<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM____ TO____
COMMISSION FILE NUMBER 000-25893
_________________
SCIENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3288107
(State of incorporation) (IRS Employer Identification No.)
ONE FRONT STREET, 28TH FLOOR, SAN FRANCISCO, CALIFORNIA 94111
(Address of Principal Executive Offices, Including Zip Code)
(415) 733-8200
(Registrant's Telephone Number, Including Area Code)
NONE
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of the Registrant's Common Stock as of
September 30, 2000 was 73,569,048.
================================================================================
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SCIENT CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS.............................................................................1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS...................................................................2
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................................3
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS..............................................................4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................6
Item 3. Qualitative and Quantitative Disclosures about Market Risk.................................................17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..........................................................................................18
Item 2. Changes in Securities and Use of Proceeds..................................................................18
Item 3. Defaults Upon Senior Securities............................................................................18
Item 4. Submission of Matters to a Vote of Security Holders........................................................18
Item 5. Other Information..........................................................................................18
Item 6. Exhibits and Reports on Form 8-K...........................................................................18
SIGNATURE..........................................................................................................19
</TABLE>
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SCIENT CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
ASSETS
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
----------------- -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 90,421 $ 108,102
Short-term investments 102,112 121,046
Accounts receivable, net 82,175 56,021
Prepaid expenses and other 23,532 9,376
----------------- -----------------
Total current assets 298,240 294,545
Long-term investments 5,352 3,146
Property and equipment, net 26,090 16,063
Intangibles, net 12,852 -
================= =================
$ 342,534 $ 313,754
================= =================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities
Bank borrowings, current $ - $ 1,334
Accounts payable 4,764 5,023
Accrued expenses 46,682 43,241
Deferred revenue 6,645 6,579
Capital lease obligations, current 3,849 2,624
----------------- -----------------
Total current liabilities 61,940 58,801
Bank borrowings, long-term - 865
Capital lease obligations, long-term 2,609 2,052
----------------- -----------------
$ 64,549 $ 61,718
----------------- -----------------
Stockholders' equity
Common stock: $0.0001 par value; 500,000 authorized; 73,569 and 72,491
shares issued and outstanding, respectively 7 7
Additional paid-in capital 309,261 297,688
Unearned compensation (11,575) (16,784)
Accumulated deficit (19,708) (28,875)
----------------- -----------------
Total stockholders' equity 277,985 252,036
----------------- -----------------
$ 342,534 $ 313,754
================= =================
See notes to interim condensed consolidated financial statements.
</TABLE>
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SCIENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ---------- ----------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $ 102,005 $ 30,805 $ 193,366 $ 47,209
Operating expenses
Professional services 45,832 14,233 83,926 22,173
Selling, general and administrative 49,000 19,212 96,790 32,315
Amortization of intangible assets 1,167 - 1,167 -
Stock compensation 2,741 4,173 5,659 8,522
----------- ---------- ----------- ----------
Total operating expenses 98,740 37,618 187,542 63,010
----------- ---------- ----------- ----------
Income (loss) from operations 3,265 (6,813) 5,824 (15,801)
Interest and other income, net 2,379 992 5,601 1,588
----------- ---------- ----------- ----------
Income (loss) before income taxes 5,644 (5,821) 11,425 (14,213)
Provision for income taxes 2,258 - 2,258 -
----------- ---------- ----------- ----------
Net income (loss) $ 3,386 $ (5,821) $ 9,167 $ (14,213)
=========== ========== =========== ==========
Net income (loss) per share:
Basic $ 0.05 $ (0.10) $ 0.14 $ (0.30)
Diluted $ 0.04 $ (0.10) $ 0.11 $ (0.30)
Weighted average common shares:
Basic 65,664 55,848 64,673 46,828
Diluted 80,766 55,848 81,406 46,828
See notes to interim condensed consolidated financial statements.
</TABLE>
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SCIENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
2000 1999
--------------- ---------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 9,167 $(14,213)
Adjustments to reconcile net income (loss) to net cash used
in operating activities:
Depreciation and amortization 5,528 1,147
Provision for doubtful accounts 6,217 1,896
Amortization of unearned compensation 5,659 8,522
Loss on investments 541 -
Change in assets and liabilities:
Accounts receivable (31,639) (24,398)
Prepaid expenses and other (15,446) (4,762)
Accounts payable (419) 926
Accrued expenses 2,922 11,206
Deferred revenue 31 903
--------------- ---------------
Net cash used in operating activities (17,439) (18,773)
--------------- ---------------
Cash flows from investing activities:
Purchase/sale of investments, net 15,793 (41,236)
Cash payment for acquisition (7,685) -
Purchase of property and equipment (10,959) (3,129)
--------------- ---------------
Net cash used in investing activities (2,851) (44,365)
--------------- ---------------
Cash flows from financing activities:
Proceeds from initial public offering, net - 62,728
Proceeds from bank borrowing (2,199) 988
Proceeds from exercise of common stock options and warrants, net 8,378 2,714
Purchase of common stock (2,225) -
Principal payments on capital lease obligations (1,560) (276)
--------------- ---------------
Net cash provided by financing activities 2,394 66,154
--------------- ---------------
Effect of exchange rate changes on cash 215 -
Increase (decrease) in cash and cash equivalents (17,681) 3,016
Cash and cash equivalents at beginning of period 108,102 11,261
=============== ===============
Cash and cash equivalents at end of period $ 90,421 $ 14,277
=============== ===============
See notes to interim condensed consolidated financial statements.
</TABLE>
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SCIENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of Scient Corporation and its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
Investments where Scient does not have the ability to exercise significant
influence are accounted for using the cost method. The accompanying condensed
consolidated financials statements are unaudited, but in the opinion of
management, contain all the adjustments (consisting of only normal recurring
adjustments) considered necessary to present fairly the financial position, the
results of operations and cash flows for the periods presented in conformity
with generally accepted accounting principles applicable to interim periods.
Results of operations are not necessarily indicative of the results expected for
the full fiscal year or for any future period. The accompanying consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements for the year ended March 31, 2000 included in Scient's
Annual Report on Form 10-K.
Certain reclassifications have been made to the prior period's financial
statements to conform to the current period presentation.
2. EARNINGS (LOSS) PER SHARE
Basic net income (loss) per share is determined by using the weighed
average number of common shares outstanding during the period. Diluted net
income (loss) per share is determined by using the weighted average number of
common shares and equivalents (representing the dilutive effect of stock
options) outstanding during the period. Scient's net income (loss) has not been
adjusted for any period presented for purposes of computing basic or diluted net
income (loss) per share. For purposes of computing diluted net income (loss) per
share, weighted average common share equivalents do not include stock options
with an exercise price that exceeded the average fair market value of Scient's
common stock for that period.
The following table sets forth the computation of basic and diluted
earnings (loss) per share for the periods indicated (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
----------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------- ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 3,386 $ (5,821) $ 9,167 $ (14,213)
============ ============= ============ =============
Basic net income (loss) per share:
Weighted average shares of common stock outstanding 65,664 55,848 64,673 46,828
============ ============= ============ =============
Basic net income (loss) per share $ 0.05 $ (0.10) $ 0.14 $ (0.30)
============ ============= ============ =============
Diluted net income (loss) per share:
Weighted average shares of common stock outstanding 65,664 55,848 64,673 46,828
Weighted average unvested common shares to repurchase 7,829 - 8,546 -
Dilutive stock options 7,273 - 8,187 -
------------ ------------- ------------ -------------
Shares used in computing per share amount 80,766 55,848 81,406 46,828
============ ============= ============ =============
Diluted net income (loss) per share $ 0.04 $ (0.10) $ 0.11 $ (0.30)
============ ============= ============ =============
</TABLE>
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SCIENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" establishes standards for
reporting comprehensive income. Comprehensive income includes net income as
currently reported under generally accepted accounting principles and also
considers the affect of additional economic events that are not required to be
recorded in determining net income but are rather reported as a separate
component of stockholders' equity. Scient reports foreign currency translation
gains and losses and unrealized gains and losses on short term investments as
components of comprehensive income. For the three months ended September 30,
2000 and 1999, Scient recorded comprehensive income of $2.8 million and
comprehensive loss of $5.8 million, respectively. For the six months ended
September 30, 2000 and 1999, Scient recorded comprehensive income of $8.5
million and comprehensive loss of $14.2 million, respectively.
4. ACQUISITION
In August 2000, Scient closed its acquisition of AXIDIA, an eBusiness
services firm located in France. Under the terms of the acquisition agreement
Scient paid cash of approximately $7.7 million, and issued approximately 121,000
shares of its common stock in exchange for all of the outstanding common stock
of AXIDIA. The acquisition was accounted for as a purchase business combination
and accordingly, the results of AXIDIA's operations have been included in
Scient's financial statements from August 2000.
The total consideration for the transaction was valued approximately
$14.5 million, which includes the value of cash paid, common stock issued and
other direct acquisition costs. The purchase price has been allocated to the
fair value of assets acquired and liabilities assumed and workforce-in-place.
The workforce-in-place has been recorded as an intangible asset and is amortized
on a straight-line basis over its useful economic life of 2 years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of Scient should be read in conjunction with Scient's
consolidated financial statements and notes thereto appearing elsewhere in
Scient's Annual Report on Form 10-K. This discussion and analysis contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including, but not
limited to, those set forth under "Risk Related to Our Business" and elsewhere
in this 10-Q filing.
OVERVIEW
Our revenues are derived primarily from providing professional services to
clients who are creating eBusinesses or are rethinking or expanding their
existing businesses to integrate eBusiness capabilities. We expect that our
revenues will be driven primarily by the number and scope of our client
engagements, our professional services headcount, and our ability to
appropriately staff those engagements and price our services. Revenues from any
given client will vary from period to period; however, we expect that
significant customer concentration will continue for the foreseeable future. To
the extent that any significant client uses less of our services or terminates
its relationship with us, our revenues could decline substantially. As a result,
the loss of any significant client could seriously harm our business and results
of operations.
We generally provide our services on a time and materials basis. For the
quarter ended September 30, 2000, approximately 90% of revenues were derived
from time and materials contracts, including completed capped fee engagements
that were billed and recognized on a time and materials basis. Revenues pursuant
to time and materials contracts are generally recognized as services are
provided. Revenues pursuant to fixed-fee contracts are generally recognized
using the percentage-of-completion method of accounting (based on the ratio of
costs incurred to total estimated costs). Revenues exclude reimbursable expenses
charged to clients. In the future we anticipate that a larger percentage of
revenues may be derived from contracts that have fixed-fee components.
Professional services expenses consist primarily of compensation and
benefits for our colleagues involved with the delivery of professional services.
Professional services margins reflect revenues for services less professional
services expenses. We expect that our per capita professional services expenses
will increase over time due to wage increases and inflation. Our professional
services margins are affected by the number of work days in a period and level
of billability, defined as the percentage of professional services employees'
time that is billed to clients, and such margins will vary in the future. Any
significant decline in fees billed to clients or the loss of a significant
client, without a corresponding decline in professional services expenses, would
materially adversely affect our professional services margins. Client
engagements currently average six to twelve months' duration. At the end of any
engagements, we must re-deploy professional services personnel. Any resulting
unbillable time will adversely affect professional services margins. See "Risk
Related to Our Business--Our Quarterly Revenues and Operating Results Are
Volatile and May Cause Our Stock Price to Fluctuate."
Selling, general and administrative expenses consist of salaries,
commissions, and related expenses for personnel engaged in sales and marketing;
salaries and related expenses for recruiting, human resources, knowledge
management, information technology, finance, legal and administrative personnel;
office facilities and information technology expenditures; professional fees;
trade shows; promotional expenses; and other general corporate expenses. We
expect selling, general and administrative expenses to increase in absolute
dollars as we expand our direct sales force, continue expenditures on knowledge
management and information technology infrastructure, open new offices and
building out existing offices on a global basis, increase our recruiting efforts
and incur additional costs related to the growth of our global business.
Despite growth in our revenues, our net income may not increase
proportionately with the increase in our revenues primarily because of increased
expenses related to the expansion of the number of our offices, building out our
existing offices, increased investment in our knowledge management and
operations infrastructure, and increased marketing and sales efforts. To the
extent that future revenues do not increase in the same periods in which
operating expenses increase, our operating results would be adversely affected.
See "Risk Related to Our Business--We Have a History of Losses."
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RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the relative
composition of revenues and selected statements of operational data as a
percentage of revenues:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------- --------------------
2000 1999 2000 1999
------- ------- ------- --------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Operating expenses
Professional services 45 46 43 47
Selling, general and administrative 48 62 50 68
Amortization of intangible assets 1 - 1 -
Stock compensation 3 14 3 18
------- ------- ------- --------
Total operating expenses 97 122 97 133
------- ------- ------- --------
Income (loss) from operations 3 (22) 3 (33)
Interest and other income, net 2 3 3 3
------- ------- ------- --------
Income (loss) before income taxes 5 (19) 6 (30)
Provision for income taxes 2 - 1 -
======= ======= ======= ========
Net income (loss) 3% (19%) 5% (30%)
======= ======= ======= ========
</TABLE>
REVENUES
Revenues increased 231% in the quarter ended September 30, 2000 compared to
the quarter ended September 30, 1999. For the first six months of fiscal 2001,
revenues increased 310% over the comparable period of the prior fiscal year.
This increase resulted primarily from increases in the number of clients, the
scope of engagements, and billing rate increases. For the three months ended
September 30, 2000, our five largest clients accounted for approximately 42% of
our revenues, compared to 37% of revenues for the three months ended September
30, 1999. For the six months ended September 30, 2000, our five largest clients
accounted for approximately 34% of our revenues, compared to 38% of revenues for
the six months ended September 30, 1999. During the three and six months ended
September 30, 2000, one client accounted for 13% and 11% of revenues,
respectively. For the three and six months ended September 30, 1999, one client
accounted for 12% and 13% of revenues, respectively.
OPERATING EXPENSES
Professional Services. Our professional services expenses increased 222% in
the quarter ended September 30, 2000 compared to the quarter ended September 30,
1999. For the first six months of fiscal 2001, professional services increased
279% over the comparable period of the prior fiscal year. This increase was
primarily a result of an increase in the number of professional services
colleagues. Professional services expenses as a percentage of revenue decreased
to 45% from 46% for the three months ended September 30, 2000, as compared to
the three months ended September 30, 1999, and to 43% from 47% for the six
months ended September 30, 2000, as compared to the six months ended September
30, 1999. This decrease is attributed to revenue increasing at a higher rate
than professional services costs.
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Selling, General and Administrative. Selling, general and administrative
expenses increased 155% in the quarter ended September 30, 2000 compared to the
quarter ended September 30, 1999. For the first six months of fiscal 2001,
selling, general, and administrative expenses increased 200% over the comparable
period of the prior fiscal year. This increase was primarily due to expenses
related to the addition of sales, marketing, recruiting, knowledge management,
information technology, finance, legal and administration personnel, bad debt
expense, and costs of leasing additional office space. Selling, general and
administrative expenses as a percentage of revenue decreased to 48% from 62% for
the three months ended September 30, 2000, as compared to the three months ended
September 30, 1999, and to 50% from 69% for the six months ended September 30,
2000, as compared to the six months ended September 30, 1999. This decrease is
attributed to revenue increasing at a higher rate than selling, general and
administration expenses.
Stock Compensation. We have recorded stock compensation for the difference
between the exercise price of certain stock option grants and the deemed fair
value of our common stock at the time of such grants. We are amortizing this
amount over the vesting periods of the applicable options, resulting in
amortization expense of $2.7 million and $4.2 million in the three months ended
September 30, 2000 and 1999, respectively, and $5.7 million and $8.5 million for
the six months ended September 30, 2000 and 1999, respectively.
Amortization of Intangibles. Amortization of intangible assets consists of
amortization of goodwill resulting from the acquisition of AXIDIA, a French
eBusiness services firm, in August 2000. Amortization of these costs for the
three and six months ended September 30, 2000 was $1.2 million. There was no
amortization cost related to intangible assets for the three and six months
ended September 30, 1999. Intangible assets related to the AXIDIA acquisition
will be amortized over two years. Amortization of intangible assets as a
percentage of revenue was 1% for the three months ended September 30, 2000, and
1% for the six months ended September 30, 2000, with no amortization in
comparable periods of the prior year.
INTEREST AND OTHER INCOME, NET
Interest and other income, net, increased 140% in the quarter ended
September 30, 2000 compared to the quarter ended September 30, 1999. For the
first six months of fiscal 2001, interest and other income, net increased 253%
over the comparable period of the prior fiscal year. This increase was due
primarily to higher interest bearing funds resulting from our investing
activities during the quarter ended September 30, 2000. In addition, the average
balance of our investment is also higher due to proceeds from our public
offerings in the prior fiscal year.
PROVISION FOR INCOME TAXES
Provision for income tax for the three and six months ended September 30,
2000 is $2.3 million. There was no provision for the comparable periods ended
September 30, 1999. This provision represents combined federal, state, and
foreign income taxes at an effective rate of 40% and 20%, respectively. We have
recorded our income tax provision based on estimates of the effective tax rate
expected to be applicable for the full fiscal year. Estimated effective rates
recorded during interim periods may be periodically revised if necessary to
reflect current estimates.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the six months ended September 30,
2000 and 1999 was $17.4 million and $18.8 million, respectively. As of September
30, 2000 we had $192.5 million in cash, cash equivalents and short-term
investments. We expect that accounts receivable will increase to the extent our
revenues rise. Any such increase that occurs at a greater rate than
corresponding increases in revenues can be expected to reduce cash, cash
equivalents and short-term investments.
Cash used in investing activities was $2.9 million for the six months ended
September 30, 2000. This was due to capital expenditures of approximately $11.0
million and the cash portion of the AXIDIA acquisition for $7.7 million, offset
by maturity or sale of short-term investments, net of $15.8 million. Capital
expenditures for the six months ended September 30, 2000 and 1999 were
approximately $11.0 million and $3.1 million respectively. These expenditures
were primarily for computer equipment, software, and furniture and fixtures. We
expect that capital expenditures will continue to increase to the extent we
increase our headcount, increase the number of our offices and expand our
operations. Cash used in investing activities was $44.4 million for the six
months ended September 30, 1999 consisting of the purchase of short-term
investments of $41.2 million after Scient's initial public offering.
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Cash provided by financing activities was $2.4 million for the six months
ended September 30, 2000 and primarily consisted of cash received for the
exercise of options to acquire common stock of $8.4 million. Cash provided by
financing activities was $66.2 million for the six months ended September 30,
1999 and was primarily derived from proceeds from the sale of common stock
through Scient's initial public offering of $62.7 million.
We have a revolving line of credit for $50.0 million. Borrowings under this
line of credit bear interest at either the LIBOR rate plus a range of 2.25% to
2.75% or the bank's prime rate plus up to 0.5% depending on the outstanding
balance and the type of draws. As of September 30, 2000, there were no
outstanding borrowings under this line of credit. Ten standby letters of credit
totaling $39.8 million have been issued against this line of credit.
OTHER FACTORS AFFECTING OPERATING RESULTS
RISKS RELATED TO OUR BUSINESS
WE HAVE A HISTORY OF LOSSES AND MAY NOT BE ABLE TO SUSTAIN PROFITABILITY
Prior to the quarter ended March 31, 2000, we had a history of successive
quarterly losses. We incurred net losses of $16.0 million during the year ended
March 31, 2000. As of September 30, 2000, we had an accumulated deficit of $19.7
million. We also expect to continue to incur increasing sales and marketing,
infrastructure, development, and general and administrative expenses. As a
result, we will need to continue generating significant revenues and manage
expenses to maintain profitability. If we do achieve profitability on an annual
basis, we may not be able to sustain or increase profitability on a quarterly or
annual basis in the future. Although our revenues have grown in recent quarters,
we do not believe that we can sustain our historical growth rates. Accordingly,
you should not view our historical growth rates as indicative of our future
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
WE HAVE A LIMITED OPERATING HISTORY AND A LIMITED NUMBER OF COMPLETED
ENGAGEMENTS THAT MAKE AN EVALUATION OF OUR BUSINESS DIFFICULT
We were incorporated in November 1997 and began providing services to
clients in February 1998. Our limited operating history makes an evaluation of
our business and prospects very difficult. Companies in an early stage of
development frequently encounter enhanced risks and unexpected expenses and
difficulties. These risks, expenses and difficulties apply particularly to us
because our market is new and rapidly evolving. Our long-term success will
depend on our ability to achieve satisfactory results for our clients and to
form long-term relationships with core clients on a global basis. Some of our
clients have only limited experience with the eBusinesses we have developed for
them. Accordingly, we cannot assure that the eBusinesses we have implemented
will be successful in the longer term. If the eBusinesses we have implemented
are not successful, our brand will be harmed and we may incur liability to our
clients. If one or more of our clients for whom we have done substantial work
suffers a significant failure or setback in its eBusiness, our business
reputation could be severely damaged, whether or not such failure or setback was
caused by our work or within our control. Our ability to obtain new engagements,
retain clients and recruit and retain highly-skilled employees could be
seriously harmed if our work product or our clients' eBusinesses fail to meet
the expectations of our clients.
OUR QUARTERLY REVENUES AND OPERATING RESULTS ARE VOLATILE AND MAY CAUSE OUR
STOCK PRICE TO FLUCTUATE
Our quarterly revenues and operating results are volatile and difficult to
predict. It is likely that in some future quarter or quarters our operating
results will be below the expectations of public market analysts or investors.
In such event, the market price of our common stock may decline significantly.
Our quarterly operating results have varied in the past and are likely to
vary significantly from quarter to quarter. As a result, we believe that
period-to-period comparisons of our results of operations are not a good
indication of our future performance. A number of factors are likely to cause
these variations, including:
o Our ability to obtain new and follow-on client engagements;
o Changes in the financial condition of our clients which may cause them
to make late payments of fees to us or to be unable to pay some or all
of our fees;
o our ability to retain clients on a long-term basis;
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<PAGE> 12
o The amount and timing of expenditures by our clients on a global basis
for eBusiness services and variations in budget cycles of our large
enterprise clients;
o Our ability to attract, train and retain skilled management, strategic,
technical, design, sales, marketing and support professionals;
o Our employee utilization rate, including our ability to transition
employees quickly from completed projects to new engagements, for which
we typically receive little or no notice;
o The introduction of new services or products by us or our competitors;
o Changes in our pricing policies or those of our competitors;
o Our ability to manage costs, including personnel costs and support
services costs; and
o Costs related to the opening or expansion of Scient offices.
Our revenues are derived primarily from professional services, which we
generally provide on a time and materials basis. Revenues pursuant to time and
materials contracts are generally recognized as services are provided. Since
personnel and related costs constitute the substantial majority of our operating
expenses and since we establish these expenses in advance of any particular
quarter, underutilization of our professional services employees may cause
significant reductions in our operating results for a particular quarter and
could result in losses for such quarter. In addition, we have hired a large
number of personnel in core support services, including knowledge management,
technology infrastructure and finance and administration, in order to support
our anticipated growth. As a result, a significant portion of our operating
expenses are fixed in the short term. Therefore, any failure to generate
revenues according to our expectations in a particular quarter could result in
losses for the quarter. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Although we have limited historical financial data, we have experienced and
expect to continue to experience seasonality in revenues from our eBusiness
services. These seasonal trends may materially affect our quarter-to-quarter
operating results. Revenues and operating results in our quarter ending December
31 are typically lower relative to our other quarters because there are a lower
number of billable days in this quarter due to holidays and vacation days. In
addition, operating expenses may increase in each quarter ending September 30,
both on absolute terms and as a percentage of revenues, due to the potential
hiring of large numbers of recent college graduates, which results in increased
salary expenses before such new employees begin to generate substantial revenues
for Scient.
FAILURE TO MANAGE OUR GROWTH MAY ADVERSELY AFFECT OUR BUSINESS
We have grown rapidly and expect to continue to grow over time both by
hiring new employees and serving new business and geographic markets. Our growth
has placed, and will continue to place, a significant strain on our management
and our operating and financial systems. Our headcount has grown from 661 as of
September 30, 1999 to 1,868 as of September 30, 2000. We do not believe this
growth rate is sustainable for the long-term. Our growth has required and will
continue to require us to make substantial expenditures for capital equipment,
training, recruiting, and other expansion-related costs, the amount and timing
of which will affect our financial results.
Our growth requires substantial managerial attention to ensure that our
colleagues and offices operate at an appropriate level of productivity. Failure
to manage effectively the productivity and work quality of our colleagues and
offices could seriously harm our operations and financial condition. In
addition, we recently opened several additional offices and we expect to open
additional offices in the future. If we do not attain the revenue levels and
productivity necessary to support such growth, our business, operating results
and financial condition could be seriously harmed.
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Our personnel, systems, procedures and controls may be inadequate to
support our future operations. In order to accommodate the increased number of
engagements, number of clients and the increased size of our operations, we will
need to hire, train and retain the appropriate personnel to manage our
operations. We will also need to improve our financial and management controls,
reporting systems and operating systems. Currently, we are redesigning several
internal systems, including recruiting and engagement management systems. We may
encounter difficulties in developing and implementing these and other new
systems.
OUR CLIENTS MAY BECOME UNABLE OR UNWILLING TO PAY US FOR SERVICES PERFORMED
We assume a certain level of credit risk with our clients in order to do
business. Conditions affecting any of our clients could cause them to become
unable or unwilling to pay us in a timely manner, or at all, for services we
have already provided them. In the past we have experienced significant
collection delays from certain clients, and we cannot predict whether we will
continue to experience similar or more severe delays. If one or more of our
clients fails or refuses to pay us in a timely manner, or if we are unable to
collect a number of large accounts receivable, it could have a material adverse
effect on business, operating results and financial condition.
OUR CLIENTS MAY BE UNABLE TO RAISE ADDITIONAL CAPITAL NEEDED TO RETAIN OUR
SERVICES OR PAY US FOR SERVICES PERFORMED.
Some of our current and potential clients, particularly those clients
funded primarily by venture capital, need to raise additional funds in order to
continue their business and operations as planned. We cannot be certain that
these companies will be able to obtain sufficient financing on favorable terms
or at all. As a result of an inability to raise necessary financing, some
clients may be unable to retain our services or to pay us for services we have
already provided them or they may terminate our services earlier than we expect,
any of which could seriously harm our business, financial condition and
operating results. In particular, some of our current and potential clients
funded by venture capital have recently encountered greater difficulty obtaining
needed financing and therefore have had difficulty in retaining our services and
in paying amounts owed for services provided.
WE HAVE RELIED AND EXPECT TO CONTINUE TO RELY ON A LIMITED NUMBER OF CLIENTS FOR
A SIGNIFICANT PORTION OF OUR REVENUES
We currently derive and expect to continue to derive a significant portion
of our revenues from a limited number of clients. To the extent that any
significant client uses less of our services or terminates its relationship with
us, our revenues could decline substantially. As a result, the loss of any
significant client could seriously harm our business, financial condition and
operating results. For the three months ended September 30, 2000, our five
largest clients accounted for approximately 42% of our revenues, and one client
accounted for over 10% of our revenues. The volume of work that we perform for a
specific client is likely to vary from period to period, and a significant
client in one period may not use our services in a subsequent period.
OUR LACK OF LONG-TERM CONTRACTS WITH CLIENTS REDUCES THE PREDICTABILITY OF OUR
REVENUES
Our clients retain us on an engagement-by-engagement basis, rather than
under long-term contracts. As a result, our revenues are difficult to predict.
Because we incur costs based on our expectations of future revenues, our failure
to predict our revenues accurately may seriously harm our financial condition
and results of operations. Although it is our goal to provide the full range of
our eBusiness services to our clients, we are generally retained to design and
build discrete segments of an overall eBusiness on an engagement-by-engagement
basis. Since large client projects involve multiple engagements or stages, there
is a risk that a client may choose not to retain us for additional stages of a
project or that the client will cancel or delay additional planned projects.
Such cancellations or delays could result from factors unrelated to our work
product or the progress of the project, but could be related to general business
or financial conditions of the client. For example, many of our current or
potential clients that are in the early stages of development may be unable to
retain our services because of financial constraints. In addition, our existing
clients can generally reduce the scope of or cancel their use of our services
without penalty and with little or no notice. If a client defers, modifies or
cancels an engagement or chooses not to retain us for additional phases of a
project, we must be able to rapidly redeploy our employees to other engagements
in order to minimize underutilization of employees and the resulting harm to our
operating results. Our operating expenses are relatively fixed and cannot be
reduced on short notice to compensate for unanticipated variations in the number
or size of engagements in progress.
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OUR ABILITY TO ATTRACT, TRAIN AND RETAIN QUALIFIED EMPLOYEES IS CRUCIAL TO OUR
RESULTS OF OPERATIONS AND ANY FUTURE GROWTH
Our success depends in large part on our ability to hire, train and retain
project and engagement managers, technical architects, strategists, engineers,
design professionals, other technical personnel and sales and marketing
professionals of various experience levels. Any inability to hire, train and
retain a sufficient number of qualified employees could hinder the growth of our
business. Skilled personnel are in short supply, and this shortage is likely to
continue for some time. As a result, competition for these people is intense,
and the industry turnover rate for them is high. Consequently, we may have
difficulty hiring our desired numbers of qualified employees. Moreover, even if
we are able to expand our employee base, the expenditure of resources required
to attract and retain such employees may adversely affect our operating margins.
In addition, some companies have adopted a strategy of suing or threatening to
sue former employees and their new employers. As we hire new employees from our
current or potential competitors we are likely to become a party to one or more
lawsuits involving the former employment of one of our employees. Any future
litigation against us or our employees, regardless of the outcome, may result in
substantial costs and expenses to us and may divert management's attention away
from the operation of our business.
WE DEPEND ON OUR KEY PERSONNEL, AND THE LOSS OF ANY KEY PERSONNEL MAY ADVERSELY
AFFECT OUR BUSINESS
We believe that our success will depend on the continued employment of our
senior management team and key technical personnel. This dependence is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or more
members of our senior management team or key technical personnel were unable or
unwilling to continue in their present positions, such persons would be very
difficult to replace and our business could be seriously harmed. Accordingly,
the loss of one or more members of our senior management team could have a
direct adverse impact on our revenues. In addition, if any of these key
employees joins a competitor or forms a competing company, some of our clients
might choose to use the services of that competitor or new company instead of
our own. Furthermore, clients or other companies seeking to develop in-house
eBusiness capabilities may hire away some of our key employees. This would not
only result in the loss of key employees but could also result in the loss of a
client relationship or a new business opportunity. Any losses of client
relationships could seriously harm our business.
COMPETITION FROM BIGGER, MORE ESTABLISHED COMPETITORS WHO HAVE GREATER FINANCIAL
RESOURCES COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND LOSS OF
MARKET SHARE
Competition in the eBusiness services market is intense. If we fail to
compete successfully against current or future competitors, our business,
financial condition and operating results would be seriously harmed. We compete
against companies selling electronic commerce software and services, including
those offering such software and services on a hosted basis, and the in-house
development efforts of companies seeking to engage in electronic commerce. We
expect competition to persist and intensify in the future. We cannot be certain
that we will be able to compete successfully with existing or new competitors.
Because relatively low barriers to entry characterize our market, we expect
more companies to enter our market. We expect that competition will continue to
intensify and increase in the future. Some large information technology
consulting firms are focusing more resources on eBusiness opportunities. In
addition, companies, which offer certain electronic commerce services and
products on a hosted platform, have entered the market and we may compete for
business with these new entrants. Because we contract with our clients on an
engagement-by-engagement basis, we compete for engagements at each stage of our
methodology. There is no guarantee that we will be retained by our existing or
future clients on later stages of work.
Many of our current competitors have longer operating histories, larger
client bases, larger professional staffs, greater brand recognition and greater
financial, technical, marketing and other resources than we do. This may place
us at a disadvantage in responding to our competitors' pricing strategies,
technological advances, advertising campaigns, strategic partnerships and other
initiatives. In addition, many of our competitors have well-established
relationships with our current and potential clients and have extensive
knowledge of our industry. As a result, our competitors may be able to respond
more quickly to new or emerging technologies and changes in customer
requirements and they may also be able to devote more resources to the
development, promotion and sale of their services than we can. Competitors that
offer more standardized or less customized services than we do may have a
substantial cost advantage, which could force us to lower our prices, adversely
affecting our operating margins.
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Current and potential competitors also have established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address customer needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than, the
services that we offer.
POTENTIAL FUTURE ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR
BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT OUR OPERATING RESULTS
In August 2000, we acquired AXIDIA, a French eBusiness service firm and we
may acquire other businesses in the future, which may complicate our management
tasks. We may need to integrate widely dispersed operations with distinct
corporate cultures. Such integration efforts may not succeed or may distract our
management from servicing existing clients. Our failure to successfully manage
current and future acquisitions could seriously harm our operating results.
Also, acquisition costs could cause our quarterly operating results to vary
significantly. Furthermore, our stockholders would be diluted if we finance the
acquisitions by issuing equity or equity linked securities.
WE MAY LOSE MONEY ON FIXED-FEE OR SIMILAR CONTRACTS
If we miscalculate the resources or time needed to complete engagements
with capped or fixed fees or fee structures other than straight time and
materials arrangements, our operating results could be seriously harmed. The
risk of such miscalculations for us is high because we work with complex
technologies in compressed timeframes, and therefore it is difficult to judge
the time and resources necessary to complete a project. To date, we have
generally entered into contracts with our clients on a time and materials basis,
though we sometimes work on a fixed-fee basis, cap the amount of fees we may
invoice on time and material contracts without client consent or provide other
rate structures for selected clients that deviate from time and
materials-arrangements. In the future our strategy is to increase the percentage
of our client engagements subject to arrangements with fixed-fee or other
similar components, because we believe they have the potential to be more
profitable.
WE SOMETIMES AGREE NOT TO PERFORM SERVICES FOR OUR CLIENTS' COMPETITORS
We sometimes agree not to perform services for competitors of our clients
for limited periods of time, which have been as long as two years. These
non-compete agreements reduce the number of our prospective clients and the
number of potential sources of revenue. In addition, these agreements increase
the significance of our client selection process because many of our clients
compete in markets where only a limited number of players gain meaningful market
share. If we agree not to perform services for a particular client's competitors
and our client fails to capture a significant portion of its market, we are
unlikely to receive future revenues in that particular market.
OUR PLANNED EXPANSION OF INTERNATIONAL OPERATIONS MAY BE EXPENSIVE AND MAY NOT
SUCCEED
We have limited experience in marketing, selling and supporting our
services in foreign countries. Development of such skills may be more difficult
or take longer than we anticipate, especially due to language barriers, currency
exchange risks and the fact that the Internet infrastructure in foreign
countries may be less advanced than the United States' Internet infrastructure.
We have only recently begun to generate revenues from international operations.
We have offices outside the United States, and we intend to expand our
operations internationally in future periods by opening other international
offices and hiring international management, strategic, technical, design,
sales, marketing and support personnel.
We may be unable to continue to successfully market, sell, deliver and
support our services internationally. If we are unable to expand our
international operations successfully and in a timely manner, our business,
financial condition and operating results could be seriously harmed. We will
need to devote significant management and financial resources to our
international expansion. In particular, we will have to attract and retain
experienced management, strategic, technical, design, sales, marketing and
support personnel for our international offices. Competition for such personnel
is intense, and we may be unable to attract and retain qualified personnel.
Moreover, international operations are subject to a variety of additional
risks that could seriously harm our financial condition and operating results.
These risks include the following:
o Problems in collecting accounts receivable;
o The impact of recessions in economies outside the United States;
o Longer payment cycles than those in the United States;
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o Local laws or regulations that may impact our operating results or
financial condition, such as maximum working hour requirements, overtime
laws or other labor or employment restrictions;
o Restrictions on the import and export of certain sensitive technologies,
including data security and encryption technologies that we may use or
other local laws or regulations impacting ecommerce, such as privacy and
data exchange laws;
o Seasonal reductions in business activity in certain parts of the world,
such as during the summer months in Europe;
o Changes in regulatory requirements which could raise the cost of doing
business or even prevent doing business, or restrict Scient's ability to
remove funds or its investments from a country;
o Changes in currency exchange rates, which could significantly decrease
the profitability of operations where payment is in local currency;
o Difficulties in staffing and managing foreign operations;
o Difficulties in using equity incentives for employees, which Scient
relies on but which are often less understood outside the U.S; and
o Differences in business customs.
OUR EFFORTS TO DEVELOP BRAND AWARENESS OF OUR SERVICES MAY NOT BE SUCCESSFUL
An important element of our business strategy is to develop and maintain
widespread awareness of the Scient brand name on a global basis. To promote our
brand name, we have increased and plan to continue to increase our marketing
expenses, which may cause our operating margins to decline. Moreover, our brand
may be closely associated with the business success or failure of some of our
high-profile clients, many of whom are pursuing unproven business models in
competitive markets. As a result, the failure or difficulties of one of our
high-profile clients may damage our brand. If we fail to successfully promote
and maintain our brand name or incur significant related expenses, our operating
margins and our growth may decline.
OUR FAILURE TO MEET CLIENT EXPECTATIONS OR DELIVER ERROR-FREE SERVICES COULD
RESULT IN LOSSES AND NEGATIVE PUBLICITY
Our client engagements involve the creation, implementation and maintenance
of eBusiness and other applications that are often critical to our clients'
businesses. Any defects or errors in these applications or failure to meet
clients' expectations could result in:
o Delayed or lost revenues due to adverse client reaction;
o Requirements to refund some or all of the fees paid by a client or to
enter into a settlement with a client to accept a lesser amount of fees
than we actually billed;
o Requirements to provide additional services to a client at no charge;
o Negative publicity regarding us and our services, which could adversely
affect our ability to attract or retain clients; and
o Claims for substantial damages against us, regardless of our
responsibility for such failure. Our insurance coverage may not be
adequate to cover, or may exclude such claims.
Our contracts generally limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients. However, we cannot be sure that these contractual provisions will
protect us from liability for damages in the event we are sued. Furthermore, our
general liability insurance coverage may not continue to be available on
reasonable terms or in sufficient amounts to cover one or more large claims, or
the insurer may
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disclaim coverage as to any future claim. The successful assertion of any such
large claim against us could seriously harm our business, financial condition
and operating results.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
We cannot guarantee that the steps we have taken to protect our proprietary
rights will be adequate to deter misappropriation of our intellectual property.
In addition, we may not be able to detect unauthorized use of our intellectual
property and take appropriate steps to enforce our rights. If third parties
infringe or misappropriate our trade secrets, copyrights, trademarks or other
proprietary information, our business could be seriously harmed. In addition,
protection of intellectual property in many foreign countries is weaker and less
reliable than in the United States, so as our business continues to expand into
foreign countries, risks associated with protecting our intellectual property
will increase.
In addition, although we believe that our proprietary rights do not
infringe the intellectual property rights of others, other parties may assert
infringement claims against us or claim that we have violated their intellectual
property rights. In particular, our development and use of standardized
frameworks, processes, and applications may subject us to potential infringement
claims by third parties. Our insurance coverage may not be adequate to cover, or
may exclude such claims. Such claims, even if not true, could result in
significant legal and other costs and may be a distraction to management.
A FEW INDIVIDUALS OWN MUCH OF OUR STOCK
Our directors, executive officers and their affiliates beneficially own a
controlling minority of our outstanding common stock. As a result, these
stockholders are able to exercise significant control over all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions, such as acquisitions, and to block an
unsolicited tender offer. Accordingly, this concentration of ownership could
have the effect of delaying or preventing a third party from acquiring control
over us at a premium over the then-current market price of our common stock.
WE HAVE VARIOUS MECHANISMS IN PLACE TO DISCOURAGE TAKEOVER ATTEMPTS
Certain provisions of our certificate of incorporation and bylaws may
discourage, delay or prevent a change in control of Scient that a stockholder
may consider favorable. These provisions include:
o Authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
o A classified board of directors with staggered, three-year terms, which
may lengthen the time required to gain control of our board of
directors;
o Prohibiting cumulative voting in the election of directors, which would
otherwise allow less than majority of stockholders to elect director
candidates;
o Requiring super-majority voting to effect certain amendments to our
certificate of incorporation and bylaws;
o Limitations on who may call special meetings of stockholders;
o Prohibiting stockholder action by written consent, which requires all
actions to be taken at a meeting of the stockholders; and
o Establishing advance notice requirements for nominations of candidates
for election to the board of directors or for proposing matters that can
be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law and our
stock incentive plans and our recently adopted stockholders' rights plan may
discourage, delay or prevent a change in control of Scient.
Risks Related to the Market for Scient Services
OUR SUCCESS WILL DEPEND ON THE CONTINUED SUSTAINABILITY OF A GLOBAL MARKET FOR
OUR SERVICES
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We cannot be certain that a viable market for our services will be
sustainable. If a viable and sustainable market for our services does not
continue to develop and/or if Scient does not accurately predict trends in the
market and respond to those trends by providing new services or products, Scient
may fail. Even if a market for our services continues to develop, it may not
grow at an adequate pace and we may not be able to differentiate our services
from those of our competitors. If we are unable to differentiate our services
from those of our competitors, our revenue growth and operating margins may
decline.
INCREASING GOVERNMENT REGULATION COULD AFFECT OUR BUSINESS
We are affected not only by regulations applicable to businesses generally,
but also laws and regulations directly applicable to electronic commerce.
Although there are currently few such laws and regulations, both state, federal
and foreign governments may adopt a number of these laws and regulations. Any
such legislation or regulation could dampen the growth of the Internet and
decrease its acceptance as a communications and commercial medium. If such a
decline occurs, companies may decide in the future not to use our services to
create an electronic business channel. This decrease in the demand for our
services would seriously harm our business and operating results.
Any new laws and regulations may govern or restrict any of the following
issues:
o User privacy;
o The pricing and taxation of goods and services offered over the
Internet;
o The content of websites;
o Consumer protection; and
o The characteristics and quality of products and services offered over
the Internet.
RISKS RELATED TO THE SECURITIES MARKETS
WE MAY NEED TO RAISE ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
We may need to raise additional funds, and we cannot be certain that we
will be able to obtain additional financing on favorable terms or at all. If we
need additional capital and cannot raise it on acceptable terms, we may not be
able to:
o Open new offices, in the United States or internationally;
o Create additional global business units;
o Enhance our infrastructure and leveragable assets;
o Hire, train and retain employees;
o Respond to competitive pressures or unanticipated requirements; or
o Pursue acquisition opportunities.
Our failure to do any of these things could seriously harm our operations
and financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
OUR STOCK PRICE IS VOLATILE
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The market price of our stock has fluctuated significantly in recent
months. The market price may vary in response to any of the following factors,
some of which are beyond our control:
o Changes in financial estimates or investment recommendations relating
to our stock by securities analysts;
o Changes in market valuations of other eBusiness software and service
providers or electronic businesses;
o Announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
o Loss of a major client or the inability of our customers to pay for our
services;
o Additions or departures of key personnel; and
o Fluctuations in the stock market price and volume of traded shares
generally, especially fluctuations in the traditionally volatile
technology, internet, and ecommerce sectors.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. Due to the historical and projected volatility of our stock price,
we may be the target of similar litigation in the future. Securities litigation
could result in substantial costs and divert management's attention and
resources, which could seriously harm our financial condition and operating
results.
SHARES BECOMING AVAILABLE FOR SALE COULD AFFECT OUR STOCK PRICE
Sales of a substantial number of shares of common stock, which previously
were ineligible for sale due to contractual, securities law or other
constraints, could adversely affect the market price of our common stock and
could impair our ability to raise capital through the sale of additional equity
securities.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Scient does not believe that we have any material market risk exposure with
respect to derivative or other financial instruments which would require
disclosure under this item.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Scient held its Annual Meeting of Stockholders on August 18, 2000. There
were 73,245,379 shares of common stock outstanding as of the record date for,
and entitled to vote at, the 2000 annual meeting of which 56,551,981 votes were
actually present. The following matters were voted upon:
1) Scient solicited and obtained the approval of its shareholders to approve
the election of three directors (Frederick W. Gluck, Kenichi Ohmae, and
Stephen A. Mucchetti) to serve until Scient's 2003 Annual Meeting or until
their successors are elected and qualified. The numbers of shareholders
giving their consent for each individual Director was 56,523,159,
representing 99.9% of the 56,551,981 shares present at that time.
2) Scient solicited and obtained the approval of its shareholders to approve
the appointment of PricewaterhouseCoopers LLP as Scient's independent
public accountants for the fiscal year ending March 31, 2001. The numbers
of shareholders giving their consent was 56,535,530, representing 99.9 % of
the 56,551,981 shares present at that time.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
EXHIBIT NO. DESCRIPTION
----------- -----------
27.1 Financial Statement Schedule.
(b) Reports on Form 8-K.
On July 20, 2000, Scient filed a current report on Form 8-K announcing its
adoption of a shareholder rights plan which approved by the Board of Directors
the declaration of a dividend distribution of one Preferred Share Purchase Right
on each outstanding share of its common stock.
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SCIENT CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SCIENT CORPORATION
Date: November 14, 2000
By: /S/ WILLIAM H. KURTZ
-------------------------
William H. Kurtz
Chief Financial Officer,
Executive Vice President
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