<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 11, 2000
REGISTRATION NO. 333-37518
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
SYNQUEST, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
GEORGIA 7372 14-1683872
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
3500 PARKWAY LANE
SUITE 555
NORCROSS, GEORGIA 30092
(770) 325-2000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JOSEPH TRINO
CHIEF EXECUTIVE OFFICER
SYNQUEST, INC.
3500 PARKWAY LANE
SUITE 555
NORCROSS, GEORGIA 30092
(770) 325-2000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
STACEY K. GEER, ESQ. JULIE M. ALLEN, ESQ.
WILLIAM G. ROCHE, ESQ. PROSKAUER ROSE LLP
KING & SPALDING 1585 BROADWAY
191 PEACHTREE STREET NEW YORK, NEW YORK 10036
ATLANTA, GEORGIA 30303-1763 (212) 969-3000
(404) 572-4600
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
PROPOSED
PROPOSED MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) FEE
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per 5,750,000 $8.00 $46,000,000 $12,144(2)
share.................................
------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares subject to the underwriters' over-allotment option.
Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act.
(2) A registration fee in the amount of $24,046 was previously paid.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER
TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED AUGUST 11, 2000
PROSPECTUS
5,000,000 SHARES
(SYNQUEST LOGO)
COMMON STOCK
------------------------------
This is an initial public offering of 5,000,000 shares of our common stock. We
are selling all of the shares of common stock offered under this prospectus.
There is currently no public market for our shares. The initial public offering
price of our common stock is expected to be between $7.00 and $8.00 per share.
Our common stock has been approved for listing on The Nasdaq National Market
under the symbol "SYNQ", subject to notice of issuance.
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 TO READ ABOUT RISKS YOU SHOULD CONSIDER BEFORE BUYING SHARES
OF OUR COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------------
<TABLE>
<CAPTION>
PER
SHARE TOTAL
------- -------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds, before expenses, to us............................ $ $
</TABLE>
------------------------------
We have granted the underwriters a 30-day option to purchase up to an additional
750,000 shares of common stock from us at the initial public offering price less
the underwriting discount. The underwriters expect to deliver the shares on
, 2000.
------------------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
WIT SOUNDVIEW
The date of this prospectus is , 2000.
<PAGE> 3
[INSIDE FRONT COVER]
WHAT'S THE BEST WAY FOR A
COMPANY TO PROFITABLY FULFILL
A CUSTOMER'S ORDER?
SynQuest, Inc. provides advanced e-business solutions
designed to help traditional bricks-and-mortar
companies, web-based companies and market exchanges
fulfill orders in the most efficient, profitable
manner. We help our clients uncover the best answers
to their business issues, and then we put those
answers to work for them -- increasing their profits
and promoting customer satisfaction.
[company logo]
<PAGE> 4
[INSIDE FRONT -- FIRST PAGE OF FOLD-OUT]
[company logo]
THE BUSINESS CHALLENGE. THE SYNQUEST SOLUTION.
Considering the complexity and fast pace of the business world, many companies'
needs are simple. Help them get the best financial performance from their supply
chain -- every day, order by order. Give them the ability to differentiate
themselves through customer service. Provide them with solutions that are easy
to implement and adapt.
SynQuest One2One Solutions do just that. Our solutions select the financially
best way to fulfill orders, considering supply chain constraints and customer
requirements. Real-time management of every customer order ensures fast and
reliable fulfillment.
We've helped more than 100 clients in the electronics, automotive, fabrication
and assembly, aerospace, printing, packaging, and industrial machinery
industries improve financial and operational performance, increase market share,
and adapt quickly to change.
THE SYNQUEST MISSION.
We plan to become the leading provider of advanced e-business solutions to help
companies get the best performance from their supply chains. How? With proven
products that are easy to deploy and that often demonstrate a fast return on
investment.
SYNQUEST PRODUCT FUNCTIONALITY
[graphic depiction of each product and its funtionality]
[legend:] SynQuest Products -- And what they can do for you.
Supply Chain Design Engine -- Evaluate Business Strategies
Inbound Planning Engine -- Plan Inbound Logistics
Tactical Planning Engine -- Create Sales & Operations Plan
Open Demand Engine -- Forecast Collaboratively with Customers
Dynamic Sourcing Engine -- Source Orders Across the Supply Chain
Order Promising Engine -- Determine Product Availability via the Web
Virtual Production Engine -- Manage Production
Customer Service Engine -- Check Order Status via the Web
<PAGE> 5
[INSIDE FRONT -- SECOND PAGE OF FOLD-OUT]
THE SYNQUEST METHOD.
The screens below illustrate some of the functionality we provide our clients
and the supply chain goals we help them achieve.
[screen shots of some components of the SynQuest products with the following
text below each screen shot:]
Supply Chain Models graphically depict supplier, processing and delivery
locations for optimal financial and operational performance.
Supplier Forecasts accelerate a company's communications with its suppliers
through web-enabled visibility to short, medium and long-term expectations.
Projection Simulation helps a company detect market trends and consider
real-world experience for accurate demand planning.
Plan Performance lets a company evaluate optimized planning scenarios by
considering on-time, financial and capacity implications.
Order Status Details provide customers and employees with web-enabled real-time
status of orders.
3
<PAGE> 6
PROSPECTUS SUMMARY
This summary highlights information found in greater detail elsewhere in
this prospectus. In addition to this summary, we urge you to read the entire
prospectus carefully, especially the risks of investing in our common stock
discussed under "Risk Factors" and the financial statements and the notes to
those statements, before you decide to buy our common stock.
SYNQUEST, INC.
OUR BUSINESS
We provide advanced e-business solutions designed to optimize supply chain
performance. A supply chain is a network of facilities and trading partners that
enables procurement of materials, transformation of materials into finished
products and distribution of these products to customers. Our SynQuest One2One
suite of software solutions enables our clients to fulfill each order they
receive in the most profitable manner by analyzing relevant variables that
affect the entire supply chain, whether traditional or web-based, including
materials supply, transportation, manufacturing, distribution and customer
service. By improving supply chain processes, our solutions enable our clients
to improve their financial and operational performance, increase market share
and enhance customer service. We target traditional bricks and mortar companies
with annual revenues between $100 million and $2 billion, web-based companies
and market exchanges. As of June 30, 2000, we had implemented our solutions for
over 100 customers. Our clients include The B.F. Goodrich Company, Ford Motor
Company, Herman Miller, Inc.'s SQA Division, Nordstrom.com, Pioneer Electronic
Corp., Reynolds Metals Company, STMicroelectronics N.V., and Titleist and
Footjoy Worldwide.
The key features that differentiate our solutions are as follows:
Financial optimization. Each product in our SynQuest One2One suite of
solutions is designed to achieve a single goal: financial optimization. This
means that our solutions enable our clients to determine the extent to which a
potential order will be profitable before they accept it, and to fulfill each
order they accept in the manner that maximizes financial return from that order.
As a result, our clients typically recover their investments in our products
quickly and achieve substantial ongoing financial benefits.
Real-time management. Our solutions plan, coordinate and control each
order to facilitate fast and reliable fulfillment. After analyzing all relevant
variables and selecting the financially optimal means of fulfillment, our
software creates a time-stamped operational plan for fulfillment of each order
that is disseminated for execution throughout the supply chain. As execution
occurs, our software analyzes the events of the supply chain in real-time,
publishes the impact of the events on order delivery, and re-plans as necessary
to keep the orders on schedule. We refer to this process as real-time
management. Our solutions analyze real-time changes in fulfillment constraints
and re-determine the optimal means of fulfillment. By improving the efficiencies
of the supply chain, our solutions often allow our clients to fulfill more
orders with the same resources.
Turnkey solutions. Our turnkey solutions are easy to deploy, interface
readily with most existing enterprise systems and e-commerce platforms, and
require little or no custom programming to implement. After easily linking to
our clients' systems, our solutions use customer supply chain data to generate
financially optimal fulfillment plans. In addition, we believe the turnkey
nature of our solutions is a competitive advantage because we can demonstrate,
with little advance preparation and set-up, a prospective client's ability to
realize significant bottom-line savings and incremental revenue opportunities
with our solutions.
Comprehensive, high-performance solutions. Our solutions are comprehensive
and operate robustly in a variety of environments. Our solutions cover the
entire array of supply chain issues that arise from both short, vertical supply
chains contained largely within a single enterprise to distributed, complex
supply chains crossing numerous enterprises. Our products are built to address
the performance requirements of the largest, most complex supply chains and the
demands of business-to-business e-commerce, and to
1
<PAGE> 7
operate in mission-critical situations. As a result, our products are well
suited for the most traditional industrial companies as well as newer web-based
businesses and market exchanges.
OUR MARKET OPPORTUNITY
The supply chain management software market is projected to grow at a 40%
compounded annual rate from $3.8 billion in 1999 to $20.3 billion by 2004,
according to AMR Research, Inc., an independent market research company. In
addition, we expect that as business-to-business e-commerce develops, supply
chain management solutions will gain share in e-commerce application budgets. We
believe that this will further increase the size of the potential market for
supply chain management solutions. The e-commerce applications market is
estimated to grow at a 56% compounded annual rate from $1.7 billion in 1999 to
$16.0 billion by 2004, according to AMR Research.
We believe that several trends will drive the projected growth in the
e-business solutions market. First, competitive pressures arising from the
Internet will continue to force businesses to extract efficiencies from their
supply chains. Second, the projected rapid growth in business-to-business
e-commerce will necessitate e-business solutions that can support high-volume
activity. Third, as customers increasingly demand products that are tailored to
their specific requirements and that are delivered rapidly, businesses will seek
solutions that enable their supply chains to produce mass customized goods in
less time. Fourth, the rapidly growing class of market exchanges will require
supply chain management solutions as they attempt to position themselves at the
center of business-to-business e-commerce. Finally, increasing market
globalization is creating more diffuse, complex supply chains.
OUR STRATEGY
Our strategy to become the leading provider of advanced e-business
solutions that optimize supply chain performance consists of the following key
elements:
- Increase our brand awareness through new marketing campaigns and
additional strategic partnerships;
- Expand and deepen our market coverage by increasing our direct sales
force and developing strategic alliances to support indirect sales
activities;
- Broaden and enhance our suite of products to increase their
competitiveness;
- Target additional vertical markets by hiring industry experts and
expanding our products to address the specific challenges presented by
each new market; and
- Pursue strategic acquisition opportunities to accelerate any of the
foregoing elements of our strategy.
RECENT DEVELOPMENTS
Financial Results. We are in the process of completing the year end audit
of our June 30, 2000 financial statements. For the quarter ended June 30, 2000,
we anticipate $8.0 million in total revenue consisting of $5.4 million in
revenue from software license fees and $2.6 million in revenue from services,
and a net loss of $2.6 million. For the fiscal year ended June 30, 2000, we
anticipate $25.1 million in total revenue consisting of $13.1 million in revenue
from software license fees and $12.0 million in revenue from services, and a net
loss of $15.8 million.
Ford License Agreement. On May 19, 2000, we finalized the largest software
transaction in our history, a second multi-million dollar software agreement
with Ford Motor Company. Ford will use our e-business software as part of a
supply chain logistics initiative to increase supply chain velocity and to
reduce transportation, distribution and inventory costs. The agreement totaled
$9.4 million and provided for the license of five of our standard software
products, first year maintenance and a warrant to purchase
2
<PAGE> 8
400,000 shares of our common stock. We allocated approximately $6.9 million of
the total fee to software licenses, $1.2 million to maintenance and $1.3 million
to the fair value of the warrant. We shipped a portion of the software in June
2000 and recognized approximately $4.7 million of software license revenue. We
expect to ship the balance of the products in the quarter ending September 30,
2000 and recognize the remaining $2.2 million of the software license revenue at
that time.
OUR OFFICES
Our principal executive offices are located at 3500 Parkway Lane, Suite
555, Norcross, Georgia 30092, and our telephone number at that address is (770)
325-2000. Our website address is www.synquest.com. Information contained on our
website is not incorporated by reference into this prospectus and should not be
considered a part of this prospectus. We were incorporated as Factory Automation
& Computer Technologies, Inc. in New York in May 1986. In January 1997, we were
reincorporated in Georgia under the name SynQuest, Inc.
SynQuest(R) is a registered trademark of SynQuest. This prospectus also
includes trademarks, service marks, trade names and references to intellectual
property owned by other companies.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered......................... 5,000,000 shares
Common stock outstanding after this 27,615,779 shares
offering...................................
Use of proceeds.............................. We intend to use approximately $9.7 million
of the net proceeds of this offering to repay
outstanding indebtedness and the balance for
general corporate purposes. We may also use a
portion of the proceeds to expand our
business through strategic alliances and
acquisitions.
Nasdaq National Market symbol................ SYNQ
</TABLE>
---------------
The number of shares of common stock outstanding after this offering is
based on shares of our common stock outstanding as of July 31, 2000. This
calculation:
- includes an aggregate of 14,244,805 shares of common stock to be issued
upon conversion of all of our outstanding redeemable preferred stock,
plus accrued and unpaid dividends as of July 31, 2000, assuming an
initial public offering price of $7.50 per share, less underwriting
discounts and commissions, at the completion of this offering;
- includes an aggregate of 3,018,507 shares of common stock to be issued at
the completion of this offering upon conversion of our outstanding
subordinated promissory notes held by E.M. Warburg, Pincus & Co., our
principal shareholder, in the aggregate principal amount of $15.0 million
plus accrued interest as of July 31, 2000, assuming an initial public
offering price of $7.50 per share, less underwriting discounts and
commissions;
- includes 3,589,563 shares of common stock to be issued upon the cashless
exercise of warrants held by E.M. Warburg, Pincus, which E.M. Warburg,
Pincus has agreed to exercise upon completion of this offering, assuming
an initial public offering price of $7.50 per share, less underwriting
discounts and commissions;
- excludes 4,345,128 shares of common stock to be issued upon the exercise
of options outstanding at July 31, 2000 that have a weighted average
exercise price of $3.07 per share; and
3
<PAGE> 9
- excludes 400,000 shares of common stock to be issued upon the exercise of
warrants outstanding at July 31, 2000, except those held by E.M. Warburg,
Pincus, that have a weighted average exercise price of $8.00 per share.
Unless we indicate otherwise, all information in this prospectus reflects
no exercise by the underwriters of their over-allotment option to purchase up to
750,000 additional shares of common stock.
4
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following tables set forth summary financial data for our company. You
should read this information together with the financial statements and the
notes to those statements appearing elsewhere in this prospectus and the
information under "Selected Financial Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
------------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- ---------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license fees............ $ 4,333 $ 10,392 $ 10,521 $ 6,993 $ 7,721
Services......................... 3,887 8,014 12,760 9,246 9,429
---------- ---------- ----------- ---------- -----------
Total revenue............ 8,220 18,406 23,281 16,239 17,150
Operating expenses:
Cost of license fees............. 11 524 576 477 415
Cost of services................. 4,419 6,714 9,308 6,535 5,869
Research and development......... 6,320 9,368 10,179 7,614 7,689
Purchased in-process research and
development................... 2,083 -- -- -- --
Sales and marketing.............. 6,344 9,485 13,731 10,248 10,077
General and administrative....... 3,663 3,984 4,850 3,613 3,793
Provision for doubtful
accounts...................... 1,600 373 753 276 596
---------- ---------- ----------- ---------- -----------
Total operating
expenses............... 24,440 30,448 39,397 28,763 28,439
---------- ---------- ----------- ---------- -----------
Operating loss..................... (16,220) (12,042) (16,116) (12,524) (11,289)
Other income (expense)............. (1,507) (3,487) (3,444) (3,032) (1,913)
---------- ---------- ----------- ---------- -----------
Loss before income taxes........... (17,727) (15,529) (19,560) (15,556) (13,202)
---------- ---------- ----------- ---------- -----------
Net loss................. (17,727) (15,529) (19,560) (15,556) (13,202)
Accretion of redeemable preferred
stock............................ (1,309) (1,833) (2,534) (1,607) (2,766)
---------- ---------- ----------- ---------- -----------
Net loss attributable to common
stock............................ $ (19,036) $ (17,362) $ (22,094) $ (17,163) $ (15,968)
========== ========== =========== ========== ===========
Basic and diluted net loss per
common share..................... $ (16.02) $ (13.98) $ (15.21) $ (11.85) $ (10.52)
========== ========== =========== ========== ===========
Weighted average number of shares
used in computing basic and
diluted net loss per common
share............................ 1,188,204 1,242,381 1,452,363 1,447,808 1,517,734
Pro forma basic and diluted net
loss per share (unaudited)....... $ (1.25) $ (0.73)
=========== ===========
Weighted average number of shares
used in computing pro forma basic
and diluted net loss per share
(unaudited)...................... 17,622,041 21,893,150
</TABLE>
5
<PAGE> 11
In the balance sheet data presented below, pro forma information reflects
(a) the conversion of all of our outstanding redeemable preferred stock, plus
accrued and unpaid dividends as of March 31, 2000, into an aggregate of
14,116,033 shares of our common stock, assuming an initial public offering price
of $7.50 per share, less underwriting discounts and commissions, upon completion
of this offering, (b) the conversion of our outstanding subordinated promissory
notes held by E.M. Warburg, Pincus in the aggregate principal amount of $15.0
million, plus accrued interest as of March 31, 2000, into 2,940,388 shares of
our common stock, assuming an initial public offering price of $7.50 per share,
less underwriting discounts and commissions, and (c) the issuance of 3,589,563
shares of common stock upon the cashless exercise of warrants held by E.M.
Warburg, Pincus upon completion of this offering, assuming an initial public
offering price of $7.50 per share, less underwriting discounts and commissions.
Pro forma as adjusted information also reflects the sale of 5,000,000 shares of
our common stock in this offering at an assumed initial public offering price of
$7.50 per share, less underwriting discounts and commissions and estimated
offering expenses payable by us. This table excludes the effect of dividends and
interest accrued after March 31, 2000.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 193 $ 193 $ 23,207
Working capital............................................. (35,655) (15,131) 18,779
Total assets................................................ 6,898 6,898 29,912
Long-term debt, less current portion........................ 129 129 129
Redeemable preferred stock.................................. 60,022 -- --
Shareholders' equity (deficit).............................. (93,366) (12,820) 21,090
</TABLE>
6
<PAGE> 12
RISK FACTORS
RISKS RELATED TO OUR BUSINESS
BECAUSE WE HAVE A LIMITED OPERATING HISTORY IN THE E-COMMERCE MARKET, IT IS
DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS.
Although we were founded in May 1986, most of the products in our SynQuest
One2One suite of solutions were introduced in the last 18 months. You should
consider the risks and difficulties we may encounter as an early stage company
in the new and rapidly evolving e-commerce market. The recent introduction of
our products in the e-commerce market may make it difficult for you to evaluate
the success of our business to date and to assess future viability. We cannot be
certain that our business strategy will be successful. These risks apply
particularly to us because the supply chain management business is a rapidly
evolving market characterized by technological advances. The uncertainty of our
future performance increases the risk that the value of your investment will
decline.
WE HAVE A HISTORY OF LOSSES AND EXPECT TO EXPERIENCE LOSSES IN THE FUTURE, WHICH
COULD RESULT IN A DECLINE IN THE MARKET PRICE OF OUR COMMON STOCK.
We incurred net losses of $13.2 million for the nine months ended March 31,
2000, $19.6 million for the fiscal year ended June 30, 1999, $15.5 million for
the fiscal year ended June 30, 1998 and $17.7 million for the fiscal year ended
June 30, 1997. As of March 31, 2000, we had an accumulated deficit of $97.7
million. We have not been profitable on a quarterly or annual basis, and we
anticipate that we will incur net losses for the foreseeable future. We expect
to continue to incur significant product development, sales and marketing and
administrative expenses. As a result, we will need to generate significant
quarterly revenues to achieve and maintain profitability. Our business strategy
may not be successful, and we may not generate significant revenues or achieve
profitability. Any failure to significantly increase our revenues as we
implement our product and distribution strategies would also harm our ability to
achieve and maintain profitability. If we do achieve profitability in the
future, we may not be able to sustain or increase profitability on a quarterly
or annual basis. Any failure to achieve or maintain profitability could
negatively impact the market price of our common stock.
OUR QUARTERLY RESULTS ARE SUBJECT TO FLUCTUATION, AND WE MAY FAIL TO MEET
SHAREHOLDER EXPECTATIONS, WHICH MAY CAUSE OUR STOCK PRICE TO DECLINE.
Historically, we have derived a substantial portion of our revenues from
large individual license transactions, which can cause substantial variances in
quarterly license fee revenue. In addition, we typically enter into a
significant portion of our new license contracts in the last two weeks of each
quarter, which makes us susceptible to shortfalls in revenues without
significant advance warning if expected orders fail to materialize. We
anticipate similar licensing patterns in the future. Delivery lead times for our
products are very short and, consequently, a significant portion of our license
fee revenue in each quarter results from orders received in that quarter. As a
result, revenues for future quarters are difficult to forecast. Further, we have
generally realized lower revenues in our first and second fiscal quarters than
in our third and fourth fiscal quarters. We believe that these fluctuations are
caused primarily by customer budgeting and purchasing patterns and by our sales
commission policies, which compensate personnel for meeting or exceeding annual
and other performance quotas.
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<PAGE> 13
A substantial portion of our operating expense level, particularly
personnel and facilities costs, are based, in part, on our expectations as to
future revenue and are relatively fixed in advance of any particular quarter. As
a result, if revenues are below expectations, our quarterly operating results
and financial condition will be adversely affected. Our quarterly operating
results may fail to meet expectations due to many factors, including:
- the volume of orders;
- competitor activities;
- changes in strategic relationships;
- customer budget constraints;
- the mix of products sold; and
- general economic conditions.
If any of these or other factors occur, we could fail to meet expectations for
revenue generation, and our stock price could be materially adversely affected.
THE BUSINESS-TO-BUSINESS E-COMMERCE AND SUPPLY CHAIN MANAGEMENT SOLUTIONS
INDUSTRIES ARE EXPERIENCING RAPID TECHNOLOGICAL CHANGE AND EVOLVING STANDARDS,
AND IF WE DO NOT EFFECTIVELY RESPOND TO THESE CHANGES, OUR REVENUES MAY FAIL TO
GROW OR DECLINE.
The market for our solutions is characterized by rapidly changing
technology and evolving industry standards. Our success will depend to a
substantial degree upon the continued evolution of the business-to-business
e-commerce market. The development of advanced new technologies and enhancements
is a complex and uncertain process requiring high levels of innovation, as well
as the accurate anticipation of technological and market trends. The
business-to-business e-commerce industry may not develop as anticipated or, if
the industry changes more rapidly than we expect, we may not be able to
identify, develop, market or support new technologies or enhancements that will
gain market acceptance. Consequently, our products may be superseded. Further,
we may be unable to respond effectively to technological changes and emerging
industry standards.
Our future results depend on continued market acceptance of supply chain
management software and services as well as our ability to continue to adapt and
modify this software to meet our customers' changing needs. Adoption of supply
chain management software solutions, particularly by those businesses that
historically have relied on traditional means of commerce and communication,
will require a broad acceptance of new and substantially different methods of
conducting business and exchanging information. These products and services
introduce new tools in managing and communicating across their supply chains
and, as a result, we may have to dedicate intensive marketing and sales efforts
to educate prospective customers on the uses and advantages of our products to
generate demand. Any reduction in demand or increase in competition in the
market for supply chain management software products could have a material
adverse effect on our ability to sell our solutions.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO RAPIDLY ADAPT TO NEW PRICING
MODELS.
Due to customer demand, many technology companies have recently shifted
from a license fee model to a subscription pricing model. Supply chain
management companies generally have not moved towards subscription pricing. If
potential clients begin to require subscription pricing and we are not able to
quickly accommodate them, our revenues could be adversely affected. Further, a
shift to subscription pricing could adversely affect the timing of our
recognition of revenues. The success of a subscription pricing model would
depend on our ability to set subscription fees for our solutions at rates that
will allow us to achieve profitability.
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<PAGE> 14
Market exchanges typically charge for their services on a per-transaction
basis. Accordingly, market exchanges may require that we charge them for the use
of our solutions on a per-transaction basis. The success of a per-transaction
pricing model would depend on our ability to set fees for our solutions at rates
that will allow us to achieve profitability. If we are not able to quickly
accommodate the clients who demand a per-transaction pricing model, our revenues
could be adversely affected.
OUR BUSINESS MAY BE HARMED IF PAST DUE ACCOUNTS RECEIVABLE INCREASE.
We recently have experienced an increase in the percentage of past due
accounts receivable. As of March 31, 2000, approximately $1.6 million of our
accounts receivable were 120 days or more past due out of our total accounts
receivable of $5.4 million. Since older accounts receivable have a higher
probability of never being collected, we have established a reserve for doubtful
or uncollectible accounts of $1.5 million as of March 31, 2000. However, a
reserve for doubtful accounts is only an estimate of collectibility. If our
actual experience in collecting existing or future accounts receivable is more
difficult than expected, we may be required to record a provision for additional
reserves or increase the rate at which we reserve.
WE ARE SUBJECT TO INTENSE COMPETITION THAT COULD HARM OUR BUSINESS.
The market for business applications software is highly competitive, and a
number of products directly compete with the SynQuest One2One suite of software
solutions. We compete primarily with supply chain planning vendors, including i2
and Manugistics; enterprise resource planning vendors, such as SAP, PeopleSoft,
Baan, Oracle and J.D. Edwards; traditional software vendors and web-based
solutions vendors. Some of our current and potential competitors have greater
name recognition, significantly greater financial, marketing, technical and
other resources, a broader range of products, and a larger established base of
customers than we do. These factors may enable them to adapt 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. In
addition, other companies could develop new products or incorporate additional
functionality into their existing products, directly competing with our products
or making them obsolete. Furthermore, cooperative relationships among our
competitors could increase the ability of their products to address the supply
chain management needs of our prospective customers and could enable them to
rapidly acquire significant market share. We may not compete successfully
against existing or new competitors, which may result in loss of market share.
WE MAY BE UNABLE TO CONTINUE TO ATTRACT QUALIFIED PERSONNEL TO SUPPORT THE
EXPANSION OF OUR BUSINESS.
Our growth depends on our ability to continue to attract qualified
personnel. Specifically, we must increase the size and scope of our direct sales
force, both domestically and internationally. In fiscal 1999, we licensed
substantially all of our products through our direct sales organization which,
as of May 31, 2000, consisted of 25 direct sales representatives. Moreover, we
believe that the complexity of our products and the potential for large-scale
deployment by our customers could require a number of highly trained service and
support personnel. As of May 31, 2000, our service and support organizations
included 44 individuals. We will also need to hire additional qualified
financial and accounting personnel to manage our growth. Competition for sales
representatives, service personnel, accounting and financial personnel and other
skilled employees is intense, and we may fail to attract, assimilate or retain
qualified personnel in the future. If we are unable to hire according to our
needs, our business and expansion plans could be seriously harmed.
WE ARE DEPENDENT UPON OUR KEY PERSONNEL, AND THE LOSS OF THESE PERSONNEL COULD
DISRUPT OUR OPERATIONS AND RESULT IN REDUCED REVENUE.
Our success depends on the continued services and performance of our senior
management staff, in particular, Joseph Trino, our Chief Executive Officer,
Timothy Harvey, our President and Chief Operating Officer, and John Bartels, our
Executive Vice President, Finance and Administration. The loss of the
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<PAGE> 15
services of one or more of our executive officers or key employees could
seriously impair our ability to operate and achieve our objectives, which could
reduce our revenue. We do not maintain key person life insurance. We cannot
guarantee that we will be able to retain our key personnel.
WE ARE DEPENDENT UPON OUR RELATIONSHIPS WITH ALLIANCE PARTNERS FOR LEAD
GENERATION.
Our future success is dependent upon establishing and expanding
relationships with alliance partners, including systems integrators, and other
software vendors. New customer leads generated through our relationship with
J.D. Edwards accounted for approximately 41% of our license fees revenue during
the nine months ended March 31, 2000, approximately 23% during fiscal 1999 and
approximately 20% during fiscal 1998. A decrease in the market demand for the
products of our partners could reduce our revenues. We may not be able to market
our products effectively through our established partners. Furthermore, our
arrangements with these organizations are not exclusive and, in many cases, may
be terminated by either party for any reason without any advance notice or
penalties. In addition, our alliance partners may not continue their involvement
with us and our products. We may not be able to attract additional distribution
partners on mutually agreeable terms. Our likely strategic partners are actual
or potential competitors, which may impair the viability of these relationships.
Some enterprise resource planning system vendors have acquired supply chain
management software companies, products or functionality or have announced plans
to develop new products or incorporate additional functionality into their
current products that would compete with our products.
WE MAY HAVE DIFFICULTY MANAGING OUR INTERNAL GROWTH, WHICH COULD LIMIT OUR
ABILITY TO EFFECTIVELY IMPLEMENT OUR BUSINESS STRATEGIES.
We recently experienced a period of rapid growth in revenues that placed
significant strains upon our management systems and resources. Our ability to
compete effectively and to manage future growth, if any, requires us to continue
to improve our financial and management controls, reporting systems and
procedures on a timely basis. To expand our business, we must increase the total
number of employees and train and manage our employee work force in a timely and
effective manner. If we are unable to hire according to our needs, we may be
unable to compete for new projects or complete existing projects satisfactorily.
THE SALES CYCLES FOR OUR PRODUCTS ARE LENGTHY, WHICH MAKES SALES DIFFICULT TO
PREDICT.
Our sales cycles vary by customer and are generally from six to nine
months. Larger transactions typically have a longer sales cycle than smaller
transactions. Because the licensing of our products generally involves a
significant capital expenditure by the customer, our sales process is subject to
lengthy approval processes and delays. We often devote significant time and
resources to a prospective customer, including costs associated with multiple
site visits, product demonstrations and feasibility studies, without any
assurance that the prospective customer will decide to license our products.
Operating results for a given period would suffer if we fail to close the larger
transactions that we targeted for that period.
IF WE DO NOT SUCCESSFULLY EXPAND OUR PRODUCT LINE, WE COULD LOSE MARKET SHARE.
As enterprises increasingly focus on decision support for supply chain
management challenges, they are requiring greater levels of functionality and
broader product offerings from their application software vendors. Our future
success will depend upon our ability to continue to enhance our current product
line, develop and introduce new products that keep pace with technological
developments, satisfy increasingly sophisticated customer requirements and
achieve market acceptance. We may not successfully develop and market product
enhancements or new products on a timely and cost-effective basis. Any new
products we introduce may not achieve market acceptance. Our failure to
successfully develop and market product enhancements or new products could cause
our market share to fail to grow or decline.
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<PAGE> 16
WE RELY HEAVILY ON LICENSE REVENUES FROM A SINGLE PRODUCT, AND IF THE DEMAND FOR
THAT PRODUCT DECREASES, OUR REVENUES WILL BE REDUCED.
A substantial portion of our license revenues are derived from Virtual
Production Engine and predecessor products. We derived 63% of our license
revenues from licenses of Virtual Production Engine and predecessor products
during the nine months ended March 31, 2000, 66% during fiscal 1999 and 91%
during fiscal 1998. We expect that revenues from this product will continue to
account for a significant portion of our revenues for the foreseeable future. As
a result, our future operating results are dependent upon continued market
acceptance of Virtual Production Engine and enhancements to that product. This
product may not achieve continued market acceptance. A decline in demand for, or
market acceptance of, Virtual Production Engine as a result of competition,
technological change or other factors would have a material adverse effect on
our business, operating results and financial condition.
OUR INTERNATIONAL OPERATIONS, WHICH WE PLAN TO EXPAND, ARE SUBJECT TO HEIGHTENED
RISKS THAT COULD HARM OUR BUSINESS.
We currently conduct business in a number of foreign countries, and we plan
to conduct business in additional regions outside of the United States.
Conducting business outside of the United States may require significant
management attention and financial resources and could adversely affect our
operating margins. We may not be able to generate, maintain or increase demand
for our products in new geographic markets. We derived 22% of our license
revenues from customers outside the United States during fiscal 1999 and 18%
from customers outside the United States during the nine months ended March 31,
2000. We anticipate that the proportion of our revenues denominated in foreign
currencies will increase. A decrease in the value of foreign currencies relative
to the U.S. dollar could result in losses from foreign currency translations. In
international markets where we set prices in U.S. dollars, currency fluctuations
could make our products and services less price competitive. In addition, our
international sales and operations could be adversely affected by the imposition
of government controls, changes in financial currencies, such as the unified
currency known as the European Monetary Unit, political and economic
instability, difficulties in staffing and managing international operations and
general economic and currency exchange rate conditions in foreign countries.
OUR PRODUCTS MAY HAVE DEFECTS, WHICH MAY NEGATIVELY AFFECT THE LEVEL OF CUSTOMER
SATISFACTION WITH OUR PRODUCTS AND DAMAGE OUR BUSINESS AND REPUTATION.
Our products are complex and might contain undetected software errors or
failures when new versions are released. Despite testing by us and by current
and prospective customers, we may find errors in existing products, new products
or product enhancements after commercial release. Such errors may result in loss
or delay of market acceptance, lawsuits, or damage to our reputation. Contract
provisions in license agreements limiting exposure and our general liability
insurance may be inadequate to protect us from all liabilities.
WE MAY FAIL TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND PROPRIETARY
RIGHTS, AND WE COULD FACE CLAIMS OF INTELLECTUAL PROPRIETY INFRINGEMENT.
Our software is proprietary and is protected by trade secret, copyright and
trademark laws, license agreements, confidentiality agreements with employees,
nondisclosure and other contractual requirements imposed on our customers,
consulting partners and others. We cannot guarantee that these protections will
adequately protect our proprietary rights or that our competitors will not
independently develop products that are substantially equivalent or superior to
our products. In addition, the laws of certain countries in which our products
are or may be licensed do not protect our products and intellectual property
rights to the same extent as the laws of the United States. As the number of
products and competitors continues to grow, the functionality of products in
different industry segments is increasingly overlapping. As a result, we
increasingly may be subject to claims of intellectual property infringement.
Although we are not aware
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<PAGE> 17
that any of our products infringe upon the proprietary rights of third parties,
third parties may make such claims about our current or future products. Any
infringement claims, with or without merit, could be time-consuming, result in
costly litigation or damages, cause product shipment delays or the loss or
deferral of sales, or require us to enter into royalty or licensing agreements.
If we enter into royalty or licensing agreements in settlement of any litigation
or claims, these agreements may not be on terms acceptable to us. Although we
believe that our products, trademarks and other proprietary rights do not
infringe upon the proprietary rights of third parties, we cannot guarantee that
third parties will not assert infringement claims against us. If they do, we
will have to spend time and money to defend against these claims, which will
divert management's attention.
WE MAY MAKE FUTURE ACQUISITIONS, WHICH MAY NOT BE SUCCESSFUL AND WHICH COULD
DIVERT MANAGEMENT'S ATTENTION FROM OUR DAY-TO-DAY OPERATIONS.
Since September 1995, we have acquired four companies, and we continue to
evaluate potential business combinations on an opportunistic basis. Failure to
successfully integrate the operations and products of acquired companies into
our operations and products could have a material adverse effect on our
business, operating results and financial condition. In the future, we may
pursue additional acquisitions of businesses, products and technologies, or
enter into joint venture arrangements. The negotiation of potential acquisitions
or joint ventures as well as the integration of an acquired business, product or
technology could divert management's time and resources. Future acquisitions
could cause us to issue dilutive equity securities, incur debt and contingent
liabilities, assume liabilities that were not identified or underestimated and
amortize goodwill and other intangibles, research and development write-offs and
other acquisition-related expenses. Further, we cannot guarantee we will
successfully integrate any acquired business with our operations or that we will
receive the intended benefits of the acquisition. Future acquisitions could
damage our business, operating results and financial condition.
OUR GROWTH IS DEPENDENT ON INCREASED USE OF THE INTERNET FOR
BUSINESS-TO-BUSINESS TRANSACTIONS, AND A MATERIAL CHANGE IN INTERNET USE MAY
ADVERSELY AFFECT OUR BUSINESS MODEL.
We intend to target companies engaged in business-to-business e-commerce as
a potential client base. If use of the Internet for commerce and communication
does not increase as we anticipate, we may not successfully penetrate this
category of potential clients and our business could suffer. Rapid growth in the
use of the Internet is a recent phenomenon. As a result, acceptance and use may
not continue to develop at historical rates, and a sufficiently broad base of
businesses may not adopt or continue to use the Internet as a medium of
commerce. Demand and market acceptance for recently introduced services and
products over the Internet are subject to a high level of uncertainty, and few
proven services and products exist. Our business could be seriously harmed if
potential clients do not need our solutions because:
- use of the Internet and other online services does not continue to
increase or increases more slowly than expected;
- the necessary communication and computer network technology underlying
the Internet and other online services does not effectively support any
expansion that may occur;
- new standards and protocols are not developed or adopted in a timely
manner; or
- for any other reason, such as concerns about security, reliability, cost,
ease of use, accessibility or quality of service, the Internet does not
create a viable commercial marketplace, or inhibits the development of
e-commerce thereby reducing the need for, and desirability of, our
products and services.
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<PAGE> 18
WE SUB-LICENSE THIRD-PARTY SOFTWARE INCLUDED WITH THE SALE OF OUR PRODUCTS, AND
SUCH SUB-LICENSES MAY NOT BE AVAILABLE TO US ON COMMERCIALLY REASONABLE TERMS.
Our inability to maintain or obtain third-party licenses may delay or
reduce our product shipments until we can identify, license and integrate
equivalent software. Any loss of these licenses or delay or reduction in product
shipments could harm our business, operating results and financial condition.
RISKS ASSOCIATED WITH THIS OFFERING
OUR MANAGEMENT HAS BROAD DISCRETION TO SPEND THE NET PROCEEDS OF THIS OFFERING
AND MAY SPEND THE PROCEEDS IN WAYS WITH WHICH YOU MAY NOT AGREE.
Our management will retain broad discretion to expend a significant portion
of the net proceeds of this offering. Because of the number and variability of
factors that will determine the use of these proceeds, our actual allocation of
the proceeds may vary substantially from our current intentions. If management
fails to use the proceeds effectively, our operating results could suffer.
THERE HAS BEEN NO PUBLIC MARKET FOR OUR COMMON STOCK, AND YOU MAY NOT BE ABLE TO
RESELL SHARES OF OUR COMMON STOCK FOR A PROFIT.
Currently there is no public market for our common stock, and an active
trading market may not develop or be sustained after this offering. The initial
public offering price will be determined through negotiation between us and
representatives of the underwriters and may not be indicative of the market
price for our common stock after this offering. The market price of our common
stock could fluctuate significantly as a result of:
- actual or anticipated quarterly variations in our operating results;
- changes in expectations as to our future financial performance or changes
in financial estimates, if any, of public market analysts;
- announcements relating to our business or the business of our
competitors;
- conditions generally affecting the Internet or supply chain management
software industries;
- the success of our operating strategy; and
- the operating and stock price performance of other comparable companies.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
A total of 21,997,458 shares, or 79.7% of our total outstanding shares
after the offering, are restricted from immediate resale, but may be sold into
the market in the near future. This could cause the market price of our common
stock to drop significantly, even if our business is performing well. Sales of
substantial amounts of our common stock in the public market after this
offering, or the perception that these sales may occur, could reduce the
prevailing market price for our common stock. Of the 27,615,779 shares of common
stock that will be outstanding upon the completion of this offering, the
5,000,000 shares sold in this offering, together with 618,321 shares eligible
for resale under Rule 144(k), will be freely tradeable without restriction,
other than shares purchased by our officers, directors or other affiliates
within the meaning of Rule 144 under the Securities Act of 1933, which will be
restricted from sale until 180 days after the date of this prospectus under
lock-up agreements with the underwriters. In addition, 21,997,458 shares of our
common stock will become eligible for resale in the public market at various
times after the date of this prospectus.
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<PAGE> 19
THE MARKET PRICES OF TECHNOLOGY STOCKS HAVE BEEN VOLATILE, AND OUR STOCK PRICE
MAY FLUCTUATE SIGNIFICANTLY OR DECLINE FOLLOWING THIS OFFERING.
Many technology stocks have experienced extreme price and volume
fluctuations. These fluctuations have often been unrelated or disproportionate
to the operating performance of these companies. The trading price of our stock
is likely to be highly volatile and may be significantly affected by factors
including actual or anticipated fluctuations in our operating results, new
products introduced by us or our competitors, conditions and trends in the
software, Internet or e-commerce industries, changes in financial estimates by
public market analysts, general market conditions and other factors. Any
negative change in the public perception of the prospects of software, Internet
or e-commerce companies in general could also depress our stock price regardless
of our business, prospects or operating results. We believe there are relatively
few companies comparable to us that have publicly-traded equity securities. This
may also negatively affect the trading price of our common stock after this
offering.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE DILUTION AND WILL
EXPERIENCE FURTHER DILUTION WITH THE FUTURE EXERCISE OF STOCK OPTIONS.
If you purchase common stock in this offering, you will pay more for your
shares than the amount paid by shareholders who purchased their shares from us
prior to this offering. As a result, you will experience immediate and
substantial dilution of approximately $6.73 per share, representing the
difference between our net tangible book value per share after this offering and
the initial public offering price. Additionally, you will experience further
dilution as holders of our stock options and warrants to purchase common stock
exercise those options and warrants. As of July 31, 2000, we had outstanding
options to purchase 4,345,128 shares of our common stock. These options
generally vest one-third each year, commencing one year from the date of grant.
PROVISIONS IN OUR ARTICLES OF INCORPORATION AND BYLAWS MAY DISCOURAGE TAKEOVER
ATTEMPTS, EVEN IF A CHANGE OF CONTROL WOULD BENEFIT OUR SHAREHOLDERS.
Provisions of our articles of incorporation and bylaws could delay or
prevent a third party from acquiring us, even if a change in control would be
beneficial to our shareholders. These provisions could make it more difficult
for a third party to acquire us, even if doing so would benefit our
shareholders. Furthermore, following this offering, our directors and executive
officers will beneficially own approximately 60.2% of our outstanding common
stock. As a result, our directors and executive officers will have sufficient
voting power to prevent any third party from acquiring us.
OUR PRINCIPAL SHAREHOLDER AND ITS AFFILIATES WILL CONTINUE TO INFLUENCE MATTERS
AFFECTING US, WHICH COULD CONFLICT WITH YOUR INTERESTS.
Immediately prior to this offering, E.M. Warburg, Pincus & Co.,
beneficially owned approximately 64.3% of our outstanding common stock. After
this offering, E.M. Warburg, Pincus will beneficially own approximately 54.0% of
our common stock, or approximately 52.5% if the underwriters exercise in full
their option to purchase additional shares. As a result, E.M. Warburg, Pincus
will be able to exercise significant influence over us, including matters
submitted to our shareholders for a vote. Actions taken by E.M. Warburg, Pincus
could conflict with the interests of other shareholders. As a result of E.M.
Warburg, Pincus's significant shareholdings, a potential acquirer could be
discouraged from attempting to obtain control of us, which could have a material
adverse effect on the market price of our common stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH MAY DIFFER FROM ACTUAL
EVENTS.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Forward-looking statements give our current expectations or
forecasts of future events. You can identify these statements by the fact that
they do not relate strictly to historical or current facts. These statements may
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<PAGE> 20
include words such as "anticipate," "estimate," "expect," "project," "intend,"
"plan," "believe" and other words and terms of similar meaning in connection
with any discussion of future operations or financial performance. In
particular, these include statements relating to our strategy, dividend policy,
projected capital expenditures, other costs and expenses, revenue, the adequacy
of our capital resources and our market. Other factors besides those listed here
could also adversely affect us.
Any or all of our forward-looking statements in this prospectus may prove
to be inaccurate. They can be affected by mistaken assumptions we might make or
by known or unknown risks and uncertainties. Many factors mentioned in this
prospectus, including the risks outlined under "Risk Factors," will be important
in determining future results. Actual future results may vary materially. We
undertake no obligation to publicly update any forward-looking statements,
whether as a result of new information, future events or otherwise.
THE VALUE OF YOUR INVESTMENT IN OUR COMMON STOCK MAY DECLINE AS A RESULT OF
CERTAIN RISKS THAT WE FACE, INCLUDING RISKS THAT ARE NOT DESCRIBED IN THIS
PROSPECTUS.
An investment in our common stock involves a high degree of risk. You
should carefully consider the information set forth above that describes these
risks, together with the other information contained in this prospectus, before
you decide whether to buy our common stock. If any of the above risks actually
occur, our business, results of operation and financial condition would likely
suffer. In any such case, the market price of our common stock could decline,
and you may lose all or part of the money you paid to buy our common stock.
The risks and uncertainties described above are not the only ones we face.
Additional risks and uncertainties, including those not presently known to us or
that we currently deem immaterial, may also result in decreased revenues,
increased expenses or other events which could result in a decline in the market
price of our common stock.
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<PAGE> 21
USE OF PROCEEDS
We estimate that our net proceeds from this offering of common stock will
be approximately $33.9 million, assuming an initial public offering price of
$7.50 per share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriters' over-allotment
option is exercised in full, we estimate that the net proceeds we receive will
be approximately $39.1 million.
We intend to use the net proceeds of this offering as follows:
- to repay in full outstanding indebtedness under our line of credit with
Greyrock Business Credit Corporation, which was $9.7 million at July 31,
2000, matures on December 31, 2000, bore interest at 11.8% as of July 31,
2000 and was primarily used to fund working capital and operating losses;
and
- the remainder for working capital, including funding of operating losses
and other general corporate purposes.
We believe that opportunities may exist from time to time to expand our
current business through strategic alliances or through acquisitions of
complementary companies, products or technologies. We may use a portion of the
proceeds for these purposes. We currently have no understandings, arrangements
or agreements with respect to any potential acquisitions.
Our management will have significant flexibility in applying the net
proceeds of the offering. Pending the uses described above, we intend to invest
the net proceeds in high-quality, short-term, interest-bearing securities or
guaranteed obligations of the U.S. government or its agencies.
DIVIDEND POLICY
Except for cash dividends payable in lieu of fractional shares of preferred
stock, we have never declared or paid any cash dividends on our capital stock.
We currently intend to retain all available funds and any future earnings for
use in the operation and expansion of our business and do not anticipate
declaring or paying any cash dividends in the foreseeable future.
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<PAGE> 22
CAPITALIZATION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
The following table sets forth our cash and capitalization as of March 31,
2000:
- on an actual basis;
- pro forma to reflect (a) the conversion of all of our outstanding
redeemable preferred stock, plus accrued and unpaid dividends as of March
31, 2000, into an aggregate of 14,116,033 shares of our common stock,
assuming an initial public offering price of $7.50 per share, less
underwriting discounts and commissions, upon completion of this offering;
(b) the conversion of our outstanding subordinated promissory notes held
by E.M. Warburg, Pincus in the aggregate principal amount of $15.0
million, plus accrued interest as of March 31, 2000, into an aggregate of
2,940,388 shares of our common stock, assuming an initial public offering
price of $7.50 per share, less underwriting discounts and commissions;
and (c) the issuance of 3,589,563 shares upon the cashless exercise of
warrants held by E.M. Warburg, Pincus upon completion of this offering,
assuming an initial public offering price of $7.50 per share, less
underwriting discounts and commissions; and
- pro forma as adjusted to also reflect the sale of 5,000,000 shares of our
common stock in this offering at an assumed initial public offering price
of $7.50 per share, less underwriting discounts and commissions and
estimated offering expenses payable by us, and repayment of outstanding
indebtedness under our line of credit.
<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 193 $ 193 $ 23,207
======== ======== ========
Short-term indebtedness:
Subordinated promissory notes, plus accrued interest...... $ 20,524 $ -- $ --
Line of credit............................................ 10,896 10,896 --
Current portion of long-term debt and capital lease
obligations............................................ 177 177 177
-------- -------- --------
Total short-term indebtedness..................... $ 31,597 $ 11,073 $ 177
======== ======== ========
Long-term debt and capital lease obligations, less current
portion................................................... $ 129 $ 129 $ 129
Redeemable preferred stock:
Series B -- 540,016 shares authorized; 540,016 issued and
outstanding actual; no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 1,856 -- --
Series C -- 2,376,651 shares authorized; 2,376,651 issued
and outstanding actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 8,168 -- --
Series D -- 4,000,000 shares authorized, 3,692,618 issued
and outstanding actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 11,089 -- --
Series F -- 750,000 shares authorized; 750,000 issued and
outstanding actual; no shares issued and outstanding,
pro forma and pro forma as adjusted.................... 3,834 -- --
Series G -- 5,636,071 shares authorized; 5,636,071 issued
and outstanding actual; no shares issued and
outstanding, pro forma and pro forma as adjusted....... 35,075 -- --
-------- -------- --------
Total redeemable preferred stock.................. 60,022 -- --
</TABLE>
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<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Shareholders' equity (deficit):
Common stock, $.01 par value; 26,000,000 shares authorized
actual and 100,000,000 shares authorized pro forma and
pro forma as adjusted; 1,627,459 shares issued and
outstanding actual; 22,273,443 shares and 27,273,443
shares issued and outstanding pro forma and pro forma
as adjusted, respectively.............................. 16 223 273
Additional paid-in capital................................ 4,613 85,354 119,214
Accumulated deficit....................................... (97,720) (98,122) (98,122)
Equity adjustment from foreign currency translation....... (275) (275) (275)
-------- -------- --------
Total shareholders' equity (deficit).............. (93,366) (12,820) 21,090
-------- -------- --------
Total capitalization......................... $(33,215) $(12,691) $ 21,219
======== ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value (deficit) as of March 31, 2000 was
$(12.8) million, or $(0.58) per share of common stock, after giving effect to
(a) the conversion of all of our outstanding redeemable preferred stock, plus
accrued and unpaid dividends as of March 31, 2000, into common stock; (b) the
conversion of our outstanding subordinated promissory notes held by E.M.
Warburg, Pincus, plus accrued interest as of March 31, 2000, into common stock;
and (c) the cashless exercise of warrants held by E.M. Warburg, Pincus to
purchase our common stock upon completion of this offering. Pro forma net
tangible book value (deficit) per share is determined by dividing our net
tangible book value, which is our total tangible assets less total liabilities
and redeemable preferred stock, by the number of outstanding shares of our
common stock. After giving effect to the receipt of the net proceeds from this
offering and after deducting underwriting discounts and commissions and
estimated offering expenses payable by us, our pro forma as adjusted net
tangible book value as of March 31, 2000 would be approximately $21.1 million,
or $0.77 per share. This represents an immediate increase in net tangible book
value of $1.35 per share to existing shareholders and an immediate dilution of
$6.73 per share to new investors purchasing shares at the assumed initial public
offering price. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share............. $ 7.50
Pro forma net tangible book value (deficit) per share as
of March 31, 2000...................................... $ (0.58)
Increase per share attributable to this offering.......... 1.35
-------
Pro forma as adjusted net tangible book value per share
after this offering....................................... 0.77
------
Net tangible book value dilution per share to new
investors................................................. $ 6.73
======
</TABLE>
The following table sets forth, on a pro forma as adjusted basis as of July
31, 2000, the number of shares of common stock purchased from us by existing
shareholders and by the new investors, together with the total price and average
price per share paid by each of these groups, assuming an initial public
offering price of $7.50 per share, before deducting underwriting discounts and
commissions and estimated offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders................... 22,615,779 81.9% $ 96,159,804 71.9% $4.25
New investors........................... 5,000,000 18.1 37,500,000 28.1
---------- ----- ------------ -----
Total......................... 27,615,779 100.0% $133,659,804 100.0%
========== ===== ============ =====
</TABLE>
The data in the table above assumes the following:
- the conversion of all of our outstanding redeemable preferred stock, plus
accrued and unpaid dividends as of July 31, 2000 into an aggregate of
14,244,805 shares of our common stock upon completion of this offering,
assuming an initial public offering price of $7.50 per share, less
underwriting discounts and commissions;
- the conversion of our outstanding subordinated promissory notes held by
E.M. Warburg, Pincus in the aggregate principal amount of $15.0 million,
plus accrued interest as of July 31, 2000, into an aggregate of 3,018,507
shares of our common stock, assuming an initial public offering price of
$7.50 per share, less underwriting discounts and commissions; and
- the issuance of 3,589,563 shares upon the cashless exercise by E.M.
Warburg, Pincus of warrants to purchase common stock upon completion of
this offering, assuming an initial public offering price of $7.50 per
share, less underwriting discounts and commissions.
19
<PAGE> 25
The data in the table above excludes 4,345,128 shares of common stock
issuable upon exercise of options outstanding as of July 31, 2000 with a
weighted average exercise price of $3.07 per share and warrants to purchase
400,000 shares of common stock outstanding as of July 31, 2000, except those
held by E.M. Warburg, Pincus, that have a weighted average exercise price of
$8.00 per share. If any of these options and warrants are exercised, there will
be further dilution to the new investors.
20
<PAGE> 26
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
You should read the following selected financial data in conjunction with
the financial statements and the notes to those statements appearing elsewhere
in this prospectus and the information under "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The statement of
operations data for the fiscal years ended June 30, 1997, 1998 and 1999 and the
balance sheet data as of June 30, 1998 and 1999 are derived from our audited
financial statements appearing elsewhere in this prospectus. The statement of
operations data for the years ended June 30, 1995 and 1996 and the balance sheet
data as of June 30, 1995, 1996 and 1997 are derived from our audited financial
statements not included in this prospectus. Interim results for the periods
ended March 31, 1999 and 2000 and the balance sheet data as of March 31, 2000
are derived from our unaudited financial statements appearing elsewhere in this
prospectus which, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of that data. Historical results are not indicative of the results
to be expected in the future.
The following acquisitions occurred during the periods presented:
- In September 1995, we purchased the intellectual property rights to
Mandis software from Mandis International Limited. Management considered
the intellectual property rights to be in-process research and
development with no alternative future use and expensed the $2.5 million
purchase price in fiscal 1996.
- In February 1996, we purchased Log'In, S.A. We accounted for this
acquisition under the purchase method of accounting. Management
considered $3.1 million of the purchase price attributable to in-process
research and development with no alternative future use and expensed this
amount in fiscal 1996. The results of Log'In's operations subsequent to
the date of acquisition are included in our operating results.
- In November 1996, we purchased Manufacturing Execution Systems
Associates, Inc., or MESAi, and accounted for this transaction under the
purchase method of accounting. The results of MESAi's operations are
included in our financial statements effective November 1, 1996. See Note
3 of our audited financial statements.
- In June 1997, we purchased Bender Management Consultants Inc. This
acquisition was accounted for under the purchase method of accounting.
Management considered $2.0 million of the purchase price to be in-process
research and development with no alternative future use and expensed this
amount in fiscal 1997. The results of operations of Bender Management
Consultants are included in our financial statements effective June 1,
1997. See Note 3 of our audited financial statements.
21
<PAGE> 27
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED JUNE 30, MARCH 31,
---------------------------------------------------------- -----------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Software license fees..... $ 903 $ 4,813 $ 4,333 $ 10,392 $ 10,521 $ 6,993 $ 7,721
Services.................. 688 1,702 3,887 8,014 12,760 9,246 9,429
-------- -------- ---------- ---------- ---------- ---------- ----------
Total revenue...... 1,591 6,515 8,220 18,406 23,281 16,239 17,150
Operating expenses:
Cost of license fees...... -- -- 11 524 576 477 415
Cost of services.......... 668 1,194 4,419 6,714 9,308 6,535 5,869
Research and
development............. 1,233 5,193 6,320 9,368 10,179 7,614 7,689
Purchased in-process
research and
development............. -- 5,568 2,083 -- -- -- --
Sales and marketing....... 2,316 3,553 6,344 9,485 13,731 10,248 10,077
General and
administrative.......... 789 1,918 3,663 3,984 4,850 3,613 3,793
Provision for
doubtful accounts....... 12 242 1,600 373 753 276 596
-------- -------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses......... 5,018 17,668 24,440 30,448 39,397 28,763 28,439
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating loss.............. (3,427) (11,153) (16,220) (12,042) (16,116) (12,524) (11,289)
Other income (expense):
Interest income........... 90 72 66 51 50 32 35
Interest expense.......... (78) (658) (1,501) (3,539) (3,526) (3,080) (1,969)
Other income (expense).... 121 (2) (72) 1 32 16 21
-------- -------- ---------- ---------- ---------- ---------- ----------
Loss before income taxes.... (3,294) (11,741) (17,727) (15,529) (19,560) (15,556) (13,202)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net loss........... (3,294) (11,741) (17,727) (15,529) (19,560) (15,556) (13,202)
Accretion of redeemable
preferred stock........... (569) (790) (1,309) (1,833) (2,534) (1,607) (2,766)
-------- -------- ---------- ---------- ---------- ---------- ----------
Net loss attributable to
common stock.............. $ (3,863) $(12,531) $ (19,036) $ (17,362) $ (22,094) $ (17,163) $ (15,968)
======== ======== ========== ========== ========== ========== ==========
Basic and diluted net loss
per common share.......... $ (7.15) $ (18.77) $ (16.02) $ (13.98) $ (15.21) $ (11.85) $ (10.52)
======== ======== ========== ========== ========== ========== ==========
Weighted average number of
shares used in computing
basic and diluted net loss
per common share
(unaudited)............... 540,116 667,492 1,188,204 1,242,381 1,452,363 1,447,808 1,517,734
Pro forma basic and diluted
net loss per share
(unaudited)............... $ (1.25) $ (0.73)
========== ==========
Weighted average number of
shares used in computing
pro forma basic and
diluted net loss per share
(unaudited)............... 17,622,041 21,893,150
</TABLE>
22
<PAGE> 28
<TABLE>
<CAPTION>
AS OF JUNE 30,
-------------------------------------------------- AS OF
1995 1996 1997 1998 1999 MARCH 31, 2000
------ -------- -------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................. $1,499 $ 296 $ 700 $ 900 $ 638 $ 193
Working capital........................... (512) (5,231) (19,560) (35,012) (22,423) (35,655)
Total assets.............................. 2,406 4,761 6,532 9,844 11,656 6,898
Long-term debt, less current portion...... 163 369 389 224 266 129
Redeemable preferred stock................ 7,544 15,334 20,706 22,051 57,256 60,022
Shareholders' deficit..................... (7,844) (19,968) (38,546) (55,411) (77,523) (93,366)
</TABLE>
23
<PAGE> 29
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of our company should be read in conjunction with the "Selected
Financial Data" and the accompanying financial statements and the notes to those
statements appearing elsewhere in this prospectus. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in
these forward-looking statements. Factors that could cause or contribute to such
differences include but are not limited to, those discussed below and elsewhere
in this prospectus, particularly under the caption "Risk Factors."
COMPANY BACKGROUND
We develop, market and support supply chain management software that
enables enterprises to optimize financial and operational performance across
their supply chains. Since early 1999, we have begun to leverage our core
competencies in supply chain management software by developing additional
e-business products, as well as web-enabling our current products for use across
customer supply chains. The addition of e-business products to our SynQuest
One2One suite of solutions enables us to offer products that integrate and
financially optimize a customer's web-enabled supply chain.
We were incorporated as Factory Automation & Computer Technologies, Inc. in
New York in May 1986. E.M. Warburg, Pincus, our principal shareholder, first
invested in our company in May 1994. Our primary business initially consisted of
developing, licensing and servicing sophisticated scheduling and workflow
software, which enabled manufacturers to implement flexible and cost-effective
manufacturing techniques. We have moved our product line beyond the
manufacturing execution market toward integrated supply chain management, both
through internal development and several key acquisitions. In 1995, we acquired
the intellectual property rights to Mandis software from Mandis International
Limited, a Dutch supply chain software vendor, to build a base of operations in
Europe and to add product functionality. In 1996, we acquired Log'In, S.A., a
French developer of modeling, simulation and optimization software, to add
advanced optimization functionality to our products. We also acquired
Manufacturing Execution Systems Associates, Inc., a Pennsylvania-based systems
integration firm specializing in manufacturing and logistics software
environments, to link our supply chain management software with shop floor and
production equipment control systems. In January 1997, we were reincorporated in
Georgia under the name SynQuest, Inc. In June 1997, we acquired Bender
Management Consultants Inc. to broaden our supply chain solutions and offer
strategic and tactical logistics planning functionality.
OVERVIEW
Our fiscal year end is June 30. We generate revenues from two principal
sources:
- license fees derived from software products; and
- professional services fees and maintenance and support fees derived from
consulting, implementation, training and maintenance services and other
technical support related to our software products.
Software License Fees. Customers typically pay a one-time fee for a
perpetual license to use our software products. The amount of the fee is based
on the number of licensed sites, users and products. We require a written
software license contract that typically provides for an initial payment upon
execution of the license contract, followed by one or more periodic payments on
dates specified in the contract. Payments are required to be made within one
year of the contract date. Our initial software license arrangements with
customers typically provide a fee for the first year of maintenance and support
services.
24
<PAGE> 30
We often negotiate contracts for specific implementation and training services
following the initial software license contract.
Our software licenses have principally been the result of direct sales to
customers, and we expect that direct sales will continue to represent our
principal selling method in the future. However, we have used and expect to
continue to use independent resellers of our products in geographic areas where
we do not believe it is cost-effective to establish a direct sales force. We
rely on third parties such as business process improvement consultants,
implementers of software systems and complementary software application
providers to provide us with leads for potential new customers. Prior to
mid-1999, we primarily depended on J.D. Edwards for our leads. During the past
nine months, we entered into relationships with several new lead sources,
substantially reducing our dependence on any single lead source.
The sales cycle for our products is typically six to nine months, and
software license revenues for a particular period are substantially dependent on
orders received in that period. Furthermore, we have experienced, and expect to
continue to experience, significant variation in the size of individual
licensing transactions.
We recognize software license revenue when a signed contract is obtained,
shipment of the product has occurred, the license fee is fixed and determinable,
collectibility is probable, and remaining obligations under the license
agreement are insignificant. For software licenses which result from resellers
or distributors sublicensing our products to end users, we do not recognize
software license revenue until our products are licensed to the final end user
and all other conditions for revenue recognition outlined in the previous
sentence have been met. Our software arrangements often include multiple
elements, each of which is available for sale and often is sold separately. If a
software arrangement includes multiple elements, such as multiple software
products, specified upgrades, maintenance and support and/or other services, we
allocate the total software arrangement fee among each element of the
arrangement. We use the residual method, as defined in Statement of Position No.
98-9, to allocate revenue to delivered elements once we have established our
objective evidence for the value of all undelivered elements. Our objective
evidence of fair value for undelivered maintenance and support services is based
upon the then current standard renewal rate for these services and is not
discounted. Our objective evidence of fair value for undelivered implementation
and training services is based on our then current standard hourly rates for
such services as they are sold separately and is not discounted. The remaining
portion of the arrangement fee is allocated to the licensed software products.
As a result, all discounts negotiated with our customers in multiple element
arrangements are reflected as discounts to the license fee portion of the
arrangement and are prorated across multiple software products, if there are
multiple products, based on their list prices established by authorized
management. Our revenue recognition is in accordance with the American Institute
of Certified Public Accountants Statement of Position No. 97-2, "Software
Revenue Recognition," as amended by Statement of Position Nos. 98-4 and 98-9.
Prior to fiscal 1999, we recognized software license revenue in accordance with
Statement of Position No. 91-1, meaning that we then recognized software license
revenue upon shipment, provided we had a signed contract, that we had no
remaining significant obligations to perform and that collection of payment was
probable. Our adoption of the new standards in fiscal 1999 has not had a
material effect on our revenue recognition.
Services Revenue. Our services revenue consists principally of revenue
derived from professional services associated with implementing our products and
educating and training our customers' employees on the use of our products. In
addition and to a lesser extent, our services revenue includes fees for ongoing
maintenance and support, consisting primarily of customer technical support
services and product upgrades and enhancements.
Our implementation and training services are typically delivered on a
time-and-materials basis or occasionally on a fixed-price basis. We recognize
revenue from the services delivered on a time-and-materials basis as the
services are performed. Revenue from fixed-price arrangements are recognized
using a percentage-of-completion method based upon the cost incurred to date as
a percentage of the total expected cost. Out-of-pocket expenses incurred by our
personnel performing professional services are
25
<PAGE> 31
reimbursed by the customer. Implementation and training services are generally
completed four to nine months following execution of the license contract.
However, implementations for customers licensing multiple products for numerous
locations may take place over a longer period of time.
As part of our maintenance and support services, we provide our customers
with product upgrades and enhancements as well as user and technical support
services for an annual fee. Most of our maintenance and support contracts are
invoiced annually in advance, are renewable at the discretion of the customer
and allow for future fee increases. The revenue from our maintenance and support
services is recognized ratably over the term of the maintenance and support
contract, which is generally 12 months. While a 90-day warranty is included in
the initial software license, our maintenance and support contracts typically
are entered into as of the date of the initial software license. Warranty claims
are typically not material and customers are charged for support during the
warranty period.
Cost of License Fees. Our cost of license fees consists primarily of
commissions or finder fees which we pay to third parties for providing us with a
new customer lead and sub-license fees paid by us to third parties for software
owned by a third party which we have licensed along with our products. Also
included is the amortization of software acquired through business acquisition.
We believe that our continued expansion of strategic alliances for sales lead
generation may increase the future cost of license fees over historical levels
both in dollars and as a percentage of total revenue.
Cost of Services. Our cost of services consists primarily of personnel
costs, including third-party consultants, and travel associated with providing
consulting, implementation, training and maintenance and support services
associated with our products.
Research and Development. Our research and development costs consist
primarily of personnel costs, travel, training and office facilities costs. We
maintain a development staff to enhance our products and to develop new
products. In accordance with Statement of Financial Accounting Standards No. 86,
we expense software costs as incurred until technological feasibility of the
software is determined and the recovery of the cost can reasonably be expected,
after which any additional costs are capitalized. To date, we have expensed all
software development costs because development costs incurred subsequent to the
establishment of both technological feasibility and the reasonable expectations
of cost recovery have been minimal.
Sales and Marketing. Our sales and marketing expenses consist primarily of
personnel costs, commissions to employees, travel, promotional events such as
trade shows, seminars and technical conferences and advertising and public
relations programs.
General and Administrative. Our general and administrative expenses
consist primarily of personnel and other costs of our finance and human
resources activities, as well as legal and audit fees, depreciation and other
general corporate expenses.
Backlog. Our product delivery lead times are very short and, consequently,
substantially all of our license fee revenue in each quarter may result from
contracts entered into in that quarter. Accordingly, we generally only maintain
a significant backlog for our professional services and maintenance and support
activities.
RECENT DEVELOPMENTS
Financial Results. We are in the process of completing the year end audit
of our June 30, 2000 financial statements. For the quarter ended June 30, 2000,
we anticipate $8.0 million in total revenue consisting of $5.4 million in
revenue from software license fees and $2.6 million in revenue from services,
and a net loss of $2.6 million. For the fiscal year ended June 30, 2000, we
anticipate $25.1 million in total revenue consisting of $13.1 million in revenue
from software license fees and $12.0 million in revenue from services, and a net
loss of $15.8 million.
26
<PAGE> 32
Ford License Agreement. On May 19, 2000, we entered into a $9.4 million
agreement with Ford Motor Company. The agreement provides for the license of
five of our standard software products, first year maintenance and a warrant to
purchase 400,000 shares of our common stock. We allocated approximately $6.9
million of the total fee to software licenses, $1.2 million to maintenance and
$1.3 million to the fair value of the warrant. We shipped a portion of the
software in June 2000 and recognized approximately $4.7 million of software
license revenue. We expect to ship the balance of the products in the quarter
ending September 30, 2000 and recognize the remaining $2.2 million of the
software license revenue at that time. The revenue from maintenance is being
recorded in equal monthly amounts over the first year maintenance term.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data
expressed as a percentage of our total revenue for the respective periods.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
JUNE 30, MARCH 31,
------------------------ --------------
1997 1998 1999 1999 2000
------ ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees........................... 52.7% 56.5% 45.2% 43.1% 45.0%
Services........................................ 47.3 43.5 54.8 56.9 55.0
------ ----- ----- ----- -----
Total revenue........................... 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of license fees............................ 0.1 2.8 2.5 2.9 2.4
Cost of services................................ 53.7 36.5 40.0 40.2 34.2
Research and development........................ 76.9 50.9 43.7 46.9 44.8
Purchased in-process research and development... 25.3 -- -- -- --
Sales and marketing............................. 77.2 51.5 59.0 63.1 58.8
General and administrative...................... 44.6 21.7 20.8 22.3 22.1
Provision for doubtful accounts................. 19.5 2.0 3.2 1.7 3.5
------ ----- ----- ----- -----
Total operating expenses................ 297.3 165.4 169.2 177.1 165.8
------ ----- ----- ----- -----
Operating loss.................................... (197.3) (65.4) (69.2) (77.1) (65.8)
Other income (expense):
Interest income................................. 0.8 0.3 0.2 0.2 0.2
Interest expense................................ (18.3) (19.3) (15.1) (19.0) (11.5)
Other income (expense).......................... (0.9) -- 0.1 0.1 0.1
------ ----- ----- ----- -----
Total other income (expense)............ (18.4) (19.0) (14.8) (18.7) (11.2)
------ ----- ----- ----- -----
Loss before income taxes.......................... (215.7) (84.4) (84.0) (95.8) (77.0)
------ ----- ----- ----- -----
Net loss................................ (215.7)% (84.4)% (84.0)% (95.8)% (77.0)%
====== ===== ===== ===== =====
</TABLE>
NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999
Software License Fees Revenue. Revenue from software license fees
increased 10.4% to $7.7 million in the nine months ended March 31, 2000 from
$7.0 million in the nine months ended March 31, 1999. The increase was due to
increased market acceptance of our software solutions, as well as the expansion
of our sales force. However, during the first six of the nine months ended March
31, 2000, we believe that our software license revenue was negatively impacted
by the following factors:
- our traditional sources of customer leads did not meet our growth
expectations during the period of transition to other lead-generation
sources and
27
<PAGE> 33
- during calendar 1999 potential customers' short-term focus of financial
and manpower resources on Year 2000 issues postponed some potential
customers' licensing decisions.
In order to increase the quantity and quality of customer leads, we have
entered into and continue to pursue relationships with third-party lead sources
such as business process improvement consultants, implementers of software
systems and complementary software application providers. As of March 31, 2000,
these efforts have resulted in an increase in the quantity and quality of
customer leads. We believe the increases in our partner relationships with
third-party lead sources and the elimination of Year 2000 issues will continue
to have a positive effect on our future revenues.
Services Revenue. Revenue from services increased 2.0% to $9.4 million in
the nine months ended March 31, 2000 from $9.2 million in the nine months ended
March 31, 1999. This increase was the result of an increase in maintenance and
support revenue resulting from license contracts entered into during the past
year and was partially offset by a decrease in revenue from implementation and
training services due to delays by two customers in the implementation of our
licensed software. We expect these two customers to begin their implementations
during the three months ending June 30, 2000.
Total Revenue. Total revenue increased 5.6% to $17.2 million in the nine
months ended March 31, 2000 from $16.2 million in the nine months ended March
31, 1999.
Cost of License Fees. Cost of license fees decreased 13.2% to $414,000 in
the nine months ended March 31, 2000 from $477,000 in the nine months ended
March 31, 1999. This decrease resulted from a decrease in sub-license fees paid
to third parties as a result of fewer products sub-licensed to our customers
that were owned by third parties.
Cost of Services. Cost of services decreased 10.2% to $5.9 million in the
nine months ended March 31, 2000 from $6.5 million in the nine months ended
March 31, 1999. This decrease in cost of services was due to our decreased use
of higher cost third-party consultants for implementation services.
Research and Development. Research and development expenses were $7.7
million in the nine months ended March 31, 2000, which is approximately equal to
the $7.6 million in the nine months ended March 31, 1999. Although we have been
developing additional e-business products and web-enabling our existing products
over the past nine months, our research and development expenses have not
increased. We utilized existing resources and core competencies of our employees
to develop these new products and enhancements.
Sales and Marketing. Sales and marketing expenses were approximately $10.1
million in the nine months ended March 31, 2000 and approximately $10.2 million
in the nine months ended March 31, 1999.
General and Administrative. General and administrative expenses increased
5.0% to $3.8 million in the nine months ended March 31, 2000 from $3.6 million
in the nine months ended March 31, 1999. This increase was the result of higher
costs associated with the increase in our business activities and expected
growth.
Provision for Doubtful Accounts. Our provision for doubtful accounts
increased 115.9% to $596,000 in the nine months ended March 31, 2000 from
$276,000 in the nine months ended March 31, 1999. This increase reflected
management's concern over the collectibility of certain amounts from one of our
European customers.
Operating Loss. As a result of the above factors, our operating loss
decreased 9.9% to $11.3 million in the nine months ended March 31, 2000 from
$12.5 million in the nine months ended March 31, 1999.
Other Income (Expense). Other income (expense) decreased 36.9% to $1.9
million in the nine months ended March 31, 2000 from $3.0 million in the nine
months ended March 31, 1999. Other income (expense) consists almost entirely of
interest expense. This decrease was due to lower average borrowings
28
<PAGE> 34
during the nine months ended March 31, 2000 as a result of the use of a portion
of the proceeds from the sale of Series G preferred stock in March 1999 to
reduce debt under our line of credit.
Income Taxes. During the nine months ended March 31, 2000 and 1999, we
reported losses for both financial reporting and income tax purposes. As a
result, we made no significant provision for income taxes in either period.
Net Loss. As a result of the above factors, our net loss for the nine
months ended March 31, 2000 decreased 15.1% to $13.2 million compared to $15.6
million for the nine months ended March 31, 1999.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Software License Fees Revenue. Revenue from software license fees were
$10.5 million in fiscal 1999 and $10.4 million in fiscal 1998. While our
software license fee revenue increased in the first two quarters of fiscal 1999
compared to fiscal 1998, we experienced a decline in license fees in the last
two quarters of fiscal 1999. We believe this decline in license fee revenue in
the last half of fiscal 1999 was due in large part to our traditional sources of
customer leads not increasing during the period of transition to other
lead-generation sources and postponement of some potential customers' licensing
decisions due to Year 2000 issues.
Services Revenue. Revenue from services increased 59.2% to $12.8 million
in fiscal 1999 from $8.0 million in fiscal 1998. This increase was primarily the
result of an increase in revenue from customer implementations and an increase
in support revenue, both resulting from the increase in new licenses during the
fourth quarter of fiscal 1998 and the first two quarters of fiscal 1999.
Total Revenue. Total revenue increased 26.5% to $23.3 million in fiscal
1999 from $18.4 million in fiscal 1998. The increase was due to the increase in
services revenue described above.
Cost of License Fees. Cost of license fees increased 9.9% to $576,000 in
fiscal 1999 from $524,000 in fiscal 1998. This increase was due to higher
third-party finder fees partially offset by a decrease in sub-license fees paid
to third parties as a result of a reduction in the number of products owned by
third parties that we sub-licensed to our customers.
Cost of Services. Cost of services increased 38.6% to $9.3 million in
fiscal 1999 from $6.7 million in fiscal 1998. The increase resulted from
increased costs associated with the addition of personnel, including the
increased use of higher cost third-party consultants necessary to provide our
implementation services.
Research and Development. Research and development expenses increased 8.7%
to $10.2 million in fiscal 1999 from $9.4 million in fiscal 1998. This increase
resulted from greater costs associated with additional personnel required to
support our product development activities and plans.
Sales and Marketing. Sales and marketing expenses increased 44.8% to $13.7
million in fiscal 1999 from $9.5 million in fiscal 1998. This increase resulted
from increased costs associated with additional personnel in our sales and
marketing organization, including additional direct sales and marketing
personnel.
General and Administrative. General and administrative expenses increased
21.7% to $4.9 million in fiscal 1999 from $4.0 million in fiscal 1998. This
increase resulted from increased costs associated with the addition of personnel
and other costs related to the increase in business activity over the past year.
Provision for Doubtful Accounts. Our provision for doubtful accounts
increased 101.9% to $753,000 in fiscal 1999 from $373,000 in fiscal 1998. This
increase resulted from an increase in year-end as well as average outstanding
accounts receivable resulting from increased business activity.
Operating Loss. As a result of the above factors, our operating loss
increased 33.8% to $16.1 million in fiscal 1999 compared to $12.0 million in
fiscal 1998.
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Other Income (Expense). Other income (expense), which consists primarily
of interest expense, was $3.4 million in fiscal 1999, approximately equal to the
$3.5 million in fiscal 1998. Although interest expense decreased in the fourth
quarter of fiscal 1999 as result of the use of a portion of the proceeds from
the sale of our Series G preferred stock in March 1999 to reduce borrowings
under our line of credit, the decrease was offset by increased borrowings during
the first three quarters of fiscal 1999.
Income Taxes. During fiscal 1999 and fiscal 1998 we reported losses for
both financial reporting and income tax purposes. As a result, we made no
significant provision for income taxes in either year. At the end of fiscal
1999, we had net operating loss carryforwards of approximately $61.0 million and
tax credits of approximately $929,000 that expire principally in years 2001
through 2014. Total net operating loss carryforwards at June 30, 1999 includes
approximately $9.6 million of net operating losses related to our foreign
operations that may be carried forward indefinitely.
Net Loss. As a result of the above factors, our net loss increased 26.0%
to $19.6 million in fiscal 1999 compared to $15.5 million in fiscal 1998.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Software License Fees Revenue. Revenue from software license fees
increased 139.8% to $10.4 million in fiscal 1998 from $4.3 million in fiscal
1997. This increase was due to the continued market acceptance of our products,
the introduction in the three months ended March 31, 1998 of Manufacturing
Manager version 5.0, which is the predecessor to our current Virtual Production
Engine, and our acquisition of all of the outstanding shares of Bender
Management Consultants Inc., a company that develops supply chain software and
provides consulting services, in June 1997. The Bender Management acquisition
enabled us to broaden our overall supply chain product solutions.
Services Revenue. Services revenue increased 106.1% to $8.0 million in
fiscal 1998 from $3.9 million in fiscal 1997. This increase was primarily the
result of a 100.0% increase in revenue from customer implementations and a
144.2% increase in support revenue, both resulting from the increase in new
licenses during fiscal 1998 compared to fiscal 1997.
Total Revenue. Total revenue increased 123.9% to $18.4 million in fiscal
1998 from $8.2 million in fiscal 1997. This increase was due to the increase in
revenue from both software license fees and services.
Cost of License Fees. Cost of license fees increased to $524,000 in fiscal
1998 from $11,000 in fiscal 1997, reflecting $393,000 in third-party finders
fees incurred in fiscal 1998 and $131,000 of amortization of software acquired
through the acquisition of a business.
Cost of Services. Cost of services increased 51.9% to $6.7 million in
fiscal 1998 from $4.4 million in fiscal 1997. This increase resulted from
increased costs associated with the addition of personnel necessary to provide
the implementation and support services associated with the increase in new
licenses.
Research and Development. Research and development expenses increased
48.2% to $9.4 million in fiscal 1998 from $6.3 million in fiscal 1997.
Approximately $2.4 million of this increase was due to the cost of additional
personnel acquired in the Bender Management acquisition. The remaining increase
resulted from increased costs associated with additional personnel to enable a
concentrated development effort associated with the release of Manufacturing
Manager version 5.0.
Purchased In-process Research and Development. In June 1997, we acquired
the Bender Management operations for approximately $2.2 million, consisting of
750,000 shares of preferred stock valued at $2.1 million and acquisition costs
of $126,000. The acquisition was accounted for under the purchase method of
accounting and, accordingly, the results of operations were included in the
accompanying consolidated statements of operations beginning June 1, 1997, the
date the acquisition was recorded for accounting purposes. The purchase price
was allocated among identifiable assets and liabilities based on their
respective fair values. Approximately $393,000 was determined to be the value of
completed
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software products. The value assigned to in-process research and development
with no alternative future use was approximately $2.1 million. Such value was
determined using the discounted cash flow of earnings expected in future years
from products to be derived from the in-process research and development. In
accordance with generally accepted accounting principles, this amount was
expensed at the acquisition date. At the acquisition date, Bender Management had
not capitalized any software development costs. Through additional research and
development expenditures principally over the 18 months following our
acquisition of Bender Management, we derived our current Supply Chain Design
Engine, Tactical Planning Engine, Open Demand Engine, and Dynamic Sourcing
Engine from the in-process research and development of Bender Management at the
date of acquisition.
Sales and Marketing. Sales and marketing expenses increased 49.5% to $9.5
million in fiscal 1998 from $6.3 million in fiscal 1997. This increase was due
to a $1.6 million increase in our personnel costs as the number of new license
contracts increased and we established new domestic and international sales
offices as we expanded our direct sales force, and a $1.1 million increase in
advertising and promotional activities relating to the announcement of new
product enhancements.
General and Administrative. General and administrative expenses increased
8.8% to $4.0 million in fiscal 1998 from $3.7 million in fiscal 1997. This
increase was due to increased costs associated with additional personnel to
support our internal growth.
Provision for Doubtful Accounts. Our provision for doubtful accounts
decreased 76.7% to $373,000 in fiscal 1998 from $1.6 million in fiscal 1997.
This decrease was due to provisions in fiscal 1997 for a settlement of legal
action relating to the outstanding accounts receivable balance with a customer
which resulted in a write-off of approximately $540,000. In addition, during
fiscal 1997 we provided approximately $420,000 for a negotiated settlement of
outstanding accounts receivable balance with another customer.
Operating Loss. As a result of the above factors, our operating loss
decreased 25.8% to $12.0 million in fiscal 1998 compared to $16.2 million in
fiscal 1997.
Other Income (Expense). Other income (expense), which consists primarily
of interest expense, increased 131.5% to $3.5 million in fiscal 1998 from $1.5
million in fiscal 1997. This increase was a result of additional borrowings
under our line of credit as well as additional borrowings from our principal
shareholder.
Income Taxes. During fiscal 1998 and fiscal 1997, we reported losses for
both financial reporting and income tax purposes. As a result, we made no
provision for income taxes in either year.
Net Loss. As a result of the above factors, our net loss decreased 12.4%
to $15.5 million in fiscal 1998 compared to $17.7 million in fiscal 1997.
QUARTERLY RESULTS OF OPERATIONS
The following table contains quarterly financial information. The unaudited
consolidated financial statements have been prepared on substantially the same
basis as the audited consolidated financial statements contained in this
prospectus. They include all adjustments, consisting only of normal recurring
accruals, that we consider necessary to present fairly this information when
read in conjunction with our consolidated financial statements and the related
notes appearing elsewhere in this prospectus.
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1999 1999 1999 1999 2000
--------- -------- -------- -------- --------- -------- --------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software license fees......... $ 1,900 $ 4,000 $ 1,093 $ 3,528 $ 253 $ 3,563 $ 3,905
Services...................... 2,708 2,874 3,664 3,514 3,304 2,899 3,226
------- ------- ------- ------- ------- ------- -------
Total revenue......... 4,608 6,874 4,757 7,042 3,557 6,462 7,131
Operating expenses:
Cost of license fees.......... 33 397 47 99 125 42 248
Cost of services.............. 1,910 2,224 2,401 2,773 2,227 1,755 1,887
Research and development...... 2,469 2,470 2,675 2,565 2,591 2,591 2,507
Sales and marketing........... 3,126 3,524 3,598 3,483 3,228 3,480 3,369
General and administrative.... 1,144 1,307 1,162 1,237 1,160 1,415 1,218
Provision for doubtful
accounts................... 45 45 186 477 325 147 124
------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 8,727 9,967 10,069 10,634 9,656 9,430 9,353
Operating loss.................. (4,119) (3,093) (5,312) (3,592) (6,099) (2,968) (2,222)
Other income (expense):
Interest income............... 9 10 13 18 11 14 10
Interest expense.............. (980) (1,141) (959) (446) (568) (721) (680)
Other income (expense)........ (3) 4 15 16 18 2 1
------- ------- ------- ------- ------- ------- -------
Total other income
(expense)........... (974) (1,127) (931) (412) (539) (705) (669)
------- ------- ------- ------- ------- ------- -------
Loss before income taxes........ (5,093) (4,220) (6,243) (4,004) (6,638) (3,673) (2,891)
------- ------- ------- ------- ------- ------- -------
Net loss.............. $(5,093) $(4,220) $(6,243) $(4,004) $(6,638) $(3,673) $(2,891)
======= ======= ======= ======= ======= ======= =======
</TABLE>
Our quarterly operating results have varied in the past and may vary
significantly in the future depending on many factors including:
- the volume of orders;
- competitor activities;
- changes in strategic relationships;
- customer budget constraints;
- the mix of products sold; and
- general economic conditions.
Historically, we have experienced very large individual license
transactions, which can cause substantial variances in quarterly license fee
revenue. In addition, we typically enter into a significant portion of our new
license contracts in the last two weeks of the quarter. Furthermore, we believe
that the purchase of our products is relatively discretionary and generally
involves a significant commitment of capital. As a result, purchases of our
products may be deferred or canceled in the event of a downturn in any potential
customer's business or in the economy in general, or any potential customer's
focus of financial and manpower resources on other areas such as Year 2000
issues.
Historically, we have recognized greater revenue from license fees in the
fourth quarter of each fiscal year than in each of the preceding quarters, and
the first quarter license fees revenue typically has declined from such revenue
in the fourth quarter of the preceding year. We believe that this concentration
of licensing activity is caused primarily by our sales commission policies,
which compensate sales personnel
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for meeting or exceeding annual performance quotas. Any change in these policies
could result in a change in this pattern of licensing activity and, therefore,
the portion of annual revenue reported in each quarter of the year. Furthermore,
because we generally ship our software products within a few days after receipt
of a contract, we typically do not have a material backlog of unfilled software
orders and license fees revenue in any quarter is generally substantially
dependent on orders received and shipped in that quarter.
A substantial portion of our operating expense level, particularly
personnel and facilities costs, is based in part on our expectations as to
future revenue and is relatively fixed in advance of any particular quarter. As
a result of the foregoing factors, we believe that our quarterly revenue,
expenses and operating results likely will vary significantly in the future, and
period-to-period comparisons of its operating results may not be meaningful and,
in any event, such comparisons should not be relied upon as indicators of future
performance.
Revenue from software license fees declined in the quarters ended March 31,
1999 and September 30, 1999 due in part to our potential customers' focus on
Year 2000 issues. In addition, in the quarter ended September 30, 1999, three
new license agreements were delayed due to our potential customers' delay in
making a decision to purchase J.D. Edwards software. As a result of these
reduced software license fees, implementation services revenue has declined
since the quarter ended March 31, 1999.
Cost of services increased in the quarter ended June 30, 1999 due to the
use of higher priced third-party consultants to perform a portion of the
services and declined thereafter as we reduced the number of third-party
consultants as implementation services declined. Sales and marketing expenses
have varied from quarter to quarter depending generally on the timing of
advertising and promotion expenses and commissions on new software licenses.
General and administrative expenses increased in the quarter ended June 30, 1999
primarily as a result of an increase in the reserve for loss on an uncollectible
accounts receivable from the prior year. Interest expense declined in the
quarters ended March 31, 1999 and June 30, 1999 as a result of the use of a
portion of the proceeds from the sale of our Series G preferred stock in March
1999 to repay our borrowings under our credit facility. Borrowings under our
line of credit since the quarter ended March 31, 1999 have caused our interest
expense to increase.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, we have primarily financed our operations and our capital
expenditures through funds generated from operations, sales of our preferred
stock and borrowings from Greyrock Business Credit Corporation and E.M. Warburg,
Pincus, our principal shareholder. At June 30, 2000, our primary sources of
liquidity consisted of a $20.0 million line of credit with Greyrock, which is
secured by substantially all of our assets, and cash totaling approximately
$457,000. Our line of credit with Greyrock bears interest at the highest LIBOR
rate in effect each month, plus 5.125% per annum, which was 11.8% as of July 31,
2000, provided that the interest rate in effect each month is not less than 9%
per annum. It provides for borrowings not to exceed the lesser of $20.0 million
or an amount equal to the sum of the following: (1) 80% of qualifying
receivables, as defined, (2) an additional loan of $5.0 million and (3) a term
loan of $5.0 million. Our line of credit will renew on December 31, 2000 for a
term of one year unless terminated by us or Greyrock. At July 31, 2000,
approximately $9.7 million was outstanding and $3.6 million was available for
additional borrowings under our line of credit.
Cash used in our operating activities was $6.9 million for the nine months
ended March 31, 2000 compared to $14.7 million for the same period in the prior
fiscal year. The cash used in operating activities for the nine months ended
March 31, 2000 resulted primarily from our net losses of $13.2 million partially
offset by a $4.2 million decrease in accounts receivable, a $952,000 increase in
depreciation and amortization expense, and a $789,000 increase in accrued
expenses. The decrease in accounts receivable at December 31, 1999 and March 31,
2000 was due to an improvement in the payment terms on our software license
agreements as compared to prior years, as well as the timing of new contracts
within the relevant periods. The cash used in operating activities for the nine
months ended March 31, 1999 resulted primarily from our $15.6 million net loss
during that period. The reduction in cash used in operating
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<PAGE> 39
activities during the nine months ended March 31, 2000, as compared to the same
period in the prior fiscal year, was due to a $6.2 million decrease in accounts
receivable and a $2.4 million reduction in our net loss, partially offset by a
$1.3 million reduction in accrued expenses.
Cash used in our investing activities was approximately $888,000 in the
nine months ended March 31, 2000 as compared to $1.0 million for the same period
in the prior fiscal year. The cash used in investing activities was principally
used for purchases of computer hardware and software for internal use to support
our growth during the previous year as well as for furniture and fixtures.
Cash provided by our financing activities amounted to approximately $7.4
million in the nine months ended March 31, 2000 as compared to $15.4 million for
the same period in the prior fiscal year. During the nine months ended March 31,
2000, $7.3 million was provided from net borrowings under our line of credit.
During the same period in the prior fiscal year, $32.7 million, net of issuance
costs, was provided in March 1999 from the sale of Series G preferred stock, of
which $26.9 million was used to repay borrowings under our line of credit and
$5.0 million was used for the conversion of a note from E.M. Warburg, Pincus
into Series G preferred stock. Net of borrowings, the outstanding balance of our
line of credit during the nine months ended March 31, 1999 was reduced by $17.1
million.
We believe that the cash provided by this offering, our existing cash
balance, borrowings under our line of credit and cash flow from operations will
be sufficient to meet our working capital and capital expenditure requirements
for the next twelve months. However, the termination of our line of credit, any
material variance of our operating results from our projections or the
acquisitions of complementary businesses, products or technologies could require
us to obtain additional equity or debt financing. Required financing may not be
available on acceptable terms, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. The Company adopted SFAS No. 131 effective with its fiscal year ending
June 30, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is effective for quarters beginning after June 15, 2000. We do not
currently utilize derivative financial instruments and, therefore, we do not
expect that the adoption of SFAS No. 133 will have a material impact on our
results of operations or financial position.
In December 1999, the Securities and Exchange Commission Staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which clarified some provisions of current standards related to
software revenue recognition. The adoption of SAB No. 101 did not have a
material impact on our revenue recognition policies or results of operations for
financial position.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," an interpretation of APB
Opinion No. 25, which is referred to as "FIN 44". FIN 44 establishes guidance
for the accounting for stock option grants or modifications to existing stock
option awards and is effective for option grants made after June 30, 2000. FIN
44 also establishes guidance for the repricing of stock options and determining
whether a grantee is an employee, for which the guidance was effective after
December 15, 1998 and modifying a fixed option to add a reload feature, for
which the guidance was effective after January 12, 2000. The adoption of certain
of the provisions of FIN 44 prior to March 31, 2000 did not have a material
effect on the financial statements. We do not expect that the adoption of the
remaining provisions will have a material effect on the financial statements.
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YEAR 2000 COMPUTER ISSUES
We did not experience any computer or systems problems relating to Year
2000. Upon review of our internal and external systems during 1999, we
determined that we did not have any material exposure to such computer problems
and that the software and systems required to operate our business and the then
current versions of our software products were Year 2000 compliant. As a result,
during 1999 we did not incur, and do not expect to incur, any material
expenditures relating to Year 2000 remediation of our internal systems or our
software products.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our interest expense is sensitive to changes in the general level of U.S.
interest rates. We are exposed to changes in interest rates primarily from our
subordinated debt with E.M. Warburg, Pincus and our line of credit with
Greyrock, the interest rates of which are tied to U.S. market interest rates. We
do not currently utilize derivative financial instruments to manage exposure to
interest rate changes. Based on the weighted average outstanding debt balances,
a one percent increase in the general level of U.S. interest rates would have
produced approximately $340,000 in additional interest expense in the fiscal
year ended June 30, 1999. We do not expect to have a significant amount of
outstanding debt following this offering.
We develop products in the United States and market our products in North
America, South America and Europe. As a result our financial results could be
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in foreign markets. All sales are currently made in both
U.S. dollars and local currencies. A strengthening of the U.S. dollar or
weakening of these local currencies could make our products less competitive in
foreign markets.
We expect to invest our cash only in debt obligations issued by the U.S.
government or its agencies with maturities of less than two years.
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BUSINESS
OVERVIEW
We provide advanced e-business solutions designed to optimize the financial
and operational performance of the supply chain. Our SynQuest One2One suite of
software solutions enables our customers to fulfill each order they receive in
the most profitable manner and to enhance competitiveness through improved
customer service. Our solutions consider the relevant variables that affect the
performance of the entire supply chain, including materials supply,
manufacturing, distribution, transportation and trading partners. We help our
clients improve their business performance, increase market share and enhance
customer service by:
- providing real-time management of every customer order to help achieve
fast and reliable fulfillment; and
- selecting the financially optimal, or profit maximizing, means of order
fulfillment within the supply chain constraints and customer
requirements.
Our scalable solutions are designed for business-to-business e-commerce. We
target traditional bricks and mortar companies with annual revenues between $100
million and $2 billion, web-based companies and market exchanges. We believe
these companies face complex supply chain management challenges, but their
limited resources and expertise require them to select solutions that are easy
to use and quick to deploy. Our turnkey suite of products can be quickly
implemented, to deliver bottom-line savings and incremental revenue
opportunities for customers. Our solutions readily interface with a broad range
of our clients' existing enterprise applications, as well as the platforms of
their web-based trading partners. As of June 30, 2000, we had implemented our
solutions for over 100 customers. Our clients include The B.F. Goodrich Company,
Ford Motor Company, Herman Miller, Inc.'s SQA Division, Nordstrom.com, Pioneer
Electronic Corp., Reynolds Metals Company, STMicroelectronics N.V., and Titleist
and Footjoy Worldwide.
MARKET OPPORTUNITY
OUR ADDRESSABLE MARKET
The supply chain management software and services market is projected to
grow at a 40% compounded annual rate from $3.8 billion in 1999 to $20.3 billion
by 2004, according to AMR Research, Inc., an independent market research
company. In addition, we expect that as the business-to-business e-commerce
develops, supply chain management solutions will gain share in e-commerce
application budgets. This will further increase the size of the potential market
for supply chain management solutions. The e-commerce applications market is
estimated to grow from $1.7 billion in 1999 to $16.0 billion by 2004 at a
compounded annual rate of 56%, according to AMR Research.
TRENDS DRIVING THE IMPORTANCE OF SUPPLY CHAIN MANAGEMENT IN THE E-BUSINESS
SOLUTIONS MARKET
Competitive pressure driven by the Internet. The Internet has allowed new
competitors to emerge and existing competitors to compete in new ways. Today's
increasingly competitive business environment and shareholder expectations have
forced many companies to become more efficient while improving their flexibility
and responsiveness to changing market conditions. In addition to facing higher
product standards for quality, variety and price, businesses also recognize the
need to shorten lead times, adjust production for frequent changes in customer
requirements and quote more accurate and reliable delivery dates. Many companies
seek to achieve growth through new distribution channels and superior customer
service, rather than through product innovation. In response to these market
forces, many companies are implementing supply chain management software
solutions to improve the efficiency of their business processes.
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Growth of direct materials transactions through e-commerce. The volume of
nonfinancial goods and services sold through business-to-business e-commerce is
expected to reach $7.3 trillion worldwide in 2004 according to the GartnerGroup,
a technology consulting and research firm. We believe that approximately 80% of
this e-commerce will consist of direct materials, which are mission-critical
materials, parts or components that are an element of an enterprise's finished
product. Buyers of direct materials generally seek to exchange information with
sellers across the life cycle of their relationship. For example, buyers may
need to assess a supplier's ability to support potential business scenarios,
such as the ability to meet volumes and delivery dates, before committing to
purchase a product. These customers seek to make sourcing decisions that result
in the lowest total delivered cost, which involves many factors other than
price, and to easily ascertain the current status of each order. A typical
manufacturing, distribution or retail company executes thousands of direct
materials buy and sell transactions annually, many of which require coordinated
execution. The supply chain management solutions used today by the majority of
companies do not readily support high volume direct materials e-commerce.
The need for mass customization. As customers increasingly demand goods
tailored to their requirements, businesses seek to grow revenue by producing
unique goods on a large scale. However, manufacturers often cannot
cost-effectively maintain large inventory levels to meet anticipated demand. In
addition, customers are demanding that mass customized products be delivered
reliably and in less time, especially as the Internet raises expectations of
delivery speed. To achieve fast, reliable and profitable mass customization,
manufacturers will need to implement supply chain management solutions that can
address each order and manage it profitably in real-time.
The growth of market exchanges. Market exchanges, which are on-line
intermediaries that connect fragmented buyers and sellers, represent a new and
rapidly growing class of customers for supply chain management solutions. As of
April 2000, there were over 600 market exchanges, which are expected to grow to
10,000 by 2003, according to NetMarketMakers.com, a market research firm.
According to the GartnerGroup, 37% of the expected $7.3 trillion of
business-to-business e-commerce transactions, or $2.7 trillion, will occur
through market exchanges in 2004. As market exchanges move further into high
volume direct materials transactions, they will face increasing supply chain
coordination and customer satisfaction issues.
Globalization. Several factors are increasing the globalization of
markets, including the continued reduction in trade barriers, the Internet's
ability to make market information available worldwide, increasing
specialization and continued pressure to reduce costs and quickly penetrate new
markets to sell existing products. Globalization will lead to companies
interacting with more trading partners and a higher degree of outsourcing,
resulting in larger and more varied supply chains. This shift will place more
emphasis on the importance of supply chain management solutions that provide
visibility and control.
LIMITATIONS OF EXISTING SUPPLY CHAIN MANAGEMENT SOLUTIONS
We believe that existing supply chain management solutions do not fully
address the business imperatives arising from the foregoing trends. We believe
the primary limitations of existing solutions include the following:
- Limited financial optimization capability. Most supply chain management
solutions have limited capability to consider the financial impacts of
supply chain decisions. Typically, these solutions consider financial
impacts at an aggregate level, not on an order-by-order basis, and
therefore do not select a financially optimal result.
- Lack of real-time management capability. Most supply chain management
solutions address planning and execution as two separate activities. This
limits effective decision-making over the supply chain and does not
account for real-time events which impact the plan and, therefore,
optimal execution.
- Difficulty of deployment. The adoption of most supply chain management
solutions has been limited due to the complexity of its implementation
process. Successful implementation of these
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solutions often requires programming by operations research experts,
which few companies have in-house.
THE SYNQUEST SOLUTION
Our software solutions are designed to address the limitations of current
supply chain management solutions and provide a comprehensive platform for our
clients to address the trends shaping their businesses. The key elements of our
solutions are as follows:
Financial optimization. Each product in our SynQuest One2One suite of
solutions is designed to achieve a single goal: financial optimization. Our
solutions carry this financial optimization principle from developing a supply
chain management strategy down to the individual order level and allow our
clients to determine the profit margin contribution of each potential order
before they accept it. This focus typically allows our clients to recover their
investment in our products quickly.
Real-time management. Our solutions are designed to create the plan,
coordinate the execution and continuously control each order to facilitate fast
and reliable fulfillment. After analyzing all relevant variables and selecting
the financially optimal means of fulfillment, our software creates time-stamped
operational plans that are disseminated for execution throughout the supply
chain. As execution occurs, our software analyzes the events of the supply chain
in real-time, publishes the impact of the events on order delivery, and re-plans
as necessary to keep the orders on schedule. Our solutions analyze real-time
changes in fulfillment constraints to redetermine the optimal means of
fulfillment.
Turnkey solutions. We offer turnkey solutions that are easy to deploy,
interface readily with most existing enterprise systems and e-commerce
platforms, and require little or no custom programming to implement. After
easily linking to our clients' systems, our solutions use existing customer
supply chain data to generate financially optimal fulfillment plans. In
addition, the turnkey nature of our solutions is a competitive advantage because
we can demonstrate, with little advance preparation and set-up, a prospective
client's ability to realize significant bottom-line savings with our solutions.
Comprehensive, high-volume, high-performance solutions. Our solutions are
comprehensive and operate robustly in a variety of environments. Our solutions
cover the entire array of supply chain issues that arise from both short,
vertical supply chains contained largely within a single enterprise to
distributed, complex supply chains crossing numerous enterprises. As a result,
our products are well suited for the most traditional industrial companies as
well as newer web-based businesses and market exchanges. Our products are built
to address the performance requirements of large, complex supply chains and
business-to-business e-commerce, and to operate in mission-critical situations.
We combine advanced computing technologies, such as mixed integer programming
and genetic algorithms, with multiple modeling techniques designed to maximize
profitability and responsiveness.
OUR STRATEGY
Our objective is to become the leading provider of advanced e-business
solutions that optimize supply chain performance. We seek to enable our clients
to successfully transform their businesses to maximize profitability and
competitiveness. Our strategy to achieve this goal includes the following key
elements:
Increase our brand awareness. We focus on three types of customers: bricks
and mortar companies, web-based companies and market exchanges. We plan to boost
awareness of our company and our solutions through new marketing campaigns and
additional strategic partnerships. Marketing campaigns may include advertising
or public relations programs designed to reach our target audiences effectively.
We will cultivate strategic partnerships with complementary business-to-business
e-commerce companies, such as software solutions providers and systems
integrators, to stimulate sales lead generation and offer more comprehensive
solutions.
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<PAGE> 44
Expand and deepen market coverage. We plan to expand our market coverage
by increasing our direct sales force and building strategic alliances. We intend
to increase our coverage of existing markets and to penetrate new geographic
areas throughout Europe, Asia and the Pacific Rim. In certain markets, we plan
to partner with resellers to expand our presence and support indirect sales
efforts. We will also continue to market our software products aggressively to
businesses that have already licensed one or more of our products. We believe
that, as a result of the return on investment that we deliver to our clients,
they will encourage the use of our products throughout their enterprises and
supply chains.
Broaden and enhance our suite of products. We intend to leverage our
expertise in supply chain management to build additional functionality into our
products, increase their competitiveness and broaden their applicability for
existing and new markets. We also plan to continue to build new solutions that
address emerging trends in supply chain management and business-to-business
e-commerce.
Target additional vertical markets. We plan to further penetrate our
current target industries and leverage our existing products' capabilities into
new vertical markets. We intend to support these new verticals by hiring
industry experts and expanding our products to address the specific challenges
presented by each new market. We also expect that successful implementations in
our existing vertical industries will present significant opportunities to
license our products to our clients' trading partners in other vertical markets.
Pursue strategic acquisition opportunities. We may pursue strategic
acquisitions of complementary businesses, technologies, or products that will
accelerate any of the elements of our strategy. We currently have no
understandings, arrangements or agreements with respect to any potential
acquisitions.
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<PAGE> 45
CORE FUNCTIONALITY OF OUR SOLUTIONS
All of our solutions share a core functionality, the two key features of
which are financial optimization and real-time management.
FINANCIAL OPTIMIZATION
Our products' financial optimization capability provides our customers with
the ability to maximize profitability of each individual order or minimize costs
while meeting order fulfillment constraints. Our clients view their supply
chains as beginning with their customers and ending with suppliers. Those supply
chains have many elements, including manufacturing plants, warehouses, suppliers
and modes of transportation. Each supply chain element has certain capabilities,
limitations and costs. When an order is placed, our solutions dynamically search
through the supply chain to determine what combination of warehouses, plants,
suppliers and transportation methods meets the delivery requirements of the
order, taking into account the capabilities and limitations of each supply chain
element and the impact of existing orders on those elements. That dynamic search
includes assessing alternative paths through the supply chain to find the single
path that meets the delivery requirements with the lowest combined warehousing,
manufacturing, transportation and supplier costs. The diagram below illustrates
financial optimization.
FINANCIAL OPTIMIZATION OF AN ORDER
The order sourcing route is dynamically chosen based upon the capacity,
lead time and cost of all of the supply chain's resources.
(CHART A)
Result: The order is sourced for the required or best possible delivery
date and the lowest total delivered cost.
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<PAGE> 46
REAL-TIME MANAGEMENT
Real-time management means planning, execution and control. The real-time
management capability of our solutions allows our clients to create the plan,
coordinate the execution and continuously control an order to facilitate its
fulfillment with the highest reliability in the shortest possible time. After an
order is dynamically sourced, all required actions, timing and
interrelationships are established and tracked throughout the supply chain. As
events in the supply chain occur, they are compared in real-time to the planned
events to detect any deviations from the sourcing plan. As deviations are
detected, our solutions project the impact of a deviation on the delivery of the
order. For instance, if a supplier were expected to deliver 100 input materials
on a particular date but actually delivered only 50, our solution would project
the impact on the order and automatically determine its new delivery date. Our
solutions can quickly re-plan orders and select alternate paths or sequences
through the supply chain in order to maintain the delivery schedule if possible.
By constantly tracking the order through its life cycle, real-time management
also improves the speed of an order by minimizing order idle time. The diagram
below illustrates real-time management.
REAL-TIME MANAGEMENT OF AN ORDER
Our solutions track execution of the order, analyze performance deviations
for their impact on the delivery date, and re-plan, if necessary, to place the
impacted order back on schedule.
(CHART B)
Result: Orders are reliably delivered within the shortest possible time.
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<PAGE> 47
OUR SYNQUEST ONE2ONE SOLUTIONS
<TABLE>
<CAPTION>
PRODUCT PRIMARY BENEFIT FEATURES/FUNCTIONALITY
<S> <C> <C>
SUPPLY CHAIN DESIGN Designed to assemble supply - Determines the supply chain
ENGINE chains to optimize delivery network and product flow
performance and - Optimizes on-time delivery
profitability and demand fulfillment
profitability
- Considers trade-offs between
capital investment and
operational costs
INBOUND PLANNING ENGINE Designed to determine how - Considers supplier,
to move inbound materials transportation and customer
through the supply chain to constraints and costs
result in the lowest total - Creates a transportation plan
delivered cost that minimizes the
combination of
transportation, inventory and
customer handling costs
- Synchronizes inbound
logistics with production or
outbound distribution
requirements
TACTICAL PLANNING ENGINE Designed to produce a plan - Models costs, capacities and
that maximizes margin lead times throughout the
contribution across the supply chain
supply chain - Determines what combination
of products should be sold to
maximize margin contribution
- Selects suppliers and
allocates supply chain's
resources to support the
sales plan
OPEN DEMAND ENGINE Designed to generate an - Manages multiple demand
accurate, unified customer streams, including
demand forecast for sales, collaboration with web-
marketing, manufacturing, enabled trading partners
distribution, finance and - Maintains unconstrained and
trading partners profit-constrained sales
forecasts
- Monitors sales activities
against forecasts and tracks
forecasting accuracy
</TABLE>
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<PAGE> 48
<TABLE>
<CAPTION>
PRODUCT PRIMARY BENEFIT FEATURES/FUNCTIONALITY
<S> <C> <C>
DYNAMIC SOURCING ENGINE Designed to manage multiple - Models supply chain wide
orders across the supply costs, inventories,
chain capacities and lead times
- Dynamically selects the most
cost-efficient path across
the supply chain for each
customer order
- Tracks the progress of an
order through the supply
chain
- Allows trading partners to
allocate capacity, inventory,
set pricing, receive
commitments and respond with
actual performance over the
Internet
ORDER PROMISING ENGINE Designed to determine the - Considers the availability of
fastest and lowest total materials, manufacturing,
cost way to deliver an distribution, transportation
order capacity, costs and lead
times and finished goods
inventories
- Allows customers via the web
to determine delivery dates
for orders
- Allows manufacturers to
understand the potential
margin of that order before
making commitments
VIRTUAL PRODUCTION Designed to provide - Creates and publishes to-
ENGINE real-time management of the-second production
production orders schedules that optimize order
fulfillment based on cost,
on-time shipment and total
order cycle time
- Monitors and projects the
impact of production events
as they occur, on order
shipment
- Re-plans instantly, to put
order shipment times back on
track
CUSTOMER SERVICE ENGINE Designed to provide - Accesses and translates up-
real-time visibility to to-the-second supply chain
customer order status information into customer
across the supply chain information
- Create personalized views of
the supply chain information
for individual customers
</TABLE>
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PROFESSIONAL SERVICES
IMPLEMENTATION METHODOLOGY
We use an implementation methodology that we call the SynQuest Optimal
Performance Path. Our methodology consists of an end-to-end framework that
enables our customers to identify, maximize and take advantage of significant
opportunities for business improvement through supply chain management. We begin
the Optimal Performance Path program at the first meeting with each prospective
customer, and we continue it until our customers have achieved their desired
business results. We believe the continuity of our approach helps our customers
achieve measurable benefits quickly.
The initial phase of the Optimal Performance Path process centers around a
Value Opportunity Assessment, which is a formal analysis of the potential
improvements in each prospective customer's supply chain. Our industry
consultants conduct a site visit with the prospect, evaluate current conditions
and produce a report that outlines a value proposition specific to each
prospect's business goals. The value proposition specifically identifies
achievable financial and operations improvements, including how our software
will address the business issues, how to proceed with the actual implementation
and how to measure the delivered performance improvements. By using this
approach, we are able to ensure that we understand and agree upon our prospect's
opportunities for improvement as well as the solutions that are necessary to
produce the anticipated results. After we finalize the sale, the opportunities
identified in the Value Opportunity Assessment become the benchmark goals for
implementation, the second phase of the Optimal Performance Path process.
The implementation phase is designed to rapidly achieve the agreed upon
business objectives. We use two teams, an implementation team and a performance
team, working together to achieve the business objectives. The implementation
team installs and integrates the software and trains users on the new business
processes and how to use the software to support the new business processes. The
performance team consists of senior management of the customer, our partners and
ourselves and addresses business issues that arise to keep the implementation
progressing as quickly as possible. This two team process continues until we
have achieved the business goals that were identified during the Value
Opportunity Assessment. Because of our implementation process, we are able to
install the software and produce results in as little as 90 days.
MAINTENANCE AND OTHER SERVICES
Maintenance. We provide full maintenance and support of our solutions to
our clients who choose to purchase an annual maintenance agreement. As long as a
maintenance agreement is in effect, our clients will receive all software fixes
and release enhancements as agreed upon in the contract documents and license
agreements. The maintenance program also includes up to 24-hour customer service
support to answer technical questions, assist in solving technical issues,
report product discrepancies, or request enhancements. Standard customer service
support is available during normal business hours. An extended customer service
support option is available which includes seven-day, 24-hour customer service.
Strategic Consulting. Our consultants are available to work on select
strategic supply chain projects. We can help our clients develop custom supply
chain network plans to achieve their business goals. We apply these resources as
necessary to solve a wide range of complex supply chain problems.
CUSTOMERS
We target three types of customers: bricks and mortar companies, web-based
companies and market exchanges.
- Bricks and mortar companies typically attempt to differentiate themselves
from their competitors through responsiveness and reliability while
achieving a competitive cost advantage. Targeted bricks and mortar
companies have complex products or supply chain processes, such as
multiple suppliers,
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plants and warehouses, complex orders, significant inventory carrying
costs and alternative transportation modes. They are also producing or
distributing mass customized products.
- Web-based companies have a strong web presence and accept orders over the
Internet but rely heavily on the supply chain assets of other companies.
Targeted web-based companies have complex order requirements and seek to
fulfill orders as profitably as possible. They must have intimate
knowledge of the capabilities and current status of the supply chain
assets of their trading partners to profitably service their customers.
- Market exchanges are typically businesses that have a web presence and
offer direct materials procurement services to buyers and sellers using
their exchange. Targeted market exchanges offer services for coordination
of complex orders, sourcing of materials for lowest total delivered costs
and/or have sellers that seek to sell excess capacity.
As of June 30, 2000, we had over 100 customers, operating in vertical
markets such as automotive and aerospace, electronics and electrical,
fabrication and assembly, printing and packaging, industrial and general
business industries. The following chart highlights representative customers in
these industries:
<TABLE>
<CAPTION>
AUTOMOTIVE/AEROSPACE ELECTRONICS/ELECTRICAL FABRICATION/ASSEMBLY
-------------------- ---------------------- --------------------
<S> <C> <C>
The B.F. Goodrich Company Pioneer Electronic Corp. Eaton Corporation
Ford Motor Company Ryobi North America, Inc. Herman Miller, Inc.'s SQA
Reynolds Metals Company STMicroelectronics N.V. Division
Sagem SA State Industries, Inc. Ingersoll-Rand Company
Tenneco Automotive Inc. Irwin Seating Company
Sauder Woodworking Co., Inc.
<CAPTION>
PRINTING/PACKAGING INDUSTRIAL GENERAL BUSINESS
------------------ ---------- ----------------
<S> <C> <C>
CCL Custom Manufacturing, Inc. Commonwealth Industries, Inc. AmBev
Chesapeake Corporation Pfaudler, Inc. Cara Operations Limited
Crane Plastics Company Wolverine Tube, Inc. Kellogg Company
Graphic Packaging Corporation Nordstrom.com
Titleist and Footjoy Worldwide Sara Lee Corporation
United Parcel Service, Inc.
</TABLE>
We have historically derived a significant portion of our revenues from
relatively few clients. In the nine months ended March 31, 2000, Graphic
Packaging Corporation accounted for 13% of our total revenues and Sauder
Woodworking Co., Inc. accounted for 11% of our total revenues. In fiscal 1999,
Moore Corporation, Limited accounted for 20% of our total revenues. In fiscal
1998, Moore Corporation, Limited accounted for 17% of our total revenues. In
fiscal 1997, Viracon accounted for 14% of our total revenues, Coltec Industries,
Inc. accounted for 13% of our total revenues and Polygram Manufacturing and
Distribution Centers, Inc. accounted for 12% of our total revenues.
CASE STUDIES
The following case studies illustrate the benefits that our solutions have
provided to sample customers.
HERMAN MILLER'S SQA DIVISION
Company Background. Herman Miller's SQA Division manufactures and
distributes custom office furniture. The typical delivery time in the custom
office furniture industry is four to eight weeks, with little
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<PAGE> 51
on-time reliability. Herman Miller's SQA Division had already achieved delivery
times of as little as two weeks using streamlined methods and the deployment of
a PC-based order configuration system.
Issue. Herman Miller's SQA Division receives an average of 300 customer
orders daily, which results in more than 3,000 work orders for production.
Manufacturing companies typically perform work sequentially, with a product
moving from department to department until it is completed. This method of
manufacturing wastes time as products are moved from station to station with
idle time at each station. Herman Miller realized that to reduce lead times
significantly, it needed to coordinate assembly and reduce product idle time.
SynQuest Solution. To accomplish these tasks, Herman Miller's SQA Division
selected our Virtual Production Engine in 1996 to enable it to keep pace with
growing demand for its products and to create a paperless, real-time environment
for improved manufacturing flexibility. Herman Miller's SQA Division implemented
our software at its Holland, Michigan facility within 28 weeks. A second
implementation was deployed in Rocklin, California eight weeks later. In 1999,
Herman Miller's SQA Division used the Internet to integrate its suppliers with
Virtual Production Engine to speed delivery of materials to its production
facilities.
Results. During the first 18-month period of live use, Herman Miller's SQA
Division gained the following performance improvements:
- On-time shipment reliability increased from 87% to over 99%;
- Average order cycle time dropped from 16 days to five days;
- Herman Miller's SQA Division ranked first in the furniture industry for
quick and complete delivery, delivery when promised and service,
according to an independent survey referenced by Supply Chain Management
Review, an industry publication;
- Annual inventory turns increased by approximately 250% to over 50; and
- Herman Miller's SQA Division reduced its direct materials lead-time to
four hours prior to use in production.
CHESAPEAKE DISPLAY AND PACKAGING COMPANY
Company Background. Chesapeake Display and Packaging Company, or CD&P, is
a provider of global merchandising services and a wholly owned subsidiary of
Chesapeake Corporation, a specialty packaging and merchandising service
provider. The company converts paperboard and other materials into displays,
produces packaging products and offers merchandising services such as
fulfillment. Since 1990, CD&P has experienced double-digit growth annually while
adding services and facilities. The company's network of sales, design,
manufacturing, custom packaging and fulfillment facilities is strategically
positioned across the United States, Canada and Western Europe to ensure
responsiveness and efficiency.
Issue. CD&P's retail customers began to dictate not only what the company
should deliver, but when and how it should make these deliveries, CD&P began the
search for a supply chain software vendor to help reduce inventory, accommodate
last-minute customer changes and maintain its competitive advantage.
SynQuest Solution. To accomplish these tasks, CD&P purchased our Virtual
Production Engine, Tactical Planning Engine and Dynamic Sourcing Engine in early
1998 for three manufacturing facilities, two sub-assembly facilities and six
fulfillment facilities.
Results. Using our software, CD&P has reduced cycle times, inventory and
work-in-process, and is linking to its suppliers via the Internet. For example,
the company builds ahead of time some of the displays and individualizes them
after the customer order is received. It does this at multiple sites in
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<PAGE> 52
multiple states and regions. Its previous system could not provide inventory
status on work-in-process, making inventory difficult to manage. Prior to
implementing our solution, the company's inventory covered one million square
feet. By reducing work in process and finished goods inventory, the company has
been able to close four warehouses, resulting in a substantial reduction of
overhead.
Additional improvements include:
- CD&P cut manufacturing cycle time by up to 50%; and
- CD&P improved scheduling of work centers and reduced overrun quantities
by up to 50%.
SALES AND MARKETING
As of May 31, 2000, our sales and marketing organization consisted of 67
individuals, of whom 54 were based in North America and 13 were based in Europe.
Our 25 direct sales representatives are supported by a team of 18 pre-sales
consultants for business, product and technical expertise throughout the sales
cycle. The majority of our direct sales force is organized by geographic areas.
Consistent with our strategy to focus on vertical markets, we intend to continue
to assign some of our sales representatives to specific industries. Our North
American sales offices are located in Atlanta and Chicago. Our European sales
and marketing office is headquartered in London, with an additional sales office
in Paris.
We will continue our initiatives to sell and support our software through
resellers and distributors for specified product types and in multiple
geographic regions. We have established distributor relationships in Latin
America and Eastern Europe.
Our marketing efforts focus on two categories of lead generation programs:
programs that are jointly planned, funded and executed with our strategic
partners; and programs that are designed and implemented by our in-house
marketing team. An advertising agency and a public relations firm assist our
internal team.
Both types of lead generation programs are used to target audiences
throughout North America and Europe. Specific tactics used in these marketing
initiatives include public relations, advertising, trade shows, alliance
programs, seminars, direct mail and telemarketing. In addition, an internal and
external website, product collateral, case studies, white papers and
presentations are available to support the marketing programs.
STRATEGIC RELATIONSHIPS
We are building and maintaining significant working relationships with
complementary vendors. We believe this will contribute considerably to our
success through lead generation and improving our implementation capabilities.
We are an IBM Business Partner, working with multiple organizations within
IBM. We have marketing relationships with the Global Midmarket Business unit and
the AS/400 Server Group, through jointly funded lead generation and awareness
programs. The IBM Manufacturing Industry Solutions Unit develops, installs and
supports a SynQuest/J.D. Edwards World integration product. IBM Global Services
has built an implementation and consulting practice for our products with more
than ten trained and deployed IBM consultants. We are also in the process of
developing additional relationships with other IBM organizations.
We have entered into formal strategic partnership agreements with leading
systems integrators and consulting companies including Deloitte & Touche
Management Solutions and BORN Information Services. These companies complement
our expertise in integrating and implementing SynQuest One2One e-business
solutions. We expect that these companies may become implementation partners in
the future.
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We have been a business partner of J.D. Edwards for over three years and,
as of September 1999, we were named its preferred advanced planning and
scheduling partner for discrete manufacturing. We have also created a joint
offering with IBM and J.D. Edwards for the industrial fabrication and assembly
market called Supply Chain Advantage. With J.D. Edwards, we have developed
standard integration for its OneWorld solution and our SynQuest One2One
solutions.
We have relationships with several enterprise resource planning vendors and
are a certified SAP Complementary Software Partner and a member of the Oracle
Partner Program. Our solution has been certified for integration compliance with
SAP R/3, an enterprise resource planning system. Participation in the Oracle
Partner Program entitles us to benefits that reach beyond basic development
capabilities and product support. In addition to the technical aspect of our
relationship, we have access to a large number of Oracle resources such as
discounted education, training and sales and marketing tools. We are an
authorized reseller of Oracle Application Specific Database products, which
further enhances our ability to sell a complete solution to our customers.
As we increasingly work with web-based companies and market exchanges, we
seek to partner with companies that can strengthen our market position. We have
joint marketing relationships with InterWorld, a web-based sell side solution,
BEA Systems, an Internet infrastructure provider, Arborex, a packaging materials
market exchange, and WebPLAN, a high-tech electronics supply chain solution
vendor.
COMPETITION
The e-business supply chain management solutions market is relatively new
and growing rapidly. We generally differentiate ourselves from our competitors
through our explicit ability to optimize financial performance, our real-time
management and ease of deployment.
We compete primarily with supply chain management solutions vendors,
including i2 and Manugistics, both of which are significantly larger than us. i2
provides customers with software solutions for supply chain management, customer
management and product life cycle management. i2 competes across a broad range
of vertical markets. Manugistics offers a wide range of supply chain management
products targeted towards consumer products companies.
A large number of traditional software vendors, including Demantra,
Descartes and Manhattan Associates, provide specialized applications that
generally fall into the broad category of supply chain management. This includes
vendors of full function demand forecasting, transportation planning and
management, warehouse management and other logistics related applications.
Others provide finite capacity scheduling, geared either to process or discrete
manufacturers. Some of these solutions, such as warehouse management, are
complementary and we have plans to expand our partnerships in those areas. We
believe that most customers prefer to have a broader set of applications that
can solve an entire business process.
A number of web-based solution vendors, including Commerce One and Ariba,
have entered the supply chain management market. We believe that these vendors
fall into three categories, competitors, potential partners and prospects.
Web-based competitors face the same issue as enterprise resource planning
vendors, acquiring domain expertise. We believe that many of the emerging
web-based supply chain management solutions represent strong opportunities for
partnerships that can provide more value to our customers and prospects. These
same vendors are also potential users of our solutions to expand their
capabilities. Further, some companies have relied on in-house development to
satisfy their needs for supply chain management solutions. Typically, these
companies have focused on developing specialized supply chain solutions, not a
broad suite of capabilities. We believe that the number of companies pursuing
in-house development of supply chain management solutions will become
insignificant, as companies seek to deploy a broad range of supply chain
capabilities and do not have the required domain expertise.
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In addition, most of the major enterprise resource planning vendors offer,
or have announced plans to offer, advanced planning and supply chain
functionality into their solutions. SAP, PeopleSoft, Baan, Oracle and J.D.
Edwards rely on supply chain management software to enhance their product
offerings. Their supply chain planning products are designed for integration
with their transaction applications and not for the heterogeneous application
environments of our prospective customers. These companies have very large
installed customer bases and they have substantially greater financial,
technical and marketing resources than we do.
RESEARCH AND DEVELOPMENT
As of May 31, 2000, we employed 78 individuals in our research and
development groups located in Clifton Park, New York and Arlington, Virginia
including a core group of operations research specialists focused on new and
better technologies for solving supply chain problems. As of May 31, 2000, we
had 31 employees with post-graduate or advanced degrees in operations research
or related fields. In addition, we use outside programming resources to
supplement our base staff from time to time. We spent $10.2 million on research
and development expenses in fiscal year 1999, $9.4 million in fiscal year 1998
and $6.3 million in fiscal year 1997.
Through a combination of investments in internal development, outsourcing
and alliances, we have significantly expanded the scope of our products over the
past 18 months. Due to the evolving nature of the market, we intend to continue
to maintain a high level of investment in new product development and
enhancements, either internally or through external sources. Periodically, we
undertake advanced development projects, which may be partially or wholly funded
by customers that wish to deploy technology that sets them apart from their
competition. These projects have led to breakthroughs that emerge as new
standard products for the broader market, such as the Inbound Planning Engine,
which we developed in conjunction with Ford Motor Company.
We adhere to industry standard methods whenever possible. Our products are
built to support standards such as J2EE and Microsoft COM. We use industry
standard languages such as Java, Microsoft Visual C++ and Visual Basic. We rely
on component and object oriented engineering methodologies to develop our
products.
We are an innovative technology provider in several areas within the supply
chain management market, including product architecture and communications. We
use a multi-tier, component based architecture for scalability and ease of
deployment. Our architecture separates data, business logic and
presentation/communication services to make distribution of the systems across
multiple entities easier. All communications with the business logic is
conducted through applications programming interfaces. These interfaces allow us
to offer our customers the ability to use one solution to interact through
browsers and Microsoft Windows-based interfaces, as well as connect to legacy
applications and web-based business-to-business e-commerce solutions. Along with
the industry standards, we use proprietary technology where necessary to provide
added value. For example, we have developed our own code generation technology
that allows us to rapidly build a large number of application programming
interfaces simultaneously supporting XML and C-based communications.
Our products operate on IBM RS/6000 AIX, IBM AS/400, HP-UX, Sun Solaris
and/or Microsoft NT servers and browsers or networked PC clients with Microsoft
Windows 95(R) and NT(R), although not every product is yet available for all
platforms. The Oracle Corporation and the IBM Corporation provide relational
database support.
INTELLECTUAL PROPERTY
Our success and ability to compete are dependent upon continuous
improvements of our existing product portfolio and the continued development of
new solutions. To protect our technology, we rely primarily on copyright, trade
secret and trademark laws. In the ordinary course of business, we enter into
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confidentiality or license agreements with our employees, consultants and
corporate partners that control access to and distribution of our software,
documentation and other proprietary information. In addition, we license our
products to end users in object code, machine-readable format and our license
agreements generally allow the use of our products solely by the customer for
internal purposes without the right to sublicense or transfer the products.
EMPLOYEES
As of May 31, 2000, we had 203 full-time employees, of whom 78 were engaged
in research and development, 67 in sales and marketing, 44 in service and
support and 14 in finance, administration and operations. None of our employees
are represented by a labor union. As of May 31, 2000, we had 180 employees
located in North America and 23 employees located in Europe. We believe that our
employee relations are satisfactory.
FACILITIES
We lease 18,452 square feet of office space for our executive offices in
Norcross, Georgia under a lease that expires in January 2006. We also lease
office space in Clifton Park, New York; Chicago, Illinois; York, Pennsylvania;
Arlington, Virginia; Paris, France; London, England; and Gorinchem, Netherlands.
LEGAL PROCEEDINGS
We currently are not a party to any litigation that we believe could have a
material adverse effect on us or our business.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table provides information regarding our executive officers
and directors as of June 30, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Joseph Trino............................... 51 Chief Executive Officer and Director
Timothy Harvey............................. 44 President and Chief Operating Officer
Paul Bender................................ 64 President, Bender Consulting Division and
Director
John Bartels............................... 55 Executive Vice President, Finance and
Administration
Christopher Jones.......................... 41 Executive Vice President, Corporate
Development and Marketing
Mark Simcoe................................ 43 Chief Financial Officer and Treasurer
Fred Brown................................. 47 Senior Vice President, Field Services
Henry Kressel.............................. 66 Director
Joseph Landy............................... 39 Director
Edward Scott, Jr........................... 62 Director
</TABLE>
Joseph Trino has been our Chief Executive Officer since July 1996 and a
director since May 1994. He was our President from May 1994 to December 1999.
From April 1992 to December 1993, Mr. Trino was President of Kaseworks, Inc. an
Atlanta-based provider of application development tools. From January 1980 to
April 1992, he was employed at Dun & Bradstreet Software Inc. From December 1988
to April 1992, Mr. Trino was President of Dun & Bradstreet Software's
Manufacturing Systems Business Unit. Mr. Trino received a B.S. in Finance and
Administration from Syracuse University.
Timothy Harvey has been our Chief Operating Officer since July 1998 and our
President since December 1999. From July 1996 to June 1998, he served as our
Executive Vice President, Field Operations. From March 1988 to June 1996, Mr.
Harvey was Vice President of worldwide field operations at Datalogix
International, an enterprise resource planning vendor. From November 1982 to
March 1988, Mr. Harvey held various positions at Management Science America,
Inc., an enterprise applications provider in Atlanta, Georgia, later acquired by
Dun & Bradstreet Software. Mr. Harvey also served for four years as an officer
in the United States Marine Corps. Mr. Harvey received a B.S. in Business
Administration from the University of Florida.
Paul Bender has been President of Bender Consulting, a consulting division
of our company, since June 1997 and a director since March 1998. From 1982 to
June 1997, Dr. Bender was President of Bender Management, which was the
predecessor to Bender Consulting. He is a founding member of the Council of
Logistics Management and the Institute of Management Consultants. Dr. Bender
received a B.A. and an M.S. in Electrical Engineering and a Ph.D. in Mathematics
from the Swiss Institute of Technology.
John Bartels has been our Executive Vice President, Finance and
Administration since November 1997. He is responsible for our worldwide
financial operations, including investor relations and human resources. From
November 1995 to October 1997, Mr. Bartels was Senior Vice President and Chief
Financial Officer of TSW International, Inc., an enterprise asset management
software company that has since been acquired by Indus International, Inc. From
1993 until October 1995, he was Chief Financial Officer of Boral, Inc., a
manufacturer of construction materials. From March 1974 to June 1991, Mr.
Bartels was employed at Fuqua Industries, Inc., a diversified holding company,
as its Senior Vice President
51
<PAGE> 57
and Chief Financial Officer. He is a certified public accountant. Mr. Bartels
received a B.S. in Accounting and an M.B.A. from Florida State University.
Christopher Jones has been our Executive Vice President, Marketing and
Corporate Development since January 2000. From September 1998 to January 2000,
he was our Senior Vice President, Marketing and Corporate Development. From May
1994 to September 1998, Mr. Jones was Vice President of enterprise applications,
manufacturing and logistics research for Gartner Group, Inc., a provider of
information technology advisory services. From July 1981 to May 1994, he was
employed by Kraft Foods in a variety of information technology and management
roles. Mr. Jones received a B.S. in Electrical Engineering from Lehigh
University.
Mark Simcoe has been our Chief Financial Officer and Treasurer since July
1994. From April 1994 to June 1994, Mr. Simcoe was a consultant to us in the
role of acting chief financial officer. From May 1992 to April 1994, Mr. Simcoe
served as Executive Vice President and Chief Financial Officer of Kaseworks,
Inc. He is a certified public accountant. Mr. Simcoe received a B.S. in
Accounting, an M.B.A. and an M.S. in Tax Accounting from the University of
Florida.
Fred Brown has been our Senior Vice President, Field Services since January
2000. From November 1996 to December 1999, he was our Vice President, Field
Services. From December 1991 to September 1996, Mr. Brown was Vice President,
Pre-Sales at Datalogix. Mr. Brown attended North Carolina State University.
Henry Kressel has served on our board of directors since May 1994. Dr.
Kressel has been employed by E.M. Warburg, Pincus & Co., LLC, an investment
firm, since 1983 and has been a Managing Director of E.M. Warburg, Pincus since
1985. Prior to 1983, Dr. Kressel was Staff Vice President for research and
development in solid state technology at RCA Corporation. Dr. Kressel also
serves as a director of Alysis Technologies Inc., a software development
company; EarthWeb, Inc., a business portal for the information technology
industry; Nova Information Systems, Inc., a credit card processing company; and
several privately-held companies. Dr. Kressel received a B.A. from Yeshiva
University, an M.S. in Applied Physics from Harvard University, a Ph.D. in
Engineering from the University of Pennsylvania and an M.B.A. from The Wharton
School of Business at the University of Pennsylvania.
Joseph Landy has served on our board of directors since August 1994. Since
1985, Mr. Landy has been employed by E.M. Warburg, Pincus and has been a
Managing Director of E.M. Warburg, Pincus since 1994. Mr. Landy currently runs
the Internet Group at E.M. Warburg, Pincus, and he has focused primarily on
investments in the information technology industry throughout his tenure at
Warburg, Pincus. He also serves as a director of Indus International, The Cobalt
Group and several privately-held companies. He also serves on the board of The
New York Venture Capital Forum. Mr. Landy received a B.S. in Economics from The
Wharton School of Business at the University of Pennsylvania and an M.B.A. from
the Stern School of Business of New York University.
Edward Scott, Jr. has served on our board of directors since February 2000.
Mr. Scott founded BEA Systems, Inc., an e-commerce transactions company, with
two other individuals in early 1995. Mr. Scott served as Executive Vice
President for BEA's Worldwide Field Operations from April 1995 to September
1999, where he supervised BEA's sales, marketing and services operations. From
September 1990 to April 1995, Mr. Scott was Executive Vice President in charge
of Worldwide Sales and Marketing at Pyramid Technology. Mr. Scott was a founder
of Sun Microsystems' federal division, Sun Federal. Mr. Scott was an executive
in the U.S. Federal Government for 17 years. In his last two government
assignments, he served as Deputy Assistant Attorney General in the U.S.
Department of Justice and as Assistant Secretary for Administration in the U.S.
Department of Transportation. Mr. Scott has a B.A. in Communication Arts and an
M.A. in Political Science from Michigan State University, and a B.A. in
Philosophy, Politics and Economics from Oxford University in England.
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<PAGE> 58
BOARD OF DIRECTORS
We currently have five directors, and we expect to add at least one new
independent director following completion of this offering. Our bylaws provide
that the authorized number of directors may be changed by an amendment to the
bylaws adopted by our board of directors or by the shareholders. In addition,
our articles of incorporation and our bylaws provide that, in general, vacancies
on the board may be filled by a majority of directors in office, although less
than a quorum.
COMMITTEES OF THE BOARD
Following completion of this offering, we intend to establish an audit
committee. The audit committee will review, act on and report to our board of
directors on various auditing and accounting matters, including the selection of
our independent accountants, the scope of our annual audits, fees to be paid to
the independent accountants, the performance of our independent accountants and
our accounting practices.
Following completion of this offering, we intend to establish a
compensation committee. Our compensation committee will establish salaries,
incentives and other forms of compensation for officers and other employees.
This committee will also administer our incentive compensation and benefit
plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to the completion of this offering, all compensation matters were
managed by the full board of directors, including members of management serving
on our board.
Two members of our board of directors are officers and employees of our
company. No interlocking relationship exists between our board of directors and
the board of directors or compensation committee of any other company, nor has
any interlocking relationship existed in the past.
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for their services as
directors but are reimbursed for their reasonable and necessary expenses for
attending board and board committee meetings.
Members of the board who are not our employees, or employees of any parent,
subsidiary or affiliate of our company, will be eligible to participate in our
stock option plan unless they are representatives of venture capital funds or
corporate investors. The option grants under the plan will be automatic and
nondiscretionary and the exercise price of the options will be the fair market
value of our common stock on the date of grant.
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<PAGE> 59
EXECUTIVE COMPENSATION AND OTHER INFORMATION
The following table sets forth the compensation that we paid our chief
executive officer and our four other most highly compensated executive officers
for services rendered during fiscal 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS/SARS
--------------------------- --------- -------- ------------
<S> <C> <C> <C>
Joseph Trino.......................................... $220,000 $ -- 129,000
Chief Executive Officer
Timothy Harvey........................................ 185,000 50,000 102,000
President and Chief Operating Officer
Paul Bender........................................... 150,000 -- --
President, Bender Consulting Division
John Bartels.......................................... 200,000 35,000 17,000
Executive Vice President, Finance and Administration
Fred Brown............................................ 125,000 20,000 68,000
Senior Vice President, Field Services
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the stock option grants
made to our chief executive officer and our four other most highly compensated
executive officers during fiscal 1999:
<TABLE>
<CAPTION>
NUMBER OF POTENTIAL REALIZABLE
SHARES OF % OF VALUE AT ASSUMED
COMMON TOTAL ANNUAL RATES OF STOCK
STOCK OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM
OPTIONS EMPLOYEES EXERCISE EXPIRATION -----------------------
NAME GRANTED IN 1999 PRICE DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Joseph Trino............... 129,000 11.9% $3.00 08/24/08 $243,382 $616,778
Timothy Harvey............. 102,000 9.4 3.00 08/24/08 192,442 487,685
Paul Bender................ -- -- -- -- -- --
John Bartels............... 17,000 1.6 3.00 08/24/08 32,074 81,281
Fred Brown................. 68,000 6.3 3.00 08/24/08 128,295 325,123
</TABLE>
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<PAGE> 60
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUE TABLE
The following table shows information concerning stock option values as of
the fiscal year ended June 30, 1999 for each of our chief executive officer and
our four other most highly compensated executive officers. The value of
unexercised in-the-money options is determined by subtracting the exercise price
from the fair market value of the common stock on June 30, 1999, which is
assumed to be $7.50, the assumed initial offering price, for the purposes of
this table only, and multiplying the result by the number of shares underlying
the options. None of our executive officers exercised any stock options in
fiscal 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Joseph Trino............................ 658,527 447,930 $3,608,885 $2,108,970
Timothy Harvey.......................... 117,323 211,662 625,994 1,014,247
Paul Bender............................. -- -- -- --
John Bartels............................ 89,000 195,000 422,750 922,000
Fred Brown.............................. 31,667 106,333 166,250 496,000
</TABLE>
EMPLOYMENT AGREEMENTS
On November 1, 1997, we entered into employment agreements with Messrs.
Trino and Bartels. The agreements are terminable at will by either party and
contain two-year confidentiality provisions, a one-year non-competition
provision and a one-year non-solicitation provision. In the event of Mr. Trino's
termination without cause, he is entitled to a lump-sum severance payment equal
to 100% of his then-current base salary. In the event of Mr. Bartels'
termination without cause, he is entitled to a lump-sum severance payment equal
to the greater of $220,000 or 100% of his then current base salary.
On August 15, 1996, we entered into an employment agreement with Mr.
Harvey. The agreement had an initial term ending on August 15, 1999, but it is
automatically extended for successive one-year periods unless either party gives
90 days prior written notice. The agreement is terminable by us for cause or by
Mr. Harvey if there is a material change in his position or duties. The
agreement contains an indefinite confidentiality provision, a two-year
non-competition provision and a two-year non-interference provision. In the
event of Mr. Harvey's termination without cause, he is entitled to a severance
payment of up to $120,000, payable in increments in accordance with our ordinary
payroll practices, until the earlier of the first anniversary of the termination
date or the date that Mr. Harvey commences other employment. If Mr. Harvey's
base salary in his new position is less than $120,000, we must pay the
difference between $120,000 and his base salary until the first anniversary of
the termination date.
On June 16, 1997, we entered into an employment agreement with Dr. Bender.
The agreement terminates on June 30, 2000 and is automatically extended for
successive one-year periods until either party gives at least 90 days written
notice before the expiration of the then-current term. The agreement is
terminable by us for cause or by Dr. Bender if there is a material change in his
position or duties. The agreement contains a two-year confidentiality provision
and a one-year non-competition provision. In the event of Dr. Bender's
termination without cause, he is entitled to a lump sum severance payment equal
to 200% of his then-current base salary. We also have the discretion to pay Dr.
Bender an annual amount equal to 200% of his then-current salary for a period of
up to two years following the first anniversary of the date of termination. The
annual amount is payable in equal monthly installments. During the period that
Dr. Bender receives this annual amount, he is prohibited from engaging in any
activity associated with computer software, manufacturing or supply chain
management. In addition, the non-competition provisions of Dr. Bender's
employment agreement are automatically extended to cover the entire period
during which this annual amount is paid.
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<PAGE> 61
On September 1, 1998, we entered into an employment agreement with Mr.
Jones. The agreement is terminable by either party at will and contains a
two-year confidentiality provision, a one-year non-solicitation provision and a
one-year non-competition provision. In the event of Mr. Jones' termination
without cause, he is entitled to a severance payment equal to the greater of
$75,000 or 50% of his then-current base salary.
On November 1, 1999, we entered into a severance agreement with Mr. Simcoe.
In the event of Mr. Simcoe's termination without cause, he is entitled to a
severance payment equal to six months of his then-current base salary. If
requested, Mr. Simcoe will execute a standard form of release then being used by
us for other terminated employees.
STOCK OPTION PLANS
Our 1987 and 1997 stock option plans provide that we can grant either
incentive stock options or non-qualified options to purchase shares of our
common stock in order to provide incentives to our employees and directors. Our
1987 plan has expired, and under our 1997 plan we currently are authorized to
issue up to 3,800,000 options to purchase our common stock. The 1997 plan allows
participants to purchase our common stock at prices set by the board of
directors, but in the case of incentive stock options, the price is not less
than the fair market value at the date the option is granted or, if the
incentive stock option is granted to an eligible key employee who is a 10%
shareholder, not less than 110% of the fair market value at the date the option
is granted. Outstanding options typically vest one-third each year commencing
one year from the date of grant. Unexercised options typically expire 10 years
after the date of grant. As of July 31, 2000, there were outstanding options to
purchase 4,345,128 shares of common stock pursuant to the 1987 and 1997 plans.
In addition, all options granted under the 1987 and 1997 plans vest upon a
change of control, which includes issuance of our capital stock in any public
offering that causes existing shareholders to own less than 51% of our total
issued and outstanding capital stock.
401(K) PLAN
We have a 401(k) profit sharing plan for the benefit of eligible employees
and their beneficiaries. Substantially all employees are eligible to participate
in the plan. Our contributions to the plan are discretionary. We made no
contributions to the plan during 1997, 1998, 1999, or the nine months ended
March 31, 2000.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
Our articles of incorporation limit the liability of directors to the
fullest extent permitted by Georgia law. In addition, our articles of
incorporation and bylaws provide that we will indemnify our directors and
officers to the fullest extent permitted by Georgia law.
These provisions may have the effect of preventing changes in the
management. Prior to the completion of this offering, we intend to enter into
indemnification agreements with each of our current directors and officers to
give them additional contractual assurances regarding the scope of the
indemnification set forth in our articles of incorporation and bylaws and to
provide additional procedural protections. At present, there is no pending
litigation or proceeding involving any of our directors, officers or employees
for which indemnification from us is sought. We are not aware of any threatened
litigation against our directors, officers or employees that may result in
claims for indemnification from us.
We currently have liability insurance for our directors and officers, and
we intend to extend that coverage for public securities matters.
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<PAGE> 62
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of July 31, 2000 by:
- each person known to be a beneficial owner of more than five percent of
our outstanding common stock;
- each director or director nominee;
- our five most highly compensated executive officers; and
- all of our directors and executive officers as a group.
Unless otherwise indicated in the footnotes to this table and subject to
community property laws where applicable, we believe that each of the
shareholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned. Unless otherwise
indicated, the address for each person set forth in the table is c/o SynQuest,
Inc., 3500 Parkway Lane, Suite 555, Norcross, Georgia 30092.
The number of shares beneficially owned by each person assumes (a)
conversion of all of our outstanding redeemable preferred stock, plus accrued
and unpaid dividends as of July 31, 2000, into an aggregate of 14,244,805 shares
of our common stock, assuming an initial public offering price of $7.50 per
share, less underwriting discounts and commissions, and (b) includes shares that
may be acquired by that person through the exercise of stock options on or prior
to September 29, 2000. In calculating the percentage owned by each person, we
assumed that all shares issuable upon the exercise of options on or prior to
September 29, 2000 are issued to that person. The total number of shares
outstanding used in calculating the percentage owned assumes no exercise of
options held by other persons. Further, the percentages are based on an
aggregate of 1,762,904 shares of common stock and 12,995,356 shares of preferred
stock issued and outstanding as of July 31, 2000, and they assume the issuance
of 5,000,000 shares of common stock in this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
OPTIONS BENEFICIALLY OWNED
EXERCISABLE CONVERTIBLE -------------------
COMMON WITHIN 60 PREFERRED PRIOR TO AFTER
NAME OF BENEFICIAL OWNER STOCK DAYS STOCK TOTAL OFFERING OFFERING
------------------------ ------- ----------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Executive Officers and Directors:
Joseph Trino(1)...................... -- 911,124 -- 911,124 5.8% 3.2%
Timothy Harvey....................... 20,000 260,985 -- 280,985 1.9 1.0
Paul Bender.......................... -- -- 750,000 750,000 5.1 2.7
John Bartels(2)...................... 177,560 189,333 -- 366,893 2.4 1.3
Fred Brown........................... -- 117,000 -- 117,000 * *
Henry Kressel(3)(4).................. -- -- 7,414,438 13,202,543 64.3 54.0
Joseph Landy(3)(4)................... -- -- 7,414,438 13,202,543 64.3 54.0
Edward Scott, Jr..................... 112,500 -- -- 112,500 * *
All executive officers and directors
as a group (10 persons)(5)......... 310,060 1,631,776 8,164,438 15,894,379 71.7 60.2
Five Percent Shareholder:
Warburg, Pincus Investors, L.P.(3)... -- -- 7,414,438 13,202,543 64.3 54.0
</TABLE>
---------------
* Less than 1%.
(1) Mr. Trino has pledged the shares issuable upon the exercise of the first
300,000 of his options to Warburg, Pincus Investors pursuant to a stock
pledge agreement dated June 19, 1998 as collateral for a promissory note
dated June 19, 1998 in the amount of $138,750 held by Warburg, Pincus
Investors.
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<PAGE> 63
(2) Mr. Bartels has pledged the shares of common stock to Warburg, Pincus
Investors as collateral for a promissory note dated November 5, 1997 in the
amount of $268,290 held by Warburg, Pincus Investors.
(3) The stockholder is Warburg, Pincus Investors, L.P. Warburg, Pincus & Co. is
the sole general partner of Warburg, Pincus Investors. Warburg, Pincus
Investors is managed by E.M. Warburg, Pincus & Co., LLC. Lionel I. Pincus
is the managing partner of Warburg, Pincus & Co. and the managing member of
E.M. Warburg, Pincus & Co., LLC and may be deemed to control both entities.
Before the offering percentage beneficially owned includes 5,788,105 shares
of common stock issuable upon the exercise of outstanding warrants. After
the offering percentage beneficially owned includes (x) an aggregate of
3,018,507 shares issuable upon conversion of our outstanding subordinated
promissory notes, including accrued interest on the notes as of July 31,
2000, assuming an initial public offering price of $7.50 per share, less
underwriting discounts and commissions, (y) accrued and unpaid dividends as
of July 31, 2000, payable in shares of Series H preferred stock that will
automatically convert to 881,220 shares of common stock, assuming an
initial public offering price of $7.50 per share, less underwriting
discounts and commissions and (z) 3,589,563 shares issuable upon the
cashless exercise of the warrants, assuming an initial public offering
price of $7.50 per share, less underwriting discounts and commissions. The
address of the Warburg, Pincus entities is 466 Lexington Avenue, New York,
New York 10017.
(4) Messrs. Landy and Kressel are general partners of Warburg, Pincus & Co. and
managing directors and members of E.M. Warburg, Pincus & Co., LLC. All
shares indicated as owned by Messrs. Landy and Kressel are included because
of their affiliation with the Warburg, Pincus entities. Messrs. Landy and
Kressel disclaim beneficial ownership of all shares owned by the Warburg,
Pincus entities.
(5) Before the offering percentage beneficially owned includes 5,788,105 shares
of common stock issuable upon the exercise of outstanding warrants. After
the offering percentage beneficially owned includes (x) an aggregate of
3,018,507 shares issuable upon conversion of our outstanding subordinated
promissory notes, including accrued interest on the notes as of July 31,
2000, assuming an initial public offering price of $7.50 per share, less
underwriting discounts and commissions, (y) accrued and unpaid dividends as
of July 31, 2000, payable in shares of Series H preferred stock that will
automatically convert to 881,220 shares of common stock, assuming an
initial public offering price of $7.50 per share, less underwriting
discounts and commissions and (z) 3,589,563 shares issuable upon the
cashless exercise of the warrants, assuming an initial public offering
price of $7.50 per share, less underwriting discounts and commissions.
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<PAGE> 64
RELATED PARTY TRANSACTIONS
Other than compensation agreements and other arrangements, which are
described under the heading "Management," and the transactions described below,
there has not been, nor is there currently proposed, any transaction or series
of similar transactions to which we were or will be a party:
- in which the amount involved exceeded or will exceed $60,000; and
- in which any director, executive officer, holder of more than five
percent of our common stock or any member of their immediate family had
or will have a direct or indirect material interest.
E.M. WARBURG, PINCUS
In May 1994, Warburg, Pincus Investors, L.P., an affiliate of E.M. Warburg,
Pincus, purchased 540,016 shares of Series B preferred stock and 2,376,651
shares of Series C preferred stock from Factory Automation & Computer
Technologies, Inc., our predecessor, for $2.40 per share. The aggregate purchase
price for these shares was $7.0 million. Factory Automation & Computer
Technologies, Inc. used the proceeds from the sale of the shares to purchase all
of its then outstanding convertible Class A preferred stock, warrants to
purchase Series A preferred stock, voting common stock and options to purchase
voting common stock. Following completion of these transactions, Warburg, Pincus
Investors was our sole shareholder.
In 1996, Warburg, Pincus Investors purchased, in three separate
transactions, an aggregate of 3,870,178 shares of Series D preferred stock from
Factory Automation & Computer Technologies, Inc. Of these, 3,070,178 shares were
purchased at a price of $2.28 per share and 800,000 shares were purchased at a
price of $2.50 per share. The aggregate purchase price for these shares was $9.0
million.
We issued eight subordinated promissory notes to Warburg, Pincus Investors
from May 1995 to July 1997. The notes have an aggregate principal amount of
$15.0 million and accrued interest at prime plus 2% annually, adjusted
bi-annually from the date of issuance. Interest and principal are payable on
demand.
In connection with the subordinated promissory notes, we issued warrants to
purchase common stock to Warburg, Pincus Investors. The warrants may be
exercised at any time before their expiration dates. Under the terms of the
warrant agreements, the warrant holder is protected from future dilution of our
common stock. The date and amount of each note and the terms of warrants issued
and outstanding related to each note are summarized as follows:
<TABLE>
<CAPTION>
WARRANTS TO EXERCISE
AMOUNT PURCHASE PRICE OF EXPIRATION DATE
DATE OF NOTE OF NOTE COMMON STOCK WARRANTS OF WARRANT
------------ ----------- ------------ -------- ------------------
<S> <C> <C> <C> <C>
May 10, 1995.................... $ 2,000,000 1,301,696 $1.80 May 9, 2005
September 19, 1995.............. 2,000,000 681,213 2.94 September 18, 2005
November 5, 1996................ 1,500,000 545,455 2.75 November 4, 2006
December 9, 1996................ 1,000,000 363,636 2.75 December 9, 2006
February 17, 1997............... 2,500,000 909,091 2.75 February 17, 2007
April 15, 1997.................. 1,500,000 545,455 2.75 April 15, 2007
May 20, 1997.................... 2,000,000 727,273 2.75 May 20, 2007
July 20, 1997................... 2,500,000 714,286 3.50 July 20, 2007
----------- ----------
Outstanding at June 30, 2000.... $15,000,000 5,788,105
=========== ==========
</TABLE>
E.M. Warburg, Pincus has agreed to exercise its 5,788,105 warrants in a
cashless exercise by surrendering to us a number of shares of common stock to
which it would otherwise be entitled upon exercise in lieu of the payment of the
cash exercise price. The shares of common stock surrendered in lieu of the cash
exercise price will be valued at the initial public offering price of our common
stock in this offering, less underwriting discounts and commissions. Assuming an
initial public offering price of $7.50 per share, less underwriting discounts
and commissions, we will issue to E.M. Warburg, Pincus 3,589,563 shares of
common stock.
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<PAGE> 65
In addition, in November 1998 we issued a subordinated promissory note to
Warburg, Pincus Investors in an aggregate principal amount of $5.0 million. On
March 1, 1999, Warburg, Pincus Investors converted the outstanding principal
amount of the note into 805,153 shares of Series G preferred stock.
In April 2000, we received a $2.5 million loan from E.M. Warburg, Pincus.
The loan and all accrued interest were repaid in June 2000.
The aggregate of 7,414,438 shares of redeemable preferred stock owned by
Warburg, Pincus Investors will automatically convert into 7,414,438 shares of
common stock upon completion of this offering. In addition, on May 15, 2000, the
board of directors declared a dividend on the redeemable preferred stock. This
dividend will be paid in approximately 1,250,000 shares of Series H preferred
stock that will automatically convert to common stock upon completion of this
offering, at an assumed initial public offering price of $7.50 per share, less
underwriting discounts and commissions. In connection with this dividend,
Warburg, Pincus Investors will receive 881,220 shares of common stock. In
addition, upon the closing of this offering, we and Warburg, Pincus Investors
have agreed that the aggregate principal amount of $15.0 million in
indebtedness, plus accrued interest as of July 31, 2000, held by Warburg, Pincus
Investors will be converted into an aggregate of 3,018,507 shares of common
stock, at an assumed initial public offering price of $7.50 per share, less
underwriting discounts and commissions. Finally, we have agreed that the
aggregate 5,788,105 warrants held by Warburg, Pincus Investors will be exercised
for an aggregate of 3,589,563 shares of common stock upon the closing of this
offering on a cashless basis valuing the shares of common stock at the assumed
initial public offering price of $7.50 per share, less underwriting discounts
and commissions.
EXECUTIVE OFFICERS AND DIRECTORS
On November 5, 1997, Mr. Bartels purchased from Warburg, Pincus Investors
177,560 shares of Series D preferred stock, which he subsequently converted into
177,560 shares of common stock. As consideration for the shares, Mr. Bartels
issued Warburg, Pincus Investors a promissory note in the aggregate principal
amount of $268,290. The note, which was payable in full on November 5, 1998, has
been extended to November 5, 2001.
In June 1998, Mr. Trino borrowed $138,750 from Warburg, Pincus Investors.
The loan matures on July 1, 2001. As collateral for the loan and pursuant to a
stock pledge agreement dated June 19, 1998, he pledged the shares of common
stock issuable upon the exercise of the first 300,000 of his stock options to
Warburg, Pincus Investors.
In May 2000, we sold 112,500 shares of our common stock to Edward Scott,
Jr., a member of our board of directors, for $900,000.
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<PAGE> 66
DESCRIPTION OF CAPITAL STOCK
Our articles of incorporation authorize common stock and preferred stock as
set forth in the following table:
<TABLE>
<CAPTION>
OUTSTANDING AS OF NUMBER OF
AUTHORIZED JULY 31, 2000 HOLDERS(1)
----------- ----------------- ----------
<S> <C> <C> <C>
Common stock, par value $0.01 per share......... 100,000,000 1,762,904 71
Preferred stock, par value $0.01 per share...... 16,000,000
Designated in series as follows:
Series B preferred stock...................... 540,016 540,016 1
Series C preferred stock...................... 2,376,651 2,376,651 1
Series D preferred stock...................... 4,000,000 3,692,618 1
Series E preferred stock...................... 1,000,000 -- --
Series F preferred stock...................... 750,000 750,000 1
Series G preferred stock...................... 5,636,071 5,636,071 146
----------- -----------
Total preferred stock designated in
series(2)........................... 14,302,738 12,995,356
----------- -----------
Total capital stock................... 116,000,000 14,758,260
=========== ===========
</TABLE>
---------------
(1) Some holders own shares of more than one class of our capital stock.
(2) Prior to completion of this offering, we will designate 1,300,000 shares of
preferred stock as Series H junior convertible preferred stock.
COMMON STOCK
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the shareholders, subject to voting preferences of
any outstanding preferred stock. The holders of our common stock are entitled to
receive cash dividends when and as declared by the board of directors out of
legally available funds, subject to the rights and preferences of any
outstanding preferred stock. In the event of any liquidation, dissolution, or
winding up of our company, after payment to the holders of any outstanding
preferred stock, the holders of common stock will be entitled to receive all
remaining assets available for distribution to shareholders on a pro rata basis.
PREFERRED STOCK
Our board of directors is authorized, subject to limitations prescribed by
Georgia law, to issue preferred stock in one or more series, to establish from
time to time the number of shares to be included in each series, to fix the
rights, preferences and privileges of the shares of each wholly unissued series
and to fix any of its qualifications, limitations or restrictions. The board can
also increase or decrease the number of shares of any series to no fewer than
the number of shares of that series then outstanding, without any further vote
or action by the shareholders. 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 our common stock. The
issuance of preferred stock, while providing flexibility in connection with
possible acquisitions and other corporate purposes, could, among other things,
have the effect of delaying, deferring or preventing a change in control of our
company and may adversely affect the market price of our common stock and the
voting and other rights of the holders of our common stock. All of our
outstanding shares of preferred stock will automatically convert to common stock
upon completion of this offering.
On May 15, 2000, our board of directors declared a dividend of the accrued
and unpaid dividends on our outstanding preferred stock on the terms and
conditions subsequently approved by the board of directors, subject to the
approval of the holders of a majority of the classes or series of outstanding
shares
61
<PAGE> 67
of capital stock entitled to vote with respect to the preferred stock dividend
and the consummation of our initial public offering of common stock by October
31, 2000.
On June 5, 2000, our board of directors resolved to pay the preferred stock
dividend in shares of a newly created Series H junior convertible preferred
stock, par value $0.01 per share. Each holder of our outstanding preferred stock
will be entitled to receive, immediately prior to the completion of this
offering, such number of whole shares of Series H preferred stock as is
determined by dividing (a) the aggregate amount of accrued but unpaid dividends
as of the day immediately prior to the pricing of this offering payable with
respect to each series of preferred stock owned by the holder as of July 21,
2000 by (b) the initial public offering price of our common stock in this
offering, less underwriting discounts and commissions. No scrip or fractional
shares of Series H preferred stock will be paid in connection with the preferred
stock dividend. Instead, each holder of preferred stock will be entitled to
receive an amount of cash equal to the balance of the preferred stock dividend
payable in respect of any fractional shares of preferred stock.
On June 26, 2000, the preferred stock dividend was approved by a majority
of each of the classes entitled to vote with respect to the preferred stock
dividend. The amounts of accrued but unpaid dividends as of July 31, 2000 are as
follows:
- Series B preferred stock: $585,845
- Series C preferred stock: $2,578,347
- Series D preferred stock: $2,633,335
- Series F preferred stock: $450,148
- Series G preferred stock: $2,473,973
Assuming an initial public offering price of $7.50, less underwriting
discounts and commissions, we will issue approximately 1,250,000 shares of
Series H preferred stock. The shares of Series H preferred stock will
automatically convert into the same number of shares of common stock upon the
completion of this offering.
REGISTRATION RIGHTS
The holders of 2,916,667 shares of common stock issuable upon conversion of
our Series B and C preferred stock have waived their registration rights with
respect to the registration of their shares under the Securities Act in
connection with this offering. If we subsequently propose to register any of our
securities under the Securities Act, either for our own account or for the
account of other security holders, the holders of our Series B, C and G
preferred stock, or the common stock into which they are convertible, are
entitled to notice of the registration and are entitled to include their shares
of common stock in that registration statement. Additionally, the holders are
entitled to demand registration rights pursuant to which they may require us to
file a registration statement under the Securities Act at our expense with
respect to their shares of common stock, and we are required to use commercially
reasonable efforts to effect that registration. We are not required to effect
more than two of these demand registrations and these rights do not apply until
six months after completion of this offering. In addition, the holders of those
shares are entitled to demand registration rights pursuant to which they may
require us to file a registration statement under the Securities Act on Form S-3
at our expense with respect to their shares of common stock, and we are required
to use commercially reasonable efforts to effect that registration. We are not
required to effect more than one of these Form S-3 demand registrations in any
12-month period. All of these registration rights are subject to conditions and
limitations, including the right of the underwriters of an offering to limit the
number of shares included in such registration and our right to delay any
registration if we are in possession of material non-public information that we
have a bona fide business purpose for preserving as confidential.
62
<PAGE> 68
The holders of 400,000 shares of common stock issuable upon the exercise of
warrants have piggyback registration rights with respect to their shares. If we
propose to register any of our securities under the Securities Act, either for
our own account or for the account of other security holders, the holders of
these warrants, or the shares of common stock into which they are exercisable,
are entitled to notice of the registration and are entitled to include their
shares of common stock in that registration statement. This registration right
is subject to conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in such
registration and our right to delay any registration if we are in possession of
material non-public information that we have a bona fide business purpose for
preserving as confidential.
ANTI-TAKEOVER PROVISIONS
Our articles of incorporation and bylaws contain a number of provisions
that could have the effect of delaying, preventing or discouraging a change of
control of our company. These include the following provisions:
- our shareholders are generally unable to fill any interim vacancy on our
board of directors;
- our bylaws provide that special meetings may be called at any time by the
board of directors, the chairman of the board of directors, the chief
executive officer, or by one or more shareholders holding shares in the
aggregate entitled to cast 10% or more of the vote of any class of shares
entitled to a vote at the meeting; and
- shareholders must follow specified procedures in order to properly submit
any business before a shareholder meeting.
These provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal and, accordingly, could discourage potential acquisition
proposals and could delay or prevent a change in control. These provisions also
are intended to discourage tactics that may be used in proxy fights but could,
however, dissuade others from making tender offers for our shares. Consequently,
these provisions may also inhibit fluctuations in the market price for our
shares that could result from actual or rumored takeover attempts and may also
discourage changes in our management.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is SunTrust Bank.
NASDAQ NATIONAL MARKET LISTING
Our common stock has been approved for listing on The Nasdaq National
Market under the trading symbol "SYNQ", subject to notice of issuance.
63
<PAGE> 69
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock.
Future sales of substantial amounts of common stock, including shares issued
upon the exercise of outstanding options and warrants in the public market could
adversely affect prevailing market prices. Sales of substantial amounts of our
common stock in the public market after contractual restrictions lapse could
adversely affect the prevailing market price and our ability to raise capital in
the future.
Upon completion of this offering, we will have 27,615,779 outstanding
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants. Of these shares, the
5,000,000 shares of common stock sold in this offering will be freely tradable
without restriction under the Securities Act unless purchased by our
"affiliates." The remaining 22,615,779 shares will become eligible for public
sale as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
SHARES ELIGIBLE
DATE FOR FUTURE SALE COMMENT
---- --------------- -------
<S> <C> <C>
Date of this prospectus....................... 618,321
90 days after the date of this prospectus..... 4,451,617
180 days after the date of this prospectus.... 17,420,841 Lock-up released. These shares may
be sold under Rule 144.
One year after the date of this prospectus.... 125,000
</TABLE>
LOCK-UP AGREEMENTS WITH THE UNDERWRITERS
Each of our executive officers, directors and shareholders that hold one
percent or more of our outstanding shares on a fully diluted basis after the
completion of this offering have signed lock-up agreements under which they
agreed not to sell, transfer or dispose of, directly or indirectly, any shares
of common stock or any securities convertible into or exercisable or
exchangeable for shares of common stock without the prior consent of Bear,
Stearns & Co. Inc. for a period of 180 days after the date of this prospectus.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year would be entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of: (1)
one percent of the number of shares of our common stock then outstanding, which
will equal approximately 276,157 shares immediately after this offering; or (2)
the average weekly trading volume of our common stock on The Nasdaq National
Market during the four calendar weeks preceding the filing of a notice on Form
144. Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k), a person who has not been one of our affiliates at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years is entitled to sell those
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
64
<PAGE> 70
RULE 701
In general, under Rule 701 as currently in effect, any of our employees,
directors, officers, consultants or advisors who purchase common stock from us
in connection with a compensatory stock or option plan or other written
agreement before the date of this prospectus is entitled to sell such shares 90
days after the date of this prospectus in reliance on Rule 144, without having
to comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the public information, volume
limitation or notice filing requirements of Rule 144. However, holders of
options to purchase 1,943,776 shares of common stock that would otherwise be
saleable under Rule 701 are subject to the contractual restrictions described
above which restrict the sale or disposition of such shares for a period of 180
days from the date of this prospectus.
STOCK OPTIONS
Following this offering, we intend to file a registration statement on Form
S-8 under the Securities Act to register shares of common stock which have been
reserved for issuance under our stock option plans. As of July 31, 2000, options
to purchase 4,345,128 shares of our common stock were issued and outstanding.
The registration statement on Form S-8 is expected to be filed
approximately six months after the effective date of this offering. Accordingly,
shares registered under the registration statement on Form S-8 will be available
for sale in the open market immediately after the expiration of any applicable
lock-up agreements, except to the extent the shares remain subject to vesting
provisions and Rule 144 volume limitations applicable to our affiliates.
65
<PAGE> 71
UNDERWRITING
UNDERWRITING AGREEMENT
Subject to the terms and conditions of an underwriting agreement dated
, 2000, each of the underwriters named below, through their
representatives Bear, Stearns & Co. Inc., J.P. Morgan Securities Inc. and Wit
SoundView Corporation, has severally agreed to purchase from us the aggregate
number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- -----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................
J.P. Morgan Securities Inc. ................................
Wit SoundView Corporation...................................
---------
Total............................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters are subject to approval of various legal matters by their counsel
and to various other conditions, including delivery of legal opinions by our
counsel, the delivery of a letter by our independent auditors and the accuracy
of the representations and warranties made by us in the underwriting agreement.
The underwriters are committed to purchase and pay for all of the above shares
of our common stock if any are purchased.
PUBLIC OFFERING PRICE
The underwriters propose to offer the shares of our common stock directly
to the public at the offering price located on the cover page of this prospectus
and at that price less a concession not in excess of $ per share of
common stock to other dealers who are members of the National Association of
Securities Dealers, Inc. The underwriters may allow and those dealers may
reallow concessions not in excess of $ per share of common stock to
certain other dealers. After this offering, the offering price, concessions and
other selling terms may be changed by the underwriters. Our common stock is
offered subject to receipt and acceptance by the underwriters and subject to
other conditions, including the right to reject orders in whole or in part. The
underwriters have informed us that the underwriters do not expect to confirm
sales of common stock to any accounts over which they exercise discretionary
authority.
We have granted a 30-day over-allotment option to the underwriters to
purchase up to an aggregate of 750,000 additional shares of our common stock
exercisable at the offering price less the underwriting discounts and
commissions, each as set forth on the cover page of this prospectus. If the
underwriters exercise this option in whole or in part, then each of the
underwriters will be obligated to purchase additional shares of common stock in
proportion to their respective purchase commitments as shown in the table set
forth above, subject to various conditions.
66
<PAGE> 72
The following table summarizes the per share and total public offering
price of the shares of common stock in this offering, the underwriting
compensation to be paid to the underwriters by us and the proceeds of the
offering, before expenses, to us. The information presented assumes either no
exercise or full exercise by the underwriters of their over-allotment option.
<TABLE>
<CAPTION>
TOTAL
-------------------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
--------- -------------- --------------
<S> <C> <C> <C>
Initial public offering price.....................
Underwriting discounts and commissions payable by
us..............................................
Proceeds, before expenses, to us..................
</TABLE>
The underwriting discount and commission per share is equal to the public
offering price per share of our common stock less the amount paid by the
underwriters to us per share of common stock. We estimate total expenses payable
by us in connection with this offering, other than the underwriting discounts
and commissions referred to above, will be approximately $990,000.
INDEMNIFICATION AND CONTRIBUTION
The underwriting agreement provides that we will indemnify the underwriters
against liabilities specified in the underwriting agreement under the Securities
Act and liabilities resulting from breaches of representations and warranties
contained in the Underwriting Agreement or will contribute to payments that the
underwriters may be required to make in respect of those liabilities.
LOCK-UP AGREEMENTS
Our executive officers, directors and shareholders that hold one percent or
more of our shares on a fully diluted basis after the completion of this
offering have agreed that they will not offer, sell or agree to sell, directly
or indirectly, or otherwise dispose of any shares of common stock in the public
market without the prior written consent of Bear, Stearns & Co. Inc. for a
period of 180 days from the date of this prospectus. In addition, we have agreed
that for a period of 180 days from the date of this prospectus, we will not,
without the prior written consent of Bear, Stearns & Co. Inc., offer, sell or
otherwise dispose of any shares of common stock, except that we may issue and
grant options to purchase shares of common stock under the 1997 Stock Plan. In
addition, we may issue shares of common stock in connection with any acquisition
of, or strategic relationship with, another company if the terms of such
issuance provide that such common stock shall not be resold prior to the
expiration of the 180-day period referenced in the preceding sentence.
NASDAQ NATIONAL MARKET QUOTATION
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial offering price for the common stock was
determined by negotiations between us and the representatives of the
underwriters. Among the factors considered in those negotiations, the primary
factors were our results of operations in recent periods, estimates of our
prospects and the industry in which we compete, an assessment of our management,
the general state of the securities markets at the time of this offering and the
prices of similar securities of generally comparable companies. Our common stock
has been approved for listing on The Nasdaq National Market under the trading
symbol "SYNQ", subject to notice of issuance. We cannot assure you, however,
that an active or orderly trading market will develop for the common stock or
that the common stock will trade in the public market subsequent to this
offering at or above the initial offering price.
67
<PAGE> 73
STABILIZATION, SYNDICATE SHORT POSITION AND PENALTY BIDS
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the common stock during and after this offering. Specifically, the
underwriters may over-allot or otherwise create a short position in the common
stock for their own account by selling more shares of common stock than we have
actually sold to them. The underwriters may elect to cover any such short
position by purchasing shares of common stock in the open market and may impose
penalty bids, under which selling concessions allowed to syndicate members or
other broker-dealers participating in this offering are reclaimed if shares of
common stock previously distributed in this offering are repurchased in
connection with stabilization transactions or otherwise. The effect of these
transactions may be to stabilize or maintain the market price at a level above
that which might otherwise prevail in the open market. The imposition of a
penalty bid may also affect the price of the common stock to the extent that it
discourages resales thereof. No representation is made as to the magnitude or
effect of any such stabilization or other transactions. Such transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
RESERVED SHARE PROGRAM
At our request, the underwriters have reserved for sale at the initial
public offering price up to 250,000 shares of common stock to be sold in this
offering for sale to our directors, officers, employees, business associates,
vendors and related persons. Purchases of reserved shares are to be made through
an account at Bear, Stearns & Co. Inc. in accordance with Bear, Stearns & Co.
Inc.'s procedures for opening an account and transacting in securities. The
number of shares available for sale to the general public will be reduced to the
extent that any reserved shares are purchased. Any reserved shares not purchased
by our directors, officers, employees, business associates, vendors and related
persons will be offered by the underwriters to the general public on the same
terms as the other shares offered by this prospectus.
ELECTRONIC PROSPECTUS
A prospectus in electronic format will be made available on websites
maintained by one or more of the underwriters participating in this offering,
including Wit SoundView's affiliate, Wit Capital Corporation. In addition, other
dealers purchasing shares from Wit SoundView in this offering have agreed to
make a prospectus in electronic format available on websites maintained by each
of these dealers. The representatives may agree to allocate a number of shares
to Wit Capital and other underwriters for sale to their online brokerage account
holders. Internet distributions will be allocated by the representatives of the
underwriters on the same basis as other allocations.
LEGAL MATTERS
King & Spalding, Atlanta, Georgia, will pass upon the validity of the
shares of common stock offered by this prospectus. Proskauer Rose LLP, New York,
New York, will pass upon certain legal matters in connection with this offering
for the underwriters.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at June 30, 1998 and 1999, and for each of the three years
in the period ended June 30, 1999, as set forth in their report. We have
included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
68
<PAGE> 74
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, a registration
statement on Form S-1, including the exhibits and schedules thereto, under the
Securities Act of 1933, as amended, with respect to the common stock offered by
this prospectus. This prospectus does not contain all of the information
contained in the registration statement and the exhibits and schedules to the
registration statement. Some items are omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. For further information
about SynQuest and the common stock offered by this prospectus, you should
review the registration statement and the exhibits and schedules filed as a part
of the registration statement. Descriptions of contracts or other documents
referred to in this prospectus are not necessarily complete. You should be aware
that when we discuss these contracts or documents in the prospectus, we are
assuming that you will read the exhibits to the registration statement for a
more complete understanding of the contract or document. The registration
statement and its exhibits and schedules may be inspected without charge at the
public reference facilities maintained by the Securities and Exchange Commission
in Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., 20549
and the Securities and Exchange Commission's regional offices located at 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 portion of
the registration statement may be obtained from the Public Reference Securities
and Exchange Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington D.C. 20549, or by calling the Securities and Exchange Commission at
1-800-SEC-0330, at prescribed rates. The Securities and Exchange Commission also
maintains a website at www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants, such as SynQuest, that
make electronic filings with the Securities and Exchange Commission.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Act of 1934 and, in
accordance therewith, will file periodic reports, proxy statements and other
information with the Securities and Exchange Commission. Such periodic reports,
proxy statements and other information will be available for inspection and
copying at the Securities and Exchange Commission's public reference rooms, and
the website of the Securities and Exchange Commission referred to above.
69
<PAGE> 75
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets as of June 30, 1998, 1999, and
March 31, 2000 (unaudited)................................ F-3
Consolidated Statements of Operations for the years ended
June 30, 1997, 1998, and 1999 and for the nine months
ended March 31, 1999 and 2000 (unaudited)................. F-4
Consolidated Statements of Changes in Redeemable Preferred
Stock, Common Stock and Other Shareholders' Deficit for
the years ended June 30, 1997, 1998, and 1999 and the nine
months ended March 31, 2000 (unaudited)................... F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 1997, 1998, and 1999 and the nine months ended
March 31, 1999 and 2000 (unaudited)....................... F-7
Notes to Consolidated Financial Statements.................. F-9
</TABLE>
F-1
<PAGE> 76
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SynQuest, Inc.
We have audited the accompanying consolidated balance sheets of SynQuest,
Inc. and subsidiaries as of June 30, 1998 and 1999, and the related consolidated
statements of operations, changes in redeemable preferred stock, common stock
and other shareholders' deficit, and cash flows, for each of the three years in
the period ended June 30, 1999. 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 auditing standards generally
accepted in the United States. 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 SynQuest, Inc.
and subsidiaries at June 30, 1998 and 1999, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
August 23, 1999, except for
Note 14, as to which
the date is May 19, 2000
F-2
<PAGE> 77
SYNQUEST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
JUNE 30, SHAREHOLDERS'
--------------------------- MARCH 31, DEFICIT AS OF
1998 1999 2000 MARCH 31, 2000
------------ ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash................................................... $ 899,674 $ 638,213 $ 192,988
Accounts receivable (net of allowances of $962,000,
$1,238,000 and $1,477,000 (unaudited) in 1998, 1999
and March 31, 2000, respectively).................... 6,510,758 8,170,490 3,941,440
Other receivables...................................... 332,029 103,327 64,731
Prepaid expenses....................................... 224,763 321,685 258,942
------------ ------------ ------------
Total current assets............................. 7,967,224 9,233,715 4,458,101
Property and equipment:
Leasehold improvements................................. 127,102 158,014 195,937
Furniture and fixtures................................. 567,405 781,934 797,258
Equipment.............................................. 2,199,876 3,505,798 4,341,916
------------ ------------ ------------
2,894,383 4,445,746 5,335,111
Less accumulated depreciation and amortization......... (1,471,484) (2,316,293) (3,132,862)
------------ ------------ ------------
Net property and equipment............................... 1,422,899 2,129,453 2,202,249
Other assets............................................. 147,569 164,953 215,846
Intangible assets (net of accumulated amortization of
$251,000, $429,000 and $535,000 (unaudited) in 1998,
1999 and March 31, 2000, respectively)................. 306,132 127,634 21,830
------------ ------------ ------------
Total assets..................................... $ 9,843,824 $ 11,655,755 $ 6,898,026
============ ============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Subordinated notes payable and accrued interest payable
to related party..................................... $ 17,708,162 $ 19,372,745 $ 20,523,911 $ --
Borrowings under line of credit agreement.............. 17,827,659 3,563,219 10,896,028
Accounts payable....................................... 1,314,185 889,803 904,797
Accrued expenses....................................... 4,062,523 5,316,385 4,954,063
Deferred revenue....................................... 1,774,414 2,281,916 2,657,164
Current portion of notes payable and obligations under
capital leases....................................... 292,463 232,399 176,910
------------ ------------ ------------
Total current liabilities........................ 42,979,406 31,656,467 40,112,873
Notes payable and obligations under capital leases, less
current portion........................................ 224,084 265,801 129,140
Preferred Stock, in series, $0.01 par value; redeemable
and convertible:
Authorized shares -- 16,000,000
Issued and outstanding shares --
7,359,285, 12,995,356 and 12,995,356 (unaudited) at
June 30, 1998, 1999 and March 31, 2000, respectively
Liquidation preference of $62,110,892 and $63,839,489
(unaudited) at June 30, 1999 and March 31, 2000,
respectively......................................... 22,050,839 57,256,365 60,022,218 --
Shareholders' deficit:
Common Stock, $0.01 par value; 26,000,000 shares
authorized; 1,439,457, 1,492,522 and 1,627,459
(unaudited) shares issued and outstanding at June 30,
1998, 1999 and March 31, 2000, respectively, and
22,273,443 shares issued and outstanding pro forma... 14,395 14,925 16,275 222,734
Class A Common Stock, $0.01 par value; convertible,
non-voting; 7,000,000 shares authorized, none
issued............................................... -- -- -- --
Additional paid-in-capital............................. 4,272,054 4,357,452 4,612,633 85,354,319
Accumulated deficit.................................... (59,658,025) (81,751,679) (97,720,035) (98,122,051)
Equity adjustment from foreign currency translation.... (38,929) (143,576) (275,078) (275,078)
------------ ------------ ------------ ------------
Total shareholders' deficit...................... (55,410,505) (77,522,878) (93,366,205) (12,820,076)
------------ ------------ ------------ ------------
Total liabilities and shareholders' deficit...... $ 9,843,824 $ 11,655,755 $ 6,898,026 $ 6,898,026
============ ============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 78
SYNQUEST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED JUNE 30, ENDED MARCH 31,
------------------------------------------ ---------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software license fees.................... $ 4,332,872 $ 10,392,229 $ 10,521,571 $ 6,992,836 $ 7,720,539
Services................................. 3,887,578 8,014,146 12,759,849 9,246,508 9,429,897
------------ ------------ ------------ ------------ ------------
Total revenue...................... 8,220,450 18,406,375 23,281,420 16,239,344 17,150,436
Operating expenses:
Cost of license fees..................... 10,915 523,682 576,049 476,786 414,403
Cost of services......................... 4,419,159 6,713,808 9,308,436 6,535,796 5,869,896
Research and development................. 6,320,080 9,368,312 10,179,517 7,614,018 7,688,589
Purchased in-process research and
development............................ 2,083,138 -- -- -- --
Sales and marketing...................... 6,344,119 9,485,157 13,730,177 10,247,525 10,077,263
General and administrative............... 3,663,072 3,984,128 4,850,263 3,612,528 3,792,534
Provision for doubtful accounts.......... 1,600,179 373,245 753,374 276,241 596,255
------------ ------------ ------------ ------------ ------------
Total operating expenses........... 24,440,662 30,448,332 39,397,816 28,762,894 28,438,940
Operating loss............................. (16,220,212) (12,041,957) (16,116,396) (12,523,550) (11,288,504)
Other income (expense):
Interest income.......................... 65,898 50,472 50,374 32,157 34,885
Interest expense......................... (1,501,060) (3,539,237) (3,526,242) (3,081,314) (1,969,944)
Other income (expense)................... (71,601) 1,345 32,154 16,880 21,060
------------ ------------ ------------ ------------ ------------
(1,506,763) (3,487,420) (3,443,714) (3,032,277) (1,913,999)
------------ ------------ ------------ ------------ ------------
Loss before income taxes................... (17,726,975) (15,529,377) (19,560,110) (15,555,827) (13,202,503)
Income taxes............................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Net loss................................... (17,726,975) (15,529,377) (19,560,110) (15,555,827) (13,202,503)
Accretion of redeemable convertible
preferred stock.......................... (1,309,279) (1,833,158) (2,533,544) (1,607,128) (2,765,853)
------------ ------------ ------------ ------------ ------------
Net loss attributable to common stock...... $(19,036,254) $(17,362,535) $(22,093,654) $(17,162,955) $(15,968,356)
============ ============ ============ ============ ============
Basic and diluted net loss per common
share.................................... $ (16.02) $ (13.98) $ (15.21) $ (11.85) $ (10.52)
============ ============ ============ ============ ============
Weighted average number of shares used in
computing basic and diluted net loss per
common share............................. 1,188,204 1,242,381 1,452,363 1,447,808 1,517,734
============ ============ ============ ============ ============
Pro forma basic and diluted net loss per
share (unaudited)........................ $ (1.25) $ (0.73)
============ ============
Weighted average number of shares used in
computing pro forma basic and diluted net
loss per share (unaudited)............... 17,622,041 21,893,150
============ ============
Comprehensive loss:
Net loss................................. $(17,726,975) $(15,529,377) $(19,560,110) $(15,555,827) $(13,202,503)
Other comprehensive loss:
Foreign currency translation
adjustments.......................... (11,531) (57,716) (104,647) (72,606) (131,502)
------------ ------------ ------------ ------------ ------------
Comprehensive loss....................... $(17,738,506) $(15,587,093) $(19,664,757) $(15,628,433) $(13,334,005)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 79
SYNQUEST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN REDEEMABLE PREFERRED STOCK,
COMMON STOCK AND OTHER SHAREHOLDERS' DEFICIT
YEARS ENDED JUNE 30, 1997, 1998, AND 1999 AND THE NINE MONTHS ENDED
MARCH 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
REDEEMABLE PREFERRED STOCK
-----------------------------------------------------------------------
SERIES B SERIES C SERIES D
-------------------- ---------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ---------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1996............... 540,016 $1,502,233 2,376,651 $6,611,397 3,070,178 $ 7,220,562
Issuance of common stock pursuant to
exercise of stock options.......... -- -- -- -- -- --
Purchase and retirement of common
stock.............................. -- -- -- -- -- --
Sale of common stock to an employee
for $1.80 per share in cash........ -- -- -- -- -- --
Issuance of Series D preferred stock
at $2.50 per share................. -- -- -- -- 800,000 2,000,000
Issuance of Series F preferred stock
for purchase of BMC at $2.75 per
share.............................. -- -- -- -- -- --
Issuance of common stock for services
at $2.75 per share................. -- -- -- -- -- --
Issuance of warrants to purchase
common stock....................... -- -- -- -- -- --
Accretion of cumulative preferred
stock dividends and stock issuance
costs.............................. -- 105,440 -- 464,058 -- 721,613
Equity adjustment from foreign
currency translation............... -- -- -- -- -- --
Net loss............................. -- -- -- -- -- --
------- ---------- --------- ---------- --------- -----------
Balance at June 30, 1997............... 540,016 1,607,673 2,376,651 7,075,455 3,870,178 9,942,175
Issuance of common stock pursuant to
exercise of stock options.......... -- -- -- -- -- --
Issuance of common stock pursuant to
conversion of preferred stock...... -- -- -- -- (177,560) (488,290)
Issuance of common stock for services
at $2.75 per share................. -- -- -- -- -- --
Accretion of cumulative preferred
stock dividends and stock issuance
costs.............................. -- 105,440 -- 464,058 -- 743,074
Equity adjustment from foreign
currency translation............... -- -- -- -- -- --
Net loss............................. -- -- -- -- -- --
------- ---------- --------- ---------- --------- -----------
Balance at June 30, 1998............... 540,016 1,713,113 2,376,651 7,539,513 3,692,618 10,196,959
Issuance of common stock pursuant to
exercise of stock options.......... -- -- -- -- -- --
Issuance of common stock for services
at $3.25 per share................. -- -- -- -- -- --
Issuance of Series G preferred stock
at $6.21 per share less issuance
costs of $2,328,010................ -- -- -- -- -- --
Accretion of cumulative preferred
stock dividends and stock issuance
costs.............................. -- 92,766 -- 408,269 -- 652,226
Equity adjustment from foreign
currency translation............... -- -- -- -- -- --
Net loss............................. -- -- -- -- -- --
------- ---------- --------- ---------- --------- -----------
Balance at June 30, 1999............... 540,016 1,805,879 2,376,651 7,947,782 3,692,618 10,849,185
Issuance of common stock pursuant to
exercise of stock options
(unaudited)........................ -- -- -- -- -- --
Accretion of cumulative preferred
stock dividends and stock issuance
costs (unaudited).................. -- 50,055 -- 220,290 -- 239,903
Equity adjustment from foreign
currency translation (unaudited)... -- -- -- -- -- --
Net loss (unaudited)................. -- -- -- -- -- --
------- ---------- --------- ---------- --------- -----------
Balance at March 31, 2000
(unaudited).......................... 540,016 $1,855,934 2,376,651 $8,168,072 3,692,618 $11,089,088
======= ========== ========= ========== ========= ===========
</TABLE>
F-5
<PAGE> 80
<TABLE>
<CAPTION>
----------------------------------------------
SERIES F SERIES G COMMON STOCK ADDITIONAL FOREIGN
-------------------- ----------------------- ------------------- PAID-IN ACCUMULATED CURRENCY
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TRANSLATION
------- ---------- --------- ----------- --------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
-- $ -- -- $ -- 1,182,871 $11,829 $3,025,387 $(23,035,486) $ 30,318
-- -- -- -- 14,500 145 3,480 -- --
-- -- -- -- (125,000) (1,250) -- (223,750) --
-- -- -- -- 40,000 400 71,600 -- --
-- -- -- -- -- -- -- -- --
750,000 2,062,500 -- -- -- -- -- -- --
-- -- -- -- 77,500 775 212,350 -- --
-- -- -- -- -- -- 406,118 -- --
-- 18,168 -- -- -- -- -- (1,309,279) --
-- -- -- -- -- -- -- -- (11,531)
-- -- -- -- -- -- -- (17,726,975) --
------- ---------- --------- ----------- --------- ------- ---------- ------------ ---------
750,000 2,080,668 -- -- 1,189,871 11,899 3,718,935 (42,295,490) 18,787
-- -- -- -- 57,026 570 25,505 -- --
-- -- -- -- 177,560 1,776 486,514 -- --
-- -- -- -- 15,000 150 41,100 -- --
-- 520,586 -- -- -- -- -- (1,833,158) --
-- -- -- -- -- -- -- -- (57,716)
-- -- -- -- -- -- -- (15,529,377) --
------- ---------- --------- ----------- --------- ------- ---------- ------------ ---------
750,000 2,601,254 -- -- 1,439,457 14,395 4,272,054 (59,658,025) (38,929)
-- -- -- -- 38,065 380 36,798 -- --
-- -- -- -- 15,000 150 48,600 -- --
-- -- 5,636,071 32,671,990 -- -- -- -- --
-- 650,838 -- 729,437 -- -- -- (2,533,544) --
-- -- -- -- -- -- -- -- (104,647)
-- -- -- -- -- -- -- (19,560,110) --
------- ---------- --------- ----------- --------- ------- ---------- ------------ ---------
750,000 3,252,092 5,636,071 33,401,427 1,492,522 14,925 4,357,452 (81,751,679) (143,576)
-- -- -- -- 134,937 1,350 255,181 -- --
-- 581,585 -- 1,674,020 -- -- -- (2,765,853) --
-- -- -- -- -- -- -- -- (131,502)
-- -- -- -- -- -- -- (13,202,503)
------- ---------- --------- ----------- --------- ------- ---------- ------------ ---------
750,000 $3,833,677 5,636,071 $35,075,447 1,627,459 $16,275 $4,612,633 $(97,720,035) $(275,078)
======= ========== ========= =========== ========= ======= ========== ============ =========
</TABLE>
See accompanying notes.
F-6
<PAGE> 81
SYNQUEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss............................. $(17,726,975) $(15,529,377) $(19,560,110) $(15,555,827) $(13,202,503)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization........ 512,796 798,067 1,103,108 792,930 951,626
Purchased in-process research and
development costs.................. 2,083,138 -- -- -- --
Non-cash stock compensation.......... 206,250 41,250 48,750 48,750 --
Accretion of discount on subordinated
notes payable...................... 286,423 426,338 -- -- --
Loss on disposal of equipment........ 12,570 -- -- -- --
Changes in operating assets and
liabilities:
Accounts receivable.............. 606,993 (2,474,083) (1,622,084) (2,022,985) 4,151,295
Other assets..................... (215,701) 192,190 (117,220) (291,481) 7,386
Accounts payable................. 232,872 (1,351,844) (423,564) (451,221) 25,093
Accrued expenses................. 1,484,311 3,431,473 2,959,597 2,098,102 789,058
Deferred revenue................. 189,085 (563,084) 527,477 644,840 387,158
------------ ------------ ------------ ------------ ------------
Net cash used in operating
activities......................... (12,328,238) (15,029,070) (17,084,046) (14,736,892) (6,890,887)
INVESTING ACTIVITIES
Acquisition of business, net of cash
deficit assumed.................... (359,218) -- -- -- --
Purchases of property and
equipment.......................... (365,929) (463,485) (1,326,186) (1,001,662) (887,786)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities......................... (725,147) (463,485) (1,326,186) (1,001,662) (887,786)
FINANCING ACTIVITIES
Issuance of redeemable preferred
stock.............................. 2,000,000 -- 35,000,000 35,000,000 --
Payment of preferred issuance
costs.............................. -- -- (2,328,010) (2,256,801) --
Principal payments on loans.......... (522,233) (17,437) (14,333) (13,831) --
Net borrowings (repayments) under
line of credit..................... 4,318,600 13,509,059 (14,264,440) (17,073,666) 7,332,809
Proceeds from borrowings from related
party, net of repayments........... 8,500,000 2,500,000 -- -- --
Repurchase of common stock........... (225,000) -- -- -- --
Proceeds from issuance of common
stock.............................. 75,625 26,075 37,178 29,497 256,531
Repayment of loan from shareholder... (371,780) -- -- -- --
Repayment of obligations under
capital leases..................... (226,317) (352,297) (347,911) (265,250) (202,471)
------------ ------------ ------------ ------------ ------------
Net cash provided by financing
activities......................... 13,548,895 15,665,400 18,082,484 15,419,949 7,386,869
Effect of exchange rate changes on
cash............................... (91,340) 26,608 66,287 2,311 (53,421)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash...... 404,170 199,453 (261,461) (316,294) (445,225)
Cash at beginning of period.......... 296,051 700,221 899,674 899,674 638,213
------------ ------------ ------------ ------------ ------------
Cash at end of period................ $ 700,221 $ 899,674 $ 638,213 $ 583,380 $ 192,988
============ ============ ============ ============ ============
</TABLE>
F-7
<PAGE> 82
SYNQUEST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JUNE 30, MARCH 31,
------------------------------------------ ---------------------------
1997 1998 1999 1999 2000
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest........................... $ 460,000 $ 1,169,000 $ 2,006,000 $ 1,782,000 $ 714,000
============ ============ ============ ============ ============
Income taxes....................... $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Capital lease obligations incurred to
acquire equipment.................. $ 447,771 $ 154,867 $ 319,320 $ 319,320 $ 42,000
============ ============ ============ ============ ============
Fair value of Series F redeemable
preferred stock issued to acquire
business........................... $ 2,062,500 $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
Fair value of common stock issued in
acquisition of business............ $ 6,875 $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
Indebtedness assumed in connection
with acquisition................... $ 371,780 $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-8
<PAGE> 83
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1998 AND 1999
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
1. DESCRIPTION OF BUSINESS
SynQuest, Inc. (the "Company") is principally involved in developing,
selling and servicing computer software designed to optimize supply chain
performance. The Company operates principally in the United States and Europe.
During the Company's fiscal year ended June 30, 1997 ("1997"), the Company
changed its name to SynQuest, Inc. and changed its state of incorporation from
New York to Georgia. From incorporation in 1986 through the fiscal year ended
June 30, 1996 ("1996"), the Company was named Factory Automation & Computer
Technologies, Inc.
All of the outstanding shares of the Company's Series B, C, and D Preferred
Stock and 805,153 shares of Series G Preferred Stock are owned by Warburg,
Pincus Investors, L.P. (the "Preferred Shareholder"). The Preferred Shareholder
has committed to providing additional funding, if necessary, to sustain the
Company's operations through at least June 30, 2000.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company considers its cash, accounts receivable, accounts payable,
subordinated notes payable, line of credit borrowings and other notes payable
and capital lease obligations to be its only significant financial instruments
and believes that the carrying amounts of these instruments approximate their
fair values based on the short-term nature of these instruments.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. All significant
intercompany accounts and transactions have been eliminated. The Company has
subsidiaries in France, the Netherlands, and the United Kingdom.
Foreign Currency Translation
For foreign subsidiaries, the balance sheet accounts are translated at the
year-end exchange rates and income statement items are translated at the average
exchange rates for the period. Resulting translation adjustments are made
directly to a separate component of shareholders' deficit. Foreign currency
gains and losses resulting from transactions are included in net loss. Foreign
currency realized and unrealized gains and losses for the periods presented were
not material.
F-9
<PAGE> 84
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
Revenue Recognition
In October 1997 the American Institute of Certified Public Accountants
issued SOP 97-2, "Software Revenue Recognition." The Company adopted SOP 97-2
for transactions entered into beginning July 1, 1998. Prior year transactions
have been accounted for in accordance with SOP 91-1, the SOP in effect during
those years. The adoption of the SOP 97-2 has not had a significant impact on
the Company's financial statements.
In accordance with SOP 97-2, as amended by SOP 98-9, the Company allocates
the total software arrangement fee among each element of the arrangement where
the arrangement with a customer includes rights to multiple software products,
specified upgrades, postcontract support and/or other services. We use the
residual method, as defined in SOP 98-9, to allocate revenue to delivered
elements once we have established our objective evidence for the value of all
undelivered elements. Our objective evidence of fair value for undelivered
maintenance and support services is based upon the then current standard renewal
rate for these services and is not discounted. Our objective evidence of fair
value for undelivered implementation and training services is based on our then
current standard hourly rates for such services as they are sold separately and
is not discounted. The remaining portion of the arrangement fee is allocated to
the licensed software products. As a result, all discounts negotiated with our
customers in multiple element arrangements are reflected as discounts to the
license fee portion of the arrangement and are prorated across multiple software
products, if there are multiple products, based on their list prices established
by authorized management.
The Company recognizes the revenue allocable to software licenses and
specified upgrades upon delivery of the software product or upgrade to the end
user and when a signed and executed contract is obtained unless the fee is not
fixed or determinable or collectibility is not probable. Software licenses sold
by resellers or distributors are recognized upon delivery to the final end user.
The Company considers all arrangements with payment terms extending beyond
twelve months not to be fixed or determinable. If the fee is not fixed or
determinable, revenue is recognized as payments become due from the customer. If
collectibility is not considered probable, revenue is recognized when the fee is
collected.
Postcontract customer support services include telephone support, bug
fixes, and rights to upgrades on a when-and-if-available basis. Revenue
allocable to postcontract support is recognized on a straight-line basis over
the period the support is provided.
Other software services include consulting, implementation, training and
other services related to the software and its usage. Arrangements which include
software services are evaluated to determine whether those services are
essential to the functionality of other elements of the arrangement. When
software services are not considered essential to the functionality of other
elements, the revenue allocable to the software services is recognized as the
services are performed.
When software services are considered essential to the functionality of
other elements, including customization or modification of the software, revenue
from the services and related elements is recognized using contract accounting.
Contract accounting is also used to recognize software services revenue when the
services are performed for a fixed fee. Under contract accounting, the
applicable revenue from these software arrangements is recognized on a
percentage-of-completion method with progress-to-completion measured based upon
labor costs incurred.
F-10
<PAGE> 85
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
Internally Developed Software
Costs related to internally developed software are accounted for in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed." No amounts related to internally developed software were capitalized
at June 30, 1998 or 1999. In March 2000, the Company adopted the Emerging Issues
Task Force (EITF) No. 00-2 "Accounting for Web Site Development Costs." In
accordance with EITF No. 00-2, the planning stage costs of the Company's new web
site were expensed. The development costs, which are composed of amounts
directly involved in developing the new web site, are being capitalized. As of
March 31, 2000, approximately $125,000 of development costs have been
capitalized. The Company does not believe the adoption of EITF No. 00-2 had a
material effect on its financial statements.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives (ranging from 3 to 7 years) of the assets and includes amortization
of assets under capital leases. Depreciation expense for 1997, 1998 and 1999 was
approximately $453,000 $612,000, $904,000, respectively. Depreciation expense
for the nine months ended March 31, 1999 and 2000 was approximately $657,000 and
$846,000, respectively.
Intangible Assets
Intangible assets arose from the acquisitions of businesses and represent
the value of the assembled work forces acquired. These assets are being
amortized using the straight-line method over a period of three years.
Amortization expense amounted to approximately $49,000, $55,000, $47,000 in
1997, 1998 and 1999, respectively. Amortization expense amounted to
approximately $42,000 and $8,000 for the nine months ended March 31, 1999 and
2000, respectively.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of accounts receivable. Accounts receivable
represent billed and unbilled receivables primarily for license fees and related
services. Accounts receivable include $2,182,000, $1,690,000 and $754,000 of
unbilled accounts receivable at June 30, 1998, 1999 and March 31, 2000,
respectively. Unbilled accounts receivable are invoiced on dates specified in
the contract, generally within six months of contract execution. The Company
performs periodic credit evaluations of its customers' financial condition and
generally does not require collateral. Although due dates of receivables vary
based on contract terms, credit losses have been within management's estimates
in determining the level of allowance for doubtful accounts. Provision for
doubtful accounts was approximately $1,600,000, $373,000, and $753,000 in 1997,
1998 and 1999, respectively. Provision for doubtful accounts was approximately
$276,000 and $596,000 in the nine months ended March 31, 1999 and 2000,
respectively. Write-offs of uncollectible accounts in the years ended June 30,
1997, 1998 and 1999 were $738,000, $474,000, and $477,000, respectively.
Write-offs of uncollectible accounts in the periods ended March 31, 1999 and
2000 were $472,000 and $358,000 respectively.
In 1999 one customer accounted for 20% of the company's total revenues, in
1998 one customer accounted for 17% of the Company's total revenues, and in 1997
three customers each accounted for 12%, 13%, and 14% of the Company's total
revenues. For the nine months ended March 31, 2000 two customers accounted for
13% and 11% of the Company's total revenues.
F-11
<PAGE> 86
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
Stock-Based Compensation
SFAS No. 123, "Accounting for Stock-Based Compensation," provides an
alternative to APB Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"), in accounting for stock-based compensation issued to employees. The
Company adopted the disclosure alternative of the impact of applying SFAS No.
123 and accounts for stock option grants in accordance with APB 25.
Impairment of Long-Lived Assets
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for long-lived
assets that are expected to be disposed of.
Advertising Costs
Advertising costs are charged to expense in the period the costs are
incurred. Advertising expense was approximately $276,000, $486,000, and $741,000
in 1997, 1998 and 1999, respectively. Advertising expense was approximately
$560,000 and $144,000, for the nine months ended March 31, 1999 and 2000,
respectively.
Basic and Diluted Net Loss per Share
Basic net loss per common share is computed based on the weighted average
number of common shares outstanding during each year. Diluted net loss per
common share is computed based on the weighted average number of common shares
outstanding during each year, plus potentially dilutive common shares
outstanding during the year, in accordance with SFAS No. 128, "Earnings Per
Share."
All convertible preferred shares, outstanding stock options, and warrants
have been excluded from the calculation of the diluted net loss per common share
because these securities are anti-dilutive for all periods presented. The total
number of shares related to the outstanding convertible preferred stock, options
and warrants excluded from the calculations of diluted net loss per common share
was 14,295,443, 16,220,436, 22,721,333, 22,718,545, and 22,843,808 for the years
ended June 30, 1997, 1998, 1999 and for the nine months ended March 31, 1999 and
2000, respectively.
Unaudited pro forma basic and diluted net loss per share, as presented in
the statements of operations, has been calculated assuming an initial public
offering price of $7.50 per share, less underwriting discounts and commissions,
and upon completion of this offering the conversion into common stock of: (1)
all outstanding redeemable preferred stock, plus accrued and unpaid dividends;
(2) outstanding subordinated promissory notes, held by E.M. Warburg, Pincus in
the aggregate principal amount of $15 million, plus accrued interest; and (3)
the cashless exercise by E.M. Warburg, Pincus of all their warrants. See Note 14
for further discussion.
F-12
<PAGE> 87
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
The following table presents the calculation of unaudited pro forma basic
and diluted net loss per share:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
JUNE 30, 1999 MARCH 31, 2000
------------- --------------
<S> <C> <C>
Net loss.................................................. $(19,560,110) $(13,202,503)
Accretion of redeemable preferred stock................. (2,533,544) (2,765,853)
------------ ------------
Net loss attributable to common stock..................... $(22,093,654) $(15,968,356)
============ ============
Pro forma:
Shares used in computing basic and diluted net loss per
common share......................................... 1,452,363 1,517,734
Effect of assumed conversion of preferred stock and
dividends, subordinated notes payable and interest,
and warrants into common stock (unaudited)........... 16,169,678 20,375,416
------------ ------------
Shares used in computing pro forma basic and diluted net
loss per share (unaudited)........................... 17,622,041 21,893,150
============ ============
Pro forma basic and diluted net loss per share
(unaudited)............................................. $ (1.25) $ (0.73)
============ ============
</TABLE>
Unaudited Pro Forma Shareholders' Deficit
If the offering contemplated by this prospectus is consummated, all of the
outstanding redeemable preferred stock, plus accrued and unpaid dividends;
subordinated notes payable, plus accrued interest; and outstanding warrants held
by E.M. Warburg, Pincus will be converted into or paid in common shares. (See
Note 14.) Unaudited pro forma shareholders' deficit at March 31, 2000, as
adjusted for these planned equity transactions is disclosed on the balance
sheet.
Reclassification
Certain amounts reported in the 1998 and 1999 financial statements have
been reclassified to conform to the current financial statement presentation.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." SFAS No.
131 requires that an enterprise disclose certain information about operating
segments. The Company adopted SFAS No. 131 effective with its fiscal year ending
June 30, 1999.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as
amended, is effective for quarters beginning after June 15, 2000. We do not
currently utilize derivative financial instruments and therefore we do not
expect that the adoption of SFAS No. 133 will have a material impact on our
results of operations or financial position.
In December 1999, the Securities and Exchange Commission Staff released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements," which clarified some provisions of
F-13
<PAGE> 88
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
current standards related to software revenue recognition. The adoption of SAB
No. 101 did not have a material impact on our revenue recognition policies or
results of operations for financial position.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation," an interpretation of APB
Opinion No. 25 ("FIN 44"). FIN 44 establishes guidance for the accounting for
stock option grants or modifications to existing stock option awards and is
effective for option grants made after June 30, 2000. FIN 44 also establishes
guidance for the repricing of stock options and determining whether a grantee is
an employee, for which the guidance was effective after December 15, 1998 and
modifying a fixed option to add a reload feature, for which the guidance was
effective after January 12, 2000. The adoption of certain of the provisions of
FIN 44 prior to March 31, 2000 did not have a material effect on the financial
statements. We do not expect that the adoption of the remaining provisions will
have a material effect on the financial statements.
Unaudited Information
The consolidated financial statements include the unaudited consolidated
balance sheet as of March 31, 2000 and the unaudited consolidated statements of
operations and cash flows for the nine months ended March 31, 1999 and 2000. In
management's opinion, this information has been prepared on the same basis as
the audited consolidated financial statements and reflects all adjustments
(consisting only of normal recurring accruals) necessary for a fair presentation
of the financial information, in accordance with generally accepted accounting
principles for interim financial information, for the period presented. Results
for interim periods are not necessarily indicative of the results to be expected
for the entire year.
3. ACQUISITIONS OF BUSINESSES
Effective November 1, 1996, the Company acquired the assets of and assumed
certain liabilities of Manufacturing Execution Systems Associates, Inc.
("MESAi"), a software development company, for approximately $778,440,
(consisting of $400,000 of cash plus assumption of liabilities and acquisition
costs totaling $378,440). The acquisition was accounted for under the purchase
method of accounting and, accordingly, the results of operations were included
in the accompanying consolidated statements of operations beginning November 1,
1996. The purchase price was allocated among identifiable assets and liabilities
based on their respective fair values. The Company assigned $53,000 of the
purchase price to in-process research and development with no alternative future
use, which was expensed at the acquisition date, and $54,000 to the assembled
work force acquired. In connection with the acquisition, the Company entered
into employment agreements with the three selling shareholders and key employees
of MESAi under which each employee is entitled to a base salary, bonus, certain
other benefits and up to 35,000 shares of the Company's Common Stock. The
Company issued 25,000 shares of Common Stock to each of the three employees on
January 1, 1997 and expensed the value of the shares issued at that date. Each
of the three employees received an additional 5,000 shares on January 1, 1998
and a final 5,000 shares on January 1, 1999. These shares were recorded at the
estimated fair value at the date issued and expensed on that date.
On June 16, 1997, the Company acquired all the outstanding shares of Bender
Management Consultants Inc. ("BMC"), a company involved in developing supply
chain software and consulting, for approximately $2,188,000 (consisting of
750,000 shares of the Company's Series F Preferred Stock valued at $2,062,500
and acquisition costs of $126,000). The acquisition was accounted for under the
purchase method of accounting and, accordingly, the results of operations were
included in the accompanying consolidated statements of operations beginning
June 1, 1997, the date the acquisition was recorded for
F-14
<PAGE> 89
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
accounting purposes. The purchase price was allocated among identifiable assets
and liabilities based on their respective fair values. The approximate $2
million value assigned to in-process research and development with no
alternative future use, the value of which was estimated using the discounted
cash flow of earnings expected in future years from products to be derived from
the in-process research and development, was expensed at the acquisition date.
Approximately $393,000 was assigned to completed software products. The Company
assumed a loan payable to the former owner of BMC approximating $372,000. The
loan was repaid in full during 1997.
The following table represents the unaudited pro forma results of
operations for 1997 as if the acquisitions described above had been consummated
on July 1, 1996:
<TABLE>
<S> <C>
Total revenue............................................... $ 10,615,000
Net loss.................................................... (18,030,000)
Net loss per common share................................... (16.28)
</TABLE>
4. SUBORDINATED NOTES PAYABLE TO RELATED PARTY
The Company has entered into eight Subordinated Promissory Note agreements
with the Preferred Shareholder at various dates from May 10, 1995 to July 20,
1997. The notes accrue interest at prime plus 2% annually, adjusted biannually
from the date of issuance (10.5%, 9.75% and 11.0% and at June 30, 1998, 1999 and
March 31, 2000, respectively). Interest and principal are payable on demand.
In conjunction with entering into the Subordinated Promissory Notes, the
Company issued warrants to purchase Common Stock to the Preferred Shareholder.
The warrants may be exercised at any time before their expiration dates. Under
the terms of the warrant agreements, the warrant holder is protected from future
dilution of the Company's Common Stock. The date and amount of each note and the
terms of warrants issued and outstanding related to each note are summarized as
follows:
<TABLE>
<CAPTION>
WARRANTS VALUE
TO PURCHASE EXERCISE EXPIRATION ASSIGNED
AMOUNT OF COMMON PRICE OF DATE OF TO
DATE OF NOTE NOTE STOCK WARRANTS WARRANT WARRANTS
------------ ----------- ----------- -------- ------------------ --------
<S> <C> <C> <C> <C> <C>
May 10, 1995..................... $ 2,000,000 1,301,696 $1.80 May 9, 2005 $475,680
September 19, 1995............... 2,000,000 681,213 2.94 September 18, 2005 --
November 5, 1996................. 1,500,000 545,455 2.75 November 4, 2006 85,421
December 9, 1996................. 1,000,000 363,636 2.75 December 9, 2006 53,780
February 17, 1997................ 2,500,000 909,091 2.75 February 17, 2007 119,917
April 15, 1997................... 1,500,000 545,455 2.75 April 15, 2007 68,987
May 20, 1997..................... 2,000,000 727,273 2.75 May 20, 2007 78,013
July 20, 1997.................... 2,500,000 714,286 3.50 July 20, 2007 --
----------- ---------
Outstanding at June 30, 1999..... $15,000,000 5,788,105
=========== =========
</TABLE>
The Company allocated a portion of the proceeds from each note to the value
of the warrants issued as disclosed above. The fair value for the warrants above
were estimated at the date of grant using the minimum value method with the
following assumptions: risk-free interest rates of 5.54% to 6.87%, a dividend
yield of 0% and an expected life of 1.25 to 2 years. The resulting discount on
the debt was amortized to interest expense over the expected life of the debt.
The discount on the debt was fully amortized at June 30, 1998. Amortization
expense was $426,000 and $286,000 in 1998 and 1997,
F-15
<PAGE> 90
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
respectively. The resulting weighted average effective interest rate on the
outstanding Subordinated Promissory Notes was 11.1%, 15.5%, and 16.5% in 1999,
1998 and 1997, respectively.
5. LINE OF CREDIT AGREEMENT
On July 10, 1996, the Company entered into a Loan and Security Agreement
(the "Agreement") with a financing company. The Agreement, as amended, provides
the Company with a line of credit not to exceed the lesser of $25 million or an
amount equal to the sum of the following: 80% of qualifying receivables, as
defined, an additional loan of $10 million, and the amount outstanding under the
Term Loan in the original principal amount of $5 million. Virtually all assets
of the Company have been pledged as collateral under these loan facilities.
Interest accrues at the highest LIBOR rate in effect each month, plus 5.125% per
annum, provided that the interest rate in effect each month is not less than 9%
per annum. The interest rate in effect under the Agreement was 10.5% at June 30,
1999 and 11.3% at March 31, 2000. The maturity date of the Agreement is December
31, 1999; however, the Agreement renews for one year unless terminated by either
party. The Company is subject to certain covenants under the Agreement. The
Company has continued to borrow under the Agreement even though the Company was
in violation of certain of these covenants (principally covenants pertaining to
periodic reporting, pre-approval of new offices and advances to subsidiaries) at
June 30,1999. These covenant violations have been waived by the financing
company.
6. NOTES PAYABLE AND CAPITAL LEASES
The Company leases various equipment under capital leases with a total cost
of approximately $1,230,000, $968,000 and $700,000, and accumulated amortization
of approximately $774,000, $596,000 and $407,000 at June 30, 1998, 1999, and
March 31, 2000, respectively.
The Company's French subsidiary received a loan from a government
organization in order to promote development in their region. The interest rate
on the loan is 6%. The outstanding balance was approximately $41,000, $26,000
and $13,000 at June 30, 1998, 1999, and March 31, 2000, respectively.
Future minimum payments under these capital leases and future principal
payments due under notes payable are as follows:
<TABLE>
<CAPTION>
NOTES CAPITAL
PAYABLE LEASES
------- --------
<S> <C> <C>
Year ending June 30, 2000................................... $13,000 $312,000
2001................................................... 13,000 175,000
2002................................................... -- 45,000
2003................................................... -- --
------- --------
Total obligations under notes payable and minimum lease
payments under capital leases............................. 26,000 532,000
Less amount representing interest........................... -- 65,000
------- --------
Present value of minimum capital lease payments............. -- 467,000
Less amounts due within one year............................ 13,000 219,000
------- --------
Long-term obligations under notes payable and capital
leases.................................................... $13,000 $248,000
======= ========
</TABLE>
F-16
<PAGE> 91
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
7. REDEEMABLE PREFERRED STOCK
The Company is authorized to issue up to 16 million shares of Preferred
Stock. At June 30, 1999 and March 31, 2000, the Company had established six
series of Preferred Stock: Series B, C, D, E, F and G, the terms of which are
summarized below.
At June 30, 1998, 1999, and March 31, 2000 the Company had 540,016
authorized, issued and outstanding shares of Series B Preferred Stock. Each
share of Series B Preferred Stock entitles its holder to receive an annual cash
dividend of $.12 ($0.192 prior to March 1, 1999) per share; to convert it into
one share of Common Stock , as adjusted in the event of future dilution; to
receive $2.40 per share plus accrued dividends in the event of involuntary or
voluntary liquidation; and to receive $2.40 per share plus accrued dividends,
subject to adjustment in the event of future dilution, upon mandatory redemption
by the Company on December 31, 2003. In the event the Company breaches or
violates certain warranties, representations, or covenants as stipulated in the
Stock Purchase Agreement dated May 10, 1994 and the Certificate of
Incorporation, holders of Series B Preferred Stock are granted certain special
voting rights. Such voting rights may be limited by the terms of the
Shareholders Agreement as described in more detail below.
At June 30, 1998, 1999, and March 31, 2000, the Company had 2,376,651
authorized, issued and outstanding shares of Series C Preferred Stock. Each
share of Series C Preferred Stock entitles its holder to receive an annual cash
dividend of $0.12 ($.192 prior to March 1, 1999) per share; to convert it into
one share of Class A Common Stock, as adjusted in the event of future dilution;
to receive $2.40 per share plus accrued dividends in the event of involuntary or
voluntary liquidation; and to receive $2.40 per share plus accrued dividends,
subject to adjustment in the event of future dilution, upon redemption by the
Company on December 31, 2003. Holders of Series C Preferred Stock are not
entitled to voting rights.
The Company has 4,000,000 authorized shares of Series D Preferred Stock, of
which 3,692,618 were issued and outstanding at June 30, 1998, 1999 and March 31,
2000. Each share of Series D Preferred Stock entitles its holder to receive an
annual cash dividend of $0.12 ($0.192 prior to March 1, 1999) per share; to
convert it into one share of Common Stock, as adjusted in the event of future
dilution; to receive $2.28 per share plus accrued dividends in the event of
involuntary or voluntary liquidation; and to receive $2.28 per share plus
accrued dividends, subject to adjustment in the event of future dilution, upon
mandatory redemption by the Company on December 31, 2003. Holders of Series D
Preferred Stock are not entitled to voting rights.
The Company has 1,000,000 authorized shares of Series E Preferred Stock.
There were no shares of Series E Preferred Stock outstanding at June 30, 1998,
1999 or March 31, 2000.
At June 30, 1998, 1999, and March 31, 2000, the Company had 750,000
authorized, issued and outstanding shares of Series F Preferred Stock, all of
which were issued during 1997 in conjunction with the purchase of BMC (see Note
3). Each share of Series F Preferred Stock entitles its holder to receive
non-cumulative cash dividends at an annual rate of $0.192 per share before
dividends may be paid to holders of Common Stock; to convert it into one share
of Common Stock, as adjusted in the event of future dilution; and to receive $8
per share in the event of involuntary or voluntary liquidation. Shares of Series
F Preferred Stock have voting rights equivalent to those of Common Stock plus
the right to designate one member of the board of directors as long as the
shares are held by the seller of BMC. Under the terms of an investor's agreement
with the holder of Series F Preferred Stock, the holder may elect to put, at $8
per share, up to 20% of the Series F Preferred Stock back to the Company each
year in the five year period beginning June 16, 2000. The put rights expire upon
the closing of an underwritten public offering of the Company's Common Stock.
F-17
<PAGE> 92
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
In March 1999 the Company designated 5,636,071 of its authorized Preferred
Stock as Series G Preferred Stock and sold the shares in a private offering for
net proceeds of approximately $32.7 million. Each share of Series G Preferred
Stock entitles its holder to receive an annual cash dividend of $0.3105 per
share; to convert it into one share of Common Stock, as adjusted in the event of
future dilution; to receive $6.21 per share plus accrued dividends in the event
of involuntary or voluntary liquidation; and to receive $6.21 per share plus
accrued dividends, subject to adjustment in the event of future dilution, upon
redemption, at the option of the Series G Preferred Stock shareholder, on or
after December 31, 2003. Shares of Series G Preferred Stock have voting rights
equivalent to those of Common Stock plus, under certain circumstances, the right
to pre-approve certain actions of the Company as specified in the Certificate of
Designation.
Dividends on outstanding shares of Series B, Series C, Series D and Series
G Preferred Stock are cumulative and must be paid in the event of liquidation
and before any distribution to holders of Common Stock. Aggregate cumulative
dividends in arrears on preferred stock were approximately $3,977,000,
$5,598,379 and $7,420,319 at June 30, 1998, 1999 and March 31, 2000,
respectively. Dividends on the Series F Preferred Stock are not cumulative
except that if, in any year, accrued dividends from prior years are paid on
Series B, Series C, Series D and Series G Preferred Stock, then dividends will
be paid on the Series F Preferred Stock.
The difference between the carrying amount and the amount at which
Preferred Stock may be redeemed or put to the Company is being accreted through
periodic adjustments to the balance of preferred stock and the accumulated
deficit over the period from issuance to the redemption or put date.
Each share of Series B, Series E, Series F and Series G Preferred Stock
shall automatically be converted into shares of Common Stock and each share of
Series C and Series D Preferred Stock shall be automatically converted into
shares of Class A Common Stock at the then applicable conversion price at any
time upon the closing of an underwritten public offering of the Company's Common
Stock meeting certain criteria.
On May 11, 1994, the Company entered into a Shareholder's Agreement with
the Preferred Shareholder and a former employee whereby the parties agreed to
certain matters relating to the operations of the Company and disposition and
issuance of shares of capital stock of the Company. On November 16, 1997, the
Company amended and restated the original Shareholder's Agreement with the
Preferred Shareholder. The Agreement, as amended, includes provisions giving the
Preferred Shareholder certain rights to subscribe for securities. The Agreement
also includes a provision which limits the voting rights of the Preferred
Shareholder to the extent of the number of votes represented by all outstanding
shares of the Company's capital stock not owned directly or indirectly by the
Preferred Shareholder (Maximum Number of Votes). All shares held by the
Preferred Shareholder which represent a number of votes in excess of the Maximum
Number of Votes will be deemed to be nonvoting shares. Nonvoting shares will
have no right to vote upon the election of directors or any other matter
submitted to shareholder vote.
8. COMMON STOCK
The Company is authorized to issue up to 26 million shares of Common Stock
and seven million shares of Class A Common Stock. Holders of Common Stock and
Class A Common Stock are entitled to dividends declared by the Board of
Directors out of legally available funds. Holders of Common Stock are entitled
to one vote per share. Holders of Class A Common Stock are not entitled to vote.
Subject to certain restrictions, Class A Common Stock is fully convertible into
Common Stock at the option of the
F-18
<PAGE> 93
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
holder. The Preferred Shareholder has the right, exercisable at any time, to
exchange shares of Common Stock for Class A Common Stock on a share for share
basis. At June 30, 1998, 1999 and March 31, 2000 there were no shares of Class A
Common Stock outstanding and the Preferred Shareholder owned no Common Stock.
In July 1996, the Company repurchased 125,000 shares of Common Stock from
the former Chairman of the Board and CEO for $225,000. The Company subsequently
offered a member of management the option to purchase 125,000 shares for $1.80
per share as part of his employment agreement. The employee purchased 40,000
shares under this option during 1997 and the option to purchase the remaining
shares expired.
The Company has reserved a total of 22,721,333 shares of Common Stock for
future issuance upon conversion of Series B, Series F and Series G Preferred
Stock, exercise of warrants and options to purchase Common Stock, and conversion
of Class A common stock. The Company has reserved a total of 6,069,269 shares of
Class A Common Stock for future issuance upon conversion of Series C and D
Preferred Stock.
See Notes 3, 4, 7, and 9 for additional information with respect to Common
Stock.
9. STOCK OPTION PLANS
The Company's 1987 and 1997 stock option plans provide for the granting of
either incentive stock options or non-qualified options to purchase shares of
the Company's Common Stock in order to provide incentives to certain employees
and directors. The Company's 1987 plan has expired and the Company is
authorized, as of June 30, 1999, to issue up to 2,500,000 options to purchase
Common Stock under its 1997 plan. These plans allow participants to purchase
Common Stock of the Company at prices set by the Board of Directors, but in the
case of incentive stock options not less than fair market value at the date the
option is granted. Unless otherwise specified, outstanding options vest
one-third each year. Unexercised options expire ten years after the date of
grant unless otherwise specified by the Board of Directors.
Stock option activity is shown below:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
STOCK OPTIONS OF SHARES EXERCISE PRICE
------------- --------- ----------------
<S> <C> <C>
Outstanding at June 30, 1996............................... 1,201,972 $1.53
Granted.................................................. 527,141 2.26
Exercised................................................ (14,500) 0.25
Lapsed or canceled....................................... (29,834) 1.80
---------
Outstanding at June 30, 1997............................... 1,684,779 1.79
Granted.................................................. 1,491,200 2.75
Exercised................................................ (57,026) 0.46
Lapsed or canceled....................................... (45,907) 2.43
---------
Outstanding at June 30, 1998............................... 3,073,046 2.27
Granted.................................................. 1,080,250 3.12
Exercised................................................ (38,064) 0.98
Lapsed or canceled....................................... (177,360) 2.61
---------
</TABLE>
F-19
<PAGE> 94
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE
STOCK OPTIONS OF SHARES EXERCISE PRICE
------------- --------- ----------------
<S> <C> <C>
Outstanding at June 30, 1999............................... 3,937,872 2.50
Granted.................................................. 529,016 3.75
Exercised................................................ (134,937) 1.90
Lapsed or canceled....................................... (271,604) 2.97
---------
Outstanding at March 31, 2000 4,060,347 2.65
=========
Exercisable at June 30, 1997............................... 823,236 1.48
Exercisable at June 30, 1998............................... 1,168,359 1.75
Exercisable at June 30, 1999............................... 1,832,336 2.05
Available for grant at June 30, 1999....................... 222,482
</TABLE>
The following table summarizes the range of exercise prices, weighted
average exercise prices, and weighted average remaining contractual lives for
options outstanding and exercisable as of June 30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------------- --------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF NUMBER AVERAGE REMAINING NUMBER AVERAGE
EXERCISE OF EXERCISE CONTRACTUAL OF EXERCISE
PRICES SHARES PRICE LIFE SHARES PRICE
-------- ---------- -------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
$0.25 88,500 $0.25 4 88,500 $0.25
1.80 1,195,373 1.80 6 1,118,092 1.80
2.75 1,609,599 2.75 8 625,494 2.75
3.00 768,500 3.00 9 -- 3.00
3.25 163,750 3.25 9 250 3.25
3.75 112,150 3.75 10 -- 3.75
---------- ----- --------- -----
3,937,872 $2.50 8 1,832,336 $2.05
========== ===== ========= =====
</TABLE>
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options. Under APB 25, when the exercise price
of the Company's employee stock options equals or exceeds the estimated fair
value of the underlying stock on the date of grant, no compensation expense is
recognized. The Company incurred approximately $388,000 of deferred stock
compensation during the nine months ended March 31, 2000 related to stock option
grants in which the exercise price was less than the deemed fair value of the
underlying common stock on the date of grant. Deferred stock compensation is
being amortized to compensation expense over the related option vesting periods.
Pro forma information regarding net loss is required by SFAS No. 123, which
also requires that the information be determined as if the Company had accounted
for its employee stock options granted subsequent to July 1, 1996 under the fair
value method of that Statement. The fair value for these options was estimated
at the date of grant using the Black-Scholes model with the following weighted
average assumptions for fiscal 1997, 1998 and 1999: risk-free interest rate of
6.6%, 5.7% and 5.0%, a dividend yield of 0%, volatility factor of the expected
market price of the Company's Common Stock of .01, and an expected life of the
option of 5 years, 5 years and 4 years, respectively. The weighted average
grant-date fair value of options granted in 1997, 1998 and 1999 was $0.62, $0.70
and $0.58 per share, respectively.
F-20
<PAGE> 95
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. Pro forma net
loss for 1997, 1998 and 1999 was $17,800,000, $15,900,000 and $20,079,000,
respectively. Pro forma net loss per common share for 1997, 1998 and 1999 was
($16.08), ($14.27), and ($15.57), respectively. Because SFAS No. 123 is
applicable only to options granted subsequent to June 30, 1995, its pro forma
effect was not fully reflected until 1998.
10. OPERATING LEASES
The Company rents office space, office equipment, and vehicles under
operating lease agreements. Rent expense for 1997, 1998 and 1999 and the nine
months ended March 31, 2000 was approximately $741,000, $737,000, $1,460,000 and
$1,118,000, respectively. Future minimum payments under all non-cancelable
operating leases at June 30, 1999 are summarized below:
<TABLE>
<S> <C>
Year ending June 30,
2000...................................................... $516,000
2001...................................................... 224,000
2002...................................................... 11,000
2003...................................................... 1,000
--------
Total future minimum lease payments............... $752,000
========
</TABLE>
11. INCOME TAXES
At June 30, 1999, the Company has net operating loss carryforwards of
approximately $61 million and tax credits of approximately $929,000 for income
tax purposes that expire principally in years 2001 through 2014. Included in the
total net operating loss carryforwards at June 30, 1999 are approximately $9.6
million of net operating losses related to the Company's foreign operations
which may be carried forward indefinitely.
F-21
<PAGE> 96
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JUNE 30,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 16,085,000 $ 23,225,000
Allowance for doubtful accounts........................... 366,000 444,000
Accrued liabilities....................................... 1,025,000 1,377,000
Research and development credit........................... 729,000 929,000
Purchased software and other intangibles.................. 269,000 --
------------ ------------
Total deferred tax assets......................... 18,474,000 25,975,000
Valuation allowance......................................... (18,474,000) (25,975,000)
Net deferred tax assets........................... -- --
------------ ------------
Net deferred taxes................................ $ -- $ --
============ ============
</TABLE>
Based on an assessment of available evidence as of June 30, 1998 and 1999,
management concluded that the deferred income tax assets should be reduced by a
valuation allowance equal to the amount of the net deferred income tax assets.
A reconciliation of the statutory U.S. income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Tax (benefit) at statutory federal rate................. $(6,027,000) $(5,259,000) $(6,650,000)
State taxes net of federal benefit...................... (709,000) (619,000) (782,000)
Research and development credit......................... (302,000) (238,000) (200,000)
Purchased in-process research and development costs..... 771,000 -- --
Meals and entertainment................................. 29,000 81,000 68,000
Other, net.............................................. (318,000) 48,000 63,000
Change in valuation allowance........................... 6,556,000 5,987,000 7,501,000
----------- ----------- -----------
Total income tax expense...................... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
12. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Profit Sharing Plan for the benefit of eligible
employees and their beneficiaries. Essentially all employees are eligible to
participate in the Plan and are fully vested. The Company's contributions to the
Plan are discretionary. No contributions were made to the Plan during 1997,
1998, 1999 or the nine months ended March 31, 2000.
F-22
<PAGE> 97
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
13. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is organized around geographic areas. The Company's operations
in The Americas and Europe represent their two reportable segments. Europe is
comprised of operations in the United Kingdom, France, Germany and the
Netherlands. The accounting policies as described in the summary of significant
accounting policies are applied consistently across the segments.
Segment information for the years ended June 30, 1997, 1998, 1999 and for
the nine months ended March 31, 2000 are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------ NINE MONTHS ENDED
1997 1998 1999 MARCH 31, 2000
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
REVENUE
The Americas
Software license fees.............. $ 3,368,452 $ 9,026,723 $ 8,994,040 $ 7,389,222
Services........................... 3,475,123 6,766,732 11,344,645 8,108,274
------------ ------------ ------------ ------------
Total The Americas................... 6,843,575 15,793,455 20,338,685 15,497,496
Europe
Software license fees.............. 964,420 1,365,506 1,527,531 331,317
Services........................... 412,455 1,247,414 1,415,204 1,321,623
------------ ------------ ------------ ------------
Total Europe......................... 1,376,875 2,612,920 2,942,735 1,652,940
------------ ------------ ------------ ------------
Total...................... $ 8,220,450 $ 18,406,375 $ 23,281,420 $ 17,150,436
============ ============ ============ ============
NET LOSS
The Americas......................... $(15,648,932) $(13,275,436) $(16,010,136) $(10,466,622)
Europe............................... (2,078,043) (2,253,941) (3,549,974) (2,735,881)
------------ ------------ ------------ ------------
Total...................... $(17,726,975) $(15,529,377) $(19,560,110) $(13,202,503)
============ ============ ============ ============
TOTAL ASSETS
The Americas......................... $ 16,795,865 $ 22,313,871 $ 20,664,958
Europe............................... 2,126,153 3,081,202 4,020,029
Eliminations....................... (9,078,194) (13,739,318) (17,786,961)
------------ ------------ ------------
Total...................... $ 9,843,824 $ 11,655,755 $ 6,898,026
============ ============ ============
</TABLE>
All revenue was generated from external customers.
The elimination within total assets represents the Company's investment in
the Europe segment and funding provided for operations.
Export sales from the United States were approximately $315,000,
$1,671,000, $1,597,000 and $1,440,000 for the years ended June 30, 1997, 1998,
and 1999, and the nine months ended March 31, 2000, respectively.
F-23
<PAGE> 98
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
14. SUBSEQUENT EVENTS
Stock Options
On November 9, 1999, the board of directors approved an increase in the
authorized common shares issuable under the Company's 1997 Stock Option Plan to
a total of 3,800,000 shares.
On May 15, 2000, the Company granted options to purchase a total of 343,500
shares of common stock at $8 per share. The Company recorded deferred
compensation expense of $343,500 based on the difference between the exercise
price and the deemed fair value of the underlying common stock on the date of
grant.
Line of Credit
On March 29, 2000, the Company amended the Loan and Security Agreement. The
Loan and Security Agreement, as amended, provides the Company with a line of
credit not to exceed the lesser of $20 million or an amount equal to the sum of
the following: 80% of qualifying receivables, as defined, an additional loan of
$5 million, and the amount outstanding under the term loan in the original
principal amount of $5 million.
Loan Payable
In April 2000, the Preferred Shareholder loaned the Company $2.5 million
with no stated terms. In June 2000, the Company repaid the total principal
balance and interest of $39,000.
Sale of Common Stock
On May 16, 2000, the Company sold 125,000 shares of common stock for
$1,000,000, of which 112,500 shares were sold to a member of the board of
directors. The Company recorded $125,000 of compensation expense as a result of
this sale based on the difference between the sales price and the deemed fair
value of the shares on the date sold.
Initial Public Offering
On May 15, 2000 the board of directors authorized the filing of a
registration statement with the Securities and Exchange Commission to register
shares of its common stock in connection with a proposed Initial Public Offering
("IPO"). If the offering is consummated under the terms presently anticipated,
all of the outstanding convertible preferred stock as of March 31, 2000, will
convert to 12,995,356 shares of common stock upon the closing of the IPO.
Additionally, the board of directors approved the payment of all accrued and
unpaid dividends on the outstanding preferred stock of the Company in shares of
Series H preferred stock that automatically convert to common stock upon
completion of this offering. Furthermore, on May 15, 2000 the board of directors
authorized the conversion of $15 million of Subordinated Promissory Notes plus
all accrued and unpaid interest on such notes into shares of common stock at the
price of the initial public offering, less underwriting discounts and
commissions. Additionally, at the completion of the IPO, E. M. Warburg, Pincus
will exercise, on a cashless basis, all their outstanding warrants based on the
price of the initial public offering, less underwriting discounts and
commission, resulting in the issuance of 3,589,563 shares of common stock. The
effect of these planned equity transactions has been reflected as unaudited pro
forma shareholders' deficit in the accompanying
F-24
<PAGE> 99
SYNQUEST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(Information for the nine months ended March 31, 1999 and 2000 is unaudited.)
consolidated balance sheet as of March 31, 2000 and pro forma net loss per share
in the accompanying consolidated statements of operations.
Additionally, the board of directors authorized an increase in the
authorized number of shares of common stock to 100,000,000 shares, amended
Series C Preferred Stock to make each share convertible into one share of common
stock, and eliminated Class A common stock.
Warrants
On May 17, 2000 the Company issued a warrant to purchase 400,000 shares of
its common stock at an exercise price of $8 per share in connection with a May
19, 2000 software license agreement for certain of the Company's standard
products and maintenance. Except under circumstances defined in the agreement,
the warrant expires in May 2003. The fair value for this warrant was estimated
at the date of grant using the Black-Scholes model with the following
assumptions: risk-free interest rate of 6.81%, a dividend yield of 0%, a
volatility factor of .35404 and an expected life of three years. The software
license and maintenance fees have been reduced by the fair value of the
warrants.
F-25
<PAGE> 100
------------------------------------------------------
------------------------------------------------------
Prospective investors may rely only on the information contained in this
prospectus. Neither SynQuest, Inc. nor any underwriter has authorized anyone to
provide prospective investors different or additional information. This
prospectus is not an offer to sell nor is it seeking an offer to buy these
securities in any jurisdiction where the offer or sale is not permitted. The
information contained in this prospectus is accurate only as of the date of the
prospectus, regardless of the time of delivery of this prospectus or of any sale
of these securities.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of the common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe the restrictions of that jurisdiction
related to this offering and the distribution of this prospectus.
---------------------------------
TABLE OF CONTENTS
---------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................. 1
Risk Factors....................... 7
Use of Proceeds.................... 16
Dividend Policy.................... 16
Capitalization..................... 17
Dilution........................... 19
Selected Financial Data............ 21
Management's Discussion and
Analysis of Financial Condition
and Results of Operations........ 24
Business........................... 36
Management......................... 51
Principal Shareholders............. 57
Related Party Transactions......... 59
Description of Capital Stock....... 61
Shares Eligible for Future Sale.... 64
Underwriting....................... 66
Legal Matters...................... 68
Experts............................ 68
Where You Can Find More
Information...................... 69
Index to Consolidated Financial
Statements....................... F-1
</TABLE>
UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
5,000,000 SHARES
(SYNQUEST LOGO)
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BEAR, STEARNS & CO. INC.
J.P. MORGAN & CO.
WIT SOUNDVIEW
, 2000
------------------------------------------------------
------------------------------------------------------
<PAGE> 101
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee and NASD filing fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 24,046
NASD filing fee............................................. 8,000
Nasdaq National Market listing fee.......................... 95,000
Accounting fees and expenses................................ 300,000
Legal fees and expenses..................................... 150,000
Blue Sky fees and expenses (including counsel fees)......... 15,000
Printing and engraving expenses............................. 300,000
Transfer Agent and Registrar fees and expenses.............. 30,000
Miscellaneous expenses...................................... 67,954
--------
Total............................................. $990,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Georgia Business Corporation Code permits a corporation to eliminate or
limit the personal liability of a director to the corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a
director, provided that no provision shall eliminate or limit the liability of a
director: (A) for any appropriation, in violation of his duties, of any business
opportunity of the corporation; (B) for acts or omissions which involve
intentional misconduct or a knowing violation of law; (C) for unlawful corporate
distributions; or (D) for any transaction from which the director received an
improper personal benefit. This provision pertains only to breaches of duty by
directors in their capacity as directors (and not in any other corporate
capacity, such as officers) and limits liability only for breaches of fiduciary
duties under Georgia corporate law (and not for violation of other laws, such as
the Federal securities laws). Our Second Amended and Restated Articles of
Incorporation (the "Restated Articles") exonerate our directors from monetary
liability to the extent permitted by this statutory provision.
Our Bylaws (the "Bylaws") also provide that we shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including any action by or in the right of the
Company), by reason of the fact that such person is or was a director or officer
of our company, or is or was serving at our request as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including reasonable attorneys' fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of our company(and with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe such person's
conduct was unlawful), to the maximum extent permitted by, and in the manner
provided by, the Georgia Business Corporation Code. In addition, our Bylaws
provide that we will advance to its directors or officers reasonable expenses of
any such proceeding.
Notwithstanding any provision of our Restated Articles and Bylaws to the
contrary, the Georgia Business Corporation Code provides that we shall not
indemnify a director or officer for any liability incurred in a proceeding in
which the director is adjudged liable to our company or is subjected to
injunctive relief in favor of our company: (1) for any appropriation, in
violation of his duties, of any business opportunity of our company; (2) for
acts or omissions which involve intentional misconduct or a
II-1
<PAGE> 102
knowing violation of law; (3) for unlawful corporate distributions; (4) for any
transaction from which the director or officer received an improper personal
benefit.
The Underwriting Agreement filed as Exhibit 1.1 hereto also contains
certain provisions pursuant to which certain officers, directors and controlling
persons of our company may be entitled to be indemnified by the underwriters
named therein.
We have purchased insurance with respect to, among other things, any
liabilities that may accrue under the statutory provisions referred to above.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this registration statement, we
have issued the following securities that were not registered under the
Securities Act:
(A) Issuances of Capital Stock.
In June 1997, we issued and sold an aggregate of 750,000 shares of Series F
preferred stock to the former stockholder of Bender Management Consultants, Inc.
in consideration of all of the issued and outstanding shares of common stock of
Bender Management Consultants, Inc.
In June 1997, we issued 2,500 shares of our common stock to a former
independent consultant in consideration of the execution and delivery of a
Release and Covenant Not to Sue.
In January 1998, we issued 15,000 shares of our common stock to the
shareholders of Manufacturing Execution Systems Associates, Inc. in
consideration of their continued employment with us.
In January 1999, we issued 15,000 shares of our common stock to the
shareholders of Manufacturing Execution Systems Associates, Inc. in
consideration of their continued employment with us.
In March 1999, we issued and sold an aggregate of 5,636,071 shares of our
Series G preferred stock to several accredited and institutional investors for
an aggregate offering price of $35.0 million. Deutsche Bank Alex. Brown
(formerly BT Alex. Brown Incorporated) served as the exclusive placement agent
for this offering. As consideration for its services, we paid Deutsche Bank
Alex. Brown $2.2 million.
In May 2000, we issued and sold an aggregate of 112,500 shares of our
common stock to Edward Scott, Jr., a member of our board of directors, for an
aggregate purchase price of $900,000.
In May 2000, we issued and sold an aggregate of 12,500 shares of our common
stock to Carolina Gutierrez for an aggregate purchase price of $100,000.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering.
(B) Issuances of Notes and Warrants.
On May 20, 1997, we issued and sold a $2.0 million subordinated promissory
note and a warrant to purchase an aggregate of 727,273 shares of our common
stock to Warburg, Pincus Investors, L.P. at an exercise price of $2.75 per
share.
On July 20, 1997, we issued and sold a $2.5 million subordinated promissory
note and a warrant to purchase an aggregate of 714,286 shares of our common
stock to Warburg, Pincus Investors, L.P. at an exercise price of $3.50 per
share.
In November 1998, we issued and sold a subordinated promissory note to
Warburg, Pincus Investors, L.P. in an aggregate principal amount of $5.0
million. In accordance with its terms, the note was converted into an aggregate
of 805,153 shares of Series G preferred stock upon the closing of the sale of
the Series G preferred stock discussed at (A) above.
II-2
<PAGE> 103
On May 17, 2000, the Company issued a warrant to purchase 400,000 shares of
its common stock at an exercise price of $8.00 per share in connection with a
software license agreement.
No underwriters were used in the foregoing transactions. All sales of
securities described above were made in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act and/or Regulation D
promulgated thereunder for transactions by an issuer not involving a public
offering.
(C) Grants and Exercises of Stock Options.
Since May 19, 1997, we have granted stock options to purchase an aggregate
of 3,593,966 shares of common stock with exercise prices ranging from $2.75 to
$8.00 per share, to employees, directors and consultants pursuant to our 1997
stock option plan. Of the options granted pursuant to our 1987 and 1997 stock
option plans, 430,119 have been exercised for an aggregate consideration of
$393,284 as of July 31, 2000. The issuance of common stock upon exercise of the
options was exempt either pursuant to Rule 701, as a transaction pursuant to a
compensatory benefit plan, or pursuant to Section 4(2), as a transaction by an
issuer not involving a public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) Exhibits.
We agree to furnish a copy of all agreements relating to long-term debt
upon request of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1.1** -- Form of Underwriting Agreement
3.1** -- Second Amended and Restated Articles of Incorporation of
SynQuest, Inc.
3.2** -- Bylaws of SynQuest, Inc.
3.3** -- Form of Certificate of Designation, Preferences and Rights
of Series H Preferred Stock
4.1** -- Form of specimen common stock certificate
4.2** -- Stock Purchase Agreement by and between Factory Automation &
Computer Technologies, Inc., Warburg, Pincus Investors, L.P.
and Craig Skevington dated as of May 10, 1994.
4.3** -- Preferred Stock Purchase Agreement by and between SynQuest,
Inc. and Series G Investors dated as of March 3, 1999.
4.4** -- Form of Investor's Agreement between the Company and
Warburg, Pincus Investors, L.P. relating to purchase of
Series D preferred stock (along with schedule of agreements)
5.1** -- Opinion of King & Spalding as to the legality of the common
stock being registered
10.1** -- Employment Agreement by and between SynQuest, Inc. and
Joseph Trino dated as of November 1, 1997
10.2** -- Employment Agreement by and between SynQuest, Inc. and
Timothy Harvey dated as of August 15, 1996
10.3** -- Employment Agreement by and between SynQuest, Inc. and John
Bartels dated as of November 1, 1997
10.4** -- Employment Agreement by and between SynQuest, Inc. and Paul
Bender dated as of June 16, 1997
10.5** -- Employment Agreement by and between SynQuest, Inc. and
Christopher Jones dated as of September 1, 1998
10.6** -- Severance Agreement Letter by and between SynQuest, Inc. and
Mark Simcoe dated as of November 1, 1999
10.7** -- 1997 Stock Option Plan dated as of November 9, 1999
10.8** -- Loan and Security Agreement by and between Factory
Automation & Computer Technology, Inc. and Greyrock Business
Credit dated as of July 10, 1996
</TABLE>
II-3
<PAGE> 104
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
10.9** -- Amended Schedule to Loan and Security Agreement by and
between SynQuest, Inc. and Greyrock Business Credit dated as
of June 30, 1997
10.10** -- Second Amendment to Loan Documents by and between SynQuest,
Inc. and Greyrock Business Credit dated as of September 24,
1997
10.11** -- Extension Agreement by and between SynQuest, Inc. and
Greyrock Business Credited dated as of May 20, 1998
10.12** -- Amendment Agreement by and between SynQuest, Inc. and
Greyrock Capital dated as of January 13, 1999
10.13** -- Amendment Agreement by and between SynQuest, Inc. and
Greyrock Capital dated as of December 14, 1999
10.14** -- Amendment Agreement by and between SynQuest, Inc. and
Greyrock Capital dated as of March 15, 2000
10.15** -- Amendment Agreement by and between SynQuest, Inc. and
Greyrock Capital dated as of March 29, 2000
10.16** -- Lease Agreement by and between SynQuest, Inc. and Acquiport
Peachtree Ridge, Inc. dated as of January 12, 2000
10.17** -- Form of Subordinated Promissory Note with Warburg, Pincus
Investors, L.P. (along with schedule)
10.18** -- Form of Warrant to Purchase Common Stock issued to Warburg,
Pincus Investors, L.P. (along with schedule of agreements)
10.19** -- Amended and Restated Shareholders' Agreement by and between
SynQuest, Inc. and Warburg, Pincus Investors, L.P. dated as
of November 16, 1997
10.20** -- Form of Investor's Agreement between SynQuest, Inc. and
Warburg, Pincus Investors, L.P. (along with schedule of
agreements)
10.21** -- Investors' Agreement by and among Laurent Martineau, Claude
Martineau, Pierre-Andre Dubreuil, Bertrand Renaud, Seaforth
Lyle, ABR Europe S.A. and A.D.I.S.A. (collectively
"Sellers"), Factory Automation & Computer Technologies, Inc.
and Warburg, Pincus Investors, L.P. dated as of February 23,
1996
10.22** -- Form of Amendment One to Investors' Agreement by and among
Sellers, SynQuest, Inc. and Warburg, Pincus Investors, L.P.
dated as of July , 2000
10.23** -- Investor's Agreement by and between Paul Bender, SynQuest,
Inc. and Warburg, Pincus Investors, L.P. dated as of June
16, 1997
10.24** -- First Amendment to Investor's Agreement by and between Paul
Bender, SynQuest, Inc. and Warburg, Pincus Investors, L.P.
dated as of April 28, 2000
10.25** -- Form of Second Amendment to Investor's Agreement by and
between Paul Bender, SynQuest, Inc. and Warburg, Pincus
Investors, L.P. dated as of July , 2000
10.26** -- Shareholders' Agreement between SynQuest, Inc. and the
holders of Series G Preferred Stock dated as of March 3,
1999
10.27** -- Warrant dated as of May 17, 2000 issued to Ford Motor
Company
10.28** -- Amendment No. 1 to Subordinated Promissory Notes dated
August 7, 2000
21.1** -- List of subsidiaries
23.1** -- Consent of King & Spalding (contained in Exhibit 5.1)
23.2 -- Consent of Ernst & Young LLP
24.1** -- Powers of Attorney
27.1** -- Financial Data Schedule (for SEC filing purposes only)
27.2** -- Financial Data Schedule (for SEC filing purposes only)
</TABLE>
---------------
** Previously filed.
II-4
<PAGE> 105
(B) Financial Statement Schedules.
All financial statement schedules not listed are omitted because they are
inapplicable or the requested information is shown in the financial statements
of the registrant or in the related notes to the financial statements.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer, or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norcross, State of
Georgia, on August 11, 2000.
SYNQUEST, INC.
By: *
------------------------------------
John Bartels
Executive Vice President,
Finance and Administration
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on August 11, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
* Chief Executive Officer and Director
----------------------------------------------------- (Principal Executive Officer)
Joseph Trino
/s/ JOHN BARTELS Executive Vice President, Finance and
----------------------------------------------------- Administration
John Bartels (Principal Financial Officer)
* President, Bender Consulting Division and
----------------------------------------------------- Director
Paul Bender
* Director
-----------------------------------------------------
Henry Kressel
* Director
-----------------------------------------------------
Joseph Landy
* Director
-----------------------------------------------------
Edward Scott, Jr.
*By: /s/ JOHN BARTELS
------------------------------------------------
John Bartels
Attorney-in-Fact
</TABLE>
II-6
