SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to ____
Commission file number 1-13587
QUERYOBJECT SYSTEMS CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
Delaware 94-3087939
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization
One Expressway Plaza , Suite 208, Roslyn Heights, New York 11577
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (516) 228-8500
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.003 per share
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No ___
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. /X/
State the issuer's revenues for its most recent fiscal year: The
issuer's revenues for the fiscal year ended December 31, 1999 were $1,774,109.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant computed by reference to the price at which the stock was sold
on March 28, 2000 was approximately: $60,000,000. Solely for the purposes of
this calculation, shares held by directors and officers of the Registrant have
been excluded. Such exclusion should not be deemed a determination or an
admission by the Registrant that such individuals are, in fact, affiliates of
the Registrant.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: At March 28, 2000,
there were outstanding 9,712,545 shares of the Registrant's Common Stock, $.003
par value.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement to be
filed not later than April 30, 2000 pursuant to Regulation 14A are incorporated
by reference in Items 9 through 12 of Part III of this Annual Report on Form
10-KSB.
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Company Overview
QueryObject Systems Corporation (the "Company") develops and markets
proprietary business intelligence software solutions that enable business
managers to make strategic decisions, leveraging existing corporate data.
Through the evolution of technology, businesses operating in transaction
intensive industries, such as telecommunications, healthcare, insurance and
financial services, have dramatically increased their ability to gather and
store large amounts of data generated from various sources. Such data contains
information that, if extracted effectively and efficiently, can be used to
enhance strategic corporate development. While companies have invested heavily
in capturing data, they have only begun to focus significant resources on the
management and analysis of such data; consequently, the data gathering and
analysis industry is experiencing significant growth. The Company developed its
products in response to the need by companies to analyze these increasing
volumes of data.
In the third quarter of 1996, the Company began the process of shifting
its focus from using its proprietary technologies to provide contract data
analysis services, to the sale and support of its proprietary products, thereby
enabling customers to do their own analysis. The process was substantially
completed in 1998. The Company has realized limited sales of its products.
The Company was incorporated in Delaware in 1997 and is the successor
by merger to CrossZ International, Inc., a California corporation, incorporated
in 1989. In May 1998, the name of the Company was changed from CrossZ Software
Corporation to QueryObject Systems Corporation to reflect the change in the
Company's focus. Unless otherwise indicated, references to the Company also
include its predecessor and its subsidiaries, internetQueryObject Corporation
("IQO") and QueryObject Systems Corporation, Ltd. In January 2000, the Company
consummated a one- for-three reverse stock split of its Common Stock. All share
and per share amounts and option and warrant information in this Annual Report
on Form 10-KSB have been restated to reflect the one-for-three reverse stock
split.
Industry Background
Data marts are component technologies in the "Business Intelligence" or
more broadly, the "Data Warehousing" market. International Data Corp. ("IDC"), a
leading technology consulting/research company, estimates that the size of this
market will increase to over $5.0 billion by the end of 2000, with an annual
compound growth rate of approximately 30%. The stimulus for this growth is the
exceptional returns on capital experienced by companies that have invested in
data warehousing and related technologies. IDC studied 62 companies that
invested an average of $2.2 million each in data warehousing and found that the
average return on investment after three years was 401%.
There are generally three components to an enterprise-wide business
intelligence system:
- Data warehouse: where the unprocessed corporate data is stored in one
place. Data warehousing involves the controlled, periodic loading of selected
historical data from various databases into a central repository in a summarized
and standardized format that is made available to users on a read-only basis.
This approach provides users with better access to critical data in the
organization's relational database management systems ("RDBMS"), but users are
not generally familiar enough with database syntax to extract data from data
warehouses without assistance from information technology ("IT") personnel.
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- Data mart: subject-specific subsets of the data warehouse. An
advanced form of data mart contains pre-calculated answers stored in a
multidimensional data mart known as a data cube.
- Data analysis: accessing information and discovering and extracting
hidden patterns or trends from databases and data marts.
Despite the size of this market, and the strategic value of the
"business intelligence" available from corporate data, businesses developed
their information systems solely to support transactional data processing,
collecting and storing the data necessary to facilitate such processing.
Therefore, data storage methods designed in contemplation of narrow
transactional goals are being burdened with the new goals of strategic analysis.
Such systems do not fully address the need to transform data into useful
information.
In the business intelligence area, RDBMS are most frequently used as
data repositories, both for historical data as a "data warehouse" and for
analytical data as a "datamart." RDBMS are tuned to optimize support of high
volume on-line transaction processing ("OLTP") applications such as data entry
and do not support the extraction and analysis of that data.
Limitations of Traditional On-Line Analytical Processing Products
Although a data warehouse is useful, because it contains all of the
data that can be analyzed, its immense size makes business intelligence analysis
inefficient and unwieldy. Within any data warehouse there will be extraneous
data (data unrelated to the goal of the analysis) that must be disregarded in
any specific or particular analyses. For example, if a company is trying to
determine the most relevant factors in retaining its customers for repeat
purchases, certain elements of each customer's data profile will have a
relatively high correlative value, such as income, gender or occupation, while
other elements will have a relatively low correlative value, such as first name
or social security number. A data warehouse contains all the data elements,
however, it does not contain the additional information necessary to identify
those data elements relevant to a business goal.
The response to the inefficiencies of the data warehouse has been the
development of the data mart. However, much of the traditional data mart
technology is still based on the relational model employed in the data warehouse
and often does not present that data in a fully transformed form most suitable
for analytical as opposed to storage purposes.
The Company believes enterprises are searching for ways to transcend
these limitations, to develop data marts that more efficiently support Business
Intelligence analytical techniques, in less time, with a more precise
correlation between data mart content and the user's business objectives. At the
same time, such product must use existing hardware and systems and minimize
impact on critical IT resources.
The Company believes that its QueryObject System provides an
enterprise-wide solution to the problems of first generation data mart
technology limitations.
QueryObjet System(R)
QueryObject System employs advanced mathematics to create compact,
portable and accurate representations of data sets, called QueryObjects, from
the data repository. In real-world applications, a QueryObject System-based data
mart can be tens, even hundreds of times smaller than the source data warehouse,
thereby making terabyte-class databases small enough to transport on a standard
laptop. QueryObject System technology can reside on mainframe, midrange (UNIX)
or Windows NT systems. In October 1997, the Company began to implement
full-scale marketing of QueryObject System as a software product. Previous uses
of the QueryObject technology required certain consulting services and was
promoted selectively through direct sales channels, at several industry trade
shows, and to potential
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business partners. The current release of QueryObject System has reduced
consulting requirements and is capable of running on additional UNIX operating
systems and the Windows NT operating system.
The Company believes that QueryObject System offers the following
advantages over conventional data marts:
o Plug and Play with Raw Data: QueryObject System allows the user to
extract virtually unlimited amounts of raw data directly from existing data
warehouse or a production database, without the need to aggregate and then
summarize the data.
o Fresher Data: Performing a full scan on a data warehouse to create a
data mart is time intensive, consumes CPU resources, and renders the warehouse
virtually inaccessible to users with other purposes. In fact, most businesses
find it difficult to perform more than one full scan on their data warehouse in
a day and often require a week or more to create a data mart. QueryObject System
was designed specifically for high speed data mart creation without the
management overhead and negative performance implications associated with data
warehouses and other conventional data repositories, allowing users to create
dozens of data marts in a single day. Moreover, because QueryObject System
technology can reside on MVS, UNIX or Windows NT servers, the user can create
the data mart on the system that makes the most sense for the business and
insulate mission critical applications and databases from the performance
degradation normally associated with full database scans.
o Lower Cost: As a result of their ability to load raw data directly
into QueryObject System, users can reduce or eliminate time-consuming work such
as extracting, cleaning, normalizing, formatting and summarizing data before
loading it into a data warehouse. In addition, large amounts of operational data
can be preserved for future analysis at far lower cost than a data warehouse.
o Greater Scalability and Speed: The Company believes QueryObject based
data marts contain more data in less storage space than traditional data marts
such as Hyperion Essbase and Oracle Express. A single QueryObject can contain
the representation of hundreds of millions of records, tens of thousands of
values in each field or column and billions of potential query answers. The use
of proprietary algorithmic equations allows QueryObject-based data marts to
store more data in a fraction of the storage space needed by conventional data
marts. Even with data marts that measure in the hundreds of millions of records,
the retrieval can often be executed in seconds or less.
o Greater Multi-User Support: QueryObjects can support unlimited
numbers of concurrent users since all possible answers to all possible queries
are contained therein, and impose virtually no degradation on processing, in
contrast to conventional data marts that consume large amounts of processing
power in computing potential answers.
o Greater Mobility: When business intelligence was a function confined
to a small cadre of analysts and specialists, it was acceptable for business
intelligence systems to reside in a single, central location. In contrast,
because QueryObjects can reside on desktops, laptops and Web servers, or be
distributed over local area networks, they allow businesses to deploy complex
data marts to thousands of users in an enterprise, using existing information
technology infrastructure.
The QueryObject Strategy
The Company's objective is to establish the QueryObject System
technology as a ubiquitous data mart standard for data analysis in data
intensive industries such as telecommunications, healthcare and insurance and
financial services. Key elements of the Company's strategy include:
Establish Technology Leadership. The Company has developed a number of
technologies specifically to meet the scalability, capacity, usability and
functionality requirements of data mart software. In particular, the Company has
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developed a proprietary high performance mathematical algorithm suite to compute
and represent all possible answers, univariates, uniques and intermediates
across very large databases. These answers are stored in highly compact formats
that do not require significant server memory or processing power to provide
instantaneous query response. The Company intends to continue to develop what it
believes are innovative technologies and features to address the specific
business requirements of data marts in the areas of performance, scalability,
data integrity, system administration and decision analysis capabilities. The
Company intends to continue to invest in its technology in order to enhance its
existing data mart products.
Develop Strategic Relationships. To accelerate the adoption of the
QueryObject System as a standard platform business intelligence application, the
Company has begun to form strategic relationships with many providers of
business intelligence software applications, tools and services. The Company has
established license agreements and VAR ("value-added resellers") relationships
with several companies that have resulted in revenue for the year ended December
31, 1999, including AmerInd, Inc., Dimension Sweden and CZ Solutions S.p.A.
Expand Open Systems Approach. The Company seeks to maximize the market
for its products by designing them to adhere to industry standards, which allows
the sharing of data across platforms and software applications. QueryObject
technology operates with a wide range of third-party front-ends, databases and
operating systems via an open architecture that supports Microsoft's open
database connectivity (ODBC) and object linking and embedding database (OLE/DB)
standards and the Java Data Base Connectivity standard (JDBC) designed for
Internet tools. The Company believes that its open systems approach represents a
competitive advantage versus competing solutions that are more proprietary in
nature, and as such intends to continue to adhere to industry standards.
Leverage Existing Investments in Information Technology. The Company
believes that it has designed QueryObject System to take advantage of customers'
existing IT investments, thereby accelerating the acceptance of such software.
QueryObject System is designed to leverage investments in personal computer
hardware and software and to integrate data from existing relational databases,
legacy repositories and emerging data warehouses. The Company also leverages
third party-based consulting services and distribution capabilities to enable it
to focus on providing industry leading business intelligence data delivery
software.
Target Horizontal Markets/New Applications and Markets. Because the
delivery of relevant data to business intelligence applications is a critical
corporate function in a wide variety of industries, the Company believes that
its solutions are potentially applicable in a broad range of markets. The
Company is currently targeting customers in telecommunications, financial
services and insurance and health care.
Provide Superior Customer Service. The Company believes that providing
superior customer service is critical for customer success. The Company's
strategy is to deliver technology and services that enable its customers to
implement quickly and cost effectively integrated data mining/data mart
applications. The Company provides its customers with a comprehensive array of
services, including software updates, documentation updates, product maintenance
and emergency response. The Company intends to maintain its focus and to
continue to invest in service and support to extend its customer service
advantage.
Expand Sales and Marketing Capabilities. The Company intends to expand
its sales and marketing capabilities, both domestically and internationally, by
increasing the size of its direct sales organization and developing an indirect
channel of distributors such as original equipment manufacturers ("OEMs") and
value added resellers ("VARs"). During 1997, the Company opened an office in the
United Kingdom to enter the European marketplace.
Products
The Company's QueryObject System is a highly scaleable and efficient
solution for providing business intelligence applications and users with all the
relevant information from corporate data.
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QueryObject System is a powerful OLAP data mart solution that
transforms mainframe size databases into highly compact and portable
mathematical representations that fit onto standard PC laptops. The following
table lists the QueryObject System product line by configuration and operating
system:
Product Configuration Operating System
QueryObject DBA Client Win 95-98/NT
QueryObject Designer Client Win 95-98/NT
QueryObject Engine Server MVS, UNIX, NT
QueryObject Server Personal Edition Client Win 95-98/NT
QueryObject Server, Enterprise Edition Server UNIX, NT
QueryObject Server, Web Edition Server UNIX, NT
QueryObject Analyzer Server UNIX, NT
QueryObject DBA (Data Base Administrator) provides administrators in a
Windows based environment with a tool to manage the process of reading,
synchronizing and staging source, atomic level data in QueryObject System. Using
standard drag and drop actions, data administrators can map their source data
into the QueryObject System repository, the QueryObject Ready File. The Company
believes that QueryObject DBA users benefit from working with a graphical tool
that understands the complexities of both legacy and warehouse data.
QueryObject Designer enables end users to design and build their own
QueryObjects. Working in a familiar Windows environment, users create
QueryObjects by selecting a subset of the fields from the QueryObject Ready file
using a drag and drop interface. The Company believes that the end user benefits
from an environment that requires no programming, gives a visual representation
of the QueryObject, and is able to process hundreds of millions of data records.
QueryObject Engine is designed to (i) work with large quantities of
data, (ii) read a variety of data formats and (iii) process the data into an
analytical repository, and then into multiple QueryObjects. From this staging
area, multiple QueryObjects are produced in an efficient manner on the server.
The Company believes that users are protected from the server environment by
using QueryObject DBA and QueryObject Designer, yet they gain the power of a
server behind their business intelligence system. QueryObject Engine runs on a
wide variety of server platforms from MVS to UNIX to Windows/NT. The resulting
QueryObject can be moved to a user's individual personal computer or managed by
the QueryObject Server.
Unlike other data mart systems that require significant amounts of
preprocessing and data aggregation, QueryObject Engine is able to perform these
tasks automatically for each QueryObject. The Company believes that the ability
to store and build a QueryObject from detail level data allows the user to
explore his data without the constraints of pre-aggregated data sets that might
not represent the data in the manner that the user requires for a particular
business challenge.
QueryObject Server allows the enterprise to locate and manage
QueryObjects on a centralized server infrastructure. QueryObject Server provides
enhanced security and performance across multiple QueryObjects over corporate
internets (Web Edition) or corporate LANs (Enterprise Edition). Users may also
download QueryObjects to their individual personal computers (QueryObject
Server, Personal Edition).
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QueryObject Analyzer is a small JAVA based OLAP analysis tool. It is
automatically downloaded to a users WEB Browser and allows them to quickly and
easily analyze QueryObjects hosted on a customers WEB Server. Analyzer provides
a zero administration client and can be used on any JAVA Browser, Windows, UNIX
or Apple Macintosh.
QueryObject contains ODBC, JDBC and OLE/DB interfaces that allow end
users to work within a familiar environment of industry standard business
intelligence data navigation and display tools.
Sales and Marketing
The Company markets and sells QueryObject System through its direct
sales organization and intends to increase the proportion of sales through
indirect channel parties such as VARs and OEMs. The direct sales process
involves the generation of sales leads through direct mail and telemarketing or
requests for proposal from prospects. The Company's field sales force conducts
multiple presentations and demonstrations of its products to management and
users at the customer site as part of the direct sales effort. Sales cycles
generally range from three months to six months or longer.
The Company's sales, marketing and related customer support services
organization consisted of 15 full time employees as of December 31, 1999. The
sales staff is based at the Company's corporate headquarters in Uniondale, New
York and its European branch office outside of London, England. To support its
sales force, the Company engages in direct mail solicitations, telesales and
public relations and presents its products at trade shows.
The Company employs sales and technical personnel who are teamed to
support a designated account territory within a specified vertical market. The
team is responsible for creating and maintaining local partner relationships and
resolving channel conflicts. To ensure the appropriate level of channel support,
the direct sales force is compensated for sales that are made through indirect
channel partners and those that are made directly to end users. A separate
partnering and business development function is responsible for the recruitment
and maintenance of OEMs and national and global VARs and business partners.
The Company believes that a high level of customer support is important
to the successful marketing and sale of QueryObject System. Maintenance and
support contracts, which are typically for twelve months, are offered with the
initial license, and may be renewed annually at a cost equal to a fixed
percentage of the total license fee paid. Telephone hotline support will be
complemented by an internet site that provides an interactive forum and a
repository for technical tips and skills.
internetQueryObject Corporation
The Company formed IQO in March 1999. In March 2000, IQO and the
Company entered into a exclusive licensing agreement, with a stated term through
December 31, 2005 (the "License Term") under which IQO was granted the exclusive
license to resell the Company's database, data streaming and data distribution
technology to Internet based businesses. For calendar years 2000 and 2001, IQO
is obligated to pay to the Company a Percentage Royalty as follows; 20% on the
first $1,000,000 of Adjusted Net Sales (as defined), 18% on Adjusted Net Sales
from $1,000,001 to $2,000,000, 15% on Adjusted Net Sales from $2,000,001 to
$5,000,000, and 12% on Adjusted Net Sales over $5,000,000. The Company and IQO
will use their best efforts to renegotiate these royalty rates for calendar
years 2002 and beyond. In the event that the Company and IQO are unable to agree
on Percentage Royalty rates for the remaining License Term, the Percentage
Royalty rates shall remain the same. IQO must also pay to the Company fees in an
amount equal to 25% of its revenue derived from the sale of maintenance services
relating to the licensed technology to its customers.
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To date, IQO has signed one customer, Global Network Privacy, Inc.
There can be no assurance whether there will be market acceptance by
Internet-based businesses of the Company's database, data streaming and data
distribution technology. As described under Note 14 to Notes to the Consolidated
Financial Statements, IQO is seeking to raise $5,000,000 in a private placement
of its preferred stock. Such securities will not be and have not been registered
under the Securities Act of 1933, as amended, and may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
Research and Development
The Company believes that its future success will depend in large part
on its ability to maintain and enhance its leadership in business intelligence
software technology and develop new products that meet an expanding range of
customer requirements. The Company's research and development organization is
divided into teams consisting of development engineers and quality assurance
engineers. The market addressed by the Company is very sensitive to product
quality and therefore the process is aimed at continuous improvement of product
quality. The product definition is based upon a consolidation of the
requirements from existing customers, from technical support and from
engineering. These are prioritized by the Company's management to fit business
priorities and to meet the Company's vision.
The market for the Company's software is characterized by rapid
technological change, frequent new product introductions and evolving industry
standards. The introduction of products embodying new technologies and the
emergence of new industry standards can render existing products obsolete and
unmarketable. Therefore, the life cycles of the Company's products are difficult
to estimate. The Company's future success will depend upon its ability to
enhance on a timely basis its current products, develop and introduce new
products that keep pace with technological developments and emerging industry
standards and address the increasingly sophisticated needs of its customers.
As of December 31, 1999, the Company's research and development
organization consisted of 16 full time employees. The Company also utilizes
independent contractors located in Europe for its development activities. During
1999 and 1998, research and development expenses were $2,282,910 and $2,305,678
or 129% and 248% of total revenues, respectively. The Company will continue to
commit substantial resources to research and development in the future.
Proprietary Rights
The Company relies primarily on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to protect its proprietary rights. The Company also believes that
factors such as the technological and creative skills of its personnel, new
product developments, frequent product enhancements, name recognition and
reliable product maintenance are essential in establishing and maintaining a
technology leadership position. The Company seeks to protect its software,
documentation and other written materials under trade secret and copyright laws,
which afford only limited protection.
The Company currently has several registered trademarks, and may seek
additional legal protection for its products and trade names. The Company has
invested substantial resources in registering the trademarks and developing
branded products and product lines. There can be no assurance that the steps
taken by the Company to protect these intellectual property assets will be
sufficient to deter misappropriation. Failure to protect these intellectual
property assets could have a material adverse effect on the Company's business
operations. Moreover, although the Company is not aware of any lawsuit alleging
the Company's infringement of intellectual property rights, there can be no
assurance that any such lawsuit will not be filed against the Company in the
future or, if such lawsuit is filed, that the Company would ultimately prevail.
While the Company has applied for a patent for its internet streaming
technology, the Company is unable to predict whether it will receive such patent
and the Company currently has no other United States patents or
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corresponding patent applications pending elsewhere. Furthermore, there can be
no assurance that others will not develop technologies that are similar or
superior to the Company's technology or design around any patents that may be
owned in the future by the Company. Despite the Company's efforts to protect its
proprietary rights, unauthorized parties may attempt to copy aspects of its
products or to obtain and use information that it regards as proprietary.
Policing unauthorized use of the Company's products is difficult, and while the
Company is unable to determine the extent to which piracy of its software
products exists, software piracy can be expected to be a persistent problem. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights as fully as do the laws of the United States. There can be no
assurance that the Company's means of protecting its proprietary rights in the
United States or abroad will be adequate or that competitors will not
independently develop similar technology. The Company has entered into source
code escrow agreements with a limited number of its customers and VARs requiring
release of source code. Such agreements provide that such parties will have a
limited, non-exclusive right to use such code in the event that there is a
bankruptcy proceeding by or against the Company, if the Company ceases to do
business or if the Company fails to meet its contractual obligations. The
provision of source code may increase the likelihood of misappropriation by
third parties.
The Company is not aware that it is infringing any proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim infringement by the Company with respect to QueryObject System or
enhancements thereto. The Company expects that software product developers will
increasingly be subject to infringement claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time consuming to defend, result in costly litigation,
divert management's attention and resources, cause product shipment delays and
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required, may not be available on terms acceptable
to the Company, if at all. In the event of a successful claim of product
infringement against the Company and failure or inability of the Company to
license the infringed or similar technology, the Company's business, operating
results and financial condition could be materially adversely affected.
Competition
The market in which the Company competes is intensely competitive,
highly fragmented and characterized by rapidly changing technology and a lack of
standards. The Company's current and prospective competitors offer a variety of
multidimensional data mart software solutions and generally fall within five
categories: (i) vendors of relational database products sold for analytical
(data warehouse and data mart) purposes such as Oracle, Informix, Sybase, and
Microsoft; (ii) vendors of multidimensional database and analysis software such
as Oracle (Express), Hyperion (Essbase) and Microsoft (Plato); (iii) vendors of
OLAP/relational database software such as Informix (Red Brick), Sterling
Software (Decision Suite) and Seagate Software (Holos); (iv)vendors of query
acceleration products such as Nucleus (Sand Technology) and IQ (Sybase);and (v)
vendors of vertical software applications for budgeting and financial
consolidation, such as Hyperion Software Corporation (Hyperion and FYPlan) and
consulting vendors such as Arthur Andersen and Deloitte & Touche, who focus on
customer applications in the telecommunications, banking, insurance and retail
industries.
The Company has experienced and expects to continue to experience
increased competition from current and potential competitors, many of whom have
significantly greater financial, technical, marketing and other resources than
the Company. Such competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Also, certain current and potential competitors may have greater name
recognition or more extensive customer bases that could be leveraged, thereby
gaining market share to the Company's detriment. The Company expects additional
competition as other established and emerging companies enter into the OLAP
software market and new products and technologies are introduced. Increased
competition could result in price reductions, fewer customer orders, reduced
gross margins and loss of market share, any of which would materially adversely
affect the Company's business, operating results and financial condition.
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Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of the
Company's prospective customers. The Company's current or future indirect
channel partners may establish cooperative relationships with current or
potential competitors of the Company, thereby limiting the Company's ability to
sell its products through particular distribution channels. Accordingly, it is
possible that new competitors or alliances among current and new competitors may
emerge and rapidly gain significant market share. Such competition could
materially adversely affect the Company's ability to obtain new contracts and
maintenance and support renewals for existing contracts on terms favorable to
the Company. Further, competitive pressures may require the Company to reduce
the price of QueryObject System, which would materially adversely affect the
Company's business, operating results and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
and future competitors, and the failure to do so would have a material adverse
effect upon its business, operating results and financial condition.
The Company competes on the basis of certain factors, including product
quality, first-to-market product capabilities, product performance, ease of use
and customer support. The Company believes it presently competes favorably with
respect to each of these factors. However, the Company's market is still
evolving and there can be no assurance that the Company will be able to compete
successfully against current and future competitors and the failure to do so
successfully will have a material adverse affect upon the its business,
operating results and financial condition.
Employees
As of December 31, 1999, the Company had a total of 35 full time
employees, including 16 in research and development, 15 in sales and marketing
and related customer support services and 4 in administration. None of the
Company's employees is represented by a collective bargaining agreement, nor has
the Company experienced any work stoppage. The Company considers its relations
with its employees to be good.
The Company's future operating results depend in significant part upon
the continued service of its key technical and senior management personnel. The
Company's future success also depends on its continuing ability to attract and
retain highly qualified technical and managerial personnel. Competition for such
personnel is intense, and there can be no assurance that the Company will retain
its key managerial or technical personnel or attract such personnel in the
future. The Company has at times experienced and continues to experience
difficulty in recruiting qualified personnel and there can be no assurance that
the Company will not experience such difficulties in the future. The Company,
either directly or through personnel search firms, actively recruits qualified
research and development, financial and sales personnel. If the Company is
unable to hire and retain qualified personnel in the future, such inability
could have a material adverse effect on its business, operating results and
financial condition.
Risk Factors That May Affect Future Results
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights the most material of the risks.
We May Need Further Financing to Continue Our Operations.
We have had a limited operating history as a software product company,
have not made significant sales of our products and our revenues are difficult
to predict. Our total revenues for the year ended December 31, 1999 and for the
year ended December 31, 1998 were $1,774,109 and $928,505, respectively. Given
our continued operating losses, we may need additional financing to continue
operations. We anticipate that our cash and cash equivalent balance may be
insufficient to satisfy our cash flow requirements for more than 12 months,
since we are unable to predict if we will have sufficient revenues to enable us
to continue our operations without additional financing. We have no commitments,
agreements or understandings regarding additional financings and we may be
unable to obtain additional financing on satisfactory terms or at all.
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We Have Had a History of Operating Losses and Project Future Losses; Therefore
We Have Doubt About Our Ability To Continue as a Going Concern.
At December 31, 1999, our accumulated deficit was $41,338,047. For the
fiscal years ended December 31, 1999 and 1998, we incurred net losses of
$5,925,591 and $7,294,032, respectively. We have incurred a net loss in each
year of our existence, and have financed our operations primarily through sales
of equity and debt securities. Our expense levels are high and our revenues are
difficult to predict. The independent accountants' report on our financial
statements for the year ended December 31, 1999 states that our recurring losses
from operations and negative cash flow from operating activities raise doubt
about our ability to continue as a going concern.
We expect to incur net losses for the foreseeable future. We may never
achieve or sustain significant revenues or profitability on a quarterly or
annual basis in the future. Our future operating results will depend on many
factors, including:
o product demand
o product and price competition in our industry
o our success in expanding our direct sales force and
establishing indirect channel partners
o our ability to develop and market products and control costs
o the percentage of our revenues that is derived from indirect
channel partners
Our Revenues Depend On Sales of QueryObject System and We Are Uncertain Whether
There Will be Broad Market Acceptance of this Product.
Substantially all of our revenues for the foreseeable future are
expected to be derived from sales of QueryObject System. Between January 1, 1995
and December 31, 1999, we had software product revenue from only 32 QueryObject
System installations, including those sold pursuant to reseller agreements for
the resellers' own use. Our future financial performance will depend upon the
successful introduction and customer acceptance of QueryObject System and the
development of new and enhanced versions of the product. If we fail to achieve
broad market acceptance of QueryObject System, it would have a material adverse
effect on our business, operating results and financial condition.
Our Common Stock Was Delisted From The Nasdaq SmallCap Market and There May Be a
Limited Trading Market for Our Stock.
Effective with the close of business on May 6, 1999, our common stock
was delisted from the Nasdaq SmallCap Market because of our inability to comply
with certain maintenance standards required for continued listing on the Nasdaq
SmallCap Market, including the net tangible asset requirement. We fell out of
compliance primarily as a result of continued losses during 1998.
Now that our common stock has been delisted from the Nasdaq SmallCap
Market, trading in our common stock is conducted on the OTC Bulletin Board and
the Boston Stock Exchange. The Boston Stock Exchange has notified us that while
we currently meet its continuing listing requirements, the exchange will monitor
whether continued operating losses will jeopardize our ability to comply with
its requirement that we have at least $500,000 in net tangible assets.
If our common stock is delisted from the Boston Stock Exchange, our
common stock could be considered a penny stock. Securities and Exchange
Commission regulations generally define a penny stock to be an equity security
that is not listed on Nasdaq or a national securities exchange and that has a
market price of less than $5.00 per share,
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subject to certain exceptions. The regulations of the Securities and Exchange
Commission would require broker-dealers to deliver to a purchaser of our common
stock a disclosure schedule explaining the penny stock market and the risks
associated with it. Various sales practice requirements are also imposed on
broker-dealers who sell penny stocks to persons other than established customers
and accredited investors (generally institutions). In addition, broker-dealers
must provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value of each
penny stock held in the customer's account. If our common stock is traded only
on the OTC Bulletin Board and becomes subject to the regulations applicable to
penny stocks, investors may find it more difficult to obtain timely and accurate
quotes and execute trades in our common stock.
We Are Seeking to Develop Additional Strategic Relationships With Indirect
Channel Partners to Increase Sales, But We May be Unable to Attract Effective
Partners and We Will Have Lower Gross Margins For Sales Through Indirect Channel
Partners.
As part of our sales and marketing efforts we are seeking to develop
additional strategic relationships with indirect channel partners, such as
original equipment manufacturers and value-added resellers, to increase the
number of our customers. We currently are investing, and intend to continue to
invest, significant resources to develop indirect channel partners. Our results
of operations will be adversely affected if we are unable to attract indirect
channel partners to market our products effectively and provide timely and cost
effective customer support and service. If we successfully sell products through
these sales channels, the lower unit prices we expect to receive for such sales
will result in our gross margins being lower than if we had sold those products
through our direct sales force.
We Are Dependent on a Few Significant Customers and the Loss of a Single
Customer Could Adversely Effect Our Business.
For the fiscal year ended December 31, 1999, four customers accounted
for 72%, and for the fiscal year ended December 31, 1998, four customers
accounted for 80%, of our total revenues. We are unsure if we will realize
significant future revenues from any of these customers. We also expect that for
the foreseeable future a relatively small number of customers and value added
resellers will account for a significant percentage of our revenues. The loss of
any such customer would have a material adverse effect on our operating results
and financial condition.
We Are Dependent On a Few Key Personnel and We Need to Attract and Retain Highly
Qualified Technical, Sales, Marketing, Development and Management Personnel.
Our future performance depends in significant part upon the continued
service of key technical, sales and senior management personnel. The loss of the
services of one or more of our key employees, in particular, Robert Thompson,
our President and Chief Executive Officer, or Daniel M. Pess, our Chief
Operating and Financial Officer, could have a material adverse effect on our
business, operating results and financial condition. We have employment
agreements with Mr. Thompson and Mr. Pess that expire in December 2001.
Our future success also depends on our continuing ability to attract,
train and retain highly qualified technical, sales, marketing, development and
managerial personnel. Competition for such personnel is intense, and we may be
unable to retain key technical, sales, development and managerial employees or
attract, assimilate or retain other highly qualified technical, sales,
development and managerial personnel in the future. If we are unable to hire
such personnel on a timely basis, our business, operating results and financial
condition could be materially adversely affected.
We Lack Proprietary Technology Protection of Our Products And May Risk
Infringement Upon Technology Developed by Others.
We rely primarily on a combination of trade secrets, confidentiality
agreements and contractual provisions to protect our proprietary technology. We
license rather than sell our software and require licensees to enter into
license
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agreements that impose certain restrictions on their ability to utilize the
software. In addition, we seek to avoid disclosure of our trade secrets,
including but not limited to requiring those persons with access to our
proprietary information to execute confidentiality agreements and restricting
access to our source code. These steps afford only limited protection. While we
have applied for a patent for our internet streaming technology, we are unable
to predict whether we will receive such patent and we have no other patents or
patent applications pending. Despite our efforts to protect our proprietary
rights, unauthorized parties may attempt to copy aspects of our products or
obtain and use information that we regard as proprietary. Policing unauthorized
use of our products may be difficult and costly, and software piracy may become
a persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights to as great an extent as do the laws of the
United States. We are unable to predict whether our means of protecting our
proprietary rights will be adequate or whether competitors will independently
develop the same technology.
From time to time, third parties may assert patent, copyright and other
intellectual property claims against us. If we are unable to license protected
technology that may be used in our products, we could be prohibited from
manufacturing and marketing such products. We also could incur substantial costs
to redesign our products, to defend any legal action taken against us or to pay
damages to any infringed party. Litigation, which could result in substantial
cost to and diversion of our resources, may be necessary to enforce our other
intellectual property rights or to defend us against claimed infringement of the
rights of others.
We Intend to Expand Our International Sales, But There Are Substantial Risks
Involved, Including Effectively Establishing Additional Foreign Operations and
Foreign Regulatory Concerns.
Our international sales for the fiscal years ended December 31, 1999
and December 31, 1998, were approximately 49% and 17% of our total revenue,
respectively. We intend to expand our international operations and to enter
additional international markets, which will require significant management
attention and financial resources and could adversely affect our business,
operating results or financial condition. To expand international sales
successfully, we must establish additional foreign operations, hire additional
personnel and recruit additional international resellers and distributors. If we
are unable to do so in a timely manner, our growth, if any, in international
sales will be limited, and our business, operating results and financial
condition could be materially adversely affected. We anticipate that expanded
international sales, if any, will be denominated in U.S. dollars. An increase in
the value of the U.S. dollar relative to foreign currencies could make our
products more expensive and, therefore, potentially less competitive in those
markets. Additional risks inherent in our future international business
activities generally include:
o unexpected changes in regulatory requirements
o tariffs and other trade barriers
o costs of localizing products for foreign countries
o longer accounts receivable payment cycles
The Market Price of Our Common Stock Is Volatile.
The market price of our common stock has in the past been, and may in
the future continue to be, volatile. For instance, between January 1, 1998 and
March 15, 2000, the closing price of our common stock has ranged between $1.41
and $16.50. The volatility of the market price of our common stock may further
increase now that our common stock has been delisted from the Nasdaq SmallCap
Market. A variety of events may cause the market price of our common stock to
fluctuate significantly, including:
o quarter to quarter variations in operating results
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o adverse news announcements
o the introduction of new products
o market conditions in the industry
In addition, the stock market in recent years has experienced
significant price and volume fluctuations that have particularly affected the
market prices of equity securities of many companies that service the software
industry and that often have been unrelated to the operating performance of such
companies. These market fluctuations may adversely affect the price of our
common stock.
We Have a Significant Amount of Authorized But Unissued Preferred Stock, Which
May Affect the Likelihood of a Change of Control in our Company.
As of March 15, 2000, our Board of Directors has the authority, without
further action by the stockholders, to issue 3,355,000 shares of preferred stock
on such terms and with such rights, preferences and designations, including,
without limitation restricting dividends on our common stock, dilution of the
voting power of our common stock and impairing the liquidation rights of the
holders of our common stock, as the Board may determine without any vote of the
stockholders. Issuance of such preferred stock, depending upon the rights,
preferences and designations thereof may have the effect of delaying, deterring
or preventing a change in control. In addition, certain "anti-takeover"
provisions of the Delaware General Corporation Law, among other things, may
restrict the ability of our stockholders to authorize a merger, business
combination or change of control.
We Have a Significant Amount of Outstanding Options, Warrants and Convertible
Preferred Stock.
As of March 15, 2000 we have outstanding options to purchase an
aggregate of 2,381,845 shares of our common stock at a weighted average exercise
price of $4.75 per share and outstanding warrants to purchase an aggregate of
764,690 shares of common stock at a weighted average exercise price of $11.15
per share. As a result of the 1998 and 1999 private placements, we also have
outstanding shares of convertible preferred stock that are convertible into an
aggregate of 645,171 shares of common stock. The exercise of all of outstanding
warrants and options and/or the conversion of the outstanding convertible
preferred stock would dilute the then-existing stockholders' percentage
ownership of the common stock, and any sales in the public market of the common
stock issuable upon such exercise and conversion could adversely affect
prevailing market prices for the common stock. Moreover, the terms upon which we
would be able to obtain additional equity capital could be adversely affected
because the holders of such securities can be expected to exercise or convert
them at a time when we would, in all likelihood, be able to obtain any needed
capital on terms more favorable to than those provided by such securities.
We Can Give No Assurances That Our Forward Looking Statements Will Be Correct.
Certain forward-looking statements, including statements regarding our
expected financial position, business and financing plans are contained in this
prospectus or are incorporated in documents annexed as exhibits to this
prospectus. These forward-looking statements reflect our views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from such expectations are disclosed in this prospectus. All
subsequent written and oral forward-looking statements attributable to us are
expressly qualified in their entirety by the cautionary statements. We caution
readers not to place undue reliance on these forward-looking statements, which
speak only as of their dates. We undertake no obligations to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company leases 8,082 square feet of office space in Roslyn Heights,
New York as its principal administrative, sales, marketing and research and
development facility. The lease relating to such facility expires in 2004. In
addition, the Company also leases a sales office on a short-term basis outside
of London, England. The Company believes that its existing facilities are
adequate for its current needs but anticipates that it will need to seek
additional space in the future. The Company believes that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
ITEM 3. LEGAL PROCEEDINGS
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board and the
Boston Stock Exchange. As described under "Risk Factors That May Affect Future
Results," the Company's Common Stock was delisted from the Nasdaq SmallCap
Market at the close of trading on May 6, 1999. The table below sets forth the
range of closing sale prices of the Common Stock on the Nasdaq SmallCap Market
through May 6, 1999 and the closing bid prices of the Common Stock thereafter,
on the OTC Bulletin Board. All prices presented have been restated to reflect a
one-for-three reverse stock split effected in January 2000.
Common Stock
High Low
---- ---
Fiscal 1999
First Quarter . . . . . . . . . . . . . . . .$3.75 $1.41
Second Quarter. . . . . . . . . . . . . . 3.00 1.50
Third Quarter. . . . . . . . . . . . . . . 2.82 1.98
Fourth Quarter . . . . . . . . . . . . . . 8.91 2.28
Fiscal 1998
First Quarter . . . . . . . . . . . . . . . $13.68 $9.00
Second Quarter. . . . . . . . . . . . . . 16.50 9.00
Third Quarter. . . . . . . . . . . . . . . 14.07 3.00
Fourth Quarter. . . . . . . . . . . . . . . 4.89 1.50
As of March 22, 2000, there were 188 record holders of the Company's
Common Stock. The Company believes that there are in excess of 500 beneficial
owners of its Common Stock.
The Company has never paid any dividends on its Common Stock and does
not intend to pay such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for the development and growth
of the Company.
During the three months ended December 31, 1999, the Company issued an
aggregate of 297,761 shares of Common Stock pursuant to the conversion of Series
A Convertible Preferred Stock ("Series A Preferred Stock"), Series B Convertible
Preferred Stock ("Series B Preferred Stock") and Series C Convertible Preferred
Stock ("Series C Preferred Stock"). The Company also issued an aggregate of
1,310,967 shares of Common stock pursuant to the
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exercise of warrants granted in the Series A Private Placement (as hereinafter
defined), and the Series B Private Placement (as hereinafter defined). Such
warrants had an exercise price of $1.50 per share of Common Stock. The Company
also issued 968,720 shares of Common Stock pursuant to the exercise of warrants
granted in the Series C Private Placement. Such warrants had an exercise price
of $2.5875 per share of Common Stock. The issuance of the shares of Common Stock
upon the conversion of the Series A, Series B and Series C Preferred Stock and
the exercise of the warrants was made pursuant to the exemption contained in
Section 4(2) of the Securities Act of 1933, as amended.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
The discussion in this report on Form 10-KSB contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in the section above entitled "Risk Factors That May Affect Future Results" in
Item 1 of this report as well as those risks discussed in this section and
elsewhere in this report.
The discussion and analysis below should be read in conjunction with
the Consolidated Financial Statements of the Company and the Notes thereto
included elsewhere herein.
Overview
The Company commenced operations in February 1989, and until 1997
substantially all of its revenues have been derived from providing contract
services to customers using its proprietary business intelligence technology. In
the third quarter of 1996, the Company shifted its focus to commercializing its
proprietary business intelligence technology and most of its activities since
then have been devoted to research and development, recruiting personnel,
raising capital and developing a sales and marketing strategy and
infrastructure. In November 1997, the Company began implementation of full-scale
marketing activity for QueryObject System. The Company has a limited operating
history as a software product company and has made only limited sales of its
QueryObject System.
To date, the Company has incurred substantial losses from operations,
and at December 31, 1999, had an accumulated deficit of $41,338,047. The Company
expects to incur substantial operating expenses in the future to support its
product development efforts, establish and expand its domestic and international
sales and marketing capabilities, including recruiting additional indirect
channel partners, and support and expand its technical and management personnel
and organization.
Revenues from the sales of the Company's products are generally
recognized upon the execution of a software licensing agreement and shipment of
the product, provided that no significant vendor obligations remain and the
resulting receivable is deemed collectible by management. In instances where a
significant vendor obligation exists, revenue recognition is deferred until such
obligation has been satisfied. Allowances for estimated future returns are
provided for upon shipment.
Results of Operations
The following table sets forth certain items in the Company's
consolidated statements of operations for the years ended December 31, 1999 and
1998 ($ in thousands):
Year Ended December 31,
1999 1998
---- ----
Revenues
Software licenses........................ $ 1,608 $ 518
Maintenance and services................. 166 111
Other.................................... --- 300
Total revenues........................... 1,774 929
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Cost of revenues
Software licenses................................ 94 6
Maintenance and services................ 92 89
Total cost of revenues........................... 186 95
Gross profit..................................... 1,588 834
Operating expenses
Sales and marketing..................... 3,740 4,321
Research and development................ 2,283 2,306
General and administrative.............. 1,480 1,500
Total operating expenses......................... 7,503 8,127
Loss from operations............................. (5,915) (7,293)
Interest income................................ 45 118
Interest expense............................... (41) (135)
Other (expense) income, net.................... (15) 16
--- --
Net loss......................................... $(5,926) $(7,294)
======== ========
Revenues
The Company's license revenues have been generated from sales of
QueryObject System. Maintenance revenues consist of ongoing support and product
updates that are recognized ratably over the term of the contract, which is
typically 12 months. Service revenues consist primarily of paid
proof-of-concepts performed for customers on a project or contract basis and are
recognized over the term of the respective agreements (See Note 1 of Notes to
the Consolidated Financial Statements). The Company has recognized revenue for
all periods presented in accordance with the American Institute of Certified
Public Accountants Statement of Position 97-2 entitled "Software Revenue
Recognition."
Total revenues increased by $845,000, or 91%, from $929,000 for the
year ended December 31, 1998 to $1,744,000 for the year ended December 31, 1999.
License revenues increased by $1,090,000, or 210%, from $518,000 in 1998 to
$1,608,000 in 1999. During 1999, license revenues were derived from the sale of
eighteen licenses, while during 1998 license revenues were derived from the sale
of eight licenses. Maintenance and service revenue increased by $55,000, or 50%,
from $111,000 in 1998 to $166,000 in 1999. Maintenance and service revenue is
expected to increase as the Company sells additional licenses. During 1998, the
Company recorded $300,000 of non-recurring other revenue relating to the
Company's completion of a project for a computer hardware manufacturer whereby
the QueryObject System was engineered to run on their platforms.
Cost of Revenues
Cost of software license revenues consists primarily of royalties,
product packaging, documentation and production costs. Cost of software license
revenues increased as a percentage of software license revenues from 1.1% in
1998 to 5.8 % in 1999, primarily due to royalty payments made to third parties
during 1999. Cost of maintenance and services revenues consist primarily of
customer support costs and direct costs associated with proof-of-concept
services. Cost of maintenance and services revenues decreased as a percentage of
services and maintenance revenues from 80% in 1998 to 56% in 1999, primarily due
to higher revenues that did not require significant additional personnel costs
related to customer support.
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Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel costs, including sales commissions and incentives, of all personnel
involved in the sales and marketing process, as well as related recruiting
costs, public relations, advertising related costs, collateral material and
trade shows. Sales and marketing expenses decreased by $581,000, or 13%, from
$4,321,000 in 1998 to $3,740,000 in 1999, primarily due to reduced personnel
related costs, including travel and entertainment expenses and recruiting fees,
offset in part by higher consulting expense. The Company believes that its sales
and marketing expenses will increase in absolute dollars as the Company
continues to increase promotion and other marketing expenses.
Research and Development. Research and development expenses consist
primarily of salaries and other personnel related expenses, recruiting costs
associated with the hiring of additional software engineers and quality
assurance personnel, consultant costs and depreciation of development equipment.
Research and development expenses decreased by $23,000, or 1%, from $2,306,000
in 1998 to $2,283,000 in 1999, primarily due to an increase in personnel related
costs and depreciation, offset in part by reduced recruiting expense. The
Company believes that a significant level of investment for product research and
development is required to remain competitive and, accordingly, the Company
anticipates that it will continue to devote substantial resources to product
research and development and that these costs will increase in absolute dollars.
To date, all research and development costs have been expensed as incurred.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, MIS, human resources and general
management, as well as insurance and professional expenses. General and
administrative expenses decreased by $20,000, or 1%, from $1,500,000 in 1998 to
$1,480,000 in 1999, primarily due to higher consulting and bad debt expense,
that was fully offset by a reduction in personnel related costs. The Company
believes that its general and administrative expenses will increase in absolute
dollars as it incurs additional administrative costs.
Interest Income and Interest Expense
Interest income represents income earned on the Company's cash and cash
equivalents. Interest income decreased by $73,000, or 62%, from $118,000 in 1998
to $45,000 in 1999, primarily due to a lower level of cash and cash equivalents
on deposit during 1999.
Interest expense generally represents interest on capital equipment
leases, and for 1998, charges relating to the H.C.C. Financial Services Loan
Agreement (the "Loan Agreement"). Interest expense decreased by $94,000, or 70%,
from $135,000 in 1998 to $41,000 in 1999. This decrease was primarily due to
payments made to reduce the outstanding balance under the Loan Agreement during
1998. The remaining balance under the Loan Agreement was repaid in full during
October 1998.
Provision for Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company incurred net operating losses in 1999 and 1998 and consequently paid no
federal or state income taxes. At December 31, 1999, the Company had net
operating losses and research and experimental tax credit carryforwards of
$37,705,000 and $259,000, respectively, available to offset future federal
taxable income and tax. These net operating loss carryforwards expire at various
dates through 2019. Although the determination of whether an ownership change
has occurred is subject to factual and legal uncertainties, the Company believes
that an ownership change occurred upon the completion of previous financings and
such "ownership change" will materially limit the Company's ability to utilize
its NOL carryforward. Moreover, while such loss carryforwards are available to
offset future taxable income of the Company, the Company does not expect to
generate sufficient taxable income so as to utilize all or a substantial portion
of such loss carryforwards prior to their expiration.
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Liquidity and Capital Resources
Since January 1, 1998, the Company has consummated several financings
to fund operations as follows:
(a) During June, July and August 1999, the Company sold 45 Units (the
"Units") of Series C Preferred Stock totaling gross proceeds of $4,500,000 in a
private placement (the "Series C Private Placement"). The purchase price per
Unit was $100,000. Each Unit consisted of 100 shares of newly-created Series C
Convertible Preferred Stock ("Series C Preferred Stock") and a Common Stock
Purchase Warrant (the "Series C Warrants") exercisable until December 28, 2001
to purchase 33,333 shares of Common Stock at an exercise price of $2.5875 per
share. As described below, the Series C Warrants have been called for
redemption. The Company received net proceeds of $4,089,791 and issued 4,500
shares of Series C Preferred Stock, convertible into and aggregate of 1,739,133
shares of Common Stock, and granted Series C Warrants to purchase 1,500,000
shares of Common Stock. As of December 31, 1999, there were 3,855 shares of
Series C Preferred Stock issued and outstanding.
The Company granted the placement agent and the selected dealer in the
Series C Private Placement options to purchase an aggregate of 146,667 shares of
Common Stock and paid commissions and non-accountable expense allowances equal
to 7.1% of the gross proceeds received by the Company.
(b) During May and June 1999, the Company borrowed $400,000 from
stockholders of the Company in exchange for promissory notes (the "1999 Notes
Payable"). The 1999 Notes Payable bore interest at 12% per annum and were due at
the earlier of June 30, 1999 or the successful consummation of the Series C
Private Placement. Upon the initial closing of the Series C Private Placement on
June 28, 1999, the 1999 Notes Payable were repaid.
(c) In October and November 1998, the Company had the initial closing
of two private placements -- the Series A Private Placement and the Series B
Private Placement. The Series A Private Placement consisted of 1,750,000 Units
(the "Series A Units") with a gross sales price of $3,500,000. The Series B
Private Placement consisted of 10 Units (the "Series B Units") with a gross
sales price of $1,000,000. Each Series A Unit consisted of one share of Series A
Convertible Preferred Stock ("Series A Preferred Stock") and a warrant to
purchase .83 of a share of Common Stock at a per share exercise price equal to
$1.50. Each Series B Unit consisted of 10,000 shares of Series B Convertible
Preferred Stock ("Series B Preferred Stock") and warrants to purchase an
aggregate of 41,666 shares of Common Stock at a per share exercise price equal
to $1.50. The Series A Units were sold at a purchase price of $2.00 per Unit and
each share of Series A Preferred Stock share is convertible into 1.333 shares of
Common Stock. The Series B Units were sold at a purchase price of $100,000 per
Unit and each share of Series B Preferred Stock is convertible into 6.666 shares
of Common Stock. The effective purchase price, on a Common Stock equivalent
basis was $1.50 per common share, which represented a discount from the fair
market value of the Company's Common Stock on the various dates of issuance. The
Company consummated the final closing on each of the Series A Private Placement
and the Series B Private Placement in February 1999 and received an aggregate of
(1) $3,181,000 from the Series A Private Placement (after deduction of
commissions and expenses payable to the placement agent) and (ii) $814,000 from
the Series B Private Placement (after deduction of commissions and expenses
payable to the placement agent).
In connection with the Series A and Series B Private Placements the
placement agent was granted an option to purchase additional Series A and Series
B Units equal to 10% of the Series A and Series B Units sold and received a
commission and non-accountable expense allowance equal to 5.6% and 9.3%
respectively, of the gross proceeds received by the Company.
For a discussion of the terms of the securities issued in the Series A,
Series B and Series C Private Placements see Note 7 to the Notes to the
Consolidated Financial Statements.
-22-
<PAGE>
(d) In September and October 1998, the Company borrowed a total of
$490,000 from stockholders of the Company in exchange for unsecured promissory
notes (the "1998 Notes Payable"). The 1998 Notes Payable bore interest at 12%
per annum and were due at the earlier of March 2000 or the successful
consummation of the Series A and Series B Private Placement. Upon the initial
closing of the Series A Private Placement in October 1998, $20,000 of such 1998
Notes Payable were converted into Series A Units and $170,000 of such 1998 Notes
Payable were repaid through December 1998. The balance of $300,000, outstanding
at December 31, 1998, was repaid in full in January 1999.
In December 1999, all Series A, B and C Warrants were called for
redemption. Certain Series A, B and C Warrants were exercised during 1999, prior
to the call for redemption. For the year ended December 31, 1999, the exercise
of Series A, B and C Warrants resulted in the issuance of 2,767,573 shares of
Common Stock with proceeds to the Company of $5,213,908. All Series A, B and C
Warrants were exercised and as a result, were not redeemed. In January 2000, the
exercise of the remaining Series A, B and C Warrants resulted in the issuance of
591,697 shares of Common Stock with proceeds to the Company of $1,456,250.
For the year ended December 31, 1999, the holders of Series A, B and C
Preferred Stock elected to convert a total of 131,895 shares of preferred stock
into 475,061 shares of Common Stock. As of December 31, 1999, the remaining
outstanding Preferred Stock was convertible into 4,239,021 shares of Common
Stock, of which substantially all were converted into Common Stock in 2000.
As of December 31, 1999, the Company had $4,488,854 in cash and cash
equivalents and working capital of $4,600,178. During 1999, the Company received
$1,397,004 in working capital from the proceeds of the Series A Private
Placement and Series B Private Placement, $4,089,791 from the closing of the
Series C Private Placement and $5,213,906 from the exercise of warrants granted
in the Series A, B and C Private Placements. The Company has incurred operating
losses since inception, has incurred negative cash flows from operating
activities and had an accumulated deficit of $41,338,047 and $35,412,456 as of
December 31, 1999 and 1998, respectively. The Company has had a limited
operating history as a software product company and has not made significant
sales of its products. Therefore, revenues are difficult to predict. The Company
anticipates that its cash and cash equivalent balances, may be insufficient to
satisfy its operating cash flow requirements in the foreseeable future. In this
event, there can be no assurances that the Company will be successful in raising
additional funds. See "Risk Factors That May Affect Future Results" included
elsewhere herein. The sale of additional equity securities will result in
additional dilution to the Company's stockholders.
Net cash used in operating activities was $6,423,000 and $7,089,000 in
1999 and 1998, respectively. For 1999, net cash used in operating activities was
primarily attributable to a net loss of $5,926,000 and an increase in accounts
receivable of $955,000, less depreciation and amortization of $438,000. For
1998, net cash used in operating activities was primarily attributable to a net
loss of $7,294,000, less depreciation and amortization of $421,000 and a
decrease in accounts receivable of $223,000. Net cash provided by financing
activities was $10,319,000 and $2,727,000 in 1999 and 1998, respectively,
primarily as a result of the Series A, B and C Private Placements and the
exercise of common stock purchase warrants in 1999. Subsequent to December 31,
1999, the Company received an additional $1,456,000 in proceeds from the
exercise of common stock purchase warrants. The Company believes that its cash
and cash equivalent balance will be insufficient to satisfy its cash flow
requirements for more than 12 months since the Company is unable to predict if
it will have sufficient revenues to enable it to continue operations without
additional financing.
The Company does not currently have a line of credit with a commercial
bank. As of December 31, 1999, the Company's principal commitments consisted of
obligations under operating and capital leases and employment agreements. At
that date, the Company had approximately $171,000 in outstanding borrowings
under capital leases which are payable through 2001. Pursuant to employment
agreements with executive officers of the Company as of December 31, 1999, the
Company's obligation is to pay $390,000 in salaries for the years ended December
31, 2000 and 2001.
-23-
<PAGE>
Year 2000 Compliance
We have not suffered any significant Year 2000 problems with our
internal systems or with our third-party vendors and licensors of material
software and services. We completed our assessment and system tests of all
current versions of hardware and software products and technology information
systems that we use and believe that they are Year 2000 compliant. However, we
continue to monitor our Year 2000 implications. We have not incurred any
material costs in identifying or evaluating Year 2000 compliance issues.
ITEM 7. FINANCIAL STATEMENTS
See Index to Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-24-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than April 29, 2000 pursuant to Regulation 14A of the General Rules and
Regulations under the Securities Exchange Act of 1934 ("Regulation 14A").
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than April 29, 2000 pursuant to Regulation 14A.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than April 29, 2000 pursuant to Regulation 14A.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is incorporated by
reference from the Company's definitive proxy statement to be filed not later
than April 29, 2000 pursuant to Regulation 14A.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit
Number Exhibits
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Registration Statement on
Form SB-2, No. 333-34667).
3.2 By-laws of the Registrant, as amended (Incorporated by
reference to Exhibit 3.2 to the Registration Statement on
Form SB-2, No. 333-34667).
*3.3 Certificate of Amendment to the Certificate of Incorporation
of the Company
4.1 Specimen Certificate of the Registrant's Common Stock
(Incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form SB-2, No. 333-34667).
4.2 Form of Representative's Purchase Option granted to GKN
Securities Corp. (Incorporated by reference to Exhibit 4.2
to the Registration Statement on Form SB-2, No. 333-34667).
4.3 Form of Warrant issued in connection with the July 1997
Private Placement (Incorporated by reference to Exhibit 4.3
to the Registration Statement on Form SB-2, No. 333-34667).
-25-
<PAGE>
Exhibit
Number Exhibits
4.4 Certificate of Designations, Preferences and Other Rights
and Qualifications of Series A Convertible Preferred Stock
(Incorporated by reference to Exhibit 99(A) of the Form
10-QSB for the quarterly period ended September 30, 1998)
4.5 Certificate of Correction to the Certificate of
Designations, Preferences and Other Rights and
Qualifications of Series A Convertible Preferred Stock
(Incorporated by reference to Exhibit 99(B) to the Form
10-QSB for the quarterly period ended September 30, 1998).
4.6 Certificate of Designations, Preferences and Other Rights
and Qualifications of Series B Convertible Preferred Stock
(Incorporated by reference to Exhibit 99(C) to the Form
10-QSB for the quarterly period ended September 30, 1998).
4.7 Certificate of Designations, Preferences and Other Rights
and Qualifications of Series C Convertible Preferred Stock
(Incorporated by reference to Exhibit 4.12 to the
Registration Statement on Form S-3, No. 333-88319).
10.1 1991 Incentive Stock Option Plan (Incorporated by reference
to Exhibit 10.1 to the Registration Statement on Form SB-2,
No. 333-34667).
10.2 Form of Stock Option Agreement for Non-Qualified Options
granted to Advisors (Incorporated by reference to Exhibit
10.2 to the Registration Statement on Form SB-2, No.
333-34667).
10.3 Employment Agreement, dated as of January 1, 1999, by and
among, the Company and Daniel M. Pess (Incorporated by
reference to Exhibit 99.2 to the form 10-QSB for the
quarterly period ended September 30, 1999).
10.4 Employment Agreement, dated as of January 1, 1999, by and
among, the Company and Robert A. Thompson (Incorporated by
reference to Exhibit 99.1 to the form 10-QSB for the
quarterly period ended September 30, 1999).
10.5 Employment Agreement, dated as of October 14, 1997, by and
among, the Company and Alan W. Kaufman (Incorporated by
reference to Exhibit 10.9(a) to the Registration Statement
on Form SB-2, No. 333-34667).
10.6 Amendment to Employment Agreement, dated as of January 9,
1999, by and among, the Company and Alan W. Kaufman
(Incorporated by reference to Exhibit 10.6 to the Form
10-KSB for the fiscal year ended December 31, 1998).
*10.7 Software License Agreement dated as of March 16, 2000 by and
between the Company and internetQueryObject Corporation.
10.8 Agreement of Lease, dated as of August 13, 1999, between LKM
Expressway Plaza Limited Partnership and the Company
(Incorporated by reference to Exhibit 99.4 to the Form
10-QSB for the quarterly period ended September 30, 1999).
*11.1 Computation of Net Loss Per Share.
*23 Consent of PricewaterhouseCoopers LLP
*27 Financial Data Schedule
- -------------------------
* Filed herewith.
(b) Reports on Form 8-K
None.
-26-
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
QueryObject Systems Corporation
Dated: March 29, 2000 By: /s/ Robert Thompson
----------------------------------------------
Robert Thompson
Chairman, President and Chief Executive Officer
POWER OF ATTORNEY
QueryObject Systems Corporation and each of the undersigned do hereby
appoint Robert Thompson and Daniel M. Pess and each of them severally, its or
his true and lawful attorney to execute on behalf of QueryObject Systems
Corporation and the undersigned any and all amendments to this Annual Report on
Form 10-KSB and to file the same with all exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission; each of
such attorneys shall have the power to act hereunder with or without the other.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Robert Thompson
- ----------------------- Chairman, President and Chief March 29, 2000
Robert Thompson Executive Officer (Principal
Executive Officer)
/s/ Daniel M. Pess
- ----------------------- Executive Vice President, Chief March 29, 2000
Daniel M. Pess Operating Officer and Chief
Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
/s/ Alan W. Kaufman Director March 29, 2000
- -----------------------
Alan W. Kaufman
/s/ Andre Szykier
- ----------------------- Director March 29, 2000
Andre Szykier
/s/ Rino Bergonzi Director March 29, 2000
- -----------------------
Rino Bergonzi
/s/ Irwin Jacobs Director March 29, 2000
- -----------------------
Irwin Jacobs
/s/ Amy L. Newmark Director March 29, 2000
- -----------------------
Amy L. Newmark
-27-
<PAGE>
QueryObject Systems Corporation
Consolidated Financial Statements
December 31, 1999 and 1998
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants............................................................F-2
Consolidated Balance Sheet as of December 31, 1999...........................................F-3
Consolidated Statement of Operations for the years ended December 31, 1999 and 1998..........F-4
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the years ended
December 31, 1999 and 1998.................................................................F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1999 and 1998..........F-6
Notes to the Consolidated Financial Statements...............................................F-7
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors
and Stockholders of
QueryObject Systems Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of QueryObject Systems Corporation (the "Company") at
December 31, 1999, and the results of its operations and its cash flows for the
two years then ended in conformity with accounting principles generally accepted
in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and has incurred negative cash flows from operating activities
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
PricewaterhouseCoopers LLP
Melville, New York
March 2, 2000
F-2
<PAGE>
QueryObject Systems Corporation
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1999
ASSETS
Current assets
<S> <C>
Cash and cash equivalents $ 4,488,854
Accounts receivable, net of allowance for doubtful
accounts of $92,700 1,231,548
Prepaid expenses and other current assets 148,234
------------
Total current assets 5,868,636
Property and equipment, net 846,300
Deposits and other assets 157,047
------------
Total assets $ 6,871,983
------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 347,680
Accrued expenses 564,217
Capital lease obligations due within one year 161,374
Deferred revenue 169,755
Deferred rent 25,432
------------
Total current liabilities 1,268,458
Capital lease obligations 9,817
Deferred rent 266,861
------------
Total liabilities 1,545,136
------------
Stockholders' equity
Preferred stock, $.001 par value: 4,000,000 shares
authorized; 1,609,375, 90,500 and 3,855
shares of Series A, B and C, respectively, issued and outstanding 1,704
Common stock, $.003 par value: 60,000,000 shares
authorized; 4,983,663 shares issued and outstanding 14,951
Additional paid-in-capital 46,648,239
Accumulated deficit (41,338,047)
------------
Total stockholders' equity 5,326,847
------------
Commitments and contingencies (Notes 2 and 13)
Total liabilities and stockholders' equity $ 6,871,983
------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
QueryObject Systems Corporation
Consolidated Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
Revenues
<S> <C> <C>
Software licenses $ 1,608,400 $ 517,350
Maintenance and services 165,709 111,155
Other -- 300,000
----------- -----------
Total revenues 1,774,109 928,505
Cost of revenues
Software licenses 93,637 5,668
Maintenance and services 92,488 88,756
----------- -----------
Total cost of revenues 186,125 94,424
----------- -----------
Gross profit 1,587,984 834,081
----------- -----------
Operating expenses
Sales and marketing 3,740,385 4,321,359
Research and development 2,282,910 2,305,678
General and administrative 1,479,823 1,500,506
----------- -----------
Total operating expenses 7,503,118 8,127,543
----------- -----------
Loss from operations (5,915,134) (7,293,462)
Interest income 45,315 118,423
Interest expense (41,121) (135,498)
Other (expense) income, net (14,651) 16,505
----------- -----------
Net loss $(5,925,591) $(7,294,032)
----------- -----------
Calculation of net loss available to common stockholders
Net loss $(5,925,591) $(7,294,032)
Effect of beneficial conversion feature of convertible preferred stock -- (2,251,438)
----------- -----------
Net loss available to common stockholders $(5,925,591) $(9,545,470)
Basic and diluted net loss per common share $ (2.57) $ (5.59)
----------- -----------
Weighted average shares used in per share computation (Note 1) 2,302,641 1,706,735
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
QueryObject Systems Corporation
Consolidated Statement of Changes in Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Series A Convertible Series B Convertible Series C Convertible
Preferred Stock Preferred Stock Preferred Stock
------------------------------------------------------------------------------
Shares Amount Shares Amount Shares Amountt
---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 -- $ -- -- $ -- -- $ --
Issuance of Series A & B preferred stock:
For cash and notes, net of issuance costs 1,721,125 1,721 100,000 100
In settlement of bridge notes payable 10,000 10
Beneficial conversion feature of convertible
Series A and B preferred stock
Issuance of common stock options for
consulting services
Receipt of receivable from stockholder
Common stock options exercised
Net loss
------------ ------------ ---------- ------------ ---------- ------------
Balance at December 31, 1998 1,731,125 1,731 100,000 100 -- --
Issuance of Series C preferred stock, net 4,500 5
Conversion of preferred stock to common stock (121,750) (122) (9,500) (9) (645) (1)
Common stock warrants exercised
Issuance of common stock options for
consulting services
Receipt of receivable from stockholders
Common stock options exercised
Net loss
------------ ------------ ---------- ------------ ---------- ------------
Balance at December 31, 1999 1,609,375 $ 1,609 90,500 $ 91 3,855 $ 4
------------ ------------ ---------- ------------ ---------- ------------
</TABLE>
<TABLE>
<CAPTION>
Common Stock Additional Stock Total
----------------------- Paid-in Accumulated Subscriptions Stockholders'
Shares Amount Capital Deficit Receivable Equity (Deficit)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 1,703,535 $ 5,111 $ 30,384,706 $(25,866,986) $ (12,300) $ 4,510,531
Issuance of Series A & B preferred stock:
For cash and notes, net of issuance costs 4,096,777 (1,519,200) 2,579,398
In settlement of bridge notes payable 19,990 20,000
Beneficial conversion feature of convertible
Series A and B preferred stock 2,251,438 (2,251,438) --
Issuance of common stock options for
consulting services 145,792 145,792
Receipt of receivable from stockholder 12,300 12,300
Common stock options exercised 4,127 12 11,873 11,885
Net loss (7,294,032) (7,294,032)
---------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 1,707,662 5,123 $36,910,576 $(35,412,456) $ (1,519,200) $ (14,126)
Issuance of Series C preferred stock, net 4,089,786 4,089,791
Conversion of preferred stock to common stock 475,095 1,425 (1,293) --
Common stock warrants exercised 2,767,573 8,303 5,205,605 5,213,908
Issuance of common stock options for
consulting services 471,861 471,861
Receipt of receivable from stockholders (122,196) 1,519,200 1,397,004
Common stock options exercised 33,333 100 93,900 94,000
Net loss (5,925,591) (5,925,591)
---------- ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 4,983,663 $ 14,951 $ 46,648,239 $(41,338,047) $ -- $ 5,326,847
---------- ------------ ------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
QueryObject Systems Corporation
Consolidated Statement of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
Cash flows from operating activities
<S> <C> <C>
Net loss $ (5,925,591) $ (7,294,032)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization 438,806 420,820
Loss on disposition of equipment 1,312 --
Options issued for consulting services 471,861 145,792
Changes in assets and liabilities
Accounts receivable, net (955,021) 223,240
Prepaid expenses and other current assets (110,483) 10,503
Deposits and other assets (76,015) 4,243
Accounts payable and accrued expenses (374,879) (355,338)
Deferred rent 22,465 896
Deferred revenue 84,964 54,756
Customer advance -- (300,000)
------------ ------------
Net cash used in operating activities (6,422,581) (7,089,120)
------------ ------------
Cash flows from investing activities
Acquisitions of property and equipment (328,130) (132,795)
Repayment of stockholder note receivable 65,000 --
Proceeds from disposition of equipment, net 1,948 --
Note receivable from stockholder -- (65,000)
Purchase of restricted certificate of deposit -- (23,201)
------------ ------------
Net cash used in investing activities (261,182) (220,996)
------------ ------------
Cash flows from financing activities
Proceeds from issuance of preferred stock, net 4,089,791 2,579,398
Proceeds from exercise of common stock warrants 5,213,908 --
Proceeds from exercise of common stock, options 94,000 11,885
Collection of stock subscriptions receivable, net 1,397,004 --
Proceeds from interim financings payable -- 490,000
Repayment of loans payable to stockholders (700,000) (170,000)
Proceeds from loan payable to stockholders 400,000 (891,335)
Proceeds from loan receivable from stockholder -- 12,300
Payments of capital lease obligations (176,104) (235,706)
Proceeds from sale-leaseback transaction -- 29,202
Release of restricted certificate of deposit -- 901,040
------------ ------------
Net cash provided by financing activities 10,318,599 2,726,784
------------ ------------
Net increase (decrease) in cash and cash equivalents 3,634,836 (4,583,332)
Cash and cash equivalents at beginning of year 854,018 5,437,350
------------ ------------
Cash and cash equivalents at end of year $ 4,488,854 $ 854,018
------------ ------------
</TABLE>
F-6
<PAGE>
QueryObject Systems Corporation
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Organization and Summary of Significant Accounting Policies
Organization
QueryObject Systems Corporation (the "Company") was originally
incorporated in California in February 1989. In November 1997, pursuant
to a plan of corporate reorganization, the Company merged with its
wholly owned Delaware subsidiary. The Company develops, markets and
supports proprietary business intelligence software solutions that
enable business managers to make strategic decisions based on their
corporate data.
Summary of significant accounting policies
Basis of presentation
The consolidated financial statements include the accounts of
QueryObject Systems Corporation and its wholly owned subsidiaries,
internetQueryObject Corporation ("IQO.com") and QueryObject Systems
Corporation, Ltd. All significant intercompany transactions have been
eliminated in consolidation.
Restatement and reclassification for reverse stock split
On January 27, 2000, the Company's stockholders approved a
one-for-three reverse stock split of all common stock outstanding. The
one-for-three reverse stock split also affects options and warrants
outstanding as well as the conversion ratio of Convertible Preferred
Stock into common stock. All share and per share amounts affecting net
loss per share, weighted average number of common and common equivalent
shares outstanding, common stock and all other stock transactions
presented in these financial statements have been restated to reflect
the one-for-three reverse stock split.
Basic and diluted net loss per share
Basic net loss per share is computed by dividing the net loss by the
sum of the weighted average number of shares of common stock
outstanding. The weighted average number of shares of common stock
outstanding includes the number of common shares issuable upon the
conversion of Convertible Preferred Stock, as of the date of
conversion, and the number of common shares issuable upon the exercise
of options and warrants, as of the date of exercise.
Diluted earnings per share is based on the potential dilution that
would occur on exercise or conversion of securities into common stock.
At December 31, 1999 and 1998, outstanding options and warrants to
purchase 3,406,390 and 4,011,201 shares of common stock, respectively,
that could potentially dilute basic earnings per share in the future
were not included in the computation of diluted net loss per share
because to do so would have had an antidilutive effect for the periods
presented. In addition, the Series A, B and C Convertible Preferred
Stock issued during 1999 and 1998 has been excluded due to the
antidilutive effect. As a result, the basic and diluted per share
amounts are identical for all periods presented.
Cash and cash equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
F-7
<PAGE>
Revenue recognition
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountants ("AICPA") Statement of
Position 97-2 on Software Revenue Recognition. Revenue from product
licensing is generally recognized after execution of a licensing
agreement and shipment of the product, provided that no significant
vendor obligations remain and the resulting receivable is deemed
collectable by management. Maintenance revenues consist of ongoing
support and product updates and are recognized ratably over the term of
the contract, generally twelve months. Service revenues consist
primarily of paid proof-of-concepts performed for customers on a
project or contract basis and are recognized over the term of the
respective agreements.
Depreciation and amortization
Depreciation and amortization are computed using the straight line
method over the estimated useful lives of the assets, generally three
to five years. Assets acquired under capital leases and leasehold
improvements are amortized using the straight-line method over the
shorter of the estimated useful lives of the assets or the terms of the
related leases.
Software development costs
Statement of Financial Accounting Standards No. 86 "Accounting for the
Costs of Computer Software to be Sold, Leased or Otherwise Marketed"
("SFAS 86") requires the capitalization of certain software development
costs once technological feasibility is established, which the Company
defines as the completion of a working model. To date, the period
between achieving technological feasibility and the general
availability of such software has been short and software development
costs qualifying for capitalization have been insignificant.
Accordingly, the Company has expensed all software development costs as
incurred.
Advertising
Advertising costs are included in sales and marketing expenses and are
expensed as incurred. To date advertising costs have not been
significant.
Income taxes
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109"). Income taxes are computed using the asset and liability
method. Under the asset and liability method specified by SFAS 109,
deferred income tax assets and liabilities are determined based on the
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the currently enacted tax rates and
laws.
Use of estimates
These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles which require
management to make reasonable estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingencies at the date of the consolidated financial statements.
Actual results could differ from those estimates.
Fair value of financial instruments
The carrying value of cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses approximates fair value due to
the relatively short term nature of these instruments.
F-8
<PAGE>
Concentrations of credit risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist principally of cash,
cash equivalents and accounts receivable. The Company places its cash
with high quality financial institutions. The Company performs ongoing
credit evaluations of its customers and generally requires no
collateral. The Company maintains reserves for potential credit losses
and historically such losses have not been significant.
Accounting for stock-based compensation
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair
value based method of accounting for stock-based compensation plans.
The Company has chosen to adopt the disclosure requirements of SFAS
123, and continue to record stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). Under APB 25, the Company has not
recognized compensation expense with respect to such awards because the
exercise price of options granted to employees has approximated the
fair market value of the common stock at the respective grant dates.
2. Liquidity and Business Risks
The Company has incurred operating losses since inception, has incurred
negative cash flows from operating activities and had an accumulated
deficit of $41,338,047 and $35,412,456 as of December 31, 1999 and
1998, respectively. The Company has had a limited operating history as
a software product company and has not made significant sales of its
products, therefore, revenues are difficult to predict. The Company
anticipates that its cash and cash equivalent balance at December 31,
1999 may be insufficient to satisfy its operating cash flow
requirements in the foreseeable future. In this event, the Company may
seek to sell additional equity or convertible debt securities, however,
there can be no assurances that the Company would be successful in
raising additional funds. The sale of additional equity or convertible
debt securities would result in additional dilution to the Company's
stockholders.
3. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year Ended
December 31,
1999 1998
<S> <C> <C>
Interest paid during the period $ 53,207 $ 154,065
Schedule of non cash investing and financing activities:
Common stock options issued for consulting services 471,861 145,792
Capital lease obligations entered into during the period -- 29,202
Series A Preferred Stock, issued for Interim Financing 20,000
Beneficial conversion feature of Series A and B
Convertible Preferred Stock -- 2,251,438
</TABLE>
F-9
<PAGE>
4. Property and Equipment
Property and equipment included the following:
December 31,
1999
Computer equipment and software $2,077,342
Furniture and fixtures 197,675
Office equipment 101,735
Leasehold improvements 40,348
----------
2,417,100
Less: accumulated depreciation and amortization 1,570,800
----------
$ 846,300
----------
5. Accrued Expenses
Accrued expenses included the following:
December 31,
1999
Executive compensation $255,577
Compensation and related benefits 182,704
Consulting and professional fees 37,073
Commissions 18,012
Other 70,851
--------
$564,217
--------
6. Borrowing Arrangements
Interim financing
During May and June 1999, the Company borrowed $400,000 from
stockholders of the Company evidenced by promissory notes (the "1999
Notes"). The 1999 Notes bore interest at 12% per annum and were due at
the earlier of June 30, 1999 or the successful consummation of the
Series C Private Placement (see Note 7). Upon the initial closing of
the Series C Private Placement on June 28, 1999, the 1999 Notes were
repaid.
F-10
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
In September and October 1998, the Company borrowed a total of $490,000
from stockholders of the Company evidenced by unsecured promissory
notes (the "1998 Notes"). The 1998 Notes bore interest at 12% per annum
and were due at the earlier of March 2000 or the successful
consummation of the Series A and Series B Private Placement. Upon the
initial closing of the Series A Private Placement in October 1998,
$20,000 of the 1998 Notes was converted into Series A Units and
$170,000 of the 1998 Notes was repaid through December 1998. The
balance of $300,000, outstanding at December 31, 1998 was repaid in
full in January 1999.
Loan receivable from officer
In January 1998, the Company loaned $65,000 to an officer and director
of the Company. The promissory note had a term of 24 months and bore
interest at 8% per annum. In April 1999, the loan receivable was offset
in full against amounts owed to the officer in conjunction with his
separation from the Company.
Loan payable to stockholder
In May 1992, the Company entered into a borrowing arrangement whereby a
stockholder agreed to advance the Company funds at an interest rate of
18% per annum. Such borrowings were collateralized by the Company's
accounts receivable. In May 1996, the Company was in default of certain
provisions of the agreement, at which time the stockholder and the
Company amended the agreement to reduce the interest rate to the
greater of prime plus 3% or 12% per annum and delay the time that the
stockholder could demand repayment until March 1998. The revised
agreement required the Company to set aside funds in a restricted
account to the extent that the outstanding borrowings exceeded 80% of
the Company's accounts receivable and to make monthly payments of
$10,000, plus interest, until March 1998. The Company paid the
obligation in full during 1998 with funds in the restricted account.
Interest expense related to this agreement was $64,067 for 1998.
7. Stockholders' Equity
Convertible preferred stock
During June, July and August 1999, the Company sold 45 Units (the
"Series C Units") of Series C Preferred Stock totaling gross proceeds
of $4,500,000 in a private placement (the "Series C Private
Placement"). The purchase price per Unit was $100,000. Each Unit
consists of 100 shares of newly-created Series C Preferred Stock and a
Common Stock Purchase Warrant (the "Series C Warrants") exercisable
until December 28, 2001 to purchase 33,333 shares of Common Stock at an
exercise price of $2.5875 per share. As described below, the Series C
Warrants have been called for redemption. The Company received net
proceeds of $4,089,791 and issued 4,500 shares of Series C Preferred
Stock, convertible into an aggregate of 1,739,133 shares of Common
Stock and Series C Warrants to purchase an aggregate of 1,500,000
shares of Common Stock. As of December 31, 1999, there were 3,855
shares of Series C Preferred Stock issued and outstanding.
The Company granted the placement agent and the selected dealer in the
Series C Private Placement options to purchase an aggregate of 146,667
shares of Common Stock and paid commissions and non-accountable expense
allowances equal to 7.1% of the gross proceeds received by the Company.
In October and November 1998, the Company had the initial closing of
two private placements. The Series A Private Placement consisted of
1,750,000 Units (the "Series A Units") with a gross sales price of
$3,500,000. The Series B Private Placement consisted of 10 Units (the
"Series B Units")
F-11
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
with a gross sales price of $1,000,000. Each Series A Unit consisted of
one share of Series A Preferred Stock and a warrant to purchase .83 of
a share of Common Stock at a per share exercise price equal to $1.50.
Each Series B Unit consisted of ten thousand shares of Series B
Preferred Stock and warrants to purchase an aggregate of 41,667 shares
of Common Stock at a per share exercise price equal to $1.50. As
described below, the Series A and Series B warrants have been called
for redemption. The Series A Units were sold at a purchase price of
$2.00 per Unit and each Series A share is convertible into 1.333 shares
of Common Stock. The Series B Units were sold at a purchase price of
$100,000 per Unit and each Series B share is convertible into 6.666
shares of Common Stock. The effective purchase price, on a common stock
equivalent basis was $1.50 per common share, which represented a
discount from the fair market value of the Company's common stock on
the various dates of issuance. As of December 31, 1999, 1,609,375 and
90,500 shares of Series A Preferred Stock and Series B Preferred Stock,
respectively, were issued and outstanding. All subscriptions receivable
as of December 31, 1998 were received by the Company in January and
February 1999.
In connection with the Series A and Series B Private Placements, the
placement agent was granted an option to purchase additional Series A
and Series B Units equal to 10% of the Series A and Series B Units sold
and received a commission and non-accountable expense allowance equal
to 5.6% and 9.3%, respectively, of the gross proceeds received by the
Company.
The following is a description of the securities issued in the Series
A, Series B and Series C Private Placements:
Stated value
Each share of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock has a stated value equal to $2, $10 and
$1,000, respectively, per share.
Liquidation preference
Upon a liquidation of the Company (including a sale by the Company of
all or substantially all of its assets or a merger or consolidation of
the Company with another Company where the Company is not the surviving
entity), the assets of the Company available for distribution to the
stockholders of the Company (after payment or provision for liabilities
of the Company), whether from capital, surplus or earnings, shall be
distributed in the following order of priority: (i) first, to the
holders of the Series A Preferred Stock and the Series B Preferred
Stock to the extent of their liquidation preference, (ii) second, to
the holders of the Series C Preferred Stock, prior and in preference to
any distribution to the holders of any junior securities then
outstanding and (iii) third, to the holders of issued and outstanding
junior securities, including shares of Common Stock.
Dividends
The holders of the Series A, Series B and Series C Preferred Stock
shall not be entitled to receive any stated dividend payment.
Conversion
The holders of the Series A, Series B and Series C Preferred Stock have
the right, at the holder's option, to convert each share of Series A,
Series B and Series C Preferred Stock into 1.333 shares, 6.666 shares
and 386.33 shares, respectively, of Common Stock.
F-12
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Series A and Series B Preferred Stock were issued with a conversion
ratio that represented a discount from the market value at the time of
issuance. Accordingly, the discount amount is considered incremental
yield (the "beneficial conversion feature"), to the preferred
stockholders and has been accounted for as an embedded dividend to
preferred stockholders. Based on the conversion terms of the Series A
and Series B Preferred Stock, an embedded dividend of $2,251,438 or
$1.32 per share, was added to net loss in the calculation of net loss
per share in 1998.
Voting
The holders of the Series A, Series B and Series C Preferred Stock are
entitled to vote with holders of common stock on all matters submitted
for a vote to the stockholders of the Company, on an as-converted
basis.
Warrants
Each Series A and Series B Warrant entitles the registered holder to
purchase .83 of a share of Common Stock, subject to adjustment to
protect against dilution, at a per share exercise price equal to $1.50,
commencing on the date of the initial closing of the Series A and
Series B shares Private Placements, respectively, and ending on the
third anniversary of such closings. The Series A and Series B Warrants
may be called for redemption by the Company at a redemption price of
$.01 per warrant upon not less than 30 days prior written notice if the
closing price of the Common Stock shall have been at least $4.80 per
share on 20 trading days during any 30-consecutive day trading period
ending not more than three days prior to the date such notice is given.
Each Series C Warrant entitles the registered holder to purchase at
anytime until December 28, 2001, 33,333 shares of Common Stock, subject
to adjustment to protect against dilution, at a per share exercise
price equal to $2.5875. The Series C Warrants may be called for
redemption by the Company at a redemption price of $.01 per Series C
Warrant upon not less than 30 days prior written notice if the closing
price of the Common Stock shall have been at least $3.60 per share
(subject to adjustment in the event of a subdivision or combination of
the shares of Common Stock) on 20 trading days during any
30-consecutive day trading period ending not more than three days prior
to the date such notice is given.
Common stock
In December 1999, all Series A, B and C Warrants were called for
redemption in accordance with the guidelines set forth above, with a
redemption date in January 2000. Certain Series A, B and C Warrants
were exercised during 1999, prior to the call for redemption. For the
year ended December 31, 1999, the exercise of Series A, B and C
Warrants resulted in the issuance of 2,767,573 shares of common stock
with proceeds to the Company of $5,213,908. All Series A, B and C
Warrants were exercised and as a result, were not redeemed. In January
2000, the exercise of the remaining Series A, B and C Warrants resulted
in the issuance of 591,697 shares of Common Stock with proceeds to the
Company of $1,456,250.
For the year ended December 31, 1999, the holders of Series A, B and C
Preferred Stock elected to convert a total of 131,895 shares of
Preferred Stock into 475,061 shares of Common Stock.
F-13
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Employee Stock Options
In 1991, the Board of Directors approved the 1991 Incentive Stock Plan
(the "Plan"), which was subsequently amended and allows the Board to
grant either incentive or non-qualified stock options to the Company's
employees or consultants. The options expire generally between five and
seven years from the date of grant. Individuals owning more than 10% of
the total combined voting power of all classes of stock of the Company
are not eligible to participate in the Plan unless the option price is
at least 110% of the fair market value of the common stock at the date
of grant.
A summary of the activity under the Plan is as follows:
<TABLE>
<CAPTION>
Options Exercise
Available for Shares Under Price
Grant Option Per Share
-------------- ------------- ---------
<S> <C> <C> <C> <C>
Options outstanding at January 1, 1998 303,834 287,475 $2.82-18.00
Additional shares authorized 1,285,333 -- --
Granted (1,278,704) 1,278,704 2.82-18.00
Exercised -- (4,127) 2.88
Canceled 100,040 (100,040) 2.88-18.00
---------- ------------ -----------
Options outstanding at December 31, 1998 410,503 1,462,012 2.82-18.00
Additional shares authorized 666,666 -- --
Granted (513,000) 513,000 2.59-15.00
Exercised -- (33,333) 2.82
Canceled 100,000 (100,000) 2.82
---------- ---------- -----------
Options outstanding at December 31, 1999 664,169 1,841,679 $ 2.59-18.00
---------- ------------ ------------
Options exercisable at December 31, 1999 836,310 $ 2.59-18.00
------------ ------------
</TABLE>
During 1999, QueryObject Systems Corporation and IQO.com granted
103,333 and 750,000 non-qualified stock options, respectively, to
consultants and recognized consulting expense of $471,861 related to
non-qualified stock options during 1999. During 1998, QueryObject
Systems Corporation granted 319,933 non-qualified stock options to
consultants and recognized consulting expense of $145,792 related to
these options during 1998.
The Company accounts for stock options granted to employees under APB
25 and has adopted SFAS 123 for disclosure purposes. Because options
granted to employees in 1999 and 1998 had exercise prices equal to or
greater than the fair market value of the underlying common stock at
the respective grant dates, as determined by the Company's management,
compensation expense has not been recognized in results of operations.
The pro forma impact of SFAS 123 on the Company's results of operations
related to options granted during 1999 and 1998 was immaterial to the
Company's actual results of operations.
F-14
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
In November 1998 and March 1999, the Company's Board of Directors
approved an increase in the number of shares reserved for issuance to
1,935,333 and 2,602,000, respectively. In November 1998 the Board of
Directors also approved a repricing of 389,395 options previously
granted pursuant to the Plan to a per share exercise price of $2.82,
the fair market value on the date of the repricing. The repriced
options, which had original exercise prices of between $2.88 and $18.00
per share, have the same vesting terms as the original option grants.
All options issued during November 1998 and thereafter have a term of
seven years from the date of grant. Options issued to employees will
vest over a three-year period and options issued to non-employees will
vest over two years.
9. Major Customers and International Sales
Sales to major customers, as a percentage of revenues, are as follows:
Year Ended Year Ended
December 31, December 31,
1999 1998
A - 32%
B - 24%
C 22% 10%
D - 14%
E 25% -
F 14% -
G 11% -
At December 31, 1999, customers C, E, F and G represented 31%, 17%, 20%
and 16% of total accounts receivable, respectively. At December 31,
1998, customers C and D represented 33% and 40% of total accounts
receivable, respectively.
International sales for the year ended December 31, 1999 were $873,900,
or 49% of total revenues and for the year ended December 31, 1998 were
$157,500, or 17% of total revenues.
10. Employee Benefit Plans
The Company has a 401(k) savings plan (the "Savings Plan") covering all
full-time employees and qualifying part time employees. As allowed
under Section 401(k) of the Internal Revenue Code, the Savings Plan
provides tax-deferred salary reductions for eligible employees.
Employees are immediately eligible to participate in the Savings Plan
upon employment. Participants may make voluntary contributions to the
Savings Plan up to 20% of their compensation, subject to annual limits.
The Savings Plan permits company contributions, however, none were made
during the years ended December 31, 1999 and 1998.
11. Obligations Under Capital and Operating Leases
The Company is obligated under capital leases for computers and office
equipment through 2001. All assets leased under these agreements have
been capitalized and the related obligations are reflected in the
accompanying consolidated financial statements based upon the present
value of
F-15
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
future minimum lease payments. In addition, the Company leases its
office facilities and certain furniture and equipment. These operating
leases are noncancellable and expire on various dates through 2004.
The future minimum lease payments under capital and operating leases at
December 31, 1999 and the present value of the net minimum lease
payments are as follows:
Operating Capital
Year Ending December 31, Leases Leases
------------- --------------
2000 $ 578,726 $ 170,544
2001 581,408 10,001
2002 604,661 -
2003 628,828 -
2004 and thereafter 671,486 -
------------ ------------
Total minimum lease payments $ 3,065,109 180,545
------------
Less: amounts related to interest 9,354
-------------
Present value of net minimum lease payments 171,191
Less: obligation due within one year 161,374
-------------
Long-term obligation under capital leases $ 9,817
-------------
During 1998 the Company refinanced certain equipment purchased during
1997 under a sale/leaseback agreement. These transactions were
accounted for as financings, wherein the property remained on the books
and continues to be depreciated. Financing obligations representing the
proceeds were recorded and are reduced based upon payments under the
lease over a 42 month period.
Rental expense under operating leases was $336,852 and 445,755 for the
years ended December 31, 1999 and 1998, respectively.
For the year ended December 31, 1999, the Company recognized $54,042 of
sub-lease rental income. The future minimum rentals to be received
under operating leases at December 31, 1999 are as follows:
F-16
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
Operating
Year Ending December 31, Leases
2000 $ 278,084
2001 330,206
2002 343,403
2003 357,111
2004 and thereafter 371,446
----------
Total minimum rentals receivable $1,680,250
----------
12. Income Taxes
The tax effect of temporary differences and carryforwards that give
rise to significant portions of the deferred tax assets and liabilities
at December 31, 1999 was:
Deferred rent $ 116,917
Accounts payable 139,073
Accrued expenses 268,778
Deferred revenues 67,902
Software cost expense 268,804
Net operating loss carryforwards 15,081,805
Research and experimental credit carryforwards 258,562
Other deferred tax assets 476,561
------------
Deferred tax assets 16,678,402
Depreciation (377,737)
Accounts receivable (492,619)
Prepaid expenses (59,294)
------------
Deferred tax liabilities (929,650)
Net deferred tax assets 15,748,752
Less: valuation allowance (15,748,752)
------------
Net deferred tax assets $ --
------------
F-17
<PAGE>
QueryObject Systems
Notes to the Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company has recorded a full valuation allowance against its net
deferred tax assets since management believes that based upon the
available objective evidence it is more likely than not that these
assets will not be realized. The difference between the statutory
federal tax rate and the Company's effective tax rate is primarily due
to the valuation allowance.
As of December 31, 1999, the Company has net operating loss and
research and experimental tax credit carryforwards of approximately
$37,705,000 and $259,000, respectively, available to offset future
federal taxable income and tax. These carryforwards will expire at
various dates beginning in 2007 through 2019. Under Section 382 of the
Internal Revenue Code of 1986, as amended, utilization of prior net
operating losses ("NOLs") is limited after an ownership change, as
defined in such Section 382. As a result of previous transactions which
involved an ownership change as defined by Section 382, the Company
will be subject to limitation on the use of its NOLs. Accordingly,
there can be no assurance that a significant amount of the existing
NOLs will be available to the Company.
13. Commitments
Employment agreements
The Company has entered into long-term employment agreements with
certain key members of management. The agreements provide each employee
with base annual compensation and incentive compensation payable upon
attaining certain corporate targets as determined by the Board of
Directors. The agreements provide that in the event of the termination,
other than for cause, the executives will be entitled to twelve months
of severance. The aggregate annual commitments under these employment
agreements are $390,000 per annum for 2000 and 2001.
14. Subsequent event
During March 2000, IQO.com began a private placement of its Preferred
Stock. IQO.com is seeking to sell up to a maximum of 50 Units (the
"Units") of its Series A Preferred Stock totaling gross proceeds of
$5,000,000. The purchase price per Unit is $100,000. Each Unit consists
of 125,000 shares of newly-created Series A Convertible Preferred Stock
and a Common Stock Purchase Warrant, exercisable for a one year period,
to purchase 125,000 shares of its Common Stock at an exercise price of
$1.00 per share. The Series A Convertible Preferred Stock is
convertible, at the option of the holder, into Common Stock of IQO.com
on a one share for one share basis. There can be no assurance that
IQO.com will be successful in selling all or part of this offering.
F-18
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
QUERYOBJECT SYSTEMS CORPORATION
- --------------------------------------------------------------------------------
It is hereby certified that:
1. The name of the corporation is QUERYOBJECT SYSTEMS CORPORATION
(the "Corporation").
2. The amendment of the certificate of incorporation effected by
this certificate of amendment is to reflect a reverse stock
split of the Corporation's common stock. The amendment does
not change the terms and provisions of the Certificate of
Designations Preferences and Other Rights and Qualifications
of the Corporation's Series A, B and C Convertible Preferred
Stock.
3. To accomplish the foregoing amendment, Article FOURTH of the
Corporation's certificate of incorporation, relating to the
reverse stock split of the Corporation's Common Stock, is
hereby amended to state the following:
"FOURTH: This corporation is authorized to issue two
classes of stock to be designated, respectively,
"Common Stock" and "Preferred Stock." The total
number of shares of Common Stock this Corporation is
authorized to issue is 60,000,000, par value $0.003
per share, and the total number of shares of
Preferred Stock this Corporation is authorized to
issue is 4,000,000 shares of Preferred Stock, par
value $0.001 per share, with the Board of Directors
being hereby authorized to fix or alter the rights,
preferences, privileges and restriction granted to or
imposed upon any series of such Preferred Stock, and
the number of shares constituting any such series and
the designation thereof, or of any of them. The Board
of Directors is also authorized to increase or
decrease the number of shares of any series, prior or
subsequent to the issue of that series, but not below
the number of shares of such series then outstanding.
In case the number of shares of any series shall be
so decreased, the shares constituting such decrease
shall resume the status which they had prior to the
adoption of the resolution originally fixing the
number of shares of such series.
Simultaneously with the effective date of the filing
of this amendment to the Corporation's Certificate of
Incorporation (the "Effective Date"), each share of
common stock, par value $.001 per share, of the
Corporation issued and outstanding or held as
treasury shares immediately prior to the Effective
Date (the "Old Common Stock") shall automatically be
reclassified and continued
<PAGE>
(the "Reverse Stock Split"), without any action on
the part of the holder thereof, as one-third of one
share of Common Stock. The Corporation shall not
issue fractional shares on account of the Reverse
Split. Holders of Old Common Stock who would
otherwise be entitled to a fraction of a share on
account of the Reverse Split shall receive, upon
surrender of the stock certificates formerly
representing shares of the Old Common Stock, in lieu
of such fractional share, an amount in cash (the
"Cash-in-Lieu Amount") equal to the product of (i)
the fractional share which a holder would otherwise
be entitled to, multiplied by (ii) three times such
price as the Corporation's Board of Directors
determines, in its discretion, to be the fair market
value per share of the Old Common Stock on the
business day prior to the Effective Date. No Interest
shall be payable on the Cash-in-Lieu Amount."
4. The amendment of the certificate of incorporation herein
certified has been duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of
the State of Deleware.
Signed and attested to on January 27, 2000.
By: ___________________________________
Name: Daniel Pess
Title: Executive Vice President and Chief
Operating Officer
-2-
SOFTWARE LICENSE AGREEMENT
This Software License Agreement (the "Agreement") is entered into as of
March 16, 2000 by and between QueryObject Systems Corporation, a Delaware
corporation ("QOS"), and
internetQueryObject Corporation, a Delaware corporation ("IQO"), each with
offices at One Expressway Plaza, Suite 208, Roslyn Heights, New York 11577.
WHEREAS, the parties desire that IQO acquire from QOS the exclusive
right to distribute Software for applications related to the management and
analysis of data derived from Internet commerce and Internet system management
applications, and applications pertaining to the publication and/or distribution
and/or access to such analytical data over the Internet, on the terms and
conditions set forth herein.
NOW, THEREFORE, the parties agree:
1. DEFINITIONS
1.1 "Adjusted Net Sales". Adjusted Net Sales shall mean the invoiced
amount of Software sold by IQO, less returns, charges for customs duty, freight
and sales taxes, if any, less any applicable reseller discount percentage and
less any applicable third party royalties that are payable by either IQO or QOS.
For purposes of calculating Adjusted Net Sales, all sales are to be calculated
at the then-current list price for the Software, or for Software service bureau
use, at the time the order for such Software or service is received.
1.2 "Confidential Information". Confidential Information shall have the
meaning specified therefor in Paragraph 12.1 below.
1.3 "Documentation". Documentation shall mean the materials supplied by
QOS to End Users of the Software.
1.4 "End User". End User shall mean a person or entity that acquires
the Software and Documentation only for its internal data processing
requirements and not for further distribution.
1.5 "License Term". License Term shall mean a period of five (5) years,
unless earlier terminated as set forth herein.
1.6 "Notice Address". Notice Address shall mean the address set forth
for the parties at the beginning of this Agreement, or such other addresses as a
party may hereafter designate to the other party in writing from time to time
pursuant to Section 14.8 hereof.
1.7 "Percentage Royalties". Percentage Royalties shall have the
definition set forth in Section 4.1 hereof.
<PAGE>
1.8 "QOS Trademarks". QOS Trademarks shall have the meaning set forth
in Section 6.1 hereof.
1.9 "Quarterly Report". Quarterly Report shall have the meaning set
forth in Section 5.1 hereof.
1.10 "Security Interest". Security Interest shall have the meaning set
forth in Section 2.1(c) hereof.
1.11 "Software". Software shall mean the Software set forth in Exhibit
A attached hereto and shall include all Updates (as defined below) supplied by
QOS hereunder, and shall also include IQO Server, a product under development,
when released.
1.12 "Software Copy". Software Copy shall mean a copy of the Software
and/or Documentation ordered or acquired by IQO from QOS for distribution
pursuant to this Agreement.
1.13 "Update and Upgrade". Update to Software shall mean any
correction, update or other Software modification or addition that provides for
the correction or removal of program defects and minor modifications that do not
substantially change the basic character or structure of the Software or its
functional use or operation. Update shall exclude Upgrades and other
improvements of program features that change the basic character or structure of
the Software or its functional use or operation. An Update normally is
accompanied by a change in the product version number of the tenths digit or
less (e.g. a change from 1.00 to 1.01 or to 1.10).
Upgrade shall mean improvements of program features that change the
basic character or structure of the Software or its functional use or operation.
An Upgrade is normally accompanied by a change in the product version greater
than the tenths digit (e.g. a change from 1.0 to 2.0).
1.14 "Work". Work shall mean any advertising, promotional or other
materials related to the Software or the Documentation, or any item or process
related thereto which can be copyrighted.
2. LICENSE GRANT
2.1 License. Subject to the terms, conditions, and restrictions of this
Agreement, QOS hereby grants to IQO:
a. an exclusive license for the License Term to distribute
copies of Software on a world-wide basis to organizations and or individuals
whose primary purpose is electronic commerce over the Internet, to electronic
commerce branches, divisions or subsidiaries of companies with this primary
purpose, and to software developers, manufacturers or systems integrators whose
primary purpose is to provide management assistance to the electronic commerce
industry, for use in or integration with applications related to the management
and analysis of data derived from
-2-
<PAGE>
Internet commerce and Internet management applications, and applications related
to the publication and/or distribution and/or access of such analytical data
over the Internet.
b. IQO shall have the right to reproduce the Software or
Documentation, and to use, license, distribute, and/or use in a service bureau
capacity the Software and Documentation. IQO shall not modify or alter any
Software Copy in any fashion. IQO shall not purchase the Software from any party
(including its subsidiaries, affiliates or parent) other than QOS.
c. As a condition to granting this license, QOS hereby
reserves for itself a direct, continuing and first priority security interest
("Security Interest") in the license granted hereunder and all of the Software,
Documentation, Work, Software Copies, and QOS Trademarks licensed hereunder, as
well as all of the proceeds thereof, including but not limited to any Percentage
Royalties, wherever located.
This Security Interest secures all obligations, liabilities,
debts and indebtedness of any kind, nature or character owed by, or for the
benefit of, IQO to QOS, including, but not limited to, all obligations and
liabilities arising in connection with the license granted hereunder and the
payment of the Percentage Royalties (as further described below) made from time
to time by IQO in favor of QOS.
IQO hereby authorizes QOS, at IQO's expense, to file such
financing statement or statements relating to the subject matter of the Security
Interest without IQO's signature thereon as QOS, at its option, may deem
appropriate. IQO hereby appoints QOS as IQO's attorney-in-fact, authorizing QOS
to execute any such financing statement or statements in IQO's name and to
perform all other acts that QOS deems appropriate to perfect and continue the
Security Interest and to protect, preserve and realize upon the subject matter
of the Security Interest in compliance with and subject to applicable law. A
carbon, photographic or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement.
2.2 End User Licensing. IQO agrees to distribute the Software and
Documentation to End Users pursuant to an end user agreement in form and
substance approved in writing by QOS. Unless and until QOS provides Software
with shrink-wrap, on-line, or other self-executing End User licenses, which QOS
shall have no obligation to do, IQO shall cause each prospective End User to
execute an End User license agreement, which shall contain conditions expressly
accepted in writing by QOS, prior to delivering Software or Documentation to
that End User and IQO shall retain such signed agreement for the term of the
Agreement between IQO and the End User and for three (3) years after the
termination or expiration thereof.
2.3 Distribution; Territory. Subject to the terms and conditions of
this Agreement, IQO shall be entitled to distribute Software directly to End
Users, as well as to use distributors and other third party intermediaries,
throughout the World.
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2.4 No Rights to Source Code. Except as otherwise set forth below, IQO
shall have no rights with respect to any Software source code, and agrees not to
reverse engineer the Software or to reverse assemble, de-compile, or otherwise
attempt to derive the source code from the Software provided to IQO by QOS. IQO
is hereby granted the right to modify or otherwise prepare derivative works of
the Software or Documentation. All such modifications or derivative works, if
any, shall be the sole and exclusive property of QOS. All such derivative works
shall be works made for hire, and be the property of QOS from inception. In the
event any such derivative work is held not to be a work made for hire, IQO
hereby assigns all of its right, title and interest in and to such derivative
work to QOS. IQO agrees that it will execute such documents as may be requested
by QOS to give effect to the provisions of this paragraph.
2.5 Ownership. Subject only to the limited rights and licenses
expressly granted to IQO in this Agreement, QOS shall retain and own all right,
title, and interest in the Software, Documentation and Work, and each copy
thereof, and all intellectual property rights with respect thereto. IQO shall
place a copyright notice on each and every copy of Software, Documentation and
Work that identifies the copyright owner as QOS and states the date of first
publication of the Software, Documentation or Work. IQO shall not alter, remove
or obscure any copyright or other proprietary notices on or in the Software,
Documentation or Work. Whenever requested by QOS, whether during the License
Term hereof or thereafter, IQO shall execute such documents or applications as
QOS may deem necessary or appropriate to confirm QOS's ownership of all rights
in and to the Software, including, without limitation, in the trademarks and
copyrights licensed hereunder. All rights not expressly granted to IQO herein
are retained by QOS.
2.6 Reservation of Certain Rights. QOS reserves the right to change the
design and/or specifications of the Software at any time without liability to
QOS upon sixty (60) days prior written notice to IQO.
2.7 Escrow of Software. The Software, including, without limitation,
all source code, and all Updates and Upgrades thereof or thereto, shall be
placed in escrow by QOS within thirty (30) days after the date hereof and
maintained in accordance with an Escrow Agreement. The Escrow Agreement shall be
among IQO and QOS and a mutually acceptable independent third party that
customarily serves as an escrow agent for companies seeking to place software in
escrow and will provide that the Software and all Updates and Upgrades thereof
or thereto will be released from escrow to IQO in the event of the bankruptcy or
dissolution of QOS.
3. TERMS OF LICENSE
3.1 License Terms and Conditions. All orders of Software Copies by IQO
from QOS during the term of this Agreement shall be governed by the terms and
conditions of this Agreement,
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and nothing contained in any such order shall in any way modify such terms or
conditions or add any additional terms or conditions.
3.2 Best Efforts. During the License Term, IQO shall use its best
efforts to exploit the License granted herein throughout the Territory,
including, but not limited to, offering for sale Software in a manner designed
to maximize the royalties due to QOS and maintaining an inventory of Software
adequate to meet IQO's obligations under the Agreement.
3.3 Exclusive Period. The license granted herein shall be exclusive
through December 31, 2005. At such time as the license granted herein becomes
non-exclusive, QOS and IQO will use their best efforts to negotiate the terms
under which IQO may retain such license on a non-exclusive basis and QOS shall
have the right to enter into other non-exclusive license agreements relating to
the subject matter of this Agreement with such licensees as it in its sole
discretion shall determine.
4. PAYMENTS AND ROYALTIES
In consideration of the exclusive rights granted to it herein for the
License Term, IQO shall make the following payments to QOS;
4.1 Percentage Royalties. For calendar years 2000 and 2001, IQO shall
pay to QOS a Percentage Royalty as follows: 20% on the first One Million
($1,000,000) Dollars of Adjusted Net Sales, 18% on Adjusted Net Sales between
One Million and One ($1,000,001) Dollars and Two Million ($2,000,000) Dollars,
15% on Adjusted Net Sales between Two Million and One ($2,000,001) Dollars and
Five Million ($5,000,000) Dollars, and 12% on Adjusted Net Sales over Five
Million ($5,000,000) Dollars. QOS and IQO will use their best efforts to
renegotiate these royalty rates for calendar years 2002 and beyond. In the event
that QOS and IQO are unable to agree on Percentage Royalty rates for the
remaining License Term, the Percentage Royalty rates for calendar year 2002 and
beyond shall be those set forth above in this Section 4.1 (subject to any
necessary adjustments in accordance with Section 3.3 if the license becomes
non-exclusive). Percentage Royalties shall be payable on a quarterly basis, no
later than the twentieth (20th) day of the month immediately following the
quarter in which said sales are made. All Percentage Royalty payments shall be
sent to QOS via overnight courier together with the Quarterly Report, as defined
below, and shall be paid automatically by IQO without billing therefor by QOS.
4.2 Reimbursement of Third Party Costs. IQO shall reimburse QOS upon
demand for all royalties and license fees payable by QOS to third parties in
connection with the licenses granted herein.
4.3 Maintenance. IQO shall pay to QOS maintenance in an amount equal to
twenty five Percent (25%) of all IQO maintenance revenue derived from the
licenses granted herein. Such maintenance revenue shall be payable on a
quarterly basis, no later than the twentieth (20th) day of the month immediately
following each calendar quarter.
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5. REPORTING, ACCOUNTING AND AUDITING
5.1 Quarterly Reports. No later than the twentieth (20th) day of the
month immediately following each calendar quarter during the License Term, IQO
shall submit to QOS a written report on a form provided by QOS from time to
time, which shall include a written statement of IQO sales during such quarterly
period showing the number and type of sales of software, a calculation of the
Percentage Royalty due based thereon, and all other information requested by QOS
in this Agreement and as may otherwise be requested by QOS from time to time
(hereinafter "Quarterly Report"). Each Quarterly Report shall be accompanied by
the remittance to QOS of the Percentage Royalties shown to be due on the report
subject to Section 4.1, and shall be sent via overnight courier, and shall be
certified as correct by the Chief Executive Officer or Chief Financial Officer
of IQO or such other officers or employees of IQO as shall be designated by QOS.
In the event of an inquiry by QOS regarding any such report, IQO shall comply
promptly with QOS's reasonable request for information in the manner requested.
Within twenty (20) days after any expiration or termination of this Agreement,
IQO shall provide QOS a Quarterly Report for the last whole or partial quarterly
period during the License Term.
5.2 Late Payments. It is specifically understood by IQO that, with
respect to royalty payments and accounting statements, time is of the essence
and any payment due pursuant to this Agreement that is late shall bear interest
from five (5) days after the date upon which payment is due, until remittance
thereof to QOS at the prime rate of interest established by Chase Manhattan Bank
NA from time to time during said period, plus three percent (3%) per annum. The
operation of this clause is without prejudice to any other right or remedy QOS
may have pursuant to the terms of this Agreement or applicable law.
5.3 Payment Default. The acceptance of late payments hereunder, or the
acceptance of payment without a Quarterly Report or with an incomplete or
incorrect Quarterly Report, or any restrictive endorsement (1) shall not
constitute a waiver of timely payments, (2) shall not cure any default that
might exist, and (3) shall be without prejudice to any of the rights or remedies
that QOS may have hereunder.
In the event that a default is declared and the rights of IQO
under this Agreement are terminated, all payments required hereunder, including,
but not limited to, Percentage Royalties on past sales, shall be immediately due
and payable to QOS, in full, plus any interest due thereon at the rate
prescribed in subparagraph 5.2 above.
5.4 Proper Books And Records. IQO shall maintain separate and
appropriate books of account or computer records relating to the Software, in
accordance with reasonable accounting methods (including, without limitation, a
sales journal, sales return journal, cash receipt book, general ledger, and to
the extent reasonably available, purchase orders, and shall make accurate
entries concerning all transactions relevant to this Agreement. Each piece of
Software shall be assigned a unique identification number, which shall be the
number utilized to identify such Software in all of IQO's books and records and
computer records, and on all sales invoices and
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related documents. Such books and records of IQO shall at all times during the
License Term and for three years (3) thereafter (or in the event of a dispute
between the parties hereto, until three (3) years after said dispute is
resolved, whichever is later) be kept at IQO's Notice Address. IQO shall not
change the address at which such books and records are kept without thirty (30)
days prior written notice to QOS.
5.5 Right to Audit. Upon five (5) business days' notice to IQO, QOS, at
its expense (subject to the provisions of this subparagraph 5.5), shall have the
right during the License Term and for three (3) years thereafter at any time
during regular business hours, not more frequently than twice annually, to have
a qualified accountant selected by QOS audit the records of IQO to the extent
necessary to verify IQO's statements and payments of Percentage Royalties,
including the right to examine, photocopy and make extracts from such records.
Such records shall be made available to QOS's accountant at IQO's Notice
Address. IQO shall cooperate in a reasonable manner with and assist QOS's
accountant for the purpose of facilitating such audit.
If, as a result of such audit, QOS's accountant determines
that the amount of Percentage Royalties actually due was greater than the amount
reported by IQO in any Quarterly Report furnished pursuant to subparagraph 5.1,
QOS shall promptly furnish to IQO a copy of the report of its accountant setting
forth the amount of the deficiency showing, in reasonable detail, the basis upon
which such deficiency was determined. IQO shall promptly remit to QOS a sum
equal to such deficiency, together with interest thereon at the rate prescribed
in Paragraph 5.2 from the date such Percentage Royalties were due until the date
of such remittance. In addition, if the audit reveals underpayment by more than
five percent (5%) of the Percentage Royalties in any quarterly period, IQO shall
pay to QOS the cost of such audit.
If, as a result of such audit, QOS's accountant determines
that the amount of Percentage Royalties paid was greater than the amount
actually due, such overpayment will be promptly refunded to IQO.
5.6 Payment Currency. All calculations and payments required under this
Agreement shall be in United States Dollars.
5.7 Separate Account. All royalties payable to QOS hereunder shall be
maintained in a separate account by IQO, and IQO acknowledges that all sums
collected by IQO on behalf of QOS are deemed to be held in trust for and on
behalf of QOS until such time as such sums are paid to QOS in accordance with
the provisions herein.
5.8 Shipping. All Software Copies delivered pursuant to this Agreement
shall be suitably packed for shipment in QOS's standard shipping cartons, marked
for shipment to IQO's Notice Address or as otherwise specified by IQO, and
delivered to IQO or its carrier agent F.O.B. QOS's manufacturing facility, at
which time risk of loss shall pass to IQO. Unless otherwise instructed in
writing by IQO, QOS shall select the carrier. All freight, insurance, and other
shipping expenses, as well as any special packing expense, shall be paid by IQO.
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5.9 Conduct and Compliance with Law. IQO shall at all times refrain
from engaging in any illegal, unfair or deceptive trade practices or unethical
business practices with respect to the Software or otherwise, and shall comply
with all applicable laws, ordinances, rules and regulations, and IQO shall
obtain any and all permits, licenses, authorizations, and/or certificates that
may be required in any jurisdiction or by any regulatory or administrative
agency in connection with its activities hereunder.
6. USE OF QOS TRADEMARKS
6.1 Authorized Uses. IQO may use the trademarks, trade names, trade
dress, and other marks of QOS as identified on Exhibit D annexed hereto, as it
may be amended in writing by QOS from time to time (collectively, the "QOS
Trademarks") in connection with the marketing, promotion and advertising of the
Software. Such use may be in conjunction with IQO's use of its own marks. Before
any such use, IQO will provide to QOS copies of any such materials, and IQO
shall make no use of any QOS Trademarks to which QOS reasonably objects. If QOS
does not object within ten (10) business days after receipt of materials for
review, IQO shall be entitled to use the materials as set forth herein.
6.2 No Other Use. Except as authorized in this Agreement, IQO shall
have no rights with respect to any QOS Trademarks or other QOS products,
services, copyrights, or trade dress. IQO shall make no reference to QOS or the
Software without the prior written permission of QOS, except as set forth
herein.
6.3 Ownership by QOS. QOS represents and warrants that (i) the QOS
Trademarks are valid; (ii) it is the sole and exclusive owner thereof and has
the right to authorize the use of the QOS Trademarks by IQO contemplated in this
Agreement; and (iii) that the QOS Trademarks are not subject to any lien or
security interest, except as created by this Agreement. Any and all good will
arising from IQO's use of the QOS Trademarks shall inure solely to the benefit
of QOS, and neither during the License Term nor after the termination of this
Agreement shall IQO assert any claim to the QOS Trademarks (or any confusingly
similar mark) or such good will. IQO shall not take any action that could be
detrimental to the good will associated with the QOS Trademarks or with QOS. IQO
shall, during the term of this Agreement and after termination hereof, execute
such documents as QOS may request from time to time to ensure that all right,
title and interest in and to the QOS Trademarks reside with QOS. Without
limiting the foregoing, IQO shall not seek to register any QOS Trademarks, or
any mark confusingly similar to any QOS Trademarks, in any country or territory.
In the event IQO sells or distributes Software in countries in which one (1) or
more of the QOS Trademarks has not yet been registered, QOS shall have the
right, but not the obligation, to seek registration of the QOS Trademarks in
such countries. QOS makes no representation or warranty that the QOS trademarks
will be registered or are registered or registrable in such countries, and the
failure to obtain or maintain registrations thereof shall not be deemed a breach
hereof by QOS.
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7. SOFTWARE TRAINING AND SUPPORT
Exhibit B to this Agreement sets forth details regarding training,
support and maintenance for the Software, the respective rights and
responsibilities of QOS and IQO for such training and support, and any charges
to IQO for such training and support. IQO shall only distribute the Software
hereunder to End Users that purchase Software support for at least the first
year after acquisition ("First Year Support"), in accordance with QOS's
customary practices and charges on Software covered under this Agreement. QOS
shall not be entitled to any other compensation for any other support or other
services provided by QOS to IQO's End Users, except as otherwise expressly
agreed in writing by the parties.
8. TERMINATION
8.1 Default.
(a) This Agreement shall automatically terminate upon delivery
of notice of termination by QOS to IQO in the event that IQO (i) fails to use
its best efforts to exploit the License in accordance with Section 3.2, and does
not correct such failure within ten (10) days after written notice of such
failure is delivered to IQO; (ii) makes any transfer of this Agreement or the
Software and/or IQO violates Section 13 of this Agreement; (iii) makes any
unauthorized use or disclosure of QOS's Confidential Information or makes any
unauthorized use or disclosure of the Software or the QOS Trademarks; or (iv)
fails to timely pay to QOS amounts due, and does not correct such failure within
ten (10) days after written notice of such failure is delivered to IQO.
(b) If either party defaults in the performance of any of its
material obligations hereunder and if any such default is not corrected within
thirty (30) days after it shall have received written notice thereof from the
other party (other than for defaults as set forth in Section 8.1(a), above),
then the other party, at its option, may, in addition to any other remedies it
may have, terminate this Agreement upon the date set forth in such notice.
8.2 Insolvency. In the event IQO institutes voluntary bankruptcy
proceedings (and in recognition of the increased business risk incurred by QOS
as a result of such proceedings), then and in such event the Percentage
Royalties set forth in Section 4.1 above shall immediately and automatically,
without notice or warning from QOS to IQO, increase to twenty five percent (25%)
of Adjusted Net Sales. The Percentage Royalties shall also increase to
twenty-five percent (25%) of Adjusted Net Sales in the event that bankruptcy
proceedings are instituted against IQO involuntarily, provided that IQO shall
have sixty (60) days to have such proceedings dismissed or resolved in its favor
before such Percentage Royalty rate takes effect. In addition, and without
limitation to the preceding, this Agreement may be terminated by either party,
on notice, (i) upon the institution by the other party of insolvency,
receivership or bankruptcy proceedings or any other proceedings for the
settlement of its debts, (ii) upon the institution of such proceedings against
the other party, which are not dismissed or otherwise resolved in its favor
within sixty (60) days
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thereafter, (iii) upon the other party's making a general assignment for the
benefit of creditors, or (iv)upon the other party's dissolution or ceasing to
conduct business in the normal course.
8.3 Survival.
(a) Except as otherwise set forth herein, the parties rights
and obligations pursuant to paragraphs 2.5, 4, 5, 8.3, 9, 11, 12, 13 and 14
shall survive any termination or expiration of this Agreement.
(b) If this Agreement is terminated or expires, then all
payments due to QOS hereunder shall accelerate and become immediately due and
payable and all of IQO's rights and licenses with respect to the Software shall
immediately terminate, provided that (i) IQO's right to continue to use one copy
of the Software and one copy of the related Documentation, in accordance with
this Agreement, to support and maintain existing Software customers shall
survive; and (ii) IQO shall be entitled to dispose of Software Copies in its
inventory in accordance with the terms of this Agreement for which it has paid
QOS hereunder. All other copies of the Software and related Documentation in
IQO's possession shall be promptly returned to QOS.
9. INFRINGEMENT INDEMNITY
9.1 Indemnification of IQO. QOS, at its expense, will defend at its
sole cost and expense any action brought against IQO to the extent based on a
claim that the Software or Documentation, as supplied by QOS and used as
provided for in this Agreement, infringes any patent, copyright or trade secret
of any third party. QOS will pay any award against IQO, or settlement entered
into on IQO's behalf, based on such infringement only if IQO has notified QOS
promptly in writing of the claim, provided reasonable assistance in connection
with the defense and/or settlement thereof, and permitted QOS to control the
defense and/or settlement thereof. QOS shall have no liability if the alleged
infringement is caused by (a) compliance with designs, plans or specifications
of IQO; (b) modification of the Software or Documentation by any person other
than QOS; (c) the combination of the Software or Documentation with other items,
where the unmodified Software or Documentation, or the Software or Documentation
alone, would not have given rise to the claim; or (d) distribution of the
Software or the Documentation by IQO in the period 30 days after QOS has
provided notice to IQO of a potential infringement.
9.2 Indemnification of QOS. IQO agrees to indemnify and hold QOS
harmless against any liability, and any litigation cost or expense (including
attorneys' fees), arising out of third party claims against QOS as a result of
(a) IQO's use or distribution of the Software or the Documentation except to the
extent that the liability or litigation relates to a claim that the Software or
the Documentation, as supplied by QOS and used as provided for in this
Agreement, infringes any patent, copyright or trade secret of any third party,
or (b) misrepresentations by IQO with respect to the Software or Documentation.
QOS shall notify IQO promptly in writing of any such claim, provide reasonable
assistance in connection with the defense and/or settlement thereof, and permit
IQO to control the defense and/or settlement thereof.
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9.3 QOS Options. In the event of an infringement action against IQO
with respect to the Software or Documentation, or in the event QOS believes such
a claim is likely, QOS shall be entitled, at its option but without obligation,
to (i) appropriately modify the Software and/or Documentation licensed
hereunder, or substitute other Software and/or Documentation which, in QOS's
good faith opinion, does not infringe any third party intellectual property
rights; (ii) obtain a license with respect to the applicable third party
intellectual property rights; or (iii) if neither (i) nor (ii) is commercially
practicable, terminate this Agreement and IQO's licenses hereunder, which
termination shall be without penalty to QOS.
9.4 Entire Liability. Notwithstanding anything contained in this
Agreement, the foregoing states QOS's entire liability for actual or alleged
infringement of intellectual property rights and the limit of liability set
forth in paragraph 11 shall not apply to this paragraph 9.
9.5 Infringement by Third Parties. IQO shall immediately notify QOS of
any apparent infringement of or challenge to IQO's use of any Software or QOS
Trademarks, or claim by any person of any rights in any Software or QOS
Trademarks, and IQO shall not communicate with any person other than QOS and
their respective counsel in connection with any such infringement, challenge or
claim. QOS shall have sole discretion to take such action as it deems
appropriate in connection with the foregoing at its sole cost and expense, and
the exclusive right to control any settlement, litigation or other proceeding
arising out of any such alleged infringement, challenge or claim, also at its
sole cost and expense; provided, however, that if QOS takes no action with
respect to the foregoing, IQO may take such action as it deems appropriate at
its sole cost and expense. IQO agrees to execute any and all instruments and
documents, render such assistance, and do such acts and things as may, in the
opinion of QOS's counsel, be necessary or advisable to protect and maintain the
interests of QOS in any litigation or other proceeding or to otherwise protect
and maintain the interests of QOS in the Software and the QOS Trademarks. In the
event that IQO or QOS are awarded damages in any litigation or other proceeding
arising out of any infringement, challenge or claim by a third party with
respect to IQO's use of any Software or QOS Trademarks, the damages will first
be used to reimburse IQO or QOS, as the case may be, for their legal fees and
expenses and any remaining amount will be paid to IQO and be deemed Adjusted Net
Sales for the purposes of this Agreement.
9.6 Insurance. Each of the parties shall promptly procure and maintain
in full force and effect at all times during the License Term, with a national
insurance carrier or carriers reasonably acceptable to the other party, at least
Two Million ($2,000,000) Dollars coverage through a commercial general liability
policy, including products liability, and at least Three Million ($3,000,000)
Dollar umbrella general liability policy that specifically includes any and all
risks related to the sale or use of the Software or Documentation, and that
identifies the other party hereto, their respective owners, officers, directors,
employees, subcontractors, agents and managers as additional insureds.
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10. WARRANTY AND DISCLAIMER
10.1 Warranty. QOS warrants only that each Software Copy delivered to
it by QOS will be free of defects in materials and workmanship. QOS's exclusive
obligation and liability, and IQO's sole remedy, arising out of this warranty
shall be for QOS to replace defective Software Copies returned to QOS within
ninety (90) days after delivery to IQO.
10.2 Disclaimer. EXCEPT AS SET FORTH IN PARAGRAPH 10.1, QOS PROVIDES NO
WARRANTY, EXPRESS, IMPLIED, STATUTORY, OR OTHERWISE, AND SPECIFICALLY DISCLAIMS
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THIS AGREEMENT, INCLUDING WITHOUT LIMITATION WITH RESPECT TO THE
SOFTWARE AND DOCUMENTATION AND ANY SERVICES FURNISHED BY QOS TO IQO IN
CONNECTION THEREWITH, WHICH ARE PROVIDED "AS IS".
10.3 IQO. IQO agrees that any and all warranties made to End Users of
IQO shall be made only by IQO except for the limited warranty made by QOS in the
QOS-supplied End User license agreement. IQO acknowledges and agrees that IQO
will make no additional representations or warranties to such End Users
concerning QOS, or any representations or warranties by QOS.
11. LIMITATION OF LIABILITY
IN NO EVENT SHALL QOS'S LIABILITY ARISING OUT OF OR UNDER THIS
AGREEMENT EXCEED THE AMOUNTS RECEIVED BY QOS FROM IQO HEREUNDER. IN NO EVENT
SHALL QOS BE LIABLE FOR COSTS OF SUBSTITUTE PRODUCTS OR SERVICES. IN NO EVENT
SHALL QOS BE LIABLE FOR LOST PROFITS, LOST BUSINESS OPPORTUNITIES, COSTS OF
RECREATION OF DATA OR ANY CONSEQUENTIAL, SPECIAL, INCIDENTAL, OR INDIRECT
DAMAGES, HOWEVER CAUSED AND WHETHER BASED ON BREACH OF CONTRACT, BREACH OF
WARRANTY, TORT (INCLUDING NEGLIGENCE), PRODUCT LIABILITY OR ANY OTHER THEORY OF
LIABILITY, ARISING OUT OF THIS AGREEMENT. IQO ACKNOWLEDGES AND AGREES THAT THE
PRICE TO IQO IS BASED IN PART UPON THESE LIMITATIONS, AND FURTHER AGREES THAT
THESE LIMITATIONS SHALL APPLY NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE
OF ANY LIMITED REMEDY.
12. CONFIDENTIALITY.
12.1 Confidential Information. As used in this Agreement, the term
"Confidential Information" shall mean any information disclosed by one party to
the other pursuant to this Agreement orally or which is in written, graphic,
machine readable or other tangible form.
12.2 Confidentiality. Each party shall treat as confidential all
Confidential Information of the other party, shall not use such Confidential
Information except as set forth herein, and shall
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use reasonable efforts not to disclose such Confidential Information to any
third party. Without limiting the foregoing, each of the parties shall use at
least the same degree of care which it uses to prevent the disclosure of its own
Confidential Information of like importance to prevent the disclosure of
Confidential Information disclosed to it by the other party under this
Agreement. Each party shall promptly notify the other party of any actual or
suspected misuse or unauthorized disclosure of the other party's Confidential
Information.
12.3 Exceptions. Notwithstanding the above, neither party shall have
liability to the other with regard to any Confidential Information of the other
which the receiving party can prove:
(a) was in the public domain at the time it was disclosed or
has become in the public domain through no fault of the receiving party;
(b) was known to the receiving party, without restriction, at
the time of disclosure, as demonstrated by written records in existence at the
time of disclosure;
(c) is disclosed with the prior written approval of the
disclosing party;
(d) was independently developed by the receiving party without
any use of the Confidential Information;
(e) becomes known to the receiving party, without restriction,
from a source other than the disclosing party without breach of this Agreement
by the receiving party and otherwise not in violation of the disclosing party's
rights; or
(f) is disclosed generally to third parties by the disclosing
party without restrictions similar to those contained in this Agreement.
In addition, the receiving party shall be entitled to disclose the other party's
Confidential Information to the extent such disclosure is required by order or
requirement of a court, administrative agency, or other governmental body,
provided, however, that the receiving party shall provide prompt notice thereof
to the disclosing party to enable the disclosing party to seek a protective
order or otherwise prevent or restrict such disclosure.
13. NON-TRANSFERABILITY OF SOFTWARE, DOCUMENTATION OR WORK
Neither the Software, the Documentation nor the Work, nor any rights
granted thereunder, may be assigned, sublicensed (except as set forth in Section
2.1 (b) above), or transferred by IQO either voluntarily or by operation of law
without the written consent of QOS. Any attempted assignment, violative
sublicense, or attempted transfer, whether voluntary or by operation of law,
shall be void and of no force or effect without the written consent of QOS. A
change of control of IQO, or a transfer of all or a controlling portion of the
stock of IQO shall be deemed to be an assignment in violation of this provision.
Further, any such attempted assignment, violative
-13-
<PAGE>
sublicense or attempted transfer, whether voluntary or by operation of law,
shall result in an immediate and automatic increase in the Percentage Royalties
payable by IQO to QOS set forth in Section 4.1 above, without notice or warning
by IQO to QOS, to twenty five percent (25%) across the whole range of percentage
rates set forth in Section 4.1. IQO agrees and acknowledges that a remedy at law
for any breach or threatened breach of the provisions of this Section 13 would
be inadequate and, therefore, the QOS shall be entitled to injunctive relief in
addition to any other available rights and remedies in case of any such breach
or threatened breach; provided, however, that nothing contained herein shall be
construed as prohibiting QOS from pursuing any other rights and remedies
available for any such breach or threatened breach.
14. GENERAL
14.1 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of New York for agreements entered into
and to be wholly performed within the State, without reference to conflict of
laws principles.
14.2 Dispute Resolution.
(a) Each of the Board of Directors of QOS and IQO has
appointed an Intercompany Committee consisting of two (2) people with full
authority to review or amend the terms of this Agreement. Any dispute between or
among the parties with respect to this Agreement shall be resolved by the
Intercompany Committee of QOS and IQO. If the Intercompany Committee of QOS and
IQO are unable to resolve the dispute, the dispute will be resolved by a single
Arbitrator in New York City in accordance with and pursuant to the then existing
commercial arbitration rules of the American Arbitration Association. The
determination of the Arbitrator shall be conclusive, final and binding upon the
parties. The fees and expenses of the Arbitrator shall be borne equally by QOS
and IOS. The Arbitrator shall have full and complete access to all financial
statements, records, books of account and other information of QOS and IOS
material to its determination. The Arbitrator's award shall be final and binding
upon the parties and judgment thereon may be entered in any court of the State
of New York having jurisdiction over arbitration proceedings, or in any other
court having jurisdiction thereof. The service of any notice, process, motion or
other document in connection with an arbitration under this Agreement or for the
enforcement of an arbitration award hereunder may be effectuated by either
personal service upon a party or by certified or registered mail, return receipt
requested.
(b) Notwithstanding the foregoing, any actions seeking
equitable remedies, including a temporary restraining order and/or preliminary
injunctive relief, may be brought by either party in any New York federal or New
York state court or other court in the jurisdiction of the alleged violation.
Each party hereby irrevocably consents to the jurisdiction of such courts. IQO
acknowledges that the unauthorized disclosure, use or copying of the Software,
the Documentation or QOS's Confidential Information would result in immediate
and irreparable injury to QOS for which no adequate remedy at law will be
available. QOS acknowledges that the unauthorized disclosure, use or copying of
IQO's Confidential Information would result in immediate and
-14-
<PAGE>
irreparable injury to IQO for which no adequate remedy at law will be available.
Accordingly, the parties hereby consent to the entry of injunctive relief
prohibiting any such conduct by the other.
The parties expressly agree that the existence of any claims it may have against
the other, whether or not arising from this Agreement, shall not constitute a
defense to the enforcement by the party of the restrictive covenants set forth
in this Agreement. In connection with the above, the parties agree that neither
will be required to post a bond to obtain any injunctive relief.
14.3 Partial Invalidity. If any provision in this Agreement shall be
found or be held to be invalid or unenforceable in any jurisdiction in which
this Agreement is being performed, then the meaning of said provision shall be
construed, to the extent feasible, so as to render the provision enforceable,
and if no feasible interpretation would save such provision, it shall be severed
from the remainder of this Agreement, which shall remain in full force and
effect. In such event, the parties shall negotiate, in good faith, a substitute,
valid and enforceable provision, which most nearly effects the parties' intent
in entering into this Agreement.
14.4 Independent Contractors. The parties hereto are independent
contractors. Nothing contained herein or done in pursuance of this Agreement
shall constitute either party the agent of the other party for any purpose or in
any sense whatsoever, or constitute the parties as partners or joint venturers.
IQO shall make no representations or warranties on behalf of QOS with respect to
the Software or Documentation. Neither party shall have the right to bind the
other to any obligations to third parties.
14.5 Modification. No alteration, amendment, waiver, cancellation or
any other change in any term or condition of this Agreement shall be valid or
binding on either party unless the same shall have been mutually assented to in
writing by both parties.
14.6 Waiver. The failure of either party to enforce at any time any of
the provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement, shall
in no way be construed to be a present or future waiver of such provisions, nor
in any way affect the right of either party to enforce each and every such
provision thereafter. The express waiver by either party of any provision,
condition or requirement of this Agreement shall not constitute a waiver of any
future obligation to comply with such provision, condition or requirement.
14.7 Assignment. This Agreement and the licenses granted hereunder may
not be assigned by IQO (whether by transfer, sale of business, merger or by
operation of law) except with the express written consent of QOS and any
purported assignment not in compliance with the foregoing shall be null and void
and of no effect. QOS may assign this Agreement without restriction. QOS shall
have the right to terminate this Agreement without any penalty to QOS in the
event that IQO seeks to assign this Agreement to, or is merged, purchased, or
otherwise acquired by, a competitor of QOS. Subject to the foregoing, this
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assign.
-15-
<PAGE>
14.8 Notices. Any notice required or permitted to be given by either
party under this Agreement shall be in writing, in English, and shall be
personally delivered or sent by commercial courier service (e.g., UPS), or by
first class mail (certified or registered), or by Telecopy confirmed by first
class mail (registered or certified), to the other party at its address first
set forth above, or such new address as may from time to time be supplied
hereunder by the parties hereto. If mailed, notices will be deemed effective
three (3) business days after deposit, postage prepaid, in the mail.
14.9 Export Regulations. IQO agrees to comply with all U.S. export
regulations in connection with distribution of Software or Documentation or
otherwise arising out of this Agreement.
14.10 Force Majeure. Notwithstanding anything else in this Agreement,
and except for the obligation to pay money, no default, delay or failure to
perform on the part of either party shall be considered a breach of this
Agreement if such default, delay or failure to perform is shown to be due to
causes beyond reasonable control of such party, including, but not limited to,
causes such as strikes, lockouts or other labor disputes, riots, civil
disturbances, actions or in-actions of governmental authorities or suppliers,
epidemics, war, embargoes, severe weather, fire, earthquakes, acts of God or the
public enemy, nuclear disasters, or default of a common carrier. The party
claiming Force Majeure shall give notice (a "Force Majeure Notice") to the other
party promptly upon becoming aware of such circumstance, stating the expected
duration of such condition. The other party shall be excused from performance to
the same extent and for the same period as the party claiming Force Mejeure.
14.11 No Third Party Beneficiaries. Unless otherwise expressly
provided, no provisions of this Agreement are intended or shall be construed to
confer upon or give to any person or entity other than QOS and IQO any rights,
remedies or other benefits under or by reason of this Agreement.
14.12 Entire Agreement. The terms and conditions herein contained,
including all exhibits hereto, constitute the entire agreement between the
parties and supersede all previous agreements and understandings, whether oral
or written, between the parties hereto with respect to the subject matter
hereof. The terms and conditions of the Agreement shall automatically apply to
each transaction between the parties contemplated by this Agreement
notwithstanding any additional or different terms and conditions of any ordering
document or other instrument submitted by IQO,
-16-
<PAGE>
which terms and conditions shall be void and of no effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be signed by duly authorized officers or representatives as of the
date first above written.
QUERYOBJECT SYSTEMS CORPORATION INTERNETQUERYOBJECT
CORPORATION
By:___________________________________ By:________________________________
Print Name:__________________________ Print Name:__________________________
Title:_______________________________ Title:_______________________________
Date:_______________________________ Date: _______________________________
-17-
<PAGE>
EXHIBIT A
SOFTWARE
Attach Current Product and Price List. The parties understand that all prices
may change upon 30 days written notice from QOS to IQO. All orders received
before the expiration of such 30 day period shall be at the original price.
-18-
<PAGE>
EXHIBIT B
TRAINING, SUPPORT AND MAINTENANCE
TRAINING & MATERIALS
QOS will furnish the IQO with the following:
1.1 Training. Technical training, Product positioning, Competitive
Analysis and Marketing Assistance will be made available to the IQO, at QOS's
USA Headquarters. Training will be provided free of charge, for a period of
thirty (30) days after the signing of this Agreement. All travel related
expenses will be born by the IQO. In the event the IQO requires "On-Site"
training, a charge will be levied at QOS's current consultant rates plus
associated travel costs.
1.2 Documentation. A Complete set of technical documentation for all
QOS products sold will be provided free of charge.
1.3 Marketing Materials. Relevant marketing materials will be provided
on an ongoing basis i.e. brochures, Promotional CD's, White Papers, Press
Extracts, Analyst Reports, etc.
2. SUPPORT AND MAINTENANCE
2.1 End User Support. QOS will make available to IQO's End User
customers software support and maintenance in accordance with QOS's customary
practices and charges.
-19-
QUERYOBJECT SYSTEMS CORPORATION EXHIBIT 11.1
Computation of Net Loss Per Share
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Common shares outstanding at beginning of year 1,707,662 1,703,535
Conversions of preferred stock into common shares 144,768 -
Warrants exercised into common shares 447,312 -
Stock options exercised into common shares 2,899 3,200
--------- ---------
Weighted average common shares outstanding 2,302,641 1,706,735
========= =========
Calculation of net loss available to common stockholders:
Net loss $(5,925,591) $(7,294,032)
Effect of beneficial conversion feature
of convertible preferred stock - (2,251,438)
----------- -----------
Net loss available to common stockholders $(5,925,591) $(9,545,470)
=========== ===========
Basic and diluted net loss per common share $ (2.57) $ (5.59)
=========== ===========
</TABLE>
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the prospectuses
constituting part of the Registration Statements on Form S-3 (No. 333-69101 and
No. 333-88319) and Registration Statement on Form S-8 (No. 333-72337) of our
report dated March 2, 2000, relating to the consolidated financial statements of
QueryObject Systems Corporation, which appears in this Form 10-KSB, dated March
30, 2000.
/s/ PriceWaterhouseCoopers LLP
PriceWaterhouseCoopers LLP
Melville, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-QSB FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,488,854
<SECURITIES> 0
<RECEIVABLES> 1,324,248
<ALLOWANCES> 92,700
<INVENTORY> 0
<CURRENT-ASSETS> 5,868,636
<PP&E> 2,417,100
<DEPRECIATION> 1,570,800
<TOTAL-ASSETS> 6,871,983
<CURRENT-LIABILITIES> 1,268,458
<BONDS> 0
0
1,704
<COMMON> 14,951
<OTHER-SE> 5,310,192
<TOTAL-LIABILITY-AND-EQUITY> 6,871,983
<SALES> 1,774,109
<TOTAL-REVENUES> 1,774,109
<CGS> 186,125
<TOTAL-COSTS> 7,689,243
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,121
<INCOME-PRETAX> (5,925,591)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,925,591)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,925,591)
<EPS-BASIC> (2.57)
<EPS-DILUTED> (2.57)
</TABLE>
