance Agreement with ADP, Inc.
In November 1998, the Company entered into a strategic alliance agreement
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., under which ADP
has agreed to refer potential customers for travel and entertainment expense
management software products and services exclusively to the Company. The
Company and ADP also agreed to jointly market the Company's travel and
entertainment expense report processing products and services to ADP customers.
Co-Branded XMS Service Marketing Agreement
In August 1998, the Company entered into a Co-Branded XMS Service Marketing
Agreement with American Express' affiliate TRS. Under the terms of the
agreement, TRS
F-26
<PAGE> 110
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
will receive a fee for marketing to TRS's clients a co-branded enterprise
service provider ("ESP") version of XMS containing special features. The
marketing fee is based on the amount of revenue received. The Company is
responsible for providing warranty and customer support services to these
customers. In addition, under the terms of the agreement, the Company and TRS
have agreed to jointly develop certain product features for integration into the
co-branded ESP version of XMS.
License and Other Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of product sales. These amounts totaled
$203,000 and $348,000 for the years ended September 30, 1997 and 1998,
respectively. Amounts recognized in 1996 were insignificant.
17. RELATED PARTY TRANSACTION
During 1998 the Company paid fees of $121,000 to a stockholder and received
proceeds of $41,000 under the terms of a sales referral agreement. Additionally,
the Company recorded $134,000 in revenue for the sale of a license agreement to
another stockholder in 1998. No sales were made to stockholders or under the
sales referral agreement prior to 1998. At September 30, 1998 accounts
receivable from stockholders were $152,000 and accounts payable to stockholders
were $83,000. For the six months ended March 31, 1999, the Company paid fees of
$254,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At March 31, 1999, accounts receivable from stockholders was
$0 and accounts payable to stockholders were $95,000.
18. SUBSEQUENT EVENT
Reverse Stock Split
On August 21, 1998 the Board of Directors authorized a reverse stock split
of the Company's common stock. The reverse split was approved for a range of
split ratios by the Stockholders in October 1998. The split ratio of 1-to-2.5
was determined on November 16, 1998. The reverse stock split was effected on
December 9, 1998. The related common share, preferred share and per share data
in the accompanying financial statements has been retroactively restated to
reflect the reverse stock split, including preferred share data on an
as-converted to common stock basis.
19. INITIAL PUBLIC OFFERING ("IPO") AND FOLLOW-ON OFFERING
On December 16, 1998, the Company issued 3,365,000 shares of its Common
Stock (including 465,000 shares issued upon the exercise of the underwriters'
over allotment option) at an initial public offering price of $12.50 per share.
The net proceeds to the
F-27
<PAGE> 111
CONCUR TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
19. INITIAL PUBLIC OFFERING ("IPO") AND FOLLOW-ON OFFERING (CONTINUED)
Company from the offering, net of offering costs were approximately $37.4
million. In connection with the IPO, warrants were exercised to purchase 225,000
shares of common stock at a price of $11.625 per share, resulting in additional
proceeds to the Company totaling $2.6 million. 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 2,237,454 shares were automatically converted into warrants
for the purchase of 2,237,454 shares of common stock.
On March 15, 1999, the Board of Directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit the
Company to execute a follow-on offering of its common stock to the public. On
April 16, 1999, the Company issued on an additional 2,018,620 shares of its
common stock at an offering price of $43.50. The net proceeds to the Company,
net of offering costs, were approximately $82.5 million.
20. ACQUISITION OF SEEKER SOFTWARE, INC.
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 among
the Company and Seeker Software, Inc. ("Seeker"), the Company acquired all of
the outstanding capital of Seeker. Seeker develops, markets and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access, update and share information from their desktop
computers.
In connection with the merger the Company issued 3,419,929 shares of common
stock in exchange for all outstanding preferred stock, preferred stock purchase
warrants, and common stock of Seeker and the Company assumed all outstanding
options of Seeker in connection with the merger with Seeker resulting in the
issuance of options to purchase up to 680,234 shares of common stock. This
transaction will be accounted for as a pooling of interests.
F-28
<PAGE> 112
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Seeker Software, Inc.
We have audited the accompanying balance sheets of Seeker Software, Inc.
(the Company) as of December 31, 1997 and 1998, and the related statements of
operations, redeemable convertible preferred stock and shareholders' deficit,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Seeker Software, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
April 21, 1999
F-29
<PAGE> 113
SEEKER SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 675 $ 3,069 $ 1,248
Accounts receivable, net of allowance for doubtful
accounts of $150 at December 31, 1998 and March
31, 1999......................................... 1,028 2,276 1,569
Prepaid expenses and other current assets.......... 94 46 88
------- -------- --------
Total current assets................................. 1,797 5,391 2,905
Property and equipment, net.......................... 539 940 848
Other assets......................................... 34 228 168
------- -------- --------
Total assets......................................... $ 2,370 $ 6,559 $ 3,921
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
DEFICIT
Current liabilities:
Accounts payable................................... $ 190 $ 1,039 $ 1,241
Accrued compensation and related liabilities....... 287 744 640
Notes payable to shareholders...................... 1,047 2,500 2,500
Current portion of borrowings under lines of
credit........................................... 222 921 223
Current portion of borrowings under subordinated
note payable..................................... -- 553 895
Deferred revenue................................... 369 715 675
------- -------- --------
Total current liabilities............................ 2,115 6,472 6,174
Borrowings under lines of credit..................... 278 339 378
Borrowings under subordinated note payable........... -- 1,353 1,800
Commitments
Redeemable convertible preferred stock:
Series B, $0.001 par value; 5,200,000 shares
authorized, 5,000,000 shares issued and
outstanding at December 31, 1998 and March 31,
1999 (liquidation preference -- $8,249 at March
31, 1999)........................................ -- 8,015 8,201
Shareholders' deficit:
Series A convertible preferred stock, $0.001 par
value; 4,439,626 shares authorized; shares issued
and outstanding -- 4,300,000 in 1997 and
4,266,827 in 1998 and March 31, 1999 (liquidation
preference -- $3,938 at March 31, 1999).......... 3,182 3,139 3,139
Common stock, $0.001 par value; 20,000,000 shares
authorized; shares issued and
outstanding -- 4,630,525, 4,980,757 and 5,086,659
in 1997, 1998 and March 31, 1999, respectively... 217 500 2,587
Deferred stock compensation........................ -- (219) (2,010)
Accumulated deficit................................ (3,422) (13,040) (16,348)
------- -------- --------
Total redeemable convertible preferred stock and
shareholders' deficit.............................. (23) (1,605) (4,431)
------- -------- --------
Total liabilities, redeemable convertible preferred
stock and shareholders' deficit.................... $ 2,370 $ 6,559 $ 3,921
======= ======== ========
</TABLE>
See accompanying notes.
F-30
<PAGE> 114
SEEKER SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
License fees........................ $ 743 $ 2,490 $ 103 $ 306
Services............................ 901 1,567 186 803
------- ------- ------- -------
Total revenues........................ 1,644 4,057 289 1,109
Operating expenses:
Cost of revenues.................... 546 2,824 505 939
Sales and marketing................. 1,639 4,738 829 1,269
Product development................. 1,683 3,936 733 1,318
General and administrative.......... 908 1,615 234 599
------- ------- ------- -------
Total operating expenses.............. 4,776 13,113 2,301 4,125
------- ------- ------- -------
Operating loss........................ (3,132) (9,056) (2,012) (3,016)
Interest income....................... 61 134 30 19
Interest expense...................... (19) (133) (55) (125)
------- ------- ------- -------
Net loss.............................. $(3,090) $(9,055) $(2,037) $(3,122)
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-31
<PAGE> 115
SEEKER SOFTWARE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SHAREHOLDERS' DEFICIT
SERIES B ------------------------------------------------------------------------------
REDEEMABLE SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ --------- ------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996...................... -- $ -- -- $ -- 4,394,000 $ 211 $ -- $ (332) $ (121)
Issuance of Series A
convertible preferred
stock (net of issuance
costs of $42,982)....... -- -- 4,300,000 3,182 -- -- -- -- 3,182
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 236,525 6 -- -- 6
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (3,090) (3,090)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1997...................... -- -- 4,300,000 3,182 4,630,525 217 -- (3,422) (23)
Issuance of Series B
redeemable convertible
preferred stock (net of
issuance costs of
$48,000)................ 5,000,000 7,452 -- -- -- -- -- -- 7,452
Accretion of Series B
preferred stock......... -- 563 -- -- -- -- -- (563) --
Repurchase of Series A
preferred stock......... -- -- (33,173) (43) -- -- -- -- (43)
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 350,232 20 -- -- 20
Deferred compensation..... -- -- -- -- -- 263 (263) -- 0
Amortization of deferred
compensation............ -- -- -- -- -- -- 44 -- 44
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (9,055) (9,055)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1998...................... 5,000,000 8,015 4,266,827 3,139 4,980,757 500 (219) (13,040) (1,605)
Accretion of Series B
preferred stock
(unaudited)............. -- 186 -- -- -- -- -- (186) --
Issuance of common stock
under employee stock
option plan
(unaudited)............. -- -- -- -- 105,902 7 -- -- 7
Deferred compensation
(unaudited)............. -- -- -- -- -- 2,080 (2,080) -- --
Amortization of deferred
stock compensation
(unaudited)............. -- -- -- -- -- -- 289 -- 289
Net loss and comprehensive
loss (unaudited)........ -- -- -- -- -- -- -- (3,122) (3,122)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at March 31, 1999
(unaudited)............... 5,000,000 $8,201 4,266,827 $3,139 5,086,659 $2,587 $(2,010) $(16,348) $(4,431)
========= ====== ========= ====== ========= ====== ======= ======== =======
</TABLE>
See accompanying notes.
F-32
<PAGE> 116
SEEKER SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(3,090) $(9,055) $(2,037) $(3,122)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 80 220 34 92
Amortization of deferred stock compensation.......... -- 44 -- 289
Accrued interest converted to preferred stock........ -- 15 -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (899) (1,248) 482 707
Prepaid expenses and other current assets.......... (109) 48 41 (42)
Other assets....................................... (35) (194) 35 60
Accounts payable and accrued liabilities........... 155 849 6 202
Accrued compensation and related liabilities....... 287 457 60 (104)
Deferred revenue................................... 206 346 101 (40)
------- ------- ------- -------
Net cash used in operating activities..................... (3,405) (8,518) (1,278) (1,958)
INVESTING ACTIVITIES
Purchase of furniture and equipment, net.................. (570) (621) (106) --
------- ------- ------- -------
Net cash used in investing activities..................... (570) (621) (106) --
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................. 3,070 6,390 7,500 --
Proceeds from issuance of common stock.................... 6 20 -- 7
Repurchase of preferred stock............................. -- (43) -- --
Proceeds from lines of credit............................. 500 1,039 -- 370
Proceeds from notes payable to shareholders............... 1,047 2,500 -- --
Proceeds from subordinated debt........................... -- 2,000 -- --
Payments on equipment line of credit...................... (25) (279) (74) (95)
Payments of subordinated debt............................. (94) (1,051) (145)
------- ------- ------- -------
Net cash provided by financing activities................. 4,598 11,533 6,375 137
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents.......... 623 2,394 4,991 (1,821)
Cash and cash equivalents at beginning of period.......... 52 675 675 3,069
------- ------- ------- -------
Cash and cash equivalents at end of period................ $ 675 $ 3,069 $ 5,666 $ 1,248
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 13 $ 126 $ 16 $ 75
======= ======= ======= =======
Series B redeemable convertible preferred stock issued in
exchange for cancellation of notes payable and related
accrued interest........................................ $ -- $ 1,062 $ -- $ --
======= ======= ======= =======
</TABLE>
See accompanying notes.
F-33
<PAGE> 117
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Seeker Software, Inc. (the "Company"), a Delaware corporation develops,
markets and sells web-based self-service HR workplace solution applications
which allow employees within an organization to access, update and share
information from their desktop computers.
In December 1996, the unit holders of Seeker Software, LLC (predecessor
business) transferred all of the assets and liabilities of the predecessor
business to the Company in exchange for 4,394,000 shares of the Company's common
stock in a recapitalization transaction. The recapitalization transaction was
accounted for on a historical cost basis.
Unaudited Interim Financial Information
The financial information as of March 31, 1999 and for the periods ended
March 31, 1998 and 1999 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such dates and the operations and
cash flows for the periods then ended. Operating results for the period ended
March 31, 1999 are not necessarily indicative of results that may be expected
for the entire year.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value.
Fair Values of Financial Instruments
At December 31, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, notes payable and lines of credit ("LOC"). The carrying value of
cash and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximates fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of notes
payable and LOC approximates carrying value based on the market interest rates
available to the Company for debt of similar risk and maturities.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from three to five
years.
F-34
<PAGE> 118
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model. To date, costs incurred subsequent to the
establishment of technological feasibility have not been significant, and all
software development costs have been charged to product development expense in
the accompanying statements of operations.
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides post-contract customer services (including maintenance, support and
periodic upgrades/enhancements) and other services (including installation,
training and consulting). License fee revenues are recognized when a
non-cancelable license agreement has been signed, the product has been
delivered, there are no uncertainties surrounding product acceptance, the fees
are fixed and determinable and collection is considered probable. Revenues from
post-contract customer services are recognized ratably over the related term,
which is generally one year. Other revenues are recognized as performed. Revenue
from one customer accounted for 18% of total revenue for the year ended December
31, 1998 and revenue from two customers accounted for 45% of total revenue at
December 31, 1997.
The Company performs ongoing credit evaluations of its customers, all of
which are located in the U.S., and generally does not require collateral.
Deferred revenue consists primarily of prepaid license and maintenance
fees.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). The effect of applying the fair
value method of SFAS 123 to the Company's stock options results in a net loss
for the years ended December 31, 1997 and 1998, respectively, that is not
materially different from the amounts reported.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Under this method, deferred tax assets
and liabilities are measured
F-35
<PAGE> 119
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
2. NOTE RECEIVABLE FROM A FORMER SHAREHOLDER
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March 1998. The note
bears interest at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by
200,000 shares of common stock of the Company owned by the former shareholder.
In connection with this agreement the Company has the right to repurchase the
common stock for $1.05 per share. In May 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by the payment of cash of approximately $30,000.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1998
---- ------
(IN THOUSANDS)
<S> <C> <C>
Computer equipment..................................... $412 $ 963
Furniture and office equipment......................... 217 331
---- ------
629 1,294
Less accumulated depreciation and amortization......... (90) (354)
---- ------
$539 $ 940
==== ======
</TABLE>
4. NOTES PAYABLE TO SHAREHOLDERS
In December 1997, the Company issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1998. The notes payable to
shareholders accrued interest at the prime rate (8.5% at December 31, 1997) and
were due and payable with accrued interest in December 2000. The Company closed
a private placement in March 1998, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Series
B preferred stock.
In December 1998, the Company issued $2,500,000 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1999. The notes payable to
shareholders accrued interest at the prime rate (7.75% at December 31, 1998) and
were payable with accrued interest in December 2005. As further described in
Note 11, The Company closed a private placement in April 1999, in which all of
the notes payable to shareholders, along with accrued interest, were converted
into shares of Series C preferred stock.
F-36
<PAGE> 120
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LEASE OBLIGATIONS
The Company leases its office facilities under non-cancelable operating
leases. Rent expense under operating leases amounted to approximately $102,000
and $266,529 in the years ended December 31, 1997 and 1998, respectively.
Future minimum lease payments under leases are as follows at December 31,
1998:
<TABLE>
<S> <C>
1999......................................... $311,071
2000......................................... 309,829
2001......................................... 247,914
--------
Total........................................ $868,814
========
</TABLE>
6. EQUIPMENT AND WORKING CAPITAL LINE OF CREDIT
Equipment Line of Credit
The Company has an equipment line of credit with a bank which allows for
borrowings up to $1,000,000 expiring in May 1999, of which $944,984 was
outstanding as of December 31, 1998. Payments of principal of approximately
$32,000 plus interest, which accrues at the prime rate plus 1.5% (9.25% at
December 31, 1998), are due monthly until October 2001.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1,000,000 and
expires in September 1999. Borrowings under the line of credit bear interest,
payable monthly, at 8.25% per year. No amounts were outstanding at December 31,
1998. The Company issued warrants to the lender to purchase 20,000 shares of
Series B redeemable convertible preferred stock for $1.50 per share through
September 2005.
Working Capital Line of Credit
The Company has a working capital line of credit with the same bank which
allows for borrowings up to $1,000,000 and expires in May 1999, at which time
all outstanding principal and remaining interest under the line of credit
agreement become due and payable. Borrowings under this working capital line of
credit accrue interest at the prime rate plus 0.50% (8.25% at December 31,
1998). Borrowings under the working capital line of credit were $524,693 at
December 31, 1998.
7. SUBORDINATED NOTE PAYABLE
In September, 1998, the Company entered into a subordinated loan agreement
in the aggregate principal amount of $2,000,000. The subordinated note payable
bears interest of 11% per annum The Company issued warrants to the lender to
purchase 133,333 shares of Series B redeemable, convertible preferred stock for
$1.50 per share through September 2005.
F-37
<PAGE> 121
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock
In February 1997, the Company issued 4,300,000 shares of Series A preferred
stock at $.75 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
Dividends
The holders of Series A preferred stock are entitled to receive, when and
as declared by the Board of Directors, but only out of funds that are legally
available, non-cumulative dividends at the rate of 10% of the original Series A
issue price per annum on each outstanding share of Series A preferred stock
(subject to adjustment for certain anti-dilution provisions). Should dividends
be declared on common stock, the holders of Series A preferred stock would have
been entitled to an additional equivalent dividend per share on an as-converted
basis.
Conversion
Each share of Series A preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilution provisions). All shares of Series A preferred stock will
automatically convert into shares of common stock at any time upon the
affirmative vote or written consent of the holders of at least 50% of the
then-outstanding shares of Series A preferred stock, or immediately upon the
closing of a underwritten public offering of common stock which generates gross
proceeds of at least $7,500,000, with an offering price per share of at least
$4.00 (as adjusted for certain anti-dilution provisions).
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of common stock, an amount per share
equal to the sum of the original Series A issue price for each share, plus an
amount equal to 10% of the original Series A issue price per annum, plus all
declared and unpaid dividends with respect to such shares. Assuming full payment
of the Series A liquidation preference, the remaining assets of the Company
legally available for distribution, if any, will be distributed to the holders
of common stock until each common stock holder receives an amount per share of
common stock equal to the Series A liquidation preference. After the payment of
the full Series A liquidation preference and an equivalent amount per share to
all holders of common stock, the remaining assets legally available for
distribution will be paid ratably to the holders of common stock and the holders
of Series A preferred stock on an as-converted basis (as adjusted for certain
anti-dilution provisions).
F-38
<PAGE> 122
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Voting
The holder of each share of Series A preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series A preferred stock could be converted.
Series B Redeemable Convertible Preferred Stock
In March 1998, the Company issued 5,000,000 shares of Series B preferred
stock at $1.50 per share (the "Original Series B Issue Price") for cash of
approximately $6,442,000 and the conversion of notes payable to shareholders and
accrued interest of approximately $1,062,000.
Dividends
The holders of shares of Series B are entitled to receive, when and as
declared by the Board of Directors, but only out of funds that are legally
available, dividends at the rate of 10% of the Original Issue Price per annum on
each outstanding share of Series B Preferred Stock (as adjusted for certain
anti-dilutive provisions). Should dividends be declared on common stock, the
holders of Series B preferred stock will be entitled to an additional equivalent
dividend per share on an as-converted basis (as adjusted for certain
anti-dilutive provisions).
Conversion
Each share of Series B preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilutive provisions). All shares of Series B and Series A preferred stock
shall automatically be converted into shares of common stock at a 1:1 conversion
rate (as adjusted for certain anti-dilutive provisions), at any time upon the
affirmative vote or written consent of the holders of at least 66 2/3% of the
then outstanding shares of Series B and Series A preferred stock (voting
together as one class) or immediately upon the closing of a underwritten public
offering of common stock which generates gross proceeds of at least $10,000,000
with an offering price per share of at least $6.00 (as adjusted for certain
anti-dilutive provisions).
Redemption
At any time on or after the seventh anniversary of the Series B original
issue date, the Company will, at the request of holders of at least a majority
of the then outstanding shares of Series B preferred stock, redeem all
outstanding shares of Series B preferred stock at a price per share equal to the
Series B Original Issue Price plus an amount equal to 10% of the Series B
Original Issue Price per year that the Series B preferred stock is outstanding
(including partial years) plus all declared and unpaid dividends on such shares.
If the funds of the Company legally available for redemption of shares of
Series B preferred stock are insufficient to redeem the total number of shares,
those funds which are
F-39
<PAGE> 123
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
legally available will be used to redeem the maximum possible number of shares
of Series B preferred stock on a pro-rata basis among the holders of Series B
preferred stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series B preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of Series A preferred stock and common
stock, an amount per share equal to the sum of the Original Series B Issue Price
for each share plus an amount equal to 10% of the Original Series B Issue Price
per annum plus all declared and unpaid dividends with respect to such shares
(the "Series B Liquidation Preference"). If funds are insufficient to fully pay
the Series B Liquidation Preference then the available funds will be paid on a
pro-rata basis to the holders of Series B preferred stock.
After the full payment of the Series B Liquidation Preference, the holders
of Series A preferred stock are entitled to receive, prior to and in preference
of any distribution of any of the assets of the Company to the holders of common
stock, the Series A Liquidation Preference. If funds are insufficient to fully
pay the Series A Liquidation Preference then the available funds will be paid on
a pro-rata basis to the holders of Series A preferred stock.
The remaining assets of the Company legally available for distribution, if
any, will be distributed to the holders of common stock until each common stock
holder receives an amount per share of common stock equal to the
per-share-weighted-average of the Series B Liquidation Preference and the Series
A Liquidation Preference (the "Common Liquidation Preference").
After the payment of the full Series B Liquidation Preference and the full
Series A Liquidation Preference, the remaining assets legally available for
distribution will be paid ratably to the holders of common stock and the holders
of Series B and Series A preferred stock on an as-converted basis (as adjusted
for certain anti-dilutive provisions).
Voting
The holder of each share of Series B preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series B preferred stock could be converted.
Stock Options
Under the Company's 1997 Flexible Stock Incentive Plan (the "Plan"),
3,469,444 shares of common stock were reserved for the issuance of incentive
stock options ("ISO") or non-statutory stock options ("NSO") to employees,
officers, directors, and consultants. The ISOs may be granted at a price per
share not less than 100% (110% if granted to holders of 10% or more of the
Company's stock) of the fair market value on the date of the grant. The NSOs may
be granted at a price per share not less than 85% (110% if
F-40
<PAGE> 124
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
granted to holders of 10% or more of the Company's stock) of the fair market
value at the date of grant. Options granted under the Plan are exercisable over
a maximum term of ten years from the date of grant and generally vest over
periods of up to four years. A summary of the Company's stock option activity
under the Plan is set forth below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
<S> <C> <C>
Granted......................................... 2,033,644 $.07
Exercised....................................... (236,525) .03
Canceled........................................ (5,000) .10
--------- ----
Outstanding at December 31, 1997................ 1,792,119 .08
Granted......................................... 850,000 .18
Exercised....................................... (350,232) .06
Canceled........................................ (321,640) .10
--------- ----
Outstanding at December 31, 1998................ 1,970,247 $.12
========= ====
Exercisable at December 31, 1998................ 505,041 $.09
========= ====
Available for grant at December 31, 1998........ 912,440
=========
</TABLE>
At December 31, 1998, the weighted-average remaining contractual life of
options outstanding is 7.55 years. The weighted-average fair value at grant date
of options granted during the years ended December 31, 1998 and 1997 was $.18
and $.02 per share, respectively. Information regarding the weighted average
remaining contractual life and weighted average exercise price of options
outstanding and options exercisable at December 31, 1998 for selected exercise
price ranges is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- AND VESTED
AVERAGE --------------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- --------- ------------ -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$0.002 166,699 7.59 $0.002 61,196 $0.002
0.10 1,173,548 6.43 0.10 443,845 0.10
0.20 630,000 9.52 0.20 --
--------- ---------
1,970,247 505,041
========= =========
</TABLE>
During fiscal 1998, the Company issued options to purchase 850,000 shares
of common stock. The Company recorded deferred compensation of approximately
$263,000 for financial reporting purposes with respect to such option grants to
reflect the difference between the exercise price of the options and deemed fair
value of the Company's
F-41
<PAGE> 125
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
common shares. Amortization of deferred compensation for the fiscal year ended
December 31, 1998 totaled approximately $44,000.
During the three months ended March 31, 1999, common stock options for
2,215,500 shares were granted with a weighted average exercise price of $0.20;
options for 105,902 shares were exercised with a weighted average exercise price
of $0.13; and options for 177,917 shares were canceled with a weighted average
exercise price of $0.13; thereby resulting in 3,901,928 options outstanding at
March 31, 1999 with a weighted average exercise price of $0.10; of which 819,862
options were exercisable with a weighted average exercise price of $0.09. The
Company recorded deferred compensation of approximately $2,080,000 during the
quarter ended March 31, 1999 for financial reporting purposes with respect to
such option grants to reflect the difference between the exercise price of the
options and deemed fair value of the Company's common shares. Amortization of
deferred compensation for the quarter ended March 31, 1999 totaled $289,000.
Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, the Company granted to the shareholders warrants
to purchase 139,626 shares of Series A preferred stock at an exercise price of
$.75 per share. These warrants are exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, the Company granted to the shareholders warrants to purchase
166,667 shares of Series B preferred stock at an exercise price of $1.50 per
share.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 153,333 shares of Series B preferred stock at an
exercise price of $1.50 per share. At December 31, 1998, the Company had no
authorized unissued Series B preferred stock. In April 1999, the Company
authorized and reserved additional Series B preferred stock with respect to the
warrants.
F-42
<PAGE> 126
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Shares Reserved for Future Issuance
At December 31, 1998, the Company has reserved shares for future issuance
as follows:
<TABLE>
<CAPTION>
PREFERRED
COMMON SERIES A
---------- ---------
<S> <C> <C>
Redeemable convertible preferred stock, including
effect of Series B warrants.................... 5,000,000 --
Convertible preferred stock, including effect of
Series A warrants.............................. 4,406,453 --
Stock option plan................................ 2,882,687 --
Warrants to purchase Series A preferred stock.... -- 139,626
---------- -------
12,289,140 139,626
========== =======
</TABLE>
9. INCOME TAXES
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $11,046,000, which expire in the year 2012
through 2018.
Due to the "change in ownership" provisions of the Internal Revenue Code, a
portion of the Company's net operating loss carryforwards could be subject to
annual limitation regarding their utilization against taxable income in future
periods.
The Company had deferred tax assets of approximately $1,231,000 and
$4,828,000 at December 31, 1997 and 1998, respectively, which relate primarily
to net operating loss carryforwards. These deferred tax assets have been fully
reserved by a valuation allowance. The valuation allowance increased by
$1,231,000 and $3,597,000 during the year ended December 31, 1997 and 1998,
respectively.
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED)
Like many companies, Year 2000 computer issues create certain risks for the
Company. If the Company's internal and network information systems do not
correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on the Company's operations. The Company has
evaluated its internal and network systems and management believes the Company's
critical systems are Year 2000 compliant. The costs incurred to date have not
been material.
The Company will also initiate communications with its significant
suppliers and financial institutions to determine the extent to which the
Company is vulnerable to the future by third parties remedying their own Year
2000 issues.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, failure to fully identify all Year 2000
dependencies in the Company's existing systems, in the systems of its suppliers,
and the systems of its financial institutions could have material adverse
consequences. Therefore, the Company is in the
F-43
<PAGE> 127
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED) (CONTINUED)
process of developing contingency plans for continuing operations in the event
such problems arise.
11. SUBSEQUENT EVENTS (UNAUDITED)
Series C Preferred Stock
In April 1999, the Company issued 5,797,097 shares of Series C preferred
stock at $2.07 per share for cash of approximately $9,434,348 and the conversion
of the notes payable to shareholders and accrued interest of approximately
$2,565,652.
Series B Preferred Stock
In April 1999, the Company authorized and reserved an additional 320,000
Series B preferred stock for outstanding warrants.
Merger
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 between
the Company and Concur Technologies, Inc. ("Concur"), Concur acquired all of the
outstanding capital of the Company. The transaction has been accounted for as a
pooling of interests.
F-44
<PAGE> 128
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
7Software, Inc.
We have audited the accompanying balance sheet of 7Software, Inc. (a
development stage company) as of December 31, 1997 and the related statements of
operations, shareholders' equity (deficit), and cash flows for the period May
30, 1997 (date of incorporation) to December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 7Software, Inc. at December
31, 1997 and the results of its operations and its cash flows for the period May
30, 1997 (date of incorporation) to December 31, 1997 in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
August 14, 1998
F-45
<PAGE> 129
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $25 $ 39
Accounts receivable................................ 12 36
--- -----
Total current assets....................... 37 75
Furniture and equipment, net......................... 21 28
--- -----
Total assets............................... $58 $ 103
=== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 6 $ 4
Accrued payroll liabilities........................ 4 4
--- -----
Total current liabilities.................. 10 8
Convertible note payable............................. 25 130
Commitments
Shareholders' equity:
Preferred stock, no par value:
Authorized shares: 5,000,000
No shares issued and outstanding................ -- --
Common stock, no par value:
Authorized shares: 10,000,000
2,000,000 and 2,082,294 shares issued and
outstanding at December 31, 1997 and June 30,
1998, respectively............................ 20 212
Deferred stock compensation........................ -- (8)
Retained earnings (deficit)........................ 3 (239)
--- -----
Total shareholders' equity (deficit)....... 23 (35)
--- -----
Total liabilities and shareholders' equity
(deficit)................................ $58 $ 103
=== =====
</TABLE>
See accompanying notes.
F-46
<PAGE> 130
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 30, 1997 SIX MONTHS
(DATE OF INCORPORATION) ENDED
TO DECEMBER 31, 1997 JUNE 30, 1998
----------------------- -------------
(UNAUDITED)
<S> <C> <C>
Revenues.................................... $66 $ 131
Cost of revenues............................ 5 25
--- -----
Gross profit................................ 61 106
Operating expenses:
Research and development.................. 30 213
Selling, general, and administration...... 27 135
--- -----
Total operating expenses.......... 57 348
--- -----
Income (loss) before taxes.................. 4 (242)
Provision for taxes......................... 1 --
--- -----
Net income (loss)................. $ 3 $(242)
=== =====
</TABLE>
See accompanying notes.
F-47
<PAGE> 131
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO DECEMBER 31, 1997
AND FOR THE 6 MONTH UNAUDITED PERIOD ENDED JUNE 30, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK DEFERRED RETAINED STOCKHOLDERS'
------------------- STOCK EARNINGS EQUITY
SHARES AMOUNT COMPENSATION (DEFICIT) (DEFICIT)
--------- ------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Sale of common stock at
$0.01 per share for cash
on June 6, 1997......... 630,000 $ 6 -- $ -- $ 6
Issuance of common stock
at $0.01 per share
for furniture and
equipment at cost on
June 6, 1997......... 630,000 6 -- -- 6
Issuance of common stock
at $0.01 per share
for employee services
on June 6, 1997...... 740,000 8 -- -- 8
Net income.............. -- -- -- 3 3
--------- ---- ---- ----- -----
Balance at December 31,
1997.................... 2,000,000 $ 20 -- $ 3 $ 23
Issuance of common stock
(unaudited).......... 12,632 1 -- -- 1
Issuance of common stock
on conversion of
notes payable
(unaudited).......... 69,662 100 -- -- 100
Net loss (unaudited).... -- -- (242) (242)
Deferred stock
compensation
(unaudited).......... -- 91 (91) -- --
Amortization of deferred
stock compensation
(unaudited).......... -- -- 83 -- 83
--------- ---- ---- ----- -----
Balance at June 30, 1998
(unaudited)............. 2,082,294 $212 (8) $(239) $ (35)
========= ==== ==== ===== =====
</TABLE>
See accompanying notes.
F-48
<PAGE> 132
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 30, 1997
(DATE OF
INCORPORATION) SIX MONTHS ENDED
TO DECEMBER 31, 1997 JUNE 30, 1998
-------------------- ----------------
(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................... $ 3 $(242)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation.............................. 1 2
Stock compensation........................ 8 83
Changes in assets and liabilities:
Accounts receivable.................... (12) (24)
Accounts payable and accrued payroll
liabilities.......................... 10 (2)
---- -----
Net cash provided by (used in) operating
activities................................ 10 (183)
---- -----
INVESTING ACTIVITIES
Purchases of furniture and equipment........ (16) (9)
---- -----
FINANCING ACTIVITIES
Proceeds from issuance of common stock...... 6 1
Proceeds from convertible note payable...... 25 75
Proceeds from convertible note payable to
Concur.................................... 130
---- -----
Net cash provided by financing activities... 31 206
---- -----
Net increase in cash and cash equivalents... 25 14
Cash and cash equivalents at beginning of
period.................................... -- 25
---- -----
Cash and cash equivalents at end of
period.................................... $ 25 $ 39
==== =====
NONCASH TRANSACTIONS AND SUPPLEMENTAL
DISCLOSURES
Furniture and equipment contributed for
common stock.............................. $ 6 --
==== =====
Issuance of common stock in consideration
for conversion of note payable............ -- $ 100
==== =====
</TABLE>
See accompanying notes.
F-49
<PAGE> 133
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Activities
7Software, Inc. (the "Company") was incorporated in California on May 30,
1997. The Company performs consulting services for product development and
developed a product called CompanyStore that automates the purchasing of
nonproduction goods. CompanyStore runs on corporate intranets, providing access
to company-specific information and making that information available on
employee desktops throughout the enterprise. The Company is in the development
stage.
On June 30, 1998, the Company merged with Concur Technologies, Inc.
("Concur"). The merger resulted in all shares of the Company's outstanding
capital stock and all stock options being converted into Concur common stock and
stock options, respectively.
Unaudited Interim Financial Information
The financial information for the six months ended June 30, 1998 is
unaudited but includes all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of its
financial position at such date and its operating results and cash flows for
that period. Operating results for the six months ended June 30, 1998 are not
necessarily indicative of results that may be expected for an entire year.
Revenue Recognition
The Company generates revenues from performing computer programming
consulting. Revenue is recognized by the Company based upon hours of consulting
performed and billable, in accordance with the related consulting agreement.
Cash Equivalents
All short-term investments with maturities of three months or less at date
of purchase are considered to be cash equivalents.
Development Costs
All software development costs are expensed until technological feasibility
has been established. No software development costs were capitalized during the
period ended December 31, 1997 or June 30, 1998.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $5,000 for the period ended December 31, 1997 and $17,000
for the six months ended June 30, 1998.
F-50
<PAGE> 134
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Federal Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
Statement No. 109, deferred tax assets and liabilities are recorded using the
liability method, which recognizes the effect of temporary differences between
the reporting of revenues and expenses for financial statement and income tax
return purposes. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25, no
compensation expense is recorded when the exercise price of employee stock
options equals the market price of the underlying stock on the date of grant.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
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 amounts recorded in the financial statements and
accompanying notes. Actual results could materially differ from these estimates.
Property and Equipment
Property and equipment is stated at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets, ranging from
two to four years.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following: (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
<S> <C> <C>
Computer equipment........... $20 $20
Furniture, fixtures, and
equipment.................. 2 12
--- ---
22 32
Accumulated depreciation..... (1) (4)
--- ---
$21 $28
=== ===
</TABLE>
F-51
<PAGE> 135
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
3. CONVERTIBLE NOTES
On November 30, 1997, the Company entered into an agreement to receive
$75,000 in consideration of a non-interest bearing convertible note. The terms
of this agreement were such that the entire balance of the note was convertible
into securities sold in the Company's first stock financing with outside
investors after the date thereof. Additionally, the agreement provided that the
note holder would receive warrants to purchase common stock if and when the
Company received additional equity financing. The Company received $25,000 of
the $75,000 note in December 1997 and the remaining balance during the first
quarter of 1998. On January 1, 1998, the Company entered into another agreement
and received $25,000 in consideration of a non-interest bearing convertible note
with similar terms to those as described above. On June 9, 1998, the note
holders and the Company agreed to convert the notes in exchange for the issuance
of 69,662 shares of common stock. As a result of this transaction, the note
holders' rights to the warrants were cancelled.
4. SHAREHOLDERS' EQUITY
On June 6, 1997, the Company issued 2,000,000 shares of common stock to the
founders of the Company. The shares were issued for $20,000 of consideration,
which included cash, furniture and equipment, and services rendered since the
incorporation of the Company.
On June 9, 1998, the Company issued 69,662 shares of common stock to
certain note holders in exchange for the cancellation of the convertible notes
and the obligations of issuing warrants as discussed in Note 3.
Between January 1, 1998 and June 10, 1998, the Company issued 12,632 shares
of common stock. The shares were issued for approximately $1,000 in cash and
services rendered during this period.
5. STOCK OPTION PLAN
The Company's 1997 Stock Option Plan authorizes the grant of options to
employees, directors, and eligible participants for up to 500,000 shares of the
Company's common stock. The term of options granted to certain significant
stockholders cannot exceed five years while the term of all other options cannot
exceed ten years. The options vest over periods defined in each option agreement
as determined at the discretion of the Company's Board of Directors. Stock
options that qualify as incentive stock options are exercisable at not less than
the fair market value of the stock at the date of grant, and nonqualified stock
options are exercisable at prices determined at the discretion of the Board of
Directors, which may not be less than 85% of the fair market value of the stock
at the date of grant. No options had been granted under the plan as of December
31, 1997. For the period May 30, 1997 to June 30, 1998, the Company issued
364,000 options to purchase common stock at $0.01 per share resulting in
deferred stock compensation of approximately $91,000 which is being amortized
over the vesting period of the options of generally four years. Stock
compensation expense was $83,000 for the six months ended June 30, 1998.
F-52
<PAGE> 136
7SOFTWARE, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE PERIOD MAY 30, 1997 (DATE OF INCORPORATION) TO JUNE 30, 1998
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1998 IS UNAUDITED)
6. INCOME TAXES
Temporary differences between the book and tax basis of assets and
liabilities to December 31, 1997 were insignificant; therefore no deferred taxes
were provided. Significant components of the Company's deferred tax assets were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ -----------
<S> <C> <C>
Deferred tax asset relating to net $ -- $ 52
operating loss credit carry-forward....
Valuation allowance...................... -- (52)
---- ----
$ -- $ --
==== ====
</TABLE>
Since the Company was acquired by Concur on June 30, 1998 it will not
utilize its deferred tax assets; therefore, a valuation allowance for the full
amount of all deferred tax assets has been provided.
7. COMMITMENTS
The Company leased its facility under an operating lease that expired on
June 30, 1998. Total rental expense for the period ended December 31, 1997 and
June 30, 1998 were $4,000 and $24,000, respectively.
8. SALES TO MAJOR CUSTOMERS
All revenues recognized by the Company for the period ended December 31,
1997 were received from SAP Technology for computer programming consulting. For
the six months ended June 30, 1998, all revenues were received for sales and
services provided to two customers.
F-53
<PAGE> 137
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of
Concur Technologies, Inc.
We have audited the accompanying supplemental consolidated balance sheets
of Concur Technologies, Inc. ("Concur") (formed as a result of the merger of
Concur Technologies, Inc. and Seeker Software, Inc. ("Seeker")) as of September
30, 1997 and 1998 and the related supplemental consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended September 30, 1998. The supplemental consolidated
financial statements give retroactive effect to the merger of Concur and Seeker
on June 1, 1999, which has been accounted for using the pooling of interests
method as described in the notes to the supplemental consolidated financial
statements. These supplemental consolidated financial statements are the
responsibility of the management of Concur. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Concur at September 30, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1998 after giving retroactive effect to the merger of Seeker
as described in the notes to the supplemental consolidated financial statements,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
June 30, 1999
F-54
<PAGE> 138
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 7,721 $ 17,058 $ 9,860
Marketable securities.............................. -- -- 37,544
Accounts receivable, net of allowance for doubtful
accounts of $170 and $619 at September 30, 1997
and 1998, respectively; $870 at March 31, 1999... 4,600 6,049 8,680
Prepaid expenses and other current assets.......... 403 605 1,248
Note receivable from stockholders.................. -- 167 167
-------- -------- --------
Total current assets........................ 12,724 23,879 57,499
Equipment and furniture, net......................... 1,405 3,026 3,488
Deposits and other assets............................ 51 504 2,600
Note receivable from stockholders, net of current
portion............................................ -- 333 333
Capitalized technology and other intangible assets... -- 880 720
-------- -------- --------
Total assets................................ $ 14,180 $ 28,622 $ 64,640
======== ======== ========
Current liabilities:
Accounts payable................................... $ 1,202 $ 2,330 $ 5,486
Accrued liabilities................................ 1,389 4,533 7,931
Accrued commissions................................ 538 976 1,258
Current portion of accrued payment to
stockholders..................................... -- 167 2,667
Current portion of long-term debt.................. 329 2,800 3,875
Current portion of capital lease obligations....... 351 1,004 1,681
Deferred revenues.................................. 1,841 3,619 4,445
-------- -------- --------
Total current liabilities................... 5,650 15,429 27,343
Accrued payment to stockholders, net of current
portion............................................ -- 333 333
Long-term debt, net of current portion............... 2,171 6,145 6,514
Capital lease obligations, net of current portion.... 1,516 2,127 1,910
Deferred rental expense.............................. -- 183 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
9,404,058, 11,052,718 and 839,165 in 1997, 1998
and March 31, 1999, respectively.............. 17,264 37,512 8,201
Redeemable convertible preferred stock warrants...... 82 444 --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, par value $0.001 per
share:
Authorized shares -- 5,000,000, issued and
outstanding 721,682, 716,114, and 716,144 in
1997, 1998, and March 31, 1999,
respectively.................................. 3,182 3,139 3,139
Common stock, par value $0.001 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 3,026,952,
3,911,985 and 17,957,140 in 1997, 1998 and
March 31, 1999, respectively.................. 470 6,593 79,000
Deferred stock compensation........................ -- (529) (2,329)
Accumulated deficit................................ (16,155) (42,754) (59,654)
-------- -------- --------
Total stockholders' equity (deficit)........ (12,503) (33,551) 20,156
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 14,180 $ 28,622 $ 64,640
======== ======== ========
</TABLE>
See accompanying notes.
F-55
<PAGE> 139
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Licenses.................. $ 1,717 $ 6,504 $ 13,176 $ 5,564 $ 11,167
Services.................. 253 2,499 6,952 2,854 5,647
------- ------- -------- ------- --------
Total revenues......... 1,970 9,003 20,128 8,418 16,814
Cost of revenues:
Licenses.................. 386 394 558 172 573
Services.................. 876 2,721 8,063 3,181 7,042
------- ------- -------- ------- --------
Total cost of
revenues............. 1,262 3,115 8,621 3,353 7,615
------- ------- -------- ------- --------
Gross profit................ 708 5,888 11,507 5,065 9,199
Operating expenses:
Sales and marketing....... 2,990 6,692 16,070 6,082 13,359
Research and
development............ 1,808 4,479 10,276 3,845 8,056
General and
administrative......... 1,019 2,307 5,919 2,276 4,344
Acquired in-process
technology (Note 3).... -- -- 5,203 -- --
------- ------- -------- ------- --------
Total operating
expenses....... 5,817 13,478 37,468 12,203 25,759
------- ------- -------- ------- --------
Loss from operations........ (5,109) (7,590) (25,961) (7,138) (16,560)
Interest income............. 92 186 454 126 883
Interest expense............ (43) (94) (539) (248) (736)
Other expense, net.......... (44) (61) (178) (77) (112)
------- ------- -------- ------- --------
Net loss.................... $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
======= ======= ======== ======= ========
Basic and diluted net loss
per share................. $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
======= ======= ======== ======= ========
Shares used in calculation
of basic and diluted net
loss per share............ 3,019 3,025 3,207 3,076 12,154
======= ======= ======== ======= ========
</TABLE>
See accompanying notes.
F-56
<PAGE> 140
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK DEFERRED TOTAL
---------------- -------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------- ------ ---------- ------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1995.......... -- $ -- 2,280,028 $ 258 $ -- $ (3,492) $ (3,234)
Issuance of common stock........... -- -- 24,466 7 -- -- 7
Issuance of common stock from
exercise of stock options........ -- -- 8,217 1 -- -- 1
Net loss........................... -- -- -- -- -- (5,104) (5,104)
------- ------ ---------- ------- ------- --------- --------
Balance at October 1, 1996........... -- -- 2,312,711 266 -- (8,596) (8,330)
Issuance of convertible preferred
stock (net of issuance costs of
$43)............................. 721,682 3,182 -- -- -- -- 3,182
Issuance of common stock........... -- -- 712,993 204 -- -- 204
Issuance of common stock from
exercise of stock options........ -- -- 1,248 -- -- -- --
Net loss........................... -- -- -- -- -- (7,559) (7,559)
------- ------ ---------- ------- ------- --------- --------
Balance at September 30,1997......... 721,682 3,182 3,026,952 470 -- (16,155) (12,503)
Accretion of preferred stock....... -- -- -- -- -- (375) (375)
Repurchase of preferred stock...... (5,568) (43) -- -- -- -- (43)
Issuance of common stock from
exercise of stock options........ -- -- 176,115 30 -- -- 30
Deferred stock compensation........ -- -- -- 950 (950) -- --
Amortization of deferred stock
compensation..................... -- -- -- -- 421 -- 421
Issuance of common stock in
connection with acquisition
(Note 3)......................... -- -- 708,918 4,378 -- -- 4,378
Assumption of stock options in
connection with acquisition (Note
3)............................... -- -- -- 765 -- -- 765
Net loss........................... -- -- -- -- -- (26,224) (26,224)
------- ------ ---------- ------- ------- --------- --------
Balance at September 30, 1998........ 716,114 3,139 3,911,985 6,593 (529) (42,754) (33,551)
Accretion of preferred stock
(unaudited)...................... -- -- -- -- -- (375) (375)
Proceeds from initial public
offering, net of offering costs
(unaudited)...................... -- -- 3,365,000 37,369 -- -- 37,369
Conversion of redeemable
convertible preferred stock into
common stock (unaudited)......... -- -- 10,213,553 29,685 -- -- 29,685
Conversion of redeemable
convertible preferred warrants
into common stock warrants
(unaudited)...................... -- -- -- 444 -- -- 444
Proceeds from issuance of common
stock from exercise of common
stock warrants (unaudited)....... -- -- 225,000 2,616 -- -- 2,616
Issuance of common stock from net
exercise of common stock warrants
(unaudited)...................... -- -- 44,052 -- -- -- --
Issuance of common stock from
exercise of stock options
(unaudited)...................... -- -- 197,550 39 -- -- 39
Deferred stock compensation
(unaudited)...................... -- -- -- 2,254 (2,254) -- --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- 454 -- 454
Net loss (unaudited)............... -- -- -- -- -- (16,525) (16,525)
------- ------ ---------- ------- ------- --------- --------
Balance at March 31, 1999
(unaudited)........................ 716,114 $3,139 17,957,140 $79,000 $(2,329) $ (59,654) $ 20,156
======= ====== ========== ======= ======= ========= ========
</TABLE>
See accompanying notes.
F-57
<PAGE> 141
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.......................... -- -- 5,203 -- --
Amortization of acquired in-process technology.......... -- -- -- -- 160
Amortization of deferred stock compensation............. -- -- 421 190 423
Accrued interest converted to preferred stock........... -- -- 14 14 --
Warrant expense......................................... 5 53 23 -- --
Depreciation............................................ 148 445 856 333 747
Provisions for bad debts................................ 91 45 525 97 251
Other................................................... 17 -- 183 48 --
Changes in operating assets and liabilities:
Accounts receivable................................... (656) (3,931) (1,937) (819) (2,882)
Notes receivable from stockholders.................... -- -- (668) -- --
Prepaid expenses, deposits and other assets........... 60 (320) (448) 94 (2,739)
Accounts payable...................................... (18) 568 1,128 (339) 3,156
Accrued liabilities and accrued commissions........... 597 1,051 3,168 1,207 3,680
Deferred revenues..................................... 613 1,190 1,778 93 826
------- ------- -------- ------- --------
Net cash used in operating activities....................... (4,247) (8,458) (15,978) (6,419) (12,903)
------- ------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture........................ (462) (1,350) (814) (425) (238)
Payment in connection with acquisition of 7Software......... -- -- (130) -- --
Purchase of marketable securities........................... -- -- -- -- (37,544)
------- ------- -------- ------- --------
Net cash used in investing activities....................... (462) (1,350) (944) (425) (37,782)
------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from initial public offering....................... -- -- -- -- 37,369
Proceeds from exercise of preferred stock warrants.......... -- -- -- -- 2,616
Proceeds from sales leaseback transaction................... -- 1,800 192 192 --
Proceeds from capital lease financing....................... -- 67 -- -- --
Proceeds from borrowings.................................... 763 3,112 7,827 2,598 4,817
Proceeds from issuance of common stock...................... 8 204 30 10 71
Payments on borrowings...................................... (380) (1,150) (335) (1,289) (873)
Payment on capital leases................................... -- -- (500) (170) (513)
Issuance of convertible preferred stock..................... -- 3,182 6,390 6,390 --
Repurchase of preferred stock............................... -- -- (43) -- --
Issuance of redeemable convertible preferred stock and
warrants.................................................. 7,479 4,612 12,698 -- --
------- ------- -------- ------- --------
Net cash provided by financing activities................... 7,870 11,827 26,259 7,731 43,487
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,161 2,019 9,337 887 (7,198)
------- ------- -------- ------- --------
Cash and cash equivalents at beginning of period............ 2,541 5,702 7,721 7,721 17,058
------- ------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 5,702 $ 7,721 $ 17,058 $ 8,608 $ 9,860
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 27 $ 86 $ 496 $ 222 $ 506
Issuance of redeemable convertible preferred stock in
exchange for cancellation of notes payable................ -- 267 -- --
Issuance of warrants in connection with financing
activity.................................................. -- 30 75 --
Issuance of Series B redeemable convertible preferred stock
in exchange for cancellation of notes payable and related
accrued interest.......................................... -- -- 1,062 1,062
Equipment and furniture obtained through capital leases..... -- -- 1,572 818 973
Conversion of redeemable convertible preferred stock and
warrants into common stock and common stock warrants...... -- -- -- 29,992
Assets and liabilities acquired in exchange for common stock
in connection with acquisition of 7Software:
Operating assets........................................ -- -- 85 --
Accounts payable and accrued expenses................... -- -- (15) --
Intangible assets....................................... -- -- 960 --
</TABLE>
See accompanying notes.
F-58
<PAGE> 142
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Concur Technologies, Inc. ("Concur" or the Company) is a leading provider
of Intranet-based employee-facing applications that extend automation to
employees throughout the enterprise and to partners, vendors and service
providers in the extended enterprise. The Company's Xpense Management Solution
("XMS") and CompanyStore products automate the preparation, approval, processing
and data analysis of travel and entertainment ("T&E") expense reports and
front-office procurement requisitions. The Company was originally incorporated
in the State of Washington on August 19, 1993 and reincorporated in Delaware on
November 25, 1998. Operations commenced during 1994.
Basis of Supplemental Financial Statement Presentation
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 among
the Company and Seeker Software, Inc. ("Seeker") the Company acquired all of the
outstanding capital of Seeker. Seeker develops, markets, and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access, update, and share information from their desktop
computers.
The Company issued 3,419,929 shares of common stock in exchange for all
outstanding preferred stock, preferred stock purchase warrants, and common stock
of Seeker and assumed all outstanding options in connection with the acquisition
of Seeker resulting in the issuance of options to purchase up to 680,234 shares
of common stock. This transaction has been accounted for as a pooling of
interests. These supplemental consolidated financial statements have been
prepared to reflect the restatement of all periods presented to include the
accounts of Seeker. The historical results of the pooled entities reflect each
of their actual operating cost structures and, as a result, do not necessarily
reflect the cost structure of the newly combined entity.
Historically, the fiscal year of Seeker ended on December 31. For purposes
of preparing the supplemental consolidated financial statements, all Seeker
financial statements have been restated to fiscal periods ending on September
30. The supplemental consolidated balance sheets as of September 30, 1997 and
1998 and March 31, 1999 reflect the combination of the balance sheets of Concur
and Seeker as of the same periods. The supplemental consolidated statements of
operations for all periods presented give effect to the merger as of the
inception of Seeker. As such, Seeker's statements of stockholders' equity,
operations and cash flows for each of the three years in the period ended
September 30, 1998 and for each of the six month periods ended March 31, 1998
and 1999 have been combined with Concur's statements of operations for each of
the same periods. These supplemental consolidated financial statements will
become the historical financial statements of the Company after financial
statements covering the date of consummation of the merger are issued.
F-59
<PAGE> 143
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Net revenue and net loss for the separate and combined Companies are as
follows:
<TABLE>
<CAPTION>
CONCUR THE
TECHNOLOGIES SEEKER COMBINED
INC. SOFTWARE, INC. COMPANY
------------ -------------- --------
<S> <C> <C> <C>
Year ended September 30, 1996
Net revenue............................. $ 1,959 $ 11 $ 1,970
Net loss................................ $ (4,953) $ (151) $ (5,104)
Year ended September 30, 1997
Net revenue............................. $ 8,270 $ 733 $ 9,003
Net loss................................ $ (5,524) $(2,035) $ (7,559)
Year ended September 30, 1998
Net revenue............................. $ 17,159 $ 2,969 $ 20,128
Net loss................................ $(18,074) $(8,150) $(26,224)
Six months ended March 31, 1998
Net revenue............................. $ 7,074 $ 1,344 $ 8,418
Net loss................................ $ (4,063) $(3,274) $ (7,337)
Six months ended March 31, 1999
Net revenue............................. $ 13,591 $ 3,223 $ 16,814
Net loss................................ $(11,263) $(5,262) $(16,525)
</TABLE>
Unaudited Interim Financial Information
The supplemental consolidated financial information as of March 31, 1999
and for the periods ended March 31, 1998 and 1999 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the period ended March 31, 1999 are not necessarily indicative of
results that may be expected for the entire year.
Principles of Consolidation
The supplemental consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Seeker Software, Inc., Concur
Technologies (UK) Ltd., Concur Technologies Pty. Limited, and 7Software, Inc.
("7Software"). All significant intercompany accounts and transactions are
eliminated in consolidation.
Revenue Recognition Policy
The Company generates revenues from licensing the rights to use its
software products directly to end users. The Company also generates revenues
from sales of customer support contracts and integration services performed for
customers who license the software.
F-60
<PAGE> 144
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Software license revenues are recognized when a non-cancelable license
agreement has been signed with a customer, the software is shipped, no
significant post-delivery vendor obligations remain, and collection is deemed
probable. Customer support revenues are recognized ratably over the term of the
customer support contract, typically one year. Revenues from consulting services
and other post-sales are recognized when the services are performed.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2").
The Company adopted SOP 97-2 beginning in fiscal 1999. SOP 97-2 has been
modified by SOP 98-4 and SOP 98-9 as it relates to certain transactions. These
standards generally require revenues earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
postcontract customer support, installation and training, to be allocated to
each element based on the relative fair values of the elements. The fair value
of an element must be based on evidence that is specific to the vendor. Evidence
of the fair value of each element is based on the price charged when the element
is sold separately; if the element is not being sold separately, the price for
each element established by management having relevant authority. The revenues
allocated to software products, including specified upgrades or enhancements,
generally are recognized upon delivery of the products. The revenues allocated
to unspecified upgrades, updates and other postcontract customer support
generally are recognized ratably over the term of the contract. If evidence of
the fair value for all elements of the arrangement does not exist, all revenues
from the arrangement are deferred until such evidence exists or until all
elements are delivered. Full guidelines for SOP 97-2 and related modifications
have not been issued. Once available, such guidelines could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could materially adversely affect the Company's future revenues and
earnings.
Cash and Cash Equivalents
All highly liquid financial instruments purchased with an original maturity
of three months or less are reported as cash equivalents.
Marketable Securities
Marketable securities are stated at fair value at the balance sheet date.
By policy, the Company invests primarily in high-grade marketable securities.
Marketable securities are defined as available-for-sale securities under the
provisions of Statement of Financial Accounting Standards No. ("SFAS") 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale,
F-61
<PAGE> 145
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
which are carried at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. At March 31, 1999, the
fair value of marketable securities (consisting primarily of corporate bonds and
commercial paper) approximates their cost. Therefore, no comprehensive income or
loss has been recorded.
Fair Values of Financial Instruments
The Company has the following financial instruments: cash and cash
equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities, accrued commissions, long-term debt and capital lease
obligations, bank lines of credit ("LOC"), and standby letters of credit. The
carrying value of cash and cash equivalents, marketable securities, accounts
receivable, accounts payable, accrued liabilities and accrued commissions
approximates fair value based on the liquidity of these financial instruments or
based on their short-term nature. The carrying value of long-term debt, LOC,
standby letters of credit, and capital lease obligations approximates carrying
value based on the market interest rates available to the Company for debt of
similar risk and maturities.
Research and Development
Research and development costs are expensed as incurred and consist
primarily of software development costs. Financial accounting standards require
the capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying statements of operations.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were $711,000, $717,000 and $2,600,000 in fiscal year ended
September 30, 1996, 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
utilizes the liability method of accounting for income taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
F-62
<PAGE> 146
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Stock-Based Compensation
The Company adopted the "disclosure only" provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the market price of the Company's
common stock at the date of grant over the stock option exercise price.
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from two to five years.
Depreciation expense includes amounts amortized for assets recorded under
capital leases.
Net Loss per Share
Basic and diluted net loss per share is calculated using the average number
of shares of common stock outstanding. Other common stock equivalents, including
preferred stock, stock options and warrants, are excluded from the computation
as their effect is antidilutive. See Note 13.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed across many different geographic
areas throughout the world in a variety of industries. No single customer
accounted for more than 10% of the Company's sales in any of the periods
presented. The Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on historical
experience and specific identification.
The Company is subject to concentrations of credit risk from its cash and
cash equivalents. Under terms of certain of its debt agreements, the Company is
required to maintain its cash and cash equivalents primarily at one financial
institution.
F-63
<PAGE> 147
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing during the year. The
translation adjustment resulting from this process were insignificant at
September 30, 1996, 1997 and 1998, respectively and at March 31, 1999. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
Recently Issued Accounting Standards
In 1997, the following accounting standards were issued: SFAS No. 129,
"Disclosure of Information About Capital Structure," requiring supplemental
disclosure of capital structure, SFAS No. 130, "Reporting Comprehensive Income"
(this statement establishes standards for reporting and disclosure of
comprehensive income and its components, including revenues, expenses, gains,
and losses, in a full set of general-purpose financial statements), SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information;" and
SOP 97-2, "Software Revenue Recognition." Each of these standards became
effective for the Company in fiscal 1999. The adoption of these standards is not
expected to have a significant impact upon the Company's financial statements or
disclosures. Also, in June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued and is required to be adopted by
the Company in fiscal 2001. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.
2. EQUIPMENT AND FURNITURE
Equipment and furniture consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------
1997 1998
------ ------
(IN THOUSANDS)
<S> <C> <C>
Computer hardware and software............... $ 607 $ 905
Furniture and equipment...................... 113 321
Leased equipment............................. 789 2,607
------ ------
1,509 3,833
Less accumulated depreciation................ (104) (807)
------ ------
$1,405 $3,026
====== ======
</TABLE>
F-64
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CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC.
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. The Company issued 708,918 shares of
its common stock in exchange for all outstanding shares of 7Software and also
assumed all outstanding 7Software options, which were converted to options to
purchase approximately 123,921 shares of the Company's common stock. The total
7Software purchase price of $6,233,000 includes the estimated fair value of the
common stock ($4,378,000), the estimated fair value of converted options issued
($765,000), $500,000 payable to certain former 7Software shareholders, cash
payments of $130,000 and other direct acquisition costs of $460,000. The amount
due to former 7Software shareholders is payable in the amount of $167,000 per
year for three years. The acquisition was accounted for as a purchase.
Therefore, the results of operations of 7Software and the fair value of the
assets acquired and liabilities assumed were included in the Company's financial
statements beginning on the acquisition date.
In connection with the purchase of 7Software, the Company assumed
7Software's 1997 stock option plan. All outstanding options to purchase the
stock of 7Software on the acquisition date were converted into options to
purchase 123,921 shares of common stock of the Company. The outstanding options
can be exercised at a price of approximately $0.025 per share, vest over four
years, and are exercisable for a period not to exceed ten years.
The allocation of the purchase price resulted in intangible assets
(primarily developed software and the value of an acquired workforce) of
$960,000, which has been capitalized and is being amortized on a straight line
basis over three years. Amortization expense for the year ended September 30,
1998 was $80,000. Acquired in-process technology has been valued using the
income approach, resulting in a charge of $5,203,000.
Values assigned to acquired in-process research and development, developed
technology, and trademarks were determined using a discounted cash flow
analysis. The value assigned to the acquired workforce was based on replacement
cost. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks, which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis resulted in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility or do not have
alternative future uses. To determine the value of the developed technology, the
expected future cash flows of the existing technology product were discounted
taking into account risks related to the characteristics and applications of
each product, existing and future markets, and assessments of the life cycle
stage of each product. Based on this analysis, the existing technology that had
reached technological feasibility was capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning
F-65
<PAGE> 149
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
platforms, (iii) multiple catalog support, (iv) fundamental redesign of the user
interface, and (v) redesign and rewriting of the administrative functionality.
Based on management's initial estimates, the remaining research and development
efforts relating to the completion of the CompanyStore technology were expected
to continue into the first quarter of fiscal 1999, the anticipated product
release date. Accordingly, the cost to complete the in-process technology was
estimated based on the number of man-months required to reach technological
feasibility for the CompanyStore technology, the type of professional and
engineering staff involved in the completion process and their fully burdened
monthly salaries. Management estimated the direct costs to achieve technological
feasibility to be approximately $307,000. Beyond this period, management
estimated significantly less expense in supporting and maintaining active
products identified at the acquisition date to be in-process technology. If the
in-process projects contemplated in management's forecast are not successfully
developed, future revenue and profitability might be adversely affected.
Additionally, the value of other intangible assets acquired may become impaired.
The unaudited pro forma combined historical results, as if 7Software had
been acquired on October 1, 1997, excluding the non-recurring one-time charge
for acquired in-process technology, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, 1998
--------------------
PRO
ACTUAL FORMA
-------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Total revenues, net...................... $ 20,128 $ 20,325
Net loss................................. $(26,224) $(21,500)
Pro forma net loss per share............. $ (8.18) $ (6.21)
</TABLE>
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in
F-66
<PAGE> 150
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
the event of termination. These shares were issued in exchange for 7Software
shares that included the same restrictions. These restrictions lapse at various
rates through June 2000. The estimated fair value of these shares has been
included in the purchase price referred to above.
4. LINES OF CREDIT
In fiscal 1998, the Company had a $2.0 million line of credit and an
additional $1.0 million line of credit available for operating needs. Borrowings
under these credit lines bear interest at rates ranging from prime interest rate
plus 0.5% to 1.5%. The borrowing base for these lines is to be monitored on a
monthly basis and is to consist of the sum of up to 80% of eligible accounts
receivable. Interest is due monthly and principal is due upon maturity.
There were no outstanding borrowings under the $2.0 million line at
September 30, 1998. The bank had issued standby letters of credit on behalf of
the Company at September 30, 1998 in the amount of $465,000, and the amount
available under the line of credit on that date was $1,535,000. The line is
secured by all non-leased assets of the Company, including intellectual
property. The line of credit agreement requires the Company to meet certain
financial covenants, including limitations on the Company's ability to pay
dividends. See Note 11 for a discussion of warrants issued in conjunction with
the line of credit and other debt. In March 1999, the line of credit was
increased to $4.0 million under substantially similar terms and was amended to
expire in March 2000.
The $1 million line of credit is secured by virtually all assets of Seeker
Software and matures in May of 1999. Outstanding borrowings under this line of
credit were $545,000 at September 30, 1998. This amount is included in the
current portion of long-term debt in the accompanying balance sheet.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1.0 million and
expires in September 1999. Borrowings under the line of credit bear interest
payable monthly at 8.25% per year. No amounts were outstanding at September 30,
1998 under this line of credit.
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note;
(iii) a $3.5 million subordinated promissory note and (iv) several equipment
loans. The subordinated promissory notes are held by Comdisco. The proceeds from
these obligations may be used for equipment purchases and general corporate
purposes.
The senior term loan facility with a remaining balance of $3 million at
September 30, 1998 bears interest at the lending bank's prime rate less 1.0%
(7.5% at September 30, 1998) and matures on February 15, 2001. Payments are
interest only through February 15,
F-67
<PAGE> 151
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
1999. At February 15, 1999, the outstanding balance under the facility will be
paid in 24 equal monthly principal payments, plus applicable interest. The loan
is secured by a perfected senior security interest in all non-leased assets of
the Company with specific filings for intellectual property (both the line of
credit and senior term loan were issued by the same lender and include the same
financial covenants and restrictions discussed above).
The subordinated promissory notes (which have an aggregate remaining
balance of $4.7 million at September 30, 1998 and which are subordinated to both
the line of credit and senior term loan) are secured by the Company's
receivables, equipment, general intangibles, inventory, and all other goods and
personal property of the Company. The $1.5 million note bears interest at 8.5%,
has principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution expired on
December 31, 1998.
The equipment loans are secured by virtually all assets of Seeker Software
and bear interest at rates ranging from prime plus 0.75% to prime plus 1.5%.
These loans are payable in aggregate monthly principal payments of $32,000 plus
accrued interest and mature between March of 2000 and October of 2001. The
aggregate balance of the equipment loans is $735,000 at September 30, 1998.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
Fiscal year ending September 30:
1999........................... $ 2,800
2000........................... 3,241
2001........................... 2,223
2002........................... 681
-------
$ 8,945
=======
</TABLE>
In the first quarter of fiscal 1999 the company entered into an additional
subordinated promissory note agreement in the amount of $2 million. The note
bears interest at 11%, payments are due in monthly installments of approximately
$65,000 including interest, and the note matures in November of 2001.
6. NOTES PAYABLE TO STOCKHOLDERS
In December 1996, the Company agreed to exchange two notes payable to
stockholders totaling $233,000, plus accrued interest, for 134,920 shares of
Series C
F-68
<PAGE> 152
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
6. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
Preferred Stock. At the time of the conversion to Series C Preferred Stock, the
outstanding balance of the notes plus accrued interest was $267,000.
In December 1997, Seeker issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrued interest at the prime rate and were due and payable with
accrued interest in December 2000. Seeker closed a private placement in March
1998, in which all of the notes payable to shareholders, along with accrued
interest, were converted into shares of Seeker Series B preferred stock.
In December 1998, Seeker issued $2.5 million of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrue interest at the prime rate and are payable with accrued
interest in December 2005. As further described in Note 19, Seeker closed a
private placement in April 1999, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Seeker
Series C preferred stock.
7. COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases and capital leases. In October 1997, the Company signed a five-year lease
for a new corporate headquarters in Redmond, Washington, which commenced
February 1998. The Company also leases facilities in Oakland California under a
lease expiring in 2001. The Company has the option to extend the Redmond lease
for one additional five-year term. The Company is required to provide a $450,000
letter of credit as security for the lease. The letter of credit may be reduced
by specified amounts in the lease agreement after 36 months or upon the
Company's achieving certain economic goals. In January and February 1998, the
Company signed two-year subleases for its former corporate headquarters.
F-69
<PAGE> 153
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
7. COMMITMENTS (CONTINUED)
Future minimum rental payments under noncancelable leases, net of the
future minimum rentals of $274,000 to be received under the subleases, are as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Fiscal year ending September 30:
1999..................................... $ 1,234 $1,194
2000..................................... 1,244 1,037
2001..................................... 1,036 1,002
2002..................................... 27 754
2003..................................... -- 276
------- ------
3,541 $4,263
======
Less amount representing interest.......... (410)
-------
Present value of net minimum capital lease
obligations.............................. 3,131
Less current portion....................... (1,004)
-------
Capital lease obligations, less current
portion.................................. $ 2,127
=======
</TABLE>
Total rent expense for the years ended September 30, 1996, 1997 and 1998
was $178,000, $320,000 and $1,270,000 respectively.
In July 1997, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), a preferred stockholder, under which Comdisco
agreed to provide the Company lease financing, up to an aggregate purchase price
of $2.5 million. In connection with this master lease agreement the Company
entered into several sale leaseback transactions in September and October of
1997 under which the Company sold assets with a total net book value of
$970,000. No gain or loss was recognized in connection with these sale leaseback
transactions because the fair value of the equipment sold approximated net book
value. Leases executed pursuant to this loan agreement aggregated approximately
$2 million and provide for equal monthly payments over a four-year term with an
imputed interest rate of 8.2%.
In February 1998, the Company entered into a second Master Lease Agreement,
whereby the total financing commitment extended by Comdisco was increased by an
additional $1.0 million, to a total of $3.5 million. In July 1998, the Company
entered into a third Master Lease Agreement with Comdisco, whereby the total
financing commitment was increased by an additional $1.5 million for a total of
$5.0 million. As of September 30, 1998, approximately $1,369,000 was available
under this agreement. The Company accounts for its obligations under these
Master Lease Agreements as capital leases.
F-70
<PAGE> 154
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. INCOME TAXES
The Company did not provide an income tax benefit for any period presented
because it has experienced operating losses since inception. At September 30,
1998, the Company has net operating loss carryforwards of $29,478,000 and tax
credit carryforwards of $262,000 all of which expire between 2009 and 2018.
As a result of prior equity financings, the Company has incurred and will
incur "ownership changes" pursuant to applicable regulations in effect under the
Internal Revenue Code of 1986, as amended. Accordingly, the Company's use of net
operating loss carryforwards incurred through the date of these ownership
changes will be limited during the carryforward period. To the extent that any
single year loss is not utilized to the full amount of the limitation, such
unused loss is carried over to subsequent years until the earlier of its
utilization or the expiration of the relevant carryforward period.
Significant components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 4,094 $ 10,022
Tax credit carryforwards........................ 152 262
Deferred revenues............................... 626 1,230
Expenses not currently deductible and other..... 630 1,291
------- --------
Total deferred tax assets............... 5,502 12,805
Valuation allowance............................... (5,502) (12,805)
------- --------
$ -- $ --
======= ========
</TABLE>
Since the Company's utilization of these deferred tax assets is dependent
on future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased approximately $3,443,000 and $7,303,000 during the years ended
September 30, 1997 and 1998.
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
issuance of options to acquire 2,760,000 shares of common stock. The 1994 Plan
provides for the granting of incentive stock options to employees and
nonqualified stock options to employees, directors and other eligible
participants. Options granted under the 1994 Plan vest at variable rates,
typically four years, determined by the Board of Directors, and remain
exercisable for a period not to exceed ten years. At September 30, 1998, 354,768
shares were available for future grant.
On August 21, 1998, the Board adopted the 1998 Equity Incentive Plan, the
Director Stock Option Plan and the Employee Stock Purchase Plan. The Equity
Incentive Plan authorizes issuance of 3,240,000 shares of common stock upon the
exercise of stock
F-71
<PAGE> 155
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
options or otherwise pursuant to the plan. The Director Stock Option Plan
authorizes the issuance of 240,000 shares of common stock upon the exercise of
stock options that may be granted pursuant to the plan. The Employee Stock
Purchase Plan authorizes the issuance of 320,000 shares of Common Stock. All
Seeker common stock options were exchanged for Concur common stock options as
issued under the 1998 Equity Incentive Plan in the June 1, 1999 merger. At
September 30, 1998, a total of 329,952 such options were outstanding and
2,910,048 options were available for grant. No options were granted under the
Director Stock Option Plan or the Employee Stock Purchase Plan at September 30,
1998.
A summary of the Company's stock option activity under the 1994 Plan and
the options issued in exchange for options of 7Software and related weighted
average exercise prices is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
-------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year...... 324,100 $0.11 622,879 $0.15 1,120,225 $0.23
Granted......................... 360,400 0.18 522,028 0.38 871,780 1.72
Issued in exchange for options
of 7Software.................. -- -- -- -- 123,921 0.03
Exercised....................... (8,218) 0.13 (1,250) 0.18 (176,121) 0.21
Canceled........................ (53,403) 0.14 (23,432) 0.36 (70,332) 0.52
-------- ---------- ----------
Balance at end of year............ 622,879 0.15 1,120,225 0.25 1,869,473 0.92
======== ========== ==========
Exercisable at end of year........ 199,157 0.10 531,907 0.12 691,368 0.19
======== ========== ==========
Weighted average fair value of
options granted during the year
Granted at fair value......... $0.18 $0.05 $1.45
Granted at below fair value... -- 0.18 1.96
</TABLE>
Information regarding the weighted average remaining contractual life and
weighted average exercise price of options outstanding and options exercisable
at September 30, 1998 for selected exercise price ranges is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES LIFE (IN YEARS) SHARES SHARES PRICE
--------------- --------------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.01 - 0.20 7.25 818,012 582,003 $ 0.12
0.37 9.07 585,619 5,123 0.38
0.60 - 1.19 8.88 289,846 104,167 0.60
1.88 - 11.63 9.75 175,996 75 3.13
--------- ---------
$0.01 - 11.63 8.32 1,869,473 691,368 $ 0.19
========= =========
</TABLE>
During the six months ended March 31, 1999, common stock options for
1,615,165 shares were granted with a weighted average exercise price of $13.90;
options for 197,548 shares were exercised with a weighted average exercise price
of $0.17; and options
F-72
<PAGE> 156
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
for 45,073 shares were canceled with a weighted average exercise price of $4.69;
thereby resulting in 3,242,017 options outstanding at March 31, 1999 with a
weighted average exercise price of $7.38; of which 884,017 options were
exercisable with a weighted average exercise price of $2.87.
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. The Company has recorded
deferred stock compensation expense of $950,000 and $2,254,000 relating to
options granted during the year ended September 30, 1998 and the six months
ended March 31, 1999 respectively. These amounts represent the difference
between the exercise price and the deemed fair value for financial reporting
purposes of the Company's common stock during the periods in which such options
were granted. Amortization of deferred stock compensation of $421,000 and
$454,000 was recognized during the year ended September 30, 1998 and the six
months ended March 31, 1999 respectively.
The following pro forma information regarding stock-based compensation has
been determined as if the Company had accounted for its employee stock options
under the fair market value method of SFAS 123. The fair value of these options
was estimated at the date of grant using a minimum value option pricing model
with the following weighted average assumptions: risk-free interest rates range
from 5.5% to 6.5% in 1996, 1997, and 1998; a dividend yield rate of 0% for all
periods; and the options will be exercised one year after they vest.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net loss as reported.......................... $(5,104) $(7,559) $(26,224)
Incremental pro forma compensation expense
under SFAS 123.............................. (2) (7) (37)
------- ------- --------
Pro forma net loss............................ $(5,106) $(7,566) $(26,261)
======= ======= ========
Pro forma loss per share...................... $ (1.69) $ (2.50) $ (8.19)
======= ======= ========
</TABLE>
Under SFAS 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of amortization of multiple awards would be reflected in
pro forma earnings.
F-73
<PAGE> 157
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. STOCKHOLDER NOTES RECEIVABLE
In October 1994, certain stockholders exercised options to purchase shares
of common stock. In connection with the issuance, the Company accepted
promissory notes totaling $80,000. These notes are due in October 1999 and bear
interest at the higher of 5% or the minimum interest rate required to avoid
implied interest under the Internal Revenue Code, payable annually. These notes
are full recourse and are secured by the common stock purchased with the
proceeds thereof.
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March of 1998. Interest
is accrued at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by 33,567
shares of common stock of the Company owned by the former shareholder. In
connection with this agreement the Company has the right to repurchase the
common stock for $6.26 per share. In May of 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by payment of cash of approximately $30,000.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Concur Redeemable Convertible Preferred Stock
In October 1994, the Company designated and issued 1,529,636 shares of
Series A redeemable convertible preferred stock ("Series A Preferred Stock")
through a private offering. Net proceeds from the financing amounted to
$1,963,000.
In July 1995, the Company designated and issued 1,874,999 shares of Series
B redeemable convertible preferred stock ("Series B Preferred Stock") through a
private offering. Net proceeds from the financing amounted to $2,939,000.
In July 1996, the Company designated 3,909,920 shares and issued 3,750,000
shares of Series C redeemable convertible preferred stock ("Series C Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$7,479,000. In December 1996, the Company agreed to issue an additional 134,920
shares of Series C Preferred Stock in exchange for the cancellation of notes
payable totaling $267,000.
In July 1997, the Company designated 1,343,159 shares and issued 1,275,338
shares of Series D redeemable convertible preferred stock ("Series D Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$4,612,000.
In June 1998, the Company designated 1,800,000 shares and issued 1,003,499
shares of Series E redeemable convertible preferred stock ("Series E Preferred
Stock") through a private offering. In August 1998, the Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") was amended for the sale of an
additional 645,161 shares of the Company's Series E Preferred Stock and Series E
Preferred Stock Warrants to purchase an additional 2,400,000 shares of Series E
Preferred Stock for $4,999,999 to American Express Travel Related Services
Company, Inc. ("TRS"). The total number of shares of
F-74
<PAGE> 158
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
Series E Preferred Stock issued was 1,648,660. Total net proceeds from the
Series E Preferred Stock financing amounted to $12,698,000.
In connection with the initial public offering referred to in Note 19, all
Concur redeemable convertible preferred stock automatically converted into
common stock.
Following is a summary of terms and conditions for each series of Concur
redeemable convertible preferred stock as of September 30, 1998:
<TABLE>
<CAPTION>
ANNUAL
AGGREGATE DIVIDEND
SHARES STATED LIQUIDATION RATE --
OUTSTANDING VALUE VALUE NONCUMULATIVE
----------- ------ ----------- -------------
<S> <C> <C> <C> <C>
Issues and outstanding:
Series A.................... 1,529,636 $1.30 $ 2,000,000 $0.0915
Series B.................... 1,874,999 1.60 3,000,000 0.1120
Series C.................... 3,884,920 2.00 7,770,000 0.1400
Series D.................... 1,275,338 3.65 4,655,000 0.2550
Series E.................... 1,648,660 7.75 12,777,000 0.5425
---------- -----------
10,213,553 $30,202,000
========== ===========
</TABLE>
Seeker Preferred Stock
In February 1997, Seeker issued 721,682 shares of convertible preferred
stock at $4.47 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
In March 1998, Seeker issued 839,165 shares of redeemable convertible
preferred stock at $8.94 per share for cash of approximately $6,442,000 and the
conversion of notes payable to shareholders and accrued interest of
approximately $1,062,000.
All shares of Seeker preferred stock were exchanged for Concur common stock
in the June 1, 1999 merger.
Concur Warrants to Purchase Preferred Stock
In May 1996, the Company issued warrants to purchase 28,125 shares of
redeemable convertible preferred stock in conjunction with a renewal and
increase in the bank line of credit (see Note 4). The warrants were immediately
exercisable at a price of $2.00 per share, expiring May 2001. The estimated fair
value of these warrants of $5,000 has been recorded as debt issuance costs. At
the time of the initial public offering, the warrants were exercised.
In July 1997, the Company issued warrants to Comdisco to purchase 44,827
and 22,988 shares of Series D Preferred Stock in conjunction with the Company's
receipt of financing commitments relating to the promissory note and lease
agreement, respectively
F-75
<PAGE> 159
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
(see Note 2). Each has a purchase price of $3.65 per share. The warrants become
immediately exercisable on the effective date of the agreements and remain
exercisable for a period of five years; or two years from the effective date of
the Company's initial public offering, whichever is longer. The estimated fair
values of these warrants of $30,000 and $16,000, respectively, has been recorded
as debt issuance costs.
In September 1997, the Company issued warrants to purchase 14,000 shares of
Series D Preferred Stock in conjunction with a new loan facility and an
increase/renewal in the bank line of credit (see Note 4). The warrants have an
initial exercise price of $3.65 per share, a five-year maturity inclusive of
certain provisions to include, but not limited by, a net exercise provision,
antidilution protection and a $30,000 put option. The right to exercise the put
option expires two years from the issue date of the warrants. The estimated fair
value of these warrants of $30,000 has been recorded as debt issuance costs. At
the time of the initial public offering, the warrants were exercised.
In April 1998, the Company issued warrants to purchase 13,187 shares of
Series E Preferred Stock in conjunction with the increase to the senior loan
facility. The warrants have an initial exercise price of $7.75 per share. The
warrants became immediately exercisable on the effective date of the agreements
and are exercisable for a period of five years. Additionally, the agreement
provides for a $75,000 put option, which expires in April 2000. The estimated
fair value of these warrants of $75,000 has been recorded as debt issuance
costs. These warrants were exercised in February 1999.
In May 1998, the Company issued warrants to Comdisco to purchase 56,451
shares of Series E Preferred Stock in conjunction with the new subordinated
promissory note (see Note 2). The warrants are immediately exercisable at a
price of $7.75 per share and are exercisable for a period of five years; or two
years from effective date of the Company's initial public offering, whichever is
longer. The estimated fair value of these warrants of $11,000 has been recorded
as debt issuance costs. Under the terms of this subordinated debt agreement, the
Company had an outstanding commitment to issue additional warrants to purchase
as many as 27,096 shares of Series E Preferred Stock at an exercise price of
$7.75 per share if it utilized the $1.5 million additional financing available
under the agreement. This commitment expired December 31, 1998 under the terms
of the agreement.
In connection with the sale of an additional 645,161 shares of Series E
Preferred Stock, the Company issued a warrant to TRS and its assignees to
purchase an additional 2,400,000 shares of Series E Preferred Stock. As all of
the shares of Series E Preferred Stock are converted into shares of common stock
in connection with the initial public offering of the Company's common stock,
this warrant will automatically be converted into common stock warrants
exercisable for 2,325,000 shares of the Company's common stock. The terms of the
warrant provide that it is exercisable in four tranches as follows: 300,000
shares may be acquired at the time of the Company's initial public offering at a
cash purchase price per share equal to the initial public offering price per
share less 7%; 700,000 shares may be acquired at any time on or before October
15, 1999 at a cash purchase
F-76
<PAGE> 160
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
price of $33.75 per share; 700,000 shares may be acquired at any time on or
before January 15, 2001 at a cash purchase price of $50.63 per share; and the
remaining 700,000 shares may be acquired at any time on or before January 15,
2002 at a cash purchase price of $85.00 per share. As was permitted by the
warrant, the Company exercised its option to cancel 25% of the shares that could
have been acquired under the warrant at the time of the initial public offering
or on or before October 15, 1999. In connection with an amendment to a
standstill agreement with TRS, the Board of Directors subsequently rescinded its
25% reduction in the number of shares that can be acquired on or before October
15, 1999. At the time of the initial public offering, the initial traunch of
this warrant was exercised for 225,000 shares of common stock. The estimated
fair value of this warrant, determined based on a Black Scholes fair value
model, is approximately $278,000, which has been recorded as redeemable
convertible preferred stock warrants.
All Concur preferred stock warrants automatically converted into common
stock warrants upon the closing of the initial public offering of the Company's
common stock.
Seeker Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, Seeker granted to the shareholders warrants to
purchase 23,434 shares of convertible preferred stock at an exercise price of
$4.46 per share. These warrants were exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, Seeker granted to the shareholders warrants to purchase 27,972
shares of redeemable convertible preferred stock at an exercise price of $8.94
per share.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 25,734 shares of redeemable convertible preferred
stock at an exercise price of $8.94 per share.
All Seeker stock warrants were exchanged on a net exercise basis for Concur
common stock in the June 1, 1999 merger.
F-77
<PAGE> 161
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ---------
<S> <C> <C>
Outstanding stock options...................... 1,869,473 3,242,017
Stock Options available for grant:
1994 Stock Option Plan.................... 354,768 334,230
1998 Equity Incentive Plan................ 2,910,048 1,500,760
Director Stock Option Plan................ 240,000 140,000
Employee Stock Purchase Plan................... 320,000 490,297
Conversion of redeemable convertible preferred
stock:
Series A.................................. 1,529,636 --
Series B.................................. 1,874,999 --
Series C.................................. 3,909,920 --
Series D.................................. 1,343,159 --
Series E.................................. 1,800,000 --
Warrants to purchase Series C Preferred Stock
that are convertible to common stock......... 28,125 --
Warrants to purchase Series D Preferred Stock
that are convertible to common stock......... 81,815 --
Warrants to purchase Series E Preferred Stock
that are convertible to common stock......... 2,219,638 --
Warrants to purchase common stock.............. -- 2,224,267
Warrants to purchase Seeker preferred stock.... 23,437 77,140
---------- ---------
Total................................ 18,505,018 8,008,711
========== =========
</TABLE>
All of the shares of our common stock which remained available for issuance
under the 1994 Stock Option Plan when the 1998 Equity Incentive Plan became
effective, became available for issuance under the 1998 Equity Incentive Plan.
F-78
<PAGE> 162
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
13. NET LOSS PER SHARE
Basic and diluted net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net loss............................. $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
======= ======= ======== ======= ========
Basic and diluted net loss per common
share.............................. $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
======= ======= ======== ======= ========
Weighted average number of common
shares used for basic and diluted
per share amounts.................. 3,019 3,025 3,207 3,076 12,154
======= ======= ======== ======= ========
</TABLE>
Options to purchase 3,242,017 shares of common stock with exercise prices
of $0.01 to $38.81 per share, warrants to purchase 2,242,267 shares of common
stock and warrants to purchase 77,140 shares of Seeker preferred stock at a
range of $3.65 to $85.00 per share were outstanding at March 31, 1999. These
options and warrants and 1,555,279 shares of convertible preferred stock at
March 31, 1999 were excluded from the computation of diluted earnings per share
because their effect was anti-dilutive.
14. RETIREMENT 401(k) PLAN
The Company sponsors a 401(k) Profit Sharing and Trust Plan that is
available to substantially all employees. Each employee may elect to contribute
up to 20% of his or her pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions
to the Plan are subject to statutory limitations regarding maximum
contributions. There are no Company matching contributions.
F-79
<PAGE> 163
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
15. INTERNATIONAL REVENUES
The Company licenses and markets its products primarily in the United
States, and operates in a single industry segment. Information regarding
revenues in different geographic regions is as follows:
<TABLE>
<CAPTION>
REVENUES
--------------------------
COUNTRY 1996 1997 1998
------- ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................ $1,970 $7,714 $19,318
Europe....................................... -- 612 364
Canada....................................... -- 677 31
Australia.................................... -- -- 398
Asia......................................... -- -- 17
------ ------ -------
Total.............................. $1,970 $9,003 $20,128
====== ====== =======
</TABLE>
From the inception of the Company to September 30, 1996, there were no
significant export sales or operations in countries outside of the United
States.
16. SIGNIFICANT AGREEMENTS
Strategic Marketing Alliance Agreement with American Express
In December 1997, the Company entered into a strategic alliance agreement
with American Express Company ("American Express"), a related party, under which
American Express refers to the Company its corporate charge card customers that
seek a T&E expense management software solution. Under the terms of the
agreement, American Express receives a fee for referring to the Company clients
of American Express who become XMS customers. The fee varies based upon
licensing revenue realized from referred customers. Except for the referral, the
Company is responsible for the entire sales effort and also for customer support
and warranty service. Under the agreement, the Company and American Express have
also agreed to develop certain product features enabling a higher level of
integration between XMS and certain American Express services and products.
Strategic Marketing Alliance Agreement with ADP, Inc.
In November 1998, the Company entered into a strategic alliance agreement
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., under which ADP
has agreed to refer potential customers for travel and entertainment expense
management software products and services exclusively to the Company. The
Company and ADP also agreed to jointly market the Company's travel and
entertainment expense report processing products and services to ADP customers.
F-80
<PAGE> 164
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
Co-Branded XMS Service Marketing Agreement
In August 1998, the Company entered into a Co-Branded XMS Service Marketing
Agreement with American Express' affiliate TRS. Under the terms of the
agreement, TRS will receive a fee for marketing to TRS's clients a co-branded
enterprise service provider ("ESP") version of XMS containing special features.
The marketing fee is based on the amount of revenue received. The Company is
responsible for providing warranty and customer support services to these
customers. In addition, under the terms of the agreement, the Company and TRS
have agreed to jointly develop certain product features for integration into the
co-branded ESP version of XMS.
License and Other Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of product sales. These amounts totaled
$203,000 and $348,000 for the years ended September 30, 1997 and 1998,
respectively. Amounts recognized in 1996 were insignificant.
17. RELATED PARTY TRANSACTION
During 1998 the Company paid fees of $121,000 to a stockholder and received
proceeds of $41,000 under the terms of a sales referral agreement. Additionally,
the Company recorded $134,000 in revenue for the sale of a license agreement to
another stockholder in 1998. No sales were made to stockholders or under the
sales referral agreement prior to 1998. At September 30, 1998 accounts
receivable from stockholders were $152,000 and accounts payable to stockholders
were $83,000. For the six months ended March 31, 1999, the Company paid fees of
$254,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At March 31, 1999, accounts receivable from stockholders was
$0 and accounts payable to stockholders was $95,000.
18. SUBSEQUENT EVENT
Reverse Stock Split
On August 21, 1998 the Board of Directors authorized a reverse stock split
of the Company's common stock and a split ratio of 1-to-2.5 effected on December
9, 1998. The related common share, preferred share and per share data in the
accompanying financial statements has been retroactively restated to reflect the
reverse stock split, including preferred share data on an as-converted to common
stock basis.
F-81
<PAGE> 165
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
19. INITIAL PUBLIC OFFERING ("IPO"), FOLLOW-ON OFFERING, AND PRIVATE PLACEMENT
On December 16, 1998, the Company issued 3,365,000 shares of its Common
Stock (including 465,000 shares issued upon the exercise of the underwriters'
over allotment option) at an initial public offering price of $12.50 per share.
The net proceeds to the Company from the offering, net of offering costs were
approximately $37.4 million. In connection with the IPO, warrants were exercised
to purchase 225,000 shares of common stock at a price of $11.625 per share,
resulting in additional proceeds to the Company totaling $2.6 million.
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 2,237,454 shares were
automatically converted into warrants for the purchase of 2,237,454 shares of
common stock.
On April 16, 1999 the Company completed a follow on offering of its common
stock and issued an additional 2,018,620 shares at an offering price $43.50. The
net proceeds to the Company, net of offering costs, were approximately $82.5
million.
In April of 1999 Seeker issued 972,944 shares of Series C preferred stock
in a private placement for cash of $9,434,000 and conversion of notes payable to
stockholders and accrued interest aggregating to $2,566,000.
F-82
<PAGE> 166
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following financial statements present the Concur Technologies, Inc.
("Concur" or the Company) Pro Forma Consolidated Balance Sheet at March 31, 1999
and the Concur Pro Forma Consolidated Statements of Operations for the year
ended September 30, 1998.
The Company's acquisition of 7Software, Inc. ("7Software"), effective June
30, 1998, has been accounted for under the "purchase" method of accounting,
which requires the purchase price to be allocated to the acquired assets and
liabilities of 7Software on the basis of their estimated fair values as of the
date of acquisition. The Company's merger with Seeker Software, Inc. ("Seeker")
effective June 1, 1999, has been accounted for as a pooling of interests. The
following Pro Forma Consolidated Balance Sheet as of March 31, 1999 and pro
forma consolidated statement of operations for the year ended September 30, 1998
give effect to the merger with Seeker Software as presented in the Supplemental
Consolidated Financial Statements. The pro forma consolidated statements of
operations for the year ended September 30, 1998 also gives effect to the
acquisition of 7Software as if it occurred on October 1, 1997, and includes
adjustments directly attributable to the acquisition of 7Software and expected
to have a continuing impact on the combined company (collectively, the "Pro
Forma Financial Statements"). The pro forma information is derived from
historical financial statements of 7Software and the Supplemental Consolidated
Financial Statements of Concur. The information has been prepared in accordance
with the rules and regulations of the Commission and is provided for comparative
purposes only. The pro forma information does not purport to be indicative of
the results that actually would have occurred had the combination been effected
at the beginning of the period presented.
F-83
<PAGE> 167
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CONCUR ADJUSTMENTS CONSOLIDATED
-------- ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents.................................. $ 9,860 -- $ 9,860
Marketable securities.................................... 37,544 -- 37,544
Accounts receivable...................................... 8,680 -- 8,680
Prepaid expenses & other current assets.................. 1,415 -- 1,415
-------- ------- --------
Total current assets................................ 57,499 -- 57,499
Equipment & furniture, net................................. 3,488 -- 3,488
Deposits and other assets.................................. 3,653 -- 3,653
-------- ------- --------
Total assets........................................ $ 64,640 -- $ 64,640
======== ======= ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable & accrued liabilities................... $ 14,675 -- $ 14,675
Notes payable to stockholders............................ 2,667 -- 2,667
Current portion of long term obligations................. 5,556 -- 5,556
Deferred revenue......................................... 4,445 -- 4,445
Accrued merger expenses.................................. -- 7,900 7,900
-------- ------- --------
Total current liabilities........................ 27,343 7,900 35,243
Long term obligations, net of current portion.............. 8,940 8,940
Redeemable convertible preferred stock..................... 8,201 (8,201) --
Stockholders' equity:
Convertible preferred stock.............................. 3,139 (3,139) --
Common stock............................................. 79,000 11,340 90,340
Deferred stock compensation.............................. (2,329) -- (2,329)
Accumulated deficit...................................... (59,654) (7,900) (67,554)
-------- ------- --------
Total stockholders' equity.......................... 20,156 301 20,457
-------- ------- --------
Total liabilities and stockholders' equity.......... $ 64,640 $ -- $ 64,640
======== ======= ========
</TABLE>
See accompanying notes.
F-84
<PAGE> 168
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PURCHASE PRO FORMA
CONCUR 7SOFTWARE ADJUSTMENTS CONSOLIDATED
-------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Total revenues, net................................ $ 20,128 $ 197 $ -- $ 20,325
Cost of revenues................................... 8,621 30 174 8,825
-------- ----- ------- --------
Gross profit....................................... 11,507 167 (174) 11,500
Sales and marketing................................ 16,070 162 33 16,265
Research and development........................... 10,276 243 33 10,552
General and administrative......................... 5,919 -- -- 5,919
Acquired in process R&D............................ 5,203 -- (5,203) --
-------- ----- ------- --------
Total operating expenses...................... 37,468 405 (5,137) 32,736
-------- ----- ------- --------
Loss from operations............................... (25,961) (238) 4,963 (21,236)
Other expense...................................... (263) (1) -- (264)
-------- ----- ------- --------
Net loss...................................... $(26,224) $(239) $ 4,963 $(21,500)
======== ===== ======= ========
Basic and diluted net loss per share............... $ (8.18) $ (6.21)
======== ========
Shares used in calculation of basic and diluted net
loss per share................................... 3,207 3,463
======== ========
</TABLE>
See accompanying notes.
F-85
<PAGE> 169
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
On June 30, 1998, Concur Technologies, Inc. ("Concur" or the Company)
acquired 7Software, Inc. ("7Software") in an acquisition accounted for as a
purchase. 7Software was incorporated in May 1997 and focused on the development
and licensing of Internet-based procurement solutions that bring purchasing to
the desktops of employees of large corporations. Concurrent with this
transaction, 7Software was merged into the Company.
On May 31, 1999 Concur entered into a merger agreement with Seeker
Software, Inc. ("Seeker") that resulted in a merger accounted for as a pooling
of interests. Seeker develops markets and sells web-based self-service HR
workplace solution applications which allow employees within an organization to
access, update and share information from their desktop computers.
The unaudited pro forma information presented is not necessarily indicative
of future consolidated results of operations of Concur or the consolidated
results of operations that would have resulted had the acquisition and merger
taken place on October 1, 1997. The unaudited pro forma consolidated statements
of operations for the year ended September 30, 1998 have been determined based
on the supplemental consolidated statement of operations combining the results
of the Company, Seeker, and the effects of the 7Software acquisition, assuming
the related events occurred as of October 1, 1997. The unaudited pro forma
balance sheet at March 31, 1999 reflects the merger with Seeker as if the merger
occurred on March 31, 1999.
2. UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL ADJUSTMENTS
The unaudited pro forma consolidated 1998 financial statements of
operations reflect the conversion of all the outstanding shares of 7Software
common stock into 708,918 shares of Concur, and stock options to purchase
123,921 shares of Concur common stock pursuant to the acquisition. This
consideration resulted in a total purchase price of $6.2 million (including
acquisition expenses).
The allocation of the purchase price resulted in intangible assets,
primarily capitalized technology and the value of an acquired workforce, of
$960,000 which are being amortized on a straight line basis over three years.
In-process research and development acquired and valued using the income
approach in the amount of $5,203,000 was charged to expense. In-process research
and development charges are not reflected in the pro forma consolidated
financial statements of operations for the year ended September 30, 1998 as they
are considered a nonrecurring charge.
The pro forma financial statements have been prepared using the pooling of
interest method of accounting to reflect the Seeker merger as presented in the
supplemental consolidated financial statements. As a result of accounting for
the business combination under the pooling of interest method of accounting, the
consolidated financial statements of Concur are being restated, and therefore
the pro forma combined financial statements have been restated to reflect the
merger as if it had occurred prior to the dates of the statements. The
computations of weighted average shares outstanding include the conversions of
Seeker common stock and preferred stock into shares of Concur common stock, and
the conversion of options to purchase Seeker common stock into options to
purchase Concur common stock.
F-86
<PAGE> 170
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. UNAUDITED PRO FORMA CONSOLIDATED NET LOSS PER SHARE
The net loss per share and shares used in computing the net loss per share
is based upon the historical weighted average common shares outstanding adjusted
to reflect the issuance, as of October 1, 1997 of approximately 708,918 shares
and stock options to purchase 123,921 shares of Concur common stock as described
in Note 2 to these Notes to Unaudited Pro Forma Consolidated Financial
Statements. Options to purchase approximately 364,000 shares of 7Software common
stock were assumed by Concur pursuant to the acquisition and converted into
options to purchase approximately 123,921 shares of Concur common stock. The
Concur common stock issuable upon the exercise of the stock options, have been
excluded as the effect would be antidilutive. The unaudited pro forma
consolidated net loss per share also includes the effect of common stock shares
issued in the Seeker Merger.
4. PURCHASE ADJUSTMENTS
Pro forma adjustments to the 1998 Statement of Operations have been
prepared to reflect the elimination of the non-recurring one-time charge for
acquired in-process technology in connection with the 7Software acquisition and
to reflect the amortization of capitalized technology and other intangible
assets.
Pro forma adjustments to the March 31, 1999 Pro Forma Consolidated Balance
Sheet have been prepared to reflect the conversion of the Seeker preferred stock
to Concur common stock and to reflect the accrual of $7.9 million of merger
related costs consisting primarily of financial advisory fees for both
companies, attorneys, accountants, financial printing, and other related
charges.
F-87
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