<PAGE>
As filed with the Securities and Exchange Commission on March 20, 2000
Registration No. 333-94549
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act Of 1933
-------------------
BLAZE SOFTWARE, INC.
(Exact name of Registrant as specified in its charter)
-------------------
<TABLE>
<S> <C> <C>
California (before
reincorporation)
Delaware (after reincorporation) 7372 77-0081248
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
Blaze Software, Inc.
150 Almaden Boulevard
San Jose, CA 95113
(408) 275-6900
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
-------------------
THOMAS F. KELLY
Chief Executive Officer
Blaze Software, Inc.
150 Almaden Boulevard
San Jose, CA 95113
(408) 275-6900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------
Copies to:
<TABLE>
<S> <C>
LARRY W. SONSINI CHRISTOPHER L. KAUFMAN
ISSAC J. VAUGHN ROBERT A. KOENIG
YOICHIRO TAKU Latham & Watkins
JASON ALTIERI 135 Commonwealth Drive
BRIAN McDANIEL Menlo Park, CA 94025
Wilson Sonsini Goodrich & Rosati (650) 328-4600
Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
(650) 493-9300
</TABLE>
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the 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, 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, please 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. [_]
-------------------
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 of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 20, 2000
[LOGO OF BLAZE SOFTWARE]
4,000,000 Shares
Common Stock
Blaze Software, Inc. is offering 4,000,000 shares of its common stock. This
is our initial public offering and no public market currently exists for our
shares. We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol "BLZE." We anticipate that the initial
public offering price will be between $12.00 and $14.00 per share.
--------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price.......................................... $ $
Underwriting Discounts and Commissions......................... $ $
Proceeds to Blaze Software, Inc................................ $ $
</TABLE>
--------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
Blaze Software, Inc. has granted the underwriters a 30-day option to purchase
up to an additional 600,000 shares of common stock to cover over-allotments.
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
--------------
Robertson Stephens
Chase H&Q
Dain Rauscher Wessels
The date of this Prospectus is , 2000
<PAGE>
There are two computer monitors. Above the monitor on the left is the caption
"Web interaction." The monitor on the left is saying "Welcome, Tom." Above the
monitor on the right is the caption "Web interaction with Blaze Software." The
monitor on the right is saying "Good morning, Tom. Since your last visit on
Tuesday, two of the items you order most often have gone on sale, and the new
upgrade for your diagnostic system is now available. Would you like to know
more?" The Blaze Software logo and the Blaze Software Web address appear at the
bottom of the page.
<PAGE>
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
Until , 2000, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to
deliver a prospectus. This requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
---------------------
TABLE OF CONTENTS
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Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
You Should Not Rely on Forward-Looking Statements Because They Are
Inherently Uncertain................................................... 17
Use of Proceeds.......................................................... 18
Dividend Policy.......................................................... 18
Capitalization........................................................... 19
Dilution................................................................. 20
Selected Consolidated Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations ......................................................... 23
Business................................................................. 35
Management............................................................... 48
Certain Transactions..................................................... 59
Principal Stockholders................................................... 63
Description of Capital Stock............................................. 65
Shares Eligible for Future Sale.......................................... 68
Underwriting............................................................. 70
Legal Matters............................................................ 73
Experts.................................................................. 73
Change in Independent Accountants........................................ 73
Where You Can Find Additional Information................................ 73
Index to Consolidated Financial Statements............................... F-1
</TABLE>
3
<PAGE>
PROSPECTUS SUMMARY
You should read this summary together with the more detailed information
and our consolidated financial statements and notes thereto appearing elsewhere
in this prospectus. Unless otherwise indicated, this prospectus assumes that
the underwriters have not exercised their option to purchase additional shares,
all shares of preferred stock have been automatically converted into shares of
common stock, we have completed a 1 for 2 reverse stock split and we have
completed our reincorporation in Delaware.
Blaze Software
We are a leading provider of software that enables companies to provide
their customers, employees, partners and suppliers with adaptable and
personalized interactions that are consistent across all company communication
channels, including the Internet, automated telephone response systems, manned
customer service centers, automated self-service electronic kiosks and others.
Companies have policies, practices and procedures that constitute the rules
under which the company's business is to be conducted. These policies,
practices and procedures are commonly referred to as business rules and embody
a company's best marketing practices and collective knowledge of customer
characteristics and preferences. Typical business rules reflecting a business's
policies, practices and procedures may include setting special price discounts
for certain types of customers, checking for regulatory compliance before
allowing a transaction to proceed or offering different promotional items to
users based on their characteristics or profiles.
Our Blaze Advisor Solutions Suite enables companies to translate these
business rules into a format that can be used by business applications. A
company's business applications can draw upon the business rules encoded in our
software to individually tailor interactions with customers, employees,
partners and suppliers based on market conditions, business practices and user
preferences and profiles. Blaze Advisor also enables companies to communicate
their unique way of doing business through these interactions, thereby
differentiating themselves from their competitors and providing incentives for
customers to use their products and services. Blaze Advisor allows business
persons to modify the business rules included in our software quickly and
easily, enabling companies to respond quickly to changes in market conditions,
business practices and user preferences. We also provide consulting and
professional services to help customers plan, develop and implement
personalization solutions using our software.
Many organizations are implementing Internet-based and electronic business
initiatives in order to extend and automate traditional business processes and
compete more effectively. These initiatives, commonly referred to as e-
business, allow companies to transact sales, manage customer service, and
interact and communicate with customers, employees, partners and suppliers
using both traditional and e-business communication channels, including the
Internet and other electronic means. Companies increasingly need software
solutions to help them capitalize on these interactions, maintain their
corporate personality and style and distinguish themselves from their
competitors while conducting an increasing number of transactions over a wide
variety of communication channels. The rapid growth of the Internet has made e-
business an important and fast-growing business channel for many companies, who
have begun to invest significantly in software to support their growing e-
business initiatives. International Data Corporation, a market research firm,
estimates that worldwide license revenues from Internet commerce application
software, which includes software for both business-to-business and business-
to-consumer applications, will grow from $1.7 billion in 1999 to $13.1 billion
in 2003.
Our objective is to maintain our leading position as a provider of software
for personalized e-business interactions. Key elements of our strategy include:
. expand our market presence;
. extend our technology and product leadership;
. target leading customers and independent software vendors;
. increase our professional services capabilities; and
. expand strategic alliances with key business partners.
4
<PAGE>
We maintain operations worldwide to sell and support our products through a
direct sales force and third-party system integrators. We have sold our
products to customers in the technology, financial, insurance, manufacturing,
telecommunications, and healthcare industries and our software is embedded in
many leading e-business software applications.
Corporate Information
We were incorporated in California as Neuron Data, Inc. in 1985. In August
1999, we changed our name to Blaze Software, Inc. We reincorporated in Delaware
in March 2000. Our headquarters are located at 150 Almaden Boulevard, San Jose,
California 95113 and our telephone number at that location is (408) 275-6900.
Our Web site is www.blazesoft.com. Our Web site is not part of this prospectus.
The Offering
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<C> <S>
Common stock offered by Blaze Software............. 4,000,000 shares
Common stock to be outstanding after the offering.. 21,319,244 shares
Use of proceeds.................................... For general corporate
purposes, including
working capital. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............. BLZE
</TABLE>
The number of shares of common stock to be outstanding after the offering
is based on the number of shares outstanding as of December 31, 1999. This
number excludes:
. 4,287,034 shares issuable upon the exercise of outstanding common stock
options at a weighted average exercise price of $0.52 per share;
. 6,005 shares issuable upon the exercise of outstanding common stock
warrants at a weighted average exercise price of $5.60 per share; and
. 445,491 shares available for future issuance under our 1996 stock plan
and 250,000 shares available for future issuance under our 2000 stock
plan. After December 31, 1999, an additional 1,250,000 shares were
reserved for future issuance under our 1996 stock plan and 750,000
shares were reserved for future issuance under our 2000 employee stock
purchase plan.
5
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share data)
The As Adjusted consolidated balance sheet data summarized below reflects
the conversion of all our preferred stock into shares of common stock upon the
completion of this offering and the application of the net proceeds from the
sale of the 4,000,000 shares of common stock offered by Blaze Software at an
assumed initial public offering price of $13.00 per share after deducting the
estimated underwriting discounts and commissions and offering expenses. See
note 2 of the notes to our consolidated financial statements for an explanation
of the determination of the number of shares used in computing per share data.
<TABLE>
<CAPTION>
Nine Months
Ended
Year ended March 31, December 31,
------------------------ -----------------
1997 1998 1999 1998 1999
------ ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenues:
Product licenses................ $3,296 $ 3,559 $ 3,722 $ 2,556 $ 5,371
Services and maintenance........ 327 803 5,332 3,486 6,378
Total revenues.................... 3,623 4,362 9,054 6,042 11,749
Gross profit...................... 2,980 3,776 6,122 4,145 7,366
Operating loss.................... (1,689) (2,970) (5,512) (4,592) (16,916)
Net loss from continuing
operations...................... (2,723) (3,631) (5,848) (4,756) (17,241)
Basic and diluted net loss per
common share from continuing
operations attributable to
common stockholders............. $(3.56) $(37.37) $(19.15) $(16.09) $ (5.88)
Number of shares used in
calculation of basic and diluted
net loss per share.............. 920 125 371 361 4,997
</TABLE>
<TABLE>
<CAPTION>
December 31, 1999
---------------------
Actual As Adjusted
-------- -----------
(unaudited)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 16,326 $63,386
Working capital .......................................... 10,785 57,845
Total assets.............................................. 23,850 70,910
Capital lease obligations, net of current portion......... 298 298
Accumulated deficit....................................... (49,864) (49,864)
Total stockholders' equity ............................... 12,054 59,114
</TABLE>
6
<PAGE>
RISK FACTORS
Any investment in shares of our common stock involves a high degree of
risk. You should consider carefully the following information about these
risks, together with the other information contained in this prospectus, before
you decide to buy our common stock. If we are adversely affected by any of the
following risks, our business, results of operations and financial condition
would likely suffer. In these circumstances, 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.
We have a history of losses, we expect losses in the future and we may never
become profitable.
We incurred net losses of $15.5 million in the nine months ended December
31, 1999, $5.6 million in fiscal 1999 and $5.8 million in fiscal 1998. We had
an accumulated deficit of $49.9 million as of December 31, 1999. We expect to
continue to incur losses in the foreseeable future. These losses may be
substantial, and we may never become profitable. We also expect to
significantly increase our expenses, especially in sales and marketing and
research and development. As a result, our operating results will be harmed if
our revenues do not keep pace with the expected increase in our expenses or are
not sufficient for us to achieve profitability. If we do achieve profitability
in any period, we cannot be certain that we will sustain or increase
profitability on a quarterly or annual basis.
Variations in quarterly operating results due to such factors as changes in
demand for our products and services and changes in our mix of revenues may
cause our stock price to decline.
Our quarterly revenues, expenses and operating results have varied in the
past and may vary significantly from quarter-to-quarter in the future. We
therefore believe that quarter-to-quarter comparisons of our operating results
may not be a good indication of our future performance, and you should not rely
on them to predict our future performance or the future performance of our
stock price. Our short-term expense levels are relatively fixed and are based
on our expectations of future revenues. As a result, a reduction in revenues in
a quarter may harm our operating results for that quarter. If our operating
results in future quarters fall below the expectations of market analysts and
investors, the price of our common stock will fall. Factors that may cause our
operating results to fluctuate on a quarterly basis include:
. varying size, timing and contractual terms of orders for our products;
. our ability to complete our implementation and service obligations
related to product sales in a timely manner;
. changes in the mix of revenues attributable to higher-margin product
license revenues as opposed to substantially lower-margin consulting
services revenues;
. customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next;
. changes in demand for our Blaze Advisor Solutions Suite software or
for personalization software solutions generally;
. loss of significant customers;
. announcements or introductions of new products by our competitors;
. software defects and other product quality problems; and
. seasonal trends in sales of business software.
Our products have a long sales cycle that makes it difficult to plan our
expenses and forecast our results.
It typically takes us between two and six months to complete the majority
of our sales, but it can take us up to one year or longer. It is therefore
difficult to predict the quarter in which a particular sale will occur and
7
<PAGE>
to plan our expenditures accordingly. The period between our initial contact
with a potential customer and their purchase of our products and services is
relatively long due to several factors, including:
. the complex nature of our products;
. our need to educate potential customers about the uses and benefits of
our products;
. the purchase of our products requires a significant investment of
resources by a customer;
. our customers have budget cycles which affect the timing of purchases;
. many of our customers require competitive evaluation and internal
approval before purchasing our products; and
. potential customers may delay purchases due to announcements or
planned introductions of new products by us or our competitors.
The delay or failure to complete sales in a particular quarter could reduce
our revenues in that quarter, as well as subsequent quarters over which
revenues for the sale would likely be recognized. If our sales cycle
unexpectedly lengthens in general or for one or more large orders, it would
adversely affect the timing of our revenues. If we were to experience a delay
of several weeks on a large order, it could harm our ability to meet our
forecasts for a given quarter.
We depend significantly on sales of the Blaze Advisor Solutions Suite, and a
decrease in sales would harm our business.
We currently derive all of our revenues from continuing operations from
licenses of the Blaze Advisor Solutions Suite and Blaze Expert and related
consulting and maintenance revenues. We anticipate that revenues related to the
Blaze Advisor Solutions Suite will continue to comprise a substantial portion
of our revenues for the foreseeable future. In addition, our dependence on
revenues from the Blaze Advisor Solutions Suite will increase because we are
decreasing our emphasis on selling Blaze Expert and are discontinuing
operations associated with Blaze Presenter. Consequently, a decline in the
price of the Blaze Advisor Solutions Suite, or its failure to achieve broad
market acceptance, would harm our business.
If we fail to expand our direct sales capabilities, we may not be able to
increase revenues.
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
our direct sales capabilities. If we fail to do so, this failure could harm our
ability to increase revenues. We currently receive substantially all of our
revenues from direct sales. Our products and services require a sophisticated
sales effort targeted at senior management and information technology managers
of our prospective customers. As of December 31, 1999, our direct sales
organization in North America consisted of 22 employees. Competition for
qualified sales personnel is intense, and we may not be able to hire the kind
and number of sales personnel we are targeting. New hires may require extensive
training and typically take several months to achieve productivity. We cannot
be certain that our recent hires will be as productive as necessary.
New product introductions and pricing strategies by our competitors could
adversely affect our ability to sell our products and could reduce our market
share or result in pressure to price our products in a manner that reduces our
margins.
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Competition could seriously harm our
ability to sell additional software, maintenance renewals, and services on
terms favorable to us. Competitive pressures could reduce our market share or
require us to reduce the price of products and services, any of which could
harm our business. Competitors could offer new products with features or
functionality that
8
<PAGE>
are equal to or better than our products. We may not have sufficient
engineering staff, competitive awareness, management initiative, equipment, or
time to modify our products to match our competitors. In this case, we could
lose existing customers or new customers to competitors.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing, or other resources, or greater name
recognition than we do. As a result, our competitors may be able to respond
more quickly to new or emerging opportunities, technologies and changes in
customer requirements or devote greater resources to the development, promotion
and sale of their products than we can. Current and potential competitors may
have more extensive customer bases that could be leveraged, thereby gaining
market share to our detriment. Such competitors may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies, and
offer more attractive terms to purchasers than the Company. Moreover, certain
of our indirect and potential competitors, such as BroadVision, IBM, Oracle and
SAP, may bundle their products in a manner that may discourage users from
purchasing products offered by us. In addition, current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to enhance their products. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share.
Customers may prefer more specific solutions to narrowly-bounded business
needs. If application needs are initially small or well-defined, a competitor
may offer a product that addresses those needs in a more efficient or time-
effective manner than we can provide. The cross-industry breadth of our
customer base may cause product enhancements to be added in many different
areas that fail to achieve solution dominance for any one industry or market
segment.
Some businesses may have already made a substantial investment in other
third party or internally developed software designed to personalize customer
interactions. These companies may be reluctant to abandon these investments in
favor of our software. In addition, information technology departments of
potential customers may resist purchasing our software solutions for a variety
of other reasons, particularly the potential displacement of their historical
role in creating and running software for their enterprises.
We are dependent on our professional services organization and if we are
unsuccessful in increasing the size of this organization, our business would be
harmed.
Customers that license our software typically engage our professional
services organization to assist with support, training, consulting and
implementation. We believe that growth in sales of the Blaze Advisor Solutions
Suite depends on our ability to provide our clients with these services. If our
internal professional services organization does not effectively implement and
support our products or if we are unable to expand our internal professional
services organization, our ability to sell software will be harmed, affecting
our revenues. We rely on customer satisfaction for customer referrals and
additional sales to customers, which depends in part on the quality and
timeliness of services provided by our professional services organization. If
we are not successful in hiring additional customer support personnel, our
business would be harmed. As of December 31, 1999, our professional services
organization in North America consisted of 22 employees. We are in a new and
evolving market and there are a limited number of people who have the skills
needed to provide the services that our customers demand. Competition for
qualified service personnel is intense. We cannot be certain that we can
attract or retain a sufficient number of qualified service personnel for our
business needs.
If the market in which we sell our products and services does not grow as we
anticipate, our revenues will be reduced.
If the market for personalization software does not grow as quickly or
become as large as we anticipate, our revenues will be reduced. Our market is
still emerging, and our success depends on its growth. Our potential customers
may:
. not understand or see the benefits of using these products;
9
<PAGE>
. not achieve favorable results using these products;
. experience technical difficulty in implementing or using these
products; or
. use alternative methods to solve the same business problems.
In addition, because our products can be used in connection with Internet
commerce and we are currently developing additional Internet commerce
solutions, if the Internet commerce market does not grow as quickly as we
anticipate, we may experience sales that are lower than our expectations.
If we fail to develop new products or improve our existing products to meet or
adapt to the changing needs and standards of our industry, sales of our
products may decline.
Our future success depends on our ability to address the rapidly changing
needs of our customers and potential customers. We must maintain and improve
our Blaze Advisor Solutions Suite and develop new products that respond to new
technological developments, keep pace with products of our competitors and
satisfy the changing requirements of our customers. If more end users access
the Internet or other electronic contact channels, our software may not provide
adequate response to meet our customers' transaction load requirements. Our
ability to deliver performance improvements could be adversely affected by
insufficient engineering resources, insufficient understanding of technology
platforms, lack of performance by required underlying technologies such as Java
or middleware, or other commitments taking priority. If we are unsuccessful in
improving our products and developing new products, we may not achieve market
acceptance and we may be unable to attract new customers. We may also lose
existing customers, to whom we seek to sell additional software solutions and
professional services.
We may commit to improvements and enhancements in products based on
requests and requirements from significant customers. These could consume
engineering staff, resources, and management and planning that would otherwise
be devoted to more generally marketable product work. This could reduce
satisfaction and renewals from existing customers and could reduce market
opportunities for new product sales.
We may not be successful in developing and marketing these or other new or
improved products. If we are not successful, we may lose sales to competitors.
If we fail to manage our growth, our ability to generate new revenues and
achieve profitability would be harmed.
We have grown significantly since our inception and need to grow quickly in
the future. This growth has placed and will continue to place a strain on our
management, administrative, operational and financial infrastructure. Any
failure to manage this growth could impede our ability to increase revenues and
achieve profitability. The number of our employees has increased from 94 at
June 30, 1999 to 128 at December 31, 1999. Future expansion could be expensive
and strain our management and other resources. We relocated our corporate
headquarters in February 2000. Our employees may be distracted by this
relocation and productivity may suffer during this transition. Some employees
may be less productive or resign due to longer commutes. If we are unable to
manage growth effectively, our business may be harmed.
The loss of key personnel or any inability to attract and retain additional
personnel could affect our ability to successfully grow our business.
Our future success will depend in large part on our ability to hire and
retain a sufficient number of qualified personnel, particularly in sales,
customer services, marketing, research and development, and support. If we are
unable to do so, this inability could affect our ability to grow our business.
Competition for qualified personnel in high technology is intense, particularly
in the Silicon Valley region of Northern California where our principal offices
are located. Our future success also depends upon the continued service of our
executive officers and other key sales, engineering and technical staff. The
loss of the services of our executive officers
10
<PAGE>
and other key personnel would harm our operations. We do not maintain key
person insurance on any of our employees. We would also be harmed if one or
more of our executive officers or key employees decided to join a competitor or
otherwise compete with us.
If our products contain defects or our services are not perceived as high
quality, we could lose potential customers or be subject to damages.
Our products are complex and may contain errors, defects or failures,
particularly since new releases are regularly introduced. In the past we have
discovered software errors in some of our products after introduction. We may
not be able to detect and correct errors before releasing our products
commercially. Computer viruses could cause our products to act erratically or
fail. If our commercial products contain errors, we may be required to:
. expend significant resources to locate and correct the error;
. delay introduction of new products or commercial shipment of products;
or
. experience reduced sales and harm to our reputation from dissatisfied
customers.
Our customers also may encounter system configuration problems that require us
to spend additional consulting or support resources to resolve these problems.
Our software is installed on operating systems and runtime software
platforms such as Java that must operate correctly in order for us to deliver
proper results. Bugs in Java, an operating system, or a third party software
package used by one of our customers could result in improper operation of our
products. In such cases, the customer perception could be that our software is
at fault. We could also find it difficult or impossible to track down the root
cause of an error because of insufficient access to or familiarity with the
underlying software at fault. Even if the error is properly identified as the
fault and responsibility of a third party, it could impact our customer's
satisfaction with us or could influence them to choose a different
implementation strategy, resulting in lost revenues and decreased customer
goodwill.
Because our software products are used for customer interaction processes
by our customers, product defects may also give rise to product liability
claims. Customers may rely on our rule execution engine to process transactions
driving the response of their developed applications. Because customers are
free to write any combination of rules they wish, we cannot foresee or test all
possible rule execution scenarios. If our rule engine incorrectly executes
customer rules, incorrect output or application behavior may result. As Blaze
Advisor is used in more customer applications and with larger rule applications
from existing customers, the potential for a material error increases.
Customers could potentially seek restitution or damages from us in such cases.
Although our license agreements with customers typically contain provisions
designed to limit our exposure, some courts may not enforce all or part of
these limitations. Although we have not experienced any product liability
claims to date, we may encounter these claims in the future. Product liability
claims, whether or not successful, could:
. divert the attention of our management and key personnel from our
business;
. be expensive to defend; and
. result in large damage awards.
Our product liability insurance may not be adequate to cover all of the
expenses resulting from a claim. In addition, if our customers do not find our
services to be of high quality, they may elect to use other training,
consulting and product integration firms rather than contract for our services.
If customers are dissatisfied with our services, we may lose revenues.
Our international operations and our international sales efforts expose us to
risks.
Sales to customers outside the Americas accounted for 13.7% of total
revenues from continuing operations in the nine months ended December 31, 1999
and 23.4% of total revenues from continuing operations in fiscal 1999. We have
limited experience in marketing, selling and supporting our products and
11
<PAGE>
services abroad. Furthermore, our management team has had limited experience
managing our international operations. We intend to expand our international
sales efforts in the future, but we may face difficulties managing
international operations. If we are unable to grow our international operations
successfully and in a timely manner, our business and operating results could
be seriously harmed. In addition, doing business internationally involves
greater expense and many additional risks, particularly:
. longer sales cycles and collection of accounts receivable;
. agreements with customers with terms and conditions that differ from
agreements that we enter into with customers in the United States;
. unexpected changes in regulatory requirements, taxes, trade laws and
tariffs;
. reduced protection for intellectual property rights in some countries;
. differing labor regulations;
. compliance with a wide variety of complex regulatory requirements;
. changes in a specific country's or region's political or economic
conditions;
. greater difficulty in staffing and managing foreign operations;
. increased financial accounting and reporting burdens and complexities;
and
. fluctuating exchange rates.
Our international operations will require a significant amount of attention
from our management and substantial financial resources. We cannot be certain
that our investments in establishing facilities in other countries will produce
desired levels of revenues or profitability.
Our revenues depend on a small number of large orders from our top customers
and if we fail to complete one or more large orders, our revenues will be
reduced.
To date, we have received a significant portion of our total revenues from
a small number of large orders from our top customers. For example, Unisys
Corporation alone accounted for 25.2% of total revenues from continuing
operations for the nine months ended December 31, 1999. However, we do not have
any contracts or agreements with Unisys other than purchase orders in the
ordinary course of business. Our operating results may be harmed if we are not
able to complete one or more substantial product sales in any future period or
attract new customers.
If we fail to establish, maintain or expand our strategic relationships with
third parties, our ability to grow revenues could be harmed.
In order to grow our business, we must generate, retain and strengthen
strategic relationships with third parties. To date, we have established
relationships with several companies, including consulting organizations and
system integrators that implement our software. If the third parties with which
we have strategic relationships do not provide sufficient, high-quality service
or integrate and support our software correctly, or if we are unable to enter
into successful new strategic relationships, our revenues may be harmed. In
addition, the third parties with which we have strategic relationships may
offer products of other companies, including products that compete with our
products. We typically enter into contracts with third parties that generally
set out the nature of our strategic relationships. However, our contracts do
not require these third parties to devote resources to promoting, selling and
supporting our products. Therefore we have little control over these third
parties. We cannot assure you that we can generate and maintain strategic
relationships that offset the significant time and effort that are necessary to
develop these relationships.
If Sun Java loses popularity, demand for our products will be reduced.
Our software is written in the Java computer programming language developed
by Sun Microsystems. While a number of companies have introduced Web and
server-side applications based on Java, Java could fall
12
<PAGE>
out of favor and fail to be supported by Sun Microsystems or other companies.
In particular, Microsoft may offer substitute products or technologies. If
support for Java decreased or we could not continue to use Java or related Java
technologies, we could have to rewrite the source code for the Blaze Advisor
Solutions Suite to enable our products to run on other computer platforms.
Also, changes to Java could require us to change our products. If we were
unable to develop or implement appropriate modifications to our products on a
timely basis, we could lose revenue opportunities and our business could be
harmed. If open-source versions of Java become popular or if cross-platform
standardization is lost, we could be forced to write different versions of our
products for different hardware and software platforms, leading to increased
expenses and time to release products.
If others claim that we are infringing their intellectual property, we could
incur significant expenses or be prevented from selling our products.
We cannot assure you that others will not claim that we are infringing
their intellectual property rights or that we do not in fact infringe those
intellectual property rights. We have not conducted a search for existing
intellectual property registrations and we may be unaware of intellectual
property rights of others that may cover some of our technology.
Any litigation regarding intellectual property could be costly and time-
consuming and divert the attention of our management and key personnel from our
business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements. However, we may not be able to obtain royalty or
licenses agreements on terms acceptable to us, or at all. We also may be
subject to significant damages or an injunction against use of our products. A
successful claim of patent or other intellectual property infringement against
us would have an immediate material adverse effect on our business and
financial condition.
If we are unable to protect our intellectual property rights, this inability
could weaken our competitive position, reduce our revenues and increase our
costs.
Our success depends in large part on our proprietary technology. We rely on
a combination of copyrights, trademarks, trade secrets, patents,
confidentiality procedures and licensing arrangements to establish and protect
our proprietary rights. We may be required to spend significant resources to
monitor and police our intellectual property rights. If we fail to successfully
enforce our intellectual property rights, our competitive position may be
harmed.
Our software uses license keys and we require contractual commitments from
end-users to prevent unauthorized use or copying of the products. In addition,
product pricing is typically based upon machine size used by the customer in
their application deployment. As applications become more complex or as more
users access the applications, our customers may need larger deployment
machines, resulting in additional license revenue opportunities. If our license
protection or contractual compliance is insufficient to prevent them from
copying our software or upgrading without payment, we could lose substantial
revenues. In addition, our software could be copied and resold without our
knowledge and the licensing algorithms could be deciphered or bypassed,
allowing copying, distribution, and use of our software without our knowledge
and without revenues to us.
Our patent, trademark or pending trademark registration applications may
not be allowed or competitors may successfully challenge the validity or scope
of these registrations. Other software providers could copy or otherwise obtain
and use our products or technology without authorization. They also could
develop similar technology independently which may infringe our proprietary
rights. We may not be able to detect infringement and may lose a competitive
position in the market before we do so. In addition, competitors may design
around our technology or develop competing technologies. The laws of some
foreign countries do not protect proprietary rights to the same extent as do
the laws of the United States.
13
<PAGE>
Our products are not tightly integrated with currently popular software
programs and we may lose sales opportunities to competitors.
Our Blaze Advisor Solutions Suite must work with commercially available
software programs that are currently popular. Various information and data may
be stored in a variety of our customers' existing software systems, including
leading systems from Oracle, PeopleSoft, Siebel Systems and SAP, running on a
variety of computer operating systems. If we do not update our software to be
compatible with these programs, we may lose sales opportunities to competitors.
If we fail to obtain access to development versions of these software products,
we may be unable to build and enhance our products on schedule. If we fail to
enhance our software to interact with these products, we may lose potential
customers. If we lose customers, our revenues and profitability may be harmed.
If we need additional financing to maintain and expand our business, financing
may not be available on favorable terms, if at all.
We expect to incur net losses for the foreseeable future. We may need funds
in addition to available cash resources and the net proceeds from this offering
to expand or meet all of our operating needs. If we need additional financing,
we cannot be certain that it will be available on favorable terms, if at all.
Further, if we issue common stock after this offering, stockholders will
experience additional dilution. If we need funds and cannot raise them on
acceptable terms, we may not be able to develop or enhance our products, take
advantage of future opportunities, or respond to customers and competition.
If we acquire any companies or technologies in the future, they could prove
difficult to integrate, disrupt our business, dilute stockholder value and
adversely affect our operating results.
We may acquire or make investments in complementary companies, services and
technologies in the future. Our ability as an organization to conduct
acquisitions or investments is unproven because we have only made one
acquisition to date. If we fail to properly evaluate and execute acquisitions
and investments and integrate new opportunities, our business and prospects may
be harmed. Our inability to successfully evaluate and integrate acquisitions or
technology may result in losses or our management may be distracted from our
day-to-day operations. In addition, if we conduct acquisitions using
convertible debt or equity securities, existing stockholders may be diluted
which could affect the market price of our stock.
Because a small number of existing stockholders will together own 61.0% of our
stock, the voting power of other stockholders, including purchasers in this
offering, may be limited.
After this offering, it is anticipated that our officers, directors and
five percent or greater stockholders will beneficially own or control, directly
or indirectly, 13,271,693 shares of common stock, which in the aggregate will
represent approximately 61.0% of the outstanding shares of common stock. As a
result, if some of these 14 persons or entities act together, they will have
the ability to control all matters submitted to our stockholders for approval,
including the election and removal of directors and the approval of any
business combination. This may delay or prevent an acquisition or cause the
market price of our stock to decline. Some of these persons or entities may
have interests different than yours. For example, they may be more interested
in selling Blaze Software to an acquiror than other investors or may want us to
pursue strategies that are different from the wishes of other investors.
Future sales of our common stock, including those purchased in this offering,
may depress our stock price.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Shares issued upon the exercise of outstanding
14
<PAGE>
options may also be sold in the public market. In addition, such sales could
create the perception to the public of difficulties or problems with our
products and services. As a result, these sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.
Upon completion of this offering, we will have outstanding 21,319,244
shares of common stock, assuming no exercise of the underwriters' over-
allotment option and no exercise of outstanding options after December 31,
1999. Of these shares, 5,816,629 shares will be freely tradable upon the
closing of this offering, including the shares sold in this offering. The
remaining 15,502,615 shares will become eligible for sale in the public market
as follows:
<TABLE>
<CAPTION>
Number of
Date of Availability for Sale Shares
----------------------------- ----------
<S> <C>
181 days after the date of this prospectus..................... 13,268,379
At September 28, 2000.......................................... 281,501
At December 31, 2000........................................... 1,952,735
----------
Total............................................................ 15,502,615
==========
</TABLE>
The above table includes the effect of lock-up arrangements with the
underwriters and us which prevent our directors, officers and certain other
existing stockholders from selling or otherwise disposing of their shares of
common stock prior to 181 days after this offering. The underwriters may remove
these lock-up restrictions prior to 181 days after this offering without prior
notice. In addition, as of December 31, 1999, we have outstanding options to
purchase 4,287,034 shares with a weighted average exercise price of $0.52 per
share. Of these options, 2,402,481 are vested and 4,287,034 are exercisable,
subject to repurchase rights in favor of us with respect to unvested shares, as
of December 31, 1999, and will be resellable 181 days after the offering. As of
December 31, 1999, there are also outstanding warrants to purchase 6,005 shares
of our common stock with a weighted average exercise price of $5.60 per share.
We have broad discretion to use the offering proceeds and how we invest these
proceeds may not yield a favorable, or any, return for us and you may lose the
entire amount of your investment.
The net proceeds of this offering are not allocated for specific uses other
than working capital and general corporate purposes. Thus, our management has
broad discretion over how these proceeds are used and could spend the proceeds
in ways with which you may not agree. We cannot assure you that the proceeds
will be invested in a way that yields a favorable, or any, return for us.
Because this is our initial public offering our securities have no prior market
and we cannot assure you that our stock price will not decline after the
offering.
Before this initial public offering of our stock, there has not been a
public market for our common stock and an active public market for our common
stock may not develop or be sustained after this offering. Further, the price
of our common stock may decline below our initial public offering price. The
initial public offering price was determined by negotiations between the
representatives of the underwriters and us. This price may not directly relate
to our book value, assets, past operating results, financial condition or other
established criteria of value.
Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company.
Our certificate of incorporation and bylaws that will be effective upon the
closing of this offering contain provisions that could make it harder for a
third party to acquire us without the consent of our board of directors. For
example, if a potential acquiror were to make a hostile bid for us, the
acquiror would not be able to call a
15
<PAGE>
special meeting of stockholders to remove our board of directors or act by
written consent without a meeting. In addition, our board of directors has
staggered terms, which makes it difficult to remove them all at once. The
acquiror would also be required to provide advance notice of its proposal to
remove directors at an annual meeting. The acquiror also will not be able to
cumulate votes at a meeting, which will require the acquiror to hold more
shares to gain representation on the board of directors than if cumulative
voting were permitted.
Our board of directors also has the ability to issue preferred stock that
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business combination
transactions with 15% stockholders that have not been approved by the board of
directors. These provisions and other similar provisions make it more difficult
for a third party to acquire us without negotiation. These provisions may apply
even if the offer may be considered beneficial by some stockholders.
Our board of directors could choose not to negotiate with an acquiror that
it did not feel was in the strategic interests of Blaze Software. If the
acquiror was discouraged from offering to acquire us or prevented from
successfully completing a hostile acquisition by the antitakeover measures, you
could lose the opportunity to sell your shares at a favorable price.
We may encounter computer problems or a natural disaster at our headquarters,
which could cause us to lose revenues and customers.
Viruses or bugs introduced into our research and development, quality
assurance, production and shipping, customer support or financial and
administrative software systems could cause us to lose data, expose us to time
and expense in identifying and resolving the problem or delay product
shipments. Furthermore, our headquarters are located in a single location in
Mountain View, California. We could be particularly vulnerable in a natural
disaster, such as an earthquake. Any of these events could cause us to lose
customers or goodwill, which would decrease our revenues.
One of our directors has asserted claims against us that may require us to pay
substantial damages or issue additional shares that would dilute existing
stockholders.
On January 6, 2000, Patrick Perez, a founder and former director of Blaze
Software, notified us of claims that he may assert against us. Mr. Perez
contends that his personal equity ownership of Blaze Software was diluted
improperly in connection with our Series AA preferred stock financing that
closed in June and September 1999. In particular, Mr. Perez contends that he
was wrongfully denied the opportunity to purchase shares at a price of $0.54
per share in connection with the financing, and that the financing was
otherwise unfair and benefited participating stockholders. If Mr. Perez had
participated in the financing, he would have been able to purchase up to
1,710,949 shares. However, should any litigation be decided adversely to us, we
may be required to pay substantial damages or issue additional shares to Mr.
Perez. In addition, other stockholders that did not participate in the
financing may assert similar claims against us. If we are required to issue
additional shares to Mr. Perez or other stockholders, then-existing
stockholders would experience dilution of their ownership and we would need to
record an accounting charge in our statement of operations equal to the fair
market value of the shares at the time of issuance.
If customers delay installations or purchases of our products to avoid having
to perform additional tests on their existing systems related to year 2000
compliance, our revenues will be reduced in the near term.
Many currently installed computer systems and software applications were
written to accept and process only two digits to represent the year when
storing dates. Beginning with the year 2000, these systems need to accept four
digit entries to distinguish 21st century dates from 20th century dates. As a
result, computer systems and/or software products used by many companies may
need to be upgraded to solve this problem to avoid incorrect or lost data. In
1999, a significant number of companies, including some of our current
customers, devoted a substantial amount of their information technology
resources to testing systems for
16
<PAGE>
year 2000 compliance and fixing existing year 2000 problems. Some companies may
delay installation of new systems to avoid having to perform additional year
2000 tests on their existing systems. If these customers also defer purchases
of our products until their year 2000 problems have been tested or resolved, it
will reduce our sales in the near term.
Potential year 2000 problems with our internal systems, our software products
or the products with which our software integrates could adversely affect our
business.
Although we have not experienced any year 2000 problems and have not been
informed of any material year 2000 problems by our customers and vendors, we
cannot assure you that we will not experience unanticipated negative
consequences relating to problems of computer systems in processing dates after
January 1, 2000. These negative consequences include costs associated with:
. problems with our products;
. problems of the interaction of our products with other software; and
. loss of data in our internal systems.
If tests of our products and inquiries of our customers and vendors did not
uncover all year 2000 problems, we could be exposed to damages resulting from
year 2000 failures and claims resulting from damages caused by any incorrect
data produced by our software, whether through a claim of breach of warranty,
product defect or otherwise.
If our professional services organization does not adequately address
existing year 2000 issues of our customers, or there are preexisting errors in
our customer databases, the usefulness of our software may be impaired.
Although we cannot control the year 2000 compliance of our customers and their
third-party vendors, we may still be subject to claims and liability based on
the fact that our products provided incorrect data. These claims could divert
significant management, financial and other resources and we may not have
adequate commercial insurance to cover these claims.
We may not be able to resolve year 2000 problems that we discover before we
suffer losses. We cannot assure you that our products and systems will be year
2000 compliant or that we will not incur material expenses or liability
relating to the year 2000 problem.
YOU SHOULD NOT RELY ON FORWARD-LOOKING STATEMENTS
BECAUSE THEY ARE INHERENTLY UNCERTAIN
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends" and similar expressions to identify such
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this prospectus.
Our actual results could differ materially from those anticipated in these
forward-looking statements for many reasons, including the risks faced by us
described above and elsewhere in this prospectus.
This prospectus also contains market data and estimated projections related
to Internet-based commerce and Internet commerce application software. This
market information has been published and made generally available by
International Data Corporation, a market research firm. This market data is
based on analyses of key trends and surveys of vendors in the profiled market
space. Current estimates and forecasts of global market size have a significant
potential for inaccuracy caused by nonrepresentative vendor selection,
misrepresentation of sales performance, changes in global economic conditions,
and unforeseen technological advances or customer preferences. These markets
may not grow at the rates projected by these data. The failure of these markets
to grow at these projected rates may harm our business and the market price of
our common stock.
17
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 4,000,000 shares of common stock we
are offering are estimated to be $47.1 million ($54.3 million if the
underwriters' over-allotment option is exercised in full) assuming an initial
public offering price of $13.00 per share and after deducting the estimated
underwriting discount and commissions and offering expenses.
We currently intend to use the proceeds of this offering as follows:
approximately $20.0 million for sales and marketing, approximately $9.0 million
for research and development, approximately $5.0 million for professional
services and the remainder for general corporate purposes. We may also use some
of the proceeds to acquire other companies, technology or products that
complement our business, although we are not currently planning any of these
transactions. Pending these uses, the net proceeds of this offering will be
invested in short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future. Covenants in our credit facility prohibit
the payment of cash dividends.
18
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1999:
. our actual capitalization;
. our pro forma capitalization to reflect the conversion of all
outstanding shares of preferred stock into 10,368,938 shares of common
stock; and
. our pro forma, as adjusted capitalization to reflect the proceeds from
the sale of 4,000,000 shares of our common stock offered hereby at an
assumed initial public offering price of $13.00 per share and after
deducting the estimated underwriting discount and commissions and
offering expenses.
<TABLE>
<CAPTION>
December 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
(in thousands, except per
share data)
<S> <C> <C> <C>
Capital lease obligations, less current
portion................................. $ 298 $ 298 $ 298
-------- -------- -------
Stockholders' equity:
Preferred stock, $0.0001 par value:
Authorized: 10,475 shares actual,
10,000 shares pro forma, as adjusted;
Issued and outstanding: 10,369
actual, none pro forma and pro forma,
as adjusted........................... 1 -- --
Common stock, $0.0001 par value:
Authorized: 54,000 shares actual,
200,000 shares pro forma, as
adjusted; Issued and outstanding(1):
6,950 shares, actual, 17,319 shares
pro forma and 21,319 shares pro
forma, as adjusted.................... 1 2 2
Additional paid-in capital.............. 82,064 82,064 129,124
Cumulative translation adjustment....... 535 535 535
Unearned stock-based compensation....... (20,683) (20,863) (20,863)
Accumulated deficit..................... (49,864) (49,864) (49,864)
-------- -------- -------
Total stockholders' equity......... $ 12,054 $ 12,054 $59,114
======== ======== =======
Total capitalization............... $ 12,352 $ 12,352 $59,412
======== ======== =======
</TABLE>
- --------
(1) The number of shares of common stock outstanding at December 31, 1999
excludes:
. 4,287,034 shares issuable upon the exercise of outstanding common
stock options at a weighted average exercise price of $0.52;
. 6,005 shares issuable upon the exercise of outstanding common stock
warrants at a weighted average exercise price of $5.60; and
. 445,491 shares available for future issuance under our 1996 stock plan
and 250,000 shares available for future issuance under the 2000 stock
plan. After December 31, 1999, an additional 1,250,000 shares were
reserved for future issuance under a 1996 stock plan and 750,000
shares were reserved for future issuance under our 2000 employee stock
purchase plan.
19
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was
approximately $12.1 million, or approximately $0.70 per share of common stock.
Pro forma net tangible book value per share represents the amount of tangible
assets less total liabilities, divided by 17,319,244 shares of common stock
outstanding after giving effect to the conversion of all of our outstanding
preferred stock into common stock.
After giving effect to our sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $13.00 per share and
after deduction of the estimated underwriting discount and commissions and
offering expenses, our pro forma, as adjusted, net tangible book value as of
December 31, 1999 would have been approximately $59.1 million, or $2.77 per
share. This represents an immediate increase in pro forma net tangible book
value of $2.07 per share to existing stockholders and an immediate dilution of
$10.23 per share to purchasers of common stock in this offering.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $13.00
Pro forma net tangible book value per share before
offering................................................. $0.70
Increase in pro forma net tangible book value per share
attributable to new investors............................ 2.07
-----
Pro forma, as adjusted net tangible book value per share
after offering............................................. 2.77
------
Pro forma net tangible book value dilution per share to new
investors.................................................. $10.23
======
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1999, the total consideration paid and the average price per share paid by the
existing stockholders and by new investors, before deducting estimated
underwriting discounts and commissions and offering expenses payable by us at
an assumed initial public offering price of $13.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 17,319,244 81.2% $37,529,000 41.9% $ 2.17
New investors.............. 4,000,000 18.8 52,000,000 58.1 13.00
---------- ----- ----------- -----
Total.................... 21,319,244 100.0% $89,529,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing computations exclude 4,287,034 shares of common stock
issuable upon the exercise of outstanding options under the 1996 stock plan as
of December 31, 1999, 695,491 shares reserved for future issuance under the
1996 stock plan and the 2000 stock plan and 6,005 shares issuable upon the
exercise of outstanding common stock warrants. After December 31, 1999, an
additional 1,250,000 shares were reserved for future issuance under our 1996
stock plan and 750,000 shares were reserved for future issuance under our 2000
employee stock purchase plan. To the extent that any of those options or
warrants are exercised, our investors will suffer immediate dilution.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
You should read the following selected consolidated financial data in
conjunction with our consolidated financial statements and related notes and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this prospectus. The consolidated statements
of operations data for the years ended March 31, 1997, 1998 and 1999 and the
balance sheet data as of March 31, 1998 and 1999 are derived from our
consolidated financial statements that are included elsewhere in this
prospectus. The statements of operations data for the years ended March 31,
1995 and 1996 and the balance sheet data as of March 31, 1995, 1996 and 1997
are derived from our consolidated financial statements that are not included in
this prospectus. The consolidated statements of operations data for the nine
month periods ended December 31, 1998 and 1999 and the consolidated balance
data as of December 31, 1999 are derived from our unaudited consolidated
financial statements that include, in the opinion of our management, all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth therein. Historical results are
not necessarily indicative of results to be expected in any future period.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended March 31, December 31,
------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data
Net revenues:
Product licenses...... $ -- $ -- $ 3,296 $ 3,559 $ 3,722 $ 2,556 $ 5,371
Services and
maintenance......... -- -- 327 803 5,332 3,486 6,378
------- ------- ------- ------- ------- ------- --------
Total revenues..... -- -- 3,623 4,362 9,054 6,042 11,749
------- ------- ------- ------- ------- ------- --------
Cost of revenues:
Product licenses...... -- -- 180 74 40 39 55
Services and
maintenance......... -- -- 463 512 2,892 1,858 4,328
------- ------- ------- ------- ------- ------- --------
Total cost of
revenues......... -- -- 643 586 2,932 1,897 4,383
------- ------- ------- ------- ------- ------- --------
Gross profit............ -- -- 2,980 3,776 6,122 4,145 7,366
------- ------- ------- ------- ------- ------- --------
Operating expenses:
Research and
development
(excluding $2,615
stock-based
compensation)....... 906 1,138 1,370 1,938 3,843 2,908 3,488
Selling, general, and
administrative
(excluding $9,435
stock-based
compensation)....... 4,279 3,538 3,299 4,808 7,791 5,829 8,744
Stock-based
compensation........ -- -- -- -- -- -- 12,050
------- ------- ------- ------- ------- ------- --------
Total operating
expenses......... 5,185 4,676 4,669 6,746 11,634 8,737 24,282
------- ------- ------- ------- ------- ------- --------
Operating loss.......... (5,185) (4,676) (1,689) (2,970) (5,512) (4,592) (16,916)
Interest expense, net... (197) (317) (434) (593) (249) (124) (217)
------- ------- ------- ------- ------- ------- --------
Net loss from continuing
operations before
income taxes.......... (5,382) (4,993) (2,123) (3,563) (5,761) (4,716) (17,133)
Provision for income
taxes................. (146) (755) (600) (68) (87) (40) (108)
------- ------- ------- ------- ------- ------- --------
Net loss from continuing
operations............ (5,528) (5,748) (2,723) (3,631) (5,848) (4,756) (17,241)
Income (loss) from
operations of
discontinued user
interface business,
net of income taxes... 5,864 2,316 (5,479) (2,174) 248 319 1,767
------- ------- ------- ------- ------- ------- --------
Net income (loss)....... 336 (3,432) (8,202) (5,805) (5,600) (4,437) (15,474)
Accretion of mandatorily
redeemable preferred
stock to redemption
value................. -- -- (554) (1,040) (1,258) (1,051) (442)
Beneficial conversion
feature of preferred
stock................. -- -- -- -- -- -- (11,739)
------- ------- ------- ------- ------- ------- --------
Net (loss) attributable
to common
stockholders.......... 336 (3,432) (8,756) (6,845) (6,858) (5,488) (27,655)
Other comprehensive
income (loss), net of
tax:
Translation
adjustments......... 4 62 64 (20) 180 278 245
------- ------- ------- ------- ------- ------- --------
Comprehensive income
(loss) income......... $ 340 $(3,370) $(8,692) $(6,865) $(6,678) $(5,210) $(27,410)
======= ======= ======= ======= ======= ======= ========
Basic loss per share
from continuing
operations............ $ (2.66) $ (2.56) $ (3.56) $(37.37) $(19.15) $(16.09) $ (5.88)
======= ======= ======= ======= ======= ======= ========
Diluted loss per share
from continuing
operations............ $ (2.55) $ (2.56) $ (3.56) $(37.37) $(19.15) $(16.09) $ (5.88)
======= ======= ======= ======= ======= ======= ========
Number of shares used in
calculation of basic
loss per share........ 2,078 2,246 920 125 371 361 4,997
======= ======= ======= ======= ======= ======= ========
Number of shares used in
calculation of diluted
loss per share........ 2,168 2,246 920 125 371 361 4,997
======= ======= ======= ======= ======= ======= ========
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
March 31,
--------------------------------------------- December 31,
1995 1996 1997 1998 1999 1999
------- ------- -------- -------- -------- ------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash and cash
equivalents........... $ 1,586 $ 1,117 $ 2,258 $ 6,591 $ 2,129 $ 16,326
Working capital
(deficit)............. 1,436 (1,519) (3,324) 628 (4,316) 10,785
Total assets............ 13,673 12,642 10,615 13,854 7,765 23,850
Capital lease
obligations, net of
current portion....... 446 646 236 91 19 298
Retained earnings
(accumulated
deficit).............. 388 (3,044) (11,800) (17,051) (22,651) (49,864)
Mandatory redeemable
preferred stock....... 3,275 3,275 9,684 19,624 20,882 --
Total stockholders'
equity (deficit)...... 664 (2,583) (10,795) (17,563) (24,203) 12,054
</TABLE>
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere in
this prospectus.
Overview
We are a leading provider of software that enables companies to provide
customers, employees, partners and suppliers with adaptable and personalized
interactions that are consistent across all company communication channels
including the Internet, automated telephone response systems, manned customer
service centers, electronic kiosks and others. Our Blaze Advisor Solutions
Suite allows companies to implement their policies, practices and procedures,
or business rules, in e-business applications, enabling them to provide
individualized interactions across these communications channels. We also
provide consulting and professional services to help customers plan, develop
and implement e-business personalization solutions using our software.
We were incorporated in California as Neuron Data, Inc. in 1985. We
introduced our first software product in December 1986, a rules-based expert
system development and execution tool known as Nexpert. We introduced Open
Interface in 1991 to help customers design display forms and interactive
behavior for presenting and accepting information in computer applications,
known as user interfaces. Almost all of our product license revenues until
fiscal 1997 consisted of sales of these two C-language products, which are now
called Blaze Expert and Blaze Presenter. In June 1997, we released a new Java-
based product for the development and execution of business rules, known as
Blaze Advisor, which has become the core of the Blaze Advisor Solutions Suite.
Customer demand for C/C++ cross-platform user interface development software
has substantially diminished over the past two years as the use of Java and
HTML has increased. Therefore, we significantly decreased research and
development activities related to our products used for designing user
interfaces. In December 1999, our board of directors decided to discontinue
operations related to our user interface design products, which included Blaze
Presenter. Operating results related to the discontinued operations have been
excluded from our continuing operations and reported separately as discontinued
operations. We expect that we will sell the intangible assets related to the
Blaze Presenter product within the next 12 months. We have focused our
engineering and marketing efforts on the Blaze Advisor Solutions Suite, first
released in October 1999, which consists of Blaze Advisor Builder, Blaze
Advisor Rule Engine, and Blaze Advisor Rule Server. We are currently developing
Blaze Advisor Innovator, which we expect to release in the first half of 2000.
We changed our company name to Blaze Software, Inc. in August 1999.
We derive all of our revenues from continuing operations from the Blaze
Advisor Solutions Suite and Blaze Expert. We sell products to corporate
customers and to system integrators and distributors that install and provide
support for our products. We also license our products to independent software
vendors that incorporate our technology into their offerings. We sell products
that comprise the Blaze Advisor Solutions Suite in various configurations.
Pricing of our products is based on development and deployment rights. Blaze
Advisor Builder is priced at a fixed amount for each licensed user. Blaze
Advisor Rule Engine is priced on a sliding scale based on the total number of
processors used to support the deployed application. Blaze Advisor Rule Server
is priced as a percentage of the negotiated deployment fee for Blaze Advisor
Rule Engine. Deployment product revenues typically exceed development product
revenues for most customer sales. Pricing for independent software vendors is
usually offered at a base price for unlimited use of the full Blaze Advisor
Solutions Suite in developing a marketable product, plus a negotiated royalty
fee calculated as a percentage of the developed application's sale price to the
vendor's customers. We expect cumulative royalties over time to exceed the
initial use fee for most independent software vendor sales.
Product licenses revenues consist of license fees and royalty payments. We
recognize software license revenues upon shipment of a product if collection of
the resulting receivable is probable, an executed agreement or purchase order
has been received, the fee is fixed or determinable and objective evidence of
fair value exists to allocate revenue to any undelivered elements of the
arrangement. If an acceptance period is
23
<PAGE>
provided, we recognize revenue upon the earlier of customer acceptance or the
expiration of that period. For sales made through distributors, we recognize
revenue upon shipment if an executed agreement or purchase order has been
received, the fee is fixed and determinable, collection is deemed probable and
the distributor has identified to us that a valid end-user for the product
exists. In those instances where a distributor has not identified a valid end-
user for the product, the revenue is deferred. Distributors have no right of
return.
Service and maintenance revenues consist primarily of professional
services, maintenance, support and training fees for the associated products.
We generally recognize revenues from maintenance contracts ratably over the
term of the contract. We recognize consulting and services revenues as the
training, implementation or consulting services are performed. If professional
or maintenance services are included in an arrangement that involves a license
agreement, amounts related to support or professional services are allocated
based upon objective evidence of fair value which is based on the price when
such elements are sold separately, or when not sold separately, the price
established by management having the relevant authority to do so.
We market our software and services primarily through our direct sales
organizations in the United States, Canada, France, Germany, Japan and the
United Kingdom, and to a lesser extent through distributors, system integrators
and independent software vendors. Our future success will depend, in part, on
the successful development of international markets for our products. In order
to increase sales, we need to expand our direct sales force by hiring
additional salespersons, sales engineers and sales management personnel and
establish and maintain relationships with distributors, system integrators,
independent software vendors and other third parties.
Our future success also depends on our continued investment in research and
development and the continued expansion of our sales, marketing and
professional services organization in order to build an infrastructure to
support our long-term growth strategy. As a result of this investment in our
infrastructure, we have incurred significant net losses in each fiscal year
since fiscal 1996. We incurred net losses from continuing operations of
$17.2 million in the nine months ended December 31, 1999, $5.8 million in
fiscal 1999 and $3.6 million in fiscal 1998. We had an accumulated deficit of
$49.9 million as of December 31, 1999. We expect to experience significant
growth in our operating expenses for the foreseeable future in order to grow
our business. As a result, we anticipate that operating expenses will
constitute a significant use of our cash resources and that we will continue to
generate net losses for the foreseeable future.
In the quarter ended September 30, 1999, we recorded a stock-based
compensation charge of $27.8 million in connection with the grant of stock
options to employees. We also recorded an additional stock-based compensation
charge of $5.0 million in the quarter ended December 31, 1999 in connection
with options granted in the quarter. These charges are being amortized over the
vesting period of the options, which is generally four years.
Of the total stock-based compensation, $12.1 million was amortized in the
nine months ended December 31, 1999. Based on the options granted through
December 31, 1999, approximately $3.8 million will be amortized in the quarter
ending March 31, 2000, approximately $10.8 million will be amortized in fiscal
2001 and approximately $4.4 million will be amortized in fiscal 2002.
In June 1999 and September 1999 we raised $2.8 million in cash and
cancelled indebtedness of $1.6 million in relation to the sale of Series AA
preferred stock. In the quarter ended September 30, 1999, we incurred a one-
time charge to additional paid in capital of approximately $2.2 million as a
result of the beneficial conversion feature of the preferred stock.
In December 1999, we raised $13.9 million in gross proceeds from the sale
of Series BB preferred stock. In the quarter ended December 31, 1999, we
incurred a one-time charge to additional paid in capital of approximately $9.5
million as a result of the beneficial conversion feature of the preferred
stock.
24
<PAGE>
Results of Operations
The following table presents certain financial data as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
Nine Months
Year Ended March Ended
31, December 31,
----------------------- --------------
1997 1998 1999 1998 1999
------ ------ ----- ----- ------
(unaudited)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net revenues:
Product licenses................. 91.0 % 81.6 % 41.1 % 42.3 % 45.7 %
Services and maintenance......... 9.0 18.4 58.9 57.7 54.3
------ ------ ----- ----- ------
Total revenues................ 100.0 100.0 100.0 100.0 100.0
------ ------ ----- ----- ------
Cost of revenues:
Product licenses................. 5.0 1.7 0.4 0.6 0.5
Services and maintenance......... 12.8 11.7 31.9 30.8 36.8
------ ------ ----- ----- ------
Total cost of revenues........ 17.8 13.4 32.3 31.4 37.3
------ ------ ----- ----- ------
Gross profit....................... 82.2 86.6 67.7 68.6 62.7
------ ------ ----- ----- ------
Operating expenses:
Research and development......... 37.8 44.4 42.4 48.1 29.7
Selling, general and
administrative................. 91.0 110.2 86.1 96.5 74.4
Stock-based compensation......... -- -- -- -- 102.6
------ ------ ----- ----- ------
Total operating expenses...... 128.8 154.6 128.5 144.6 206.7
------ ------ ----- ----- ------
Operating loss..................... (46.6) (68.0) (60.8) (76.0) (144.0)
Interest expense, net.............. (12.0) (13.6) (2.8) (2.1) (1.7)
------ ------ ----- ----- ------
Net loss from continuing operations
before income taxes.............. (58.6) (81.6) (63.6) (78.1) (145.7)
Provision for income taxes......... (16.6) (1.6) (1.0) (0.7) (1.0)
------ ------ ----- ----- ------
Net loss from continuing
operations....................... (75.2) (83.2) (64.6) (78.8) (146.7)
------ ------ ----- ----- ------
Income (loss) from discontinued
user interface business.......... (151.2) (49.8) 2.7 (5.3) 15.0
------ ------ ----- ----- ------
Net loss........................... (226.4)% (133.0)% (61.9)% (73.5)% (131.7)%
====== ====== ===== ===== ======
</TABLE>
Nine Months Ended December 31, 1998 and 1999
Total Revenues
Total revenues increased $5.7 million, or 95.0%, to $11.7 million for the
nine months ended December 31, 1999, from $6.0 million for the nine months
ended December 31, 1998. This increase was due to an increase in the number and
average size of sales of our products and services and maintenance generated.
Total revenues from sales to customers outside the Americas were $1.6 million,
or 13.7% of total revenues for the nine months ended December 31, 1999 and
$1.6 million, or 26.7% of total revenues for the nine months ended December 31,
1998. Unisys Corporation accounted for 25.2% of total revenues for the nine
months ended December 31, 1999 and 12.8% for the nine months ended December 31,
1998. This was for products and services used in support of their design and
development work in connection with the deployment at Norwest Financial
Information Services.
Product Licenses. Product licenses revenues increased $2.8 million, or
107.7%, to $5.4 million for the nine months ended December 31, 1999, from $2.6
million for the nine months ended December 31, 1998.
25
<PAGE>
Services and Maintenance. Services and maintenance revenues increased
$2.9 million, or 82.9%, to $6.4 million for the nine months ended December 31,
1999, from $3.5 million for the nine months ended December 31, 1998.
Cost of Revenues
Product Licenses. Cost of product licenses consists of packaging,
documentation and associated shipping costs. Cost of product licenses increased
$16,000, or 41.0%, to $55,000 for the nine months ended December 31, 1999, from
$39,000 for the nine months ended December 31, 1998. As a percentage of product
licenses revenues, cost of product licenses were 1.0% for the nine months ended
December 31, 1999, and 1.5% for the nine months ended December 31, 1998.
Services and Maintenance. Cost of services and maintenance consists of
personnel and other costs related to professional services, training and
technical support. Cost of services and maintenance increased $2.4 million, or
126.3%, to $4.3 million for the nine months ended December 31, 1999 from
$1.9 million for the nine months ended December 31, 1998. As a percentage of
services and maintenance revenues, cost of services and maintenance were 67.2%
for the nine months ended December 31, 1999 and 54.3% for the nine months ended
December 31, 1998. This increase in dollars and as a percentage of services and
maintenance revenues was due to increased personnel costs as we shifted
personnel from supporting the user interface business in order to meet customer
requirements for our Blaze Advisor Solutions Suite. Cost of services and
maintenance as a percentage of services and maintenance revenues may vary
between periods due to our use of third-party professional services, and
varying gross margins on customer engagements.
Operating Expenses
Research and Development. Research and development expenses consist
primarily of salaries and benefits for software developers, project managers,
and quality assurance personnel, payments to outside software developers, and
general corporate overhead allocations for facilities and equipment used in the
research and development process. Research and development expenses increased
$580,000 or 20.0%, to $3.5 million for the nine months ended December 31, 1999
from $2.9 million for the nine months ended December 31, 1998. Of this
increase, 38.9% was due to increased costs associated with third-party
consultants, with the remainder attributable to increased personnel costs
associated with the increase due to research and development for the Blaze
Advisor Solutions Suite. Research and development expenses represented 29.7% of
total revenues for the nine months ended December 31, 1999 and 48.1% of total
revenues for the nine months ended December 31, 1998. We believe that a
significant increase in our research and development expenses will be necessary
to expand our market presence and to expand our technology and product
leadership. Therefore, we expect that research and development expenses will
increase in the future.
Selling, General and Administrative. Selling, general and administrative
expenses consist of salaries, commissions and bonuses earned by sales,
marketing, finance, administrative, and general management personnel, travel
and entertainment expenses, marketing and promotion expenses, and general
corporate overhead expenses. Selling, general and administrative expenses
increased $2.9 million, or 50.0%, to $8.7 million for the nine months ended
December 31, 1999 from $5.8 million for the nine months ended December 31,
1998. This increase was due to increased sales and marketing efforts for Blaze
Advisor Solutions Suite and a shift in personnel from supporting the user
interface business to supporting Blaze Advisor and Blaze Expert. Selling,
general and administrative expenses represented 74.4% of total revenues for the
nine months ended December 31, 1999 and 96.5% of total revenues for the nine
months ended December 31, 1998. We believe that a significant increase in our
sales and marketing expenses will be necessary to expand our market presence.
We intend to expand our direct sales force by hiring additional salespersons,
sales engineers and sales management personnel. Therefore, we expect that sales
and marketing expenses will increase significantly in the future. We believe
that our general and administrative expenses will continue to increase as a
result of expenses associated with being a public company, including annual and
other public reporting costs,
26
<PAGE>
increased directors and officers liability insurance, investor relations
programs and accounting and legal fees. Additionally, we relocated our
corporate headquarters in February 2000 and will be incurring additional rent
and related expenses.
Net Interest Expense
Net interest expense consists of interest expense incurred on our line of
credit, bridge loans and capital leases, offset by interest income earned on
our cash and cash equivalent balances. Net interest expense increased $93,000,
or 75.0%, to $217,000 for the nine months ended December 31, 1999 from $124,000
for the nine months ended December 31, 1998.
Provision for Income Taxes
Provision for income taxes consists of foreign and de minimis domestic
taxes paid. Provision for income taxes increased $68,000, or 170.0%, to
$108,000 for the nine months ended December 31, 1999, from $40,000 for the nine
months ended December 31, 1998. No provision for federal and state income taxes
has been recorded because we have experienced significant net losses, which
have resulted in deferred tax assets. In light of our recent history of
operating losses, we have provided a full valuation allowance for all deferred
tax assets as we are presently unable to conclude that it is more likely than
not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Income from discontinued operations, net of income taxes increased $1.5
million to income of $1.8 million for the nine months ended December 31, 1999
from $319,000 for the nine months ended December 31, 1998. This increase was
due to a $3.4 million decrease in revenue to $3.8 million for the nine months
ended December 31, 1999 from $7.2 million for the nine months ended December
31, 1998, offset by a $4.9 million decrease in expenses to $2.0 million for the
nine months ended December 31, 1999 from $6.9 million for the nine months ended
December 31, 1998.
Years Ended March 31, 1998 and 1999
Total Revenues
Total revenues increased $4.7 million, or 107.6%, to $9.1 million in fiscal
1999 from $4.4 million in fiscal 1998. Of this increase, 43.2% was due to
increased requirements by Norwest Financial Information Services Group for on-
site professional services and training and maintenance related to Blaze
Expert. Total revenues from sales to customers outside the Americas were $2.1
million, or 23.4% of total revenues in fiscal 1999 and $871,000, or 20.0% of
total revenues in fiscal 1998. Unisys Corporation accounted for 19.4% of total
revenues for fiscal 1999 for products and services used in support of their
design and development work in connection with the deployment at Norwest
Financial Information Services Group. No customer accounted for more than 10%
of total revenues in fiscal 1998.
Product Licenses. Product licenses revenues increased $163,000, or 4.6%, to
$3.7 million in fiscal 1999 from $3.6 million in fiscal 1998.
Services and Maintenance. Services and maintenance revenues increased $4.5
million, or 560.4%, to $5.3 million in fiscal 1999 from $803,000 in fiscal
1998.
Cost of Revenues
Product Licenses. Cost of product licenses decreased $34,000, or 45.9%, to
$40,000 in fiscal 1999 from $74,000 in fiscal 1998. As a percentage of product
licenses revenues, cost of product licenses was 1.1% in fiscal 1999 and 2.1% in
fiscal 1998.
27
<PAGE>
Services and Maintenance. Cost of services and maintenance increased $2.4
million, or 464.8%, to $2.9 million in fiscal 1999 from $512,000 in fiscal
1998. As a percentage of services and maintenance revenues, cost of services
and maintenance was 54.2% in fiscal 1999 and 63.8% in fiscal 1998. This
increase in cost of services and maintenance is consistent with the increase in
services and maintenance revenues. Cost of services and maintenance revenues as
a percentage of service and maintenance revenues may vary between periods due
to our use of third-party professional services, and varying gross margins on
customer engagements.
Operating Expenses
Research and Development. Research and development expenses increased $1.9
million, or 100%, to $3.8 million in fiscal 1999 from $1.9 million in fiscal
1998. This increase was due to increased personnel costs as we shifted research
and development efforts to the Blaze Advisor Solutions Suite. Research and
development expenses represented 42.4% of total net revenues in fiscal 1999 and
44.4% of total net revenues in fiscal 1998.
Selling, General and Administrative. Selling, general and administrative
expenses increased $3.0 million, or 62.0%, to $7.8 million in fiscal 1999 from
$4.8 million in fiscal 1998. This increase was due to sales and marketing
efforts for the Blaze Advisor Solutions Suite. Selling, general and
administrative expenses represented 86.1% of total net revenues in fiscal 1999
and 110.2% in fiscal 1998.
Net Interest Expense
Net interest expense decreased $344,000, or 58.0%, to $249,000 in fiscal
1999 from $593,000 in fiscal 1998.
Provision for Income Taxes
Provision for income taxes increased $19,000, or 27.9%, to $87,000 for
fiscal 1999 from $68,000 for fiscal 1998. No provision for federal and state
income taxes has been recorded because we have experienced significant net
losses, which have resulted in deferred tax assets. In light of our recent
history of operating losses, we have provided a full valuation allowance for
all deferred tax assets as we are presently unable to conclude that it is more
likely than not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes decreased $2.4
million to income of $248,000 in fiscal 1999 from loss of $2.2 million in
fiscal 1998. This decrease was due to a $9.2 million decrease in revenue to
$9.1 million in fiscal 1999 from $18.3 million in fiscal 1998, offset by an
$11.7 million decrease in expenses to $8.8 million in fiscal 1999 from $20.5
million in fiscal 1998.
Years Ended March 31, 1997 and 1998
Total Revenues
Total revenues increased $739,000, or 20.4%, to $4.4 million in fiscal 1998
from $3.6 million in fiscal 1997. Total revenues from sales to customers
outside the United States were $871,000, or 20.0% of total revenues in fiscal
1998 and $1.4 million, or 39.5% of total revenues in fiscal 1997. No customer
accounted for more than 10% of total revenues in fiscal 1997 or fiscal 1998.
Product Licenses. Product licenses revenues increased $263,000, or 8.0%, to
$3.6 million in fiscal 1998 from $3.3 million in fiscal 1997.
Services and Maintenance. Services and maintenance revenues increased
$476,000, or 145.6%, to $803,000 in fiscal 1998 from $327,000 in fiscal 1997.
This increase was due to increased sales of Blaze Expert.
28
<PAGE>
Cost of Revenues
Product Licenses. Cost of product licenses decreased $106,000, or 58.9%,
to $74,000 in fiscal 1998 from $180,000 in fiscal 1997. As a percentage of
product licenses revenues, cost of product licenses were 2.1% in fiscal 1998
and 5.5% in fiscal 1997. This decrease was due to a decrease in personnel in
the production department.
Services and Maintenance. Cost of services and maintenance increased
$49,000, or 10.6%, to $512,000 in fiscal 1998 from $463,000 in fiscal 1997. As
a percentage of services and maintenance revenues, cost of services and
maintenance was 63.8% in fiscal 1998 and 141.6% in fiscal 1997. This decrease
as a percentage of services and maintenance revenues was due to decreased
reliance on third-party service providers and improved terms and conditions on
consulting and maintenance contracts.
Operating Expenses
Research and Development. Research and development expenses increased
$568,000, or 41.5%, to $1.9 million in fiscal 1998 from $1.4 million in fiscal
1997. Research and development expenses represented 44.4% of total revenues in
fiscal 1998 and 37.8% in fiscal 1997.
Selling, General and Administrative. Selling, general and administrative
expenses increased $1.5 million, or 45.7%, to $4.8 million in fiscal 1998 from
$3.3 million in fiscal 1997. Selling, general and administrative expenses
represented 110.2% of total revenues in fiscal 1998 and 91.0% in fiscal 1997.
This increase was due to increased sales and marketing efforts for Blaze
Expert and Blaze Advisor.
Net Interest Expense
Net interest expense increased $159,000, or 36.6%, to $593,000 in fiscal
1998 from $434,000 in fiscal 1997.
Provision for Income Taxes
Provision for income taxes decreased $532,000, or 88.7%, to $68,000 in
fiscal 1998 from $600,000 in fiscal 1997. No provision for federal and state
income taxes has been recorded because we have experienced significant net
losses, which have resulted in deferred tax assets. In light of our recent
history of operating losses, we have provided a full valuation allowance for
all deferred tax assets as we are presently unable to conclude that it is more
likely than not that the deferred tax asset will be realized.
Income (Loss) from Discontinued Operations, Net of Income Taxes
Loss from discontinued operations, net of income taxes decreased $3.3
million, or 60.3%, to $2.2 million in fiscal 1998 from $5.5 million from
fiscal 1997. This decrease was due to a $3.6 million decrease in revenue to
$18.3 million in fiscal 1998 from $21.9 million in fiscal 1997, offset by $6.9
million decrease in expenses to $20.5 million in fiscal 1998 from $27.4
million in fiscal 1999.
29
<PAGE>
Quarterly Results of Operations
The following table presents our unaudited quarterly results of operations
for each of the seven quarters ended December 31, 1999. You should read the
following table in conjunction with our consolidated financial statements and
the notes related thereto. We have prepared this unaudited information on a
basis consistent with the audited consolidated financial statements. This table
includes all adjustments, consisting only of normal recurring adjustments, that
we consider necessary for a fair presentation of our financial position and
operating results for the quarters presented. You should not draw any
conclusions about our future results from our quarterly results of operations.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
Product licenses...... $ 790 $ 805 $ 961 $ 1,166 $ 1,394 $ 1,709 $ 2,268
Services and
maintenance......... 1,054 1,280 1,152 1,846 1,926 2,091 2,361
------- ------- ------- ------- ------- -------- -------
Total revenues..... 1,844 2,085 2,113 3,012 3,320 3,800 4,629
------- ------- ------- ------- ------- -------- -------
Cost of revenues:
Product licenses...... 26 10 3 1 10 36 9
Services and
maintenance......... 617 583 658 1,034 1,187 1,466 1,675
------- ------- ------- ------- ------- -------- -------
Total cost of
revenues......... 643 593 661 1,035 1,197 1,502 1,684
------- ------- ------- ------- ------- -------- -------
Gross profit............ 1,201 1,492 1,452 1,977 2,123 2,298 2,945
Operating expenses:
Research and
development......... 1,015 1,057 836 935 1,260 1,083 1,145
Selling, general and
administrative...... 2,176 1,800 1,853 1,962 2,532 2,780 3,432
Stock-based
compensation........ -- -- -- -- -- 8,424 3,626
------- ------- ------- ------- ------- -------- -------
Total operating
expenses......... 3,191 2,857 2,689 2,897 3,792 12,287 8,203
------- ------- ------- ------- ------- -------- -------
Operating loss.......... (1,990) (1,365) (1,237) (920) (1,669) (9,989) (5,258)
Interest expense, net... (19) (15) (90) (125) (102) (50) (65)
------- ------- ------- ------- ------- -------- -------
Net loss from continuing
operations before
income taxes.......... (2,009) (1,380) (1,327) (1,045) (1,771) (10,039) (5,323)
Provision for income
taxes................. (9) (10) (21) (47) (12) (62) (34)
------- ------- ------- ------- ------- -------- -------
Net loss from continuing
operations............ $(2,018) $(1,390) $(1,348) $(1,092) $(1,783) $(10,101) $(5,357)
======= ======= ======= ======= ======= ======== =======
</TABLE>
30
<PAGE>
The following table sets forth unaudited quarterly results of operations as
a percentage of total revenues for each of the seven quarters ended December
31, 1999.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31,
1998 1998 1998 1999 1999 1999 1999
-------- --------- -------- --------- -------- --------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues:
Product licenses...... 42.8 % 38.6 % 45.5 % 38.7 % 42.0 % 45.0 % 49.0 %
Services and
maintenance......... 57.2 61.4 54.5 61.3 58.0 55.0 51.0
------ ----- ----- ----- ----- ------ ------
Total revenues..... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ----- ----- ----- ----- ------ ------
Cost of revenues:
Product licenses...... 1.4 0.5 0.1 0.1 0.3 0.9 0.2
Services and
maintenance......... 33.5 27.9 31.1 34.3 35.8 38.6 36.2
------ ----- ----- ----- ----- ------ ------
Total cost of
revenues......... 34.9 28.4 31.2 34.4 36.1 39.5 36.4
------ ----- ----- ----- ----- ------ ------
Gross profit............ 65.1 71.6 68.8 65.6 63.9 60.5 63.6
------ ----- ----- ----- ----- ------ ------
Operating expenses:
Research and
development......... 55.0 50.7 39.6 31.0 38.0 28.5 24.7
Selling, general and
administrative...... 118.0 86.3 87.7 65.2 76.2 73.2 74.1
Stock-based
compensation........ 0.0 0.0 0.0 0.0 0.0 221.7 78.3
------ ----- ----- ----- ----- ------ ------
Total operating
expenses......... 173.0 137.0 127.3 96.2 114.2 323.4 177.1
------ ----- ----- ----- ----- ------ ------
Operating loss.......... (107.9) (65.4) (58.5) (30.6) (50.3) (262.9) (113.5)
Interest expense, net... (1.0) (0.7) (4.3) (4.1) (3.0) (1.3) (1.4)
------ ----- ----- ----- ----- ------ ------
Net loss from continuing
operations before
income taxes.......... (108.9) (66.1) (62.8) (34.7) (53.3) (264.2) (114.9)
Provision for income
taxes................. (0.5) (0.5) (1.0) (1.6) (0.4) (1.6) (0.7)
------ ----- ----- ----- ----- ------ ------
Net loss from continuing
operations............ (109.4)% (66.6)% (63.8)% (36.3)% (53.7)% (265.8)% (115.6)%
====== ===== ===== ===== ===== ====== ======
</TABLE>
Product revenues have increased each quarter since the quarter ended June
30, 1998. Since July 1998, we have focused our sales, marketing and research
and development resources on our rules products, especially the Blaze Advisor
Solutions Suite. Services and maintenance revenues have generally increased
each quarter since the quarter ended June 30, 1998, except for the quarter
ended December 31, 1998. Cost of services and maintenance have generally
increased each quarter since the quarter ended September 30, 1998. Cost of
services and maintenance as a percentage of service and maintenance revenues
may vary between periods due to our use of third-party professional services
and varying gross margins on customer engagements.
Research and development expenses decreased in the quarter ended December
31, 1998 from the previous quarter. This decrease was due to a decrease in
research and development personnel during the quarter. Research and development
expenses also decreased in the quarter ended September 30, 1999 from the
previous quarter. This decrease was due to the completion of a project
involving third-party engineers and a decrease in research and development
personnel.
Selling, general and administrative decreased in the quarter ended
September 30, 1999 from the previous quarter. This decrease was due to cost-
reduction measures initiated by the new management team.
Liquidity and Capital Resources
Since inception, we have financed our operations through private sales of
preferred stock, internally generated funds, and the use of our receivables
based line of credit with Coast Business Credit, a
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<PAGE>
division of Southern Pacific Bank. As of December 31, 1999, we had $16.3
million of cash and cash equivalents. As of December 31, 1999, we had borrowed
$2.7 million under our credit facility with Coast Business Credit. Borrowings
under this facility bear interest at the prime rate plus 3% (12.0% as of
December 31, 1999).
Net cash used in operating activities was $3.2 million for the nine months
ended December 31, 1999, $4.3 million in fiscal 1999, $5.1 million in fiscal
1998 and $4.0 million in fiscal 1997. Net cash used for operating activities
was due to substantial net losses and changes in working capital accounts.
Net cash used for investing activities was $60,000 for the nine months
ended December 31, 1999, $779,000 in fiscal 1999, $140,000 in fiscal 1998 and
$451,000 in fiscal 1997. Cash used in investing activities included investments
in property and equipment. In fiscal 1997, cash used in investing activities
also included the acquisition of Microline Software, Inc.
Net cash provided by financing activities was $17.3 million for the nine
months ended December 31, 1999, $448,000 in fiscal 1999, $9.6 million in fiscal
1998 and $5.5 million in fiscal 1997. Cash provided by financing activities
during these periods was due to proceeds from the issuance of preferred and
common stock, bridge loans with our existing investors and borrowings under our
line of credit facility.
We currently anticipate that our available cash resources combined with the
net proceeds from this offering will be sufficient to meet our anticipated
working capital and capital expenditure requirements for at least the next 18
months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may need to raise additional funds to finance more
rapid expansion, to develop new or enhance existing services or products, to
respond to competitive pressures or to acquire complementary products,
businesses or technologies. If additional funds are raised through the issuance
of equity or convertible debt securities, the percentage ownership of our
stockholders will be reduced and such securities may have rights, preferences
or privileges senior to those of our stockholders. We cannot assure you that
additional financing will be available on terms favorable to us, or at all. If
adequate funds are not available or are not available on acceptable terms, our
ability to fund our expansion, take advantage of unanticipated opportunities,
develop or enhance services or products or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be materially adversely affected by such
limitation.
Year 2000 Compliance
We have tested our Blaze Advisor Solutions Suite and our prior products and
believe that they are year 2000 compliant. We have also inquired of significant
vendors of our internal accounting, management and product development systems
as to their year 2000 readiness, and we have also tested our material internal
systems. We believe that, based on these tests and assurances of our vendors,
we will not incur material costs to resolve year 2000 issues for our products
and internal systems. Furthermore, we have not experienced any year 2000
problems and we have not been informed of any material year 2000 problems by
our customers and vendors.
We believe that we have identified all of the major information systems
used in connection with our internal operations and substantially completed all
modification, upgrades or replacements to minimize the possibility of material
disruption of our business from year 2000 problems. If it comes to our
attention that there are any year 2000 problems with our products or that some
of our third-party hardware and software used in our internal systems or our
products are not year 2000 compliant, then we will endeavor to make
modifications to our products and internal systems, or purchase new internal
systems, to quickly respond to the problem. Although we do not believe that the
cost of these modifications and replacements, if any, will materially affect
our operating results, we have no other contingency plan to address effects of
year 2000 problems with our products and internal systems. The cost already
incurred by us and our future cost related to year 2000 compliance is not
material.
32
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
Interest Rate Risk
Our exposure to interest rate risk is limited to the exposure related to
our cash and cash equivalents and credit facility, which is tied to market
interest rates. As of December 31, 1999, we had cash and cash equivalents of
$16.3 million, which consisted of cash and highly liquid short-term
investments, both domestically and internationally. We ensure the safety and
preservation of our invested principal funds by investing in high credit
quality securities. Our short-term investments will decline in value by an
immaterial amount if interest rates increase, and therefore would not have a
material effect on our financial condition or results of operations. As of
December 31, 1999, we had borrowed $2.7 million under our credit facility with
Coast Business Credit. Borrowings under this facility bear interest at the
prime rate plus 3% (12.0% as of December 31, 1999). An increase or decrease in
the prime rate would accordingly result in increased or decreased interest
expense.
Foreign Currency Risk
We develop products in the United States and sell them in North America,
Asia and Europe. As a result, our financial results could be adversely affected
by factors such as changes in foreign currency exchange rates or weak economic
conditions in foreign markets. Since our sales in Europe and Asia are currently
denominated in foreign currencies and generally translated on a monthly basis
to U.S. dollars, we could be adversely affected by fluctuations in foreign
currency exchange rates.
European Monetary Union
Within Europe, the European Economic and Monetary Union introduced a new
currency, the euro, on January 1, 1999. The new currency is in response to the
European Union's policy of economic convergence to harmonize trade policy,
eliminate business costs associated with currency exchange and to promote the
free flow of capital, goods and services.
On January 1, 1999, the participating countries adopted the euro as their
local currency, initially available for currency trading on currency exchanges
and non-cash transactions such as banking. The existing local currencies, or
legacy currencies, will remain legal tender through January 1, 2002. Beginning
on January 1, 2002, euro-denominated bills and coins will be issued for cash
transactions. For a period of up to six months from this date, both legacy
currencies and the euro will be legal tender. On or before July 1, 2002, the
participating countries will withdraw all legacy currencies and exclusively use
the euro.
Our transactions are recorded in both U.S. dollars and foreign currencies.
Future transactions may be recorded in the euro. We have not incurred and do
not expect to incur any significant costs from continued implementation of the
euro. However, the currency risk of the euro could harm our business.
Recently Issued Accounting Standards
For fiscal 1998 and prior years, we recognized revenues in accordance with
the American Institute of Certified Public Accountants Statement of Position
91-1. Commencing in fiscal 1999, we began recognizing revenues in accordance
with the American Institute of Certified Public Accountants Statement of
Position 97-2, Software Revenue Recognition, or SOP 97-2, as amended by
Statements of Position 98-4 and 98-9. Our adoption of these new standards has
not to date had any material effect on our revenue recognition. Further
implementation guidelines relating to these standards may result in
unanticipated changes in our revenue recognition practices, and these changes
could affect our future revenues and earnings.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, or SOP 98-1, which requires
companies to capitalize qualifying computer software costs, which are incurred
during the application
33
<PAGE>
development stage, and amortize them over the software's estimated useful life.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998. We do
not expect that the adoption of SOP 98-1 will have a material impact on our
financial statements and related disclosures.
In December 1998, AcSec released Statement of Position 98-9, Modification
of SOP 97-2, "Software Revenue Recognition," with respect to Certain
Transactions, or SOP 98-9. SOP 98-9 amends SOP 97-2 to require that an entity
recognize revenue for multiple element arrangements by means of the "residual
method" when (1) there is vendor-specific objective evidence, or VSOE, of the
fair values of all the undelivered elements that are not accounted for by means
of long-term contract accounting, (2) VSOE of fair value does not exist for one
or more of the delivered elements, and (3) all revenue recognition criteria of
SOP 97-2 (other than the requirements for VSOE of the fair value of each
delivered element) are satisfied. The provisions of SOP 98-9 that extend the
deferral of certain paragraphs of SOP 97-2 became effective December 15,1998.
These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions
that are entered into in fiscal years beginning after March 15, 1999.
Retroactive application is prohibited. We do not expect that the adoption of
SOP 98-9 will have a material impact on our financial statements and related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities, or SOP 98-5, which requires companies to expense the costs of
start-up activities and organization costs as incurred. In general SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. We believe the
adoption of SOP 98-5 will not have a material impact on our results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities, or SFAS
133, which establishes new standards of accounting and reporting for derivative
instruments and hedging activities. SFAS 133 requires that all derivatives be
recognized at fair value in the statement of financial position, and that the
corresponding gains or losses be reported either in the statement of operations
or as a component of comprehensive income, depending on the type of hedging
relationship that exists. SFAS 133 will be effective for fiscal years beginning
after June 15, 2000. We do not expect that the adoption of SFAS 133 will have a
material impact on our financial statements and related disclosures.
34
<PAGE>
BUSINESS
Overview
We are a leading provider of software that enables companies to provide
their customers, employees, partners and suppliers with adaptable and
personalized interactions that are consistent across all company communication
channels, including the Internet, automated telephone response systems, manned
customer service centers, automated self-service electronic kiosks and others.
Our Blaze Advisor Solutions Suite enables companies to translate their business
rules into a format that can be used by business applications. A company's
business applications can draw upon the business rules encoded in our software
to individually tailor interactions with customers, employees, partners and
suppliers based on market conditions, business practices and user preferences
and profiles. Blaze Advisor also enables companies to communicate their unique
way of doing business through these interactions, thereby differentiating
themselves from their competitors and providing incentives for customers to use
their products and services. Blaze Advisor allows business persons to modify
the business rules included in our software quickly and easily, enabling
companies to respond quickly to changes in market conditions, business
practices and user preferences. We also provide consulting and professional
services to help customers plan, develop and implement personalization
solutions using our software.
We maintain operations worldwide to sell and support our products through a
direct sales force and third-party system integrators. We have sold our
products to customers in the technology, financial, insurance, manufacturing,
telecommunications, and healthcare industries and our software is embedded in
many leading e-business software applications.
Industry Background
The Internet has emerged as a new and highly efficient medium for companies
to conduct commercial transactions. International Data Corporation, a market
research firm, estimates that worldwide sales of goods and services over the
Internet, known as "e-commerce," will grow from $111 billion in 1999 to $1.3
trillion by 2003. Given the current size and continued growth of e-commerce,
many organizations are implementing Internet-based and electronic business
initiatives in order to extend and automate traditional business processes and
compete more effectively. These initiatives, commonly referred to as "e-
business," allow companies to transact sales, manage customer service, and
interact and communicate with customers, employees, partners and suppliers
using the Internet and other electronic means. The rapid growth of the Internet
has made e-business an important and fast-growing business channel for many
companies. Companies have therefore begun to invest significantly in
infrastructure software to support their growing e-business initiatives. IDC
estimates that worldwide license revenues from Internet commerce application
software, which includes software for both business-to-business and business-
to-consumer applications, will grow from $1.7 billion in 1999 to $13.1 billion
in 2003.
The rapid growth of e-commerce has intensified competition among companies
as business customers and consumers now have access to more vendors as well as
the ability to change vendors easily. To remain competitive, companies are
implementing e-business initiatives to enable them to interact with their
customers, employees, partners and suppliers using both traditional and e-
business communication channels, including the Internet. As the number of e-
business interactions increases, we believe that companies seek methods to
convert more Web site visitors into customers, to improve customer retention
and to effectively take customers through complex selling processes using
automated channels. We also believe that companies seek to use every
interaction as an opportunity to apply their best marketing practices to
customer interactions and to cross-sell complementary products, to up-sell
higher-end products and to increase revenues, customer satisfaction and
loyalty. Companies must also ensure that they provide the same level of
personal service online as is provided in person. Finally, companies must be
able to provide this consistent level of service 24 hours a day, 7 days a week
to satisfy customers who are increasingly demanding automated services.
35
<PAGE>
Furthermore, as companies interact with customers, employees, partners and
suppliers through both traditional and electronic communication channels, they
gain valuable experiences and information from these interactions. We believe
that companies need a means of ensuring that institutional knowledge gained
from interactions across all of these communication channels, including the
Internet, will be absorbed and communicated company-wide so that the entire
enterprise can apply such knowledge to future interactions. This allows
companies to leverage their understanding of their customers by customizing
products and services based on individual preferences and characteristics. We
believe that companies also seek a means of ensuring that their personality and
style, which differentiate them from their competitors, are effectively
communicated regardless of the communication method. Finally, as companies
modify their business practices in response to changing market conditions, they
must be able to rapidly incorporate these changes and ensure that they are
applied consistently across all communication channels.
Because electronic communication channels such as the Internet enable a
high-volume of transactions to be completed automatically and without human
interaction, companies have found that the traditional means of applying the
policies, practices and procedures that define their methods of doing business
across the company are not effective. Because these policies, practices and
procedures constitute the rules by which a company conducts its business and
embody the company's best marketing practices and collective knowledge of
customer characteristics and preferences, they are commonly referred to as a
company's business rules. While many companies have established means of
applying their business rules using traditional person-to-person operations and
means of communication, they are seeking ways to consistently apply these
business rules to both traditional and e-business interactions in order to
maximize the value of each customer interaction and to differentiate themselves
from their competitors.
While companies have recognized the need to accomplish these objectives,
the solutions available have had various limitations. The most basic attempts
to personalize customer experiences consist of storing a user's name and gender
so that on subsequent visits they can greet the user in a superficially
personal manner. Another attempt, known as collaborative filtering, compares
each user's requests to statistics on others who have requested similar
services and attempts to treat them in the same way as close matches. This
automatic grouping does not allow business policies to react to the needs of
the individual. Some software vendors have introduced prepackaged e-commerce
applications that require companies to set their policies and to present
information in a rigid format defined by the software package. Attempts to
introduce unique or nonconforming business rules require extensive computer
programming and cannot be adjusted easily and quickly in response to changing
business needs. Moreover, most approaches to personalizing the interaction
between users and electronic systems have concentrated solely on the Web as a
communication channel. Rules that have been developed and implemented for Web
interaction with such approaches can not be extended for use by systems that
control behavior of automated telephone response systems, manned support
centers, electronic kiosks or other communication channels.
We believe that companies increasingly need software solutions to help them
capitalize on their interactions with customers, employees, partners and
suppliers, maintain their corporate personality and style and distinguish
themselves from their competitors while conducting an increasing number of
transactions over a wide variety of communication channels.
The Blaze Solution
We are a leading provider of software that enables companies to provide
their customers, employees, partners and suppliers with adaptable and
personalized interactions that are consistent across all company communications
channels, including the Internet, automated telephone response systems, manned
customer service centers, automated self-service electronic kiosks and others.
Our Blaze Advisor Solutions Suite allows companies to implement their policies,
practices and procedures in e-business applications, enabling them to provide
individualized interactions across these communication channels. Computer
programs can draw upon the rules encoded in our software to determine the
display of information and interaction with a user of a Web site, telephone
response system, automated self-service electronic kiosk, manned customer
service center, or
36
<PAGE>
other communication channel. Typical rules reflecting a business's policies,
practices and procedures may include setting special pricing discounts for
certain types of customers, checking for regulatory compliance before allowing
a transaction to complete, or offering different promotional items to each
user. Because these policies constitute a set of rules under which the company
has decided its business should be conducted, they are commonly referred to as
business rules. Offering individualized interactions is a technique used to
promote greater customer conversion and retention, decreased costs and
increased sales. By using a company's own business rules as its foundation,
Blaze Advisor also enables a company to express its corporate personality and
style consistently through each interaction and across all of a company's
communication channels, including the Internet and other e-business channels.
Finally, Blaze Advisor allows business persons to modify business rules quickly
and easily. This ease of modification allows companies to respond quickly to
dynamic market conditions, business practices and user preferences. We also
provide consulting and professional services to help customers plan, develop
and implement e-business personalization solutions using our software.
Key benefits of our solution include:
. True One-to-One Interaction. Blaze Advisor allows companies to provide
the individualized responses necessary to maximize benefits from
customer interactions and to better attract and retain customers. One-
to-one interaction is accomplished through rich interactive dialogues,
individually targeted recommendations, responses designed to meet
customer goals and needs and preference-driven cross-selling and up-
selling.
. Adaptability. Blaze Advisor allows companies to quickly change
business rules while an e-business application is running, enabling
companies to respond to market conditions while providing continuous
service. Business persons without complex computer programming skills
can modify an e-business application's underlying business rules
without involvement by information technology professionals or
alterations to the application.
. Company Differentiation. Blaze Advisor's flexibility allows companies
to express their corporate styles, practices, and personalities by
incorporating their business rules in e-business applications. In this
way, a company's identity can be communicated to customers through Web
sites, automated telephone response systems, manned customer service
centers, electronic kiosks, and other communication channels, allowing
companies to differentiate themselves from their competitors.
. Enterprise Consistency. Blaze Advisor allows companies to consistently
present their corporate personality and style and apply their business
rules from transaction to transaction. A single set of business rules
can be accessed through Web sites, manned customer service centers,
voice-response systems, sales persons, and other customer contact
points to provide consistent customer interaction across an
organization.
. High Performance and Scalability. Blaze Advisor is designed to
efficiently process increasingly complex and numerous business rules
in support of expanding e-business applications. Blaze Advisor can be
deployed on sophisticated computer architectures to provide high
throughput with heavy transaction volumes.
. Faster Time to Market. Blaze Advisor allows companies to implement
rules-based personalization systems quickly. We also enable software
vendors to incorporate our personalization technology in their e-
commerce application software without investing significant time and
expense developing their own solutions.
37
<PAGE>
Blaze Strategy
Our objective is to maintain our position as a leading provider of software
that enables companies to provide their customers, employees, partners and
suppliers with adaptable and personalized interactions that are consistent
across all company communication channels, including the Internet, automated
telephone response systems, manned customer service centers, electronic kiosks
and others. Key elements of our strategy include:
Expand Our Market Presence. We plan to significantly expand our market
presence in order to promote awareness of our products and exploit the market
opportunity for e-business personalization solutions. We intend to increase our
sales by hiring additional direct sales personnel targeted at major
geographical markets to sell directly to corporate customers as well as to
independent software vendors that incorporate our products into their
offerings. We intend to expand our relationships with third-party system
integrators to supplement our direct sales efforts. We may also establish
additional foreign sales offices to penetrate new international markets. In
addition, we intend to substantially expand our marketing activities, including
advertising, trade shows, seminars, industry events and direct marketing, to
promote our Blaze Software brand.
Extend Our Technology and Product Leadership. We intend to maintain and
extend our leadership in rules-based personalization solutions by continuing to
develop our core Java-based technology. We believe that we are a technology
leader in rules-based personalization systems because of the ease of
deployment, scalability, flexibility and open architecture of our products. We
intend to continue to invest in technology development to extend the
capabilities and performance of our Blaze Advisor Solutions Suite, such as
Blaze Advisor Innovator. In addition, we may acquire complementary technologies
or businesses. Our goal is to expand our product offerings to include
application templates for specific industries that enable customers to deploy
high performance e-business applications more quickly and easily.
Target Leading Customers and Independent Software Vendors. We believe a
significant opportunity exists for us to sell our products to leading companies
worldwide as these companies expand their e-business initiatives. We have sold
our products to leading companies in a number of industries, including
financial services, telecommunications and manufacturing. We intend to target
leading Internet retailers as well as other large companies using the Internet
to conduct commerce. In addition, we have licensed our technology to leading
independent e-business application software vendors that incorporate our
products into their offerings. We have developed licensing relationships with
software vendors such as Active Software, Blue Martini Software, Chordiant
Software, IBM and Information Management Associates. Licensing arrangements
include the use of our software in development of their products, inclusion of
our software in their marketed products as installed at customer sites, and
cooperative agreements relating to marketing and promotion of our respective
companies and products. Our goal is to deepen our relationships with these
vendors and to establish relationships with additional e-business software
vendors.
Increase Our Professional Services Capabilities. We intend to maximize the
value of our solutions to our customers by offering professional services to
help them leverage our personalization capabilities in their e-business
systems. We currently provide our customers with a complete range of services,
including consulting, training, implementation, and customer support. Because
most of our customers use our professional services, our services are important
in expanding our customer relationships and understanding our customers'
evolving needs. We have recently expanded our direct sales force and plan to
hire additional sales personnel, including salespersons, sales engineers and
sales management personnel.
Expand Strategic Alliances with Key Business Partners. To accelerate the
acceptance of our products and services and to target a broader customer base,
we intend to develop strategic relationships with leading system integrators
and independent software vendors. We intend to develop relationships with
third-party system integrators that provide consulting and implementation
services so that we can increase our license revenues through co-selling
efforts. We also intend to enhance our brand recognition through co-marketing
arrangements with system integrators and independent software vendors both
domestically and internationally.
38
<PAGE>
Blaze Products
Blaze Advisor Solutions Suite. The Blaze Advisor Solutions Suite allows a
company's policies, practices, and procedures for conducting business to be
expressed in an intuitive language specifically designed to formalize these
rules in business terms. It contains a graphical development environment to
allow companies to build e-business personalization solutions with our
software. The Blaze Advisor Solutions Suite is designed to increase speed and
ease of development in enterprise-scale e-business applications. Putting
formalized policies into production use is facilitated by a powerful processing
component and runtime software that puts policy changes into effect without
interrupting business operations. Blaze Advisor stores business rules apart
from other programming instructions so companies can use the rules in multiple
business applications and communications channels. Blaze Advisor can be
deployed at our customers' locations or hosted by third parties, such as
application service providers.
The Blaze Advisor Solutions Suite consists of four products.
. Blaze Advisor Builder is a visual development environment for
defining, editing and testing business rules. Blaze Advisor Builder
allows business persons to write and modify rules in an intuitive
business rule language and to make use of graphical design and review
tools to clearly model business processes and components. Fill-in-the-
blank forms and choice lists are designed to simplify and speed the
creation of standard business rule elements. Blaze Advisor Builder is
offered in English, Chinese, French, German, Italian, Japanese,
Korean, Portuguese, and Spanish versions to facilitate application
creation in worldwide markets.
. Blaze Advisor Rule Engine is the runtime environment for monitoring,
executing and optimizing the performance of rules created with Blaze
Advisor Builder. Blaze Advisor Rule Engine allows flexibility in
choosing what computers to run a system on, with rule processing
performed on a workstation server or mainframe. Blaze Advisor Rule
Engine is designed to intelligently determine rules that need to be
examined under any set of circumstances and to execute them in an
efficient manner. Programming interfaces allow integration of Blaze
Advisor Rule Engine with custom-built, data architectures or with
third-party products.
. Blaze Advisor Rule Server provides ready-to-use support for deploying
personalized e-business applications powered by Blaze Advisor Builder
and processed by the Blaze Advisor Rule Engine. Blaze Advisor Rule
Server addresses the complex production issues involved in providing
services to many users at the same time in high availability e-
business applications. It offers simple interfaces to common means of
transferring data, automatically manages the replacement and updating
of business rules, and allows systems personnel to control the most
efficient use of computing resources.
. Blaze Advisor Innovator, which is expected to be released in the first
half of 2000, is being designed to further simplify the creation and
modification of business rules by non-technical business persons.
Blaze Advisor Innovator will allow business managers to bypass the
Blaze Advisor Builder development environment by accessing company-
defined forms through any common Web browser. Business rules may be
presented in a customizable format, allowing users to inspect, change,
add or delete criteria that affect the interactive customer
experience.
Blaze Expert. Blaze Expert is the predecessor to Blaze Advisor. It offers
business rules definition, modification and processing in C and C++
applications running on Windows or Unix platforms.
Professional Services
Our professional services organization plays an integral role in
implementing our software for our customers as well as supporting and training
our customers. Our worldwide professional services organization is focused on
ensuring the successful implementation and support of each customer. We have
invested significantly in the deployment strategy, services and support
required to implement our technology. As of
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December 31, 1999, our professional services organization in North America
consisted of 22 employees. Our professional services offerings include:
Training. Blaze Software courses, developed and taught by our education
services personnel, offer hands-on, role-based training. We provide courses
specifically designed for business analysts, beginning and advanced developers,
business rule writers and system architects. The primary goal of these courses
is to accelerate a customer's learning process, so they can become proficient
as quickly as possible. We offer courses at our offices as well as customer
locations. We are also able to customize training courses for customers with
unique educational requirements.
Service and Support. Our customers have direct access to us for technical
support. We provide direct-to-the-engineer telephone support to ensure rapid
response. Our support organization delivers the responsive service required by
business managers, information technology professionals, system integration
partners and independent software vendors to support mission-critical systems.
We offer problem resolution services via telephone, email, fax and the
Internet. Our technical support Web site, the Blaze Online Support System,
offers information on specific technical issues, interactive searches for
relevant cases, status updates on open technical support inquiries, product
documentation and release notes, tutorials and product use examples, and other
materials of use to our customers.
Consulting Services. Our professional services include system architecture
and design, business rule design, business rule writing, software integration
and project planning and management. Our professional services are focused on
providing our customers and partners with the skills and experience necessary
to take a project from planning and development to implementation and support.
Our professional services group has developed substantial experience in the
development and integration of business rule technology. Customers benefit from
the practical development and implementation skills that we have derived from
working on a wide range of applications across many industry segments. Working
closely with customers, our product specialists analyze business problems and
user requirements and transform business policies into executable business
rules in Blaze Advisor or Blaze Expert rule syntax. We generally charge for our
professional services on a time and materials basis and provide them worldwide
through our offices in the United States, Europe and Japan. Consulting
engagements vary in length according to customer requirements.
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Customers
Our customers are primarily large corporations and independent software
vendors. We also sell products to system integrators including Unisys
Corporation, Ephorma AS, EDS, Anderson Consulting, PathTech Software Solutions,
Internet Information Services and IBM. We have sold our products to customers
in the technology, financial, insurance, manufacturing, telecommunications, and
healthcare industries and our software is embedded in many leading e-business
software applications. These software applications include TrueComp from
Callidus Software, Customer Interaction System from Blue Martini Software,
ActiveWorks from Active Software, ChannelEdge from Information Management
Associates, ZEOLogix Internet Enterprise Applications from Buzzeo, and
WebSphere Commerce Suite from IBM. Customers in North America that use Blaze
Advisor and have spent more than $100,000 for licenses, professional services,
maintenance and training during the 18 month period ended December 31, 1999
include:
<TABLE>
<CAPTION>
End-users Software Vendors
- --------- ----------------
<S> <C>
American International Group Inc. Active Software, Inc.
Bernard C. Harris Publishing Company Inc. BCE Emergis, Inc.
California Franchise Tax Board Blue Martini Software
Fidelity Investments Institutional Services
Company, Inc. Buzzeo, Inc.
Ford Motor Company IBM
GEICO Direct Information Management Associates, Inc.
Los Angeles County Employees Retirement
Association John H. Harland Company
New York Life Insurance Company
PlanetRx.com Inc.
The Prudential Insurance Company of America
Sun Microsystems, Inc.
Western Asset Management Company
</TABLE>
The above customers accounted for 30.0% of total revenues in the nine
months ended December 31, 1999 and 8.5% of total revenues in fiscal 1999.
Selected Customer Examples
The selected customer examples below are intended to provide brief
descriptions of how our customers are using or plan to use our Blaze Advisor
Solutions Suite to provide e-business personalization solutions.
GEICO Direct. GEICO Direct is the second-largest direct marketer of auto
insurance in the United States. Each week, more than 10,000 drivers switch to
GEICO Direct. GEICO was an early adopter of Internet technology to sell auto
insurance policies directly to consumers across the United States without
requiring visits to field offices or agents. GEICO used Internet Information
Services (IIS), a systems integration partner of Blaze Software, to build a
Web-based self-service rate quote application using Blaze Advisor. Advisor
encapsulated GEICO's business rules and used them to dynamically determine the
most appropriate information to request from and display to the applicant.
Consumers in different states, with different driving histories and
insurance requirements, are now able to get the policy information that
directly match their needs, while answering only those questions applicable to
their situation. By using Blaze Advisor to personalize the process to each
individual, GEICO has improved their policy application efficiency and sped
their ability to implement business changes in their online systems. Since
implementation of the new system using Blaze Advisor, more users have completed
the GEICO application process and become customers.
Blue Martini Software. Blue Martini Software provides customer interaction
software for retailers and manufacturers selling direct-to-consumer on the
Internet. The Blue Martini Customer Interaction System delivers enhanced
capabilities for dynamic e-merchandising, e-marketing and e-service to leading
consumer goods manufacturers such as Levi Strauss & Co., retailers such as
Gymboree Corp., and Internet retailers such
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as Gloss.com. Blaze Advisor provides the underlying business rules used to drive
the personalized shopping experience for each customer. The rules specify
targeted assortments, cross-sells, and promotions based on customer needs and
profiles. The Blaze Advisor Rule Engine allows Blue Martini to offer true
individualized attention and interaction for each site customer. Rich customer
dialogue, driven by Blaze Advisor business rules, allows Blue Martini customers
to offer consumers recommendations based on the companies' best business and
customer-service practices.
IBM. IBM recently announced a new version of their WebSphere Commerce Suite
product, which enables businesses to quickly, easily, and securely conduct
electronic commerce on the World Wide Web. It helps companies integrate
existing business process and legacy systems with the Web, as well as grow new
Web-based businesses. WebSphere Commerce Suite is scalable, open to
customization and integration, and can handle very large transaction volumes.
It comes with catalog templates, setup wizards, and advanced catalog tools to
help companies easily build effective and attractive electronic commerce sites.
IBM chose Blaze Advisor to provide the personalized interaction rules that
enable e-commerce sites to interactively service customer needs in an efficient
and individually appropriate manner. With Blaze Advisor, IBM offers their e-
commerce customers systems that can be tailored to reflect their individual
corporate identities and ways of doing business. Customers are able to modify
the Blaze business rules to implement marketing and selling policies driving
the interactive experience for the end consumer. IBM is marketing the new
WebSphere Commerce Suite on a worldwide basis, and is using Blaze Advisor's
ability to operate and make rule changes in ten languages.
The Prudential Insurance Company of America. The Prudential Insurance
Company of America is one of the largest diversified financial services
institutions in the world and, based on total assets, the largest insurance
company in North America. They offer a full range of insurance, investment, and
real estate products and services to individuals and institutions worldwide.
Prudential has integrated Blaze Advisor into its FORMS system, an intranet
application used by Prudential's agents for individualized support of
Prudential customers. With Blaze Advisor, the FORMS application enables
Prudential's agents to quickly identify, select and tailor annuity and pension
life annuity product application requests for new business applicants. Before
implementing the Blaze-enabled FORMS application, insurance agents needed to
consult an internal call center representative to determine the application
appropriate for a particular customer's request. With the new solution in
place, an agent can spend a few minutes at his browser screen and have all the
applicable forms and preparatory information presented in a clear and
consistent manner, ready to use in providing service to the customer.
Prudential is able to update regulatory and compliance guidelines as often as
necessary and have the new guidelines instantly available to all employees. Use
of the rules-based system reduces the number of specialists, systems, and
manuals an insurance agent needs to refer to, resulting in faster, more
accurate information delivered to the customer.
PlanetRx.com, Inc. is a leading Internet healthcare destination for
commerce, content and community. PlanetRx.com delivers a convenient,
personalized and informed health and beauty shopping experience to the
consumer. With products and services ranging from prescriptions to personal
care items to the latest medical information, PlanetRx.com gives consumers the
ability to manage their own healthcare in a convenient and secure environment.
PlanetRx.com has selected and is currently implementing Blaze Advisor to offer
customers individualized product recommendations and remedies for specific
health topics. The new Web site feature will be designed to help customers
conveniently and quickly make intelligent product selections that best fit
their individualized healthcare needs. Blaze Advisor will offer PlanetRx.com
the ability to deliver quick and convenient online customer product
recommendations determined by interactive dialog and analysis of the customer's
health concerns and brand preferences. Blaze Advisor will allow PlanetRx.com to
reflect its personality online, adapt quickly to its customers' needs and
provide interactive recommendations.
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Blaze Technology and Architecture
The product components included in the Blaze Advisor Solutions Suite
incorporate business rules technology developed by us over several years. Core
business rules authoring and processing technologies are based on research and
development conducted for our Blaze Expert product. These technological
solutions are the foundation of Blaze Advisor. Key technological and
architectural attributes of Blaze Advisor are:
Business Rule Design. Users can express business rules in a proprietary
structured rule language that makes use of common English words. Our customers
can use a wide range of business condition expressions, such as relative
comparison, set membership, set counts, dates, or currency calculations.
Attributes of these business objects can be expressed in English such as "the
level of Inventory" or in shorthand "Inventory.level" notation. A drag-and-drop
visual design tool is used to create and modify basic business logic flows
during the rule project design phase. One business rule can apply to input from
Web forms, database, or remote legacy systems.
Integration With Existing Systems. Blaze Advisor business rules operate
with existing data and objects in the customer's business environment. These
objects may come from database rows, Java objects, Messaging systems, COM, or
Component Object Model, CORBA, or Common Object Request Broker Architecture,
XML, or Extensible Markup Language, or other custom model definitions. Blaze
Advisor Builder includes object import wizards to retrieve and establish
linkages to external business objects and databases. The Blaze Advisor Rule
Server includes published and documented Application Programming Interface
functions that allow operations to be controlled from Java applications or as
part of common application server platform operations including EJB, or
Enterprise Java Beans, Java, COM, CORBA, Messaging, Servlets and Java Server
Pages, and C++ through JNI, or Java Native Interface.
The Blaze Advisor Rule Engine and Rule Server operate in pure Java, giving
them the ability to be run on any hardware and operating system incorporating a
Sun-compatible Java Virtual Machine. Operating systems such as Microsoft
Windows NT, Sun Solaris, IBM AIX, IBM OS/390, IBM OS/400, Compaq Tru64, Compaq
NonStop-UX, Data General DG-UX, and Hewlett-Packard HP-UX are examples of
typical environments on which our customers are developing and deploying
server-based applications.
Performance. Blaze Advisor indexes business rules into an optimized network
to determine which rules apply to given objects. This gives the rule engine the
ability to manage large numbers of complex rule conditions, noting when objects
are changed and adding or removing rules from the execution list without
explicit programming by the rule developer. Conditions appearing in multiple
rules are unified and tested once, rather than multiple times. Objects and
object combinations satisfying rule conditions are held in memory to reduce the
number of tests performed when objects change. We have implemented a
proprietary algorithm to provide additional performance gains. The Blaze
Advisor Rule Engine is equally efficient with forward-chaining and backward-
chaining scenarios. Blaze Advisor also uses rulesets to logically group rules
associated with a particular business service. The Blaze Advisor Rule Engine
does not examine rules and objects not pertaining to the ruleset being
executed, leading to high performance efficiency.
Scalability. Customers can achieve application scalability by deploying
multiple Blaze Advisor Rule Servers on one or more computers. The application
server platform is used to assign work to the appropriate Rule Server. This
allows for customer-configurable load balancing, failover exception handling,
and workload monitoring and assignment. Blaze Advisor Rule Server can service
multiple clients simultaneously. The Blaze Advisor Rule Server can manage
multiple business services, each with its own rule project. This allows static
or dynamic load leveling between different aspects of the business.
Uninterrupted Operation. Blaze Advisor Rule Server is used to deploy rule
changes made in Blaze Advisor with no interruption to ongoing service. The Rule
Server handles internal monitoring of Blaze Advisor activity and ensures that
it continues unimpeded to its conclusion. The Rule Server manages client
sessions currently underway and oversees those waiting for execution. Rules
replacement is made automatically and
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users in process with a transaction are unaffected; the next person to interact
with the system receives the benefit of the new rules.
Sales and Marketing
We sell our products primarily through our direct sales force to corporate
customers as well as to independent software vendors that incorporate our
products into their offerings. We typically approach both business persons and
information technology professionals with an integrated team from our sales and
professional services organizations. Our sales cycles typically include a
demonstration and physical evaluation of our product capabilities followed by
one or more detailed technical reviews.
As of December 31, 1999, our sales and marketing organization in North
America consisted of 28 employees. Our sales offices are located in San Jose,
California; Denver, Colorado; New York, New York; Charlotte, North Carolina;
Dallas, Texas; Bracknell, England; Paris, France; Frankfurt, Germany; Tokyo,
Japan; and Toronto, Canada. We intend to expand the number of sales and service
teams in major geographic markets in the United States.
We use a variety of marketing programs to build market awareness of our
company, our brand name and our products, as well as to attract potential
customers. These programs include advertising, product and strategy updates
with industry analysts, public relations activities, direct mail programs,
seminars, trade shows, Web seminars and Web site marketing. We are currently
developing co-marketing arrangements with independent software vendors and
system integrators to expand market awareness and generate sales leads. We
expect to conduct telemarketing and telesales in the future. Our marketing
organization also supports sales to prospective customers by producing
marketing materials such as brochures, data sheets, white papers, presentations
and demonstrations.
Research and Development
Our research and development organization is responsible for developing new
software products, product architectures, core technologies, product testing,
quality assurance and ensuring the compatibility of our products with hardware
platforms, and software platforms. In addition, this organization supports pre-
sale and customer support activities. Our research and development organization
incorporates the input of our professional services, technical support, and
sales and marketing organizations to extend and enhance product features and
functionality. Our future success will depend in part on our ability to enhance
the Blaze Advisor suite of products, develop new products and capitalize on our
technology leadership to support a global customer base.
As of December 31, 1999, our research and development organization in North
America consisted of 31 employees, including software engineers, quality
assurance engineers, and technical writers. Our total expenses for research and
development on continuing operations were $3.5 million for the nine months
ended December 31, 1999 and $3.8 million for fiscal 1999.
Competition
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants.
We compete primarily with:
. in-house development efforts by potential customers or partners;
. Web content developers engaged to develop custom software or to
integrate other application software into custom solutions; and
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. vendors of application software directed at interactive commerce,
interactive financial services and enterprise business-logic
automation, such as Art Technology Group Inc., Computer Associates
International, Inc., ILOG, Inc., Net Perceptions, Inc., Trilogy
Software, Inc. and Versata Inc.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing, or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly to
new or emerging opportunities, technologies and changes in customer
requirements. Current and potential competitors may have more extensive
customer bases that could be leveraged, thereby gaining market share to our
detriment. Such competitors may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies, and offer more attractive
terms to purchasers. Moreover, certain of our indirect and potential
competitors, such as BroadVision, IBM, Oracle and SAP may bundle their products
in a manner that may discourage users from purchasing products offered by us.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
enhance their products. Accordingly, it is possible that new competitors or
alliances among competitors may emerge and rapidly acquire significant market
share. Increased competition could seriously harm our ability to sell
additional software, maintenance renewals, and services on terms favorable to
us. Competitive pressures could reduce our market share or require us to reduce
the price of our products and services, any of which could harm our business.
We compete on the basis of certain factors, including:
. quality, depth and breadth of functionality offered;
. ease of application development;
. time required for application development;
. adherence to industry standards;
. reliability, scalability, maintainability, personalization and other
features;
. quality of services and customer support; and
. price.
We believe that we presently compete favorably with respect to each of
these factors. However, the market for our products is still rapidly evolving
and we may not be able to compete successfully against current and potential
competitors.
Intellectual Property and Other Proprietary Rights
Our future success depends in part on legal protection of our technology.
To protect our technology, we rely on a combination of the following methods,
among others:
. technologies that limit installation and use of the software to
authorized companies and individuals;
. license agreements;
. employee and third-party nondisclosure agreements and confidentiality
procedures;
. copyright laws;
. trade secret laws;
. patent laws; and
. trademark laws.
Our end-user licenses are designed to prohibit unauthorized use, copying
and disclosure of our software and technology. However, these provisions may be
unenforceable under the laws of some jurisdictions and
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foreign countries. In addition, some of our licensed users may allow
unauthorized users to install our software, and if we do not detect such use we
could lose potential license fees. Unauthorized third parties may be able to
copy some portions of our products or reverse engineer or obtain and use
information and technology that we regard as proprietary. Third parties could
also independently develop competing technology or design around our
technology. If we are unable to successfully detect infringement and enforce
our rights in our technology, we may lose competitive position in the market.
We cannot assure you that our means of protecting our proprietary rights in the
United States or abroad will be adequate or that competing companies will not
independently develop similar technology.
From time to time, we may encounter disputes over rights and obligations
concerning intellectual property. We believe that our products do not infringe
the intellectual property rights of third parties. However, we cannot assure
you that we will prevail in all intellectual property disputes. We have not
conducted a search for existing patents and other intellectual property
registrations, and we cannot assure you that our products do not infringe upon
issued patents. In addition, because patent applications in the United States
are not publicly disclosed until the patent is issued, applications may have
been filed which would relate to our products.
We indemnify some of our customers against claims that our products
infringe upon the intellectual property rights of others. We could incur
substantial costs in defending ourselves and our customers against infringement
claims. In the event of a claim of infringement, we or our customers may be
required to obtain one or more licenses from third parties. We cannot assure
you that such licenses could be obtained from third parties at a reasonable
cost, or at all. Defense of any lawsuit or failure to obtain any such required
license would have a material adverse effect on our business.
We have received one patent and several trademark registrations and applied
for additional trademarks. Blaze Software, Blaze Advisor, Blaze Advisor
Solutions Suite, Blaze Advisor Builder, Blaze Advisor Rule Engine, Blaze
Advisor Rule Server, Blaze Advisor Innovator, Blaze Expert, Blaze Presenter,
Beyond Personalization, Open Interface and the Blaze logo are our trademarks.
Our pending trademark applications may not be allowed. Our patents and
trademarks may not provide us a competitive advantage. Competitors may
successfully challenge the validity and scope of our patents and trademarks.
Other service marks, trademarks and trade names referred to in this
prospectus are the property of their respective owners.
Employees
As of December 31, 1999, we employed 128 people. 26 employees work outside
of North America. Of the full-time employees in North America, 21 are in
general and administrative functions, 28 in sales and marketing, 22 in
professional services, and 31 in research and development. From time to time we
also employ independent contractors to support our professional services,
product development, sales, marketing and business development organizations.
None of our employees are represented by a labor union and we have never
experienced an employee-related work stoppage. Management considers its
employee relations to be good.
Facilities
Our headquarters are located in San Jose, California in a leased building
of 27,000 square feet. We also lease office space in Denver, Colorado; New
York, New York; Charlotte, North Carolina; Dallas, Texas; Bracknell, England;
Paris, France; Frankfurt, Germany; Tokyo, Japan; and Toronto, Canada.
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Legal Proceedings
From time to time, we may become involved in litigation relating to claims
arising from our ordinary course of business. We believe that there are no
claims or actions pending or threatened against us, the ultimate disposition of
which would have a material adverse effect on us.
Potential Claims
On January 6, 2000, Patrick Perez, a founder and former director of Blaze
Software, notified us of claims that he may assert against us. Mr. Perez
contends that his personal equity ownership of Blaze Software was diluted
improperly in connection with our Series AA preferred stock financing that
closed in June and September 1999. In particular, Mr. Perez contends that he
was wrongfully denied the opportunity to purchase shares at a price of $0.54
per share in connection with the financing, and that the financing was
otherwise unfair and benefited participating stockholders. If Mr. Perez had
participated in the financing, he would have been able to purchase up to
1,710,949 shares. We believe that Mr. Perez's assertions are without merit and
intend to vigorously defend any claims that Mr. Perez may bring against us. On
March 17, 2000, we filed a complaint against Mr. Perez in the United States
District Court for the Northern District of California asking for declaratory
relief regarding Mr. Perez's allegations. However, should any litigation be
decided adversely to us, we may be required to pay substantial damages or issue
additional shares to Mr. Perez. In addition, other stockholders that did not
participate in the financing may assert similar claims against us. If we are
required to issue additional shares to Mr. Perez or other stockholders, then-
existing stockholders would experience dilution of their ownership and we would
need to record an accounting charge in our statement of operations equal to the
fair market value of the shares at the time of issuance.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to the
executive officers and directors of Blaze Software as of February 28, 2000.
<TABLE>
<CAPTION>
Name Age Position
---------------------------------------- --- ----------------------------------------
<C> <C> <S>
Thomas F. Kelly......................... 47 President, Chief Executive Officer and
Chairman of the Board of Directors
Gary Shroyer............................ 47 Senior Vice President, Finance and
Administration and Chief Financial
Officer
Eric Kintzer............................ 45 Vice President and Chief Technology
Officer
Joseph Masarich......................... 40 Vice President, Sales
William Seawick......................... 45 Vice President, Marketing
Mark Fishwick........................... 42 Vice President, Professional Services
Jeffrey E. Fisher....................... 42 Vice President, Engineering
Charles M. Boesenberg(1)................ 51 Director
Mark J. DeNino(2)....................... 46 Director
Ken Goldman(1).......................... 50 Director
William J. Harding(2)................... 52 Director
L. George Klaus(1)...................... 59 Director
</TABLE>
- --------
(1)Member of the Audit Committee
(2)Member of the Compensation Committee
Thomas F. Kelly has been President, Chief Executive Officer and a director
of Blaze Software since July 1998. From March 1996 to March 1998, Mr. Kelly
held executive positions at Cirrus Logic, Inc., a semiconductor company, most
recently as Chief Operating Officer. From September 1993 to December 1995, Mr.
Kelly was Executive Vice President and Chief Financial Officer of Frame
Technology, a software company. From January 1992 to July 1993, Mr. Kelly was
Senior Vice President and Chief Financial Officer of Cadence Design Systems,
Inc., a software company. Mr. Kelly received a B.S. in Economics from Santa
Clara University.
Gary Shroyer has been Senior Vice President, Finance and Administration and
Chief Financial Officer of Blaze Software since July 1998. From April 1996 to
June 1998, Mr. Shroyer was Vice President of Finance and Operations and Chief
Financial Officer at Accugraph Corp., a telecommunications software company.
From February 1993 to March 1996, Mr. Shroyer held various positions at Maxtor
Corporation, a computer hardware company, including director of finance, vice
president of finance and corporate controller. Mr. Shroyer received an M.B.A.
from the University of Colorado and a B.S. in Accounting from Ball State
University.
Eric Kintzer has been Vice President and Chief Technology Officer of Blaze
Software since March 1998. Mr. Kintzer was Vice President, Engineering from
April 1999 to February 2000. From January 1995 to February 1998, Mr. Kintzer
was Vice President of Technical Architecture of American Management Systems, a
software company. From April 1984 to September 1994, Mr. Kintzer was Vice
President and General Manager of Software Development of Syntelligence Systems,
a software company. Mr. Kintzer received an M.B.A. in Statistics and Management
Science and a B.S.E. in Industrial and Operations Engineering from the
University of Michigan.
Joseph Masarich has been Vice President of Sales of Blaze Software since
July 1999. From December 1997 to February 1999, Mr. Masarich was Senior Vice
President of Marketing and Sales at Summit Design, an enterprise EDA software
company. From December 1996 to May 1997, Mr. Masarich was Vice President of
Worldwide Sales at Technology Modeling Associates, a software company. From
August 1986 to December 1996, Mr. Masarich held various senior sales management
positions at Cadence Design Systems, Inc. Mr. Masarich received an M.S. in
Management from Stanford University and a B.S. in Mechanical Engineering from
the Pratt Institute.
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William Seawick has been Vice President, Marketing of Blaze Software since
May 1999. From May 1997 to April 1998, Mr. Seawick was Vice President of
Marketing at Kanisa, Inc., a consulting company. From May 1996 to May 1997, Mr.
Seawick was Senior Director of Marketing at Oracle Corporation, a database
software company. From June 1990 to May 1996, Mr. Seawick was Group Manager of
Business and Market Development at Sun Microsystems, Inc., a computer company.
Mr. Seawick received an M.B.A. from Cornell University Graduate School of
Business and a B.A. in European Economic History from the University of
Rochester.
Mark Fishwick has been Vice President, Professional Services of Blaze
Software since October 1999. From October 1997 to October 1999, Mr. Fishwick
was Senior Vice President of Customer Services at Chordiant Software, a
software company. From August 1993 to October 1997, Mr. Fishwick was Executive
Director of International Support at Informix Software, a database software
company. From January 1990 to July 1993, Mr. Fishwick was Customer Services
Director of Europe, Middle East and Africa at Informix Software, a database
software company. Mr. Fishwick received a M.A. in Geography from Pembroke
College, University of Oxford, England.
Jeffrey E. Fisher has been Vice President, Engineering of Blaze Software
since February 2000. From March 1996 to February 2000, Mr. Fisher was Vice
President of Product Development at Saratoga Systems, Inc., a software company.
From March 1993 to March 1996, he was Vice President of Engineering at Resumix,
Inc., a software company. Mr. Fisher received an M.S. in computer science from
West Coast University and a B.A. in mathematics from the University of
California at San Diego.
Charles M. Boesenberg has served as director of Blaze Software since
January 2000. Mr. Boesenberg joined Integrated Systems, Inc. in December 1998
as President, Chief Executive Officer and a director. From December 1997 to
December 1998, Mr. Boesenberg was President and Chief Executive Officer of
Magellan Corporation, a satellite-access products company. From January 1995
until it merged with Magellan Corporation in December 1997, Mr. Boesenberg was
President and Chief Executive Officer of Ashtech, Inc., a business-to-business
GPS company. Previously, he was President, Chief Executive Officer and Chairman
of Central Point Software, Inc., President of MIPS Computer Systems, Inc., and
Senior Vice President of Apple Computer, Inc. Mr. Boesenberg serves as a
director of Symantec Corporation. Mr. Boesenberg received an M.S. in Business
Administration from Boston University and a B.S. in Mechanical Engineering from
Rose Hulman Institute of Technology.
Mark J. DeNino has served as a director of Blaze Software since 1997. Mr.
DeNino has served as managing director of TL Ventures since 1994. From 1990 to
1994, Mr. DeNino was President of Crossroads Capital, Inc., an investment bank.
From 1986 to 1990, Mr. DeNino held various positions including head of
investment banking at Fidelity Bank and was President of its venture capital
Small Business Investment Company Group. Mr. DeNino also serves as a director
of Vuent, Inc., Coastal Security Systems, Inc., Cruise411.com, Inc.,
IPNetwork.com, Inc., Pac-West Telecom, Inc., Participate.com, Inc., and
Traffic.com, Inc. Mr. DeNino received his B.A. in Finance and Accounting from
Boston College and his M.B.A. from the Harvard Graduate School of Business
Administration.
Ken Goldman has served as a director of Blaze Software since December 1999.
Mr. Goldman has been Senior Vice President and Chief Financial Officer of
Excite@Home since he joined @Home Corporation, the predecessor to Excite@Home,
in July 1996. From July 1992 to July 1996, he was Senior Vice President and
Chief Financial Officer of Sybase, Inc., a database software and services
company. From 1989 to July 1992, Mr. Goldman was Vice President of Finance and
Administration and Chief Financial Officer at Cypress Semiconductor
Corporation, a semiconductor manufacturer. From 1983 to 1989, he was Vice
President and Chief Financial Officer of VLSI Technology Inc. Mr. Goldman
serves on the board of directors of One World Systems, several private
companies, and the American Electronic Association. Mr. Goldman is also a
member of the FASB Advisory Council. Mr. Goldman holds an M.B.A. from the
Harvard University Graduate School of Business and a B.S. in Electrical
Engineering from Cornell University.
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William Harding has served as a director of Blaze Software since June 1996
and served as Chairman of the Board from June 1996 to July 1998. Dr. Harding
has been a Managing Member of Morgan Stanley Dean Witter Venture Partners, a
venture capital firm, since 1994. From 1985 to 1994, Dr. Harding was a General
Partner of J.H. Whitney & Co., an investment management company. Dr. Harding
currently serves on the board of directors of Commerce One, Inc., InterNAP
Network Services Corporation, Persistence Software, Inc and several private
companies. Dr. Harding received a Ph.D. in Engineering from Arizona State
University, and an M.S. in Systems Engineering from the University of Arizona
and a B.S. in Engineering Mathematics.
L. George Klaus has served as a director of Blaze Software since December
1999. Mr. Klaus has served as a director of Epicor Software and has served as
its President and Chief Executive Officer since February 1996 and Chairman of
the Board since September 1996. From July 1993 to November 1995, Mr. Klaus
served as President, Chief Executive Officer and Chairman of the Board of Frame
Technology, Inc., a software company. From September 1992 to July 1993, Mr.
Klaus was Chairman of the Board and President at Integral Systems, Inc., a
software company. From December 1991 to May 1992, Mr. Klaus was Chief Operating
Officer at Cadence Design Systems, Inc., a software company. In addition, Mr.
Klaus was President and Chief Operating Officer at Valid Logic Systems, Inc., a
supplier of electronic design automation software tools from October 1989 to
December 1991. Mr. Klaus currently serves on the board of FileNet Corporation.
Mr. Klaus received a B.S. in Mathematics from California State University at
Northridge.
Committees of the Board of Directors
Our audit committee consists of Mr. Goldman, Mr. Boesenberg and Mr. Klaus.
The audit committee makes recommendations to the board of directors regarding
the selection of our independent auditors, reviews the results and scope of the
audit and other services provided by our independent auditors and reviews and
evaluates our control functions.
Our compensation committee consists of Mr. DeNino and Mr. Harding. The
compensation committee makes recommendations regarding our various incentive
compensation and benefit plans and determines salaries for our executive
officers and incentive compensation for our employees and consultants.
Board Composition
Our bylaws currently authorize eight directors. Our certificate of
incorporation and bylaws that become effective upon the completion of this
offering provide that our Board will be divided into three classes, Class I,
Class II and Class III, with each class serving staggered three-year terms. The
Class I directors, Messrs. DeNino and Mr. Harding, will stand for re-election
at the 2001 annual meeting of stockholders. The Class II directors, Messrs.
Boesenberg and Goldman, will stand for reelection at the 2002 annual meeting of
stockholders. The Class III directors, Messrs. Kelly and Klaus, will stand for
reelection at the 2003 annual meeting of stockholders. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This staggered classification of
the board of directors may have the effect of delaying or preventing changes in
control or management. There are no family relationships among any of our
directors, officers or key employees.
Voting Agreement
On February 25, 1998, Blaze Software and certain holders of preferred
stock, which was subsequently reconstituted into common stock, entered into an
amended and restated voting agreement. These holders include funds affiliated
with Morgan Stanley Dean Witter Venture Partners, funds affiliated with Alta
Partners, funds affiliated with Sofinnova Ventures, funds affiliated with TL
Ventures, funds managed by or affiliated with
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Burr, Egan, Deleage & Company, Patrick Perez and Alan Rappaport. Under the
terms of the voting agreement: Morgan Stanley Venture Capital and its
affiliated entities are entitled to have two nominees elected to our board;
Alta Partners and its affiliated entities are entitled to have one nominee
elected to our board; the holders of the then-outstanding shares of Series A
preferred stock and Series C preferred stock are entitled to have one nominee
elected to our board; the holders of the then-outstanding shares of Series B
preferred stock are entitled to have one nominee elected to our board; the
Chief Executive Officer will be nominated and elected to our board; and TL
Ventures is entitled to have two nominees elected to our board. In addition,
unless sooner terminated, until the earlier of June 28, 2000 or an initial
public offering of our common stock at a per share price of at least $17.25 (as
adjusted for stock dividends, stock splits and recapitalizations) and for a
total offering of more than $7,500,000, and to the extent that either Patrick
Perez or Alain Rappaport are not already on the board, they are entitled to
receive all notices and other materials for and have the right to attend, in a
non-voting capacity, all meetings of the board of directors. Moreover, we are
obligated to pay the expenses, up to $1,000.00 each, for Mr. Perez and Mr.
Rappaport to attend any board meetings in this capacity. Unless sooner
terminated, the voting agreement terminates upon the consummation of our
initial public offering, on a firm commitment basis, at a per share price of
not less than $17.25 (as adjusted for stock dividends, stock splits and
recapitalizations) and with aggregate proceeds in excess of $7,500,000.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee was, at any time since
our formation, an officer or employee of Blaze Software. None of our executive
officers serves as a member of the board of directors or compensation committee
of any entity that has one or more executive officers serving as a member of
our board of directors or compensation committee, except for Mr. Kelly, who
serves as a director of Epicor Software, of which Mr. Klaus is President, Chief
Executive Officer and a director. See "Certain Transactions" for a description
of transactions between Blaze Software and entities affiliated with members of
our compensation committee.
Director Compensation
We do not currently pay any cash compensation to our directors for their
services as members of the board of directors, although we reimburse them for
certain expenses in connection with attending our board and committee meetings.
We do not provide compensation for committee participation or special
assignments of the board of directors. From time to time, we have granted our
outside directors options to purchase shares of our common stock under the 1996
Stock Plan.
Advisory Board
We have established an advisory board to provide us with guidance on
strategy and insights Individual members are consulted as needed and meetings
of the full Advisory Board will be held periodically. The members of the
Advisory Board are as follows:
Michael A. Braun, the Chairman of our Advisory Board, was President and
Chief Executive Officer of Blaze Software from June 1996 to July 1998, and
Chairman of the Board from July 1998 until December 1999. Since August 1998,
Mr. Braun has been General Manager of the Consumer Division and Global Small
Business Unit at IBM Corporation, a computer company. From 1993 to 1996, he was
President and CEO of Kaleida Labs, a multimedia software joint venture between
IBM and Apple Computer. Prior to this, Mr. Braun held numerous executive
positions at IBM. Mr. Braun received an M.B.A. from the Simon School at the
University of Rochester and a B.A. in psychology from the University of
Rochester.
Debra Chrapaty is the Chief Media Officer for E*TRADE Group, Inc. Prior to
joining E*TRADE in July 1997, Ms. Chrapaty served as chief information officer
and chief technology officer of the National Basketball Association from 1994
to 1997. Ms. Chrapaty has also served as director, internal systems consulting,
at Bertelsmann C.I.S. from 1992 to 1994, and with EMI Records Group from 1990
to 1992. Her prior experience
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with financial organizations includes the Federal Reserve Bank of New York and
Chase Econometric/IDC. Ms. Chrapaty received an M.B.A. in information systems
at New York University and a B.A. in economics at Temple University.
Ed Kozel is a managing partner of Open Range Ventures. From 1989 to
recently, he worked at Cisco Systems, Inc. where he founded the Business
Development group responsible for Cisco's technology investment and corporate
acquisition activities, and was chief technology officer between 1994 and 1998.
He is a director of Cisco Systems and TIBCO Software, and several private
companies. Mr. Kozel has a B.S. in Electrical Engineering from the University
of California, and has participated in Internet technology and applications
since 1980.
Phillip E. White was Chief Executive Officer and a director of Informix
Corporation from January 1989 to July 1997. He held the additional office of
President from August 1990 and of Chairman from December 1992 to July 1997. Mr.
White also serves as a director of Adaptec, Inc., Legato Systems Inc., TIBCO
Software, Inc. and several private companies.
Executive Compensation
The following table sets forth the compensation paid by us during the year
ended March 31, 1999, to our Chief Executive Officer and to our four other most
highly compensated executive officers who earned more than $100,000 during our
last fiscal year. This prospectus refers to these executives as the Named
Executive Officers.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Annual Compensation
Compensation Awards
---------------- ------------
Securities
Underlying
Name and Principal Position(1) Salary Bonus Options
- ------------------------------ -------- ------- ------------
<S> <C> <C> <C>
Thomas F. Kelly(2) ............................. $177,083 $45,000 400,000
Chief Executive Officer and President
Gary Shroyer(3)................................. 119,872 -- 100,000
Senior Vice President, Finance and
Administration and Chief Financial Officer
Eric Kintzer(4)................................. 150,000 18,000
Vice President and Chief Technology Officer
Michael Braun(5)................................ 92,783 17,250 --
Chief Executive Officer and President
Charles Page(6)................................. 127,281 64,068 500
Vice President, North American Field Operations
Christina Jette(7).............................. 160,000 17,850 --
Vice President, Engineering
</TABLE>
- --------
(1) William Seawick, Vice President, Marketing, joined us in May 1999. Joseph
Masarich, Vice President, Sales, joined us in July 1999. Mark Fishwick,
Vice President, Customer Services, joined us in October 1999.
(2) Mr. Kelly joined us in July 1998.
(3) Mr. Shroyer joined us in July 1998.
(4) Mr. Kintzer was also Vice President, Engineering until February 2000.
(5) Mr. Braun resigned as an officer in August 1998 and is currently a member
of our advisory board.
(6) Mr. Page resigned in February 1999.
(7) Ms. Jette resigned in July 1999.
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Option Grants in Last Fiscal Year
The following table provides information relating to stock options awarded
to each of the Named Executive Officers during the year ended March 31, 1999.
All such options were awarded under our 1996 stock plan. In accordance with the
rules of the SEC, the following table sets forth the potential realizable value
over the term of the options based on assumed rates of stock appreciation of 5%
and 10% compounded annually. The term of the options are the period from the
grant date to the expiration date, or 10 years. These amounts do not represent
our estimate of future stock price performance. Actual realizable values, if
any, of stock options will depend on the future performance of the common
stock.
<TABLE>
<CAPTION>
Individual Grants Potential Realizable
-------------------------------------------- Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted for Options Term
Options in Fiscal Exercise Expiration -------------------------
Granted(1) 1999(2) Price(3) Date 5% 10%
Name ---------- ------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas F. Kelly(4)...... 400,000 64.1% $0.80 2008 $ 201,600 $ 508,800
Gary Shroyer(5)......... 100,000 16.0 0.80 2008 50,400 127,200
Eric Kintzer(6)......... -- -- -- -- -- --
Michael Braun(7)........ -- -- -- -- -- --
Charles Page(8)......... 500 0.1 0.80 2008 200 500
Christina Jette(9)...... -- -- -- -- -- --
</TABLE>
- --------
(1) Options were granted under our 1996 stock plan and generally vest over four
years from the date of grant.
(2) Based on an aggregate of 624,250 options granted by Blaze Software in the
year ended March 31, 1999 to our employees and directors, including the
Named Executive Officers.
(3) Options were granted at an exercise price equal to the fair market value
per share of common stock on the grant date, as determined by our board of
directors.
(4) Mr. Kelly also received options to purchase 1,068,376 shares of common
stock in fiscal 2000.
(5) Mr. Shroyer also received options to purchase 235,422 shares of common
stock in fiscal 2000.
(6) Mr. Kintzer also received options to purchase 359,639 shares of common
stock in fiscal 2000.
(7) Mr. Braun resigned as an officer in August 1998 and is currently a member
of our advisory board. Mr. Braun received options to purchase 37,500 shares
of common stock in fiscal 2000.
(8) Mr. Page resigned in February 1999. These options terminated pursuant to
their terms.
(9) Ms. Jette resigned in July 1999.
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Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth information for each of the Named Executive
Officers concerning option exercises for the fiscal year ended March 31, 1999,
and vested and unvested options held at March 31, 1999. The Named Executive
Officers did not exercise any options during the fiscal year ended March 31,
1999.
The "Value of Unexercised In-the-Money Options at March 31, 1999" is based
on a value of $13.00 per share of our common stock, which is the initial public
offering price, less the per share exercise price, multiplied by the number of
shares issued upon exercise of the option. All options were granted under our
1996 stock plan and are immediately exercisable.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at March 31, 1999 at March 31, 1999
-------------------------- ---------------------
Vested Unvested Vested Unvested
Name ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
Thomas F. Kelly................ -- 400,000 $ -- $ 5,200,000
Gary Shroyer................... 12,500 87,500 162,500 1,137,500
Eric Kintzer................... 18,750 56,250 243,750 731,250
Michael Braun.................. -- -- -- --
Charles Page................... 19,771 -- 257,023 --
Christina Jette................ 39,188 21,979 509,444 285,727
</TABLE>
Stock Plans
2000 Stock Plan. Our 2000 stock plan was adopted by the board of directors
in December 1999. As of December 31, 1999, no options were outstanding. A total
of 250,000 shares of common stock is currently reserved for issuance pursuant
to the 2000 stock plan, plus any shares which have been reserved but unissued
under the 1996 stock plan, any shares returned to the 1996 stock plan, and an
annual increases equal to the lesser of: (1) 50,000 shares, (2) 4% of the
outstanding shares or (3) a lesser amount determined by the board of directors.
The 2000 stock plan provides for the grant of incentive stock options (as
defined in Section 422 of the Internal Revenue Code) to employees and
nonstatutory stock options, stock purchase rights and stock bonus rights to
employees, directors and consultants. The 2000 stock plan may be administered
by different committees with respect to different groups of service providers.
Options granted as performance-based compensation within the meaning of Section
162(m) of the Internal Revenue Code are administered by a committee of two or
more outside directors. Option administration committees may make final and
binding determinations regarding the terms and conditions of the awards
granted, including the exercise price, the number of shares subject to the
award and the exercisability thereof, forms of agreement for use under the plan
and interpretation of plan terms.
The exercise price of incentive stock options granted under the 2000 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant. However, for any employee holding more than 10% of the voting
power of all classes of our stock, the exercise price will be no less than 110%
of the fair market value. The exercise price of nonstatutory stock options is
set by the administrator of the 2000 stock plan. However, in the case of
nonstatutory stock options which is intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue
Code, the exercise price will be no less than 100% of the fair market value.
The maximum term of options granted under the 2000 stock plan is ten years.
An optionee whose relationship with Blaze Software or any related
corporation ceases for any reason, other than death or total and permanent
disability, may exercise options in the three-month period following such
cessation, or such other period of time as determined by the administrator,
unless such options terminate
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or expire sooner, or for nonstatutory stock options, later, by their terms. The
three-month period is extended to twelve months for terminations due to death
or total and permanent disability. In the event of a merger of Blaze Software
with or into another corporation, or the sale of substantially all of the
assets of Blaze Software, outstanding options would either be assumed by the
successor company or an equivalent option would be substituted by the successor
company. If any such options are not assumed or substituted, such options would
fully vest in and have the right to exercise the option as to all of the common
stock subject to the option.
None of our employees may be granted, in any fiscal year, options to
purchase more than 500,000 shares, and up to an additional 500,000 shares in
connection with an employee's initial employment with Blaze Software. The 2000
stock plan will terminate in December 2009, unless terminated earlier by the
board of directors.
Stock purchase rights may be granted to employees and consultants under the
2000 stock plan. Such grants are made pursuant to a restricted stock purchase
agreement, and the price to be paid for the shares granted thereunder is
determined by the administrator. Once the stock purchase right has been
exercised, the purchaser shall have the rights equivalent to those of a
stockholder. In addition, unless the adminstrator determines otherwise, Blaze
Software is generally granted a repurchase option exercisable in the event of
voluntary or involuntary termination of the purchaser's employment with Blaze
Software for any reason, including death or disability. The repurchase price
shall be the original purchase price paid by the purchaser. The repurchase
option shall lapse at a rate determined by the administrator.
1996 Stock Plan. Our 1996 stock plan was adopted by the Board of Directors
in July 1996. The 1996 stock plan, as amended and restated, provides for the
grant of incentive stock options to our employees and for the grant of
nonstatutory stock options to our employees, including officers and directors,
non-employee directors and consultants.
We have reserved for issuance under the 1996 stock plan a total of
5,753,429 shares of common stock. The total number of the shares issuable under
this plan will be subject to adjustment from time to time in order to prevent
the dilution or enlargement of benefits thereunder. As of December 31, 1999,
options to purchase 4,287,034 shares of common stock were outstanding under
this plan; 770,904 shares had been issued upon exercise of options, net of
repurchases, and 695,491 shares were available for future grants. Unless
terminated sooner, the 1996 stock plan will terminate automatically in 2006.
The 1996 stock plan is administered by the board of directors who determine
the terms of the options granted, including exercise price, the number of
shares subject to each option, and the vesting schedule. In addition, the board
of directors has complete and full power and authority to amend, suspend or
terminate the plan, provided that no such action may affect any optionees'
rights and obligations under their outstanding options. Unless delegated to a
committee of two or more board members, the board of directors has the
exclusive authority to interpret and apply the provisions of the 1996 stock
plan.
During the lifetime of the optionee, the option shall be exercisable only
by the optionee and shall not be assignable or transferable other than by will
or the laws of descent and distribution following the optionee's death. Unless
the terms of optionee's option agreement provide for an earlier termination,
options granted under the 1996 stock plan must generally be exercised within
three months of the end of optionee's status as our employee or consultant, or
within twelve months after his or her termination by death or disability, but
in no event later than the expiration of the option's ten year term.
The exercise price of the incentive options granted under the 1996 stock
plan must be at least equal to the fair market value of our common stock on the
date of grant and exercise price of the non-statutory options granted under the
1996 stock plan shall not be less than 85% of the fair market value of our
common stock on the date of grant. With respect to any participants of the plan
possessing more than 10% of the voting power of all classes of our outstanding
capital stock, the exercise price of the option must equal at least 110% of the
fair market value on the date of grant and the term of such option must not
exceed five years.
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The board of directors has the discretion to determine the vesting schedule
of the options, although the board of directors may not impose a vesting
schedule upon any option grant or any shares of the common stock which is more
restrictive than 20% per year vesting, with the initial vesting to occur not
later that one year after the date of grant. However, this minimum vesting
requirement shall not be applicable with respect to any option granted to an
officer, director or consultant.
2000 Employee Stock Purchase Plan. Our 2000 employee stock purchase plan
provides employees of Blaze Software with an opportunity to purchase our common
stock through accumulated payroll deductions. A total of 750,000 shares of
common stock have been reserved for issuance under the purchase plan, plus
annual increases equal to the lesser of: (1) 500,000 shares, (2) 2% of the
outstanding shares, or (3) a lesser amount determined by the board of
directors. No shares have been issued under the purchase plan. The purchase
plan will be administered by our board of directors or by a committee of
members of the board appointed by the board. The purchase plan permits eligible
employees to purchase common stock through payroll deductions of up to 15% of
an employee's compensation, up to a maximum of $25,000 for all purchases ending
within the same calendar year. Employees are eligible to participate if they
are customarily employed by Blaze Software for at least 20 hours per week and
more than five months in any calendar year. Unless the board of directors or
its committee determines otherwise, each offering period will run for twenty-
four months and consist of four six-month purchase periods. The first offering
period will commence on the date of this prospectus and will terminate on
October 30, 2002. The first purchase period will commence on the date of this
prospectus and will terminate on October 31, 2000. New twenty-four month
offering periods and six month purchase periods will begin on May 1 and
November 1 of each year. In the event of an acquisition of Blaze Software,
offering periods then in progress will be shortened and all rights
automatically exercised. The price at which common stock will be purchased
under the purchase plan is equal to 85% of the fair market value of the common
stock on the first day of the purchase period or the last day of the offering
period, whichever is lower. Employees may end their participation in the
offering period at any time, and participation automatically ends on
termination of employment. The board may amend, modify or terminate the
purchase plan at any time as long as such amendment, modification or
termination does not impair vesting rights of plan participants. The purchase
plan will terminate in February 2010, unless terminated earlier in accordance
with its provisions.
401(k) Plan
In July 1992, we adopted a 401(k) plan covering our full-time employees
located in the United States. The 401(k) plan is intended to qualify under
Section 401(k) of the Internal Revenue Code, so that contributions to the
401(k) plan by employees or by us, and the investment earnings thereon, are not
taxable to employees until withdrawn from the 401(k) plan, and so that we can
deduct our contributions, if any, when made. Pursuant to the 401(k) plan,
employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit ($10,000 in 1999) and to have the amount of
such reduction contributed to the 401(k) plan. The 401(k) plan permits, but
does not require, that we provide additional matching contributions to the
40l(k) plan on behalf of all participants in the 401(k) plan. To date, we have
not made any contributions to the 401(k) plan.
Employment Agreements and Change of Control Arrangements
Thomas F. Kelly. In July 1998, Mr. Kelly entered into an employment
agreement to serve as our President and Chief Executive Officer. Under the
agreement, we agreed to pay Mr. Kelly an annual salary of $250,000 and a
guaranteed bonus of $15,000 for each of the fiscal quarters ending September
1998, December 1998 and March 1999. We also gave Mr. Kelly the opportunity to
earn an incentive bonus consisting of options to purchase up to 15,000 fully
vested shares of common stock in fiscal 1999 based upon personal and corporate
goals set by the board of directors. In conjunction with this employment
agreement, we granted Mr. Kelly an option to purchase 300,000 shares of common
stock at an exercise price of $0.80 per share. Of those shares, 25% vested on
the first anniversary of his commencement date, and the remaining shares vest
monthly thereafter through the fourth anniversary of the grant. In the event we
experience a change of control, 50% of the unvested portion of the option vests
on the closing date of the transaction, subject to a minimum aggregate vesting
of two-thirds of the shares. Under this employment agreement, we also granted
Mr. Kelly an additional
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option to purchase up to 100,000 shares of common stock at an exercise price of
$0.80 per share. All of the shares subject to the additional option will vest
on the seventh anniversary of the grant. Of the 100,000 shares subject to the
additional option, 50,000 shares will vest immediately if, for a period of 30
consecutive trading days, the closing selling price per share of our common
stock on any national securities exchange or Nasdaq National Market reaches a
level of $3.00 or more, or upon a change of control and 50,000 more shares will
vest immediately if, for a period of 30 consecutive trading days, the closing
selling price per share of our common stock on any national securities exchange
or Nasdaq National Market reaches a level of $6.00 or more, or upon a change of
control. The employment agreement also provides that Mr. Kelly is employed "at-
will" and the employment relationship may be terminated for any reason at any
time. If we terminate Mr. Kelly's employment without cause, we must pay Mr.
Kelly a severance payment in nine monthly installments of one month's salary
each payable at the rate of the annual base salary in effect at the time of
such termination plus the amount of the bonus prorated for such nine month
period at the target rate in effect on the effective date of such termination.
Gary Shroyer. In June 1998, Mr. Shroyer entered into an employment
agreement to serve as our Senior Vice President and Chief Financial Officer and
commenced employment in July 1998. Under the agreement, we agreed to pay an
annual salary of $170,000 and we also gave Mr. Shroyer an opportunity to earn
an annual incentive bonus consisting of options to purchase up to 10,000 fully-
vested shares of common stock at an exercise price of $0.80 per share, of which
we actually issued 1,875 shares. In conjunction with this employment agreement,
we granted Mr. Shroyer an option to purchase 75,000 shares of common stock at
an exercise price of $0.80 per share. Of these shares, 25% vested on July 20,
1999 and one thirty-sixth of the remaining shares vest monthly thereafter. In
the event we experience a change of control, 50% of the unvested portion of the
option vests on the closing date of the transaction, subject to a minimum
aggregate vesting of two-thirds of the option. Under the employment agreement,
we also granted Mr. Shroyer the additional option to purchase up to 25,000
shares of common stock at an exercise price of $0.80 per share. All of the
shares subject to the additional option will vest on the seventh anniversary of
the grant. The shares subject to the additional option will immediately vest
if, for a period of 30 consecutive trading days, the closing selling price per
share of our common stock on any national securities exchange or Nasdaq
National Market reaches a level of $3.00 or more for a period of 30 consecutive
trading days, or upon a change of control. The employment agreement provides
that Mr. Shroyer is employed "at-will" and the employment relationship may be
terminate for any reason at any time. If we terminate Mr. Shroyer's employment
without cause, we must pay Mr. Shroyer a severance payment in six monthly
installments of one month's salary, each payable at the rate of the annual base
salary in effect at the time of such termination plus the amount of the bonus
prorated for such six month period at the target rate in effect on the
effective date of such termination.
Eric Kintzer. In February 1998, Mr. Kintzer entered into an employment
agreement to serve as our Vice President and Chief Technology Officer and
commenced his employment in March 1998. Under the agreement, we agreed to pay
an annual salary of $150,000 and Mr. Kintzer is entitled to receive an annual
incentive bonus of 25% of his salary. In conjunction with this employment
agreement, we granted Mr. Kintzer an option to purchase 75,000 shares of common
stock at an exercise price of $0.80 per share. Of those options, 25% vested on
the first anniversary of his commencement date, and the remaining shares vest
monthly thereafter through the fourth anniversary of the grant. In the event we
experience a change of control, 50% of the unvested portion of the option vests
on the closing date of the transaction, subject to a minimum aggregate vesting
of two-thirds of the option. The employment agreement provides that Mr. Kintzer
is employed "at-will" and the employment relationship may be terminated for any
reason at any time.
Limitations of Liability and Indemnification Matters
Our certificate of incorporation that will be in effect at the time of this
offering limits the liability of directors to the maximum extent permitted by
Delaware law. Delaware law provides that directors of a corporation will not be
personally liable for monetary damages for breach of their fiduciary duties as
directors, except liability for any of the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
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. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemptions; or
. any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that we shall indemnify our directors and executive
officers and may indemnify our other officers and employees and other agents to
the fullest extent permitted by law. We believe that indemnification under our
bylaws covers at least negligence and gross negligence on the part of
indemnified parties. Our bylaws also permit us to secure insurance on behalf of
any officer, director, employee or other agent for any liability arising out of
his or her actions in such capacity, regardless of whether the bylaws would
permit indemnification.
We have entered into agreements to indemnify our directors and executive
officers, in addition to indemnification provided for in our bylaws. These
agreements, among other things, indemnify our directors and executive officers
for certain expenses, including attorneys' fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by us arising out of such person's services as our
director or executive officer, any of our subsidiaries or any other company or
enterprise to which the person provides services at our request. We believe
that these provisions and agreements are necessary to attract and retain
qualified persons as directors and executive officers.
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CERTAIN TRANSACTIONS
Private Placements of Securities
In June 1996, we sold 1,071,430 shares of our Series D preferred stock at a
price of $5.60 per share and granted options to purchase Series E preferred
stock at either $5.60 per share or $6.90 per share, depending upon whether we
achieved certain performance goals, to several investors, including the
following entities beneficially owning more than 5% of our outstanding stock or
entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Numbers of Shares of
Number of Shares of Series E Preferred Stock
Investor Series D Preferred Subject to Option
----------------------------- ------------------- ------------------------
<S> <C> <C>
Morgan Stanley Dean Witter
Venture Partners(1)........ 892,858 270,563
Alta Partners(2)............. 178,572 86,581
</TABLE>
- --------
(1) Includes 591,816 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 147,444 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 153,598 shares held by Morgan Stanley Venture Investors, L.P.
(2) Includes 173,421 shares held by Alta California Partners, L.P., and 5,151
shares held by Alta Embarcadero Partners, LLC.
In June 1996, two of our co-founders, Alain Rappaport and Patrick Perez,
sold an aggregate of 53,572 shares of Series B preferred stock at a price of
$5.60 per share to Alta California Partners, L.P. and Alta Embarcadero
Partners, LLC.
In September 1996, we made a loan to Michael Braun in the amount of $70,000
at an interest rate of 6.55% per annum to purchase 125,000 shares of our common
stock at $7.14 per share. Mr. Braun served as one of our directors and our
chief executive officer at time of the loan. Mr. Braun currently serves on our
advisory board. The loan has been repaid in full in connection with the
redemption of shares of common stock in 1998.
In April 1997, we borrowed money with an interest rate of 10% per annum
from the following persons who were officers of Blaze Software at the time and
Michael Braun who has served as a director and chief executive officer of Blaze
Software. Mr. Braun currently serves on our advisory board:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Michael A. Braun.............................................. $84,333
Jack A. Bradley............................................... 24,750
Christina Jette............................................... 23,333
</TABLE>
These amounts were repaid in full in January 1998.
In September 1997, we granted those investors stock options under the 1996
plan to purchase up to the following amounts of common stock:
<TABLE>
<CAPTION>
Investor Number of Options
----------------------------------------------------------- -----------------
<S> <C>
Michael A. Braun........................................... 4,222
Jack A. Bradley............................................ 1,238
Christina Jette............................................ 1,167
</TABLE>
59
<PAGE>
In July 1997, we borrowed money with an interest rate of 25% per annum from
the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $696,454
Alta Partners(2).............................................. 222,716
Burr, Egan, Deleage & Company(3).............................. 330,830
C.V. Sofinnova Ventures....................................... 250,000
</TABLE>
- --------
(1) Includes $461,749 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$114,915 loaned by Morgan Stanley Venture Capital Fund II, C.V. and
$119,790 loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $217,741 loaned by Alta California Partners, L.P. and $4,975
loaned by Alta Embarcadero Partners, LLC.
(3) Includes $279,783 loaned by Alta IV Limited Partnership and $51,047 loaned
by C.V. Sofinnova Partners Five.
These amounts were repaid in full in December 1997 in connection with our sale
of Series F preferred stock.
In November 1997, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $352,086
Burr, Egan, Deleage & Company(2).............................. 167,994
Alta Partners(3).............................................. 154,918
C.V. Sofinnova Ventures....................................... 75,000
</TABLE>
- --------
(1) Includes $233,375 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$58,142 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $60,569
loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $142,073 loaned by Alta IV Limited Partnership and $25,921 loaned
by C.V. Sofinnova Partners Five.
(3) Includes $151,458 loaned by Alta California Partners, L.P., and $3,460
loaned by Alta Embarcadero Partners, LLC.
These amounts were repaid in full in December 1997 in connection with our sale
of Series F preferred stock.
In December 1997, we sold 1,165,803 shares of our Series F preferred stock
at a price of $7.72 per share to several investors, including the following
entities beneficially owning more than 5% of our outstanding stock or entities
affiliated with directors at that time:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series F Preferred
--------------------------------------------------------- -------------------
<S> <C>
TL Ventures(1)........................................... 971,504
Morgan Stanley Dean Witter Venture Partners(2)........... 90,214
Burr, Egan, Deleage & Company(3)......................... 42,853
Alta Partners(4)......................................... 28,849
C.V. Sofinnova Ventures.................................. 32,383
</TABLE>
- --------
(1) Includes 782,224 shares held by TL Ventures III L.P., 163,738 shares held
by TL Ventures III Offshore L.P. and 25,542 shares held by TL Ventures III
Interfund L.P.
(2) Includes 59,812 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 14,885 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 15,517 shares held by Morgan Stanley Venture Investors, L.P.
60
<PAGE>
(3) Includes 36,241 shares held by Alta IV Limited Partnership and 6,612 shares
held by C.V. Sofinnova Partners Five.
(4) Includes 28,205 shares held by Alta California Partners, L.P. and 644
shares held by Alta Embarcadero Partners, LLC.
In November 1998, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Investor Amount of Loan
-------------------------------------------------------------- --------------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)................ $319,149
Alta Partners(2).............................................. 102,122
TL Ventures(3)................................................ 315,394
Burr, Egan, Deleage & Company(4).............................. 70,833
C.V. Sofinnova Ventures....................................... 42,500
</TABLE>
- --------
(1) Includes $211,543 loaned by Morgan Stanley Venture Capital Fund II, L.P.,
$54,903 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $52,703
loaned by Morgan Stanley Venture Investors, L.P.
(2) Includes $99,841 loaned by Alta California Partners, L.P. and $2,281 loaned
by Alta Embarcadero Partners, LLC.
(3) Includes $253,946 loaned by TL Ventures III L.P., $53,157 loaned by TL
Ventures III Offshore L.P. and $8,291.89 loaned by TL Ventures III
Interfund L.P.
(4) Includes $59,903 loaned by Alta IV Limited Partnership and $10,930 loaned
by C.V. Sofinnova Partners Five.
These amounts were repaid in full in June 1999 in connection with our sale of
Series AA preferred stock.
In March 1999, we borrowed money with an interest rate of 25% per annum
from the following entities beneficially owning more than 5% of our outstanding
stock or entities affiliated with directors at that time:
<TABLE>
<CAPTION>
Amount
Investor of Loans
-------------------------------------------------------------------- --------
<S> <C>
Morgan Stanley Dean Witter Venture Partners(1)...................... $244,056
TL Ventures(2)...................................................... 241,184
Alta Partners(3).................................................... 78,093
Burr, Egan, Deleage & Company(4).................................... 54,166
C.V. Sofinnova Ventures............................................. 32,500
</TABLE>
- --------
(1) Includes $161,768 loaned by Morgan Stanley Venture Capital Fund II, L.P.
$40,303 loaned by Morgan Stanley Venture Capital Fund II, C.V. and $41,985
loaned by Morgan Stanley Venture Investors L.P.
(2) Includes $194,194 loaned by TL Ventures III L.P., $40,649 loaned by TL
Ventures III Offshore L.P. and $6,341.
(3) Includes $76,349 loaned by Alta California Partners L.P. and $1,744 loaned
by Alta Embarcadero Partners L.L.C.
(4) Includes $45,808 loaned by Alta IV Limited Partnership and $8,358 loaned by
C.V. Sofinnova Partners Five.
These amounts were repaid in full in June 1999 in connection with our sale of
Series AA preferred stock.
In June and September 1999, we sold 8,416,215 shares of our Series AA
preferred stock at a price of $0.54 per share to several investors. In
connection with this financing, all shares of Series A, B, D and F preferred
stock converted to common stock at a ratio of 1:1. Series C preferred stock
also converted to common
61
<PAGE>
stock at a ratio of 1:1.04. Purchasers beneficially owning more than 5% of our
outstanding stock or entities affiliated with directors at that time included:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series AA Preferred
--------------------------------------------------------- -------------------
<S> <C>
Alta Partners(1)......................................... 1,129,782
C.V. Sofinnova Ventures.................................. 292,311
Morgan Stanley Dean Witter Venture Partners(2)........... 2,197,533
TL Ventures(3)........................................... 3,813,057
Burr, Egan, Deleage & Company(4)......................... 702,030
</TABLE>
- --------
(1) Includes 1,104,088 shares held by Alta California Partners, L.P., 25,694
shares held by Alta Embarcadero Partners, LLC.
(2) Includes 1,456,599 shares held by Morgan Stanley Venture Capital Fund II,
L.P., 362,893 shares held by Morgan Stanley Venture Capital Fund II, C.V.
and 378,041 shares held by Morgan Stanley Venture Investors, L.P.
(3) Includes 3,070,156 shares held by TL Ventures III L.P., 642,654 shares held
by TL Ventures III Offshore L.P. and 100,247 shares held by TL Ventures III
Interfund L.P.
(4) Includes 593,594 shares held by Alta IV Limited Partnership and 108,436
shares held by C.V. Sofinnova Partners Five.
In December 1999, we sold 1,952,735 shares of our Series BB preferred stock
at a price of $7.14 per share to several investors, including the following
entities beneficially owning more than 5% of our outstanding stock, directors
and entities affiliated with directors:
<TABLE>
<CAPTION>
Number of Shares of
Investor Series BB Preferred Stock
-------------------------------------------------- -------------------------
<S> <C>
Sofinnova Ventures(1)............................. 560,224
L. George Klaus(2)................................ 28,011
Charles M. Boesenberg............................. 14,006
Ken Goldman....................................... 7,003
</TABLE>
- --------
(1) Includes 280,112 shares held by Sofinnova Capital III FCPR, 272,409 shares
held by Sofinnova Venture Partners IV, L.P., and 7,703 shares held by
Sofinnova Venture Affiliates IV, L.P.
(2) Includes 21,008 shares held by the L. George Klaus Trust and 7,003 shares
held by Julie Tafel Klaus, Mr. Klaus' spouse.
Holders of our preferred stock are entitled to registration rights with
respect to the shares of common stock that they will hold following this
offering. See "Description of Capital Stock--Registration Rights of Certain
Holders."
Other Transactions
From time to time, we have granted stock options to our executive officers
and directors.
We have entered into indemnification agreements with each of our directors
and executive officers that are described in this prospectus under the caption
"Management--Limitations of Liability and Indemnification Matters."
62
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of December 31, 1999, by the following
individuals or groups:
. each person, or group of affiliated persons, whom we know beneficially
owns more than 5% of our outstanding stock;
. each of our Named Executive Officers;
. each of our current directors; and
. all of our executive officers and current directors as a group.
Unless otherwise indicated, the address for each stockholder on this table
is c/o Blaze Software, Inc., 150 Almaden Boulevard, San Jose, CA 95113. Except
as otherwise noted, and subject to applicable community property laws, to the
best of our knowledge, the persons named in this table have sole voting and
investing power with respect to all of the shares of common stock held by them.
This table lists applicable percentage ownership based on 21,319,244 shares
of common stock outstanding as of December 31, 1999, as adjusted to reflect the
conversion of all outstanding shares of preferred stock into 10,368,950 shares
of common stock upon the closing of this offering, and also lists applicable
percentage ownership based on 21,319,244 shares of common stock outstanding
after completion of this offering. Options and warrants to purchase shares of
our common stock that are exercisable within 60 days of December 31, 1999 are
deemed to be beneficially owned by the persons holding these options or
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage.
<TABLE>
<CAPTION>
Shares Beneficially Owned
---------------------------
Percent Percent
Before After
Number Offering Offering
Beneficial Owner --------- -------- --------
<S> <C> <C> <C>
Mark J. DeNino(1)................................. 4,784,561 27.6% 22.4%
Funds Affiliated with TL Ventures
435 Devon Park Drive
Building 700
Wayne, PA 19087
William Harding(2)................................ 3,451,168 19.9 16.2
Funds Affiliated with Morgan Stanley Dean Witter
Venture Partners
3000 Sand Hill Road
Building 4, Suite 250
Menlo Park, CA 94025
Funds Affiliated with Alta Partners(3)............ 1,530,927 8.8 7.2
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Funds Affiliated with Sofinnova Ventures(4)....... 1,420,202 8.2 6.7
140 Geary Blvd., 10th Floor
San Francisco, CA 94108
Funds Managed by or Affiliated with Burr, Egan,
Deleage & Company(5)............................. 1,168,860 6.7 5.5
One Post Office Suite
Suite 3800
Boston, MA 02109
Thomas F. Kelly(6)................................ 541,649 3.1 2.5
Gary Shroyer(7)................................... 104,217 * *
Eric Kintzer(8)................................... 178,317 1.0 *
Michael Braun(9).................................. 12,500 * *
Christina Jette................................... 12,500 * *
Charles Page...................................... 19,771 * *
Charles M. Boesenberg(10)......................... 14,006 * *
L. George Klaus(11)............................... 28,011 * *
Ken Goldman(12)................................... 7,003 * *
All executive officers and current directors as a
group (11 persons)(13)........................... 9,151,704 51.5% 42.0%
</TABLE>
63
<PAGE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 125,789 shares held by TL Ventures III Interfund L.P., 3,852,380
shares held by TL Ventures III L.P. and 806,392 shares held by TL
Ventures III Offshore L.P. Mr. DeNino, one of our directors, is the
general partner of TL Ventures. Mr. DeNino disclaims beneficial ownership
of the shares held by these funds except to the extent of his pecuniary
interest therein.
(2) Includes 569,902 shares held by Morgan Stanley Venture Fund II, C.V.,
2,287,565 shares held by Morgan Stanley Venture Capital Fund II, LP, and
593,701 shares held by Morgan Stanley Venture Investors LP. Dr. Harding,
one of our directors, is a general partner of these funds. Dr. Harding
disclaims beneficial ownership of the shares held by these funds except
to the extent of his pecuniary interest therein.
(3) Includes 1,493,849 shares held by Alta California Partners L.P., 37,077
shares held by Alta Embarcadero Partners LLC.
(4) Includes 854,978 shares by C.V. Sofinnova Ventures, 280,112 shares held
by Sofinnova Capital III FCPR, 272,409 shares held by Sofinnova Venture
Partners IV, L.P. and 7,703 shares held by Sofinnova Venture Affiliates
IV. Also includes 5,000 shares held by Mr. Alain Azan, one of our former
directors and the general partner of Sofinnova Ventures. Mr. Azan
disclaims beneficial ownership of the shares held by these funds except
to the extent of his pecuniary interest therein.
(5) Includes 988,396 shares held by Alta IV L.P. ("Alta") 180,466 shares held
by C.V. Sofinnova Partners Five ("Sofinnova" and together with Alta, the
"BEDFunds"). Burr, Egan, Deleage & Co. directly or indirectly provides
investment advisory services to Alta IV Limited Partnership and C.V.
Sofinnova Partners Five. The respective general partners of these funds
exercise sole voting and investment power in respect to the shares owned
by such funds. The principals of Burr, Egan, Deleage & Co. are general
partners of Alta IV Management Partners, L.P. (which is a general partner
of Alta IV Limited Partnership). As general partners of the fund, they
may be deemed to share voting and investment powers for the shares held
by the fund. Burr, Egan, Deleage & Co. serves as an advisor to C.V.
Sofinnova Partners Five. The principals of Burr, Egan, Deleage & Co.
disclaim beneficial ownership of the shares held by these funds except to
the extent of their pecuniary interest therein.
(6) As of December 31, 1999, Mr. Kelly had exercised options to purchase
300,000 shares of common stock. Mr. Kelly holds exercisable options to
purchase 1,168,376 shares of common stock. Of the shares represented by
these options and the shares issued to Mr. Kelly upon the exercise of his
options, 541,649 shares are fully vested as of February 29, 2000.
(7) As of December 31, 1999, Mr. Shroyer had exercised options to purchase
125,001 shares of common stock, which shares are subject to a repurchase
option held by us. Mr. Shroyer holds exercisable options to purchase
210,422 shares of common stock. Of the shares represented by these
options and the shares issued to Mr. Shroyer upon the exercise of his
options, 104,217 shares are fully vested as of February 29, 2000.
(8) As of December 31, 1999, Mr. Kintzer had exercised options to purchase
39,500 shares of common stock, which shares are subject to a repurchase
option held by us. Mr. Kintzer holds exercisable options to purchase
395,139 shares of common stock. Of the shares represented by these
options and the shares issued to Mr. Kintzer upon the exercise of his
options, 178,317 shares are fully vested as of February 29, 2000.
(9) Mr. Braun holds exercisable options to purchase 37,500 shares of common
stock, of which 12,500 shares are fully vested as of February 29, 2000.
(10) Mr. Boesenberg also holds exercisable options to purchase 25,000 shares
of common stock, of which no shares are vested as of February 29, 2000.
(11) Includes 21,008 shares held by the L. George Klaus Trust and 7,003 shares
held by Julie Tafel Klaus, Mr. Klaus' spouse. Mr. Klaus also holds
exercisable options to purchase 25,000 shares of common stock, of which
no shares are vested as of February 29, 2000.
(12) Mr. Goldman also holds exercisable options to purchase 25,000 shares of
common stock, of which no shares are vested as of February 29, 2000.
(13) Includes 824,182 shares issuable upon exercise of fully vested options.
64
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our certificate of incorporation that becomes effective upon the closing of
this offering authorizes the issuance of up to 200,000,000 shares of common
stock, $0.0001 par value, and authorizes the issuance of 10,000,000 shares of
undesignated preferred stock, $0.0001 par value. From time to time, our board
of directors may establish the rights and preferences of the preferred stock.
As of December 31, 1999, 6,950,294 shares of common stock were issued and
outstanding and held by 151 stockholders, and 10,368,950 shares of preferred
stock were issued and outstanding and held by 49 stockholders. Upon the closing
of this offering, all outstanding shares of preferred stock will convert into
an aggregate of 10,368,950 shares of common stock. The following description of
our capital stock is, by necessity, not complete. We encourage you to refer to
our amended and restated certificate of incorporation and bylaws, which are
included as exhibits to the registration statement of which this prospectus
forms a part, and applicable provisions of Delaware law for a more complete
description.
Common Stock
Each holder of common stock is entitled to one vote for each share held on
all matters to be voted upon by the stockholders and there are no cumulative
voting rights. Subject to preferences that may be applicable to any
subsequently outstanding shares of preferred stock, holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from
time to time by the board of directors out of funds legally available for that
purpose. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of Blaze Software, the holders of common stock are entitled to share
in our assets remaining after the payment of liabilities and the satisfaction
of any liquidation preferences granted to the holders of any outstanding shares
of preferred stock. Holders of common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. All outstanding shares of common
stock are fully paid and nonassessable. The rights, preferences and privileges
of the holders of common stock are subject to, and may be adversely affected by
the rights of the holders of shares of any series of preferred stock which we
may designate in the future.
Preferred Stock
The board of directors has the authority, without action by the
stockholders, to designate and issue preferred stock in one or more series and
to designate the rights, preferences and privileges of each series, which may
be greater than the rights of the common stock. It is not possible to state the
actual effect of the issuance of any shares of preferred stock upon the rights
of holders of the common stock until the board of directors determines the
specific rights of the holders of such preferred stock. However, the effects
might include, among other things:
. restricting dividends on the common stock;
. diluting the voting power of the common stock;
. impairing the liquidation rights of the common stock; or
. delaying or preventing a change in control of Blaze Software without
further action by the stockholders.
Upon the closing of this offering, no shares of preferred stock will be
outstanding, and Blaze Software has no present plans to issue any shares of
preferred stock.
Warrants and Other Obligations to Issue Capital Stock
As of December 31, 1999, we had outstanding warrants to purchase an
aggregate of 6,005 shares of common stock at an exercise price $5.60 per share.
These warrants are currently exercisable in full. Warrants to purchase 5,000
shares of common stock will expire on October 20, 2006 and warrants to purchase
1,005 shares of common stock will expire on August 14, 2007.
65
<PAGE>
Registration Rights of Certain Holders
After this offering, holders of 15,840,634 shares of common stock (the
"registrable securities") or their transferees are entitled to certain rights
with respect to the registration of such shares under the Securities Act. These
rights are provided under the terms of an agreement between Blaze Software and
the holders of the registrable securities. Beginning 180 days following the
date of this prospectus, holders of at least 40% of the registrable securities
may require on three occasions that we use our best efforts to register the
registrable securities for public resale. Blaze Software is obligated to
register these shares only if the outstanding registrable securities have an
anticipated aggregate public offering price of at least $5,000,000.
Furthermore, in the event Blaze Software elects to register any of its shares
of common stock for purposes of effecting any public offering, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, but Blaze Software may reduce the number of shares proposed
to be registered in view of market conditions. These registration rights have
been waived with respect to this offering. Blaze Software will bear all
expenses in connection with any registration, other than underwriting discounts
and commissions. All registration rights will terminate ten years following the
consummation of this offering, or with respect to each holder of registrable
securities, at such time as the holder is entitled to sell all of its shares in
any 90-day period under Rule 144 of the Securities Act.
Certain Charter and Bylaw Provisions and Delaware Law
Certain provisions of Delaware law and Blaze Software's certificate of
incorporation and bylaws that become effective upon the closing of this
offering could make the following more difficult:
. the acquisition of Blaze Software by means of a tender offer;
. acquisition of Blaze Software by means of a proxy contest or
otherwise; or
. the removal of Blaze Software's incumbent officers and directors.
These provisions, summarized below, are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
Blaze Software to first negotiate with Blaze Software's board. Blaze Software
believes that the benefits of increased protection of its potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure Blaze Software outweigh the disadvantages of
discouraging such proposals because negotiation of such proposals could result
in an improvement of their terms.
Election And Removal Of Directors.
Our board of directors is divided into three classes. The directors in each
class will serve for a three-year term, with Blaze Software's stockholders
electing one class each year. See "Management--Board Composition." This system
of electing and removing directors may discourage a third party from making a
tender offer or otherwise attempting to obtain control of Blaze Software
because it generally makes it more difficult for stockholders to replace a
majority of the directors.
Stockholder Meetings.
Under our bylaws, only the board of directors, the chairman of the board
and the president may call special meetings of stockholders.
Requirements For Advance Notification Of Stockholder Nominations And
Proposals.
Our bylaws establish advance notice procedures for stockholder proposals
and the nomination of candidates for election as directors, other than
nominations made by or at the direction of the board of directors.
66
<PAGE>
Delaware Anti-takeover Law.
Blaze Software is subject to Section 203 of the Delaware General
Corporation Law, an anti-takeover law. In general, Section 203 prohibits a
publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. Generally, an "interested stockholder"
is a person who, together with affiliates and associates, owns or within three
years prior to the determination of interested stockholder status, did own, 15%
or more of a corporation's voting stock. The existence of this provision may
have an anti-takeover effect with respect to transactions not approved in
advance by the board of directors, including discouraging attempts that might
result in a premium over the market price for the shares of common stock held
by stockholders.
Elimination Of Stockholder Action By Written Consent.
Our certificate of incorporation and bylaws that become effective upon the
closing of this offering eliminate the right of stockholders to act by written
consent without a meeting.
No Cumulative Voting.
Our certificate of incorporation and bylaws that become effective upon the
closing of this offering do not provide for cumulative voting in the election
of directors.
Undesignated Preferred Stock.
The authorization of undesignated preferred stock makes it possible for the
board of directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to effect a change in
control of Blaze Software. These and other provisions may have the effect of
deterring hostile takeovers or delaying changes in control or management of
Blaze Software.
Amendment Of Charter Provisions.
The amendment of any of the following provisions would require approval by
holders of at least 66 2/3% of the outstanding common stock:
. indemnification of our officers or directors;
. classification of directors;
. location of stockholder meetings;
. ability of stockholders to act by written consent;
. advance notice provisions for stockholder actions or nominations; and
. super-majority provision of our certificate of incorporation.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
67
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for the common stock will
develop or be sustained after this offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants, in the public market following this offering could
adversely affect market prices prevailing from time to time and could impair
our ability to raise capital through sale of our equity securities. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have 21,319,244 shares of common
stock outstanding based upon shares outstanding as of December 31, 1999,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants that do not expire prior to completion of
this offering. Of these shares, the 4,000,000 shares sold in this offering and
1,816,629 shares held by existing shareholders will be freely tradable without
restriction under the Securities Act, except for any shares held by our
"affiliates" as Rule 144 under the Securities Act as it defines that term. The
remaining 15,502,615 shares of common stock held by existing stockholders are
"Restricted Shares" as Rule 144 defines that term. 15,502,615 of such
Restricted Shares are subject to lock-up agreements providing that, with
certain limited exceptions, the stockholder will not offer, sell, contract to
sell or otherwise dispose of any common stock or any securities that are
convertible into common stock for a period of 180 days after the date of this
prospectus without the prior written consent of FleetBoston Robertson Stephens
or Blaze Software. As a result of these lock-up agreements, notwithstanding
possible earlier eligibility for sale under the provisions of Rules 144, 144(k)
and 701, none of these shares will be resellable until 181 days after the date
of this prospectus. Beginning 181 days after the date of this prospectus,
13,268,379 Restricted Shares will be eligible for sale in the public market
(subject in some cases to volume restrictions under Rule 144 or repurchase
rights in favor of Blaze Software). On September 28, 2000, 281,501 Restricted
Shares will be eligible for sale in the public market, all of which are subject
to volume limitations under Rule 144. On December 31, 2000, 1,952,735
Restricted Shares will be eligible for sale in the public market, all of which
are subject to volume limitations under Rule 144. In addition, as of December
31, 1999, there were outstanding options to purchase 4,287,029 shares of common
stock. Of these options, 2,402,481 are vested and 4,287,029 are exercisable,
subject to repurchase rights in favor of us with respect to unvested shares.
All such options are subject to lock-up agreements. In addition, as of December
31, 1999, there were outstanding warrants to purchase 6,005 shares of common
stock that are subject to lock-up agreements. FleetBoston Robertson Stephens
may, in their sole discretion and at any time without notice, release all or
any portion of the securities subject to lock-up agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned Restricted
Shares for at least one year including the holding period of any prior owner
except an affiliate would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of:
. 1% of the number of shares of common stock then outstanding, which
will equal approximately 213,192 shares immediately after this
offering; or
. the average weekly trading volume of the common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to such
sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about Blaze Software. Under Rule 144(k), a person who is not deemed to have
been an affiliate of Blaze Software at any time during the three months
preceding a sale, and who has beneficially owned the shares proposed to be sold
for at least two years including the holding period of any prior owner except
an affiliate, is entitled to sell such shares without complying with the manner
of sale, public information, volume limitation or notice provisions of Rule
144.
68
<PAGE>
Rule 701, as currently in effect, permits resales of shares in reliance
upon Rule 144 but without compliance with certain restrictions, including the
holding period requirement, of Rule 144. Any employee, officer or director of
or consultant to Blaze Software who purchased shares pursuant to a written
compensatory plan or contact may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders of
Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares. However, most Rule 701 shares are
subject to lock-up agreements and will only become eligible for sale at the
earlier of the expiration of the 180-day lock-up agreements or no sooner than
90 days after the offering upon obtaining the prior written consent of
FleetBoston Robertson Stephens.
After this offering, we intend to file a registration statement on Form S-8
registering shares of common stock subject to outstanding options or reserved
for future issuance under our stock plans. As of December 31, 1999, options to
purchase a total of 4,287,034 shares were outstanding and 695,491 shares were
reserved for future issuance under our stock plans. An additional 2,000,000
shares were reserved for issuance under our stock plans after December 31,
1999. Common stock issued upon exercise of outstanding vested options or issued
pursuant to our employee stock purchase plan, other than common stock issued to
our affiliates is available for immediate resale in the open market.
Also beginning six months after the date of this offering, holders of
15,840,634 Restricted Shares will be entitled to certain rights with respect to
registration of such shares for sale in the public market. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act, except for shares purchased by
affiliates, immediately upon the effectiveness of such registration.
69
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., Chase Securities Inc. and Dain Rauscher
Incorporated, have entered into an underwriting agreement with us to purchase
the number of shares of common stock listed opposite their names below. The
underwriters are obligated to purchase and pay for all the shares listed below
if any are purchased.
<TABLE>
<CAPTION>
Number of
Underwriters Shares
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc................................
Chase Securities Inc..............................................
Dain Rauscher Incorporated........................................
---------
Total........................................................... 4,000,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the initial public offering price
set forth on the cover page of this prospectus and to certain dealers at that
price less a concession of not more than $ per share, of which $ may be
reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the representatives. No
such reduction shall change the amount of proceeds to be received by us as set
forth on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. The
underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
Over-Allotment Option. We have granted to the underwriters an option,
exercisable during the 30-day period after the date of this prospectus, to
purchase up to 600,000 additional shares of common stock at the same price per
share as we will receive for the 4,000,000 shares that the underwriters have
agreed to purchase. If the underwriters exercise their over-allotment option to
purchase any of the additional 600,000 shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage of these additional shares as the number of shares of
common stock to be purchased by each of them shown in the above table bears to
the total number of shares of common stock offered in this offering. If
purchased, these additional shares will be sold by the underwriters on the same
terms as those on which the shares offered hereby are being sold. We will be
obligated, pursuant to the over-allotment option, to sell shares to the
underwriters to the extent the over-allotment option is exercised. The
underwriters may exercise the over-allotment option only to cover over-
allotments made in connection with the sale of the shares of common stock
offered in this offering.
The following table summarizes the compensation to be paid to the
underwriters by us:
<TABLE>
<CAPTION>
Total
---------------------------------------
Without With
Per Share Over-allotment Over-Allotment
--------- -------------- --------------
<S> <C> <C> <C>
Underwriting discounts and commissions
payable by us....................... $ $ $
</TABLE>
We estimate expenses payable by us in connection with this offering, other
than the underwriting discounts and commissions referred to above, will be
approximately $1,300,000.
Indemnification. The underwriting agreement contains covenants of indemnity
among the underwriters and us against specified civil liabilities, including
liabilities under the Securities Act and liabilities arising from breaches of
representations and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our officers, directors and most of our
security holders have agreed, during the period of 180 days after the effective
date of this prospectus, subject to specified exceptions,
70
<PAGE>
not to sell, contract to sell or otherwise sell, dispose of, loan, pledge or
grant any rights with respect to any shares of common stock or any options or
warrants to purchase shares of common stock or any securities convertible into,
or exchangeable for, shares of common stock, owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens or us. FleetBoston Robertson Stephens may, in
its sole discretion and at any time without notice, release all or any portion
of the securities subject to lock-up agreements. All of the shares of common
stock subject to the lock-up agreements will be eligible for sale in the public
market upon the expiration of the lock-up agreements, subject to holding period
requirements, volume limitations and other conditions of Rule 144.
Future Sales. In addition, we have agreed that, during the period of 180
days after the effective date of this prospectus, we will not, without the
prior written consent of FleetBoston Robertson Stephens, subject to certain
exceptions, issue, sell, contract to sell or otherwise dispose of any shares of
common stock, any options or warrants to purchase any shares of common stock or
any securities convertible into, exercisable for or exchangeable for shares of
common stock, other than our sale of shares in this offering, the issuance of
common stock upon the exercise of outstanding options, our grant of options to
purchase shares of common stock under existing stock option or stock purchase
plans, and issuances of stock in connection with acquisitions.
No Prior Public Market. Prior to this offering, there was no public market
for our common stock. Consequently, the initial public offering price for the
common stock in this offering was determined through negotiations among us and
the representatives of the underwriters. The factors considered in these
negotiations included prevailing market conditions, our financial information,
the market valuation of other companies that we and the representatives believe
to be comparable to us, estimates of our business potential and the business
potential of the industry in which we compete, and assessment of our
management, our past and present operation and the prospects for our future
revenues.
Stabilization. The representatives have advised us that, based on
Regulation M under the Exchange Act, some persons participating in this
offering may engage in transactions, including stabilizing bids, syndicate
covering transactions or the imposition of penalty bids, which may have the
effect of stabilizing or maintaining the market price of the common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of common stock on behalf of the
underwriters that is intended to fix or maintain the price of the common stock.
A "syndicate covering transaction" is the bid for or the purchase of common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with the offering. A "penalty bid" is an arrangement
that permits the representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by the underwriter or syndicate member is
purchased by the representatives in a syndicate covering transaction, and has
therefore not been effectively placed by this underwriter or syndicate member.
The representatives have advised us that these transactions may be effected on
the Nasdaq National Market and, if commenced, may be discontinued at any time.
Internet Distribution. E*TRADE Securities, Inc. will make the preliminary
prospectus available on its Web site when it becomes available. In this
offering, E*TRADE will not solicit conditional offers until two business days
before the expected effective date of the offering. If the effective date of
the offering is delayed beyond two business days, E*TRADE will allow,
consistent with the Wit Capital no-action letter, that any conditional offer
received from a customer remain valid for seven days from the date it was
submitted. If effectiveness and notice of allocation do not occur within seven
days after a conditional offer has been received, the customer will be required
to resubmit or reconfirm his or her conditional offer.
E*TRADE will provide customers a period after notice of effectiveness
during which they will continue to have the right to cancel their conditional
offers. This period will be until 8 p.m. E.S.T. (but in no event less than two
hours after notice of effectiveness) in the usual situation where the offering
becomes effective after the close of trading. If the offering becomes effective
prior to or during the trading day, the period will be one hour after E*TRADE
notifies its customers of effectiveness.
71
<PAGE>
If an offering prices outside the expected price range indicated in the
preliminary prospectus or the price range for an offering changes, E*TRADE will
either (a) cancel its existing book of conditional offers and resolicit new
conditional offers or (b) require customers to reconfirm their existing
conditional offers as a condition to participating in the offering.
Directed Shares. At our request, the underwriters have reserved up to five
percent of the common stock to be issued by us in this offering for sale, at
the initial public offering price, to directors, officers, employees, business
associates and related persons of Blaze Software. The number of shares
available for sale to the general public will be reduced to the extent these
persons purchase the reserved shares. The underwriters will offer any reserved
shares not so purchased to the general public on the same basis as other shares
in this offering described above.
Participation in Previous Preferred Stock Financing. In December 1999, we
completed our Series BB preferred stock financing. Bayview 99 I, LP and Bayview
99 II, LP, affiliates of FleetBoston Robertson Stephens Inc., purchased an
aggregate of 28,011 shares. Hambrecht & Quist California, H&Q Employee Venture
Fund 2000, L.P., and Access Technology Partners Brokers Fund, L.P., affiliates
of Chase Securities Inc., purchased an aggregate of 28,012 shares. Dain
Rauscher Wessels Investors L.L.C., an affiliate of Dain Rauscher Incorporated,
purchased 28,012 shares. All of these shares will convert into common stock
upon completion of this offering. Each of these entities has agreed not to
sell, pledge or hypothecate these shares of Series BB preferred stock for a one
year period from the effective date of this offering.
72
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Blaze Software by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Certain legal matters in connection with this offering
will be passed upon for the underwriters by Latham & Watkins, Menlo Park,
California. Attorneys of Wilson Sonsini Goodrich & Rosati beneficially own an
aggregate of 26,963 shares of common stock.
EXPERTS
The financial statements of Blaze Software, Inc. at March 31, 1998 and
1999, and for each of the three years in the period ended March 31, 1999
appearing in this prospectus have so been included in reliance on the report of
PricewaterhouseCoopers, LLP, independent accountants, given upon the authority
of said firm as experts in accounting and auditing.
CHANGE IN INDEPENDENT ACCOUNTANTS
Effective April 1999, PricewaterhouseCoopers LLP was engaged as our
independent accountants and replaced KPMG LLP, who were dismissed as our
independent accountants. The decision to change accountants was approved by our
board of directors. The audit reports of KPMG LLP for the years ended March 31,
1998 and 1997 contained no adverse opinion or disclaimer of opinion and were
not qualified or modified as to uncertainty, audit scope or accounting
principle, except that the audit report issued by KPMG LLP for the years ended
March 31, 1998 and 1997 included an explanatory paragraph citing factors that
raised substantial doubt surrounding our ability to continue as a going
concern. In connection with its audits through March 31, 1998 and through the
date of their replacement, there were no disagreements with KPMG LLP on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedures, which disagreements, if not resolved to their
satisfaction would have caused them to make reference in connection with their
opinion to the subject matter of the disagreement. KPMG LLP has not audited or
reported on any of the consolidated financial statements or information
included in this prospectus. For purposes of this filing, the consolidated
financial statements for the years ended March 31, 1998 and 1997 as well as the
consolidated financial statements for the year ended March 31, 1999 have been
audited by PricewaterhouseCoopers LLP. Prior to retaining
PricewaterhouseCoopers LLP, we had not consulted with PricewaterhouseCoopers
LLP on items that involved our accounting principles or the form of audit
opinion to be issued on our consolidated financial statements included in this
prospectus.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Blaze Software has filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the common stock offered hereby. This
prospectus does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to Blaze Software and our common stock, reference is
made to the registration statement and the exhibits and schedules filed as a
part thereof. Statements contained in this prospectus as to the contents of any
contract or any other document referred to are not necessarily complete. In
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the registration statement, and each such statement is
qualified in all respects by such reference. Copies of the registration
statement, including exhibits and schedules thereto, may be inspected without
charge at the SEC's principal office in Washington, D.C., or obtained at
prescribed rates from the Public Reference Section of the SEC at 450 Fifth
Street, N.W., Washington, D.C. 20549. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov.
73
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) ................. F-5
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Blaze Software, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related statements of operations, of stockholders' deficit, and of cash flows
present fairly, in all material respects, the financial position of Blaze
Software, Inc. and its subsidiaries as of March 31, 1998 and 1999, and the
results of their operations and their cash flows for each of the three years
ended March 31, 1997, 1998 and 1999, in conformity with accounting principles
generally accepted in the United States. These consolidated financial
statements are the responsibility of Blaze Software, Inc.'s management; our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We conducted our audits of these consolidated
financial statements in accordance with auditing standards generally accepted
in the United States, which require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
PricwaterhouseCoopers LLP
San Jose, California
January 5, 2000, except for note 12
as to which the date is February 18, 2000
F-2
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
March 31, Equity
------------------ December 31, December 31,
1998 1999 1999 1999
-------- -------- ------------ -------------
(unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...... $ 6,591 $ 2,129 $ 16,326
Accounts receivable, net of
allowance for doubtful
accounts of $608, $443 and
$419 (unaudited),
respectively.................. 5,282 3,658 4,857
Prepaid expenses and other
current assets................ 430 964 1,100
Income taxes refundable........ 27 -- --
-------- -------- --------
Total current assets........ 12,330 6,751 22,283
Property and equipment, net..... 1,035 786 865
Restricted cash................. -- -- 434
Deposits and other assets....... 489 228 268
-------- -------- --------
Total assets.................... $ 13,854 $ 7,765 $ 23,850
======== ======== ========
LIABILITIES, MANDATORILY
REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank borrowings................ $ 2,678 $ 1,631 $ 2,658
Bridge loan from related
parties....................... -- 1,596 --
Current portion of capital
lease obligations............. 179 81 187
Note payable................... -- 129 --
Accounts payable............... 1,889 1,526 1,542
Accrued expenses............... 3,631 2,873 3,619
Deferred revenue............... 3,325 3,231 3,492
-------- -------- --------
Total current liabilities... 11,702 11,067 11,498
Long-term liabilities:
Capital lease obligations, net
of current portion............ 91 19 298
-------- -------- --------
Total liabilities........... 11,793 11,086 11,796
-------- -------- --------
Mandatorily Redeemable Preferred
Stock: par value $0.0001
Authorized: none (unaudited)
at December 31, 1999, actual
and pro forma; Issued and
outstanding: 3,179 at March
31, 1998 and 1999 and none
(unaudited) at December 31,
1999, actual and pro forma
(Aggregate liquidation
preference: $38,340 at March
31, 1999)..................... 19,624 20,882 --
-------- -------- --------
Commitments and contingencies
(Note 9)
Stockholders' Equity (Deficit):
Series B Convertible Preferred
Stock: par value $0.0001
Authorized: none (unaudited)
at December 31, 1999, actual
and pro forma; Issued and
outstanding: 2,273 at March
31, 1998 and 1999, and none
(unaudited) at December 31,
1999, actual and pro forma
(Aggregate liquidation
value: $13,350 at March 31,
1999)....................... -- -- -- $ --
Series AA Convertible
Preferred Stock: par value
$0.0001
Authorized: 8,416 (unaudited)
at December 31, 1999, actual
and none (unaudited)
pro forma; Issued and
outstanding: none at March
31, 1998 and 1999, 8,416
(unaudited) at December 31,
1999, actual and none
(unaudited) at December 31,
1999, pro forma............. -- -- 1 --
Series BB Convertible
Preferred Stock: par value
$0.0001
Authorized: 2,059 (unaudited)
at December 31, 1999, actual
and none (unaudited) pro
forma; issued and
outstanding: none at March
1998 and 1999, and 1,953
(unaudited) at December 31,
1999, actual and none
(unaudited) at December 31,
1999, pro forma............. -- -- -- --
Common Stock, $0.0001 par
value
Authorized: 54,000 shares
(unaudited) at December 31,
1999, actual and 200,000
shares (unaudited),
pro forma; Issued and
outstanding: 403 at March
31, 1998, 344 at March 31,
1999 and 6,950 (unaudited),
at December 31, 1999 and
17,319 (unaudited) at
December 31, 1999, pro
forma....................... -- -- 1 2
Additional paid-in capital..... (552) (1,842) 82,064 82,064
Notes receivable from
stockholders.................. (70) -- -- --
Cumulative translation
adjustment.................... 110 290 535 535
Unearned stock-based
compensation.................. -- -- (20,683) (20,683)
Accumulated deficit............ (17,051) (22,651) (49,864) (49,864)
-------- -------- -------- --------
Total stockholders' equity
(deficit) ................. (17,563) (24,203) 12,054 12,054
-------- -------- -------- --------
Total liabilities,
mandatorily redeemable
preferred stock and
stockholders' equity
(deficit) ................. $ 13,854 $ 7,765 $ 23,850 $ 23,850
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine
Months Ended
Years Ended March 31, December 31,
------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues:
Product licenses.............. $ 3,296 $ 3,559 $ 3,722 $ 2,556 $ 5,371
Services and maintenance...... 327 803 5,332 3,486 6,378
------- ------- ------- ------- --------
Total revenues.............. 3,623 4,362 9,054 6,042 11,749
------- ------- ------- ------- --------
Cost of revenues:
Product licenses.............. 180 74 40 39 55
Services and maintenance...... 463 512 2,892 1,858 4,328
------- ------- ------- ------- --------
Total cost of revenues...... 643 586 2,932 1,897 4,383
------- ------- ------- ------- --------
Gross profit:................... 2,980 3,776 6,122 4,145 7,366
------- ------- ------- ------- --------
Operating expenses:
Research and development
(excluding $2,615 stock-based
compensation)................ 1,370 1,938 3,843 2,908 3,488
Selling, general and
administrative (excluding
$9,435 stock-based
compensation)................ 3,299 4,808 7,791 5,829 8,744
Stock-based compensation...... -- -- -- -- 12,050
------- ------- ------- ------- --------
Total operating expenses.... 4,669 6,746 11,634 8,737 24,282
------- ------- ------- ------- --------
Operating loss.................. (1,689) (2,970) (5,512) (4,592) (16,916)
Interest expense, net........... (434) (593) (249) (124) (217)
------- ------- ------- ------- --------
Net loss from continuing
operations before income
taxes.......................... (2,123) (3,563) (5,761) (4,716) (17,133)
Provision for income taxes...... (600) (68) (87) (40) (108)
------- ------- ------- ------- --------
Net loss from continuing
operations..................... (2,723) (3,631) (5,848) (4,756) (17,241)
Discontinued operations (Note
3):
Income (loss) from operations
of discontinued user
interface business (net of
income taxes)................ (5,479) (2,174) 248 319 1,767
------- ------- ------- ------- --------
Net (loss)...................... (8,202) (5,805) (5,600) (4,437) (15,474)
Accretion of mandatorily
redeemable preferred stock to
redemption value............... (554) (1,040) (1,258) (1,051) (442)
Beneficial conversion feature... -- -- -- -- (11,739)
------- ------- ------- ------- --------
Net loss attributable to common
stockholders................... (8,756) (6,845) (6,858) (5,488) (27,655)
Other comprehensive income
(loss), net of tax:
Translation adjustments....... 64 (20) 180 278 245
------- ------- ------- ------- --------
Comprehensive (loss)............ $(8,692) $(6,865) $(6,678) $(5,210) $(27,410)
======= ======= ======= ======= ========
Basic and diluted net earnings
(loss) per common share
attributable to common
stockholders:
(Loss) from continuing
operations................... $ (3.56) $(37.37) $(19.15) $(16.09) $ (5.88)
Earnings/(loss) from
discontinued operations...... (5.96) (17.39) 0.66 0.89 0.35
------- ------- ------- ------- --------
Basic and diluted net (loss) per
common share attributable to
common stockholders............ $ (9.52) $(54.76) $(18.49) $(15.20) $ (5.53)
======= ======= ======= ======= ========
Number of shares used in
calculation of basic and
diluted net (loss) per share... 920 125 371 361 4,997
======= ======= ======= ======= ========
Basic and diluted pro forma net
(loss) per share............... $ (0.96) $ (2.49)
======= ========
Shares used in computing pro
forma basic and diluted net
(loss) per share............... 5,843 6,226
======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mandatorily Series B Series AA Series BB
Redeemable Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Notes
Stock Stock Stock Stock Common Stock Additional Receivable Cumulative
-------------- ------------- ------------- ------------- -------------- Paid-In from Translation
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Stockholders Adjustment
------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at April
1, 1996.......... 942 $ 3,275 -- $-- -- $ -- -- $ -- 2,254 $-- $ 395 $ -- $ 66
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- -- -- 148 -- 102 (70) --
Issuance of
Series D
Preferred Stock
at $5.60, net
of Series E
Preferred Stock
warrants and
issuance costs
of $144........ 1,071 4,791 -- -- -- -- -- -- -- -- -- -- --
Issuance of
Series E
Preferred Stock
warrants....... -- 1,064 -- -- -- -- -- -- -- -- -- -- --
Conversion of
Common Stock to
Series B
Preferred
Stock.......... -- -- 2,268 -- -- -- -- -- (2,270) -- -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- -- 4 -- -- -- -- -- -- -- 7 -- --
Issuance of
Common Stock
warrants....... -- -- -- -- -- -- -- -- -- -- 385 -- --
Issuance of
Common Stock
related to
acquisition.... -- -- -- -- -- -- -- -- 100 -- 56 -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 554 -- -- -- -- -- -- -- -- (554) -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- -- -- 64
----- ------- ----- --- --- ---- --- ---- ------ --- ------ ---- ----
Balances at March
31, 1997......... 2,013 $ 9,684 2,272 $-- -- $ -- -- $ -- 232 $-- $ 391 $(70) $130
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- -- -- -- -- -- -- 172 -- 97 -- --
Repurchase of
Common Stock... -- -- -- -- -- -- -- -- (1) -- (1) -- --
Issuance of
Series F
Preferred Stock
at $7.72, net
of issuance
costs of $100.. 972 7,400 -- -- -- -- -- -- -- -- -- -- --
Conversion of
bridge loan to
Series F
Preferred
Stock.......... 194 1,500 -- -- -- -- -- -- -- -- -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- 1 -- -- -- -- -- -- -- 1 -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- 1,040 -- -- -- -- -- -- -- -- (1,040) -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment..... -- -- -- -- -- -- -- -- -- -- -- -- (20)
----- ------- ----- --- --- ---- --- ---- ------ --- ------ ---- ----
Balances at March
31, 1998......... 3,179 $19,624 2,273 $-- -- $ -- -- $ -- 403 $-- $ (552) $(70) $110
<CAPTION> ===== ======= ===== === === ==== === ==== ====== === ====== ==== ====
Total
Stockholders'
Unearned Accumulated Equity
Compensation Deficit (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Balances at April
1, 1996.......... $ -- $ (3,044) $ (2,583)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- 32
Issuance of
Series D
Preferred Stock
at $5.60, net
of Series E
Preferred Stock
warrants and
issuance costs
of $144........ -- -- --
Issuance of
Series E
Preferred Stock
warrants....... -- -- --
Conversion of
Common Stock to
Series B
Preferred
Stock.......... -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- -- 7
Issuance of
Common Stock
warrants....... -- -- 385
Issuance of
Common Stock
related to
acquisition.... -- -- 56
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- -- (554)
Net loss........ -- (8,202) (8,202)
Cumulative
translation
adjustment..... -- -- 64
------------ ----------- -------------
Balances at March
31, 1997......... $ -- $(11,246) $(10,795)
Issuance of
Common Stock
pursuant to
exercise of
options........ -- -- 97
Repurchase of
Common Stock... -- -- (1)
Issuance of
Series F
Preferred Stock
at $7.72, net
of issuance
costs of $100.. -- -- --
Conversion of
bridge loan to
Series F
Preferred
Stock.......... -- -- --
Issuance of
Series B
Preferred Stock
pursuant to
exercise of
options........ -- -- 1
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value.......... -- (1,040)
Net loss........ -- (5,805) (5,805)
Cumulative
translation
adjustment..... -- -- (20)
------------ ----------- -------------
Balances at March
31, 1998......... $ -- $(17,051) $(17,563)
============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)--(Continued)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Mandatorily Series B Series AA Series BB
Redeemable Convertible Convertible Convertible
Preferred Preferred Preferred Preferred Notes
Stock Stock Stock Stock Common Stock Additional Receivable Cumulative
--------------- -------------- ------------- ------------- -------------- Paid-In from Translation
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Capital Stockholder Adjustment
------ ------- ------ ------ ------ ------ ------ ------ ------ ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at March
31, 1998......... 3,179 $19,624 2,273 $ -- -- $ -- -- $-- 403 $ -- $ (552) $ (70) $ 110
Issuance of
Common Stock
pursuant to
exercise of
options......... -- -- -- -- -- -- -- -- 98 -- 56 -- --
Issuance of
Common Stock.... -- -- -- -- -- -- -- -- 1 -- -- -- --
Repurchase of
Common Stock.... -- -- -- -- -- -- -- -- (158) -- (88) 70 --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value........... -- 1,258 -- -- -- -- -- -- -- -- (1,258) -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- -- 180
------ ------- ------ ---- ----- ---- ----- --- ----- ---- ------- ----- -----
Balances at March
31, 1999......... 3,179 20,882 2,273 $ -- -- $ -- -- $-- 344 $ -- $(1,842) $ -- $ 290
Issuance of
Common Stock
pursuant to
exercise of
options......... -- -- -- -- -- -- -- -- 778 -- 171 -- --
Issuance of
Common Stock
pursuant to
conversion of
Series E
warrants........ -- -- -- -- -- -- -- -- 356 -- 36 -- --
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value........... -- 442 -- -- -- -- -- -- -- -- (442) -- --
Beneficial
Conversion
Feature......... -- -- -- -- -- -- -- -- -- -- 11,739 -- --
Adjustment of
Mandatorily
Redeemable
Preferred Stock
Series C per
anti-dilution
provision....... 20 -- -- -- -- -- -- -- -- -- -- -- --
Conversion of
Mandatorily
Redeemable
Preferred Stock
to Common
Stock........... (3,199) (21,324) -- -- -- -- -- -- 3,199 1 21,323 -- --
Conversion of
Series B Stock
to Common
Stock........... -- -- (2,273) -- -- -- -- -- 2,273 -- -- -- --
Issuance of
Series AA
Preferred Stock
at $0.54 per
share, net of
issuance costs
of $141......... -- -- -- -- 8,416 1 -- -- -- -- 4,403 -- --
Issuance of
Series BB
Preferred Stock
at $7.14 ....... -- -- -- -- -- -- 1,953 -- -- -- 13,943 -- --
Unearned
compensation.... -- -- -- -- -- -- -- -- -- -- 32,733 -- --
Amortization of
unearned
compensation.... -- -- -- -- -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- -- -- -- -- --
Cumulative
translation
adjustment...... -- -- -- -- -- -- -- -- -- -- -- -- 245
------ ------- ------ ---- ----- ---- ----- --- ----- ---- ------- ----- -----
Balances at
December 31,
1999,
(unaudited)...... -- $ -- -- $ -- 8,416 $ 1 1,953 $-- 6,950 $ 1 $82,064 $ -- $ 535
====== ======= ====== ==== ===== ==== ===== === ===== ==== ======= ===== =====
<CAPTION>
Total
Stockholders'
Unearned Accumulated Equity
Compensation Deficit (Deficit)
------------ ----------- -------------
<S> <C> <C> <C>
Balances at March
31, 1998......... $ -- $(17,051) $(17,563)
Issuance of
Common Stock
pursuant to
exercise of
options......... -- -- 56
Issuance of
Common Stock.... -- -- --
Repurchase of
Common Stock.... -- -- (18)
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value........... -- -- (1,258)
Net loss........ -- (5,600) (5,600)
Cumulative
translation
adjustment...... -- -- 180
------------ ----------- -------------
Balances at March
31, 1999......... $ -- $(22,651) $(24,203)
Issuance of
Common Stock
pursuant to
exercise of
options......... -- -- 171
Issuance of
Common Stock
pursuant to
conversion of
Series E
warrants........ -- -- 36
Accretion of
Mandatorily
Redeemable
Preferred Stock
to redemption
value........... -- -- (442)
Beneficial
Conversion
Feature......... -- (11,739) --
Adjustment of
Mandatorily
Redeemable
Preferred Stock
Series C per
anti-dilution
provision....... -- -- --
Conversion of
Mandatorily
Redeemable
Preferred Stock
to Common
Stock........... -- -- 21,324
Conversion of
Series B Stock
to Common
Stock........... -- -- --
Issuance of
Series AA
Preferred Stock
at $0.54 per
share, net of
issuance costs
of $141......... -- -- 4,404
Issuance of
Series BB
Preferred Stock
at $7.14 ....... -- -- 13,943
Unearned
compensation.... (32,733) -- --
Amortization of
unearned
compensation.... 12,050 -- 12,050
Net loss........ -- (15,474) (15,474)
Cumulative
translation
adjustment...... -- -- 245
------------ ----------- -------------
Balances at
December 31,
1999,
(unaudited)...... $(20,683) $(49,864) $ 12,054
============ =========== =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
Years Ended March 31, December 31,
------------------------- -------------------
1997 1998 1999 1998 1999
------- ------- ------- -------- ---------
(unaudited)
Cash flows from operating
activities:
<S> <C> <C> <C> <C> <C>
Net loss........................ $(8,202) $(5,805) $(5,600) $ (4,437) $ (15,474)
Add (deduct) loss (income) from
discontinued operations....... 5,479 2,174 (248) (319) (1,767)
------- ------- ------- -------- ---------
Loss from continuing
operations.................... (2,723) (3,631) (5,848) (4,756) (17,241)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Bridge loan interest
converted to equity......... -- -- 96 -- --
Depreciation and
amortization................ 1,075 868 899 548 417
Amortization of stock-based
compensation................ -- -- -- -- 12,050
Amortization of debt
discount.................... 77 -- -- -- --
Write-off of in process
research and development.... 259 -- -- -- --
Loss on write-off of
equipment................... -- -- 129 -- 71
Capital Lease for
construction-in-progress.... -- -- -- -- 40
Changes in assets and
liabilities:
Accounts receivable........ (467) (1,579) (557) 343 (1,114)
Income taxes refund
receivable............... (259) (4) 27 27 --
Prepaid expenses and
other.................... (2) 417 (533) (615) (136)
Accounts payable........... (96) (31) 7 (611) (2)
Other accrued expenses..... 583 (255) (757) 1,945 746
Deferred revenue........... (356) (569) (95) (957) 261
Deferred income taxes...... 265 -- -- -- --
Deposits and other assets.. -- 260 244 (40)
Other long-term
liabilities.............. -- -- -- -- --
------- ------- ------- -------- ---------
Net cash used in continuing
operations.................... (1,644) (4,784) (6,372) (3,832) (4,948)
Net cash (used in) provided by
discontinued operations....... (2,310) (294) 2,061 160 1,700
------- ------- ------- -------- ---------
Net cash used in
operating activities... (3,954) (5,078) (4,311) (3,672) (3,248)
------- ------- ------- -------- ---------
Cash flows from investing
activities:
Capital expenditures............ (321) (140) (779) (391) (60)
Acquisition..................... (130) -- -- -- --
------- ------- ------- -------- ---------
Net cash used in
investing activities... (451) (140) (779) (391) (60)
------- ------- ------- -------- ---------
Cash flows from financing
activities:
Proceeds from note payable...... -- -- 129 -- --
Repayment of note payable....... -- -- -- -- (129)
Payments of principal under
capital lease financing....... (685) (442) (172) (162) (215)
Bank borrowings, net............ 273 1,327 (1,047) 40 1,027
Repayment of note payable to
stockholder................... -- (310) -- -- --
Proceeds from issuance of Common
Stock......................... 32 96 56 49 172
Repurchase of Common Stock...... -- (1) (18) -- --
Proceeds from issuance of
Preferred Stock, Series B (net
of issuance costs)............ -- 1 -- -- --
Proceeds from issuance of
Preferred Stock, Series D and
Series E warrants (net of
issuance costs)............... 5,862 -- -- -- 36
Proceeds from issuance of
Preferred Stock, Series F (net
of issuance costs)............ -- 7,400 -- -- --
Proceeds from issuance of
Preferred Stock, Series AA
(net of issuance costs)....... -- -- -- -- 2,860
Proceeds from issuance of
Preferred Stock, Series BB.... -- -- -- -- 13,943
Proceeds from bridge loan....... -- 1,500 1,500 -- --
Increase in restricted cash..... -- -- -- -- (434)
------- ------- ------- -------- ---------
Net cash provided by
(used in) financing
activities............. 5,482 9,571 448 (73) 17,260
------- ------- ------- -------- ---------
Effect of exchange rate changes
in cash....................... 64 (20) 180 278 245
------- ------- ------- -------- ---------
Net increase (decrease) in cash
and cash equivalents.......... 1,141 4,333 (4,462) (3,858) 14,197
Cash and cash equivalents at
beginning of period........... 1,117 2,258 6,591 6,591 2,129
------- ------- ------- -------- ---------
Cash and cash equivalents at end
of period..................... $ 2,258 $ 6,591 $ 2,129 $ 2,733 $ 16,326
======= ======= ======= ======== =========
Supplemental disclosures of cash
flow information:
Cash paid during the year:
Interest...................... $ 435 $ 692 $ 202 $ 149 $ 217
Notes receivable from
(cancellation of) stockholder
note in exchange for Common
Stock......................... $ 70 $ -- $ (70) $ -- $ --
Assets acquired under capital
lease obligations............. $ 205 $ -- $ -- $ -- $ 468
Issuance of Common Stock
warrants in connection with
debt.......................... $ 385 $ -- $ -- $ -- $ --
Issuance of Common Stock related
to acquisition................ $ 56 $ -- $ -- $ -- $ --
Conversion of Common Stock to
Series B Preferred Stock...... $ 423 $ -- $ -- $ -- $ --
Accretion of cumulative
dividends on Preferred Stock.. $ 554 $ 1,040 $ 1,258 $ 629 $ 442
Unearned compensation related to
stock option grants........... $ -- $ -- $ -- $ -- $ (32,733)
Conversion of bridge loan to
Preferred Stock............... $ -- $ 1,500 $ -- $ -- $ 1,596
Conversion of Mandatorily
Redeemable Preferred Stock to
Common Stock.................. $ -- $ -- $ -- $ -- $ 20,882
Write-off of property and
equipment..................... $ (734) $ -- $(3,761) $ (2,676) $ (472)
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information Relating to the Nine Months Ended
December 31, 1998 and 1999 is Unaudited)
NOTE 1--FORMATION AND BUSINESS OF THE COMPANY:
Blaze Software, Inc. ("Blaze Software") was incorporated in California on
June 4, 1985 as Neuron Data, Inc. Its principal activities include the
development and licensing of infrastructure software that enables adaptable and
personalized interactions that are consistent across all company communication
channels, or touch points. This software enables companies to implement their
policies, practices and procedures, or business rules in e-business
applications across multiple touch points. Blaze Software also provides related
maintenance and consulting services. Blaze Software markets its products to a
wide range of customers mainly in North America, Europe, and Japan primarily
through a direct sales force.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principals of consolidation
The consolidated financial statements include the accounts of Blaze
Software, Inc. and its wholly owned subsidiaries, Blaze Software GmbH, Blaze
Software S.A.R.L., Blaze Software (UK) Ltd and Blaze Software Japan, Inc.
(together, "Blaze Software"). All material intercompany balances and
transactions have been eliminated.
Interim consolidated financial statements (unaudited)
The consolidated financial statements as of December 31, 1999 and for the
nine months ended December 31, 1998 and 1999 together with the related notes
are unaudited but have been prepared in accordance with generally accepted
accounting principles for interim consolidated financial statements and the
rules of the Securities and Exchange Commission and do not include all
disclosures required by generally accepted accounting principles for
consolidated annual financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation have been included. The results of operations of any interim
period are not necessarily indicative of the results of operations for the full
year.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the 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 revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Foreign currency translation
The functional currency of Blaze Software's subsidiaries is the local
currency. Accordingly, Blaze Software applies the current exchange rate to
translate the subsidiaries' assets and liabilities and the weighted average
exchange rate to translate the subsidiaries' revenues, expenses, gains and
losses into U.S. dollars. Translation adjustments are included as a separate
component of comprehensive income within stockholders' deficit in the
accompanying consolidated financial statements.
Cash and cash equivalents
Blaze Software considers all highly liquid investments with an original or
remaining maturity of three months or less at the time of purchase to be cash
equivalents.
F-8
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Business risk and concentration of credit risk
Blaze Software currently operates in a single business segment and revenue
from continuing operations is principally attributable to the sale of software
products and related maintenance, consulting and training services which are
characterized by rapid technological advances, changes in customer requirements
and industry standards. Any failure by Blaze Software to anticipate or to
respond adequately to technological changes in its industry, changes in
customer requirements or changes in industry standards, could have a material
adverse effect on Blaze Software's business and operating results.
Financial instruments which potentially subject Blaze Software to
concentrations of credit risk consist primarily of temporary cash investments,
including money market accounts. Blaze Software places its temporary cash
investments with two major financial institutions. Deposits at any point in
time may exceed the federally insured limits. Blaze Software performs ongoing
credit evaluations of its customers' financial condition and does not require
collateral. Blaze Software maintains allowances for potential credit losses and
such losses have been within management's expectations.
As of March 31, 1998, 1999 and December 31, 1999 (unaudited), there was one
customer that accounted for 13%, 12% and 12% of the aggregate accounts
receivable balance, respectively. No customer accounted for 10% or more of
aggregate revenues in fiscal years 1997 and 1998. For the fiscal year 1999 and
the nine months ended December 31, 1999 (unaudited), one customer accounted for
19% and 25% of the aggregate revenues, respectively.
Fair value of financial instruments
Carrying amounts of certain Blaze Software's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and other liabilities approximate fair value due to their
short maturities. Based upon borrowing rates currently available to Blaze
Software for loans with similar terms, the carrying value of capital lease
obligations approximate fair value.
Property and equipment
Property and equipment are stated at cost and depreciated on a straight-
line basis over the estimated useful lives of the related assets, generally
three to five years. Leased assets are amortized on a straight-line basis over
the lesser of the estimated useful life or the lease term.
Maintenance and repairs are charged to expense as incurred. When assets are
sold or retired, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is included in operations.
Impairment of long-lived assets
Blaze Software evaluates the recoverability of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of ("SFAS No. 121"). SFAS No. 121 requires recognition of impairment
of long-lived assets in the event the net book value of such assets exceeds the
future undiscounted cash flows attributable to such assets.
Revenue recognition
Blaze Software's revenues are derived from two sources; product license
revenues and service revenues. Product license revenues are derived from
product sales to end users and independent software vendors as well
F-9
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
as royalties from independent software vendors. Service revenues are derived
from providing consulting and training, maintenance and support services to end
users.
Blaze Software recognizes revenues 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 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
July 1, 1998. License revenues from sales to end users and systems integrators
are recognized upon shipment of the product, if an executed agreement or
purchase order has been received, the fee is fixed and determinable and
collection is deemed probable. If an acceptance period is provided, revenue is
recognized upon the earlier of customer acceptance or the expiration of that
period. For enterprise application vendors, Blaze Software receives quarterly
reports from these vendors on sell-through of Blaze Software products to end
users. Blaze Software recognizes royalty revenues upon receipt of the quarterly
reports from vendors. For sales made through distributors, Blaze Software
recognizes revenues upon shipment of the product, if an executed agreement or
purchase order has been received, the fee is fixed and determinable, collection
is deemed probable, and the distributor has identified an end-user for the
product. In those instances where a distributor has not identified a valid end-
user for the product, the revenue is deferred. Distributors have no right of
return.
For contracts with multiple obligations (e.g., product licenses,
maintenance and other services), Blaze Software allocates revenue to each
component of the contract based on objective evidence of its fair value, which
is based on the price when each component is sold separately, or when not sold
separately, the price established by management. Blaze Software recognizes
revenue allocated to undelivered products when the criteria for product revenue
set forth above are met.
Service revenues from consulting, installation and training are recognized
as the related services are performed collectibility is probable and Blaze
Software has received notification of acceptance from the customer or the
acceptance period has elapsed. Revenues from maintenance and support
agreements, which includes product updates, are deferred and recognized on a
straight-line basis over the term of the related agreement. Payments of
maintenance fees are generally made in advance and are nonrefundable.
Prior to the adoption of SOP 97-2, Blaze Software recognized revenue from
the sale of products upon shipment if remaining obligations were insignificant,
collection of resulting accounts receivable was probable and product returns
reasonably estimable.
Advertising
Blaze Software expenses advertising costs as they are incurred. Advertising
expense for the years ended March 1997, 1998 and 1999 was $679,000, $1,071,000
and $431,000, respectively, and for the nine months ended December 31, 1999
(unaudited) was $412,000.
Income taxes
Blaze Software accounts for income taxes in accordance with Financial
Accounting Standards Board ("FASB") Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes. This statement prescribes the use of the
liability method whereby deferred tax assets and liabilities are determined
based on the differences between financial reporting and tax bases of assets
and liabilities and measured at tax rates that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets where it is more likely than not the
deferred tax asset will not be realized.
F-10
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Stock-based compensation
Blaze Software has elected to adopt the disclosure provisions of Statement
of Financial Accounting Standards No. 123, Accounting for Stock-based
Compensation ("SFAS No. 123"). Blaze Software accounts for stock-based
compensation using Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, ("APB No. 25") and, accordingly, pro forma
disclosures required under SFAS No. 123 have been presented (See Note 7). Under
APB No. 25, compensation expense is based on the difference, if any, on the
date of the grant, between the deemed fair value of Blaze Software's common
stock and the exercise price. Additionally, pursuant to SFAS No. 123, common
stock issued to non-employees is accounted for at the fair value of the equity
instruments issued, or at the fair value of the consideration received,
whichever is more reliably measurable.
Research and development expenditures
Costs related to research, design and development of products are charged
to research and development expense as incurred. Software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. To date, attaining technological feasibility of Blaze Software's
products and general release have substantially coincided. As a result, Blaze
Software has not capitalized any software development costs.
Net loss per share
Blaze Software computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share, ("SFAS No. 128").
Under the provisions of SFAS No. 128, basic net loss per share is computed by
dividing the net loss available to common stockholders for the period by the
weighted average number of common shares outstanding during the period. Diluted
net loss per share is computed by dividing the net loss for the period by the
weighted average number of common and common equivalent shares outstanding
during the period. Options, warrants, mandatorily redeemable preferred stock
and convertible preferred stock were not included in the computation of diluted
net loss per share because the effect would be antidilutive.
F-11
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of shares used in the calculation of basic and diluted net
loss per share follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months
Ended
Years Ended March 31, December 31,
------------------------- -----------------
1997 1998 1999 1998 1999
------- ------- ------- ------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
Basic and diluted net loss per
share:
Numerator:
Net loss from continuing
operations..................... $(2,723) $(3,631) $(5,848) $(4,756) $(17,241)
Accretion of mandatorily
redeemable preferred stock to
redemption value............... (554) (1,040) (1,258) (1,051) (442)
Beneficial conversion feature of
preferred stock................ -- -- -- -- (11,739)
------- ------- ------- ------- --------
Net loss from continuing
operations attributable to
common stockholders............ (3,277) (4,671) (7,106) (5,807) (29,422)
Income (loss) from operations of
discontinued user interface
business....................... (5,479) (2,174) 248 319 1,767
------- ------- ------- ------- --------
Loss attributable to common
stockholders................... $(8,756) $(6,845) $(6,858) $(5,488) $(27,655)
======= ======= ======= ======= ========
Denominator:
Weighted average common shares
outstanding.................... 993 283 444 397 5,016
Weighted average unvested common
shares subject to repurchase... (73) (158) (73) (36) (19)
------- ------- ------- ------- --------
Denominator for basic and
diluted calculation............ 920 125 371 361 4,997
======= ======= ======= ======= ========
Basic and diluted net loss per
share attributable to common
stockholders................... $ (9.52) $(54.76) $(18.49) $(15.20) $ (5.53)
======= ======= ======= ======= ========
Antidilutive securities
including options, warrants and
preferred stock not included in
net loss per share
calculations................... 6,260 7,502 7,392 7,185 14,658
======= ======= ======= ======= ========
</TABLE>
Pro forma net loss per share (unaudited)
Pro forma net loss per share for the year ended March 31, 1999 and the nine
months ended December 31, 1999, is computed using the weighted average number
of common shares outstanding, including the pro forma effects of the conversion
of mandatory redeemable convertible preferred stock and preferred stock into
common stock on an as-if-converted basis. Pro forma diluted net loss per share
is computed using the pro forma weighted average number of common and common
equivalent shares outstanding. Common equivalent shares, composed of common
shares issuable upon the exercise of stock options and warrants, are not
included in pro forma diluted net loss per share as such shares are
antidilutive.
F-12
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table sets forth the computation of pro forma basic and
diluted net loss per share (unaudited) (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
March 31, December 31,
1999 1999
---------- ------------
<S> <C> <C>
Numerator:
Net loss......................................... $(5,600) $(15,474)
======= ========
Denominator:
Shares used in computing basic and diluted net
loss per share................................. 371 4,997
Adjustment to reflect assumed conversion of all
preferred stock from date of issuance.......... 5,472 1,229
------- --------
Shares used in computing pro forma basic and
diluted net loss per share....................... 5,843 6,226
======= ========
Basic and diluted pro forma net loss per share..... $ (0.96) $ (2.49)
======= ========
Antidilutive securities including options and
warrants not included in pro forma net loss per
share calculation................................ 1,666 4,290
======= ========
</TABLE>
Recent accounting pronouncements
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use, ("SOP 98-1"), which requires
companies to capitalize qualifying computer software costs, which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. Blaze Software does not expect that the adoption of SOP 98-1
will have a material impact on its financial statements and related
disclosures.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting on the Costs of Start-Up
Activities ("SOP 98-5"), which requires companies to expense the costs of
start-up activities and organization costs as incurred. In general, SOP 98-5 is
effective for fiscal years beginning after December 15, 1998. Blaze Software
believes the adoption of SOP 98-5 will not have a material impact on its
results of operations.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS
133"), which establishes new standards of accounting and reporting for
derivative instruments and hedging activities. SFAS 133 requires that all
derivatives be recognized at fair value in the statement of financial position,
and that the corresponding gains or losses be reported either in the statement
of operations or as a component of comprehensive income, depending on the type
of hedging relationship that exists. SFAS 133 is effective for fiscal years
beginning after June 15, 2000. Blaze Software is assessing the potential impact
of this pronouncement on the financial statements; however, they do not expect
any significant impact.
In December 1998, AcSEC released Statement of Position 98-9, Modification
of SOP 97-2, Software Revenue Recognition ("SOP 98-9"), with Respect to Certain
Transactions. SOP 98-9 amends SOP 97-2 to require that an entity recognize
revenue for multiple element arrangements by means of the "residual method"
when (1) there is vendor-specific objective evidence ("VSOE") of the fair
values of all the undelivered elements that are not accounted for by means of
long-term contract accounting, (2) VSOE of fair value does
F-13
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
not exist for one or more of the delivered elements, and (3) all revenue
recognition criteria of SOP 97-2 (other than the requirement for VSOE of the
fair value of each delivered element) are satisfied. The provisions of SOP 98-9
that extend the deferral of certain paragraphs of SOP 97-2 became effective
December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective
for transactions that are entered into in fiscal years beginning after March
15, 1999. Retroactive application is prohibited. Blaze Software does not expect
that the adoption of SOP 98-9 will have a material impact on its financial
statements.
NOTE 3--DISCONTINUED OPERATIONS:
In December 1999, the Company's Board of Directors resolved to discontinue
Blaze Software's entire user interface line of business. The Company expects
that it will sell the user interface business within twelve months. The
accompanying financial statements have been prepared to reflect the historical
results of operations and cash flows of the user interface business as
discontinued operations for all periods presented.
Balance sheet data (in thousands)
<TABLE>
<CAPTION>
As of March 31,
-------------- December 31,
1998 1999 1999
------ ------ ------------
(unaudited)
<S> <C> <C> <C>
Current assets.................................. $3,609 $1,183 $1,267
Current liabilities............................. (441) (70) (87)
------ ------ ------
Net assets of discontinued operations........... $3,168 $1,113 $1,180
====== ====== ======
</TABLE>
The current assets and current liabilities noted above comprise accounts
receivable and accounts payable, respectively.
Income statement data (in thousands)
<TABLE>
<CAPTION>
Nine Months
Ended December
As of March 31, 31,
--------------------------- ----------------
1997 1998 1999 1998 1999
-------- -------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................... $ 21,896 $ 18,313 $ 9,094 $ 7,254 $ 3,802
Costs and expenses.......... (27,375) (20,487) (8,846) (6,935) (2,035)
-------- -------- ------- ------- -------
(Loss) income from
discontinued operations... $ (5,479) $ (2,174) $ 248 $ 319 $ 1,767
======== ======== ======= ======= =======
</TABLE>
Cash flow data
<TABLE>
<CAPTION>
Nine Months
Ended
As of March 31, December 31,
---------------------- -------------
1997 1998 1999 1998 1999
------- ----- ------ -------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net cash (used in) provided by
discontinued operations............ $(2,310) $(294) $2,061 $ 160 $ 1,700
======= ===== ====== ===== =======
</TABLE>
F-14
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4--PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
As of March 31,
---------------- December 31,
1998 1999 1999
------- ------- ------------
(unaudited)
<S> <C> <C> <C>
Computer equipment.......................... $ 3,969 $ 1,626 $ 1,929
Furniture and fixtures...................... 882 337 226
Leasehold improvements...................... 377 412 347
------- ------- -------
5,228 2,375 2,502
Less: accumulated depreciation and
amortization.............................. (4,193) (1,589) (1,637)
------- ------- -------
$ 1,035 $ 786 $ 865
======= ======= =======
</TABLE>
Depreciation expense for the year ended March 31, 1997, 1998 and 1999 was
$1,075,000, $868,000 and $899,000, respectively and $417,000 (unaudited) for
the nine months ended December 31, 1999.
Property and equipment under capital leases, included in the above table,
consist of the following (in thousands):
<TABLE>
<CAPTION>
As of March 31,
-------------- December 31,
1998 1999 1999
------- ----- ------------
(unaudited)
<S> <C> <C> <C>
Computer equipment............................ $ 1,968 $ 268 $ 705
Less: accumulated depreciation and
amortization................................ (1,751) (206) (271)
------- ----- -----
$ 217 $ 62 $ 434
======= ===== =====
</TABLE>
NOTE 5--BANK BORROWINGS:
Blaze Software has a line of credit facility with Coast Business Credit, a
division of Southern Pacific Bank, whereby Blaze Software may borrow up to 80%
of eligible United States and United Kingdom accounts receivable with a maximum
borrowing of $5,000,000. Borrowings under the facility bear interest at the
prime rate plus 3% (10.75% as of March 31, 1999) and are collateralized by
certain assets of Blaze Software. The facility expires on March 1, 2000. As of
March 31, 1998 and 1999, Blaze Software had borrowed $2,678,000 and $1,631,000,
respectively, under this facility.
On November 10, 1998, Blaze Software entered into a bridge loan agreement
with several of its existing investors totaling $1.5 million. The loan bore
interest at the rate of 25%, was subordinated to the agreement between Blaze
Software and Coast Business Credit, and was collateralized by certain assets of
Blaze Software. The bridge loan was converted into 2,777,778 shares of Series
AA Preferred Stock on June 1, 1999.
NOTE 6--MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK:
In June and September 1999, Blaze Software issued a total of 8,416,000
shares of Series AA preferred stock and converted all of its outstanding
mandatorily redeemable preferred stock into common stock at the applicable
conversion rates. See Note 12, Subsequent Events, for details of conversion.
F-15
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Mandatorily redeemable convertible preferred stock and warrants to purchase
mandatorily redeemable convertible preferred stock, as of March 31, 1999, was
comprised of the following (in thousands):
<TABLE>
<CAPTION>
Change in
Carrying
Value for the
Year-Ended
March 31,
Shares Issued and Carrying Liquidation -------------
Series Authorized Outstanding Value Value 1999 1998
------------------ ---------- ----------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
A................. 500 500 $ 294 $ 3,092 $ 18 $ 26
C................. 442 442 3,563 6,030 218 320
D................. 1,071 1,071 6,124 12,994 399 797
E (Warrants)...... 357 -- 1,064 -- -- --
F................. 1,166 1,166 9,837 16,224 623 8,797
----- ----- ------- ------- ------ ------
Total........... 3,536 3,179 $20,882 $38,340 $1,258 $9,940
===== ===== ======= ======= ====== ======
</TABLE>
Warrants
All preferred stock had certain registration rights and antidilution
protection. A warrant to purchase up to $2,000,000 of Series E preferred stock
at an exercise price of $6.90 per share, or at $5.60 if specified operating
results were not met, was issued as part of the Series D preferred stock
financing and was valued at $1,064,000, its estimated fair market value at the
date of issuance using the Black-Scholes option pricing model. The estimated
fair value was allocated from the proceeds of the Series D preferred stock
financing. The assumptions used for the Black-Scholes option pricing model were
a three year life, a 75% volatility, a 6.5% risk-free interest rate and a zero
dividend yield. These warrants for preferred stock converted into warrants for
common stock as part of the Series AA preferred stock financing (see Note 12
for further details) and were subsequently exercised.
Conversion
Each share of Series A, C, D, E, and F preferred stock was convertible into
common stock on a one-for-one basis, subject to certain antidilution
provisions. Conversion was at the option of the stockholder or automatic upon
the closing of an initial public offering of Blaze Software's common stock at a
price equal to or exceeding $17.25 per share and aggregate proceeds of at least
$7,500,000 or by written consent or agreement of the holders of at least two-
thirds of the outstanding shares of Series D, E, and F preferred stock voting
together. In addition, each share of Series A, C, D, E, and F preferred stock
was convertible, at the option of the holder, into common stock on a one-for-
one basis, except for Series C which is on a 1:1.04 basis.
Dividends
The holders of the Series A, C, D, E, and F mandatorily redeemable
convertible preferred stock were entitled to receive cumulative dividends in
preference to any declaration or payment of dividend on Series B convertible
preferred stock or common stock, at the rate of $0.03, $0.414, $0.336, $0.336,
and $0.4632 per share per annum, respectively, before June 26, 2001, and at the
rate of $0.06, $0.828, $0.672, $0.672, and $0.9264 per share per annum,
respectively, on or after June 26, 2001. Such dividends accrued from June 26,
1996, or from the date of issuance in the case of Series E and F, and were
payable when and if declared by Blaze Software's Board of Directors. Any
accumulation of dividends did not bear interest. No dividends were declared or
paid in fiscal 1998 or 1999.
F-16
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Voting rights
The holder of each share of Series A, Series C, Series D, Series E and
Series F mandatorily redeemable convertible preferred stock had the right to
one vote for each share of common stock into which such Series A, Series C,
Series D, Series E and Series F preferred stock could then be converted, and
with respect to such vote, such stockholder had full voting rights and powers
equal to the voting rights and powers of the holders of common stock, and were
entitled to notice of any stockholders' meeting in accordance with the bylaws
of the corporation, and were entitled to vote, together with holders of common
stock, with respect to any question upon which holders of common stock have the
right to vote.
Liquidation
Upon the occurrence of a liquidation event, such as a dissolution of Blaze
Software or by merger or sale of assets, the available assets of Blaze Software
would be distributed first to the holders of Series C, D, E and F mandatorily
redeemable convertible preferred stock until they receive the amount per share
for which each such series was originally purchased plus any accrued dividends.
Holders of Series A mandatorily redeemable convertible preferred stock were
then entitled to receive the amount per share for which each such series was
originally purchased plus any accrued dividends. The remaining assets were to
be split equally among the holders of Series A, B, C, D, E and F preferred
stock until holders of each share of Series B preferred stock had received an
amount per share equal to $5.60.
The aggregate liquidation preferences for the mandatorily redeemable
convertible preferred stock as described in the preceding paragraph totaled
$38,339,753 as of March 31, 1999. If assets of Blaze Software remained
available for distribution after such preferences have been satisfied, such
remaining assets would have been distributed among the holders of Series A, B,
C, D, E and F preferred stock and common stock pro rata based on the "as if
converted" number of common stock shares.
Redemption
Blaze Software was required to redeem the Series A, C, D, E, and F
mandatorily redeemable convertible preferred stock in three annual installments
beginning on December 16, 2002, and continuing thereafter on December 16, 2003
and 2004. Blaze Software was to make payments equal to $0.50, $6.90, $5.60,
$5.60 and $7.72 per share plus all accrued but unpaid dividends on the Series
A, C, D, E, and F mandatorily redeemable convertible preferred stock,
respectively. Blaze Software may have redeemed at any time, in whole or in
part, the Series A, C, D, E, and F mandatorily redeemable convertible preferred
stock at $0.50, $6.90, $5.60, $5.60 and $7.72 per share, respectively. The
Series A, C, D, E and F mandatorily redeemable convertible stock was being
accreted to redemption value using the interest method to calculate the charge
to additional paid-in capital.
The following table summarizes the redemption obligations related to the
mandatorily redeemable preferred stock as at March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
A C D E F Total
---- ------ ------ ---- ------- -------
<S> <C> <C> <C> <C> <C> <C>
December 16, 2002................... $123 $1,502 $2,954 $ -- $ 4,166 $ 8,745
December 16, 2003................... 133 1,623 3,194 -- 4,526 9,476
December 16, 2004................... 143 1,746 3,435 -- 4,886 10,210
---- ------ ------ ---- ------- -------
Total............................. $399 $4,871 $9,583 $ -- $13,578 $28,431
==== ====== ====== ==== ======= =======
</TABLE>
F-17
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 7--STOCKHOLDERS EQUITY:
Series B Preferred Stock
In June 1999, Blaze Software converted all of its outstanding preferred
stock. See Note 12, Subsequent Events, for further details.
Conversion
Each share of preferred stock was convertible into common stock on a one-
for-one basis, without antidilution protection.
Liquidation
The aggregate liquidation preference of Series B convertible preferred
stock totaled $13,350,000 as of March 31, 1999. If assets of Blaze Software
remained available for distribution after such preferences had been satisfied,
such remaining assets would have been distributed among the holders of Series
A, B, C, D, E and F preferred stock and common stock pro rata based on the "as
if converted" number of common stock shares.
Voting rights
The holder of each share of Series B convertible preferred stock had the
right to one vote for each share of common stock into which such preferred
stock could then have been converted, and with respect to such vote, such
shareholder had full voting rights and powers equal to the voting rights and
powers of the holders of common stock, and were entitled to notice of any
stockholders' meeting in accordance with the bylaws of the corporation, and
were entitled to vote, together with holders of common stock, with respect to
any question upon which holders of common stock have the right to vote.
Preferred Stock Warrants
In December 1996, warrants to purchase 107,143 shares of the Company's
Series B preferred stock were issued at a price per share of $5.60. These
warrants were still outstanding as of March 31, 1999. The fair value of these
warrants is not material to the financial statements.
Common Stock
Blaze Software is authorized to issue 54,000,000 shares of common stock. As
of March 31, 1999, 343,500 shares of common stock were issued and outstanding.
Common Stock Warrants
The following table summarizes the activity on common stock warrants:
<TABLE>
<CAPTION>
Common Stock Warrants
Exercise
Shares Price Amount
------ -------- -------
<S> <C> <C> <C>
Balance, April 1, 1996.............................. -- $ --
Warrants granted.................................... 5,000 $5.60 28,000
----- -------
Balance, March 31, 1997............................. 5,000 28,000
Warrants granted.................................... 1,005 $5.60 5,625
----- -------
Balance, March 31, 1998 and 1999.................... 6,005 $33,625
----- -------
</TABLE>
The fair value of these common stock warrants is not material to these
financial statements.
F-18
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Stock Subject To Repurchase
In 1997, 100,000 shares of common stock were issued pursuant to an
acquisition, 75,000 of which was subject to repurchase. Shares vested on a
quarterly basis over a two and a half year period. At March 31, 1998,
approximately 37,500 shares were subject to repurchase at the original purchase
price of $5.60. At March 31, 1999 no shares were subject to repurchase. In
April 1998, 32,666 shares were repurchased at the original purchase price.
Blaze Software has reserved shares of common stock for future issuance as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1999
--------- ------------
(unaudited)
<S> <C> <C>
Options outstanding................................... 1,196 4,287
Options available for future grants................... 121 696
Mandatorily redeemable preferred stock................ 3,179 --
Preferred stock....................................... 2,273 10,369
Outstanding warrants for preferred stock.............. 464 --
Outstanding warrants for common stock................. 6 6
----- ------
7,239 15,358
===== ======
</TABLE>
Stock Option Plan
In 1986, Blaze Software adopted the 1986 Stock Option Plan (the "1986
Plan") and had 1,254,500 shares of Common Stock reserved for issuance
thereunder. In 1996, the 1986 Plan was discontinued and replaced with the 1996
Stock Option Plan (the "1996 Plan").
Under the 1996 Plan, Blaze Software has reserved 5,753,429 shares of common
stock for issuance. Options granted may be incentive stock options or
nonqualified stock options and shall be granted at a price not less than 100%
or 85% of fair market value, respectively, or at a price not less than 110% of
fair market value under certain circumstances. Fair market value (as defined in
the 1996 Plan) and the vesting, of these options shall be determined by Blaze
Software's Board of Directors. The options expire no later than 10 years from
the date of grant. Unvested options on termination of employment are canceled
and returned to the 1996 Plan. Options can be exercised from the date of
issuance, even though they have not fully vested. Such shares are subject to
repurchase on a pro rata basis over a four-year period from the date of
issuance. As of March 31, 1998 and 1999, there were approximately 54,000 and
73,500 shares, respectively, subject to repurchase, at a weighted average price
of $0.56 per share. During 1998 and 1999, approximately 1,500 and 157,500
shares, respectively, were repurchased.
Shares acquired under the 1996 Plan are subject to Stock Purchase
Agreements, which provide Blaze Software with a right of first refusal and
grant Blaze Software repurchase rights for unvested shares, at their original
cost.
Vesting requirements
Options granted under the plan have a term of ten years measured from the
grant date and are initially unvested. Participants vest in the option shares
granted over a four-year period with (i) twenty-five percent of the option
shares vesting upon the completion of one year of service, and (ii) the balance
of the option shares in thirty-six successive equal monthly installments upon
the participants completion of each additional month of service.
F-19
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the status of Blaze Software's stock option plans as of March
31, 1997, 1998, 1999, and December 31, 1999 (unaudited) and changes during the
years ended on these dates is presented below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Options Outstanding
----------------------------
Weighted
Average
Exercise
Shares Number Exercise Price Aggregate
Available of Price per per Exercise
for Grant Shares Share Share Price
--------- ------ ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Options outstanding at
April 1, 1996.............. 1,280 356 $0.50-$3.30 $2.44 $ 867
Granted...................... (1,472) 1,472 $0.56-$3.00 $0.58 853
Exercised.................... -- (152) $0.56-$3.00 $0.72 (109)
Canceled..................... 445 (445) $0.56-$3.30 $2.06 (917)
------ ----- ----------- ----- ------
Options outstanding at March
31, 1997................... 253 1,231 $0.50-$3.00 $0.56 694
Granted...................... (673) 673 $0.56-$0.80 $0.62 420
Exercised.................... -- (173) $0.56-$1.00 $0.56 (97)
Canceled..................... 425 (425) $0.56-$3.00 $0.57 (241)
------ ----- ----------- ----- ------
Options outstanding at March
31, 1998................... 5 1,306 $0.50-$3.00 $0.59 776
Additional shares reserved... 104 -- -- -- --
Granted...................... (625) 625 $0.80-$0.80 $0.80 499
Exercised.................... -- (98) $0.56-$0.80 $0.57 (56)
Canceled..................... 637 (637) $0.56-$0.80 $0.59 (379)
------ ----- ----------- ----- ------
Options outstanding at March
31, 1999................... 121 1,196 $0.50-$3.00 $0.70 840
Additional shares reserved... 4,444 -- -- -- --
Granted...................... (4,033) 4,033 $0.10-$6.00 $0.41 1,640
Exercised.................... -- (778) $0.10-$1.00 $0.22 (171)
Canceled..................... 164 (164) $0.10-$3.00 $0.54 (88)
------ ----- ----------- ----- ------
Options outstanding at
December 31, 1999
(unaudited)................ 696 4,287 $0.10-$6.00 $0.52 $2,221
====== ===== =========== ===== ======
</TABLE>
The weighted-average fair value of options granted in fiscal 1997, 1998 and
1999 was $0.14, $0.14 and $0.18, respectively.
F-20
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes information concerning outstanding and
exercisable options under the plans as of March 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- ---------------------
Weighted-
Average
Remaining Weighted- Weighted-
Contractual Average Number of Average
Range of Number of Life Exercise Shares Exercise
Exercise Price Shares (Years) Price Exercisable Price
- -------------- -------------- ----------- --------- ----------- --------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.50 2 1.16 $0.50 2 $0.50
$0.56 484 7.77 $0.56 484 $0.56
$0.80 708 9.32 $0.80 708 $0.80
$1.00 2 4.38 $1.00 2 $1.00
$3.00 -- 6.00 $3.00 -- $3.00
----- -----
1,196 8.67 $0.70 1,196 $0.70
===== =====
</TABLE>
Stock-based compensation
In connection with certain stock option grants during the nine months ended
December 31, 1999 (unaudited), Blaze Software recorded stock-based compensation
totaling $32.7 million, which is being amortized in accordance with FASB
Interpretation No. 28 over the vesting periods of the related options, which is
generally four years. Stock-based compensation amortization recognized during
the nine months ended December 31, (unaudited) 1999 totaled $12.1 million. If
the stock-based compensation for the nine months ended December 31, (unaudited)
1999 had been allocated across the relevant functional expense categories
within operating expenses, it would be allocated as follows:
<TABLE>
<CAPTION>
Nine Months
Ended
December 31,
1999
------------
(unaudited)
<S> <C>
Research and development...................................... $ 2,615
Selling, general and administrative........................... 9,435
-------
$12,050
=======
</TABLE>
Fair value disclosure
The following information concerning Blaze Software's stock option plans is
provided in accordance with SFAS No. 123. Blaze Software accounts for such
plans in accordance with APB No. 25.
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes options-pricing model with the following weighted
average assumptions for grants:
<TABLE>
<CAPTION>
Years Ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate........................... 6.2% 5.3% 4.7%
Expected life..................................... 5 years 5 years 5 years
Dividend yield.................................... -- -- --
Expected volatility............................... 0% 0% 0%
</TABLE>
F-21
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options are amortized over the option's vesting period. Blaze Software pro
forma information follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years ended March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Net loss attributable to common stockholders.... $(8,756) $(6,845) $(6,858)
======= ======= =======
Net loss--FAS 123 adjusted...................... $(8,809) $(6,896) $(6,896)
======= ======= =======
Net loss per share--as reported
Basic and diluted............................. $ (9.52) $(54.76) $(18.49)
======= ======= =======
Net loss per share--FAS 123 adjusted
Basic and diluted............................. $ (9.58) $(55.17) $(18.59)
======= ======= =======
</TABLE>
The effects of applying SFAS No. 123 in this pro forma disclosure may not
be indicative of future amounts. Additional awards in future periods are
anticipated.
NOTE 8--COMPREHENSIVE INCOME:
Under Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") Blaze Software displays all items required
to be recognized under accounting standards as components of its comprehensive
income.
Comprehensive income comprises foreign currency translation adjustments
which does not have a tax expense as a benefit.
NOTE 9--COMMITMENTS AND CONTINGENCIES:
Blaze Software leases administrative, engineering, and sales facilities in
the United States, the United Kingdom, France, Germany, and Japan under
noncancelable operating leases that expire at various dates through 2005. Blaze
Software is generally responsible for insurance and property taxes. Blaze
Software's primary lease in Mountain View, California, is subject to annual
payment increases based on the consumer price index. Blaze Software also leases
computer equipment under leases classified as capital leases.
F-22
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
As of March 31, 1999, the aggregate future minimum lease payments under all
noncancelable leases are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
Year Ended March 31,
2000....................................................... $ 86 $ 759
2001....................................................... 19 383
2002....................................................... 1 165
2003....................................................... -- 120
2004....................................................... -- 90
2005....................................................... -- 60
---- ------
Total minimum lease payments............................... 106 1,577
======
Less: amount representing interest......................... (6)
----
Present value of capital lease obligations................. 100
Current portion............................................ (81)
----
Long-term portion.......................................... $ 19
====
</TABLE>
Rent expense in fiscal years 1997, 1998 and 1999 aggregated $1,369,000,
$871,00 and $1,002,000, respectively.
Employment agreements
Blaze Software has entered into employment agreements with certain officers
of the Company. Some employment agreements also provide for severance in the
event the individual is terminated without cause.
Litigation
From time to time, Blaze Software may be involved in litigation relating to
claims arising out of its ordinary course of business. Management believes that
there are no claims or actions pending or threatened against Blaze Software,
the ultimate disposition of which would have a material impact on Blaze
Software's financial position or results of operations. Blaze Software received
notification of claims from a founder and director that he may assert against
the Company. He contends that his personal equity ownership of Blaze Software
was diluted improperly in connection with a preferred stock financing. Blaze
Software believes that these assertions are without merit and intend to
rigorously defend any claims which may be brought against the Company.
NOTE 10--INCOME TAXES:
The components of income tax expense consisted of the following (in
thousands):
<TABLE>
<CAPTION>
As of March 31,
--------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.................................................... $ -- $ -- $ --
Foreign.................................................... 335 68 82
State...................................................... -- -- 5
Deferred--federal and state.................................. 265 -- --
---- ---- ----
Income tax expense...................................... $600 $ 68 $ 87
==== ==== ====
</TABLE>
F-23
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of net deferred tax assets were as follows (in thousands):
<TABLE>
<CAPTION>
As of March 31,
-------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Accrued liabilities.............................. $ 905 $ 707 $ 576
Deferred revenue................................. 59 -- 12
Net operating loss carryforwards................. 2,774 5,082 6,702
Credit carryforwards and other................... 1,393 1,311 1,428
------- ------- -------
5,131 7,100 8,718
Valuation allowance.............................. (5,131) (7,100) (8,718)
------- ------- -------
Net deferred tax assets........................ $ -- $ -- $ --
======= ======= =======
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, Blaze Software has placed a valuation allowance
against its net deferred tax assets. The valuation allowance increased by
$3,209,000, $1,969,000 and $1,618,000 during 1997, 1998 and 1999, respectively.
Blaze Software's expected US Federal statutory income tax rate (34%)
differs from the effective tax rate as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
"Expected" income benefit........................................ (34.0)% (34.0)% (34.0)%
Net operating loss not benefited................................. 34.0 34.0 34.0
Foreign income and withholding taxes............................. 4.5 1.4 1.6
Changes in valuation allowance and other......................... 3.6 -- --
------ ------ ------
Effective tax rate............................................. 8.1 % 1.4 % 1.6 %
====== ====== ======
</TABLE>
At March 31, 1999, Blaze Software had available net operating loss
carryforwards of approximately $18,900,000 and $6,100,000 to offset future
federal and state taxable income, respectively. At March 31, 1999, Blaze
Software also had available research and development credit carryforwards and
other credit carryforwards of approximately $835,000 and $271,000 to offset
future federal and state taxable income, respectively, and foreign tax credits
of approximately $322,000 available to offset future federal taxable income.
These carryforwards expire from 2000 to 2019.
For federal and state tax purposes, a portion of Blaze Software's net
operating loss carryforwards may be subject to certain limitation on annual
utilization in case of a change in ownership, as defined by federal and state
tax law.
F-24
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 11--SEGMENTAL INFORMATION:
Blaze Software, which operates in a single business segment, develops and
licenses component-based development software for building business-critical
applications and also provides related maintenance and consulting services.
Operations of Blaze Software's overseas subsidiaries consist of product license
revenues and service revenues.
Intercompany transfers between geographic areas are accounted for at prices
that approximate arm's length transactions.
Information regarding geographic areas at March 31, 1997, 1998 and 1999,
and for each of the years then ended, is as follows (in thousands):
<TABLE>
<CAPTION>
Geographic Area Americas Europe Asia Eliminations Total
- --------------------------------- -------- ------ ------ ------------ -------
<S> <C> <C> <C> <C> <C>
March 31, 1997 and for the year
then ended:
Sales to unaffiliated
customers.................... $ 2,191 $1,263 $ 169 $ -- $ 3,623
------- ------ ------ -------
Operating (loss) income........ (3,780) 449 1,642 -- (1,689)
------- ------ ------ -------
Liabilities--continued
operations................... 13,022 4,747 2,740 (8,783) 11,726
Liabilities--discontinued
operations................... -- -- -- -- --
------- ------ ------ -------- -------
Total Liabilities........... 13,022 4,747 2,740 (8,783) 11,726
------- ------ ------ -------- -------
Identifiable assets--continued
operations................... 9,314 2,676 1,050 (7,685) 5,355
Identifiable assets--
discontinued operations...... 2,901 1,301 1,058 -- 5,260
------- ------ ------ -------- -------
Total Identifiable assets... $12,215 $3,977 $2,108 $ (7,685) $10,615
------- ------ ------ -------- -------
March 31, 1998 and for the year
then ended:
Sales to unaffiliated
customers $ 3,492 $ 808 $ 62 $ -- $ 4,362
------- ------ ------ -------
Operating (loss) income........ (1,452) (1,713) 195 -- (2,970)
------- ------ ------ -------
Liabilities--continued
operations................... 15,041 4,502 3,307 (11,498) 11,352
Liabilities--discontinued
operations................... 441 -- -- -- 441
------- ------ ------ -------- -------
Total Liabilities........... 15,482 4,502 3,307 (11,498) 11,793
------- ------ ------ -------- -------
Identifiable assets--continued
operations................... 16,472 4,034 1,453 (11,714) 10,245
Identifiable assets--
discontinued operations 1,643 927 1,039 -- 3,609
------- ------ ------ -------- -------
Total Identifiable assets... $18,115 $4,961 $2,492 (11,714) 13,854
------- ------ ------ -------- -------
March 31, 1999 and for the year
then ended:
Sales to unaffiliated
customers.................... $ 6,933 $1,563 $ 558 $ -- $ 9,054
------- ------ ------ -------
Operating (loss) income........ (4,944) (603) 35 -- (5,512)
------- ------ ------ -------
Liabilities--continued
operations................... 13,718 5,764 3,838 (12,164) 11,156
Liabilities--discontinued
operations................... (70) -- -- -- (70)
------- ------ ------ -------- -------
Total Liabilities........... 13,648 5,764 3,838 (12,164) 11,086
------- ------ ------ -------- -------
Identifiable assets--continued
operations................... 11,233 5,408 2,320 (12,379) 6,582
Identifiable assets--
discontinued operations...... 417 416 350 -- 1,183
------- ------ ------ -------- -------
Total Identifiable assets... $11,650 $5,824 2,670 $(12,379) $ 7,765
------- ------ ------ -------- -------
</TABLE>
F-25
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 12--SUBSEQUENT EVENTS:
Issuance of preferred stock
In June 1999 and September 1999, Blaze Software issued 8,134,839 and
281,376 shares, respectively, of Series AA convertible preferred stock at a
price of $0.54 per share. Net proceeds to Blaze Software were cash of $2.8
million and the cancellation of indebtedness of $1.6 million. Prior to the
issuance of Series AA convertible preferred stock, Blaze Software converted all
of its outstanding shares of Series A, Series B, Series C Series D, and Series
F convertible preferred stock into common stock and all of its warrants for
Series E preferred stock into warrants for common stock at the applicable
conversion rates in effect for each series. The issuance in September 1999
resulted in a beneficial conversion feature of approximately $2.2 million,
calculated in accordance with Emerging Issues Task Force No. 98-5, which
resulted in an immediate charge to additional paid-in capital.
On December 31, 1999 1,952,735 shares of Series BB preferred stock were
issued for gross proceeds of approximately $13.9 million. The issuance resulted
in a beneficial conversion feature of approximately $9.5 million, calculated in
accordance with Emerging Issues Task Force No. 98-5, which resulted in an
immediate charge to additional paid-in capital.
Each share of Series AA and BB preferred stock is convertible into common
stock on a one-for-one basis, subject to certain antidilution provisions.
Conversion is at the option of the stockholder or automatic upon the closing of
an initial public offering of Blaze Software's common stock at a price equal to
or exceeding $9.28 per share and aggregate proceeds of at least $15,000,000 or
by written consent or agreement of the holders of a majority of the then
outstanding shares of Series AA and BB Preferred Stock voting together as a
single class.
The holders of Series AA and BB preferred stock are entitled to receive
dividends in preference to any declaration or payment of dividend on common
stock, at the rate of $0.32 and $0.57 per share per annum, respectively.
The holders of each share of Series AA and BB preferred stock shall have
the right to one vote for each share of common stock into which such Series AA
and BB preferred stock could then be converted.
Upon the occurrence of a liquidation event, the available assets of Blaze
Software would be distributed first to the holders of Series BB preferred stock
until they receive an amount per share equal to the sum of $9.28 plus any
unpaid dividends. Holders of Series AA preferred stock are then entitled to
receive the amount per share equal to the sum of $2.70 plus any unpaid
dividends. The remaining assets are to be split equally among the holders of
Series AA and BB preferred stock and common stock.
Building lease
In November 1999, the Company entered into a new building lease for its
corporate headquarters, which is secured by a cash deposit of $434,000. This
deposit has been classified as restricted cash on the unaudited balance sheet
as of December 31, 1999. The new building lease requires minimum monthly
payments of approximately $87,000 and expires in 2005.
Reincorporation
In January 2000, Blaze Software's Board of Directors approved the
reincorporation of the Company from California to Delaware and approved the
change in the authorized share capital to 210 million, consisting of 200
million shares of common stock, $0.0001 par value and 10 million shares of
preferred stock, $0.0001 par value. All share data information has been
restated to reflect the reincorporation.
F-26
<PAGE>
BLAZE SOFTWARE, INC. AND SUBSIDIARIES
(FORMERLY NEURON DATA, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
2000 Stock Plan
In December 1999 the Board of Directors adopted the 2000 Stock Plan and
reserved 250,000 shares of common stock for future issuance under this plan.
Employee Stock Purchase Plan
In February 2000, the Board of Directors adopted the 2000 employee stock
purchase plan and reserved 750,000 shares of common stock for future issuance
under this plan.
Reverse Stock Split
In February 2000, the Board of Directors approved a 1 for 2 reverse stock
split of the Company's preferred and common stock. All share data information
has been restated to reflect the reverse stock split.
F-27
<PAGE>
The text at the top of the page reads "Blaze Software lets you apply your rules
for doing business to your customers' individual needs no matter how they reach
you:" In a circle located in the center of the page, in which there are four
pictures, representing an ATM machine, a call center (picture of woman on
phone), a retail business manager and a Web site.
Lines from each picture lead to captions relating to the pictures.
The caption relating to the ATM machine reads "ATM: "Your checking balance has
been above $15,000 for 2 months. To earn interest on unused funds, press YES."
The caption relating to the call center reads "Call center: "Your son is going
away to college? We can extend your insurance to cover him with all costs
offset by your lower homeowner's insurance rates due to increased police
protection in your neighborhood." The caption relating to the retail business
manager reads "Retail: "Our competition introduced a 10% discount. Let's change
our discount to 12% for all our stores and self-service channels this
afternoon." The caption relating to the Web site reads: "Web site: "Instead of
buying the items in your shopping cart separately, we recommend our Combo 7.
This Combo gives you higher quality for just a few dollars more, and today only
we will add free shipping. To take advantage of this special offer, click
here."
The Blaze Software logo and the Blaze Software Web address appear at the bottom
of the page.
<PAGE>
[LOGO OF BLAZE SOFTWARE]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all fees and expenses payable by Blaze
Software in connection with the registration of the common stock hereunder.
All of the amounts shown are estimates except for the SEC registration fee,
NASD filing fee and the Nasdaq National Market listing fees.
<TABLE>
<CAPTION>
Amount
To Be Paid
----------
<S> <C>
SEC Registration Fee................................................ $ 17,002
NASD Filing Fee..................................................... 6,940
Nasdaq National Market Listing Fee.................................. 95,000
Printing and Engraving Expenses..................................... 225,000
Legal Fees and Expenses............................................. 400,000
Accounting Fees and Expenses........................................ 450,000
Transfer Agent and Registrar Fees and Expenses...................... 15,000
Miscellaneous Expenses.............................................. 91,058
----------
Total............................................................. $1,300,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law allows for the
indemnification of officers, directors and any corporate agents in terms
sufficiently broad to indemnify such persons under certain circumstances for
liabilities (including reimbursement for expenses incurred) arising under the
Securities Act. Our certificate of incorporation and our bylaws provide for
indemnification of our directors, officers, employees and other agents to the
extent and under the circumstances permitted by the Delaware General
Corporation Law. We have also entered into agreements with our directors and
executive officers that require Blaze Software among other things to indemnify
them against certain liabilities that may arise by reason of their status or
service as directors and executive officers to the fullest extent permitted by
Delaware law. We have also purchased directors and officers liability
insurance, which provides coverage against certain liabilities including
liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1997, we have issued and sold the following
unregistered securities:
(1) In December 1997, we issued and sold 1,165,803 shares of Series F
Preferred Stock to eleven investors for aggregate consideration of
$8,999,979.86.
(2) In June and September 1999, we issued and sold 8,416,215 shares of
Series AA Preferred Stock. At the first closing in June 1999, we sold
8,134,714 shares to twelve investors for aggregate consideration of
$4,392,808.65, of which $1,659,696.21 was cancellation of indebtedness. At
the second closing in September 1999, we sold 281,501 shares to seventeen
investors for aggregate consideration of $151,943.43.
(3) In December 1999, we issued and sold 1,952,735 shares of Series BB
Preferred Stock to 17 investors for aggregate consideration of
$13,942,506.48.
(4) Since January 1, 1997, we have granted options to purchase
6,282,599 shares of common stock to employees, directors and consultants
under our 1996 stock plan at exercise prices ranging from $0.10 to $6.00
per share. Of the shares granted, 4,401,785 remain outstanding.
II-1
<PAGE>
The sales and issuances of securities in the transactions described
above were deemed to be exempt from registration under the Securities Act
in reliance upon Section 4(2) of the Securities Act, Regulation D
promulgated thereunder, or Rule 701 promulgated under Section 3(b) of the
Securities Act, as transactions by an issuer not involving any public
offering or transactions pursuant to compensatory benefit plans and
contracts relating to compensation as provided under Rule 701. The sales
and issuance of securities in the transactions described in (1), (2) and
(3) above were in reliance upon Section 4(2). The transactions described
in (3) above were in reliance upon Section 4(2) or Rule 701. The
recipients of securities in each transaction represented their intentions
to acquire the securities for investment only and not with a view to or
for sale in connection with any distribution thereof and appropriate
legends were affixed to the securities issued in such transactions. All
recipients had adequate access, through their relationship with Blaze
Software, to information about us.
(b) There were no underwritten offerings employed in connection with any
of the transactions set forth in Item 15(a).
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1** Form of Underwriting Agreement
3.1(a)** Amended and Restated Articles of Incorporation, as in effect upon
filing of the registration statement
3.1(b)** Amended and Restated Certificate of Incorporation to be filed upon
completion of the offering
4.1(a)** Bylaws of the registrant, as in effect upon filing of the
registration statement
4.1(b)** Bylaws of the registrant, as in effect upon completion of the
offering
4.2** Specimen common stock certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1** Amended and Restated Investors Rights Agreement dated December 31,
1999
10.2** 1996 Stock Plan and forms of agreements thereunder
10.3** 2000 Stock Plan and forms of agreements thereunder
10.4** 2000 Employee Stock Purchase Plan
10.5** Form of Indemnification Agreement with executive officers and
directors
10.7** Offer letter for Thomas Kelly dated July 15, 1998
10.8** Offer letter for Gary Shroyer dated June 9, 1998
10.9** Offer letter for Eric Kintzer dated February 13, 1998
10.10** Loan Agreement dated March 11, 1994 between the registrant and
CoastFed Business Credit
10.11** Lease between the registrant and SJ Plaza, LLC dated November 12,
1999 for Leased Premises located at Suite 800 and Suite 900, 150
Almaden Blvd., San Jose, California
10.12** Amended and Restated Voting Agreement dated February 25, 1998
10.13** Series AA Preferred Stock Purchase Agreement dated June 1, 1999
10.14** Series BB Preferred Stock Purchase Agreement dated December 31, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
16.1** Letter from KPMG Peat Marwick LLP
21.1** Subsidiaries of the registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2** Consent of Counsel (included in exhibit 5.1)
24.1** Power of Attorney (see page II-5)
27.1** Financial Data Schedule
</TABLE>
- --------
**Previously filed
(b) Financial Statement Schedules.
II-3
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of Blaze Software, Inc.
In connection with our audits of the consolidated financial statements of
Blaze Software, Inc. as of March 31, 1998 and 1999, and for each of the three
years in the period ended March 31, 1999, which consolidated financial
statements are included in the Prospectus, we have also audited the financial
statement schedule listed in Item 16(b) herein. In our opinion, this financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 5, 2000
II-4
<PAGE>
Valuation and Qualifying Accounts
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions End
of Year (Deductions) Write-offs of Year
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1997...... $ 769 $1,192 $(1,317) $ 644
Year ended March 31, 1998...... 644 753 (789) 608
Year ended March 31, 1999...... 608 366 (531) 443
Valuation allowance for deferred
tax assets:
Year ended March 31, 1997...... 1,922 3,209 -- 5,131
Year ended March 31, 1998...... 5,131 1,969 -- 7,100
Year ended March 31, 1999...... 7,100 1,618 -- 8,718
</TABLE>
Item 17. Undertakings
Insofar as indemnification by Blaze Software for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of Blaze Software, we have 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 Blaze Software of expenses incurred or paid by a director,
officer or controlling person of Blaze Software in the successful defense of
any action, suit or proceeding) is asserted by a director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by Blaze Software is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
We hereby undertake that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of a
registration statement in reliance upon Rule 430A and contained in the form of
prospectus filed by Blaze Software pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(b) 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>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Blaze Software has duly caused this Amendment No. 3 to Registration Statement
on Form S-1 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Mountain View, State of California, on the 20th day
of March, 2000.
BLAZE SOFTWARE, INC.
/s/ Thomas F. Kelly
By: _________________________________
Thomas F. Kelly
Chief Executive Officer and
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 3 to Registration Statement on Form S-1 has been signed by
the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer, March 20, 2000
____________________________________ President and Chairman of
Thomas F. Kelly the Board of Directors
(Principal Executive
Officer)
/s/ Gary Shroyer Chief Financial Officer March 20, 2000
____________________________________ (Principal Financial and
Gary Shroyer Accounting Officer)
* Director March 20, 2000
____________________________________
Charles M. Boesenberg
* Director March 20, 2000
____________________________________
Mark J. DeNino
* Director March 20, 2000
____________________________________
William J. Harding
* Director March 20, 2000
____________________________________
L. George Klaus
* Director March 20, 2000
____________________________________
Ken Goldman
/s/ GARY SHROYER
By: _________________________________
Gary Shroyer, Attorney-In-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1** Form of Underwriting Agreement
3.1(a)** Amended and Restated Articles of Incorporation, as in effect upon
filing of the registration statement
3.1(b)** Amended and Restated Certificate of Incorporation to be filed upon
completion of the offering
4.1(a)** Bylaws of the registrant, as in effect upon filing of the
registration statement
4.1(b)** Bylaws of the registrant, as in effect upon completion of the
offering
4.2** Specimen common stock certificate
5.1** Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation
10.1** Amended and Restated Investors Rights Agreement dated December 31,
1999
10.2** 1996 Stock Plan and forms of agreements thereunder
10.3** 2000 Stock Plan and forms of agreements thereunder
10.4** 2000 Employee Stock Purchase Plan
10.5** Form of Indemnification Agreement with executive officers and
directors
10.7** Offer letter for Thomas Kelly dated July 15, 1998
10.8** Offer letter for Gary Shroyer dated June 9, 1998
10.9** Offer letter for Eric Kintzer dated February 13, 1998
10.10** Loan Agreement dated March 11, 1994 between the registrant and
CoastFed Business Credit
10.11** Lease between the registrant and SJ Plaza, LLC dated November 12,
1999 for Leased Premises located at Suite 800 and Suite 900, 150
Almaden Blvd., San Jose, California
10.12** Amended and Restated Voting Agreement dated February 25, 1998
10.13** Series AA Preferred Stock Purchase Agreement dated June 1, 1999
10.14** Series BB Preferred Stock Purchase Agreement dated December 31, 1999
16.1** Letter from KPMG Peat Marwick LLP
21.1** Subsidiaries of the registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2** Consent of Counsel (included in exhibit 5.1)
24.1** Power of Attorney (see page II-5)
27.1** Financial Data Schedule
</TABLE>
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*To be filed by amendment
**Previously filed
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Amendment No. 3 to the Registration
Statement on Form S-1 of our reports dated January 5, 2000, except for Note 12
as to which the date is February 18, 2000, relating to the financial
statements and financial statement schedule of Blaze Software, Inc., which
appear in such Registration Statement. We also consent to the references to us
under the heading "Experts" in such Amendment No. 3 to the Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 20, 2000
