<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 14, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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NOVIENT, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
GEORGIA 7389 58-2206548
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
3525 PIEDMONT ROAD
BUILDING 8, SUITE 500
ATLANTA, GEORGIA 30305
(404) 720-3600
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
---------------------
MARK E. KOPCHA
CHIEF EXECUTIVE OFFICER
NOVIENT, INC.
3525 PIEDMONT ROAD
BUILDING 8, SUITE 500
ATLANTA, GEORGIA 30305
(404) 720-3600
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
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Copies to:
<TABLE>
<S> <C>
GRANT W. COLLINGSWORTH, ESQ. JOHN J. KELLEY III, ESQ.
JAMES H. SINNOTT, ESQ. KING & SPALDING
MORRIS, MANNING & MARTIN, L.L.P. 191 PEACHTREE STREET, N.E.
1600 ATLANTA FINANCIAL CENTER ATLANTA, GEORGIA 30303-1763
3343 PEACHTREE ROAD, N.E.
ATLANTA, GEORGIA 30326
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement is declared effective. If any of
the securities being registered on this form are offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, as
amended (the "Securities Act"), check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $0.001 per $75,000,000 $19,800
share.............................
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</TABLE>
(1) Estimated solely for the purpose of computing the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL 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 SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL 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 JULY 14, 2000
[LOGO]
NOVIENT, INC.
SHARES
COMMON STOCK
Novient, Inc. is offering 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 NVNT. We anticipate that the initial
public offering price will be between $ and $ per share.
------------------------------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Public offering price....................................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Novient, Inc.................................... $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Novient has granted the underwriters a 30-day option to purchase up to an
additional shares of common stock to cover over-allotments.
------------------------------
ROBERTSON STEPHENS
J.P. MORGAN & CO.
WIT SOUNDVIEW
THE ROBINSON-HUMPHREY COMPANY
THE DATE OF THIS PROSPECTUS IS , 2000.
<PAGE> 3
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 OUR COMMON STOCK. IN THIS PROSPECTUS, "OUR
COMPANY," "NOVIENT," "WE," "US," AND "OUR" REFER TO NOVIENT, INC., A GEORGIA
CORPORATION.
------------------------------
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 6
Forward-Looking Statements.................................. 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Unaudited Pro Forma Condensed Consolidated Financial
Statements................................................ 22
Selected Consolidated Financial Data........................ 26
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 28
Business.................................................... 37
Management.................................................. 50
Related Party Transactions.................................. 57
Principal Shareholders...................................... 58
Description of Capital Stock................................ 60
Shares Eligible for Future Sale............................. 63
Underwriting................................................ 66
Legal Matters............................................... 68
Experts..................................................... 68
Where You Can Find More Information......................... 68
Index to Financial Statements............................... F-1
</TABLE>
------------------------------
Novient, Novient eServices, Novient iServerNet and WebProject are our
trademarks.
This prospectus also includes trademarks, service marks and trade names of other
companies.
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PROSPECTUS SUMMARY
This is only a summary and may not contain all the information that you
should consider before investing in our common stock. You should read the entire
prospectus carefully, including the "Risk Factors" section and our financial
statements and the related notes included in this prospectus. Unless otherwise
indicated, this prospectus assumes that the underwriters have not exercised
their option to purchase additional shares. This prospectus also assumes that
all shares of preferred stock have been automatically converted into 6,844,750
shares of common stock and that all warrants to acquire shares of preferred
stock have been automatically converted into warrants to acquire shares of
common stock.
NOVIENT, INC.
We provide an Internet infrastructure solution to professional services
organizations that optimizes global operations by enabling dynamic collaboration
throughout an organization's services community. Our solution automates and
streamlines the business processes of services organizations, including
management of project opportunities, sharing of information and knowledge,
allocation of professional resources and delivery of the professional services.
These capabilities provide users with enterprise-wide visibility of business
performance. In addition, our solution facilitates business transactions and
collaboration over the Internet among a professional services organization, its
clients, affiliated services organizations and independent professionals. Our
customers have the choice to license our solution for a one-time fee or to
access our solution through the Internet on hosted servers for a monthly
subscription fee. To date, we have licensed our solution to approximately
120,000 users in 48 countries. Our customers are professional services
organizations and internal services organizations within enterprises and include
Andersen Consulting, Ariba, Cisco Systems, Compaq, GEAC, Proxicom, SAP AG and
Sun Microsystems.
Professional services organizations create information-based,
time-sensitive deliverables using human capital and increasingly rely on
networks of affiliated services organizations, as well as independent
professionals, to provide additional capacity and expertise. The professional
services market includes information technology, or IT, management consulting,
engineering, financial services, law, tax and accounting. To remain competitive
and satisfy clients, professional services organizations must allocate their
resources more efficiently on a global basis. Currently, most organizations use
non-integrated, function-specific systems that are not scalable, do not leverage
the capabilities of the Internet, fail to provide uniform access to data and
lack the robust functionality and capabilities of packaged software
applications. These systems also lack the ability to facilitate real-time
collaboration for professional services organizations. The lack of effective
process automation and collaboration solutions often results in misallocation
and lower utilization of resources, missed revenue opportunities and client
dissatisfaction.
Our Internet infrastructure solution consists of two key components to
address these challenges: a patent-pending collaboration platform known as
Novient iServerNet and a leading professional services automation, or PSA,
application known as Novient eServices. Novient iServerNet is an XML-based,
configurable, scalable platform designed to promote efficient database
communications to meet the collaboration and communications requirements of
professional services organizations. Novient eServices is a 100% Internet-based
PSA application designed to serve the needs of the three primary participants in
the services community: executives, resource managers and professionals. Our
solution utilizes a scalable architecture that allows thin-server to server
communication, as well as server to client communication, among multiple,
distributed servers without the need for data replication. Together, the Novient
iServerNet platform and the Novient eServices application provide a complete
Internet infrastructure solution to the professional services community,
allowing clients to create internal services portals and establish external
services exchanges with affiliated services organizations and customers.
Benefits to professional services organizations include:
- real-time communication and collaboration;
- scalability, security, and ease of implementation and maintenance;
- expanded revenue opportunities;
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- increased speed and efficiency;
- improved career management for individual professionals; and
- enhanced client service.
Our goal is to establish Novient as the leading provider of Internet
infrastructure solutions for the professional services industry and the standard
platform for the delivery and management of professional services. To achieve
this goal, we intend to:
- build on our experience and our existing technology leadership to expand
into new markets;
- utilize our development team to expand the functionality of our solution;
- leverage our existing customer base to expand market share;
- expand our sales force and distribution channels to target leading
businesses worldwide; and
- expand our application hosting business to better penetrate the market.
RECENT DEVELOPMENTS
Acquisition of WebProject. In April 2000, we completed the acquisition of
WebProject, Incorporated, a privately held software company based in San Mateo,
California. WebProject's Java-based project management and collaboration
software allows users to easily capture, access and share project and enterprise
information through a project portal using an Internet browser. WebProject
integrates project management, document management, a project portal, an
executive information system and collaborative project discussion forums.
WebProject's software is included in our Novient eServices offering.
Andersen Consulting Alliance. In May 2000, we entered into an alliance
with Andersen Consulting, a leading global management and technology consulting
firm. Under the terms of the alliance, Andersen Consulting will market Novient
as its preferred PSA solution. Andersen Consulting and Novient will jointly
market the Novient solution to companies within the Global 2000 and other select
targeted organizations. In addition, Andersen Consulting has agreed to provide
global PSA consulting services for our solution. Andersen Consulting also agreed
to license Novient eServices for implementation throughout its organization.
OUR ADDRESS
We were incorporated under the laws of the State of Georgia as InfoWave
Technologies, Inc. in November 1995. In July 1999, we changed our name to
Novient, Inc. Our headquarters is located at 3525 Piedmont Road, Building 8,
Suite 500, Atlanta, Georgia 30305, and our telephone number is (404) 720-3600.
Our web site is located at www.novient.com. Information contained on our web
site is not part of this prospectus.
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THE OFFERING
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Common stock offered by Novient.............. shares
Common stock outstanding after this
offering................................... shares
Use of proceeds.............................. We intend to use the net proceeds from this
offering for general corporate purposes,
including funding increased research and
development and sales and marketing efforts
and expanding our operations. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... NVNT
</TABLE>
------------------------------
Except as otherwise indicated, the outstanding share information in this
prospectus is based on shares outstanding as of May 31, 2000. This information
excludes:
- 4,957,500 shares of common stock presently reserved for issuance upon
exercise of options granted under our stock option plan, of which options
to purchase 2,244,250 shares were outstanding as of May 31, 2000 at a
weighted-average exercise price of $1.20 per share; and
- 170,281 shares of common stock reserved for issuance upon exercise of
outstanding warrants as of May 31, 2000 at a weighted-average exercise
price of $2.81.
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following financial data is a summary of the more complete financial
information provided in our financial statements and notes thereto appearing at
the end of this prospectus. The pro forma statement of operations for the year
ended December 31, 1999 and the three months ended March 31, 2000 reflect our
acquisition of WebProject, which occurred on April 20, 2000, as if the
acquisition had occurred on January 1, 1999. The pro forma net loss per share
information reflects the conversion of our convertible preferred stock into
common stock as if the conversion had occurred on January 1, 1999 or date of
issuance if later.
Our balance sheet data as of March 31, 2000 is presented:
- on an unaudited actual basis;
- on an unaudited pro forma basis to reflect our acquisition of WebProject
and conversion of our convertible preferred stock into common stock; and
- on an unaudited pro forma as adjusted basis to reflect our acquisition of
WebProject and conversion of our convertible preferred stock into common
stock and our receipt of the estimated net proceeds from our sale of
shares of common stock at an assumed initial public offering
price of $ per share and the use of the net proceeds as
described in "Use of Proceeds."
The information presented below should be read in conjunction with our
financial statements and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1997 1998 1999 1999 1999 2000 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues...................... $ 185 $1,868 $ 4,584 $ 4,800 $1,002 $ 1,440 $ 1,610
Gross profit.................. 180 1,784 3,981 4,172 978 849 1,005
(Loss) income from
operations.................. (62) 216 (3,532) (8,279) (14) (5,255) (6,381)
Net (loss) income............. (62) 171 (3,333) (8,216) 10 (5,123) (6,298)
Net (loss) income available to
common shareholders......... (62) 171 (24,478) (29,361) (223) (7,486) (8,661)
Net (loss) income per share:
Basic and diluted net (loss)
income per share.......... $ (.01) $ .03 $ (4.90) $ (4.86) $ (.04) $ (1.46) $ (1.40)
Basic weighted-average
common shares
outstanding............... 4,920 4,994 4,995 6,040 4,995 5,130 6,174
Diluted weighted-average
common shares
outstanding............... 4,920 5,652 4,995 6,040 4,995 5,130 6,174
Pro forma net loss per share
(unaudited):
Pro forma net loss per
share..................... $ (0.39) $ (0.85) $ (0.47) $ (0.53)
Pro forma basic and diluted
weighted-average common
shares outstanding........ 8,575 9,620 10,862 11,907
</TABLE>
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<TABLE>
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MARCH 31, 2000
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22,085 $ 20,638 $
Working capital............................................. 22,051 20,552
Total assets................................................ 24,964 33,082
Long-term debt, less current portion........................ -- --
Convertible preferred stock................................. 52,427 --
Total shareholders' equity (deficit)........................ (29,111) 31,317
</TABLE>
The discussion and table excludes:
- 4,957,500 shares of common stock reserved for issuance upon exercise of
options granted under our stock option plan, of which options to purchase
1,819,250 shares were outstanding as of March 31, 2000 at a
weighted-average exercise price of $0.82 per share; and
- 10,281 shares of common stock reserved for issuance upon exercise of
warrants outstanding as of March 31, 2000 at a weighted-average exercise
price of $7.66 per share.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below before making an investment
decision. You should also refer to the other information in this prospectus,
including our financial statements and notes thereto appearing at the end of
this prospectus. Any of the following risks, as well as other risks and
uncertainties that are not yet identified or that we currently believe are
immaterial, could harm our business and operating results and could result in a
complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
WE ANTICIPATE INCURRING LOSSES IN THE FUTURE, AND WE MAY NEVER ACHIEVE OR
MAINTAIN PROFITABILITY.
We incurred net losses of $3.3 million in 1999 and $5.1 million in the
three months ended March 31, 2000. As of March 31, 2000, we had incurred an
accumulated deficit of $26.6 million. We intend to significantly increase our
spending on items such as research and development, sales and marketing and
operating infrastructure as part of our strategy to grow our business and
eventually achieve profitability. As a result, we expect our operating and net
losses to continue for the foreseeable future. We cannot assure you that we will
increase revenues or control expenses sufficiently to achieve or maintain
profitability in the future.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING FUTURE PERFORMANCE DIFFICULT.
We commenced operations in late 1995 and first recognized significant
revenues from our operations in 1998. Our business strategy has changed
considerably since that time. Accordingly, we have only a limited operating
history on which to evaluate our business. As a result of our limited operating
history, the emerging nature of the PSA market and the evolving nature of our
business strategy, it will be difficult for us to accurately forecast our
revenues. We incur expenses based primarily on operating plans and estimates of
future revenues, and our expenses are largely fixed in the short term. We may be
unable to adjust our spending in a timely manner to compensate for any
unexpected revenue shortfalls. Accordingly, a failure to meet our revenue
projections will have an immediate and negative impact on profitability. In
addition, we currently intend to substantially increase operating expenses. If
these expenses do not generate increased revenues, our earnings may be adversely
affected and anticipated net losses may be greater than expected.
OUR BUSINESS MAY SUFFER IF CUSTOMERS REJECT OUR PRODUCTS AND SERVICES.
We cannot be certain that our products and services will continue to
achieve market acceptance. We derive a majority of our revenue from the license
of our Novient eServices application. We expect this to continue for the
foreseeable future. As a result, our future operating results depend upon the
continued market acceptance of Novient eServices. In May 2000, we introduced
version 6.0 of Novient eServices, which included added functionality and new
modules, including Opportunity Management, Knowledge Management, WebProject,
Time & Expense and Wireless. These additional modules are key factors in our
ability to increase demand for our PSA application, and we cannot be certain
that the expanded product suite will achieve widespread customer acceptance. Any
material reduction in demand for this product could have an adverse effect on
our business and operating results. Factors that could adversely affect sales of
our products and services include:
- failure of our products to meet customer expectations;
- failure of our support services to adequately address customer needs;
- failure to timely adapt our products and services to address changing
customer needs;
- failure to timely adapt our products and services to new technologies;
and
- competitive products that obtain greater market acceptance.
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In addition, our Novient eServices application currently operates only in
the Windows NT operating environment. We are in the process of creating versions
of this application for the Unix operating environment, which represents a
significant investment on our part. We cannot assure you that our Unix-based
application will achieve customer acceptance.
OUR SYSTEMS MUST BE ABLE TO INTEGRATE WITH THE INTERNAL SYSTEMS OF OUR
CUSTOMERS.
In order for our products to be useful to our customers, it is often
necessary that they be integrated with our customers' internal systems, such as
financial and accounting, human resource, customer service and technical service
systems. Integrating with other computer systems and software programs can be
complex, time-consuming and expensive and may cause delays in the deployment of
our products. Because most companies are only now beginning to adopt PSA
solutions, many customers will be facing these integration issues for the first
time in the context of PSA software. In addition, there is little uniformity in
the systems used by our customers. If we cannot successfully integrate our
products with these systems, our operating costs could increase and our
reputation with existing and future customers could be damaged, which may have
an adverse effect on our business and operating results.
OUR NOVIENT ISERVERNET OFFERING MAY NOT ACHIEVE WIDESPREAD CUSTOMER ACCEPTANCE.
To date, we have only offered Novient iServerNet, our collaboration
platform, as part of Novient eServices. As a result, we cannot be certain that
Novient iServerNet will achieve widespread customer acceptance as a separate
product offering. We believe that our Novient iServerNet offering will be a key
factor in our ability to extend our solution beyond the enterprise to manage the
relationships and interactions between professional services users, suppliers
and subcontractors. Market demand for collaboration platforms linking multiple
suppliers with each other and with buyers is in its early stages, particularly
in the professional services industry. It is difficult to predict whether such
collaboration platforms will succeed in displacing entrenched methods of doing
business. Customers may therefore be reluctant to employ Novient iServerNet,
which may have an adverse effect on the growth of our business.
WE MUST BE ABLE TO OFFER NEW AND ENHANCED PRODUCTS ON A TIMELY BASIS TO MAINTAIN
REVENUE GROWTH.
Our competitiveness and ability to maintain or increase our market share
will depend, in part, on our ability to develop, test, sell and support new and
enhanced products on a timely basis in response to changing customer needs,
competition, technological developments and emerging industry standards.
However, because the development of proprietary technologies entails significant
technical and business risks and requires substantial expenditures and lead
time, we may be unable to offer these products in a cost-effective or timely
manner. If we experience product delays in the future, we may face:
- customer dissatisfaction;
- cancellation of orders and license agreements;
- negative publicity;
- loss of revenues;
- slower market acceptance; and
- legal actions by customers.
Delays in bringing new products or product enhancements to market could be
exploited by our competitors. If we lose market share as a result of delays in
our product development, we may be unable to maintain or increase our revenues.
BECAUSE OUR SALES ARE ALMOST ENTIRELY TO THE IT SERVICES INDUSTRY, OUR REVENUES
MAY DECLINE IF OUR CUSTOMERS IN THIS INDUSTRY DECREASE THEIR INFRASTRUCTURE
SPENDING.
While we intend to market our products to other professional services
industries, we expect the IT services industry to remain the focus of our
efforts for the foreseeable future. Sales to customers in the IT
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services industry accounted for substantially all of our revenues in 1999 and in
the three months ended March 31, 2000. Given the high degree of competition and
the rapidly changing environment in the IT services industry, there is no
assurance that we will be able to maintain or increase sales in this industry.
If we fail to maintain or expand our sales in this industry, it may have an
adverse effect on our business and operating results.
WE HAVE FOCUSED ON THE IT SERVICES INDUSTRY, AND OUR EFFORTS TO EXPAND SALES OF
OUR PRODUCTS AND SERVICES TO OTHER SERVICE INDUSTRIES MAY NOT SUCCEED.
To date, we have sold our products and services primarily to the IT
services industry. However, we intend to expand the marketing of our products
and services to other professional services industries. Businesses outside of
the IT services industry may be less likely to use our products and services.
Even if they do, we may need to develop additional expertise or
industry-specific knowledge, which we may be unable to do in a timely manner.
Therefore, we may not succeed in marketing our products and services for use
outside of the IT services industry. We may experience difficulties that could
delay or prevent the successful introduction or marketing of new or enhanced
products and services for additional professional services industries in the
future. In addition, those products and services may not meet the needs of these
new markets and may not achieve market acceptance.
OUR FUTURE REVENUE GROWTH COULD BE IMPAIRED IF WE ARE UNABLE TO DEVELOP
ADDITIONAL DISTRIBUTION CHANNELS FOR OUR PRODUCTS.
If we do not develop relationships with significant indirect distribution
channels, and if these distribution channels do not result in significant
amounts of sales, our ability to acquire new customers and increase revenues may
be impaired. We believe that our success in increasing our revenues depends in
part on our ability to develop and expand our indirect distribution channels,
including service providers, software vendors and application service providers.
Since our agreements with referral sources generally are non-exclusive and
normally are terminable without penalty on short notice, some of these referral
sources may choose to discontinue working with us or may decide to work with our
competitors. As we develop additional indirect distribution channels, we may
experience conflicts with our direct sales force to the extent that these
distribution channels target the same customer bases. If we are unable to
successfully manage these potential conflicts, we may be unable to maximize our
revenue growth.
OUR REVENUES DEPEND ON ORDERS FROM A FEW LARGE CUSTOMERS.
A significant portion of our revenues depend on orders from a few large
customers. If we fail to complete one or more of these orders, our revenues may
decline or fail to meet expectations. In 1999, our three largest customers
accounted for 31%, 14% and 13% of our total revenues, respectively. For the
three months ended March 31, 2000, our three largest customers accounted for
35%, 16% and 14%, of our total revenues, respectively. Our operating results may
be harmed if we are unable to attract new customers that place substantial
orders or complete one or more substantial product sales in any future period.
OUR OPERATING RESULTS MAY VARY SIGNIFICANTLY DUE TO THE LENGTHY AND
UNPREDICTABLE SALES CYCLES FOR OUR PRODUCTS.
Because our products and services have lengthy and unpredictable sales
cycles, it is difficult for us to forecast the timing and recognition of
revenues. Customers in our target markets often take an extended time to
evaluate our products before purchasing them. In many of our sales efforts, we
are required to deal directly with senior management of our customers, which
often extends the length of the sales cycle. In addition, our products may have
an even longer sales cycle in international markets. During the evaluation
period, a variety of factors, including the introduction of new products or
aggressive discounting by competitors and changes in our customers' budgets and
purchasing priorities, may lead customers to not purchase or to reduce orders
for our products. Since we are unable to control these and other factors that
influence our customers' buying decisions, our sales cycles are often
unpredictable. As a result, our
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operating results may vary significantly from period to period and, in some
instances, be below the expectations of securities analysts and investors.
THE UNPREDICTABILITY OF OUR QUARTERLY RESULTS MAY NEGATIVELY AFFECT THE TRADING
PRICE OF OUR COMMON STOCK.
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
- size and timing of customer orders;
- loss of one or more of our key customers or other relationships;
- amount and timing of capital expenditures and other costs relating to the
expansion of our operations;
- seasonality in the sales of our products and services, which may differ
in each of our markets; and
- general economic conditions.
Any change in one or more of these or other factors could cause our annual
or quarterly operating results to fluctuate. If our operating results do not
meet the expectations of securities analysts and investors, our stock price will
likely decline.
WE MUST EFFECTIVELY MANAGE THE GROWTH OF OUR BUSINESS TO BE SUCCESSFUL.
We are rapidly expanding our operations and have hired additional sales,
marketing and technology personnel. At May 31, 2000, we had a total of 153
employees as compared to 95 employees at December 31, 1999. We have also
expanded our management and administration to support this growth, and we expect
this expansion to continue at a rapid rate. This expansion has placed and will
continue to place a significant strain on our managerial, operational and
financial resources. If we are unable to manage our growth effectively, our
business and operating results may be adversely affected.
WE ARE CURRENTLY EXPANDING OUR INTERNATIONAL OPERATIONS, WHICH WILL SUBJECT US
TO SPECIAL RISKS AND UNCERTAINTIES THAT COULD NEGATIVELY AFFECT OUR BUSINESS.
We intend to expand our international operations, which will require
significant management attention and financial resources and may also negatively
affect our business and operating results because of the following factors:
- difficulties in staffing and managing foreign operations;
- potential losses or gains from currency fluctuations;
- increased financial, accounting and reporting burdens and complexities
and potentially adverse tax consequences;
- delays in delivering language-specific versions of our software due to
our limited experience in creating these versions;
- compliance with a wide variety of complex foreign laws and treaties;
- increased difficulty in collecting delinquent or unpaid accounts;
- reduced protection for intellectual property rights in some countries;
and
- licenses, tariffs and other trade barriers.
Any of these factors, as well as others, could impair our ability to expand
our international operations, and we cannot be certain that our international
operations will produce desired levels of revenue or profitability.
9
<PAGE> 13
ATTRACTING AND RETAINING KEY EMPLOYEES IS IMPORTANT TO OUR BUSINESS.
A key factor to our success is the continued services and performance of
our executive officers. If we lose the services of any of these individuals, our
business and operating results could be adversely affected.
We also depend on our ability to identify, hire and retain other highly
skilled technical, managerial, marketing and customer service professionals.
Competition for these personnel is intense. We generally do not have long-term
employment agreements with any of our personnel other than some of our executive
officers. We cannot be certain of our ability to identify, hire and retain
sufficiently qualified personnel. For example, we may encounter difficulties in
attracting a sufficient number of qualified software developers and operations
personnel. Failure to identify, hire and retain necessary personnel may have an
adverse effect on our business and operating results.
OUR EXECUTIVE MANAGEMENT TEAM HAS LIMITED EXPERIENCE WORKING TOGETHER.
Our executive management team has limited experience working together,
which may make it difficult to conduct and grow our business. We have added our
President and Chief Operating Officer, our Executive Vice President of Corporate
Strategy and Business Development, our Vice President of Business Development,
and our Chief Financial Officer, Treasurer and Secretary, at varying times since
December 1999. Therefore, there has been little or no opportunity to evaluate
the effectiveness of our executive management team as a combined unit. The
failure of executive management to function effectively as a team may have an
adverse effect on our business and operating results.
SYSTEM FAILURE MAY CAUSE INTERRUPTION OF OUR HOSTED PSA SERVICES.
The performance of our Internet servers and networking hardware and
software infrastructure is critical to our hosted PSA software and our ability
to provide high quality customer service. Any systems failure or interruption
could result in disruption of our service or loss or compromise of customer
data. These failures, especially if they are prolonged or repeated, would make
our services less attractive to customers and damage our reputation. Reasons why
our systems may fail include:
- our systems and operations are vulnerable to damage or interruption from
human error, natural disaster, power loss, telecommunications failures,
break-ins, sabotage, computer viruses and similar events;
- we rely on third parties to provide key components of our networks and
system;
- we rely on third-party communications services providers for high-speed
connections that link our Internet servers and office systems to the
Internet; and
- our power system does not have a redundant backup system capable of
mitigating the effect of a service disruption.
There are several factors that may amplify the adverse impact of any
infrastructure failure. For instance:
- we do not currently have an alternative provider of hosting services;
- our business interruption insurance may not be sufficient to compensate
us for losses that could occur; and
- our infrastructure and systems for our hosted applications are located at
our corporate offices in Atlanta, Georgia.
Any system failure that causes an interruption in service or a decrease in
responsiveness of our Internet-based services, if sustained or repeated, may
have an adverse effect on our business and operating results.
10
<PAGE> 14
OUR PRODUCTS MAY SUFFER FROM DEFECTS OR ERRORS, WHICH MAY HARM OUR BUSINESS OR
SUBJECT US TO PRODUCT LIABILITY CLAIMS.
The products we offer are complex. Despite testing and quality control, our
products may contain defects or errors that are not discovered until after we
begin commercial shipments of the product. Any defects or errors may harm our
business or subject us to product liability claims. Significant technical
challenges may arise with our products because our customers purchase and deploy
our products across a variety of computer platforms and integrate them with a
number of third-party software applications and databases. Any defects or errors
that are discovered after commercial release could result in the loss of revenue
or delay in market acceptance of our products and services. Moreover, we could
face significant product liability claims and higher development costs if our
products contain undetected errors, if we fail to meet our customers'
expectations or if our customers' systems experience failure following the
implementation of our products, regardless of our responsibility for the
failure. Although we maintain general liability insurance coverage, this
coverage may not continue to be available on reasonable terms, or at all, or may
be insufficient to cover one or more large claims. In addition, a product
liability claim, whether or not successful, could harm our business by
increasing our costs and distracting our management.
THE THIRD-PARTY SOFTWARE WE RELY ON MAY SUFFER FROM DEFECTS OR ERRORS OR MAY
BECOME UNAVAILABLE OR OBSOLETE, WHICH WOULD HARM OUR SALES.
Our software contains components developed and maintained by third-party
software vendors, and we expect to incorporate software from third-party vendors
in our future software. We may be unable to replace the functionality provided
by this third-party software if it becomes obsolete, defective or incompatible
with future versions of our software, if it is not adequately maintained or
updated or if we are unable to continue to license it from such third parties.
Because we rely on this software to perform key functions, its unavailability
for any reason could result in delays or reductions of sales or shipments of our
products until alternative software can be developed or licensed.
WE MAY HAVE DIFFICULTY INTEGRATING CURRENT AND FUTURE ACQUISITIONS INTO OUR
BUSINESS.
We have recently acquired WebProject and may from time to time engage in
acquisitions of other companies. As a result, we are exposed to increased risks,
including:
- the integration of new operations, products, services and personnel;
- the diversion of resources from our existing businesses and technologies;
- the inability to generate revenues from new products and services
sufficient to offset associated acquisition costs;
- the maintenance of uniform standards, controls and policies;
- accounting ramifications that adversely affect our financial results;
- the impairment of employee and customer relations as a result of any
integration of new management personnel; and
- dilution to existing shareholders from the issuance of equity securities.
In addition, liabilities or other problems associated with an acquired
business may have an adverse effect on our business or operating results.
WE MIGHT BE UNABLE TO PROTECT AND ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS.
We regard substantial elements of our products and services as proprietary
and attempt to protect them by relying on patent, trademark, service mark,
copyright and trade secret laws and restrictions, as well as confidentiality
procedures and contractual provisions. Any steps we take to protect our
intellectual property may be inadequate, time consuming and expensive.
Furthermore, despite our efforts, we may be
11
<PAGE> 15
unable to prevent third parties from infringing upon or misappropriating our
intellectual property, which may have an adverse effect on our business or
operating results.
While we have applied for two U.S. patents, there can be no assurance that
these patents will be issued. Moreover, any new patent applications that we file
may not result in issued patents and may not provide us with any competitive
advantages over, or may be challenged by, third parties.
Legal standards relating to the validity, enforceability and scope of
protection of intellectual property rights in the software or Internet
industries are uncertain and still evolving, and the future viability or value
of any of our intellectual property rights is uncertain. Effective trademark,
copyright and trade secret protection may not be available in every country in
which our products are distributed or made available. Furthermore, our
competitors may independently develop similar technologies that substantially
limit the value of our intellectual property or design around patents issued to
us.
THIRD PARTIES MIGHT BRING INFRINGEMENT CLAIMS AGAINST US OR OUR THIRD-PARTY
SUPPLIERS THAT COULD HARM OUR BUSINESS.
In recent years, there has been significant litigation in the U.S.
involving patents and other intellectual property rights, particularly in the
software and Internet industries. We could become subject to intellectual
property infringement claims as the number of our competitors grows and our
products and services overlap with competitive offerings. These claims, even if
not meritorious, could be expensive and divert management's attention from
operating our company. If we become liable to third parties for infringing their
intellectual property rights, we could be required to pay a substantial damage
award and to develop noninfringing technology, obtain a license or cease selling
the products that contain the infringing intellectual property. We may be unable
to develop noninfringing technology or obtain a license on commercially
reasonable terms, if at all.
In addition, as part of our product licenses, we agree to indemnify 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 and our customers may be required to obtain one or more
licenses from third parties. We cannot assure you that we or our customers could
obtain necessary licenses from third parties at a reasonable cost, or at all.
RISKS RELATED TO OUR INDUSTRY
THE MARKET FOR PSA SOLUTIONS IS EMERGING AND FUTURE OPERATING RESULTS AND GROWTH
PROSPECTS DEPEND ON THIS MARKET'S CONTINUED GROWTH.
All of our historical revenues have been attributable to the sale of our
PSA application for professional services organizations. Professional services
organizations have only recently begun to automate the management of their
business processes, and it is uncertain whether major services organizations
will choose to adopt process automation systems in large numbers. This market
may not continue to develop, and IT services organizations may not choose our
solution over manual processes,
internally-developed applications or solutions that offer limited functionality.
Companies that have already invested substantial resources in existing systems
may be reluctant to adopt a new approach that may replace, limit or compete with
their existing systems. While we have devoted significant resources to promoting
market awareness of our solution and the problems it addresses, we do not know
whether these efforts will be sufficient to support significant growth in the
market for PSA solutions. Accordingly, the market for our solution may not
continue to grow or, even if the market does grow in the immediate term, that
growth may not be sustainable.
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<PAGE> 16
WE FACE SIGNIFICANT COMPETITION FROM OTHER COMPANIES.
The market for Internet infrastructure for the professional services
industry is relatively new and is subject to frequent technological changes. The
intensity of competition and the pace of change are expected to increase in the
future as new competitors enter this market. A number of companies offer or may
offer in the future products and services that vary in competitive
functionality. These include:
- developers of PSA software and related Internet-based applications;
- providers of hosted software for IT consultants;
- operators of centralized online market places for professional services;
and
- enterprise resource planning, or ERP, software companies.
Many of our competitors have longer operating histories and significantly
greater financial, marketing and other resources. Many of these companies can
also leverage extensive customer bases and adopt aggressive pricing policies to
gain market share and undertake extensive marketing campaigns. Competitive
pressures may make it difficult to acquire and retain customers and may require
us to reduce the price of our products. We cannot be certain that we will be
able to compete successfully with existing or new competitors. If we fail to
compete successfully, our business and operating results will be harmed.
OUR FUTURE REVENUES DEPEND ON THE CONTINUED GROWTH IN THE USE AND EFFICIENT
OPERATION OF THE INTERNET.
Our products are designed to be used over the Internet. Consequently, our
future revenues and profits, if any, substantially depend upon the continued
acceptance and use of the Internet, which is evolving as a communications
medium. Rapid growth in the use of the Internet is a recent phenomenon and may
not continue. This rapid growth has resulted in slower response times that makes
the Internet, and as a result our Internet-based products, less attractive. As a
result, a broad base of customers that are willing to use the Internet as a
primary means of managing IT services may not develop or be maintained. If
businesses do not continue to accept the Internet as a communications medium,
the demand for our solution could be significantly reduced, and any future
Internet-based features that we develop or market may not be commercially
successful.
Factors that could inhibit the growth of the Internet and its use as a
communications medium include:
- delays in the development or adoption of new equipment, standards and
protocols to handle increased levels of Internet activity, security,
reliability, cost, ease of use, accessibility and quality of service;
- the ability of the Internet to support the demands placed on it by
continued growth; and
- concerns about privacy and the use of data collected over the Internet.
INTERNET COMMERCE AND DATABASE SECURITY CONCERNS COULD ADVERSELY AFFECT OUR
BUSINESS.
The secure transmission of confidential information over public networks is
a fundamental requirement for Internet-based commerce. Concerns over the
security of transactions and information and other privacy issues may also
inhibit the growth of the Internet and the online PSA industry. We use
encryption and authentication technology for the transmission of confidential
information through our Internet-based systems. Technological advances,
including new discoveries in the field of cryptography, could result in a
compromise or breach of our security systems. Security breaches could have an
adverse effect on our business and operating results. An intruder who breaches
our security measures could misappropriate proprietary information or cause
interruptions in our operations. We could be required to spend a significant
amount of time and money to protect against security breaches or to alleviate
problems caused by such breaches. Security breaches could also expose us to a
risk of loss or litigation and possible liability. We cannot be certain that our
security measures will prevent breaches.
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<PAGE> 17
POTENTIAL IMPOSITION OF GOVERNMENTAL REGULATION OR TAXATION ON ELECTRONIC
COMMERCE COULD LIMIT OUR GROWTH.
The adoption of new laws or the adaptation of existing laws to the Internet
may decrease the growth in the use of the Internet, which could in turn decrease
the demand for our solution, increase our cost of doing business or otherwise
have an adverse impact on our business. Few laws or regulations currently apply
directly to commerce on the Internet. Federal, state, local and foreign
governments are considering a number of legislative and regulatory proposals
relating to Internet commerce. As a result, a number of laws or regulations may
be adopted regarding Internet user privacy, taxation, pricing, quality of
products and services and intellectual property ownership. It is uncertain how
existing laws will be applied to the Internet in areas such as property
ownership, copyright, trademark, trade secret and defamation.
The recent growth of Internet commerce has been attributed by some to the
lack of sales and value-added taxes on interstate sales of goods and services
over the Internet. Numerous state and local authorities have expressed a desire
to impose such taxes on sales to businesses in their jurisdictions. The Internet
Tax Freedom Act of 1998 prevents imposition of new Internet specific taxes
through October 2001. On May 10, 2000, the U.S. House of Representatives passed
a bill that would, if adopted into law, extend the federal moratorium for
another five years. However, if the moratorium is not renewed, or if it is
terminated before its expiration, sales of goods and services over the Internet
could be subject to multiple overlapping tax schemes, which could substantially
hinder the growth of Internet-based commerce, including use of our product
offerings.
RISKS RELATED TO THE OFFERING
THERE HAS BEEN NO PRIOR MARKET FOR OUR COMMON STOCK, THE PRICE OF OUR COMMON
STOCK MAY BE VOLATILE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
Before this offering, you could not buy or sell our common stock publicly.
While we anticipate that our common stock will trade on the Nasdaq National
Market after the offering, an active public market may not develop or be
sustained. Furthermore, our common stock may not remain eligible to trade on the
Nasdaq National Market, which could result in an illiquid market for our common
stock. In addition, the market price might fall below the initial public
offering price. The initial public offering price may bear no relationship to
the price at which the common stock will trade upon completion of this offering.
The initial public offering price will be determined based on negotiations
between us and the representatives of the underwriters and may be based on
factors that may not be indicative of future market performance.
The stock market in general, and the market for technology companies in
particular, has experienced extreme price and volume volatility. These broad
market and industry factors may harm our stock price, regardless of our
operating performance. Accordingly, the market price of our common stock is
likely to be highly volatile. You may be unable to resell your shares of our
common stock following periods of volatility because of the market's adverse
reaction to such volatility. We cannot assure you that our stock price will
trade at the same level as other technology stocks or that technology stocks in
general will sustain their current market prices.
Factors that could cause such volatility may include, among other things:
- actual or anticipated variations in quarterly revenues and operating
results;
- announcements of technological innovations by our competitors and
introduction of competing products and services;
- changes in financial estimates by securities analysts or our failure to
meet such analysts' expectations;
- changes in the market valuations of other comparable companies;
- announcements by our competitors of significant contracts, acquisitions,
strategic relationships or capital commitments;
14
<PAGE> 18
- additions or departures of key personnel; and
- future sales of our common stock.
Many of these factors are beyond our control. These factors may adversely
affect the market price of our common stock, regardless of our operating
performance.
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON STOCK COULD RESULT IN
SECURITIES CLASS ACTION CLAIMS AGAINST US.
Significant price fluctuations have occurred with respect to the securities
of technology companies. Our common stock price is likely to be volatile in the
future. In the past, following periods of downward movement in the market price
of a company's securities, class action litigation has often been pursued
against such companies. If similar litigation were pursued against us, it could
result in substantial costs and a diversion of our management's attention and
resources.
WE WILL RETAIN BROAD DISCRETION IN USING THE NET PROCEEDS FROM THIS OFFERING,
AND OUR BUSINESS GOALS MAY NOT BE ACHIEVED IF THESE PROCEEDS ARE NOT USED
EFFECTIVELY.
We will retain broad discretion over the application of the net proceeds
from this offering, as well as the timing of our expenditures. Our failure to
apply these proceeds effectively could adversely affect our business. We may use
these funds for general corporate purposes, including increased research and
development and sales and marketing efforts and expansion of our operations. The
net proceeds may be used for corporate purposes that do not increase our
profitability or market value. Pending application of the proceeds, they may be
placed in investments that do not produce income or that lose value. The timing
of our use of the net proceeds will depend on a number of factors, including the
amount and timing of our future cash flows. For more information, see "Use of
Proceeds."
OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL SHAREHOLDERS WILL RETAIN
SUBSTANTIAL CONTROL OVER US AFTER THIS OFFERING.
Upon the closing of this offering, our executive officers, directors and
holders of 5% or more of our common stock, together with their affiliates, will,
in the aggregate, own approximately % of our outstanding common stock. As a
result, these shareholders, acting together, will have the ability to control
matters submitted to our shareholders for approval, including the election and
removal of directors and any merger, consolidation or sale of all or
substantially all of our assets. Accordingly, this concentration of ownership
may have the effect of delaying or preventing a transaction that would result in
a change in control, even if it would result in a premium over the market price
for our common stock.
FUTURE SALES OF OUR COMMON STOCK COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
COMMON STOCK.
Following the offering, we will have a large number of shares of common
stock outstanding and available for resale beginning at various points in the
future. The market price for our common stock could decline as a result of sales
of large numbers of shares of our common stock in the market following this
offering, or the perception that such sales could occur. These sales might make
it more difficult to sell securities in the future at a time and a price we may
deem appropriate.
The number of shares of common stock available for sale in the public
market is limited by restrictions under federal securities law and under some
agreements that our shareholders have entered into with the underwriters. Those
agreements restrict our shareholders from selling, pledging or otherwise
disposing of their shares for a period of 180 days after the date of this
prospectus, without the prior written consent of FleetBoston Robertson Stephens
Inc. However, FleetBoston Robertson Stephens Inc. may, in its sole discretion
and at any time without notice, release all or any portion of the common stock
from the
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<PAGE> 19
restrictions of these agreements. The following table indicates approximately
when the shares of our common stock that are not being sold in the offering will
be eligible for sale into the public market:
<TABLE>
<CAPTION>
ELIGIBILITY OF RESTRICTED
SHARES FOR SALE IN
PUBLIC MARKET
-------------------------
<S> <C>
On the date of this prospectus.............................. --
180 days after the date of this prospectus.................. 8,434,750
At various times after 180 days after the date of this
prospectus................................................ 4,692,019
----------
Total............................................. 13,126,769
==========
</TABLE>
We have agreed not to sell or dispose of any shares of common stock during
the 180-day period following the date of this prospectus, except we may issue,
and grant options to purchase, shares of common stock under our stock option
plans. We have an agreement with the holders of an aggregate of 7,015,031 shares
of our common stock, including shares issuable upon conversion of outstanding
convertible securities, that gives them the right to require us to register
their shares of common stock for resale under the Securities Act of 1933. The
exercise of these registration rights will cause the registered shares to become
eligible for sale. The sale of a large number of these shares, or the
possibility that such sales may occur, may adversely affect the market price of
our common stock. For more information, see "Shares Eligible for Future Sale."
OUR ARTICLES OF INCORPORATION AND BYLAWS AND GEORGIA LAW COULD MAKE AN
ACQUISITION BY A THIRD PARTY MORE DIFFICULT.
Some provisions of our articles of incorporation and bylaws and provisions
of Georgia law may delay or prevent a takeover attempt, including an attempt
that might result in a premium over the market price for our common stock. For
example, our articles of incorporation and bylaws provide, among other things,
that:
- our board of directors, without shareholder approval, has the authority
to issue preferred stock with rights superior to the rights of the
holders of common stock;
- our shareholders must comply with advance notice provisions contained in
our bylaws to make proposals at shareholder meetings and nominate
candidates for election to our board of directors;
- our board of directors is classified and directors have staggered terms;
and
- our shareholders may not act by written consent and may only call a
special meeting upon request of 50% of the votes entitled to be cast on
each issue to be considered at the special meeting.
Georgia law also contains "business combination" and "fair price"
provisions that have the effect of delaying or preventing a takeover attempt.
Even in the absence of a takeover attempt, these provisions could adversely
affect the market price of our common stock. For more information, see
"Description of Capital Stock."
OUR BOARD OF DIRECTORS MAY ISSUE, WITHOUT SHAREHOLDER APPROVAL, PREFERRED SHARES
THAT HAVE RIGHTS AND PREFERENCES SUPERIOR TO THOSE OF COMMON SHARES THAT MAY
DELAY OR PREVENT A CHANGE OF CONTROL.
Our articles of incorporation grant to our board of directors the authority
to issue any number of preferred shares in one or more series up to the total
number preferred shares authorized. Our board of directors therefore will be
able to set the rights and preferences of, and issue, any series of preferred
shares in its sole discretion without the approval of the holders of common
shares. The rights and preferences of these preferred shares may be superior to
those of the common shares. Accordingly, the issuance of preferred shares may
adversely affect the rights of holders of common shares. The issuance of
preferred shares could also have the effect of delaying or preventing a change
of control of our company. Immediately after this offering, there will be no
outstanding preferred shares, and we will have the ability to issue 10,000,000
preferred shares.
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<PAGE> 20
YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK VALUE
OF THE SHARES YOU PURCHASE.
If you purchase common stock in this offering, you will incur immediate and
substantial dilution in net tangible book value per share in the amount of
$ . This dilution is in large part because our earlier investors paid
substantially less than the public offering price when they purchased their
shares of common stock. Further dilution may result if options or warrants to
purchase shares of common stock are exercised in the future.
YOU WILL EXPERIENCE DILUTION IN YOUR PERCENTAGE OWNERSHIP OF OUR COMPANY IF WE
RAISE ADDITIONAL FUNDS THROUGH THE ISSUANCE OF ADDITIONAL EQUITY OR CONVERTIBLE
SECURITIES.
If we raise additional funds through the issuance of equity securities or
convertible securities, you will experience dilution of your percentage
ownership of our company, which may be substantial. At this time, we cannot
predict whether or when we may raise additional funds. In addition, any
securities we issue in connection with raising such funds may have powers,
preferences and rights that are preferential to the holders of our common stock
and may limit our ability to pay dividends on our common stock.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE, AND YOU MAY NOT
EXPERIENCE A RETURN ON YOUR INVESTMENT WITHOUT SELLING YOUR SHARES.
We do not intend to pay dividends and you may not experience a return on
investment without selling shares. We have never declared or paid any cash
dividends on our capital stock. Therefore, you will not experience a return on
your investment in our common stock without selling your shares since we
currently intend on retaining future earnings to fund our growth and do not
expect to pay dividends in the foreseeable future.
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<PAGE> 21
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Dividend Policy," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. They include statements concerning:
- our business strategy;
- liquidity and capital expenditures;
- our use of the proceeds of the offering;
- future sources of revenues;
- expansion of our products and services;
- payment of dividends;
- growth of the professional services industry;
- anticipated spending on operating expenses;
- future profitability;
- marketing our products and services to additional professional services
industries;
- expansion of our international operations; and
- the necessity or likelihood of raising additional capital.
These forward-looking statements are usually accompanied by words such as
"expect," "anticipate," "believe," "goal," "plan," "future," "seek," "intend,"
"estimate," "predict," "potential," "continue," "may," "will," and "should" or
similar words. You should be aware that these statements are subject to known
and unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward-looking statements.
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<PAGE> 22
USE OF PROCEEDS
We expect to receive net proceeds from the sale of shares of
common stock in this offering of approximately $ million. If the
underwriters exercise their over-allotment option in full, our net proceeds from
the sale of shares of common stock in this offering are estimated
to be approximately $ million. These estimates are based on an assumed
public offering price of $ per share and are after deducting estimated
underwriting discounts and commissions and estimated expenses payable by us in
connection with the offering.
We currently expect to use the net proceeds of this offering for general
corporate purposes, including funding increased research and development and
sales and marketing efforts and expanding our operations. We also may use a
portion of the net proceeds of this offering to acquire or invest in
complementary businesses or technologies, although we have no present
commitments or agreements with respect to any material acquisition or
investment. Pending the application of the proceeds towards one of the above
uses, we intend to invest the net offering proceeds in short-term,
interest-bearing, investment-grade securities.
The description above represents our present intentions based upon present
plans and business conditions. The amounts we actually use for each purpose may
vary significantly and are subject to change at our discretion depending upon
factors such as economic or industry conditions, changes in the competitive
environment and strategic opportunities that may arise.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock, and we
do not anticipate declaring or paying any cash dividends in the foreseeable
future. We currently expect to retain all earnings, if any, for investment in
our business. Our board of directors has broad discretion as to whether to pay
dividends.
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<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000. Our
capitalization is presented:
- on an unaudited actual basis;
- on an unaudited pro forma basis to reflect our acquisition of WebProject
and conversion of our convertible preferred stock into common stock; and
- on an unaudited pro forma as adjusted basis to reflect our acquisition of
WebProject and conversion of our convertible preferred stock into common
stock and our receipt of the estimated net proceeds from our sale of
shares of common stock at an assumed initial public
offering price of $ per share and the use of the net proceeds as
described in "Use of Proceeds."
The information presented below is unaudited and should be read in
conjunction with our financial statements and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt.............................................. $ -- $ -- $
Convertible preferred stock, $0.001 par value; 10,000,000
shares authorized:
Series A convertible preferred stock -- $0.001 par value;
520,833 authorized; 227,250 shares issued and
outstanding actual and none outstanding pro forma and
none outstanding pro forma as adjusted................. 5,228 --
Series B convertible preferred stock -- $0.001 par value;
2,898,000 authorized; 2,898,000 shares issued and
outstanding actual and none outstanding pro forma and
none outstanding pro forma as adjusted................. 22,199 --
Series C convertible preferred stock -- $0.001 par value;
3,275,281 authorized; 3,265,000 shares issued and
outstanding actual and none outstanding pro forma and
none outstanding pro forma as adjusted................. 25,000 --
-------- --------
Total convertible preferred stock................. 52,427 --
-------- --------
Shareholders' equity (deficit):
Common stock, $0.001 par value; 50,000,000 shares
authorized; 5,237,500 shares issued and outstanding;
13,126,769 shares issued and outstanding pro forma and
shares issued and outstanding pro forma as
adjusted............................................... 5 13
Additional paid-in capital................................ -- 60,420
Deferred stock-based compensation......................... (2,541) (2,541)
Accumulated deficit....................................... (26,575) (26,575)
-------- --------
Total shareholders' equity (deficit).............. (29,111) 31,317
-------- -------- --------
Total capitalization.............................. $ 23,316 $ 31,317 $
======== ======== ========
</TABLE>
20
<PAGE> 24
DILUTION
As of March 31, 2000, our pro forma net tangible book value was
approximately $21.8 million or $1.66 per share of common stock. Pro forma net
tangible book value per share represents the amount of our total tangible assets
less total liabilities, divided by the number of shares of common stock
outstanding, after giving effect to the automatic conversion of all outstanding
shares of our convertible preferred stock into 6,844,750 shares of our common
stock and the acquisition of WebProject, which occurred on April 20, 2000, as if
the acquisition had occurred on March 31, 2000. If we give effect to our sale of
shares of common stock in this offering at an assumed initial
public offering price of $ per share and the application of the
estimated net proceeds from this offering, our pro forma net tangible book value
at March 31, 2000 would have been approximately $ million, or $ per
share of common stock. This represents an immediate increase in such net
tangible book value of $ per share to existing shareholders and an
immediate decrease in net tangible book value of $ per share to new
investors. The following table illustrates this unaudited per share dilution to
new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at March 31,
2000................................................... $
Increase attributable to new investors....................
------
Pro forma adjusted net tangible book value per share after
this offering.............................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, as of March 31, 2000, on the pro forma
basis described above, the total number of shares sold by us, the consideration
paid to us for those shares and the average price per share paid by the existing
shareholders and by new investors purchasing shares of common
stock in this offering at an assumed initial public offering price of
$ per share, before deducting the estimated underwriting discounts and
commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- ------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............ % $ % $
New investors....................
-------- ----- ----- -----
Total.................. 100.0% $ 100.0%
======== ===== ===== =====
</TABLE>
The discussion and table excludes:
- 4,957,500 shares of common stock reserved for issuance upon exercise of
options granted under our stock option plan, of which options to purchase
1,819,250 shares were outstanding as of March 31, 2000 at a
weighted-average exercise price of $0.82 per share; and
- 10,281 shares of common stock reserved for issuance upon exercise of
warrants outstanding as of March 31, 2000 at a weighted-average exercise
price of $7.66 per share.
The exercise of these options and warrants will have the effect of
increasing the net tangible book value dilution of new investors in this
offering.
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing shareholders would be % of the total
number of shares of common stock to be outstanding after the offering, and the
number of shares held by new shareholders would be increased to
shares, or % of the total number of shares of common stock
to be outstanding after the offering.
21
<PAGE> 25
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma condensed consolidated financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the consolidated financial position or results of operations for
future periods or the results of operations or financial position that actually
would have been realized had Novient and WebProject been a combined company
during the specified periods. The unaudited pro forma condensed consolidated
financial statements, including the related notes, are qualified in their
entirety by reference to, and should be read in conjunction with, the historical
financial statements and related notes thereto of Novient and WebProject
included at the end of this prospectus. The following unaudited pro forma
condensed consolidated financial statements give effect to the acquisition of
WebProject by Novient using the purchase method of accounting. The unaudited pro
forma condensed consolidated financial statements are based on the respective
historical audited and unaudited financial statements and related notes of
Novient and WebProject.
The pro forma adjustments are preliminary and based on management's
estimates of the value of the tangible and intangible assets acquired. The
actual adjustments may differ materially from those presented in these pro forma
financial statements. A change in the pro forma adjustments would result in a
reallocation of the purchase price affecting the value assigned to goodwill and
other intangible assets.
The pro forma adjustments do not include conversion of our convertible
preferred stock to common stock.
On April 20, 2000, we acquired all of the outstanding stock of WebProject
in exchange for the issuance of 1,044,519 shares of our common stock and $1.5
million in cash. The total cost of the acquisition was estimated at
approximately $9.5 million and has been accounted for using the purchase method
of accounting. In addition, we have committed to make an additional payment of
up to $6 million in cash based on revenues attributed to sales of the WebProject
product and customer referrals during 2000. For more information, see Note 9 to
our historical consolidated financial statements.
The unaudited pro forma condensed consolidated balance sheet as of March
31, 2000 assumes the acquisition of WebProject occurred on March 31, 2000. The
unaudited pro forma condensed consolidated statements of operations for the year
ended December 31, 1999 and the three months ended March 31, 2000 assume the
acquisition of WebProject was effective on January 1, 1999.
22
<PAGE> 26
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 2000
-----------------------------------------------------------
PRO FORMA
NOVIENT WEBPROJECT COMBINED ADJUSTMENTS PRO FORMA
-------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents................ $ 22,085 $ 53 $ 22,138 $(1,500)(a) $ 20,638
Accounts receivable, net................. 1,565 65 1,630 -- 1,630
Other current assets..................... 49 -- 49 -- 49
-------- ---- -------- ------- --------
Total current assets........... 23,699 118 23,817 (1,500) 22,317
Property and equipment................... 1,084 -- 1,084 1,084
Goodwill................................. -- -- -- 9,500(b) 9,500
Other assets............................. 181 -- 181 -- 181
-------- ---- -------- ------- --------
$ 24,964 $118 $ 25,082 $ 8,000 $ 33,082
======== ==== ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Accounts payable......................... 859 21 880 -- 880
Accrued expenses......................... 496 50 546 41(c) 587
Deferred revenue......................... 293 -- 293 -- 293
Advance from shareholders................ -- 5 5 -- 5
-------- ---- -------- ------- --------
Total current liabilities...... 1,648 76 1,724 41(c) 1,765
Convertible preferred stock.............. 52,427 -- 52,427 -- 52,427
Shareholders' equity (deficit):
Common stock........................... 5 1 6 -- 6
Additional paid-in capital............. -- -- -- 8,000(c) 8,000
Deferred stock-based compensation...... (2,541) -- (2,541) -- (2,541)
Retained earnings (accumulated
deficit)............................ (26,575) 41(c) (26,534) (41)(c) (26,575)
-------- ---- -------- ------- --------
Total shareholders' equity
(deficit).................... (29,111) 42 (29,069) 7,959 (21,110)
-------- ---- -------- ------- --------
$ 24,964 $118 $ 25,082 $ 8,000 $ 33,082
======== ==== ======== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
23
<PAGE> 27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------------------
PRO FORMA
NOVIENT WEBPROJECT COMBINED ADJUSTMENTS PRO FORMA
-------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 4,584 $216 $ 4,800 $ -- $ 4,800
Cost of revenues......................... 603 25 628 -- 628
-------- ---- -------- ------- --------
Gross profit................... 3,981 191 4,172 -- 4,172
Operating expenses:
Selling and marketing.................. 2,678 -- 2,678 -- 2,678
General and administrative............. 1,820 112 1,932 -- 1,932
Research and development............... 2,371 76 2,447 -- 2,447
Depreciation and amortization.......... 189 -- 189 4,750(d) 4,939
Noncash stock compensation............. 455 -- 455 -- 455
-------- ---- -------- ------- --------
Total operating expenses....... 7,513 188 7,701 4,750 12,451
-------- ---- -------- ------- --------
(Loss) income from
operations................... (3,532) 3 (3,529) (4,750) (8,279)
Interest income.......................... 148 -- 148 (135)(e) 13
-------- ---- -------- ------- --------
(Loss) income before income
taxes........................ (3,384) 3 (3,381) (4,885) (8,266)
Income tax (benefit) expense............. (51) 1 (50) -- (50)
-------- ---- -------- ------- --------
Net (loss) income.............. (3,333) 2 (3,331) (4,885) (8,216)
Preferred stock accretion................ (21,145) -- (21,145) -- (21,145)
-------- ---- -------- ------- --------
Net (loss) income available to
common shareholders.......... $(24,478) $ 2 $(24,476) $(4,885) $(29,361)
======== ==== ======== ======= ========
Pro forma net loss per share:
Pro forma net loss per share........... $ (4.86)
========
Pro forma basic and diluted weighted-
average common shares outstanding... 6,040
========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
24
<PAGE> 28
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------
PRO FORMA
NOVIENT WEBPROJECT COMBINED ADJUSTMENTS PRO FORMA
-------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 1,440 $170 $ 1,610 $ -- $ 1,610
Cost of revenues......................... 591 14 605 -- 605
-------- ---- -------- ------- --------
Gross profit................... 849 156 1,005 -- 1,005
Operating expenses:
Selling and marketing.................. 1,747 -- 1,747 -- 1,747
General and administrative............. 1,100 51 1,151 -- 1,151
Research and development............... 1,207 43 1,250 -- 1,250
Depreciation and amortization.......... 126 -- 126 1,188(d) 1,314
Noncash stock compensation............. 1,924 -- 1,924 -- 1,924
-------- ---- -------- ------- --------
Total operating expenses....... 6,104 94 6,198 1,188 7,386
-------- ---- -------- ------- --------
(Loss) income from
operations................... (5,255) 62 (5,193) (1,188) (6,381)
Interest income (expense)................ 132 (2) 130 (23)(e) 107
-------- ---- -------- ------- --------
(Loss) income before income
taxes........................ (5,123) 60 (5,063) (1,211) (6,274)
Income tax (benefit) expense............. -- 24 24 -- 24
-------- ---- -------- ------- --------
Net (loss) income.............. (5,123) 36 (5,087) (1,211) (6,298)
Preferred stock accretion................ (2,363) -- (2,363) -- (2,363)
-------- ---- -------- ------- --------
Net (loss) income available to
common shareholders.......... $ (7,486) $ 36 $ (7,450) $(1,211) $ (8,661)
======== ==== ======== ======= ========
Pro forma net loss per share:
Pro forma net loss per share........... $ (1.40)
========
Pro forma basic and diluted weighted
average common shares outstanding... 6,174
========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma adjustments were made to our historical financial
statements to arrive at our unaudited pro forma condensed consolidated financial
statements:
(a) Reflects cash consideration paid to WebProject shareholders of
$1.5 million.
(b) Represents the excess purchase price over the fair value of assets
acquired of $9.5 million allocated as goodwill and other intangible assets.
(c) Reflects issuance of 1,044,519 shares of our common stock in
exchange for all of the outstanding common stock of WebProject and
elimination of WebProject equity.
(d) Reflects amortization of $9.5 million of goodwill and other
intangible assets over its estimated useful life of two years beginning
January 1, 1999 resulting from the preliminary allocation of the purchase
price.
(e) Represents reduced interest income assuming an interest rate of
9.0% related to $1.5 million cash consideration paid to the shareholders of
WebProject assuming it was paid on January 1, 1999.
25
<PAGE> 29
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Our selected financial data set forth below should be read in conjunction
with our financial statements and notes thereto appearing at the end of this
prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The historical statements of operations data for the
years ended December 31, 1997, 1998 and 1999, and the balance sheet data as of
December 31, 1998 and 1999, are derived from, and are qualified by reference to,
our financial statements, which have been audited by KPMG LLP. The balance sheet
data as of December 31, 1997 are derived from audited balance sheet not included
in this prospectus. The balance sheet and statement of operations data as of
December 31, 1996 and for the year then ended are derived from unaudited
financial statements not included in this prospectus. The statement of
operations data for the three months ended March 31, 1999 and 2000, and the
balance sheet data as of March 31, 2000, are derived from our unaudited
financial statements appearing at the end of this prospectus. In the opinion of
our management, the unaudited financial statements have been prepared on a basis
consistent with our annual financial statements, and include all adjustments,
consisting only of normal recurring adjustments necessary for a fair statement
of the financial position and results of operations for these unaudited periods.
Historical results are not necessarily indicative of results to be expected in
the future.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- -------------------------
1996 1997 1998 1999 1999 2000
----------- ---------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenues............................... $ 1 $ 185 $ 1,868 $ 4,584 $ 1,002 $ 1,440
Cost of revenues....................... -- 5 84 603 24 591
-------- ---------- -------- -------- -------- --------
Gross profit.................. 1 180 1,784 3,981 978 849
Operating expenses:
Selling and marketing................ -- 24 463 2,678 335 1,747
General and administrative........... 14 108 475 1,820 245 1,100
Research and development............. -- 100 607 2,371 391 1,207
Depreciation and amortization........ -- 10 23 189 20 126
Noncash stock compensation........... -- -- -- 455 1 1,924
-------- ---------- -------- -------- -------- --------
Total operating expenses...... 14 242 1,568 7,513 992 6,104
-------- ---------- -------- -------- -------- --------
(Loss) income from
operations.................. (13) (62) 216 (3,532) (14) (5,255)
Interest income........................ -- -- 6 148 24 132
-------- ---------- -------- -------- -------- --------
(Loss) income before income
taxes....................... (13) (62) 222 (3,384) 10 (5,123)
Income tax expense (benefit)........... -- -- 51 (51) -- --
-------- ---------- -------- -------- -------- --------
Net (loss) income............. (13) (62) 171 (3,333) 10 (5,123)
Preferred stock accretion.............. -- -- -- (21,145) (233) (2,363)
-------- ---------- -------- -------- -------- --------
Net (loss) income available to
common shareholders......... $ (13) $ (62) $ 171 $(24,478) $ (223) $ (7,486)
======== ========== ======== ======== ======== ========
Net income (loss) per share:
Basic and diluted net income (loss)
per share.......................... $ -- $ (.01) $ .03 $ (4.90) $ (.04) $ (1.46)
======== ========== ======== ======== ======== ========
Basic weighted-average common shares
outstanding........................ 4,920 4,920 4,994 4,995 4,995 5,130
Diluted weighted-average common
shares outstanding................. 4,920 4,920 5,652 4,995 4,995 5,130
</TABLE>
26
<PAGE> 30
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- MARCH 31,
1996 1997 1998 1999 2000
----------- ---------- -------- -------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ -- $ 195 $ 299 $ 1,240 $ 22,085
Working capital (deficit).......................... (25) 197 294 506 22,051
Total assets....................................... 12 278 928 2,808 24,964
Long-term debt, less current portion............... -- -- -- -- --
Convertible preferred stock........................ -- 175 175 25,064 52,427
Total shareholders' equity (deficit)............... (13) 51 247 (23,763) (29,111)
</TABLE>
27
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements, the notes thereto and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by such forward-looking information due
to the factors discussed under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We provide an Internet infrastructure solution to professional services
organizations that optimizes global operations by enabling dynamic collaboration
throughout an organization's services community. Our solution automates and
streamlines the business processes of services organizations, including
management of project opportunities, sharing of information and knowledge,
allocation of professional resources and delivery of the professional services.
These capabilities provide users with enterprise-wide visibility of business
performance. In addition, our solution facilitates business transactions and
collaboration over the Internet among a professional services organization, its
clients, affiliated services organizations and independent professionals. To
date, we have licensed our solution to approximately 120,000 users in 48
countries. Our customers are professional services organizations and internal
services organizations within enterprises and include Andersen Consulting,
Ariba, Cisco Systems, Compaq, GEAC, Proxicom, SAP AG and Sun Microsystems.
We were incorporated in Georgia as InfoWave Technologies, Inc. in November
1995. In 1999, we changed our name to Novient, Inc. We introduced our first
software product in early 1997, a 100% Internet-based PSA application known as
Consultant Exchange. Since that time, we have continued to modify, enhance and
add new modules to our PSA application, which is currently known as Novient
eServices. In May 2000, we introduced an innovative Internet infrastructure
platform known as Novient iServerNet and released version 6.0 of Novient
eServices. Version 6.0 of Novient eServices consists of the following modules:
Opportunity Management, Resource Management, Knowledge Management, WebProject,
Time & Expense, Practice Management and Wireless.
We sell our products to professional services organizations and internal
services organizations within enterprises and derive substantially all of our
revenues from:
- the sale of licenses of our software products;
- the provision of maintenance and support; and
- the delivery of implementation consulting services and training.
Product license revenues consist of license fees and subscription fees.
License fees are generally based upon the number of seats, or users, licensed by
the customer and the number and type of applicable modules. We also offer our
customers the ability to use our software products through the Internet on
servers hosted by us for a monthly subscription fee. Customers who license our
Internet software products enter into maintenance and support agreements, which
provide for version upgrades and technical support for a stated term of
generally one year. Maintenance and support services are included in the service
provided to subscription customers.
We recognize license revenues when persuasive evidence of an arrangement
exists, delivery of the product has occurred, the fee is fixed or determinable
and collectibility is probable. Subscription fees include fixed fees for use of
our Internet-hosted applications and are recognized as product revenue over the
service period, and included in software license fees. We have adopted the
provisions of Statement of Position, or SOP, No. 97-2, Software Revenue
Recognition, as amended by SOP No. 98-9, modification of SOP 97-2, Software
Revenue Recognition with Respect to Certain Transactions. Revenue recognized
from multiple-element software arrangements are allocated to each element of the
arrangement based on fair values of the elements, such as software products,
maintenance and support and consulting services. The
28
<PAGE> 32
determination of fair value is based on objective evidence that is specific to
us or the price established by management having the authority to do so.
Service revenues consist primarily of maintenance, support, consulting and
training fees for the associated products. Maintenance and support revenues are
deferred and recognized on a straight-line basis over the life of the related
agreement, which is typically one year. Consulting services and training
revenues are recognized as the training, implementation or consulting services
are performed. If maintenance and support services are included in an
arrangement that involves a license agreement, amounts related to maintenance
and support 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 authority to do
so.
We market our products and services primarily through our direct sales
organizations in the U.S. and the United Kingdom and, to a lesser extent,
through indirect distribution channels. Our future success will depend, in part,
on the successful development of our direct sales force, the international
markets for our products, and other indirect sales channels. In order to
increase sales, we plan to expand our direct sales force by hiring additional
salespersons, sales engineers and sales management personnel. We also plan to
establish and maintain relationships with distributors, system integrators,
independent software vendors and other third parties. We have entered into a
number of relationships to expand our business. For example, we entered into an
agreement with Andersen Consulting pursuant to which Andersen Consulting will
market Novient as its preferred PSA provider. We also have established
relationships with Lawson Software, Hyperion Solutions and SkillsVillage.
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. As a result of this investment in infrastructure, we
incurred net losses of $5.1 million for the three months ended March 31, 2000
and $3.3 million for 1999. As of March 31, 2000, we had an accumulated deficit
of $26.6 million. We believe our success is contingent on increasing our
customer base and on continuing to develop our Novient iServerNet platform and
Novient eServices application and related services. We intend to continue to
invest heavily in research and development, sales and marketing and internal
infrastructure. 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.
We have issued restricted stock and stock options to employees and
consultants that require us to record noncash stock compensation expense.
Noncash stock compensation expense related to the issuance of restricted stock
and option grants to employees represents the amortization, over the vesting
period of the option, of the difference between the exercise price of options
granted to employees and the deemed fair value of our common stock for financial
reporting purposes. We recorded noncash stock compensation expense of
approximately $1.9 million for the three months ended March 31, 2000 and
$455,000 in 1999. As of March 31, 2000, the deferred stock-based compensation
balance was approximately $2.5 million and will be amortized over the remaining
vesting period of the options. We expect to record noncash stock compensation
charges for the three months ended June 30, 2000.
In April 2000, we completed the acquisition of WebProject, Incorporated, a
privately held software company based in San Mateo, California. WebProject's
Java-based project management and collaboration software allows users to easily
capture, access and share project and enterprise information through a project
portal Internet page directly from the user's browser. We issued 1,044,519
shares of common stock and paid $1.5 million in cash for all of WebProject's
outstanding capital stock. In addition, we have committed to make an additional
payment of up to $6 million in cash based on revenues attributed to sales of the
WebProject product and customer referrals during 2000. The transaction was
accounted for as a purchase. The purchase price of approximately $9.5 million is
being amortized over a two-year period as amortization of goodwill and other
intangible assets. Any additional payments made will be added to goodwill and
will be amortized over its remaining useful life.
29
<PAGE> 33
RESULTS OF OPERATIONS
The following table presents selected consolidated financial data as a
percentage of total net revenues:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------- ----------------
1997 1998 1999 1999 2000
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees............................ 95.0% 86.2% 83.5% 78.9% 62.3%
Service fees..................................... 5.0 13.8 16.5 21.1 37.7
----- ----- ----- ----- ------
Total revenues........................... 100.0 100.0 100.0 100.0 100.0
Cost of revenues................................... 2.9 4.5 13.1 2.4 41.1
----- ----- ----- ----- ------
Gross profit............................. 97.1 95.5 86.9 97.6 58.9
Operating expenses:
Selling and marketing............................ 13.0 24.8 58.4 33.5 121.3
General and administrative....................... 58.2 25.5 39.7 24.4 76.4
Research and development......................... 53.9 32.5 51.7 39.0 83.8
Depreciation and amortization.................... 5.3 1.2 4.1 2.0 8.7
Noncash stock compensation....................... -- -- 9.9 0.1 133.6
----- ----- ----- ----- ------
Total operating expenses................. 130.4 84.0 163.8 99.0 423.8
(Loss) income from operations............ (33.3) 11.5 (76.9) (1.4) (364.9)
Interest income.................................... 0.1 0.3 3.2 2.4 9.2
Income tax expense (benefit)....................... -- 2.7 (1.1) -- --
----- ----- ----- ----- ------
Net (loss) income........................ (33.2)% 9.1% (72.6)% 1.0% (355.7)%
===== ===== ===== ===== ======
</TABLE>
COMPARISON OF THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues. Total revenues increased $439,000, or 43.8%, to $1.4 million for
the three months ended March 31, 2000 from $1.0 million for the three months
ended March 31, 1999.
Software license fees. Software license revenues increased $107,000,
or 13.5%, to $897,000 for the three months ended March 31, 2000 from
$790,000 for the three months ended March 31, 1999. Software license
revenues as a percentage of total revenues decreased to 62.3% for the three
months ended March 31, 2000 from 78.9% for the three months ended March 31,
1999. The increase in software license revenues in absolute dollars is
primarily attributable to an increase in the number of software licenses
sold and an increase in average selling prices. The decrease in the
percentage of software license revenues to total revenues is attributable
to the increase in services revenues resulting from an increase in the
number and size of our professional services engagements and maintenance
agreements related to software license sales.
Service fees. Service revenues increased $332,000, or 157.3%, to
$543,000 for the three months ended March 31, 2000 from $211,000 for the
three months ended March 31, 1999. Service revenues as a percentage of
total revenues increased to 37.7% for the three months ended March 31, 2000
from 21.1% for the three months ended March 31, 1999. The increase in
absolute dollars and as a percentage of total revenues was due primarily to
an increase in the number of sales of software licenses, which resulted in
increased demand for implementation services and sales of software
maintenance and support.
Cost of revenues. Cost of revenues consists primarily of salaries and
related costs for professional services and customer support personnel. Cost of
software license revenues is not significant. Cost of revenues increased
$567,000, or 2,360.3%, to $591,000 for the three months ended March 31, 2000
from $24,000 for the three months ended March 31, 1999. Total cost of revenues
as a percentage of total revenues increased to 41.1% for the three months ended
March 31, 2000 from 2.4% for the three months ended March 31, 1999. The increase
in absolute dollars and as a percentage of total revenues is
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<PAGE> 34
attributable to increased staffing in both the professional services and support
organizations to support a higher number and larger average size of
implementations and a larger installed base of customers.
Selling and marketing. Selling and marketing expenses consist primarily of
salaries, commissions and bonuses for sales and marketing personnel and
advertising and promotional expenses. Selling and marketing expenses increased
$1.4 million, or 420.9%, to $1.7 million for the three months ended March 31,
2000 from $335,000 for the three months ended March 31, 1999. Selling and
marketing expenses as a percentage of total revenues increased to 121.3% for the
three months ended March 31, 2000 from 33.5% for the three months ended March
31, 1999. Selling and marketing expenses increased in absolute dollars and as a
percentage of total revenues primarily due to increased staffing in our sales
and marketing organizations, as well as increased promotional activities. We
expect selling and marketing expenses will continue to increase as we expand our
sales and marketing organizations and initiate additional marketing programs.
General and administrative. General and administrative expenses consist
primarily of salaries, and other personnel-related costs for executive,
financial, human resource, information services and other administrative
functions, as well as legal and accounting costs. General and administrative
expenses increased $855,000, or 349.2%, to $1.1 million for the three months
ended March 31, 2000 from $245,000 for the three months ended March 31, 1999.
General and administrative expenses as a percentage of total revenues increased
to 76.4% for the three months ended March 31, 2000 from 24.4% for the three
months ended March 31, 1999. These expenses increased in absolute dollars and as
a percentage of total revenues primarily as a result of increases in our
infrastructure necessary to support our growth. We expect general and
administrative expenses will continue to increase as we expand our operations.
Research and development. Research and development expenses consist
primarily of salaries and personnel-related costs and the costs of contractors
who develop new products, enhance existing products and perform quality
assurance and documentation activities. Research and development expenses
increased $816,000, or 208.8%, to $1.2 million for the three months ended March
31, 2000 from $391,000 for the three months ended March 31, 1999. Research and
development expenses as a percentage of total revenues increased to 83.8% for
the three months ended March 31, 2000 from 39.0% for the three months ended
March 31, 1999. These expenses increased in both absolute dollars and as a
percentage of total revenues as a result of increased engineering and product
development activities associated with our investment in the Novient eServices
application and Novient iServerNet platform. We expect research and development
expenses will continue to increase as we maintain and enhance our existing
products and perform research for new products.
Depreciation and amortization. Depreciation and amortization relates
entirely to purchases of hardware, software and other fixed assets. Depreciation
and amortization increased $106,000, or 530.2%, to $126,000 for the three months
ended March 31, 2000 from $20,000 for the three months ended March 31, 1999.
Depreciation and amortization as a percentage of total revenues increased to
8.7% for the three months ended March 31, 2000 from 2.0% for the three months
ended March 31, 1999. The increase in depreciation and amortization is primarily
due to increased purchases of computer hardware, software and other fixed
assets.
Noncash stock compensation. Noncash stock compensation consists of the
amortization of deferred stock-based compensation associated with stock option
grants, as well as the compensation expense associated with purchases of
restricted stock. The amount of deferred stock-based compensation equals the
difference between the exercise price of the stock options and the deemed fair
value of our common stock for accounting purposes on the date of grant, while
the amount of compensation expense for restricted stock equals the difference
between the purchase price of restricted stock and the deemed fair value of our
common stock for accounting purposes on the date the purchase agreements are
signed. Noncash stock compensation increased to $1.9 million for the three
months ended March 31, 2000 as compared to $1,000 for the three months ended
March 31, 1999. Noncash stock compensation as a percentage of total revenues
increased to 133.6% for the three months ended March 31, 2000 from 0.1% for the
three months
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<PAGE> 35
ended March 31, 1999. The increase in this expense is primarily due to an
increase in stock option grants and restricted stock purchases with some of our
senior executives.
Interest income. Net interest income consists of interest income earned
from our cash and cash equivalents on deposit at financial institutions.
Interest increased $108,000, or 452.3%, to $132,000 for the three months ended
March 31, 2000 from $24,000 for the three months ended March 31, 1999. Interest
as a percentage of total revenues increased to 9.2% for the three months ended
March 31, 2000 from 2.4% for the three months ended March 31, 1999. Interest
increased due to a higher cash and cash equivalent balance from our series C
convertible preferred stock financing that closed in February 2000.
COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues. Total revenues increased $2.7 million, or 145.3%, to $4.6
million for 1999 from $1.9 million for 1998.
Software license fees. Software license revenues increased $2.2
million, or 137.5%, to $3.8 million for 1999 from $1.6 million for 1998.
Software license revenues as a percentage of total revenues decreased to
83.5% for 1999 from 86.2% for 1998. The increase in software license
revenues in absolute dollars is primarily attributable to an increase in
the number of software licenses sold and an increase in average selling
prices. The decrease in the percentage of software license revenues to
total revenues is attributable to the increase in services revenue
resulting from an increase in the number and size of our professional
services engagements and the maintenance agreements related to software
license sales.
Service fees. Service revenues increased $500,000, or 194.8%, to
$757,000 for 1999 from $257,000 for 1998. Service revenues as a percentage
of total revenues increased to 16.5% for 1999 from 13.8% for 1998. The
increase in absolute dollars and as a percentage of total revenues was due
primarily to an increase in the number of sales of software licenses, which
resulted in increased demand for implementation services and sales of
software maintenance and support.
Cost of revenues. Cost of revenues increased $518,000, or 618.8%, to
$602,000 for 1999 from $84,000 for 1998. Total cost of revenues as a percentage
of total revenues increased to 13.1% for 1999 from 4.5% for 1998. The increase
in absolute dollars and as a percentage of total revenues is attributable to
increased staffing in both the professional services and support organizations
to support a higher number and larger average size of implementations and a
higher installed base of customers.
Selling and marketing. Selling and marketing expenses increased $2.2
million, or 478.5%, to $2.7 million for 1999 from $463,000 for 1998. Selling and
marketing expenses as a percentage of total revenues increased to 58.4% for 1999
from 24.8% for 1998. Selling and marketing expenses increased in absolute
dollars and as a percentage of total revenues primarily due to increased
staffing in our sales and marketing organizations, as well as increased
promotional activities.
General and administrative. General and administrative expenses increased
$1.3 million, or 282.6%, to $1.8 million for 1999 from $476,000 for 1998.
General and administrative expenses as a percentage of total revenues increased
to 39.7% for 1999 from 25.5% for 1998. These expenses increased in absolute
dollars and as a percentage of total revenues primarily as a result of increases
in our infrastructure necessary to support our growth.
Research and development. Research and development expenses increased $1.8
million, or 290.6%, to $2.4 million for 1999 from $607,000 for 1998. Research
and development expenses as a percentage of total revenues increased to 51.7%
for 1999 from 32.5% for 1998. These expenses increased in both absolute dollars
and as a percentage of total revenues as a result of increased engineering and
product development activities associated with our investment in the Novient
eServices application and Novient iServerNet platform.
Depreciation and amortization. Depreciation and amortization increased
$166,000, or 727.1%, to $189,000 for 1999 from $23,000 for 1998. Depreciation
and amortization as a percentage of total revenues
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<PAGE> 36
increased to 4.1% for 1999 from 1.2% for 1998. The increase in depreciation and
amortization is primarily due to purchases of computer hardware, software and
other fixed assets.
Noncash stock compensation. Noncash stock compensation increased to
$455,000 for 1999 as compared to $0 for 1998. Noncash stock compensation as a
percentage of total revenues was 9.9% for 1999. The increase in this expense is
primarily due to an increase in stock option grants to employees at prices below
the deemed fair value of our common stock for accounting purposes.
Interest income. Net interest income increased $142,000, or 2,542.2%, to
$148,000 for 1999 from $6,000 for 1998. Interest as a percentage of total
revenues increased to 3.2% for 1999 from 0.3% for 1998. Interest increased due
to a higher cash and cash equivalents balance primarily related to our series B
convertible preferred stock financing that closed in March 1999.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues. Total revenues increased $1.7 million, or 908.8%, to $1.9
million for 1998 from $185,000 for 1997.
Software license fees. Software license revenues increased $1.4
million, or 815.9%, to $1.6 million for 1998 from $176,000 for 1997.
Software license revenues as a percentage of total revenues decreased to
86.2% for 1998 from 95.0% for 1997. The increase in software license
revenues in absolute dollars is primarily attributable to an increase in
the number of software licenses sold and an increase in average selling
prices. The decrease in the percentage of software license revenues to
total revenues is attributable to the increase in services revenue
resulting from an increase in the number and size of our professional
services engagements and the maintenance agreements related to software
license sales.
Service fees. Service revenues increased $248,000, or 2,674.0%, to
$257,000 for 1998 from $9,000 for 1997. Service revenues as a percentage of
total revenues increased to 13.8% for 1998 from 5.0% for 1997. The increase
in absolute dollars and as a percentage of total revenues is attributable
to establishing our professional services and customer support
organizations in 1998.
Cost of revenues. Cost of revenues increased $79,000, or 1,441.1%, to
$84,000 for 1998 from $5,000 for 1997. Total cost of revenues as a percentage of
total revenues increased to 4.5% for 1998 from 2.9% for 1997. The increase in
absolute dollars and as a percentage of total revenues is attributable to costs
related to establishing our professional services and customer support
organizations in 1998.
Selling and marketing. Selling and marketing expenses increased $439,000,
or 1,822.7%, to $463,000 for 1998 from $24,000 for 1997. Selling and marketing
expenses as a percentage of total revenues increased to 24.8% for 1998 from
13.0% for 1997. Selling and marketing expenses increased in absolute dollars and
as a percentage of total revenues primarily due to increased staffing related to
building our sales and marketing organizations.
General and administrative. General and administrative expenses increased
$368,000, or 341.5%, to $476,000 for 1998 from $108,000 for 1997. General and
administrative expenses as a percentage of total revenues decreased to 25.5% for
1998 from 58.2% for 1997. These expenses increased in absolute dollars primarily
as a result of increases in our infrastructure necessary to support our growth.
The decrease in general and administrative expenses as a percentage of revenue
is due to an increase in revenue in 1998.
Research and development. Research and development expenses increased
$507,000, or 507.7%, to $607,000 for 1998 from $100,000 for 1997. Research and
development expenses as a percentage of total revenues decreased to 32.5% for
1998 from 53.9% for 1997. These expenses increased in absolute dollars primarily
as a result of increased engineering and product development activities
associated with our investment in the Novient eServices application and Novient
iServerNet platform. The decrease in research and development expenses as a
percentage of revenue is due to an increase in revenue in 1998.
Depreciation and amortization. Depreciation and amortization increased
$13,000, or 133.3%, to $23,000 for 1998 from $10,000 for 1997. Depreciation and
amortization as a percentage of total revenues
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<PAGE> 37
decreased to 1.2% for 1998 from 5.3% for 1997. The increase in depreciation and
amortization in absolute dollars is primarily due to increased purchases of
computer hardware, software and other fixed assets. The decrease in depreciation
and amortization as a percentage of revenue is due to an increase in revenues in
1998.
Noncash stock compensation. All stock options and restricted stock
purchases during 1998 and 1997 were granted or purchased, as applicable, at the
deemed fair value of our common stock and therefore did not result in any
noncash compensation expense.
Interest income. Net interest income increased to $6,000 for 1998 from
$231 for 1997. Interest as a percentage of total revenues was 0.3% for 1998 from
0.1% for 1997. Interest increased due to a higher cash and cash equivalents
balance primarily related to positive operating cash flow as well as cash
received from our series A convertible preferred stock financing that closed in
September 1997.
QUARTERLY RESULTS OF OPERATIONS
The following tables present our unaudited consolidated statement of
operations data for the nine quarters in the period ended March 31, 2000, as
well as the percentage of our total revenues represented by each item. We have
prepared this unaudited consolidated information on a basis consistent with our
audited consolidated financial statements, and in the opinion of our management,
this information reflects all normal recurring adjustments necessary for a fair
presentation of our operating results for the quarters presented. Historical
results are not necessarily indicative of results to be expected in the future.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees........ $ 84 $452 $355 $ 720 $ 790 $ 896 $ 978 $ 1,162 $ 897
Service fees................. 16 25 151 65 211 135 179 232 543
---- ---- ---- ----- ------ ------ ------ ------- -------
Total revenues........ 100 477 506 785 1,001 1,031 1,157 1,394 1,440
Cost of revenues............... 2 15 15 52 24 59 162 357 591
---- ---- ---- ----- ------ ------ ------ ------- -------
Gross profit.......... 98 462 491 733 977 972 995 1,037 849
Operating expenses:
Selling and marketing........ 35 58 80 290 335 638 638 1,066 1,747
General and administrative... 44 63 55 314 245 353 433 789 1,100
Research and development..... 55 74 170 308 391 521 602 858 1,207
Depreciation and
amortization............... 2 5 6 9 20 30 40 99 126
Noncash stock compensation... -- -- -- -- 1 15 33 406 1,924
---- ---- ---- ----- ------ ------ ------ ------- -------
Total operating
expenses............ 136 200 311 921 992 1,557 1,746 3,218 6,104
(Loss) income from
operations.......... (38) 262 180 (188) (15) (585) (751) (2,181) (5,255)
Interest income................ -- 1 3 2 24 48 42 34 132
Income tax expense (benefit)... (9) 60 42 (42) -- (8) (11) (32) --
---- ---- ---- ----- ------ ------ ------ ------- -------
Net (loss) income..... $(29) $203 $141 $(144) $ 9 $ (529) $ (698) $(2,115) $(5,123)
==== ==== ==== ===== ====== ====== ====== ======= =======
</TABLE>
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<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999 1999 1999 1999 2000
-------- -------- -------- -------- -------- -------- -------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees....... 84.0% 94.8% 70.2% 91.7% 78.9% 86.9% 84.6% 83.3% 62.3%
Service fees................ 16.0 5.2 29.8 8.3 21.1 13.1 15.4 16.7 37.7
----- ----- ----- ----- ----- ----- ----- ------ ------
Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues.............. 2.0 3.1 3.0 6.6 2.4 5.7 14.0 25.6 41.1
----- ----- ----- ----- ----- ----- ----- ------ ------
Gross profit.......... 98.0 96.9 97.0 93.4 97.6 94.3 86.0 74.4 58.9
Operating expenses:
Selling and marketing....... 35.0 12.2 15.8 36.9 33.5 61.9 55.2 76.5 121.3
General and administrative.... 44.0 13.2 10.9 40.0 24.4 34.2 37.4 56.6 76.4
Research and development.... 55.0 15.5 33.6 39.2 39.0 50.5 52.1 61.5 83.8
Depreciation and
amortization.............. 2.0 1.0 1.2 1.3 2.0 2.9 3.4 7.1 8.7
Noncash stock
compensation.............. 0.0 0.0 0.0 0.0 0.1 1.4 2.9 29.1 133.6
----- ----- ----- ----- ----- ----- ----- ------ ------
Total operating
expenses............ 136.0 41.9 61.5 117.4 99.0 150.9 151.0 230.8 423.8
(Loss) income from
operations.......... (38.0) 55.0 35.5 (24.0) (1.4) (56.6) (65.0) (156.4) (364.9)
Interest income............... 0.0 0.2 0.6 0.3 2.4 4.7 3.6 2.4 9.2
Income tax expense
(benefit)................... (9.0) 12.6 8.3 (5.4) 0.0 (0.8) (1.0) (2.3) 0.0
----- ----- ----- ----- ----- ----- ----- ------ ------
Net (loss) income............. (29.0)% 42.6% 27.8% (18.3)% 1.0% (51.2)% (60.4)% (151.7)% (355.7)%
===== ===== ===== ===== ===== ===== ===== ====== ======
</TABLE>
Our revenues and results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are outside of our
control. As a result, you should not rely on period-to-period comparisons of
revenues and results of operations as an indication of our future performance.
Some of the factors that may affect our revenues and results of operations
include:
- size and timing of customer orders;
- loss of one or more of our key customers or other relationships;
- amount and timing of capital expenditures and other costs relating
to the expansion of our operations;
- seasonality in the sales of our products and services, which may
differ in each of our markets; and
- general economic conditions.
Any change in one or more of these or other factors could cause our annual
or quarterly operating results to fluctuate.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and met our capital
expenditure requirements through the sale of convertible, redeemable preferred
stock totaling $28.9 million and, to a lesser extent, common stock totaling
$364,000.
As of March 31, 2000, we had $22.1 million of cash and cash equivalents,
compared with $4.7 million as of March 31, 1999, and working capital of $22.1
million, compared with $3.8 million as of March 31, 1999.
Net cash used in operating activities was $3.9 million for the three months
ended March 31, 2000 and $2.0 million in 1999. Net cash provided by operating
activities was $186,000 in 1998. Net cash used by operating activities was
$93,000 in 1997. The principal use of cash to date has been to fund operating
losses.
Net cash used for investing activities was $463,000 for the three months
ended March 31, 2000, $826,000 in 1999, $107,000 in 1998 and $26,000 in 1997.
Cash used in investing activities represents investments in property and
equipment.
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<PAGE> 39
Net cash provided by financing activities was $25.2 million for the three
months ended March 31, 2000, $3.7 million in 1999, $25,000 in 1998 and $313,000
in 1997. Cash provided by financing activities during these periods was due to
proceeds from the issuance of preferred and common stock.
We anticipate a substantial increase in our capital expenditures consistent
with anticipated growth in operations, infrastructure and personnel. We believe
that existing cash and cash equivalents, together with the net proceeds of this
offering, will be sufficient to meet our anticipated cash need for working
capital and capital expenditures for at least the next 12 months. However, we
may need to raise additional funds in the next 12 months or in the future to
support more rapid expansion of our sales force, develop new or enhanced
products or services, respond to competitive pressures, acquire complementary
businesses or technologies or respond to unanticipated requirements. If we seek
to raise additional funds, we may not be able to obtain funds on terms that are
favorable or acceptable to us. If we raise additional funds through the issuance
of equity securities, the percentage ownership of our shareholders would be
reduced. Furthermore, these securities may have rights, preferences or
privileges senior to our common stock.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including derivative instruments embedded
in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, An
Amendment of FASB Statement No. 133, is effective for all fiscal quarters of
fiscal years beginning June 15, 2000. The statement is not expected to affect us
because we currently do not engage or plan to engage in derivative instruments
or hedging activities.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The following discusses our exposure to market risk related to changes in
foreign currency exchange rates and interest rates. This discussion contains
forward-looking statements that are subject to risks and uncertainties. Actual
results could vary materially as a result of a number of factors including those
discussed under "Risk Factors" and elsewhere in this prospectus.
Foreign currency exchange rate risk. Historically, all of our recognized
revenue has been denominated in U.S. dollars and has primarily been derived from
customers in the U.S. Therefore, our exposure to foreign currency exchange rate
changes has been minimal. We expect, however, that future license revenues may
also be derived from international markets and may be denominated in the
currency of the applicable market. As a result, our operating results may become
subject to fluctuations based upon changes in the exchange rates of foreign
currencies in relation to the U.S. dollar. Furthermore, to the extent that we
engage in international sales denominated in U.S. dollars, an increase in the
value of the U.S. dollar relative to foreign currencies could make our products
less competitive in international markets. Although we will continue to monitor
our exposure to currency fluctuations, we cannot assure you that exchange rate
fluctuations will not adversely affect our financial results in the future.
Interest rate risk. As of March 31, 2000, we had cash and cash equivalents
of $22.1 million, which consists of cash and highly liquid short-term
investments. Due to the nature of our short-term investments, we believe that
there is no material risk exposure.
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<PAGE> 40
BUSINESS
OVERVIEW
We provide an Internet infrastructure solution to professional services
organizations that optimizes global operations by enabling dynamic collaboration
throughout an organization's services community. Our solution automates and
streamlines the business processes of services organizations, including
management of project opportunities, sharing of information and knowledge,
allocation of professional resources and delivery of the professional services.
These capabilities provide users with enterprise-wide visibility of business
performance. In addition, our solution facilitates business transactions and
collaboration over the Internet among a professional services organization, its
clients, affiliated services organizations and independent professionals. To
date, we have licensed our solution to approximately 120,000 users in 48
countries. Our customers are professional services organizations and internal
services organizations within enterprises and include Andersen Consulting,
Ariba, Cisco Systems, Compaq, GEAC, Proxicom, SAP AG and Sun Microsystems.
INDUSTRY BACKGROUND
The Professional Services Industry
Professional services is a large and growing segment of the global economy.
According to the U.S. Department of Commerce, the gross domestic product of the
professional services industry exceeded $900 billion in 1997. The professional
services market consists of intellectual capital intensive industries, such as
information technology, or IT, management consulting, engineering, financial
services, law, tax and accounting. In addition, many manufacturing, product and
services companies have large internal professional services organizations.
DataQuest expects that by 2004, the worldwide IT services industry, which is
only one segment of the professional services market, will be approximately $1.1
trillion. We believe that the global growth in the professional services
industry will continue due to a number of factors, including the increasing
importance of knowledge and information to business success and the growing
complexity and pace of business projects.
Demands on professional services organizations and the resulting need for
more effective management of these organizations are becoming more intense. As
demand for professional services has increased, competition among service
providers has increased as well, worsening an existing shortage of available
service professionals in many areas. The rapid pace of business and
technological change has also resulted in increasingly complex services projects
with shorter completion deadlines. To remain competitive and maintain client
satisfaction, professional services organizations must allocate their resources
more efficiently. In addition, professional services organizations increasingly
rely on networks of affiliated services organizations, as well as independent
professionals, to provide additional capacity and expertise. These conditions
and the globalization of business have created a need for increased
collaboration within services organizations and their services community. This
community includes professional services organizations, their affiliated
services organizations, independent professionals and clients.
Current Needs of Professional Service Organizations
In an increasingly competitive environment, professional services
organizations must manage opportunities, maximize collaboration and allocate
resources in an efficient manner to enhance the satisfaction of clients,
employees and affiliated services organizations. To manage their global
operations, professional services organizations need a solution that uses
Internet technology to more efficiently exchange information and deliver
services. Such a solution must:
- provide an infrastructure to create real-time collaboration networks
designed for the unique delivery requirements of professional services;
- enable companies and individuals throughout a global services community
to seamlessly collaborate over the Internet without modifying their
established internal business processes;
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<PAGE> 41
- provide the professional services organization with forward-looking
information to better manage business opportunities and optimize
profitability;
- address internal functions, such as resource allocation, knowledge
management, service delivery functions, project management and time and
expense;
- enable the service provider, affiliated services organization and client
to control their own proprietary information; and
- allow easy implementation and use for service providers and their
affiliated services organizations, independent professionals and clients.
Shortcomings of Existing Solutions
Internet-Based Exchanges. In many industries, online exchanges are
leveraging the low cost, accessibility and ease of use of the Internet to
facilitate the buying and selling of goods. These first generation electronic
commerce solutions are typically centered around a single exchange provider and
have primarily focused on the delivery of non-perishable products and
commodities that are sold on a per item basis. The technology and architecture
that support traditional product exchanges are not well suited for creating
real-time collaboration for professional services organizations. Professional
services organizations create information-based, time-sensitive deliverables
using human capital. Each individual professional has unique knowledge, skills,
billing rates and availability. Furthermore, the process of providing
professional services requires extensive collaboration among service providers,
affiliated service organizations and clients. Therefore, leveraging the Internet
to automate collaboration across a services organization and its affiliated
services organizations presents unique challenges.
Existing Software Solutions. Professional services organizations have used
enterprise resource planning, or ERP, applications and other enterprise software
applications to automate some back-office business processes, including benefits
management, payroll administration and general ledger accounting. ERP
applications, however, were originally focused on manufacturing organizations
and do not address the collaborative, dynamic processes involved in the delivery
of professional services.
As a result, many professional services organizations have developed
in-house systems using rudimentary databases, spreadsheets and paper-based
systems to streamline opportunity management, resource allocation and services
delivery. While providing modest efficiency gains, these non-integrated,
function-specific systems are not scalable, do not leverage the capabilities of
the Internet, fail to provide uniform access to data and lack the robust
functionality and capabilities of packaged software applications. These systems
also lack the ability to facilitate real-time collaboration for professional
services organizations. The lack of effective process automation solutions often
results in misallocation and lower utilization of resources, missed revenue
opportunities and client dissatisfaction.
In response to these shortcomings, software providers have developed
professional services automation, or PSA, solutions to address the specialized
needs of professional services organizations. Aberdeen Group estimates that the
global market potential for PSA software solutions will grow from approximately
$1.6 billion in 1998 to $4.0 billion in 2003. Most PSA products, however, are in
the early stages of development and do not fully leverage the Internet as a
collaboration platform. Further, although most of these solutions are accessed
through an Internet browser, many are based on legacy client-server
architecture. As a result, these offerings are encumbered by deployment,
upgrade, scalability and maintenance issues that are inherent in client-server
solutions. These constraints limit the extent to which these products can
effectively enable collaboration within the organization or with affiliated
service organizations and clients.
THE NOVIENT SOLUTION
We provide an Internet infrastructure solution to professional services
organizations that optimizes global operations by enabling dynamic collaboration
throughout an organization's services community. This infrastructure solution
consists of two key components: a collaboration platform known as Novient
iServerNet and a PSA application known as Novient eServices.
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<PAGE> 42
The Novient iServerNet platform enables our customers to establish global
collaborative networks between multiple entities in different geographic
locations. Novient iServerNet is an XML-based configurable, scalable platform
designed to promote efficient database communications to meet the collaboration
and communications requirements of professional services organizations. Novient
eServices is a 100% Internet-based PSA application designed to serve the needs
of the three primary participants in the services community: executives,
resource managers and services professionals. Novient eServices integrates and
automates the processes that are critical to professional services
organizations: allocating resources, managing opportunities, sharing knowledge
and delivering services. The integration of these processes provides
enterprise-wide visibility of business performance resulting in increased
revenue opportunities, increased operational efficiency and improved
productivity.
Together, the Novient iServerNet platform and the Novient eServices
application provide an Internet infrastructure solution to the professional
services community. This combined solution offers the following benefits to the
professional services organization:
Real-time communication and collaboration. Our solution allows for
real-time, collaborative management and delivery of professional services.
We connect all professionals within a services community regardless of
their internal function or geographic location. We also connect the
professional services organization to its affiliated services
organizations, independent professionals and clients and allow
geographically dispersed participants to communicate in real-time about
resources, opportunities, projects and organizational knowledge.
Scalability, security, and ease of implementation and
maintenance. Our solution is 100% Internet-based and creates significant
network efficiencies over client-server based offerings. Our Novient
iServerNet architecture enables our solution to scale to meet the demands
of large, global organizations. We designed our solution to operate within
the security and privacy standards of the European Union, allowing our
customers to operate more effectively on a global basis. Our architecture
permits rapid and cost-effective implementation, allowing customers to
experience operating efficiencies more quickly. In addition, customers can
perform upgrades from the application server without the burden of
upgrading individual workstations, which is an expensive and time-
consuming aspect of upgrading client-server based solutions.
Expanded revenue opportunities. Our solution provides professional
services organizations with forward-looking information regarding future
opportunities, existing engagements and resource availability. This
information allows managers to more readily identify potential new
engagements throughout the services community as well as internal and
external services professionals that may be available to deploy on these
engagements. This combination can significantly expand an organization's
ability to capitalize on a greater number of revenue opportunities.
Increased speed and efficiency. Our solution allows users to increase
operating efficiency in fulfilling its revenue opportunities. We provide
managers with the tools to proactively allocate the professionals with the
most appropriate skills and billing rates, which can result in more
profitable engagements. Individual professionals can access the entire
knowledge base of the organization to reduce administrative burdens and
deliver services more efficiently. Project management tools allow managers
and professionals to respond to changing project requirements in real-time.
Improved career management for individual professionals. Our solution
provides tools for individual professionals to better manage their careers
and communicate with the professional services organization. For example,
professionals can indicate preferences, bid on projects and accept and
decline assignments, providing them better communication of individual
preferences. Managers in professional services organizations can consider
these individual preferences when staffing projects, which may result in
improved morale and job satisfaction for the individual professional and
better retention of professionals for the professional services
organization.
Enhanced client service. Our solution enables communication and
collaboration among service providers and their clients. Greater
collaboration with clients allows a professional services organization to
create a closer relationship with those clients. Additionally, improved
collaboration
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within the services organization enables it to improve coordination of
service delivery and create the optimal mix of resources to enhance the
quality and speed of service.
STRATEGY
Our goal is to establish Novient as the leading provider of Internet
infrastructure solutions for the professional services industry and the standard
platform for the delivery and management of professional services. Our
strategies to achieve this goal include the following:
Leverage our existing technology leadership. We believe that our
Novient iServerNet architecture is unique within the professional services
industry and provides us a significant competitive advantage. To maintain
and extend our competitive advantage, we intend to continue to invest
heavily in technology development to expand the capabilities and
performance of our Novient iServerNet architecture. Through continued
development and marketing of Novient iServerNet and applications designed
to leverage its unique architecture, such as Novient eServices, we intend
to establish Novient iServerNet as the standard platform for Internet-based
delivery and management of professional services.
Expand our solution. We intend to continue to develop the
collaboration platform and PSA application components of our solution to
meet the changing and expanding needs of professional services
organizations. In May 2000, we introduced version 6.0 of Novient eServices,
which included added functionality and new modules including Opportunity
Management, Knowledge Management, WebProject, Time & Expense and Wireless.
We intend to aggressively pursue alliances that enhance and extend the
functionality of our solution offerings, such as our current relationships
with Autonomy and Hyperion. We will also consider acquisitions that can
enhance and expand the functionality of our solution, such as our recent
acquisition of WebProject.
Leverage existing customer base to expand market share. We intend to
promote our existing customer relationships to attract new customers and
expand our market share. Our existing customer base includes global
organizations such as Andersen Consulting, Ariba, Cisco Systems, Compaq,
GEAC, Proxicom, SAP AG and Sun Microsystems. We have long emphasized
customer satisfaction to enhance loyalty and generate positive customer
references, which is an important element of our marketing strategy. We
believe that the use of our solution by well-known global organizations
validates this solution to potential customers. In addition, large services
organizations, such as Andersen Consulting, typically maintain alliance and
referral relationships with a large network of other services
organizations. We believe that these larger customers give us opportunities
to provide our solution to members of their alliance network as well.
Expand our sales force and distribution channels. We have
traditionally relied upon our direct sales force to generate revenue. We
are rapidly expanding our sales force both domestically and
internationally. Our sales force has grown to 27 sales professionals as of
May 31, 2000. We also intend to expand our indirect sales channel to
include alliances with providers of complementary software solutions,
consulting organizations and application service providers. For instance,
we have recently entered into a co-marketing relationship with Lawson
Software, a leading provider of Internet-deployable, enterprise-wide,
client-server based business applications.
Expand our application hosting business. We currently offer our
customers the choice of implementing our solution through their own IT
systems or through our internal Internet hosting service. Our Internet
hosting service has been particularly attractive to our mid-sized customers
as a means of reducing their technology investment. We believe, however,
that larger customers will increasingly utilize this service to free
applications from their internal technology constraints. To date, we have
provided our Internet hosting service through internal sources. To better
capitalize on the expected increases in demand, we intend to establish
relationships with leading third-party application service providers to
host our solution.
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PRODUCTS AND SERVICES
Novient iServerNet
Our Novient iServerNet, or Intelligent Server Network, collaboration
platform is an XML-based, patent pending architecture and application platform
that allows professional services organizations to establish global
collaborative networks. The Novient iServerNet platform is currently made
available to all Novient eServices customers. This technology enables a highly
configurable and scalable solution that provides effective and inexpensive
communications between multiple geographic locations throughout the world.
Unlike the traditional hub and spoke architecture of market exchanges, Novient
iServerNet does not depend on a single server as a centralized repository of
information. Instead, Novient iServerNet allows each participant to utilize its
own server to create a distributed network.
The following table summarizes Novient iServerNet's capabilities and
benefits.
<TABLE>
FEATURES CAPABILITIES AND BENEFITS
<S> <C>
Platform agnostic Allows compatibility with all major Internet
platforms, including Windows NT, Unix and Linux.
Terminology independent Allows different entities to interact while
maintaining their own business processes and
nomenclature.
Open XML messaging Uses standard data tagging to create a flexible
method to share information across the Internet.
Independent secure communications Utilizes a secure socket layer and public-private key
encryption technologies to secure each point to point
connection.
Standard delivery protocols Uses the HTTP and HTTPS protocols to deliver the
messages so that no additional ports need to be open
on firewalls.
Live data interaction Gathers real-time information from the primary server
rather than a proxy server ensuring that users have
the most current information available.
Interaction with non-Novient eServices Allows access to professional portals, job boards and
portals hosts of other sites as possible nodes on a Novient
iServerNet network.
No single point of failure Uses distributed architecture to ensure that the
Novient iServerNet network remains operational even
if a single node fails.
</TABLE>
Novient eServices
Novient eServices is a 100% Internet-based PSA application that is deployed
on our Novient iServerNet platform. Each of its application modules is a
management tool that serves the needs of participants in the services community.
By using Novient eServices, a professional services organization enables its:
- executives to forecast, manage and monitor operations and profitability
on an enterprise-wide basis through our Decision Dashboard;
- managers to forecast, manage and monitor resources, profitability and
opportunity costs for specific groups and projects;
- service professionals to keep up-to-date profiles of skills, schedules
and job preferences;
- affiliated service organizations to learn of opportunities and share
resources on a real-time basis; and
- clients to complete requests for services and monitor project status.
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We license Novient eServices to customers in two ways. Customers can choose
to pay a one-time license fee and an annual maintenance fee to have the solution
installed on the customer's own internal system. These fees vary based on the
functionality chosen by the customer and the number of users. We also provide
Novient eServices through our Internet hosting service, which offers the same
functionality available to other customers, while hosting the applications and
data on our servers. Our hosted customers pay a monthly fee which also varies
based on the functionality chosen by the customer and the number of users.
The following table summarizes the capabilities and benefits of Novient
eServices' application modules.
<TABLE>
APPLICATION MODULES CAPABILITIES AND BENEFITS
<S> <C>
Opportunity Management - Identify, qualify and categorize an engagement
opportunity.
- Use pricing and quotation models for creating the
proposal, establishing the project budget and
generating requests for available consultants.
- Track the phases and status of the engagement
opportunity as it moves through the sales funnel.
- Forecast services pipeline revenue and resource
availability.
Resource Management - Track and allocate internal and external resources by
skill set, proficiencies, preferences and calendar
availability.
- Perform comprehensive resource searches to match
required skills, preferences, proficiencies and
calendar availability to engagement.
- Allow professionals to view and respond to engagement
opportunities, improving consultant satisfaction and
decreasing turnover.
- Improve resource and project scheduling content,
accuracy and timing.
- Allow affiliated service organizations to view and
respond to engagement opportunities and share
resources on a real-time basis.
Knowledge Management - Leverage internal knowledge base to increase
efficiency and speed of solution delivery.
- Increase distribution of and accessibility to
organizational knowledge.
- Index engagement documents and materials as they are
created.
- Conduct natural language searches for documents and
materials using dynamic reasoning.
</TABLE>
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<PAGE> 46
<TABLE>
APPLICATION MODULES CAPABILITIES AND BENEFITS
<S> <C>
WebProject - Manage geographically dispersed engagement teams
through the Internet, company Intranet or
Extranet.
- Allow collaboration among teams through threaded
discussions, discussion forums and engagement
issues boards.
- Allow executives to access engagement information
through enterprise-wide drill-down capabilities.
Time & Expense - Track professional hours at the project, phase and
task level.
- Route time and expense reports to assigned
managers for approval.
- Report and track time to ensure accurate and
complete billing of all professional hours.
- Decrease cost of administration of time and
expense reporting for professionals.
Practice Management - Access information such as revenue and utilization
rates from a single window for every level of the
organization.
- Review forecasted revenue by client, region or
professional role.
- Improve access to timely and accurate information
and provide proactive strategic planning for
target regions and business units.
Wireless - Provide wireless access to real-time resource data
from the Novient eServices application.
- Allow remote identification and scheduling of
resources.
</TABLE>
Novient Professional Services
Our Professional Services group provides a broad range of services to
assist our customers in successfully implementing and maximizing the
effectiveness of the Novient iServerNet platform and Novient eServices. This
group focuses on rapid implementations, integrating customer processes with
emphasis on customer profitability and continual process improvement. Our
management consulting practice offers our customers comprehensive strategic
planning and comparison of industry best practices, industry measurements and
metrics to allow our customers to achieve optimal performance and profitability.
Our implementation consulting practice provides a complete line of services to
assist with all phases of the implementation. As we grow, we expect increasingly
to rely on third-party service providers in implementing our solution.
TECHNOLOGY
Our Novient iServerNet platform and Novient eServices application are a
100% Internet-based solution. This solution utilizes a server-centric
architecture, allowing every user to access the system through only a browser.
The thin-client architecture allows for significant scalability of the solution
by separating the database, application and browser layers of the application.
The architecture also enables multiple servers to operate in parallel with load
balancing appliances to provide steady performance and fault tolerance. In
addition, our Novient iServerNet platform allows companies to maintain
proprietary data on servers behind their corporate firewall while participating
in a real-time network of business
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partners, consulting portals and customers. We currently have two pending U.S.
patent applications for this architecture.
The Novient iServerNet technology utilizes platform independent XML
messaging to transport information across the Internet through HTTP. These XML
messages communicate resource information for a supply and demand request
between multiple nodes on a collaboration network rather than through a central
location. This distributed architecture increases scalability and eliminates the
single point of failure by ensuring that the collaboration network will remain
operational even if a single node experiences downtime. Because resource
information is made available only upon request, a user is able to maintain
control of its proprietary data and still participate in a collaborative
network. This is particularly important in Europe, where data privacy laws
mandate that data regarding individuals must remain in their country of
residence. Each transfer of information is protected by both secure sockets
layer and public-private key encryption technologies. The platform also contains
attribute matching capabilities, allowing seamless communication between users
with differing internal skills set terminology. Thus, Novient iServerNet allows
for the exchange of real-time data in a secure environment while permitting each
organization to maintain its own internal terminology and business rules.
Novient eServices is delivered without any client software installations or
heavy Java applet downloads. Accordingly, this architecture lends itself to both
narrowband and wireless solutions. We believe that this architecture reduces the
total cost of ownership for a distributed organization, such as a professional
services firm, by eliminating the need to maintain software on each individual
user's computer and allowing remote access to applications over the Internet,
regardless of location. Our solution also includes application programming
interfaces, or APIs, to common business software applications.
PRODUCT DEVELOPMENT
As of May 31, 2000, our product development organization consisted of 53
software engineers, technical writers, quality assurance professionals and
managers. This organization is responsible for developing the architecture and
designing, implementing and testing our Novient eServices and Novient iServerNet
software and tools. Our product development organization regularly communicates
with our customers, services group and sales force as well as industry analysts
to ensure our products meet market demands.
Product managers are responsible for planning and positioning our products
and services. Their duties include providing direction for product development
and new product concept planning. Product managers are also responsible for
segmenting the marketplace and refining the target customer base for our
products.
Since 1997, we have been designing Novient iServerNet to meet the specific
collaboration and communications requirements of professional services
organizations. We have also continued to develop Novient eServices to offer new
and enhanced applications to leverage the Novient iServerNet architecture. We
released versions 4.0 and 5.0 of Novient eServices in 1999 and version 6.0 in
May 2000. In addition to major releases, we frequently update modules to improve
the functionality of our solution, and a large portion of the functionality
found in our current product offerings has been added as a result of customer
input. We also integrate features and technologies that we obtain from acquired
companies or that we license from third parties such as Autonomy and Hyperion.
Our product development expenses were approximately $100,000 in 1997,
$607,000 in 1998, $2.4 million in 1999 and $1.2 million for the three-month
period ended March 31, 2000.
STRATEGIC RELATIONSHIPS
We have entered into a number of relationships to expand our business,
including the following:
Andersen Consulting. We entered into a strategic alliance with Andersen
Consulting in May 2000. Under the terms of the two-year, renewable agreement,
Andersen Consulting will market Novient as its preferred PSA solution. The
alliance calls for Andersen Consulting and Novient to jointly market our
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<PAGE> 48
solution to companies within the Global 2000 and other select targeted
organizations. In addition, Andersen Consulting has agreed to provide global PSA
consulting services for our solution.
Hyperion Solutions. We entered into an agreement with Hyperion Solutions,
a provider of business analysis software, in March 2000. Under the terms of the
three-year, renewable agreement, we will offer Hyperion's online analytical
processing software in conjunction with Novient eServices.
Lawson Software. We entered into an agreement with Lawson Software, a
provider of business applications, in March 2000. Under the terms of the
one-year, renewable agreement, Lawson and Novient will integrate Novient
eServices with Lawson's professional services software suite for Financials,
Billing, Revenue Recognition, Project Accounting, Human Resources and
Procurement to provide for seamless data integration and transfer between the
two solutions. In addition, the agreement provides for joint marketing of the
integrated solution within Lawson's professional services business unit.
SkillsVillage. We entered into an agreement with SkillsVillage, an
independent professional portal, in May 2000. Under the terms of the one-year,
renewable agreement, Novient eServices users may access the SkillsVillage
database of independent contractors through a Novient eServices resource
request. The agreement provides for SkillsVillage to pay us a percentage of the
transaction fees generated by Novient eServices users.
SALES AND MARKETING
Sales
We generate sales primarily through our sales force, which has grown to 27
sales professionals as of May 31, 2000. We expect to continue our growth and
aggressively expand our international sales efforts.
Direct Sales. The direct sales group is divided by geographic region and
typically generates sales leads through inquiries generated from customer
references, trade show attendance, advertising in trade publications, direct
mail campaigns and contact requests from our web site. We maintain a sales
presence in Atlanta, Boston, Chicago, Dallas, Houston, San Bruno, San Mateo,
London and Toronto.
The sales support staff includes a pre-sales team that is responsible for
demonstrating the functional and technical aspects of our products during the
sales cycle. In addition, a telesales team is responsible for handling inbound
leads and performing initial prospect qualification and screening. Our direct
sales force is also supported by sales managers who provide assistance in
account strategy, closing and overall pipeline management.
Additional Sales Channels. As we achieve increasing market penetration, we
anticipate that indirect sales channels will become more important. We expect
these indirect channels to include alliances with providers of complementary
software solutions, consulting organizations and application service providers.
Currently, we are participating in sales and referral programs with Andersen
Consulting, ISS Group, Hyperion and Lawson Software. These relationships
increase our sales by providing incentives to select organizations for referrals
of their customers and prospects.
Marketing
Our marketing effort is focused on lead generation, product positioning and
brand awareness. As of May 31, 2000, our marketing group consisted of 8 people
and is divided into the following areas:
Marketing Programs. Our Marketing Programs group is responsible for
generating leads through trade shows and conferences, print advertising, online
marketing, targeted direct mail efforts and our web site. This group also
develops sales tools such as our corporate brochure and product sheets, white
papers and case studies.
Strategic Marketing. Our Strategic Marketing group is responsible for
building brand awareness, product positioning and channel marketing. We
communicate with industry analysts and targeted trade, channel, vertical and
business press on a regular basis through a combination of phone briefings,
in-person
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tours and trade show appointments. This group's efforts are supplemented by an
outside public relations firm.
CUSTOMERS AND CASE STUDIES
Our primary target customers are independent professional services
organizations, internal services organizations within enterprises and their
respective alliance partners. To date, we have licensed our solution to
approximately 120,000 users in 48 countries. Our customers include:
<TABLE>
<S> <C>
- Andersen Consulting - Lawson Software
- Compaq - Mynd (formerly Policy Management Systems)
- First Consulting Group - Proxicom
- FutureNext - SAP AG
- Harbinger Corporation - SRA International
- Hewlett-Packard - Stonebridge Technologies
- Hyperion - Sun Microsystems
</TABLE>
Hosted Novient eServices customers pay a monthly fee as opposed to an
upfront license fee. Current hosted Novient eServices customers include:
<TABLE>
<S> <C>
- Ariba - Lucent Technologies
- Cisco Systems - MetaSolv
- EMI -- Modius (HJM) - NextLink
- GEAC - Nations Tax Online
- Intermec - SAP America
</TABLE>
Andersen Consulting
Andersen Consulting is a leading management and technology consultancy in
48 countries worldwide. Andersen Consulting recognized the need to replace its
internally developed resource scheduling system with a scalable, Internet-based
professional services automation solution to manage its engagements worldwide.
In addition, Andersen Consulting sought an Internet infrastructure solution to
provide enhanced collaboration across its globally dispersed work force.
Andersen Consulting chose Novient eServices as its PSA solution and
iServernet as its collaboration platform for an implementation throughout its
organization. Andersen Consulting is currently in the process of a staged
rollout of Novient's solution throughout the firm. Andersen Consulting will use
Novient's iServerNet and eServices PSA solution to improve service operations,
from client acquisition through services delivery, in an attempt to improve
growth, profitability and client satisfaction.
Hyperion
Hyperion Solutions Corporation is an international business analysis
software company with offices in 26 countries serving over 6,000 customers.
Historically, Hyperion used a variety of tools to manage its growing,
geographically dispersed and highly mobile workforce. For instance, Hyperion
utilized individual spreadsheets to manage consultants' time, locations and
general areas of expertise. However, without an enterprise-wide PSA solution,
Hyperion found it difficult to capture large amounts of important data such as
consultant skill sets, clients, locations and vital project information, which
required managers to spend significant amounts of time assembling project teams.
Hyperion initially licensed our products in 1998 and deployed the solution
internally within a month. Subsequently, they have purchased additional licenses
on two occasions for additional business units and their alliance partners.
Hyperion believes that Novient eServices has increased its operational
efficiency,
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improved utilization of management time, increased client satisfaction and
resulted in higher morale and job satisfaction throughout its consulting
organization.
Siemens
Siemens Business Services LLC is the North American operation of Siemens
Business Services GmbH, a provider of electronic business solutions and services
in the area of information and communication. With over 34,000 employees in 58
countries, Siemens Business Services GmbH offers solutions and services ranging
from consulting through system integration to management of complete business
processes. Unable to quickly match resources to client and prospect demand,
Siemens Business Services LLC needed a better way to deliver quality service
that was both client-focused and responsive to changing customer needs.
Information vital to business operations was often difficult to retrieve, hard
to manipulate, incomplete or simply unavailable.
Siemens Business Services LLC required an integrated solution that would
address the complete business lifecycle of its professional services
organization, from the management of project opportunities and professional
resources through the delivery of services. With Novient eServices, Siemens
Business Services LLC was able to create a collaborative and interactive virtual
services community, connecting and supporting the activities of all participants
in the services process. Consultants now have real-time access, through the
Internet, to update or retrieve enterprise information relating to both
strategic and tactical operations. They are able to quickly staff engagements
with the best people and can even consider additional elements in selecting
assignments, such as language requirements. Siemens Business Services LLC can
also determine if various projects undertaken are meeting its business
objectives.
COMPETITION
The market for Internet infrastructure for the professional services
industry is relatively new and is subject to frequent technological changes. The
intensity of competition and the pace of change are expected to increase in the
future as new competitors enter this market. A number of companies offer, or may
offer in the future, products and services that vary in competitive
functionality. These include:
- developers of PSA software and related Internet-based applications;
- providers of hosted software for IT consultants;
- operators of centralized online market places for professional services;
and
- ERP software companies.
We believe that there are a number of companies that offer products that
provide some of the functionality of Novient eServices. However, we do not
believe that any competitor offers a collaboration platform similar to Novient
iServerNet.
We believe that the primary competitive factors in our market include:
- a significant base of prominent, referenceable customers;
- product quality and performance;
- ability to integrate products with existing business processes;
- product features and functionality; and
- ease of implementation.
We believe our current products and services compete favorably with respect
to these factors; however, this market is relatively new and changing rapidly.
We may be unable to maintain our competitive position against current or
potential competitors, especially those with significantly greater financial,
marketing and other resources. Competitors with these greater resources may be
able to undertake more extensive marketing campaigns, adopt more aggressive
pricing policies and make more attractive offers to potential employees,
distributors, resellers or content services or other strategic partners.
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
Protection of our technology and other proprietary assets and respect for
the intellectual property rights of others are among our highest priorities. We
rely heavily on various types of intellectual property for our success and
competitive positioning. We use patents, trademarks, copyrights, trade secrets
and the laws pertaining to them as well as contractual provisions to protect our
intellectual property.
We currently have two pending U.S. patent applications that seek to protect
inventions underlying our Novient iServerNet collaboration platform. We have
been issued no patents to date.
We protect the proprietary aspects of our licensed software principally
through contractual provisions contained in our standard confidentiality
agreement. We require each prospective customer to execute a confidentiality
agreement before granting access to our products. We also require customers to
execute a standard comprehensive license agreement before granting unsupervised
access to our products. These licenses typically grant nonexclusive,
nontransferable and perpetual access to the software at a single designated
location on a single central processing unit by trained users. Misuse of the
software or violation of a contractual provision is grounds for revoking the
license.
We also protect the source code for our proprietary software as a trade
secret and a copyrighted work. We maintain a source code escrow arrangement with
an independent third party. Some of our customers have limited access to the
source code through this escrow under specified conditions, principally where we
fail to support or maintain the software pursuant to our contractual obligations
or where we cease doing business. This limited accessibility of our source code
may increase the possibility of its misappropriation by third parties.
We cannot assure you that we will be successful in protecting our
proprietary technologies or that our competitors will not develop similar
technology independently. Any failure to protect our intellectual property
assets sufficiently may have an adverse effect on our business and operating
results.
We have applications pending with the U.S. Patent and Trademark Office for
registration of the Novient and Novient eServices trademarks and service marks
and intend to apply for registration of the Novient iServerNet trademark. We
also claim rights in other unregistered marks. We rely on these marks to protect
our principal domain names. We police unauthorized use of our trademarks and
service marks and take such action as may be necessary and advisable to protect
them. Litigation may be required in the future to enforce our trademark rights.
No combination of intellectual property protections can provide complete
assurance of the value of intellectual property or a guarantee of its continued
availability. We believe that our knowledge of the marketplace, new product
development, enhancements to existing products and the technical and creative
abilities of our employees are equally important to the establishment and
maintenance of our strong market position in a rapidly changing and evolving
competitive and technological landscape.
We are attempting to expand our market reach to include a number of
countries outside North America. The laws of many countries do not honor the
protections of proprietary rights that are available in the U.S. Litigation to
protect intellectual property rights outside the U.S. could be very expensive
and have uncertain results. Such litigation, whether or not successful, is
likely to be time-consuming and costly to prosecute, will require the use of
substantial management attention and resources and may have an adverse effect on
our business and operating results.
LAW AND GOVERNMENTAL REGULATION
We are subject to various laws and regulations affecting our business.
While there are relatively few laws that actually exist to regulate
Internet-related activities and electronic commerce in general, the sizeable
growth of Internet usage and electronic commerce transactions has prompted many
governmental bodies to commence consideration of legislation in such areas as
pricing, content, data protection, privacy protection, intellectual property
protection, taxation and consumer protection. In particular, our solution has
been designed to facilitate compliance with European data privacy laws.
Enactment of laws or
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regulations in these areas could place burdens on us, either directly or as a
burden to electronic commerce in general.
EMPLOYEES
As of May 31, 2000, we had 153 full-time employees. None of our employees
are covered by a collective bargaining agreement. We consider our relations with
our employees to be good.
FACILITIES
Our principal administrative, sales, marketing, support and research and
development operations are located in an approximately 46,000 square foot
facility in Atlanta, Georgia that we lease. We also lease offices in San Bruno
and San Mateo, California, Dallas and Houston, Texas, Chicago, Illinois, Boston,
Massachusetts, London and Toronto. We believe our facilities are adequate for
our current requirements and will meet future growth needs.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table presents information regarding our executive officers
and directors as of May 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark E. Kopcha............................... 39 Chief Executive Officer and Chairman of the Board
R. Halsey Wise............................... 35 President, Chief Operating Officer and Director
R. Russell Caldwell.......................... 34 Chief Technology Officer and Director
David H. Keil................................ 36 Executive Vice President of Corporate Strategy
and Business Development
Anthony Colaluca, Jr......................... 33 Chief Financial Officer, Treasurer and Secretary
Steven D. Shambach........................... 43 Vice President of Sales
Gary Melia................................... 48 Managing Director of European Operations
Jeffrey C. Osborne........................... 43 Vice President of Marketing
Marc C. O'Brien.............................. 35 Vice President of Novient WebProject
Patricia A. Coggins.......................... 50 Vice President of Professional Services
Kenneth P. O'Reilly, Jr...................... 41 Vice President of Engineering and Worldwide
Customer Support
R. Reid French, Jr........................... 28 Vice President of Business Development
Michael P. Howe.............................. 31 Vice President of Product Management
Burton B. Goldstein, Jr...................... 52 Director
Michael S. McQuary........................... 40 Director
Alan J. Taetle............................... 36 Director
</TABLE>
Mark E. Kopcha co-founded Novient and serves as our Chief Executive Officer
and Chairman of the Board. Before founding Novient, from January 1991 to July
1996, Mr. Kopcha was a senior consulting and engineering manager with Dun &
Bradstreet Software, an application software company. From August 1984 to
December 1990, Mr. Kopcha was a senior customer support and engineering manager
for Management Science America, a mainframe software company. From January 1984
to July 1984, Mr. Kopcha was the engineering and support manager for
Computeristics, a mainframe software company. Mr. Kopcha holds an A.S. degree
from Waterbury State Technical College.
R. Halsey Wise has served as our President, Chief Operating Officer and a
director of Novient since December 1999. Before joining Novient, from April 1999
to December 1999, Mr. Wise was the General Manager: North America, Global
Professional Services for Computer Associates International, an enterprise
software and services company. From August 1997 to March 1999, Mr. Wise was the
President and Chief Operating Officer of Computer Management Sciences, a public
IT services company. From July 1994 to August 1997, Mr. Wise was an investment
banker and led the IT services practice at The Robinson-Humphrey Company, LLC, a
subsidiary of Salomon Smith Barney. Mr. Wise holds an M.B.A. degree from
Northwestern University and a B.A. degree from the University of Virginia.
R. Russell Caldwell co-founded Novient and serves as our Chief Technology
Officer and a director. Before founding Novient, from August 1996 to January
1997, Mr. Caldwell was a Senior Software Engineer with Dun & Bradstreet
Software. From January 1994 to July 1996, Mr. Caldwell served as a Senior
Software Engineer for Computer Management Sciences. From December 1989 to
December 1993, Mr. Caldwell was a Senior Software Engineer for Harris
Corporation, a communications equipment company. From May 1986 to March 1988,
Mr. Caldwell served as a Senior Support Engineer for
50
<PAGE> 54
Microsoft Corporation, a software company. Mr. Caldwell holds a B.S. degree from
Western Washington University.
David H. Keil has served as our Executive Vice President of Corporate
Strategy and Business Development since February 2000. Before joining Novient,
from August 1995 to February 2000, Mr. Keil was a Managing Director at The
Robinson-Humphrey Company. From February 1995 to August 1995, Mr. Keil was the
Director of Product Marketing for TSW International, an application software
company. From January 1991 to February 1995, Mr. Keil held various management
positions at Dun & Bradstreet Software. From August 1985 to July 1987 and
September 1989 to December 1990, Mr. Keil was a consultant for Bain and Company,
a management consulting firm. Mr. Keil holds an M.B.A. degree from the Wharton
School of Business and a B.S. degree from Brown University.
Anthony Colaluca, Jr. has served as our Chief Financial Officer, Treasurer
and Secretary since May 2000. Before joining Novient, from April 1999 to May
2000, Mr. Colaluca was a Vice President of Finance for Computer Associates
International. From September 1996 to March 1999, Mr. Colaluca was Vice
President and Chief Financial Officer of Computer Management Sciences. From
August 1989 to September 1996, Mr. Colaluca held various positions, most
recently Senior Manager, with KPMG LLP. Mr. Colaluca received a B.S. degree from
the State University of New York at Albany and is a certified public accountant.
Steven D. Shambach has served as our Vice President of Sales since
September 1999. Before joining Novient, from January 1995 to September 1999, Mr.
Shambach was the Regional Vice President for Sales and Service for the southern
U.S. with SAP America, a subsidiary of SAP AG, a provider of business
application software. Previously, Mr. Shambach was the Regional Vice President
at Ross Systems, an application software company. Mr. Shambach also has held
various positions at Coopers & Lybrand, Management Sciences America, and
Computer Associates International. Mr. Shambach holds a B.S. degree from Florida
State University and is a certified public accountant.
Gary Melia has served as Managing Director of European Operations since
November 1999. Before joining Novient, from December 1996 to October 1999, Mr.
Melia worked in a senior sales management role at Tivoli Systems, the systems
management subsidiary owned by IBM. From September 1993 to December 1996, Mr.
Melia worked in a senior sales and business development role at Oracle
Corporation, a software company. Previously, Mr. Melia also held sales and
management positions for Xerox Corporation, a document management company, and
Wang Corporation, a computer systems and services company.
Jeffrey C. Osborne has served as our Vice President of Marketing since
December 1999. Before joining Novient, from June 1998 to June 1999, Mr. Osborne
was the Vice President of Marketing for International Computex, an enterprise
software solutions company. From October 1997 to May 1998, Mr. Osborne was a
Partner in Spectrum Marketing, a full-service marketing communications firm.
From January 1997 to September 1997, Mr. Osborne was Vice President of Marketing
for Manhattan Associates, an application software company. From September 1994
to December 1996, Mr. Osborne was Vice President of Marketing for AccuScan, a
software developer and systems integrator. From August 1984 to August 1994, Mr.
Osborne was Vice President of Marketing for Hand Held Products, a manufacturer
of portable computers and bar code readers.
Marc C. O'Brien co-founded WebProject, Incorporated in January 1998 and
served as WebProject's Chairman and Chief Executive Officer. Novient acquired
WebProject in April 2000, and Mr. O'Brien has served as our Vice President of
Novient WebProject, since the acquisition. Before founding WebProject, from
September 1996 to April 1997, Mr. O'Brien was the Chairman and Chief Executive
Officer of Celantra Software Systems, an ERP software company. From 1992 to
1995, Mr. O'Brien was an executive with Scitor Corporation, an application
software company. From 1987 to 1992, Mr. O'Brien held various management and
engineering positions with PSDI, an application software company, and Texas
Instruments, a diversified semiconductor and electronics company. Mr. O'Brien
holds a B.S. degree from Clarkson University.
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<PAGE> 55
Patricia A. Coggins has served as our Vice President of Professional
Services since May 1999. Before joining Novient, from January 1998 to May 1999,
Ms. Coggins was the Manager of North American Business Development for Sequent
Computer Systems, a computer hardware company. From 1994 to 1997, Ms. Coggins
held various director level positions at Deloitte & Touche, a management
consulting firm. In 1995, Ms. Coggins was the Director of Product Sales for
Deloitte & Touche's SAP America practice and in 1997 became the Director of
Alliances for Deloitte & Touche's SAP America practice. From 1980 to 1994, Ms.
Coggins was with Dun & Bradstreet Software. Ms. Coggins holds a B.A. degree from
Kings College.
Kenneth P. O'Reilly, Jr. has served as our Director of Engineering and
Worldwide Customer Support since January 1999. Mr. O'Reilly was promoted to Vice
President of Engineering and Worldwide Customer Support in January 2000. Before
joining Novient, from February 1997 to December 1998, Mr. O'Reilly was the
Director of Engineering at Indus International, an asset management services
provider. From February 1994 to February 1997, Mr. O'Reilly was the Director of
Worldwide Customer Support for Dun and Bradstreet Software. Mr. O'Reilly holds a
B.A. degree from St. Anselm College.
R. Reid French, Jr. has served as our Vice President of Business
Development since February 2000. Before joining Novient, from July 1999 to
February 2000, Mr. French was a strategic planner for Walt Disney World, a
business unit of The Walt Disney Company, an entertainment company. From June
1994 to August 1997, Mr. French was an investment banker in the IT services
practice of The Robinson-Humphrey Company. From June 1993 to May 1994, Mr.
French was a Fellow for the Thomas J. Watson Foundation. Mr. French holds an
M.B.A. degree from the Harvard Business School and a B.A. degree from Davidson
College.
Michael P. Howe has served as our Vice President of Product Management
since July 1999. From April 1994 to July 1997, Mr. Howe was a Product Manager,
Product Marketing Manager, and Sales Consultant for Oracle Corporation, a
supplier of software for information management. From June 1992 to March 1994,
Mr. Howe was a Software Engineer for Great West Life Assurance, a financial
services holding company. Mr. Howe holds an M.B.A. degree from the Harvard
Business School and a B.A. degree from the University of Colorado, Boulder.
Burton B. Goldstein, Jr. has served as a director of Novient since February
2000. Mr. Goldstein has been a Venture Partner with Mellon Ventures, a venture
capital firm, since January 2000, when Mellon Ventures combined with netWorth
Partners, an Internet investment fund, where Mr. Goldstein served as President
since January 1999. Mr. Goldstein co-founded Information America, an online
information services company, in 1982 and served as its President and Chairman
of the Board from November 1982 until June 1998. Information America was
acquired by West Group, a division of The Thomson Corporation, an information
and publishing company, in 1996. From 1996 until June 1998, Mr. Goldstein served
on the executive committee of West Group. Mr. Goldstein holds a J.D. degree,
with honors, and B.A. degree from the University of North Carolina. Mr.
Goldstein also serves as a director of Headhunter.net.
Michael S. McQuary has served as a director of Novient since April 1999.
Mr. McQuary has been President since February 2000 of Earthlink, an Internet
service provider. Mr. McQuary served as President from March 1996 to February
2000 and Chief Operating Officer from September 1995 to February 2000 of
Mindspring, an Internet service provider that was acquired by Earthlink in
February 2000. From October 1995 to March 1996, Mr. McQuary served as Executive
Vice President of MindSpring and from July 1995 to September 1995 was
MindSpring's Executive Vice President of Sales and Marketing. Before joining
MindSpring, Mr. McQuary served in a variety of sales, marketing and operations
management positions with Mobil Chemical, a petrochemical division of Mobil
Corporation, an oil exploration and production company. Mr. McQuary holds an
M.B.A. degree from Pepperdine University and a B.A. degree from the University
of Virginia. Mr. McQuary also serves as a director of EarthLink.
Alan J. Taetle has served as a director of Novient since March 1999. Mr.
Taetle has been a General Partner of Noro-Moseley Partners, a venture capital
firm, since May 1998. From March 1995 to April 1998, Mr. Taetle was Executive
Vice President of Marketing and Business Development for MindSpring.
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<PAGE> 56
From November 1992 to March 1995, Mr. Taetle served as Director of Operations
and Product Management at CogniTech Corporation, a developer of retail
management software. Mr. Taetle holds an M.B.A. degree from the Harvard Business
School and a B.A. degree from the University of Michigan.
There are no family relationships between any of our directors or executive
officers.
TERMS OF DIRECTORS
Concurrently with the effective date of this offering, the board of
directors will be divided into three classes, with members serving for staggered
three-year terms. The board will be comprised of two Class I directors, two
Class II directors and two Class III directors. At each annual meeting of
shareholders, a class of directors will be elected for a three-year term to
succeed the directors of the same class whose terms are then expiring. The terms
of the initial Class I directors, Class II directors and Class III directors
will expire upon the election and qualification of successor directors at the
2001, 2002 and 2003 annual meetings of shareholders, respectively.
BOARD COMMITTEES
The board of directors has established a compensation committee composed of
Messrs. Goldstein, McQuary and Taetle, which makes recommendations concerning
salaries and incentive compensation for our employees and administers our stock
option plans. The board of directors also has established an audit committee
composed of Messrs. Goldstein, McQuary and Taetle, which recommends the
engagement of our outside auditors and reviews our accounting controls, the
results and scope of the audit and other services provided by our outside
auditors. The board of directors may establish, from time to time, other
committees to facilitate the management of our business.
DIRECTOR COMPENSATION
We have granted options to acquire a total of 32,000 shares of common stock
to Michael McQuary as compensation for his services as a director. Except for
this arrangement, our directors do not receive any compensation for their
services as directors but are reimbursed for their reasonable expenses incurred
in connection with attending meetings of the board of directors or its
committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves on 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.
EXECUTIVE COMPENSATION
The following table presents 1999 compensation earned for services rendered
to us by our current chief executive officer and each of our other executive
officers whose salary and bonus compensation for 1999 exceeded $100,000,
collectively referred to as the named executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ---------------------
NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS UNDERLYING OPTIONS
--------------------------- -------- -------- ---------------------
<S> <C> <C> <C>
Mark E. Kopcha........................................ $150,000 $175,000 66,750
Chief Executive Officer and Chairman of the Board
R. Russell Caldwell................................... 100,000 45,000 30,000
Chief Technology Officer and Director
</TABLE>
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<PAGE> 57
OPTIONS GRANTS IN LAST FISCAL YEAR
The following table presents information about stock options granted during
1999 to the named executive officers. The potential realizable value of the
options reported below was calculated by assuming 5% and 10% annual rates of
appreciation of our common stock based on the exercise price of the option from
the date of grant of the options until the expiration of the options. These
assumed annual rates of appreciation were used in compliance with SEC rules and
are not intended to forecast future price appreciation of the common stock. The
actual value realized from the options could be substantially higher or lower
than the values reported below, depending upon the future appreciation or
depreciation of the common stock during the option period and the timing of
exercise of the options. The potential realizable value computation does not
take into account federal or state income tax consequences of options exercised
or sales of appreciated stock.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE VALUE
TOTAL AT ASSUMED ANNUAL RATES
NUMBER OF OPTIONS OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM
OPTIONS IN PRICE PER EXPIRATION --------------------------
NAME GRANTED (1) YEAR SHARE DATE 5% 10%
---- ----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark E. Kopcha.................. 66,750 4.8% $1.00 12/31/04 $18,442 $40,752
R. Russell Caldwell............. 30,000 2.1 1.00 12/31/04 8,288 18,315
</TABLE>
---------------
(1) Options were granted under our stock option plan. Unless otherwise
indicated, each option vests and becomes exercisable as follows: 25% of the
shares vest one year after the grant date and the remaining shares vest in
36 equal monthly installments thereafter.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table presents information concerning the number and value of
unexercised options to purchase common stock held by the named executive
officers. The named executive officers did not exercise any stock options during
1999. The values of the unexercised in-the-money options have been calculated on
the basis of the fair market value at December 31, 1999 of $1.00 per share, as
determined by the board of directors.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT YEAR-END OPTIONS AT YEAR-END
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Mark E. Kopcha................................... -- 66,750 -- --
R. Russell Caldwell.............................. -- 30,000 -- --
</TABLE>
STOCK OPTION PLAN
Our stock option plan was adopted by our board of directors and our
shareholders in 1997. We have reserved 5,000,000 shares for issuance under the
plan. The purpose of our plan is to provide incentives for key employees,
officers, consultants and directors to promote our success and to enhance our
ability to attract and retain the services of such persons. Options granted
under the stock option plan may be either options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of 1986
or nonqualified stock options. The stock option plan also provides for the grant
of awards of our common stock.
The stock option plan is administered by the compensation committee of our
board of directors, which has the authority to grant options, determine the
provisions and conditions of such options, interpret the stock option plan and
take other action as it deems equitable. The compensation committee has absolute
discretion under the stock option plan to determine to whom options will be
granted, when these grants will be made, and the number of shares of our common
stock subject to these grants. However, no option
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<PAGE> 58
may be granted to an officer or director of ours or any affiliate of ours unless
such grant is approved in advance, or ratified no later than the next annual
meeting of the shareholders, by: (1) our board of directors; (2) the
compensation committee, if the committee is composed solely of two or more non-
employee directors; or (3) our shareholders.
The exercise price of each option is determined by the compensation
committee and set forth in a stock option agreement. Exercise prices for
incentive stock options may not be less than the fair market value per share of
common stock on the date of grant, or 110% of the fair market value in the case
of incentive stock options granted to any person who owns our stock possessing
10% or more of the total voting power of all of our capital stock. Until there
is an established market for our common stock, the compensation committee, in
its discretion, determines the fair market value of a share of common stock.
The term of a stock option granted under the plan generally may not exceed
ten years. The term of incentive stock options granted to any person who owns
our stock possessing 10% or more of the total voting power of all of our capital
stock may not exceed five years.
With respect to incentive stock options, in the event an optionee ceases to
be employed by us for any reason other than death or disability, the optionee's
options will terminate and cease to be exercisable no later than three months
after the date the optionee ceases to be an employee. Should the optionee's
employment terminate by reason of death or disability, the employee's options
will terminate and cease to be exercisable no later than twelve months after the
date the optionee ceases to be an employee. Options granted under the stock
option plan are not transferable except upon the optionee's death.
In the event of a merger or other reorganization of our company, the
compensation committee has discretion to make adjustments with respect to
options and take such other action as it deems necessary or appropriate to
reflect or anticipate such merger or reorganization, including the substitution
of new options, the termination or adjustment of outstanding options, the
acceleration of vesting of options, or the removal of restrictions on
outstanding options.
Stock awards under the stock option plan may be subject to vesting
requirements or may be granted without restrictions, as determined by the
compensation committee. The compensation committee may require a recipient of a
stock award to make a cash payment not exceeding the fair market value of the
common stock at the time of grant.
As of May 31, 2000, options to purchase 2,244,250 shares of common stock
were outstanding under the stock option plan at a weighted-average exercise
price of $1.20 per share. As of May 31, 2000, an aggregate of 42,500 shares of
common stock had been issued upon exercise of options granted under the stock
option plan. No stock awards were outstanding under the stock option plan as of
May 31, 2000.
401(K) PROFIT SHARING PLAN
We sponsor a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code, also known as a 401(k) Profit Sharing Plan. In
general, all of our employees who have completed 30 days of service are eligible
to participate. Our 401(k) Plan includes a salary deferral arrangement pursuant
to which participants may contribute, subject to limitations, a maximum of 25%
of their first $30,000 in salary on a pre-tax basis. We did not match any
portion of any employee's contribution in 1999. A separate account is maintained
for each participant in the 401(k) Plan. Distributions from our 401(k) Plan may
be made in the form of a lump-sum cash payment or in installment payments.
EMPLOYMENT AGREEMENTS
All of our employees, including executive officers, are required to sign an
agreement prohibiting their disclosure of any of our confidential or proprietary
information. With respect to certain employees, the agreement restricts their
ability to compete with us during their employment and for a period of time
thereafter, restricts the solicitation of customers and employees following
their employment with us and provides for the assignment of ownership of
intellectual property rights to us.
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<PAGE> 59
We entered into employment agreements with Mark E. Kopcha, R. Halsey Wise,
R. Russell Caldwell, David H. Keil, Anthony Colaluca, Jr., R. Reid French, Jr.
and Marc O'Brien which contain the confidentiality, noncompetition and
nonsolicitation provisions discussed above. Each agreement continues until
terminated upon 30 days prior written notice by either party. Under each
employment agreement, vesting of the executive's stock options accelerates upon
a change of control. In the event the executive's employment is terminated
without cause, as defined in the agreement, he is entitled to a severance
payment equal to the sum of his unpaid base salary through the date of
termination.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our articles of incorporation provide that the liability of our directors
for monetary damages be eliminated to the fullest extent permissible under
Georgia law and that we may indemnify our officers, employees and agents to the
fullest extent permitted under Georgia law.
Our bylaws require us to indemnify our directors and officers against all
liabilities to the fullest extent permitted under Georgia law and to advance all
reasonable expenses incurred in a proceeding where the director or officer was
either a party or a witness because he or she was a director.
We have entered into agreements that require us to indemnify our directors
and our officers to the fullest extent permitted under Georgia law. In addition,
we have agreed to defend, hold harmless and indemnify our directors and officers
against any obligations to pay judgments, penalties, fines, expenses and
settlement amounts in connection with any action, suit or proceeding brought by
reason of the fact that he or she is a director or officer, as the case may be,
of our company or is serving, at our request, as a director, officer, employee,
agent or consultant of another entity. No indemnification will be provided for
any misappropriation of any business opportunity of ours, any act or omission
involving intentional misconduct or a knowing violation of law, any transaction
from which an improper personal benefit was received or any improper
distribution to our shareholders. Further, we will pay expenses incurred by
directors and officers in defending any covered action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding. We believe
that these agreements, as well as the provisions contained in our articles and
bylaws described above, are necessary to attract and retain qualified persons as
directors and officers.
We have been advised that in the opinion of the SEC, although
indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers or controlling persons as described above,
this indemnification is against public policy as expressed in the Securities Act
and may be unenforceable.
We also have purchased a directors and officers liability insurance policy.
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<PAGE> 60
RELATED PARTY TRANSACTIONS
Other than the arrangements that are described under the caption
"Management" and the transactions described below, since January 1, 1997, there
has not been, nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party in which the amount
involved exceeds $60,000 and in which any director, executive officer or holder
of more than 5% of our capital stock or any member of their immediate family had
or will have a direct or indirect material interest.
The following table summarizes the shares of our preferred stock purchased
by our named executive officers, directors and 5% shareholders, and persons and
entities associated with them.
<TABLE>
<CAPTION>
NO. OF SHARES OF NO. OF SHARES OF NO. OF SHARES OF
SERIES A CONVERTIBLE SERIES B CONVERTIBLE SERIES C CONVERTIBLE AGGREGATE
INVESTOR PREFERRED STOCK(1) PREFERRED STOCK(2) PREFERRED STOCK(3) CONSIDERATION
-------- -------------------- -------------------- -------------------- -------------
<S> <C> <C> <C> <C>
Intelligent Systems
Corporation................... 227,250 -- -- $ 181,800
Noro-Moseley Partners IV, L.P.
and related entities.......... -- 1,656,004 195,900(4) 3,785,880
Hummer Winblad Venture Partners
III, L.P. and related
entities...................... -- 1,241,996 587,700 6,215,736
First Union Capital Partners,
Inc........................... -- -- 914,200 7,002,772
Mellon Ventures, L.P............ -- -- 914,200 7,002,772
</TABLE>
---------------
(1) We issued our series A convertible preferred stock at $0.80 per share.
(2) We issued our series B convertible preferred stock at $1.38 per share.
(3) We issued our series C convertible preferred stock at $7.66 per share.
(4) In February 2000, as part of our sale of 3,265,000 shares of our series C
convertible preferred stock, we sold 195,900 shares of series C convertible
preferred stock to Noro-Moseley Partners IV, L.P. and Noro-Moseley Partners
IV-B, L.P., which are affiliates of Alan J. Taetle, one of our directors.
These entities acquired their shares on the same terms as other purchasers
in this transaction.
In January 2000, we sold 100,000 shares of common stock to R. Halsey Wise,
our President and Chief Operating Officer and director, at a price of $1.00 per
share. In February 2000, we sold 100,000 shares of common stock to David H.
Keil, our Executive Vice President of Corporate Strategy and Business
Development, at a price of $1.00 per share.
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<PAGE> 61
PRINCIPAL SHAREHOLDERS
The following table presents information about the beneficial ownership of
our capital stock as of May 31, 2000 and as adjusted to reflect our sale of
common stock offered by this prospectus for:
- all persons who beneficially own more than 5% of our common stock;
- each of our named executive officers;
- each of our directors; and
- all executive officers and directors as a group.
Unless otherwise indicated, each of the shareholders has sole voting and
investment power for the shares of common stock listed opposite its name below.
Beneficial ownership is determined under the rules of the SEC. Percentage of
beneficial ownership is based on:
- 13,126,769 shares outstanding as of May 31, 2000; and
- shares outstanding after completion of this offering.
All options exercisable within 60 days of May 31, 2000 are reported as
currently exercisable. The shares issuable under these options are treated as if
outstanding for computing the percentage ownership of the person holding these
options but are not treated as if outstanding for the purposes of computing the
percentage ownership of any other person.
Except as noted below, the business address of the named beneficial owner
is c/o Novient, Inc., 3525 Piedmont Road, Building 8, Suite 500, Atlanta,
Georgia 30305.
<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED
----------------------
NUMBER OF SHARES BEFORE THE AFTER THE
NAME AND ADDRESS BENEFICIALLY OWNED OFFERING OFFERING
---------------- ------------------ ---------- ---------
<S> <C> <C> <C>
Mark E. Kopcha........................................... 3,060,000 23.3%
Noro-Moseley Partners IV, L.P............................ 1,851,904(1) 14.1
9 North Parkway Square
4200 Northside Parkway, NW
Atlanta, GA 30327
Alan J. Taetle........................................... 1,851,904(2) 14.1
Hummer Winblad Venture Partners III, L.P................. 1,829,696(3) 13.9
2 South Park, 2nd floor
San Francisco, California 94107
R. Russell Caldwell...................................... 1,360,000 10.4
First Union Capital Partners, Inc........................ 914,200 7.0
One First Union Center, TW-5
Fifth Floor
Charlotte, North Carolina 28288
Mellon Ventures, L.P..................................... 914,200 7.0
One Buckhead Plaza, Suite 780
3060 Peachtree Road, NW
Atlanta, Georgia 30305
Burton B. Goldstein, Jr.................................. 914,200(4) 7.0
Intelligent Systems Corporation.......................... 681,750 5.2
4355 Shackleford Road
Norcross, Georgia 30093
Michael S. McQuary....................................... 16,000(5) *
All directors and executive officers as a group (16
persons)............................................... 7,575,229(6) 57.5
</TABLE>
---------------
* Less than one percent.
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<PAGE> 62
(1) Includes shares owned by Noro-Moseley Partners IV-B, L.P., which is an
affiliate of Noro-Moseley Partners IV, L.P.
(2) Consists of shares owned by Noro-Moseley Partners IV, L.P. and Noro-Moseley
Partners IV-B, L.P. Mr. Taetle is a principal of these entities and may be
deemed to be a beneficial owner of these shares. Mr. Taetle disclaims
beneficial ownership of the shares held by Noro-Moseley Partners IV, L.P.
and Noro-Moseley Partners IV-B, L.P.
(3) Includes shares owned by Hummer Winblad Technology Fund III, L.P., Hummer
Winblad Venture Partners IV, L.P. and Hummer Winblad Technology Fund IV,
L.P. which are affiliates of Hummer Winblad Venture Partners III, L.P.
(4) Consists of shares owned by Mellon Ventures, L.P. Mr. Goldstein is a
principal of this entity and may be deemed to be a beneficial owner of these
shares. Mr. Goldstein disclaims beneficial ownership of the shares held by
Mellon Ventures, L.P.
(5) Includes 16,000 shares subject to options that are exercisable within 60
days.
(6) Includes 50,531 shares subject to options that are exercisable within 60
days.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately following the offering, our authorized capital stock will
consist of 100,000,000 shares of common stock, of which will be
issued and outstanding, and 10,000,000 shares of undesignated preferred stock
issuable in one or more series to be designated by our board of directors, of
which no shares will be issued and outstanding.
As of May 31, 2000, there were outstanding:
- 13,126,769 shares of common stock held by 38 shareholders of record;
- warrants to purchase 170,281 shares of common stock; and
- options to purchase an aggregate of 2,244,250 shares of common stock.
COMMON STOCK
Holders of shares of our common stock are entitled to one vote per share
for the election of directors and all matters to be submitted to a vote of our
shareholders. Subject to the rights of any holders of preferred stock which may
be issued in the future, the holders of shares of our common stock are entitled
to share ratably in such dividends as may be declared and paid out of funds
legally available.
In the event of dissolution, liquidation or winding up of our company,
holders of our shares of common stock are entitled to share ratably in all
assets remaining after payment of all liabilities and liquidation preferences,
if any. Holders of shares of our common stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of our common stock are,
and the shares of common stock to be issued in this offering will be, duly
authorized, validly issued, fully paid and nonassessable.
PREFERRED STOCK
Our board of directors is authorized, subject to limitations prescribed by
law, without further shareholder approval, to issue from time to time up to the
total authorized shares of preferred stock in one or more series and to fix or
alter the designations, preferences, rights and any qualifications, limitations
or restrictions on the shares of each such series, including the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption,
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of our
preferred stock may have the effect of delaying or preventing a change of
control of our company.
OPTIONS AND WARRANTS
As of May 31, 2000, options to purchase 2,244,250 shares of common stock
were outstanding under our stock option plan at a weighted-average exercise
price of $1.20 per share. Warrants to purchase 170,281 shares of common stock
were also outstanding at a weighted-average exercise price of $2.81 per share.
All outstanding options and warrants provide for antidilution adjustments in the
event of mergers, consolidations, reorganizations, recapitalizations, stock
dividends, stock splits or other changes in the corporate structure of our
company.
REGISTRATION RIGHTS
We have granted registration rights to some of our existing shareholders
covering 7,015,031 shares of our common stock.
If we register any of our common stock, either for our own account or for
the account of other security holders, and the registration form to be used may
be used for the registration of the securities of these holders, the holders are
entitled to include their shares of common stock in the registration. All of
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<PAGE> 64
these rights to register securities in connection with this offering have been
waived as required by the respective agreements granting these rights.
Beginning six months following the completion of this offering, holders of
6,844,750 shares of common stock, representing shares issued in conversion of
our series A, B and C convertible preferred stock and 170,281 shares issuable
upon exercise of outstanding warrants, may require that we register all or part
of these securities for sale under the Securities Act. Until we are entitled to
register our shares on Form S-3, a short form registration statement, these
holders may only make two such demands. Once we are entitled to use Form S-3,
which may be as early as 2001, all of these holders may make such
demands for registrations on Form S-3 on an unlimited number of occasions.
In all cases, a holder's right to include shares in a registration is
subject: (1) to a registration priority arrangement and (2) in an underwritten
registration, to the ability of the underwriters to limit the number of shares
included in the offering. All fees, costs and expenses of all of these
registrations will be paid by us, other than selling expenses, which will be
paid by the holders of the securities being registered. Selling expenses include
underwriting discounts, selling commissions and stock transfer taxes.
GEORGIA ANTI-TAKEOVER LAW AND OUR ARTICLES OF INCORPORATION AND BYLAW PROVISIONS
The provisions of the Georgia Business Corporation Act, our articles of
incorporation and our bylaws described below may have the effect of delaying or
preventing another person from acquiring us.
Georgia Anti-Takeover Law.
Statutory Business Combination Provisions. We have elected in our bylaws
to be subject to provisions of Georgia law prohibiting various business
combinations involving shareholders that beneficially own 10% or more of our
outstanding shares for a period of five years after the time that the
shareholder came to beneficially own 10% or more of our outstanding shares.
Notwithstanding the statute's restrictions, the business combination may proceed
if it is approved by our board of directors or results in the shareholder owning
90% or more of our outstanding shares, excluding shares held by directors and
executive officers. A "business combination" includes, among other things, a
merger or consolidation involving our company and the shareholder and the sale
to the shareholder of 10% or more of our assets not in the ordinary course of
business.
Georgia Fair Price Statute. We have also elected in our bylaws to be
subject to provisions of Georgia law requiring that business combinations with
shareholders who own 10% or more of our outstanding shares that do not meet
specified pricing criteria to be approved by our directors and shareholders who
are not affiliated or associated with the shareholder. The fair price statute
does not require this approval of a business combination if the cash, stock and
other property received by our shareholders in the transaction is the same for
all shareholders and is not less than the highest of a number of values assigned
to the shares of our company based on trading prices and liquidation values.
Articles of Incorporation and Bylaws.
Classified Board and Removal of Directors. Our articles of incorporation
provide for our board of directors to be elected, initially, to staggered one,
two and three year terms and, thereafter, for successive three year terms. In
addition, the directors may only be removed from office for cause, which
requires the affirmative vote of the holders of at least 66 2/3% of the
outstanding shares of our common stock entitled to vote at an election of
directors. The preceding provisions may be changed only upon the affirmative
vote of holders of at least 66 2/3% of the outstanding shares of our common
stock.
Shareholder Meetings. Under our bylaws, the shareholders may call a
special meeting only upon the request of holders of at least 50% of votes
entitled to be cast on each issue proposed to be considered at the special
meeting. Additionally, the board of directors, the chairman of the board, the
chief executive officer or the president of our company may call special
meetings of shareholders.
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<PAGE> 65
Requirements for Advance Notification of Shareholder Proposals and Director
Nominations. Our bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the board of directors or a
committee thereof, of candidates for election as directors, as well as for other
shareholder proposals to be considered at shareholders meetings. Notice of
shareholder proposals and director nominations must be given timely in writing
to our corporate secretary before the meeting at which such matters are to be
acted upon or directors are to be elected. Such notice, to be timely, must be
received at our principal executive offices with respect to shareholder
proposals and elections to be held at the annual meeting not less than 60 days
before the date of the meeting at which directors are to be elected; however, if
less than 70 days notice or prior public disclosure of the date of the scheduled
meeting is given or made, notice by the shareholder, to be timely, must be
delivered or received not later than the close of business on the tenth day
following the earlier of the day on which notice of the date of the meeting is
mailed to shareholders or public disclosure of the date of such meeting is made.
In addition, our articles of incorporation provide that upon consummation of
this offering, shareholders may take action only at a duly called and held
meeting and may not take action by written consent.
Notice to us from a shareholder who intends to present a proposal or to
nominate a person for election as a director at a shareholders' meeting must
contain information about the shareholder giving such notice and, in the case of
director nominations, all information that would be required to be included in a
proxy statement soliciting proxies for the election of the proposed nominee,
including such person's written consent to serve as a director if so elected. If
the presiding officer at the meeting determines that a shareholder's proposal or
nomination is not made in accordance with the procedures set forth in the
articles of incorporation, such proposal or nomination, at the direction of such
presiding officer, may be disregarded. The notice requirement for shareholder
proposals contained in the articles of incorporation does not restrict a
shareholder's right to include proposals in our annual proxy materials pursuant
to rules promulgated under the federal securities laws.
The provisions of our articles of incorporation and bylaws and Georgia law
described above contain provisions that may have the effect of delaying or
preventing a non-negotiated merger or other business combination involving our
company. These provisions are intended to encourage any person interested in
acquiring our company to negotiate with and obtain the approval of the board of
directors in connection with the transaction. Many of these provisions may,
however, discourage a future acquisition of our company not approved by the
board of directors in which shareholders might receive an attractive value for
their shares or that a substantial number or even a majority of our shareholders
might believe to be in their best interest. As a result, shareholders who desire
to participate in this type of transaction may not have the opportunity to do
so. These provisions could also discourage bids for the common stock at a
premium, as well as create a depressive effect on the market price of the common
stock.
TRADING ON THE NASDAQ NATIONAL MARKET SYSTEM
We have applied for approval for quotation of our common stock on the
Nasdaq National Market under the symbol NVNT.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock will be SunTrust
Bank, Atlanta.
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<PAGE> 66
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of shares of our common stock in the
public market could adversely affect prevailing market prices. Furthermore,
since only a limited number of shares will be available for sale shortly after
this offering because of contractual and legal restrictions on resale, as
described below, sales of substantial amounts of common stock in the public
market after the restrictions lapse could adversely affect the prevailing market
price.
NUMBER OF SHARES
After this offering, shares of common stock will be
outstanding. The number of shares outstanding after this offering is based on
the number of shares outstanding as of May 31, 2000 and assumes no exercise of
outstanding options. The shares sold in this offering will be
freely tradable without restriction under the Securities Act.
The remaining 13,126,769 shares of common stock held by existing
shareholders are restricted shares or are subject to the contractual
restrictions described below. Restricted shares may be sold in the public market
only if registered or if they qualify for an exception from registration under
Rules 144, 144(k) or 701 under the Securities Act, which are summarized below.
Of these restricted shares,
- 5,536,750 shares will be available for resale in the public market in
reliance on Rule 144(k) immediately following this offering, all of which
are subject to lock-up agreements described below;
- 2,898,000 shares will be available for resale in the public market in
reliance on Rule 144 beginning 90 days following this offering, all of
which are subject to lock-up agreements; and
- 4,692,019 shares become eligible for resale in the public market at
various dates beginning 90 days following this offering, all of which are
subject to lock-up agreements.
LOCK-UP AGREEMENTS
Each of our executive officers and directors and other shareholders who
will own shares of common stock after the offering, have entered into lock-up
agreements generally providing that they will not:
- offer to sell, contract to sell or transfer any of the shares of common
stock or any securities convertible into, or exercisable or exchangeable
for, common stock owned by them; or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
for a period of 180 days after the date of this prospectus, without the prior
written consent of FleetBoston Robertson Stephens Inc.
FleetBoston Robertson Stephens Inc. may, in its sole discretion and at any
time without notice, release all or any portion of the securities subject to
lock-up agreements. When determining whether or not to release shares from the
lock-up agreements, FleetBoston Robertson Stephens Inc. will consider the
shareholder's reasons for requesting the release, the number of shares for which
the release is being requested and market conditions at the time. Following the
expiration of the 180-day lock-up period, additional shares of common stock will
be available for sale in the public market subject to compliance with Rule 144
or Rule 701.
We have agreed not to sell or dispose of any shares of common stock during
the 180-day period following the date of this prospectus, except that we may
issue, and grant options to purchase, shares of common stock under our stock
option plan.
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<PAGE> 67
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person, including an affiliate of ours, who has
beneficially owned shares of our common stock for at least one year would be
entitled to sell within any three-month period a number of restricted securities
that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding such sale.
Such sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K)
Under Rule 144(k) as currently in effect, a person who has not been one of
our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, Rule 144(k) shares may be sold immediately upon the
completion of this offering.
RULE 701
In general, our employees, officers, directors and consultants who
purchased shares of our common stock in connection with written compensatory
benefit plans or written contracts relating to the compensation of the
purchaser, may rely on Rule 701 to resell those shares. The SEC has indicated
that Rule 701 will apply to stock options granted by an issuer before it becomes
subject to the reporting requirements of the Exchange Act, along with the shares
acquired upon exercises of those options, including exercises after the date of
this offering. Securities issued in reliance on Rule 701 are restricted
securities and beginning 90 days after the date of this prospectus:
- may be sold by persons other than affiliates subject only to the manner
of sale provisions of Rule 144; and
- may be sold by affiliates under Rule 144 without complying with its
one-year minimum holding requirement.
STOCK OPTIONS AND WARRANTS
At May 31, 2000:
- options to purchase an aggregate of 224,354 shares of our common stock
will be fully vested;
- options to purchase an additional 2,019,896 shares of common stock were
outstanding but subject to future vesting and an additional 2,720,750
shares of common stock were available for future grants under our stock
option plan; and
- 170,281 shares of common stock were subject to exercisable warrants.
As soon as practicable following this offering, we intend to file one or
more registration statements on Form S-8 under the Securities Act to register
all shares of common stock subject to outstanding stock options and options
issuable pursuant to our stock option plan. Subject to the lock-up agreements,
shares covered by these registration statements will be eligible for sale in the
public markets by our non-affiliates. Shares owned by our affiliates may be sold
in the public market if they qualify for an exemption from registration under
Rules 144 or 701.
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<PAGE> 68
REGISTRATION RIGHTS
Following the offering, some of our shareholders will have rights to
require us to register their shares of common stock under the Securities Act,
and they will have rights to participate in any future registration of
securities by us. For more information, see "Description of Capital
Stock -- Registration Rights."
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<PAGE> 69
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., J.P. Morgan Securities Inc., Wit SoundView
Corporation and The Robinson-Humphrey Company, LLC have severally agreed with
us, subject to the terms and conditions of the underwriting agreement, to
purchase from us the number of shares of common stock set forth below opposite
their respective names. The underwriters are committed to purchase and pay for
all shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
FleetBoston Robertson Stephens Inc..........................
J. P. Morgan Securities Inc.................................
Wit SoundView Corporation...................................
The Robinson-Humphrey Company, LLC..........................
--------
Total........................................
========
</TABLE>
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the public offering price set forth on the cover
page of this prospectus and to certain dealers at that price less a concession
of not in excess of $ 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.
Before this offering, there has been no public market for the common stock.
Consequently, the public offering price for the common stock offered by this
prospectus has been determined through negotiations among the representatives
and us. Among the factors considered in such negotiations were prevailing market
conditions, certain of our financial information, market valuation of other
companies that we and the representatives believe to be comparable to us,
estimates of our business potential, the present state of our development and
other factors deemed relevant.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed 5% of the total number of shares offered.
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 additional shares of common stock at the same
price per share as we will receive for the shares that the
underwriters have agreed to purchase. If the underwriters exercise this option
to purchase any of the additional shares of common stock, the
underwriters have severally agreed, subject to specified conditions, to purchase
approximately the same percentage thereof as the number of shares to be
purchased by each of them 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 that the underwriters exercise the
over-allotment option. 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
--------------------------
PER WITHOUT OVER- WITH OVER-
SHARE ALLOTMENT ALLOTMENT
----- ------------- ----------
<S> <C> <C> <C>
Public offering price....................................... $ $ $
Underwriting discounts and commissions......................
Proceeds, before expenses, to us............................
</TABLE>
The expenses of the offering payable by us are estimated at $ .
FleetBoston Robertson Stephens Inc. expects to deliver the shares of common
stock to purchasers on , 2000.
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<PAGE> 70
Indemnity. The underwriting agreement contains covenants of indemnity
among the underwriters and us against certain civil liabilities, including
liabilities under the Securities Act, and liabilities arising from breaches of
representation and warranties contained in the underwriting agreement.
Lock-Up Agreements. Each of our executive officers, directors and all of
our shareholders have agreed with the representatives, for a period of 180 days
after the date of this prospectus, not to offer to sell, contract to sell or
transfer any:
- shares of common stock;
- options or warrants to purchase any shares of common stock; or
- any securities convertible into or exchangeable for shares of common
stock.
However, FleetBoston Robertson Stephens Inc. may, in its sole discretion and at
any time without notice, release all or any portion of the securities subject to
lock-up agreements. There are no agreements between the representatives and any
of our shareholders providing consent by the representatives to the sale of
shares before the expiration of the 180-day lock-up period.
We have agreed that during the lock-up period we will not, without the
prior written consent of FleetBoston Robertson Stephens Inc., consent to the
disposition of any shares held by shareholders subject to lock-up agreements
before the expiration of the lock-up period, or issue, sell, contract to sell,
or 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. However, the following are examples
of exceptions to this agreement:
- our sale of shares in this offering;
- the issuance of our common stock upon the exercise of outstanding options
or warrants; and
- the issuance of options under existing stock option and incentive plans,
provided that those options do not vest before the expiration of the
lock-up period.
Listing. We have applied for approval for quotation of our common stock on
the Nasdaq National Market under the symbol NVNT.
Stabilization. The representatives have advised us that, pursuant to
Regulation M under the Securities Act of 1933, some persons participating in
this offering may engage in transactions that 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. These transactions may include
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, as described below:
- a stabilizing bid is a bid for or the purchase of shares of common stock
on behalf of the underwriters for the purpose of fixing or maintaining
the price of the common stock;
- a syndicate covering transaction is the bid for or purchase of common
stock on behalf of the underwriters to reduce a short position incurred
by the underwriters in connection with the offering; and
- a penalty bid is an arrangement permitting 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 such underwriter or syndicate member is purchased by the
representatives in a syndicate covering transaction and has therefore not
been effectively placed by such underwriter or syndicate member.
The representatives have advised us that such transactions may be effected
on the Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
Directed Share Program. At our request, certain of the underwriters have
reserved up to % of the shares of common stock for sale at the initial
public offering price to persons who are our directors, officers or employees or
who are otherwise associated with us, and who have advised us of their desire to
purchase such shares. The number of shares of common stock available for sale to
the general public will
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<PAGE> 71
be reduced to the extent of sales of these shares to any of the persons for whom
they have been reserved. Any shares not so purchased will be offered by the
underwriters on the same basis as all other shares of common stock offered
hereby. We have agreed to indemnify those certain underwriters against certain
liabilities and expenses, including liabilities under the Securities Act, in
connection with the sales of directed shares.
In our February 2000 private placement of series C convertible preferred
stock, we sold 195,900 shares of series C convertible preferred stock at $7.66
per share to R-H Capital Partners, L.P., an affiliate of The Robinson-Humphrey
Company, LLC. As a result of this transaction, persons associated with The
Robinson-Humphrey Company, LLC may be deemed to beneficially own 195,900 shares
of common stock upon the automatic conversion of our convertible preferred stock
at the closing of this offering.
A prospectus in electronic format will be made available on web sites
maintained by one or more of the underwriters participating in this offering,
including Wit SoundView Corporation's affiliate, Wit Capital Corporation. In
addition, other dealers purchasing shares from Wit SoundView Corporation in this
offering have agreed to make a prospectus in electronic format available on web
sites maintained by each of those dealers. The representatives may agree to
allocate a number of shares to Wit Capital Corporation and other underwriters
for sale to their online brokerage account holders. Internet distributions will
be allocated by the representatives of the underwriters on the same basis as
other allocations.
LEGAL MATTERS
The validity of the issuance of the shares of the common stock to be sold
in this offering and other legal matters related to this offering will be passed
upon for us by Morris, Manning & Martin, L.L.P., Atlanta, Georgia. King &
Spalding has served as counsel for the underwriters in connection with this
offering.
EXPERTS
The financial statements of Novient, Inc. as of December 31, 1998 and 1999,
and for each of the years in the three-year period ended December 31, 1999 and
WebProject, Incorporated as of December 31, 1998 and 1999 and the period from
February 4, 1998 through December 31, 1998 and for the year ended December 31,
1999 have been included herein in reliance upon the reports of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 for the
registration of the common stock offered by this prospectus. This prospectus,
which forms a part of the registration statement, does not contain all the
information included in the registration statement, parts of which have been
omitted as permitted by the SEC rules and regulations. For further information
about us and our common stock, you should refer to the registration statement.
Statements contained in this prospectus about any contract or other document are
not necessarily complete. Statements made about any contract or document are
summaries of material information about the documents summarized, but are not
complete descriptions of all terms. If we filed any of those documents as
exhibits to the registration statement, you may read the document itself for a
complete description of its terms.
The registration statement can be inspected and copied at the SEC's
following locations at prescribed rates:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
Office Seven World Trade Center Citicorp Center
450 Fifth Street, N.W. Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
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<PAGE> 72
In addition, the registration statement is publicly available through the
SEC's web site, located at http://www.sec.gov. You may contact the SEC at
1-800-732-0330.
We will also file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may obtain copies of the documents that
we file electronically with the SEC through the SEC's web site located at
http://www.sec.gov. You can also request copies of these documents, for a
copying fee, by writing to the SEC.
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<PAGE> 73
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
NOVIENT, INC.:
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited)...................................... F-3
Statements of Operations for the Years Ended December 31,
1997, 1998 and 1999 and the Three Months Ended March 31,
1999 and 2000 (unaudited)................................. F-4
Statements of Shareholders' Equity (Deficit) for the Years
Ended December 31, 1997, 1998 and 1999 and the Three
Months Ended March 31, 2000 (unaudited)................... F-5
Statements of Cash Flows for the Years Ended December 31,
1997, 1998 and 1999 and the Three Months Ended March 31,
1999 and 2000 (unaudited)................................. F-6
Notes to Financial Statements............................... F-7
WEBPROJECT, INCORPORATED:
Independent Auditors' Report................................ F-19
Balance Sheets as of December 31, 1998 and 1999 and March
31, 2000 (unaudited)...................................... F-20
Statements of Operations for the Period from February 4,
1998 through December 31, 1998 and the Year Ended December
31, 1999 and the Three Months Ended March 31, 1999 and
2000 (unaudited).......................................... F-21
Statements of Shareholders' Equity for the Period from
February 4, 1998 through December 31, 1998 and the Year
Ended December 31, 1999 and the Three Months Ended March
31, 2000 (unaudited)...................................... F-22
Statements of Cash Flows for the Period from February 4,
1998 through December 31, 1998 and the Year Ended December
31, 1999 and the Three Months Ended March 31, 1999 and
2000 (unaudited).......................................... F-23
Notes to Financial Statements............................... F-24
</TABLE>
F-1
<PAGE> 74
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Novient, Inc.:
We have audited the accompanying balance sheets of Novient, Inc. (the
"Company") as of December 31, 1998 and 1999, and the related statements of
operations, shareholders' equity (deficit), and cash flows for each of the years
in the three-year period ended December 31, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Novient, Inc. as of December
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles.
Atlanta, Georgia
June 23, 2000
F-2
<PAGE> 75
NOVIENT, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- MARCH 31,
1998 1999 2000
-------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $299,158 $ 1,240,144 $ 22,084,542
Accounts receivable, net of allowance for doubtful
accounts of $125,000 at December 31, 1998 and 1999 and
March 31, 2000.......................................... 487,978 758,325 1,564,742
Prepaid expenses.......................................... 12,600 14,513 49,473
-------- ------------ ------------
Total current assets............................... 799,736 2,012,982 23,698,757
-------- ------------ ------------
Property and equipment:
Computer hardware and software............................ 129,491 920,439 1,355,892
Furniture and fixtures.................................... 16,207 36,305 43,478
Leasehold improvements.................................... 2,338 7,338 28,248
-------- ------------ ------------
148,036 964,082 1,427,618
Less accumulated depreciation and amortization............ 37,965 217,193 344,070
-------- ------------ ------------
Net property and equipment......................... 110,071 746,889 1,083,548
-------- ------------ ------------
Other assets................................................ 17,966 47,768 181,300
-------- ------------ ------------
$927,773 $ 2,807,639 $ 24,963,605
======== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 19,913 $ 594,136 $ 859,098
Accrued salaries and related expenses..................... 309,944 345,000 213,690
Accrued other expenses.................................... 37,458 286,624 282,633
Deferred revenue.......................................... 67,500 281,332 292,705
Deferred income taxes..................................... 33,463 -- --
Advances from shareholders................................ 37,870 -- --
-------- ------------ ------------
Total current liabilities.......................... 506,148 1,507,092 1,648,126
-------- ------------ ------------
Convertible preferred stock $.001 par value, redeemable at
greater of fixed or fair value; authorized 10,000,000
shares; stated at fair value:
Series A -- $.001 par value; 520,833 shares designated;
218,750, 227,250 and 227,250 shares issued and
outstanding at December 31, 1998, December 31, 1999 and
March 31, 2000, respectively............................ 175,000 4,777,500 5,227,950
Series B -- $.001 par value; 2,898,000 shares designated,
issued and outstanding at December 31, 1999 and March
31, 2000, respectively.................................. -- 20,286,000 22,198,680
Series C -- $.001 par value; 3,275,281 shares designated;
3,265,000 shares issued and outstanding at March 31,
2000.................................................... -- -- 25,000,000
-------- ------------ ------------
Total convertible preferred stock.................. 175,000 25,063,500 52,426,630
-------- ------------ ------------
Shareholders' equity (deficit):
Common stock -- $.001 par value; authorized 50,000,000
shares; 4,995,000, 4,995,000 and 5,237,500 shares issued
and outstanding at December 31, 1998, December 31, 1999
and March 31, 2000, respectively........................ 4,995 4,995 5,238
Additional paid-in capital................................ 145,355 -- --
Deferred stock-based compensation......................... -- (2,669,398) (2,540,803)
Retained earnings (accumulated deficit)................... 96,275 (21,098,550) (26,575,586)
-------- ------------ ------------
Total shareholders' equity (deficit)............... 246,625 (23,762,953) (29,111,151)
Commitments
-------- ------------ ------------
$927,773 $ 2,807,639 $ 24,963,605
======== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 76
NOVIENT, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------- ------------------------
1997 1998 1999 1999 2000
---------- ---------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees........... $ 175,935 $1,611,351 $ 3,826,161 $ 790,373 $ 896,750
Service fees.................... 9,264 256,950 757,378 211,297 543,690
---------- ---------- ------------ ---------- -----------
Total revenues.......... 185,199 1,868,301 4,583,539 1,001,670 1,440,440
Cost of revenues.................. 5,438 83,807 602,425 24,034 591,316
---------- ---------- ------------ ---------- -----------
Gross profit............ 179,761 1,784,494 3,981,114 977,636 849,124
---------- ---------- ------------ ---------- -----------
Operating expenses:
Selling and marketing........... 24,075 462,889 2,677,886 335,483 1,747,449
General and administrative...... 107,750 475,686 1,820,178 244,906 1,100,087
Research and development........ 99,876 606,949 2,370,693 390,763 1,206,643
Depreciation and amortization... 9,792 22,847 188,965 20,000 126,042
Noncash stock compensation...... -- -- 454,937 801 1,923,777
---------- ---------- ------------ ---------- -----------
Total operating
expenses.............. 241,493 1,568,371 7,512,659 991,953 6,103,998
---------- ---------- ------------ ---------- -----------
(Loss) income from
operations............ (61,732) 216,123 (3,531,545) (14,317) (5,254,874)
Interest income................... 231 5,598 147,910 23,899 132,004
---------- ---------- ------------ ---------- -----------
(Loss) income before
income taxes.......... (61,501) 221,721 (3,383,635) 9,582 (5,122,870)
Income tax expense (benefit)...... -- 50,921 (50,921) 144 --
---------- ---------- ------------ ---------- -----------
Net (loss) income....... (61,501) 170,800 (3,332,714) 9,438 (5,122,870)
Preferred stock accretion......... -- -- (21,145,101) (232,515) (2,363,130)
---------- ---------- ------------ ---------- -----------
Net (loss) income
available to common
shareholders.......... $ (61,501) $ 170,800 $(24,477,815) $ (223,077) $(7,486,000)
========== ========== ============ ========== ===========
Net (loss) income per share:
Basic........................... $ (.01) $ .03 $ (4.90) $ (.04) $ (1.46)
========== ========== ============ ========== ===========
Diluted......................... $ (.01) $ .03 $ (4.90) $ (.04) $ (1.46)
========== ========== ============ ========== ===========
Weighted-average common shares
outstanding:
Basic........................... 4,920,000 4,993,890 4,995,000 4,995,000 5,129,684
========== ========== ============ ========== ===========
Diluted......................... 4,920,000 5,651,685 4,995,000 4,995,000 5,129,684
========== ========== ============ ========== ===========
Unaudited pro forma net (loss)
income per share:
Basic and diluted............... $ (.39) $ (.47)
============ ===========
Basic and diluted
weighted-average common
shares outstanding........... 8,574,750 10,862,181
============ ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 77
NOVIENT, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL DEFERRED EARNINGS SHAREHOLDERS'
------------------ PAID-IN STOCK-BASED (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL COMPENSATION DEFICIT) (DEFICIT)
--------- ------ ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... -- $ -- $ 100 $ -- $ (13,024) $ (12,924)
Issuance of common stock....... 4,920,000 4,920 120,330 -- -- 125,250
Net loss....................... -- -- -- -- (61,501) (61,501)
--------- ------ ----------- ----------- ------------ ------------
Balance at December 31, 1997..... 4,920,000 4,920 120,430 -- (74,525) 50,825
Issuance of common stock....... 75,000 75 24,925 -- -- 25,000
Net income..................... -- -- -- -- 170,800 170,800
--------- ------ ----------- ----------- ------------ ------------
Balance at December 31, 1998..... 4,995,000 4,995 145,355 -- 96,275 246,625
Redemption of series A
convertible preferred
stock........................ -- -- (145,355) -- (73,860) (219,215)
Deferred compensation related
to stock option grants....... -- -- 3,124,335 (3,124,335) -- --
Amortization of stock-based
compensation................. -- -- -- 454,937 -- 454,937
Accretion of redemption value
of convertible preferred
stock........................ -- -- (3,124,335) -- (17,788,251) (20,912,586)
Net loss....................... -- -- -- -- (3,332,714) (3,332,714)
--------- ------ ----------- ----------- ------------ ------------
Balance at December 31, 1999..... 4,995,000 4,995 -- (2,669,398) (21,098,550) (23,762,953)
Issuance of common stock
(unaudited).................. 200,000 200 199,800 -- -- 200,000
Issuance of common stock upon
exercise of options
(unaudited).................. 42,500 43 13,982 -- -- 14,025
Deferred compensation related
to stock option grants
(unaudited).................. -- -- 1,795,182 (1,795,182) -- --
Amortization of stock-based
compensation (unaudited)..... -- -- -- 1,923,777 -- 1,923,777
Accretion of redemption value
of convertible preferred
stock (unaudited)............ -- -- (2,008,964) -- (354,166) (2,363,130)
Net loss (unaudited)........... -- -- -- -- (5,122,870) (5,122,870)
--------- ------ ----------- ----------- ------------ ------------
Balance at March 31, 2000
(unaudited).................... 5,237,500 $5,238 $ -- $(2,540,803) $(26,575,586) $(29,111,151)
========= ====== =========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 78
NOVIENT, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------- ------------------------
1997 1998 1999 1999 2000
-------- -------- ----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................ $(61,501) $170,800 $(3,332,714) $ 9,438 $(5,122,870)
Adjustments to reconcile net (loss)
income to net cash (used in) provided
by operating activities:
Depreciation and amortization....... 9,792 22,847 188,965 20,000 126,042
Provision for doubtful accounts..... -- 125,000 -- -- --
Noncash stock compensation.......... -- -- 454,937 801 1,923,777
Deferred income tax (benefit)
expense........................... -- 33,463 (33,463) 49,827 --
Change in operating assets and
liabilities:
Accounts receivable............... (54,295) (558,683) (270,347) 402,461 (806,417)
Prepaid expenses.................. -- (12,600) (1,913) 12,600 (34,960)
Other assets...................... (877) (15,785) (29,802) (93,287) (133,532)
Accounts payable.................. 1,705 18,208 574,223 1,087 264,962
Accrued salaries and related
expenses....................... 12,488 297,456 35,056 (234,944) (131,310)
Accrued other expenses............ -- 37,458 249,166 (30,743) (3,991)
Deferred revenue.................. -- 67,500 213,832 725,624 11,373
-------- -------- ----------- ---------- -----------
Net cash (used in) provided by
operating activities........... (92,688) 185,664 (1,952,060) 862,864 (3,906,926)
-------- -------- ----------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (25,503) (106,533) (825,783) (124,749) (462,701)
-------- -------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock............................... 125,250 25,000 -- -- 200,000
Issuance of common stock upon exercise
of options.......................... -- -- -- -- 14,025
Issuance of series A convertible
preferred stock upon exercise of
warrants............................ -- -- 75,000 -- --
Proceeds from issuance of series A
convertible preferred stock......... 175,000 -- -- -- --
Proceeds from issuance of series B
convertible preferred stock......... -- -- 3,967,414 3,967,414 --
Proceeds from issuance of series C
convertible preferred stock......... -- -- -- -- 25,000,000
Redemption of series A convertible
preferred stock..................... -- -- (285,715) (285,715) --
Proceeds from advances from
shareholders........................ 12,856 -- -- -- --
Repayment of advances from
shareholders........................ -- -- (37,870) (37,870) --
-------- -------- ----------- ---------- -----------
Net cash provided by financing
activities............................. 313,106 25,000 3,718,829 3,643,829 25,214,025
-------- -------- ----------- ---------- -----------
Net increase in cash and cash
equivalents............................ 194,915 104,131 940,986 4,381,944 20,844,398
Cash and cash equivalents at beginning of
period................................. 112 195,027 299,158 299,158 1,240,144
-------- -------- ----------- ---------- -----------
Cash and cash equivalents at end of
period................................. $195,027 $299,158 $ 1,240,144 $4,681,102 $22,084,542
======== ======== =========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH
FINANCING ACTIVITIES:
Accretion of redemption value of
convertible preferred stock............ $ -- $ -- $20,912,586 $ -- $ 2,363,130
======== ======== =========== ========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 79
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
Novient, Inc. (the "Company") provides an Internet infrastructure solution
to professional services organizations that optimizes global operations by
enabling dynamic collaboration throughout an organization's services community.
The Company's solution automates and streamlines the business processes of
services organizations, including management of project opportunities,
allocation of professional resources and delivery of the professional services
and provides enterprise-wide visibility of business performance. In addition,
the Company's solution facilitates business transactions and collaboration over
the Internet among a professional services organization, its clients, affiliated
services organizations and independent professionals. The Company also provides
professional services, including maintenance support, consulting and training.
During 1999, the Company changed its name from InfoWave Technologies, Inc. to
Novient, Inc.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) UNAUDITED INTERIM INFORMATION
The accompanying interim financial statements for the three months ended
March 31, 1999 and 2000 have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of management, such financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash flows.
Historical results are not necessarily indicative of results to be expected in
the future.
(D) REVENUE RECOGNITION
The Company has adopted the provisions of Statement of Position ("SOP") No.
97-2, Software Revenue Recognition, as amended by SOP No. 98-9, modification of
SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.
Revenue recognized from multiple-element software arrangements are allocated to
each element of the arrangement based on fair values of the elements, such as
software products, maintenance and support and consulting services. The
determination of fair value is based on objective evidence that is specific to
the Company or the pricing of products is established by management having the
authority to do so.
Software License Fees
Revenues from license fees are recognized when persuasive evidence of an
arrangement exists, delivery of the product has occurred, the fee is fixed or
determinable and collectibility is probable. Subscription fees include fixed
fees for use of the Company's Internet-hosted applications and are recognized
over the service period, and included in software license fees.
F-7
<PAGE> 80
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Service Fees
Service revenues consist primarily of maintenance, support, consulting and
training fees for the associated products. Maintenance and support revenues are
deferred and recognized on a straight-line basis over the life of the related
agreement, which is typically one year. Consulting services and training
revenues are recognized as the training, implementation or consulting services
are performed. If maintenance and support services are included in an
arrangement that involves a license agreement, amounts related to maintenance
and support 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 authority to do
so.
Deferred revenue in the accompanying balance sheets represents payments
received from customers in advance of revenue recognition.
(E) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Computer hardware........................................... 3 years
Computer software........................................... 2 years
Furniture and fixtures...................................... 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the lease term or
the estimated useful life of the asset.
(F) RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
The Company expenses all software development costs associated with
establishing technological feasibility of new or enhanced products or systems.
The Company defines technological feasibility as completion of beta testing of
the new or enhanced products or systems. Because of the short period of time
between completion of beta testing and the release of new or enhanced products
or systems to customers, capitalized software development costs have not been
significant.
(G) INCOME TAXES
The Company was taxed as an S Corporation pursuant to the Internal Revenue
Code through September 12, 1997. As such, the Company did not record any
provision for Federal or state income taxes through September 12, 1997, since
all income was passed through to, and the related income tax liabilities were
the responsibility of, the shareholders of the Company.
On September 12, 1997, the Company terminated its election to operate as an
S Corporation and became taxable as a C Corporation.
Since September 12, 1997, income taxes have been accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-8
<PAGE> 81
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(H) CASH AND CASH EQUIVALENTS
The Company considers highly liquid instruments with original maturities of
three months or less to be cash equivalents.
(I) STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations, in accounting for its
fixed plan stock options. As such, compensation expense would generally be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. Expense associated with stock-based
compensation is being amortized on an accelerated basis over the vesting period
of the individual award consistent with the method described in Financial
Accounting Standards Board ("FASB") Interpretation No. 28, Accounting for Stock
Appreciation Rights and other Variable Stock Option or Award Plans.
(J) SHARE AND PER SHARE DATA
All share and per share data has been restated to reflect the amendment to
the Company's Articles of Incorporation effective on February 24, 2000, upon
issuance of the series C convertible preferred stock.
(K) FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, accounts receivable, accounts
payable, accrued expenses and deferred revenue approximate fair value due to the
short-term nature of these assets and liabilities. Financial instruments that
potentially subject the Company to significant concentrations of credit risk
consist principally of cash. The Company maintains all of its cash with
financial institutions.
(L) COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting Comprehensive Income. This statement establishes
standards for reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. SFAS No. 130 requires all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed in equal prominence with the other financial statements. The term
"comprehensive income" is used in the statement to describe the total of all
components of comprehensive income including net income. "Other comprehensive
income" refers to revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current accounting
standards. Currently, the Company has no other comprehensive income and thus
comprehensive income equals net income. The Company adopted SFAS No. 130
effective January 1, 1998.
(M) COMPUTATION OF HISTORICAL AND UNAUDITED PRO FORMA NET (LOSS) INCOME PER
SHARE
The Company has presented historical net (loss) income per share pursuant
to SFAS No. 128, Earnings Per Share, and the SEC Staff Accounting Bulletin
("SAB") No. 98. Pursuant to SFAS No. 128, unvested stock is excluded from basic
earnings per share and included in diluted earnings per share if dilutive.
Pursuant to SAB No. 98, common stock and convertible preferred stock issued for
nominal consideration, prior to the effective date of the initial public
offering, are required to be included in the calculation of basic and diluted
net (loss) income per share, as if they were outstanding for all periods
presented. The Company has not had any such issuances or grants for nominal
consideration.
F-9
<PAGE> 82
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma net (loss) income per share for the year ended
December 31, 1999 and the three months ended March 31, 2000 is calculated using
the historical weighted-average common shares outstanding and reflecting the
anticipated conversion of series A, series B and series C convertible preferred
stock into shares of the Company's common stock, as if such conversions had
occurred on January 1, 1999, or at the date of issuance, if later. The
calculation excludes preferred stock accretion of $21,145,101 and $2,363,130 for
the year ended December 31, 1999 and the three months ended March 31, 2000,
respectively.
Following is a reconciliation of the numerator and denominator used in the
calculation of historical basic and diluted net (loss) income per share:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
-------------------------------------- MARCH 31,
1997 1998 1999 2000
---------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Historical:
Net (loss) income.................. $ (61,501) $ 170,800 $ (3,332,714) $(5,122,870)
Accretion on convertible preferred
stock........................... -- -- (21,145,101) (2,363,130)
---------- ---------- ------------ -----------
Net (loss) income
applicable to common
shareholders............. $ (61,501) $ 170,800 $(24,477,815) $(7,486,000)
========== ========== ============ ===========
Weighted-average basic common shares
outstanding........................ 4,920,000 4,993,890 4,995,000 5,129,684
Effect of dilutive options......... -- 1,545 -- --
Assumed conversion of series A
convertible preferred stock........ -- 656,250 -- --
---------- ---------- ------------ -----------
Weighted-average diluted common
shares outstanding................. 4,920,000 5,651,685 4,995,000 5,129,684
========== ========== ============ ===========
Basic and diluted net (loss) income
per share.......................... $ (.01) $ .03 $ (4.90) $ (1.46)
========== ========== ============ ===========
</TABLE>
The Company has excluded all convertible preferred stock, warrants for
preferred stock, and outstanding stock options from the calculation of
historical diluted net (loss) income per common share because all such
securities are anti-dilutive for all periods presented except 1998. The total
number of potentially dilutive shares excluded from the calculations of diluted
net (loss) income per share were 385,572, 4,628,064 and 7,551,747 for the years
ended December 31, 1997 and December 31, 1999, and the three months ended March
31, 2000 (unaudited), respectively. See Notes 4 and 5 for further information on
these potentially dilutive securities.
F-10
<PAGE> 83
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Following is a reconciliation of the numerator and denominator used in the
calculation of unaudited pro forma basic and diluted net (loss) income per
share:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
Historical net (loss) income................................ $(3,332,714) $(5,122,870)
=========== ===========
Unaudited pro forma:
Historical basic and diluted common shares outstanding.... 4,995,000 5,129,684
Adjustment to reflect the anticipated initial public
offering Conversion of series A convertible preferred
stock.................................................. 681,750 681,750
Conversion of series B convertible preferred stock..... 2,898,000 2,898,000
Conversion of series C convertible preferred stock..... -- 2,152,747
----------- -----------
Pro forma basic and diluted common shares outstanding....... 8,574,750 10,862,181
=========== ===========
Unaudited pro forma basic and diluted net (loss) income per
share..................................................... $ (.39) $ (.47)
=========== ===========
</TABLE>
(N) ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred.
2. INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1997, 1998
and 1999 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal.............................................. $ -- $ -- $ --
State................................................ -- -- --
-------- -------- --------
$ -- $ -- $ --
======== ======== ========
Year ended December 31, 1998:
Federal.............................................. $ 8,427 $ 28,174 $ 36,601
State................................................ 9,031 5,289 14,320
-------- -------- --------
$ 17,458 $ 33,463 $ 50,921
======== ======== ========
Year ended December 31, 1999:
Federal.............................................. $ (8,427) $(28,174) $(36,601)
State................................................ (9,031) (5,289) (14,320)
-------- -------- --------
$(17,458) $(33,463) $(50,921)
======== ======== ========
</TABLE>
F-11
<PAGE> 84
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense (benefit) at the Federal income tax
rate of 34% to actual income tax expense (benefit) for the years ended December
31, 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- -----------
<S> <C> <C> <C>
Computed "expected" income tax (benefit) expense..... $(20,910) $ 75,385 $(1,150,435)
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax
effect.......................................... (1,083) 9,451 (164,511)
S Corporation loss not subject to income tax....... 14,554 -- --
Generation of research and experimentation credit
carryforward.................................... -- (30,004) (48,528)
Benefit reduction due to limited carryback of net
operating losses................................ -- -- 39,695
Nondeductible items................................ 156 972 12,351
Stock-based compensation........................... -- -- 154,678
Valuation allowance................................ 7,245 (7,245) 1,107,758
Other, net......................................... 38 2,362 (1,929)
-------- -------- -----------
$ -- $ 50,921 $ (50,921)
======== ======== ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1999 are as follows:
<TABLE>
<CAPTION>
1998 1999
-------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss and research and experimentation credit
carryforwards.......................................... $ -- $ 835,506
Adjustments for cash method of accounting................. -- 248,247
Allowance for doubtful accounts........................... 47,450 47,450
-------- -----------
Total gross deferred tax assets................... 47,450 1,131,203
Less valuation allowance.................................. -- (1,107,758)
-------- -----------
Net deferred tax assets........................... 47,450 23,445
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation and amortization.......................... (1,039) (23,445)
Adjustment for cash method of accounting.................. (79,874) --
-------- -----------
Total deferred tax liabilities.................... (80,913) (23,445)
-------- -----------
Net deferred tax asset (liability)................ $(33,463) $ --
======== ===========
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1998 and
1999 was $-0- and $1,107,758, respectively. The net change in the total
valuation allowance for the periods ended December 31, 1997, 1998 and 1999 was
an increase (decrease) of $7,245, ($7,245) and $1,107,758, respectively. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment. At December 31, 1999,
management believes sufficient uncertainty exists regarding realization of
deferred tax assets and, accordingly, a valuation allowance against deferred tax
assets has been established.
F-12
<PAGE> 85
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1999, the Company had net operating loss and research and
experimentation credit carryforwards of approximately $1,967,000 and $79,000,
respectively, that will expire at various dates through the year 2019.
3. ADVANCES FROM SHAREHOLDERS
At December 31, 1998, advances from shareholders to the Company totaled
$37,870. The advances were fully repaid in the year ended December 31, 1999.
4. CONVERTIBLE PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue up to an
aggregate of 10 million shares of preferred stock in one or more series and to
fix or alter the designations, preferences, rights and any qualifications,
limitations or restrictions on the shares of each such series thereof, including
the dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series or designations of such series. Convertible preferred
shareholders have numerous rights and privileges, including but not limited to,
those disclosed herein.
(A) SERIES A CONVERTIBLE PREFERRED STOCK -- REDEEMABLE
On September 12, 1997, the Company sold 218,750 shares of series A
convertible preferred stock for $.80 per share resulting in net proceeds of
$175,000. No dividends can be declared for any shares of series A convertible
preferred stock except in the event that a dividend is declared on the
outstanding shares of common stock. The amount of any dividend on series A
convertible preferred stock will be determined on an as-converted basis. No
dividends were declared for the years ended December 31, 1997, 1998 or 1999.
In connection with the sale of the series A convertible preferred stock,
the Company issued a warrant which provided the holders of the series A
convertible preferred stock with the right to purchase an additional 75,000
shares of series A convertible preferred stock for a price of $1.00 per share.
The Company also had the right to force the exercise of the warrant in certain
circumstances. The warrant was exercised on September 8, 1999 resulting in net
proceeds of $75,000.
On March 5, 1999, the Company redeemed 66,500 shares of series A
convertible preferred stock at $4.30 per share for a total cost of $285,715. The
amount of $232,515 representing the excess proceeds over original cost has been
included as accretion for calculating net income (loss) available to common
shareholders in the year ended December 31, 1999 and the three months ended
March 31, 1999 (unaudited).
Each share of series A convertible preferred stock is convertible into 3
shares of common stock. The conversion rate is adjustable upon the occurrence of
certain dilution events, as defined. The series A convertible preferred stock is
automatically convertible into common stock upon the completion of a public
offering in excess of $15.32 per share with net proceeds in excess of $15
million (a "Qualified Public Offering").
The series A convertible preferred stock agreement required additional
shares of series A convertible preferred stock to be issued to holders upon the
issuance, by the Company, of common stock or convertible securities at a price
less than the then existing conversion price. The initial conversion price of
$.27 was subject to adjustment if the Company failed to achieve cumulative net
revenue of $2,000,000 for the two-year period ended December 31, 1998. The
Company met the revenue performance criterion and the conversion price was not
adjusted.
F-13
<PAGE> 86
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Holders of series A convertible preferred stock have full voting rights
equivalent to the common shareholders as if the shares of preferred stock were
converted to common stock.
The terms of the series A convertible preferred stock were changed
effective with the issuance of the series C convertible preferred stock on
February 24, 2000 (see (c) below).
(B) SERIES B CONVERTIBLE PREFERRED STOCK -- REDEEMABLE
On March 3, 1999, the Company sold 2,898,000 shares of series B convertible
preferred stock for $1.38 per share resulting in net proceeds of $3,967,414.
Series B convertible preferred stock has a $.1104 preference per share, per
year, for dividends in the event that a dividend is declared on the outstanding
shares of series A convertible preferred stock or common stock. The amount of
any dividend on series B convertible preferred stock is determined on an
as-converted basis. No dividends were declared for the year ended December 31,
1999.
Each share of series B convertible preferred stock is convertible, at the
option of the holder, into one share of common stock. The conversion rate is
adjustable upon the occurrence of certain dilution events. The series B
convertible preferred stock is automatically convertible into common stock upon
the completion of a Qualified Public Offering.
Holders of series B convertible preferred stock have full voting rights
equivalent to the common shareholders as if the preferred were converted to
common stock. In addition, until the completion of a Qualified Public Offering
the board of directors will at all times include one director nominated by the
holders of the series B convertible preferred stock.
The terms of the series B convertible preferred stock were changed
effective with the issuance of the series C convertible preferred stock on
February 24, 2000 (see (c) below).
(C) SERIES C CONVERTIBLE PREFERRED STOCK -- REDEEMABLE
On February 24, 2000, the Company sold 3,265,000 shares of redeemable
series C convertible preferred stock for $7.66 per share for net proceeds of
$25,000,000. Additionally, the Company issued a warrant which provides the
holder with the right to purchase 10,281 shares of series C convertible
preferred stock for a price of $7.66 per share. Upon the occurrence of a
Qualified Public Offering the preferred stock warrant automatically converts to
a warrant for common stock at $7.66 per share.
The holders of series C convertible preferred stock are entitled to
dividends in preference to series B convertible preferred, series A convertible
preferred, and common stock at a rate of $.612557 per share, per year, or if
greater, the amount of the dividend to series C convertible preferred stock
determined on an as-converted basis.
Each share of series C convertible preferred stock is convertible, at the
option of the holder, into one share of common stock. The conversion rate is
adjustable upon the occurrence of certain dilution events, as defined. The
series C convertible preferred stock is automatically convertible into common
stock upon the completion of a Qualified Public Offering.
The series C convertible preferred stock agreement requires additional
shares of series C convertible preferred stock to be issued to holders upon the
issuance, by the Company, of common stock or convertible securities at a price
less than the original issuance price, as defined, of $7.66. In the event of a
financing transaction, subsequent to the series C convertible preferred stock,
the series C conversion ratio is subject to the adjustment, if the offering
price is less than $15.32, to 50% of the lowest offering price per share in any
future investor financing. This right terminates upon completion of a Qualified
Public Offering.
F-14
<PAGE> 87
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In the event of any liquidation, dissolution or winding up either voluntary
or involuntary, the holders of series C convertible preferred stock shall be
entitled to receive, in preference to the holders of series A convertible
preferred stock, series B convertible preferred stock and common stock, an
amount equal to $7.66 for each outstanding share of series C convertible
preferred stock and an amount equal to declared but unpaid dividends on each
such share. After payment of such sum to the holders of series C convertible
preferred stock, the holders of series A convertible preferred stock shall be
entitled to receive, prior and in preference to any distribution of any of the
assets to the holders of common stock by reason of their ownership thereof, an
amount per share equal to the sum of $0.80 for each outstanding share of series
A convertible preferred stock and an amount equal to declared but unpaid
dividends on each such share and the holders of series B convertible preferred
stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets to the holders of common stock by reason of their ownership
thereof, an amount per share equal to the sum of $1.38 for each outstanding
share of series B convertible preferred stock and an amount equal to declared
but unpaid dividends on each such share. If upon the occurrence of such
liquidation, the assets and funds thus distributed among the holders of the
series A convertible preferred stock, series B convertible preferred stock and
series C convertible preferred stock shall be insufficient to permit the payment
to such holders of the full aforesaid preferential amounts, then the entire
remaining assets and funds legally available for distribution shall first be
distributed ratably among the holders of the series C convertible preferred
stock, and then any remaining assets shall be distributed ratably among the
holders of the series A convertible preferred and series B convertible preferred
stock in proportion to the preferential amount each such holder is otherwise
entitled to receive.
In addition, each of the series A, B, and C convertible preferred
shareholders is entitled to additional preferential distribution until each of
such holders has received an aggregate of three times their original investment,
including amounts in the preceding paragraph. The remaining assets are available
for distribution to the holders of common stock until such holders have received
$22.98 per share and thereafter pro rata to the series B and C convertible
preferred shareholders based on the number of shares held by each.
The holders of series A, B, and C convertible preferred stock can demand
redemption five years from the original issue date, if two thirds of the holders
request redemption. If the shares are redeemed, then on a pro rata basis,
one-half of the shares will be redeemed five years from the original issue date
and the remainder one year later. The redemption price will be the greater of
the fair market value of the shares or the original issue price plus accrued and
unpaid dividends plus an amount equal to a return of 12% compounded annually
from the date of issuance.
The holders of the convertible preferred and common stock have entered into
a voting agreement dated February 24, 2000 which provides for designation of
four members of the Board of Directors by all common and preferred shareholders
as a group. The series B and C convertible preferred stockholders may designate
one member each, and the Company and series C convertible preferred shareholders
can mutually designate one remaining member.
5. STOCK OPTIONS
The Company has a stock option plan for employees, directors and others
pursuant to which the board of directors is authorized to grant options to
acquire up to 5 million shares of common stock. The option price must not be
less than the fair market value on the date of the grant for shareholders who
own less than 10% of the Company and not less than 110% of the fair market value
for shareholders who own greater than 10% of the Company. The term of the
options is established by the board of directors at the time of grant; however,
the term of the option shall not exceed ten years for shareholders who own less
than 10% of the Company and five years for shareholders who own greater than 10%
of the Company.
F-15
<PAGE> 88
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Option vesting terms are established by the board of directors at the time of
the grant, and generally vest ratably over a four-year period beginning from the
date of grant.
The Company has granted stock options for a fixed number of shares to
employees at exercise prices equal to the fair value of the shares at the date
of the grant. The per share weighted-average fair value of the options granted
during 1997, 1998 and 1999 was $.04, $.06, and $.26 per option, respectively, on
the date of the grant using the Black Scholes option-pricing model (excluding a
volatility assumption) with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Expected dividend yield..................................... 0.0% 0.0% 0.0%
Risk-free interest rate..................................... 5.5% 5.5% 6.0%
Expected option life........................................ 4 years 4 years 4 years
</TABLE>
The following summarizes stock option activity for the years ended December
31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- ---------
<S> <C> <C>
Balance at January 1, 1997.................................. -- $ --
Granted................................................... 186,000 0.32
--------- -----
Balance at December 31, 1997................................ 186,000 0.32
Granted................................................... 213,000 0.33
--------- -----
Balance at December 31, 1998................................ 399,000 0.33
Granted................................................... 1,470,750 0.68
Forfeited................................................. (211,500) 0.33
--------- -----
Balance at December 31, 1999................................ 1,658,250 $0.64
========= =====
Shares available for future grants.......................... 3,341,750
=========
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
EXERCISABLE
-------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE NUMBER AVERAGE
NUMBER REMAINING EXERCISE OF EXERCISE
RANGE OF PRICES OUTSTANDING LIFE PRICE SHARES PRICE
--------------- ----------- ---------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$0.16....................................... 6,000 7.2 years $0.16 6,000 $0.16
0.33....................................... 890,250 9.1 years 0.33 160,125 0.33
1.00....................................... 762,000 10.0 years 1.00 -- 1.00
--------- -------
1,658,250 166,125
========= =======
</TABLE>
Stock options exercisable at December 31, 1997, 1998 and 1999 amounted to
0, 48,000 and 166,125, respectively.
F-16
<PAGE> 89
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its stock option
plan and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements, unless the deemed fair value exceeded the
stock option exercise price. If the Company had determined compensation cost
based on the fair value at the date of grant for its stock options under SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's net (loss)
income would have been increased (reduced) to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
-------- -------- ------------
<S> <C> <C> <C>
Net (loss) income available to common shareholders:
As reported....................................... $(61,501) $170,800 $(24,477,815)
Pro forma......................................... (61,925) 168,659 (24,505,299)
(Loss) income per share:
As reported, basic and diluted.................... (.01) .03 (4.90)
Pro forma, basic and diluted...................... (.01) .03 (4.91)
</TABLE>
6. EMPLOYEE BENEFIT PLAN
The Company established a qualified retirement plan pursuant to Internal
Revenue Code Section 401(k) during 1999. The plan covers substantially all
employees subject to certain minimum age and service requirements. Contributions
to the plan by employees are voluntary. The Company may match part of the
employee's contributions subject to annual approval by the board of directors.
The Company made no matching contributions to the plan during 1999.
7. COMMITMENTS
The Company has entered into various operating leases which expire at
various times through 2004. At December 31, 1999, future minimum lease payments
were as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
2000........................................................ $ 687,780
2001........................................................ 657,329
2002........................................................ 642,240
2003........................................................ 625,680
2004........................................................ 387,328
----------
$3,000,267
==========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998 and 1999 was
$14,648, $12,488, and $242,491, respectively.
8. SIGNIFICANT CUSTOMER INFORMATION AND REPORTING
(A) SEGMENT REPORTING
During 1999, the Company adopted the provisions of SFAS No. 131, Disclosure
About Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the reporting by public business enterprises of
information about operating segments, products and services, geographic areas
and major customers. The method for determining what information to report is
based on the way that management organizes the operations within the Company for
making operational decisions and assessments of financial performance.
F-17
<PAGE> 90
NOVIENT, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's chief operating decision maker is considered to be the
Company's Chief Executive Officer ("CEO"). The CEO reviews financial information
presented on a basis for purposes of making operating decisions and assessing
financial performance. The financial information reviewed by the CEO is
identical to the information presented in the accompanying statements of
operations and the Company has no significant foreign operations. Therefore, the
Company operates in a single operating segment, which is Internet software.
(B) MAJOR CUSTOMERS
Revenues from customers greater than 10% of total revenues for each of the
years ended December 31, 1997, 1998, and 1999 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
REVENUES 1997 1998 1999
-------- -------- ---------- ----------
<S> <C> <C> <C>
Customer A.......................................... $ 24,000 $ -- $ --
Customer B.......................................... 54,148 -- --
Customer C.......................................... 36,870 -- --
Customer D.......................................... -- 608,492 --
Customer E.......................................... -- 536,285 1,423,672
Customer F.......................................... -- -- 649,725
Customer G.......................................... -- -- 603,651
-------- ---------- ----------
$115,018 $1,144,777 $2,677,048
======== ========== ==========
</TABLE>
Amounts receivable from these significant customers were $738,425 and
$633,321 at December 31, 1998 and 1999, respectively.
9. SUBSEQUENT EVENT
Acquisition Of WebProject, Incorporated
In April 2000, the Company acquired all the outstanding common stock of
WebProject, Incorporated of San Mateo, California for 1,044,519 common shares of
the Company and $1.5 million of cash. In addition, the Company has agreed to an
earnout arrangement for up to an additional $6 million in consideration,
contingent upon the achievement of certain levels of revenues and certain
customer referrals for the year ending December 31, 2000. The acquisition will
be accounted for using the purchase method of accounting. The preliminary
allocation of the fair value of assets acquired and liabilities assumed resulted
in goodwill, representing the excess of purchase price over net assets acquired,
of approximately $9.5 million, which will be amortized over its estimated useful
life of two years, based on the Company's estimation of the useful life of the
technology acquired.
F-18
<PAGE> 91
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
WebProject, Incorporated:
We have audited the accompanying balance sheets of WebProject, Incorporated
(the "Company") as of December 31, 1998 and 1999, and the related statements of
operations, shareholders' equity, and cash flows for the period from February 4,
1998 (date of inception) through December 31, 1998 and the year ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WebProject, Incorporated as
of December 31, 1998 and 1999, and the results of its operations and its cash
flows for the period from February 4, 1998 (date of inception) through December
31, 1998 and the year ended December 31, 1999 in conformity with generally
accepted accounting principles.
Atlanta, Georgia
June 27, 2000
F-19
<PAGE> 92
WEBPROJECT, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999 MARCH 31, 2000
------ ------- --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash...................................................... $6,255 $24,971 $ 52,927
Accounts receivable....................................... -- 43,939 64,545
------ ------- --------
Total current assets.............................. $6,255 $68,910 $117,472
====== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ -- $14,162 $ 20,769
Payroll taxes payable..................................... -- 7,349 7,349
Other accrued expenses.................................... 2,392 9,465 42,540
Advances from shareholders................................ -- 32,438 5,000
------ ------- --------
Total current liabilities......................... 2,392 63,414 75,658
------ ------- --------
Shareholders' equity:
Common stock -- no par value; authorized 10,000,000
shares; 2,000,000, 2,072,790 and 2,072,790 shares
issued and outstanding at December 31, 1998 and
December 31, 1999 and March 31, 2000, respectively..... -- -- --
Additional paid-in capital................................ 500 500 500
Retained earnings......................................... 3,363 4,996 41,314
------ ------- --------
Total shareholders' equity........................ 3,863 5,496 41,814
------ ------- --------
$6,255 $68,910 $117,472
====== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE> 93
WEBPROJECT, INCORPORATED
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 4, 1998 THREE
THROUGH YEAR ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, MARCH 31,
----------------- ------------ ------------------
1998 1999 1999 2000
----------------- ------------ ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Software license fees......................... $20,743 $156,046 $ 5,989 $154,946
Service fees.................................. 2,750 60,158 17,292 14,863
------- -------- ------- --------
Total revenues........................ 23,493 216,204 23,281 169,809
Cost of revenues................................ -- 25,370 1,800 14,258
------- -------- ------- --------
Gross profit.......................... 23,493 190,834 21,481 155,551
------- -------- ------- --------
Operating expenses:
General and administrative.................... 18,640 111,959 10,467 50,578
Research and development...................... -- 76,110 5,400 42,772
------- -------- ------- --------
Total operating expenses.............. 18,640 188,069 15,867 93,350
------- -------- ------- --------
Income from operations................ 4,853 2,765 5,614 62,201
Interest expense................................ -- -- -- (1,671)
------- -------- ------- --------
Income before taxes................... 4,853 2,765 5,614 60,530
Income tax expense.............................. 1,490 1,132 2,246 24,212
------- -------- ------- --------
Net income............................ $ 3,363 $ 1,633 $ 3,368 $ 36,318
======= ======== ======= ========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE> 94
WEBPROJECT, INCORPORATED
STATEMENTS OF SHAREHOLDERS' EQUITY
PERIOD FROM FEBRUARY 4, 1998 THROUGH DECEMBER 31, 1998
AND THE YEAR ENDED DECEMBER 31, 1999 AND THE THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Initial capitalization...................... 2,000,000 $ -- $ 500 $ -- $ 500
Net income.................................. -- -- -- 3,363 3,363
---------- ------ ------ ------- -------
Balance at December 31, 1998................ 2,000,000 -- 500 3,363 3,863
Issuance of common stock.................... 72,790 -- -- -- --
Net income.................................. -- -- -- 1,633 1,633
---------- ------ ------ ------- -------
Balance at December 31, 1999................ 2,072,790 -- 500 4,996 5,496
Net income.................................. -- -- -- 36,318 36,318
---------- ------ ------ ------- -------
Balance at March 31, 2000 (unaudited)....... 2,072,790 $ -- $ 500 $41,314 $41,814
========== ====== ====== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE> 95
WEBPROJECT, INCORPORATED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM THREE
FEBRUARY 4, 1998 YEAR ENDED MONTHS ENDED
THROUGH DECEMBER 31, MARCH 31,
DECEMBER 31, ------------ -----------------
1998 1999 1999 2000
---------------- ------------ ------ --------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $3,363 $ 1,633 $3,368 $ 36,318
Adjustments to reconcile net income to net cash
(used in) provided by operating
activities:..................................
Changes in operating assets and liabilities:
Accounts receivable........................ -- (43,939) -- (20,606)
Accounts payable........................... -- 14,162 -- 6,607
Payroll taxes payable...................... -- 7,349 -- --
Other accrued expenses..................... 2,392 7,073 2,829 33,075
------ -------- ------ --------
Net cash provided by (used in) operating
activities............................ 5,755 (13,722) 6,197 55,394
------ -------- ------ --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.......... 500 -- -- --
Proceeds from advances from shareholders........ -- 32,438 -- --
Repayment of advances from shareholders......... -- -- -- (27,438)
------ -------- ------ --------
Net cash provided by financing
activities............................ 500 32,438 -- (27,438)
------ -------- ------ --------
Net increase in cash and cash
equivalents........................... 6,255 18,716 6,197 27,956
Cash and cash equivalents at beginning of
period.......................................... -- 6,255 6,255 24,971
------ -------- ------ --------
Cash and cash equivalents at end of period........ $6,255 $ 24,971 12,452 $ 52,927
====== ======== ====== ========
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE> 96
WEBPROJECT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BUSINESS
WebProject, Incorporated (the "Company") designs, develops, markets, and
licenses Java-based project management and collaboration software that allows
users to capture, access and share project and enterprise information through a
project portal Internet page directly from the user's browser.
(B) USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Historical
results are not necessarily indicative of results to be expected in the future.
(C) UNAUDITED INTERIM INFORMATION
The accompanying interim financial statements for the three months ended
March 31, 1999 and 2000 have been prepared by the Company, without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission
("SEC"). In the opinion of management, such financial statements reflect all
adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash flows.
Historical results are not necessarily indicative of results to be expected in
the future.
(D) REVENUE RECOGNITION
The Company has adopted the provisions of Statement of Position ("SOP") No.
97-2, Software Revenue Recognition, as amended by SOP No. 98-9, modification of
SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions.
Revenues recognized from multiple-element software arrangements are allocated to
each element of the arrangement based on the fair values of the elements, such
as software products, maintenance and support and consulting services.
Software License Fees
Revenues from software license fees are recognized upon shipment of the
software if collection is probable, the fee is fixed or determinable, and
there is evidence of an arrangement.
Service Fees
Revenues derived from services include maintenance fees, and consulting and
training fees and are recognized over the service period and as
transactions are processed. Maintenance fees are generally billed on a
monthly basis and include fixed fees for customer support and product
updates. Revenues from consulting and training services are recognized as
services are performed.
(E) CASH AND CASH EQUIVALENTS
The Company considers highly liquid instruments with original maturities of
three months or less to be cash equivalents.
(F) RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
All research and development costs are expensed as incurred.
F-24
<PAGE> 97
WEBPROJECT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company expenses all software development costs associated with
establishing the technological feasibility of new or enhanced products or
systems. The Company defines technological feasibility as the completion of
trial testing of the new or enhanced products or systems. Because of the short
period of time between the completion of trial testing and the release of new or
enhanced products or systems to customers, capitalized software development
costs have not been significant.
(G) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(H) FINANCIAL INSTRUMENTS
The carrying value of the Company's cash, accounts receivable, accounts
payable and accrued expenses approximates fair value due to the short-term
nature of these assets and liabilities.
(I) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, Reporting
Comprehensive Income, establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed in equal prominence with
the other financial statements. The term "comprehensive income" is used in the
statement to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues, expenses,
gains and losses that are included in comprehensive income but excluded from
earnings under current accounting standards. Currently, the Company has no other
comprehensive income and thus comprehensive income equals net income.
2. INCOME TAXES
Income tax expense for the period from February 4, 1998 through December
31, 1998 and the year ended December 31, 1999 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
1998:
Federal................................................... $ 690 $ -- $ 690
State..................................................... 800 -- 800
------ ------ ------
$1,490 $ -- $1,490
====== ====== ======
1999:
Federal................................................... $ 332 $ -- $ 332
State..................................................... 800 -- 800
------ ------ ------
$1,132 $ -- $1,132
====== ====== ======
</TABLE>
F-25
<PAGE> 98
WEBPROJECT, INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of income tax expense at the Federal income tax rate of
34% to actual income tax expense for the period from February 4, 1998 through
December 31, 1998 and the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
1998 1999
------ ------
<S> <C> <C>
Computed "expected" income tax expense...................... $1,650 $ 940
Increase (decrease) in income taxes resulting from:
State income taxes, net of Federal income tax effect...... 528 528
Nondeductible items....................................... 185 84
Benefit of lower bracket rate............................. (873) (420)
------ ------
$1,490 $1,132
====== ======
</TABLE>
3. RENT EXPENSE
Rent expense for the period from February 4, 1998 through December 31, 1998
and the year ended December 31, 1999 was $-0- and $1,845, respectively. The
Company has no long term lease commitments.
4. CONCENTRATIONS OF CREDIT RISK
(A) FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash. The Company maintains
all of its cash with a single financial institution.
(B) MAJOR CUSTOMERS
Revenues from individual customers greater than 10% of total revenues for
the period from February 4, 1998 through December 31, 1998 and the year ended
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
REVENUES 1998 1999
-------- ------- --------
<S> <C> <C>
Customer A.................................................. $10,000 $ 2,240
Customer B.................................................. 6,510 --
Customer C.................................................. -- 67,830
Customer D.................................................. -- 35,613
------- --------
$16,510 $105,683
======= ========
</TABLE>
Amounts receivable from these significant customers were $-0- and $29,297
at December 31, 1998 and 1999, respectively.
(C) FOREIGN CUSTOMERS
Revenues from foreign customers for the period from February 4, 1998
through December 31, 1998 and the year ended December 31, 1999 were $-0- and
$31,535, respectively.
5. SUBSEQUENT EVENT
Acquisition by Novient, Inc.
In April 2000, all outstanding common stock of Company was acquired by
Novient, Inc., a Georgia corporation. The consideration was 1,044,519 common
shares of Novient, Inc. and $1.5 million of cash paid by Novient, Inc. In
addition, there is an earnout arrangement for up to an additional $6 million in
consideration, contingent upon the achievement of certain levels of revenues and
certain customer referrals by the Company for the year ending December 31, 2000.
The acquisition will be accounted for using the purchase method of accounting.
F-26
<PAGE> 99
[LOGO]
NOVIENT, INC.
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 WHEN SELLING THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE> 100
PART II
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 19,800
National Association of Securities Dealers, Inc. fee........ 8,000
Nasdaq Stock Market listing fee............................. 5,000
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Blue Sky fees and expenses.................................. *
Transfer Agent's fees and expenses.......................... *
Printing and engraving expenses............................. *
Miscellaneous............................................... *
--------
Total expenses.................................... $ *
========
</TABLE>
---------------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our articles of incorporation provide that the liability of our directors
for monetary damages shall be eliminated to the fullest extent permissible under
Georgia law and that we may indemnify our officers, employees and agents to the
fullest extent permitted under Georgia law.
Our bylaws require us to indemnify our directors and officers against all
liabilities to the fullest extent permitted under Georgia law and to advance all
reasonable expenses incurred in a proceeding where the director or officer was
either a party or a witness because he or she was a director.
We have entered into agreements that require us to indemnify our directors
and our officers to the fullest extent permitted under Georgia law. In addition,
we have agreed to defend, hold harmless and indemnify our directors and officers
against any obligations to pay a judgment, penalty, fine, expenses and
settlement amounts in connection with any action, suit or proceeding brought by
reason of the fact that he or she is a director or officer, as the case may be,
of our company or is serving, at our request, as a director, officer, employee,
agent or consultant of another entity. No indemnification will be provided for
any misappropriation of any business opportunity of ours, any act or omission
involving intentional misconduct or a knowing violation of law, any transaction
from which an improper personal benefit was received or any improper
distribution to our shareholders. Further, we will pay expenses incurred by
directors and officers in defending any covered action, suit or proceeding in
advance of the final disposition of such action, suit or proceeding. We believe
that these agreements, as well as the provisions contained in our articles and
bylaws described above, are necessary to attract and retain qualified persons as
directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors pursuant to the provisions of our charter
documents, Georgia law or the agreements described above, we have been advised
that in the opinion of the SEC, this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The underwriting agreement filed as Exhibit 1.1 hereto also contains
certain provisions pursuant to which certain of our officers, directors and
controlling persons may be entitled to be indemnified by the underwriters named
therein.
We also have purchased a director and officers liability insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Except as described below, there have been no securities sold by us within
the last three years that were not registered under the Securities Act.
II-1
<PAGE> 101
On September 12, 1997, we sold an aggregate of 218,750 shares of series A
convertible preferred stock and a warrant to acquire up to 75,000 shares of
series A preferred stock to Intelligent Systems Corporation at an aggregate
offering price of $175,000.
On October 30, 1997, we sold an aggregate of 300,000 shares of common stock
to Ralph Caldwell and Judith Caldwell, Robert Braman and Venture Capital
Partners at an aggregate offering price of $100,000.
On March 3, 1998, we sold an aggregate of 75,000 shares of common stock to
Samuel Kaye at an aggregate offering price of $25,000.
On March 3, 1999, we sold an aggregate of 2,898,000 shares of series B
convertible preferred stock to Noro-Moseley Partners IV, L.P., Hummer Winblad
Venture Partners III, L.P. and Hummer Winblad Technology Fund III, L.P. at an
aggregate offering price of $4 million.
On January 4, 2000, we issued a warrant to acquire up to 10,281 shares of
series C convertible preferred stock to Imperial Bank in connection with the
establishment of a credit arrangement.
On January 31, 2000, we sold 100,000 shares of common stock to R. Halsey
Wise, our President and Chief Operating Officer, at an aggregate purchase price
of $100,000.
On February 24, 2000, we sold an aggregate of 3,265,000 shares of series C
convertible preferred stock to Mellon Ventures, L.P., First Union Capital
Partners, Inc., R-H Capital Partners, L.P., Lovett Miller Venture Fund II, L.P.,
Noro-Moseley Partners IV, L.P., Noro-Moseley Partners IV-B, L.P., Hummer Winblad
Venture Partners Fund IV, L.P. and Hummer Winblad Technology Fund IV, L.P., at
an aggregate offering price of $25 million.
On February 24, 2000, we sold an aggregate of 31,250 shares of common stock
to Lori Siegel upon the exercise of stock options at an aggregate exercise price
of $0.33.
On February 24, 2000, we sold an aggregate of 11,250 shares of common stock
to Elizabeth Sharp upon the exercise of stock options at an aggregate exercise
price of $0.33
On February 28, 2000, we sold 100,000 shares of common stock to David Keil,
our Executive Vice President of Business Development, at an aggregate purchase
price of $100,000.
On April 20, 2000, we issued an aggregate of 1,044,519 shares of common
stock in connection with our acquisition of WebProject, Incorporated, in
exchange for all of the issued and outstanding shares of capital stock of the
former shareholders of WebProject, Incorporated.
On May 31, 2000, we issued a warrant to acquire up to 160,000 shares of
common stock to Andersen Consulting in connection with the execution of a Master
Alliance Agreement, which agreement is included as Exhibit 10.5 hereto.
Since the adoption of our stock option plan, we have issued options to
certain employees, consultants and others to purchase an aggregate of 2,713,750
shares of common stock at a weighted-average exercise price of $2.50 per share.
The warrants and the shares of common stock, series A convertible preferred
stock, series B convertible preferred stock and series C convertible preferred
stock described in this Item 15 were issued in reliance on the exemption
provided by Section 4(2) and/or Rule 506 of Regulation D promulgated under to
the Securities Act. The issuances of stock options and the shares of common
stock issuable upon the exercise of the options as described in this Item 15
were issued in reliance on the exemption provided by Section 3(b) of the
Securities Act and Rule 701 promulgated thereunder, as well as Section 4(2) of
the Securities Act. Appropriate legends are affixed to the stock certificates
issued in the aforementioned transactions. All recipients either received
adequate information about us or had access, through employment or other
relationships, to such information.
II-2
<PAGE> 102
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement.
3.1* -- Amended and Restated Articles of Incorporation of the
Registrant.
3.2* -- Amended and Restated Bylaws of the Registrant.
4.1* -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Registrant defining rights of the holders of
common stock of the Registrant.
4.2* -- Specimen Stock Certificate.
5.1* -- Opinion of Morris, Manning & Martin, L.L.P., counsel to the
Registrant, as to the legality of the shares being
registered.
10.1 -- Lease, dated July 30, 1999, by and between Registrant and
Piedmont Office Center, Inc.
10.2 -- Form of License Agreement.
10.3 -- 1997 Stock Option Plan.
10.4 -- Amendment No. 1 to 1997 Stock Option Plan.
10.5** -- Master Alliance Agreement, dated May 31, 2000, by and
between the Registrant and Andersen Consulting.
10.6 -- Investor Rights Agreement, dated February 24, 2000, by and
among the Registrant and the investors named therein.
10.7 -- Amendment to Investor Rights Agreement, dated May 31, 2000,
by and among the Registrant and the investors named therein.
10.8 -- Form of Indemnification Agreement.
10.9* -- Form of Employment Agreement.
21.1 -- List of Subsidiaries.
23.1 -- Consent of KPMG LLP.
23.2 -- Consent of KPMG LLP.
23.3* -- Consent of Morris, Manning & Martin, L.L.P. (included in
Exhibit 5.1).
24.1 -- Powers of Attorney (included on signature page).
27.1 -- Financial Data Schedule (for SEC use only).
27.2 -- Financial Data Schedule (for SEC use only).
</TABLE>
---------------
* To be filed by amendment.
** We intend to request confidential treatment of certain portions of this
exhibit pursuant to Rule 406 of the Securities Act of 1933. The entire
agreement will be filed separately with the Securities and Exchange
Commission.
II-3
<PAGE> 103
(b) Financial Statement Schedules.
NOVIENT, INC.
SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT (1) CHARGED TO
BEGINNING OF COSTS AND (2) CHARGED TO BALANCE AT END
DESCRIPTION YEAR EXPENSES OTHER ACCOUNTS DEDUCTIONS OF YEAR
----------- ------------ -------------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997...... $ -- $ -- $ -- $ -- $ --
Year ended December 31, 1998...... -- 125,000 -- -- 125,000
Year ended December 31, 1999...... 125,000 -- -- -- 125,000
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in the
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(2) For purposes 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-4
<PAGE> 104
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of Georgia
on the 14th day of July, 2000.
NOVIENT, INC.
By: /s/ MARK E. KOPCHA
-------------------------------------
Mark E. Kopcha
Chief Executive Officer and Chairman
of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark E. Kopcha and R. Halsey Wise, and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and any subsequent registration
statements pursuant to Rule 462 of the Securities Act and to file the same, with
all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that each of said attorney-in-fact
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MARK E. KOPCHA Chief Executive Officer and Chairman July 14, 2000
--------------------------------------------------- of the Board (Principal Executive
Mark E. Kopcha Officer)
/s/ R. HALSEY WISE President, Chief Operating Officer July 14, 2000
--------------------------------------------------- and Director
R. Halsey Wise
/s/ ANTHONY COLALUCA, JR. Chief Financial Officer (Principal July 14, 2000
--------------------------------------------------- Financial and Accounting Officer)
Anthony Colaluca, Jr.
/s/ R. RUSSELL CALDWELL Chief Technology Officer and July 14, 2000
--------------------------------------------------- Director
R. Russell Caldwell
/s/ BURTON B. GOLDSTEIN, JR. Director July 14, 2000
---------------------------------------------------
Burton B. Goldstein, Jr.
/s/ ALAN J. TAETLE Director July 14, 2000
---------------------------------------------------
Alan J. Taetle
/s/ MICHAEL S. MCQUARY Director July 14, 2000
---------------------------------------------------
Michael S. McQuary
</TABLE>
II-5
