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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of the Securities and Exchange Act
of 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
Commission file number 0-26948
SCOPUS TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-3134998
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1900 POWELL ST., 7TH FLOOR, EMERYVILLE, CA 94608
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (510) 597-5800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
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 requirements for the
past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based on the closing sale price of the Common Stock on May 31, 1997,
as reported on the Nasdaq National Market was approximately $477,201,888. Shares
of Common Stock held by each executive officer and director and by each person
who is known to own 5% or more of the outstanding Common Stock have been
excluded from this computation in that such persons may be deemed to be
affiliates. This determination of affiliate status is not a conclusive
determination for other purposes. As of May 31, 1997, the Registrant had
20,365,854 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for its 1997 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof.
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TABLE OF CONTENTS
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PART I ..................................................................................... 3
Item 1. Business............................................................................. 3
Item 2. Properties........................................................................... 18
Item 3. Legal Proceedings.................................................................... 18
Item 4. Submission of Matters to a Vote of Security Holders.................................. 18
PART II ..................................................................................... 19
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters............. 19
Item 6. Selected Financial Data.............................................................. 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 22
Item 7A. Qualitative and Quantitative Disclosures About Market Risk........................... 26
Item 8. Financial Statements and Supplementary Data.......................................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 31
PART III ..................................................................................... 32
Item 10. Directors and Executive Officers of the Registrant................................... 32
Item 11. Executive Compensation............................................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and Management....................... 32
Item 13. Certain Relationships and Related Transactions....................................... 32
PART IV ..................................................................................... 33
Item 14. Exhibits, Financial Statements and Reports on Form 8-K............................... 33
SIGNATURES........................................................................................... 34
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PART I
ITEM 1. BUSINESS
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities and
Exchange Act of 1934, as amended, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward looking statements included in this report are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statements. The
Company's actual results could differ materially from those anticipated in these
forward looking statements as a result of certain factors, including those set
forth below, under "Risk Factors" and elsewhere in this report.
All share and per share data in this Form 10-K have been adjusted to give effect
to the three-for-two stock split distributed on February 19, 1997 to holders of
record on February 7, 1997.
OVERVIEW
Scopus is a leading provider of client/server software solutions for the
customer information management market. The Company's applications, Scopus
SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus
Voyager, automate external customer support, the product design change process,
sales and marketing activities and internal help desk support. Scopus
applications are designed to enable organizations to build a knowledgebase of
customer information that can be accessed and used by individuals throughout the
enterprise to improve the effectiveness and efficiency of customer support in
order to increase customer satisfaction. The Company's products are based on a
modular, open architecture and support a variety of client computing platforms,
industry standard relational databases and server operating systems, and operate
over local area networks, intranets and the internet. Scopus products offer
customers a unique combination of built-in functionality, customizability,
adaptability and scalability. The Company also offers consulting, training and
maintenance services to facilitate the installation and use of the Company's
products.
INDUSTRY BACKGROUND
Businesses and other organizations are increasingly focusing on customer service
and satisfaction as a means of gaining a competitive advantage. Realizing that
improving customer service and satisfaction can be as important in attracting
and retaining customers as product design, quality and price, these
organizations are reorienting their businesses to become customer-centric and
more responsive to customer needs. In pursuit of improved customer support and
satisfaction, many organizations have distributed responsibility for sales and
customer service broadly throughout their organizations. Many organizations are
also extending responsibility for sales and customer service to their "extended
enterprises" of distributors, value-added resellers and other outsourcing
partners. In addition, to more effectively manage customer relationships and to
better leverage economies of scale, companies in certain industries have begun
to consolidate customer support operations into high volume call centers.
As a result of these trends, more individuals within an organization and its
extended enterprise are responsible for interacting with customers. To better
serve their customers, organizations need an efficient system to continually
collect and disseminate customer information. The resulting knowledgebase of
customer information enables employees and other members of the extended
enterprise to understand issues critical to the organization's success, such as
customer satisfaction, the potential for follow-on sales and customers' future
product needs. Moreover, as organizations are discovering the competitive
necessity of delivering superior support to customers who reside outside of the
organization (i.e., their clients), they are also realizing that the same level
of attention must be paid to the technological and business needs of their
customers inside the organization (i.e., their employees).
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The development of distributed client/server computing has created a
technological framework for the efficient collection of customer information and
its dissemination among employees and other members of the extended enterprise.
Client/server technology not only permits any member of an organization to
effectively collect information relating to a particular customer, product or
event, but also enables other members of the organization in geographically
dispersed locations to have rapid access to that information. The emergence of
client/server computing environments, together with the increased emphasis on
customer support and satisfaction, has created a demand for a new generation of
customer information management software applications. In addition, the
increasing complexity of client/server computing technology has created a demand
for applications that support an organization's internal help desk.
In attempting to meet such demands, organizations have been faced with a choice
between purchasing pre-packaged applications or building custom applications.
Pre-packaged applications are often inflexible, requiring organizations to adopt
an unfamiliar approach for managing customer information in order to conform to
the process design of the application. Even if a pre-packaged application is
initially acceptable, it may not accommodate an organization's desire to add
functionality, change processes or expand operations over time. On the other
hand, building custom applications can be slow and costly. Today, organizations
need customer information management solutions that provide "off-the-shelf"
functionality yet can be readily customized to match their internal processes
and can be quickly and cost-effectively reconfigured as the organizations grow
and their needs evolve.
THE SCOPUS SOLUTION
Scopus is a leading provider of client/server software solutions designed to
enable organizations to efficiently capture, manage and share customer
information throughout the enterprise and the extended enterprise. The Company's
applications offer intranet and internet based solutions that automate external
customer support, the product design change process, sales and marketing
activities and internal help desk support. The Company's products can be used
individually to improve critical business operations or can be integrated with
one another and with third party applications to provide comprehensive,
enterprise-wide customer information management solutions. Scopus applications
are designed to enable organizations to build a knowledgebase of customer
information that can be accessed and used by individuals throughout the
enterprise to improve customer support and satisfaction. As this knowledgebase
grows, organizations can use the resulting reservoir of customer information to
develop better products, market products more effectively and provide more
efficient and effective customer support.
The Company's products offer customers the following benefits:
APPLICATION CUSTOMIZABILITY. Recognizing that every organization interacts with
its customers in a unique and evolving manner, the Company has designed its
technology not only to offer a pre-packaged solution but also to allow
organizations to slightly tailor or extensively customize Scopus applications
without time consuming and costly source code programming changes. As a result,
Scopus applications can be adapted to the organization's specific processes,
integrated with its existing computing environments and modified as the
organization's functional and technical requirements grow or evolve. Scopus
applications can be adapted as a customer's environment changes as a result of
growth or because of changes in technology, thereby offering the customer long-
term solutions.
SCALABILITY AND FLEXIBILITY. The Company's products allow customers to take
advantage of the benefits inherent in client/server computing, notably its
scalability and flexibility. Scopus applications enable customers to easily add
clients to new or existing servers. Organizations can also use Scopus
application service modules to incorporate additional functionality into Scopus
systems, such as remote access capabilities, telephony integration and multi-
site database replication, without costly changes to the overall application
architecture. Scopus' continued investment in open standards and open solutions
further adds to the scalability and flexibility of Scopus applications. Some of
those standards include OLE 2.0 for client communications and third party
controls and applications, ODBC for database connectivity, and HTTP and SSI for
intranet and internet access.
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INTEGRATION CAPABILITIES. The modular, open architecture of Scopus applications
and Scopus' published application programming interface ("API") permit
customers to integrate the Company's applications with a wide variety of other
computer and telephony technologies and products. As a result, Scopus
applications can be integrated with many desktop software applications and
browsers for Windows, UNIX and Macintosh clients, including popular e-mail
applications, spreadsheets and document editors, as well as existing mainframe-
based "legacy" systems, other client/server applications and telephony
equipment. Each Scopus application has also been designed to operate with many
industry standard relational database management systems, graphical user
interfaces and network protocols.
ENTERPRISE WIDE CUSTOMER CARE. The architecture of the Scopus system enables an
organization to extend its customer care solution across the enterprise. The
specific applications for sales and marketing, customer service and support and
product and change management all share a common architecture, data model and
workflow system so that every customer interaction can be captured, tracked and
shared throughout the enterprise.
BUSINESS STRATEGY
The Company's objective is to become the leading supplier of enterprise customer
information management software solutions for the global marketplace. To achieve
this objective, the Company is pursuing the following strategies:
MAINTAIN TECHNOLOGICAL LEADERSHIP POSITION. Scopus has established itself as a
leader in the development and use of technology for customer information
management software. Scopus believes that it was the first participant in this
market to introduce a data-driven architecture, publish an open API, provide
customers with multi-site database replication capability and integrate its
applications with telephony services. The Company's applications currently
support a variety of client/server computing technologies, including popular
client computing platforms, industry standard relational databases and server
operating systems. Scopus plans to continue to devote significant resources to
maintain its technological leadership.
DEVELOP INDUSTRY SPECIFIC APPLICATIONS. The Company believes the flexibility
inherent in its core architecture facilitates the development of applications
for targeted vertical markets. The Company believes that industry specific
applications allow for shorter sales cycles, require less customization and
offer simpler implementation while providing a higher level of industry-specific
features and functionality. Scopus originally developed its Scopus SupportTEAM
and Scopus QualityTEAM products for use in the software industry. The Company
has licensed its products to organizations in a variety of other industries and
is currently targeting the technology, telecommunications and financial services
industries with industry specific applications. The Company intends to expand
its presence in these industries and leverage that presence into other vertical
markets. The Company also is working with key customers to develop such
applications and believes that these relationships will provide the Company with
insight into the specific needs of targeted vertical markets.
TARGET CALL CENTER MARKET. As a result of intense competition driven by factors
such as deregulation and technological advances, companies are becoming
increasingly focused on providing high levels of customer service to attract new
customers while retaining existing customers. In particular, high-volume call
centers have emerged as a strategic component of customer service in certain
industries. Scopus believes that its products offer a cost-effective solution
for high-volume call centers. The Company is currently targeting the call center
market and intends to continue to expend significant sales and marketing efforts
in this market.
EXPAND RELATIONSHIPS WITH THIRD PARTY CONSULTING ORGANIZATIONS. Scopus has
developed and continues to develop relationships with third party consulting
organizations to assist customers with the successful customization and
implementation of Scopus products. The Company believes that this strategy will
enable its customers to achieve efficient customization and implementation of
Scopus products, while enabling Scopus to focus on the development, enhancement
and marketing of its products. In addition, the Company believes that, as
systems integrators become increasingly familiar with Scopus products, such
organizations could become a source of recommendations for the Company's
products.
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EXPAND INTERNATIONAL SALES. Scopus believes there is a significant international
market opportunity for its products and that it must devote resources to expand
its international sales. To that end, the Company has begun to market localized
versions of its products in Italy, Germany, France, Spain and certain Latin
American countries and a Kanji version in Japan, and plans to release a
localized version for China. To expand its international distribution channels,
Scopus has established subsidiaries in the United Kingdom, Canada and France and
has established relationships with 17 distributors in various major overseas
markets including Europe and Asia Pacific. The Company is exploring other
distribution arrangements to broaden its domestic and international channels,
and plans to continue to expand its sales force both domestically and
internationally.
PRODUCTS
The Company's products currently consist of a suite of five principal
applications as well as several related application service modules and a
customization tool. The Company's principal applications consist of Scopus
SupportTEAM, Scopus ServiceTEAM, Scopus QualityTEAM, Scopus SalesTEAM and Scopus
Voyager.
The following table summarizes the Company's products and their principal
functions:
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P R O D U C T F U N C T I O N
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APPLICATIONS
Scopus SupportTEAM External customer support and internal help desk; problem resolution
Scopus ServiceTEAM Field service management
Scopus QualityTEAM Product error and modification tracking; product design change process
Scopus SalesTEAM Telemarketing and telesales process automation
Scopus Voyager Field sales automation
APPLICATION SERVICE
MODULES
WebTEAM Integration to World Wide Web
TeleTEAM Computer/telephony integration
WorldTEAM Database replication, inter-site distribution and data reconciliation
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CUSTOMIZATION TOOL
Scopus Works Workflow, business rules and customization
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The Company's products support a variety of client/server computing
technologies, including popular client computing platforms such as Microsoft
Windows 3.1, Microsoft Windows 95, Microsoft Windows NT, Motif and Macintosh;
industry standard relational databases from Sybase, Oracle, Informix and
Microsoft; and server operating systems such as Microsoft Windows NT, Hewlett
Packard HP-UX, IBM/AIX, Sun OS and Sun Solaris and Silicon Graphics.
Scopus products may be integrated with each other and with a variety of third
party applications. For example, Scopus SupportTEAM can be used in conjunction
with Scopus QualityTEAM to integrate customer feedback with the product design
change process. Scopus QualityTEAM can accept modification requests created from
customer feedback through Scopus SupportTEAM, track the ensuing adjustments and
communicate the results back to Scopus SupportTEAM for subsequent closure of all
calls related to the modification. Additional service
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modules available from Scopus significantly enhance the functionality of all
Scopus applications. For example, an embedded notification and workflow engine
can be used to drive the workflow of the modification process by escalating
calls to more senior personnel and notifying other professionals if problems
remain unsolved or other issues arise. WorldTEAM may be used to automatically
communicate critical information to databases in remote development centers so
that personnel throughout the enterprise can access the relevant information.
Scopus applications are currently available in localized versions in Italian,
German, French, Spanish and Japanese (Kanji) and the Company plans to release a
localized version in Chinese.
The Company's prices for its applications and certain application service
modules depend on the number of concurrent users of such products. The domestic
list prices for Scopus applications range from approximately $12,000 to $120,000
per server and from approximately $3,000 to $3,500 per concurrent user. The
domestic list prices for the Company's application service modules range from
approximately $3,000 to $20,000 per server and from $2,000 to $4,000 per
concurrent user, and the domestic list price for Scopus Works is approximately
$18,000.
APPLICATIONS
SCOPUS SUPPORTTEAM. Scopus SupportTEAM is an integrated solution for external
customer support and internal help desks. Scopus SupportTEAM is designed to
automate and facilitate each step of the problem resolution process from the
gathering of problem information to problem resolution. It combines an intuitive
problem-assignment procedure with server problem resolution technologies,
including Query-By-Example, Relevancy Search and DataProbe, to improve the speed
and productivity of customer support professionals. Using Scopus SupportTEAM,
customer support professionals can enter data identifying the caller and the
problem and search the knowledgebase for similar problems and their solutions.
As call records accumulate, the resulting knowledgebase becomes a library of
problems, resolution steps, technical application notes and solutions. If the
problem cannot be resolved by the initial support professional, Scopus
SupportTEAM can assign the call to other support professionals. Each step in the
resolution process is captured by Scopus SupportTEAM, creating a record of
resolution steps previously performed. Scopus SupportTEAM completes the
resolution process through integration with standard report writing tools for
analysis and reporting of performance and customer satisfaction metrics.
SCOPUS QUALITYTEAM. Scopus QualityTEAM automates the product design change
process and enables organizations to log, assign, coordinate and manage product
modifications and enhancements and the correction of product defects and non-
conformance items. Often, as in the software and hardware industries, a single
defect can result in several instances of product failure and may require the
resolution of multiple related sub-defects or tasks. Moreover, as the change
process progresses, duplicate modifications may be introduced into the system
and new modification requests may be found that are related to previously
identified requests. Scopus QualityTEAM enables product developers to break down
such defects or enhancement requests into tasks, manage the assignment of the
tasks and control the change process. By using the Company's problem resolution
tools, product developers can search the database for similar modifications or
tasks and link them together to ensure the efficient completion of all
modifications.
SCOPUS SERVICETEAM. Scopus ServiceTEAM automates and manages the entire field
service cycle, including entitlement management, service call management,
dispatch/scheduling management, service parts management, and repair center
operations. Scopus ServiceTEAM provides field service organizations with the
information and tools required to create service and repair orders and process
requests from start to finish. Service agents can quickly validate the
customer's entitlement to service. Scopus ServiceTEAM ensures the right
personnel are assigned to the job by dispatching technicians based on skills,
availability, and location. Scopus ServiceTEAM captures all relevant problem,
resolution, parts usage, cost and revenue information, and updates all pertinent
records.
SCOPUS SALESTEAM. Scopus SalesTEAM manages integrated marketing and sales
cycles. With Scopus SalesTEAM, organizations can manage every phase of the sales
cycle from the design and execution of
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marketing campaigns and the generation of qualified leads to order fulfillment
and tracking of existing and potential accounts. Scopus SalesTEAM has direct
marketing and telesales components, which support data-based marketing efforts
and facilitate the collection of potential customer data, the qualification of
leads and the tracking of such leads to sale closure. Scopus SalesTEAM allows
organizations to simultaneously pursue multiple opportunities in which group
selling efforts are needed, manage employee to-do lists and enforce the
requirements of each step of the selling process including lead generation,
prospecting, cost estimation, quote generation, order booking, fulfillment,
billing and return.
SCOPUS VOYAGER. Scopus Voyager, commercially introduced in the first quarter of
fiscal 1997, is a sales automation solution aimed at the mobile sales
professional. Voyager is a complete lead management, account management and
opportunity management system and is integrated with the entire suite of Scopus
customer care products. In addition, the system includes integrated time
management, quote management and other marketing functions. Voyager enables a
team-selling approach by enabling field sales professionals to share the latest
account and opportunity information with their telesales, telemarketing and
customer service organizations. For example, leads qualified in telemarketing
can automatically be forwarded to the correct field sales representative for
follow-up. All information associated with the lead can then be tracked
throughout the entire sales cycle as leads turn into opportunities, closed
opportunities become accounts, and accounts in turn generate new opportunities.
Voyager allows both mobile and office-resident professionals to independently
modify sales information and then automatically synchronizes the information
each time the mobile professional reconnects to the central Scopus system.
APPLICATION SERVICE MODULES
The Company has developed application service modules that can be combined with
any Scopus application to enhance functionality and create integrated customer
information management solutions.
WEBTEAM provides users with read and write access to the Scopus database over
the World Wide Web. This product has allowed many of Scopus' customers to
provide to their own customers access to a Scopus database in order to speed
problem resolution through self-service or to enable direct requests for
support.
TELETEAM permits telephony services, such as automatic call distributors (ACDs)
and interactive voice response units (IVRs), to be integrated with Scopus
applications to improve call center productivity. Through this integration,
TeleTEAM synchronizes incoming calls with the creation of a computer screen
containing information about the caller. This capability eliminates the need to
query the database for caller information as the operator receives the call,
facilitating rapid responses to customer inquiries. These screens can be
transferred with the call to other system users when necessary.
WORLDTEAM is a database replication program that manages the replication, inter-
site distribution and reconciliation of customer information. WorldTEAM can be
configured to automatically replicate specified subsets of information at given
intervals and at specific sites. WorldTEAM also incorporates mechanisms to
ensure that data integrity across sites is preserved during replication.
CUSTOMIZATION TOOL
SCOPUS WORKS. Scopus offers a drag-and-drop configuration and customization
environment that allow users to personalize all Scopus applications, including
presentation logic, business rules and application servers. Scopus Works is an
integrated tool set that business process experts can utilize throughout the
entire lifecycle for all Scopus applications.
SERVICES
The Company believes that high quality customer service and support are integral
components of the application solutions it offers. Accordingly, the Company
offers a range of fee-based training, consulting and maintenance services to
facilitate the installation and use of the Company's products. The Company uses
its own products to
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provide many of its customer services. As of March 31, 1997, the Company
employed 24 persons in its consulting services organization and 52 persons in
its support organization which offers customer service, training and
documentation services.
CONSULTING SERVICES. The Company employs its own implementation personnel and
works with third party consulting organizations and systems integrators to offer
on-site project design and implementation services. These consulting services
include the installation and implementation of Scopus products, integration of
such products with other existing and planned communications and information
systems, project management and process reengineering. To meet future
requirements for large scale consulting projects, the Company has established
relationships with third party systems integrators and professional consulting
firms to facilitate direct relationships between such firms and the Company's
customers.
SOFTWARE MAINTENANCE AND SUPPORT. The Company's support organization offers a
variety of support services to its customers. Customers have the option of
purchasing the Company's standard support package or its extended support
package. Through its standard support package, the Company provides its
customers with 12-hour weekday hotline support, 24-hour electronic support
through use of the Company's WebTEAM or CommLink Server products or Scopus'
electronic news group service, and periodic product updates and maintenance
releases. Annual fees for the Company's standard support package are typically
15% of the license fee for the underlying software. For an additional fee, a
customer can purchase the extended support package which complements the
services available in the standard support package with 24-hour phone support,
priority escalation and the opportunity to have a support representative
assigned to the customer's account. To date, substantially all of the Company's
expiring maintenance contracts have been renewed.
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CUSTOMERS
As of March 31, 1997, the Company had licensed its products to over 350
customers. No customer accounted for 10% or more of total revenues for fiscal
1995, 1996 and 1997. The following is a representative list of the Company's
customers:
<TABLE>
<CAPTION>
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COMPUTER COMPUTER/ TELECOMMUNICATIONS FINANCIAL/
SOFTWARE ELECTRONICS ACCOUNTING
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Aspen Technology Acer America AT&T Bank of America
Autodesk Advanced Micro Devices Alcatel Systems Bankers Trust
Baan Company Boeing Computer Services Ascend Communications E*Trade
Cadence Design Systems Honeywell Bay Networks Fleet Financial Services
Computervision Intel Bell Atlantic Nynex Mobile Instinet
FileNet National Semiconductor Bell South Lehman Brothers
Informix Packard Bell Cincinnati Bell Information Sys. Lexis-Nexis
Intuit Philips Semiconductor Deutsche Telekom Morgan Stanley
Landmark Graphics Sequent Computer Systems LA Cellular NationsBank
Mentor Graphics Silicon Graphics Lucent Technologies Principal Financial
Seagate Technology Sun Microsystems Nortel U.S. Bank
SunSoft U.S. Robotics OmniTel Visa International
Sybase VLSI Technologies Octel Communications Wells Fargo
Synopsys PCS Primeco
Viewlogic Saskatel Mobility
WRQ Siemens/Rolm
Wall Data US Long Distance
Wiltech
WorldCom
</TABLE>
<TABLE>
<CAPTION>
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OUTSOURCING INTERNET OTHER
SERVICES SERVICES
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fujitsu America Online Boeing Information & Support Services
Matrixx Marketing Netcom Ford Motor Company
Olivetti Worldwide Netscape Polaroid
Stream International Safeguard
Towers Perrin Volvo Data AB
Yamaha
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</TABLE>
SALES AND MARKETING
The Company sells its software and services in North America primarily through a
direct sales force. To support its sales force, the Company conducts marketing
programs which include direct mail, trade shows, public relations, advertising
and ongoing customer communication programs. While the sales cycle varies from
customer to customer, it typically ranges from six to nine months. The North
American sales organization is based at the Company's corporate headquarters in
the San Francisco Bay Area and at ten additional field sales offices in the
metropolitan areas of Atlanta, Boston, Chicago, Dallas, Denver, Los Angeles, New
York, Seattle, Toronto and Washington D.C. The Company markets and sells its
software and services outside North America through the direct sales force of
its subsidiaries in Europe and has relationships with independent distributors
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located in other major geographic areas including Europe and Asia. The Company's
international distributors typically provide first line technical support and
services to their customers.
The Company has increased its domestic and international sales force from 43
sales managers, sales representatives and applications engineers at March 31,
1996 to 102 sales managers, sales representatives and applications engineers at
March 31, 1997. The Company intends to continue to expand its direct sales force
and to diversify its sales channels by adding third party distributors both
domestically and internationally. The Company's ability to achieve significant
revenue growth in the future will depend in large part on its success in
recruiting and training sufficient sales personnel and establishing
relationships with distributors, resellers and systems integrators. The Company
is currently investing, and plans to continue to invest, significant resources
to expand its domestic and international direct sales force and develop
distribution relationships with third party distributors, resellers and systems
integrators. The Company's existing distribution relationships are generally
non-exclusive and can be terminated by either party without cause. The Company's
distributors also sell or can potentially sell products offered by the Company's
competitors. There can be no assurance that the Company will be able to retain
or attract a sufficient number of its existing or future third party
distribution partners or that such partners will recommend, or continue to
recommend the Company's products. The inability to further establish or to
maintain successful relationships with distributors, resellers or system
integrators could have a material adverse effect on the Company's business,
operating results or financial condition. In addition, there can be no assurance
that the Company will be able to successfully expand its direct sales force or
other distribution channels. Any failure by the Company to expand its direct
sales force or other distribution channels would materially adversely affect the
Company's business, operating results and financial condition.
The Company has established subsidiaries in the United Kingdom, Canada and
France and is currently investing significant resources in its international
operations, including the development of third party distributor relationships
and the hiring of additional sales representatives. International sales to date
have been limited, and there can be no assurance that the Company will be
successful in expanding its international operations. In the event the Company
is able to increase international revenues as a percentage of total revenues,
the Company's business, operating results or financial condition could be
materially adversely affected by risks inherent in conducting business
internationally, such as changes in currency exchange rates, longer payment
cycles, difficulties in staffing and managing international operations, problems
in collecting accounts receivable, seasonal reduction in business activity
during the summer months in Europe and certain other parts of the world,
increases in tariffs, duties, price controls or other restrictions on foreign
currencies and trade barriers imposed by foreign nationalities. In this regard,
to the extent the Company's international operations expand, the Company expects
that an increasing portion of its international license revenues will be
denominated in foreign currencies. In addition, the Company has only limited
experience in developing localized versions of its products and marketing and
distributing its products internationally. There can be no assurance that the
Company will be able to successfully localize, market, sell and deliver its
products internationally. The inability of the Company to successfully expand
its international operations in a timely manner could materially adversely
affect the Company's business, operating results or financial condition.
TECHNOLOGY
Each of the Company's applications is built on a common core architecture that
is designed to efficiently leverage the performance and scalability of
client/server computing. The core technology was developed by Scopus to
facilitate the development and customization of enterprise applications for a
wide variety of customers. Since all Scopus applications share this technology,
they all communicate with the database server in the same manner and can be
easily integrated with one another to provide custom solutions. The Company
believes that its product architecture provides it with a competitive advantage
by allowing it to craft tailored solutions for its customers and by simplifying
and facilitating new product development.
11
<PAGE>
The Company's core technology has the following attributes:
DISTRIBUTED PROCESSING
The Company partitions its applications into multiple, independent tasks and
allocates these tasks to the computing resource most suited to process such
tasks in order to fully take advantage of the scalability, flexibility and
performance offered by client/server environments. By reducing a typical
application into a set of computing processes that function most efficiently as
client processes, application services and agent services (i.e., data services,
computer/telephony integration services), the Company's products enable its
customers to effectively and efficiently utilize their computing resources (such
as data server processing and network bandwidth). Moreover, this distribution of
computing tasks enables the Company to leverage technological improvements in
any area of the client/server system and to incorporate new functionality into
its suite of products.
DATA-DRIVEN ARCHITECTURE
The Company's products utilize a data-driven architecture that enables users to
build and efficiently customize Scopus applications in distributed processing
environments. The Company has designed its applications to reference and
interpret data that defines a set of application functions (metadata) and is
stored in the database. These functions determine the look and feel of the
graphical user interface (GUI), the workflow of the applications and the
required processing. Since the metadata exists independent from the source code
of the foundation and the applications, customers can extensively customize the
GUI and processes of each of the applications to meet their diverse internal
requirements without the need to make costly changes to product source code.
These customizations can include changes to notification and escalation rules,
additions of forms, buttons and fields and the development of entirely new
screens. Customers make these changes either by using the Scopus design tool,
ScopusWorks, by using a scripting language compliant with Microsoft's Visual
Basic for Applications or by using another standard fourth generation scripting
language, Tcl. The use of metadata enables the Company to efficiently customize
its application logic whether that logic is executed as client processes,
application services or agent services. Additionally, even customers with
different client platforms only need to make changes to the metadata once at the
server level. All clients will then automatically receive the changes. The
management of software is therefore easier than attempting to manage software
changes on a large number of different client machines.
OPEN API TECHNOLOGY
The Company's customers can also customize their Scopus applications through the
use of the Company's published and open API, which is used to invoke the
functionality of a wide array of third party applications by either the client
processes, applications services or agents, thereby further distributing
application processing, increasing flexibility and enhancing functionality.
Since the Company's API can be used within each component of the Company's
architecture, the Company can integrate with third party applications at the
most efficient component. The Company's core technology also enables its
applications to share a set of application service modules, which coordinate the
flow of information and processes within the Scopus system. These application
service modules, which can be deployed as customer needs mandate, also support
an efficient distribution of computing services. Data-based programmability,
efficient use of its application service modules and the API provide the Company
with multiple design points to customize its applications.
COMMON CUSTOMER INFORMATION DATABASE
In addition to sharing common core technologies and customization capabilities,
Scopus applications share a common normalized table format which utilizes
industry standard relational databases (Sybase, Oracle, Informix and Microsoft
SQL). This database is designed to maintain information, such as customer
profiles, site identifications, user preferences and permissions, cases and
accumulated experience necessary to operate the applications and thereby support
customer requirements. Customer profiles include basic customer information
12
<PAGE>
such as name and address, as well as site identification and group affiliations.
An organization's common customer database contains information on the status of
each case, including case origination, case work assignments and open issues. In
the Scopus system, a case can be a call, a defect, or a potential sales
transaction. Attachments, technical notes and tasks can be associated with each
case through bi-directional cross referencing or through support for Microsoft's
Object Linking and Embedding (OLE) to facilitate the problem resolution process.
As cases accumulate in the database, a common knowledgebase of cases and
associated information is created, which allows support representatives and
sales personnel to service new cases more effectively and with greater speed.
PROBLEM RESOLUTION TECHNOLOGIES
Each of the Company's applications can employ a set of problem resolution
technologies to search the common customer information database. These
technologies include:
QUERY-BY-EXAMPLE. Query-By-Example ("QBE") enables Scopus users to launch a
query to the database to search for information similar to that entered into a
field or a combination of fields. QBE can therefore be used to identify
information specific to a given user or locate solutions with entries identical
to those of the instant case.
RELEVANCY SEARCH. Relevancy Search enables users to search for cases that are
most similar to the current case by computing a numerical ranking to each
solution returned by a QBE search. This ranking is based on the prevalence of
certain keywords in each of the solutions.
DATAPROBE. DataProbe is a powerful query tool that enables users to construct
intelligent Boolean queries based on any field, form or topic in the common
customer information database. These queries can be constructed either directly
through SQL statements or indirectly through the application interface.
DataProbe also permits uses to include automatically generated keywords in the
search.
CASE-BASED REASONING INTEGRATION. An integration with CasePoint by Inference
Corporation provides customers with an additional level of problem resolution
capabilities. CasePoint features a question and answer methodology that helps
refine user queries. Through CasePoint, users can compare the instant case to
other known solutions and transfer the results back into the Scopus
knowledgebase.
THIRD PARTY KNOWLEDGEBASE INTEGRATION. The Company's problem resolution
technologies also can be combined with pre-packaged knowledgebases to offer
customers a means to supplement the cases accumulated through their own
experience.
FULL-TEXT RETRIEVAL INTEGRATION. An integration with Verity's Full-text
Retrieval Engine provides customers with an additional level of problem
resolution capabilities. Verity features many document formats, such as
Microsoft Office and HTML, for intelligent Boolean queries based on any field,
in any language, including multi-byte languages. These queries can be
constructed through SQL statements or directly through an API.
RESEARCH AND DEVELOPMENT
As of March 31, 1997, the Company's research and development staff consisted of
64 persons. The Company's research and development expenditures in 1995, 1996
and 1997, were $2.7 million, $5.4 million, and $8.9 million, respectively,
representing 18%, 19% and 14% of total revenues, respectively, during such
periods.
The Company has historically developed and expects to continue to develop its
products in conjunction with its existing and potential customers. The Company's
current development initiatives include the enhancement of the features and
functionality of existing products, the development of complementary products
and the development of integrated packages of its products tailored to the
requirements of certain market segments.
The market for the Company's products is characterized by rapid technological
advances, evolving industry standards in computer hardware and software
technology, changes in customer requirements and frequent new product
introductions and enhancements. The Company is currently investing significant
resources in product
13
<PAGE>
development and expects to continue to do so in the future. The Company's future
success will depend on its ability to continue to enhance its current product
line and to continue to develop and introduce new products that keep pace with
competitive product introductions and technological developments, satisfy
diverse and evolving customer requirements and otherwise achieve market
acceptance. There can be no assurance that the Company will be successful in
continuing to develop and market on a timely and cost-effective basis fully
functional product enhancements or new products that respond to technological
advances by others, or that its enhanced and new products will achieve market
acceptance. In addition, the Company has in the past experienced delays in the
development, introduction and marketing of new or enhanced products, and there
can be no assurance that the Company will not experience similar delays in the
future. Any failure by the Company to anticipate or respond adequately to
changes in technology and customer preferences, or any significant delays in
product development or introduction, would have a material adverse effect on the
Company's business, operating results and financial condition.
Due to the complexity and sophistication of the Company's software products, the
Company's products from time to time contain defects or "bugs" which can be
difficult to correct. Furthermore, as the Company continues to develop and
enhance its products, there can be no assurance that the Company will be able to
identify and correct defects in such a manner as will permit the timely
introduction of such products. Moreover, despite extensive testing, the Company
has from time to time discovered defects only after its systems have been used
by many customers. There can be no assurance that software defects will not
cause delays in product introductions and shipments, result in increased costs,
require design modifications, or impair customer satisfaction with the Company's
products. Any such event could materially and adversely affect the Company's
business, operating results and financial condition.
COMPETITION
The customer information management software market is relatively new, intensely
competitive, highly fragmented, subject to rapid change, and highly sensitive to
new product introductions and marketing efforts by industry participants. The
Company competes with a variety of other companies depending on the target
market for their products. These competitors include (i) a select number of
companies, such as Clarify Inc. and The Vantive Corporation, targeting the
enterprise-wide customer information market; (ii) certain public companies, such
as Remedy Corporation, Siebel Systems, Inc., Aurum Software, Inc. (which has
entered into an agreement to be acquired by Baan Company) and Software Artistry,
Inc., as well as a large number of private companies, which offer products
targeted at one or more specific markets, including the customer support market,
the help desk market, the quality assurance market and the sales and marketing
automation market; (iii) professional services organizations, such as Andersen
Consulting, that design and develop custom systems; (iv) large information
technology providers such as IBM and Computer Associates International, Inc.;
and (v) the internal information technology departments of potential customers
which develop proprietary customer information management applications. Among
the Company's potential competitors are also a number of large hardware and
software companies that may develop or acquire products that compete with the
Company's products. In this regard, SAP AG and Oracle Corporation have each
introduced a customer support module as part of their application suites. The
Company believes that many existing competitors and new market entrants will
attempt to develop fully integrated customer information management systems that
will compete with the Company's products.
Current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customer.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced operating margins, and loss of
market share, any one of which could materially adversely affect the Company's
business, results of operations or financial condition. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and to changes
in customer requirements,
14
<PAGE>
or to devote greater resources to the development, promotion and sale of their
products than can the Company. There can be no assurance that the Company will
be able to compete successfully against current or future competitors or that
competitive pressures will not materially adversely affect the Company's
business, operating results and financial condition.
The Company believes that the principal competitive factors affecting its market
include product features such as adaptability, scalability, ability to integrate
with third party products, functionality, ease of use, product reputation,
quality, performance, price, customer service and support, effectiveness of
sales and marketing efforts and company reputation. Although the Company
believes that it currently competes favorably with respect to such factors,
there can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with greater
financial, marketing, service, support, technical, and other resources than the
Company.
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company's success is dependent on its ability to protect its proprietary
technology. The Company licenses its products in object code form only, although
it has source code escrow arrangements with certain customers. The Company
relies on a combination of copyright, trademark and trade secret laws, as well
as confidentiality agreements and licensing arrangements, to establish and
protect its proprietary rights. The Company does not have any patents or patent
applications pending, and existing copyright, trademark and trade secret laws
afford only limited protection. In addition, the laws of certain countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. Accordingly, there can be no assurance that the Company
will be able to protect its proprietary rights against unauthorized third party
copying or use, which could materially adversely affect the Company's business,
operating results or financial condition.
Despite the Company's efforts to protect its proprietary rights, attempts may be
made to copy or reverse engineer aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Moreover, there can
be no assurance that others will not develop products that infringe the
Company's proprietary rights, or that are similar or superior to those developed
by the Company. Policing the unauthorized use of the Company's products is
difficult. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results or financial condition.
As is common in the software industry, the Company from time to time receives
notices from third parties claiming infringement by the Company's products of
third party proprietary rights. While the Company is not currently subject to
any such claim, the Company expects its software products will increasingly be
subject to such claims as the number of products and competitors in the
Company's industry segment grows and the functionality of products overlaps. Any
such claim, with or without merit, could result in significant litigation costs
and require the Company to enter into royalty and licensing agreements, which
could have a material adverse effect on the Company's business, operating
results or financial condition. Such royalty and licensing agreements, if
required, may not be available on terms acceptable by the Company or at all.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain any of these technology licenses could
result in delays or reductions in product shipments until equivalent technology
could be identified, licensed and integrated. Any such delays or reductions in
product shipments would materially adversely affect the Company's business,
operating results and financial condition.
15
<PAGE>
EMPLOYEES
As of March 31, 1997, the Company employed 305 persons, including 130 in sales
and marketing, 24 in its consulting services organization, 52 in customer
support, 64 in research and development and 35 in finance and administration. Of
these, 21 are located in Europe and the remainder are located in North America.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes its relationship with its employees
is good. Competition for qualified personnel in the Company's industry is
intense. The Company believes that its future success will depend in part on its
continued ability to attract, hire and retain qualified personnel.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and certain information
about them as of March 31, 1997, are as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
N A M E A G E P O S I T I O N
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ori Sasson 35 Chairman of the Board, Chief Executive Officer, President and
Director
- ---------------------------------------------------------------------------------------------------------------
Michele L. Axelson 47 Senior Vice President and Chief Financial Officer
- ---------------------------------------------------------------------------------------------------------------
A. Aaron Omid 38 Senior Vice President, Worldwide Operations and Secretary
- ---------------------------------------------------------------------------------------------------------------
Jeffrey G. Bork 40 Senior Vice President, Marketing
- ---------------------------------------------------------------------------------------------------------------
Daniel A. Turano 48 Vice President, North America Field Operations
- ---------------------------------------------------------------------------------------------------------------
Mark J. Barrenechea 32 Vice President, Applications and Technology
- ---------------------------------------------------------------------------------------------------------------
Steve Jacob 41 Vice President, Europe
- ---------------------------------------------------------------------------------------------------------------
Francoise Tourniaire 37 Vice President, Worldwide Service
- ---------------------------------------------------------------------------------------------------------------
Lyle D. York 55 Vice President, Customer Relations
- ---------------------------------------------------------------------------------------------------------------
J. Michael Cline (1) (2) 37 Director
- ---------------------------------------------------------------------------------------------------------------
Christopher R. Gibbons (1) 48 Director
- ---------------------------------------------------------------------------------------------------------------
Ronald Abelmann (1) 59 Director
- ---------------------------------------------------------------------------------------------------------------
Max D. Hopper (2) 62 Director
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Member of audit committee.
(2) Member of compensation committee.
16
<PAGE>
ORI SASSON is a co-founder of the Company and has served as the Company's
Chairman of the Board and Chief Executive Officer since the Company's inception
in March 1991. Mr. Sasson has also served as the Company's President since
February 1994 and as Secretary from March 1991 to February 1992. From January
1990 to March 1991 and from September 1986 to January 1989, Mr. Sasson was an
independent software design consultant. From January 1989 to January 1990, Mr.
Sasson was a software engineer at Sybase Corporation, a client/server relational
database management software company. From December 1984 to August 1986, Mr.
Sasson was a support engineer at Hewlett Packard Company, a manufacturer of
computers and related products. Mr. Sasson earned a B.A. degree in Computer
Science and a M.S.C. degree in Engineering both from the University of
California at Berkeley.
MICHELE L. AXELSON has served as the Company's Senior Vice President and Chief
Financial Officer since July 1996. From June 1980 until July 1996, Ms. Axelson
held various positions at Arthur Anderson LLP, an international public
accounting firm, and was a partner of that firm from 1989 until she joined the
Company in July 1996. Ms. Axelson is also a director of Novadigm, Inc. Ms.
Axelson is a Certified Public Accountant and earned a B.S. degree in Business
Administration from San Jose State University.
A. AARON OMID is a co-founder of the Company and has served as the Company's
Senior Vice President, Worldwide Operations since January 1997 and as Secretary
since February 1992. From March 1991 to December 1996, Mr. Aaron Omid served as
the Company's Vice President, Sales. Mr. Aaron Omid also served as President of
the Company from March 1991 to October 1991, and as a director of the Company
from March 1991 to October 1992. From August 1990 to February 1991, Mr. Aaron
Omid was Vice President, Sales of North America at Opus Systems, a computer
hardware manufacturer. From May 1986 to August 1990, he held various marketing
and sales positions at Sun Microsystems, a workstation manufacturer, most
recently serving as Sales Manager. Mr. Aaron Omid earned a B.S. degree in
Electrical Engineering from the University of London.
JEFFREY G. BORK has served as the Company's Vice President, Marketing since
September 1995. From December 1992 to September 1995, he was a marketing
consultant and from December 1991 to December 1992, he was Vice President,
Product Management at Slate Corporation, a software company. From April 1989 to
June 1991, he was Vice President, Marketing at Informix Software, Inc., a
client/server relational database management software company. Mr. Bork earned a
B.S. degree in Electrical Engineering from the University of Michigan.
DANIEL A. TURANO has served as the Company's Vice President, North America Field
Operations since January 1997. From September 1995 to December 1996 he served as
Senior Vice President of Worldwide Operations for Siebel Systems, Inc., a
developer of automation software. From 1991 to 1995, Mr. Turano served in
various senior sales roles at Oracle Corporation, including Vice President of
Oracle Corporation, New York Region. Prior to 1991, Mr. Turano held sales
management positions at Natural Language, Inc., Intelligent Business Systems,
and Applied Data Research. Mr. Turano earned a B.S. degree in business
management from Saint Peter's College and an M.B.A. from Fairleigh Dickenson
University.
MARK J. BARRENECHEA has served as the Company's Vice President, Applications and
Technology since September 1995. From December 1994 to September 1995, Mr.
Barrenechea founded and served as Chief Technical Officer at New View, Inc., a
company which provides managed Internet access. From October 1993 to December
1994, Mr. Barrenechea was Vice President, Tools and Technology at Tesseract
Corporation, a client/server software company. From October 1991 to October
1993, he held various positions at Microway, Inc., a software development
company, most recently serving as President and Managing Director of Microway
(Europe) Ltd. Mr. Barrenechea earned a B.A. degree in Computer Science from
Saint Michael's College and a M.S. degree in Engineering from Boston University.
STEVE JACOB has served as the Company's Vice President, Europe, since April
1996. From August 1994 to April 1996 he served as the Vice President Europe,
Africa, and the Middle East for Landmark Graphics Corporation, a software
company. From June 1988 to July 1994 he served as the U.K. Sales Director for
Ingres U.K. Ltd. Mr. Jacob earned a B.Ed. degree from the University of London.
17
<PAGE>
FRANCOISE TOURNIAIRE has served as the Company's Vice President, Worldwide
Service, since January 1997. From 1994 to 1997, Ms. Tourniaire served as
Director of Technical Support for Sybase, a client/server and Internet software
and services company. From 1985 to 1994, Ms. Tourniaire held various positions
at ASK/Ingres, a relational database management software company, including
Director of Educational Services and Director of Technical Support. Ms.
Tourniaire earned a B.S. and an M.S. in mathematics from the University of
Paris, France, and a Ph.D. in mathematics and science education from the
University of California, Berkeley.
LYLE D. YORK has served as the Company's Vice President, Customer Relations
since January 1997. From February 1994 to December 1996, Mr. York served as Vice
President, Customer Services. From June 1993 to February 1994, he was President
of York and Associates, a customer support consulting firm. From January 1991 to
June 1993, Mr. York served as Vice President, Software Services at Integraph
Corporation, a manufacturer of interactive computer graphics systems. From
January 1984 to January 1991, Mr. York held various positions at Daisy/Cadnetix,
Inc., a supplier of computer aided design software and hardware systems, most
recently serving as Vice President, Customer Support Division.
ITEM 2. PROPERTIES
The Company's principal administrative, engineering, manufacturing, marketing
and sales facilities total approximately 58,000 square feet, and are located in
a single building in Emeryville, California under a lease which expires in
October 1999. In addition, the Company leases offices in the metropolitan areas
of Atlanta, Boston, Chicago, Dallas, Denver, London, Los Angeles, New York,
Paris, Seattle, Toronto and Washington, D.C. The Company is in the process of
searching for additional space to support its expanded operations. The Company
intends to relocate a portion of its operations in the next six to nine months
and eventually to consolidate all corporate operations in a new, larger
facility. The Company expects that suitable additional space will be available
on commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders in the quarter ended
March 31, 1997.
18
<PAGE>
Part II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's common stock is traded on the Nasdaq National Market under the
symbol "SCOP". Following the Company's initial public offering on November 16,
1995, the following high and low closing prices were reported by Nasdaq in each
quarter:
<TABLE>
<CAPTION>
High Low
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
YEAR ENDED MARCH 31, 1996
Third Quarter (since November 16, 1995) $19.17 $11.17
Fourth Quarter $16.83 $ 9.25
- ---------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1997
First Quarter $15.50 $ 8.67
Second Quarter $21.33 $ 9.50
Third Quarter $33.33 $20.17
Fourth Quarter $33.67 $21.75
- ---------------------------------------------------------------------------------------------------
</TABLE>
As of March 31, 1997, the Company had approximately 86 holders of record of its
common stock.
The Company has never paid any cash dividends on its capital stock and does not
expect to pay any such dividends in the foreseeable future.
19
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SCOPUS TECHNOLOGY, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
(In thousands, except per share amounts) 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Revenues:
Licenses $ 2,002 $ 5,011 $11,097 $19,753 $45,675
Services and maintenance 702 1,524 4,153 8,843 17,455
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 2,704 6,535 15,250 28,596 63,130
- -----------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Licenses 723 305 601 874 2,091
Services and maintenance 211 554 3,340 6,915 11,070
- -----------------------------------------------------------------------------------------------------------------------
Total cost of revenues 934 859 3,941 7,789 13,161
- -----------------------------------------------------------------------------------------------------------------------
Gross margin 1,770 5,676 11,309 20,807 49,969
Operating expenses:
Sales and marketing 524 2,754 5,937 10,565 24,467
Research and development 666 1,532 2,716 5,382 8,881
General and administrative 266 714 1,170 2,169 4,989
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 1,456 5,000 9,823 18,116 38,337
- -----------------------------------------------------------------------------------------------------------------------
Income from operations 314 676 1,486 2,691 11,632
Other income, net 7 22 59 468 1,727
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 321 698 1,545 3,159 13,359
Provision for income taxes 120 131 572 1,169 4,943
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 201 $ 567 $ 973 $ 1,990 $ 8,416
=======================================================================================================================
Net income per share $ 0.02 $ 0.04 $ 0.07 $ 0.12 $ 0.42
=======================================================================================================================
Shares used in per share computations 11,028 12,714 14,525 16,448 20,067
=======================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------------
1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents and investments $ 1,085 $ 901 $ 3,553 $29,254 $ 79,241
Working capital 1,143 1,755 5,671 29,891 83,434
Total assets 2,385 5,504 11,424 41,581 108,529
Mandatorily redeemable preferred stock 1,000 1,400 1,400 - -
Total shareholders' equity 449 1,126 5,900 33,455 92,324
</TABLE>
20
<PAGE>
Scopus Technology, Inc.
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
(In thousands, except per Jun 30, Sep 30, Dec 31, Mar 31, Jun 30, Sep 30, Dec 31, Mar 31,
share amounts) 1995 1995 1995 1996 1996 1996 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses $ 3,667 $ 4,037 $ 5,206 $ 6,843 $ 7,381 $10,043 $13,005 $15,246
Services and maintenance 2,445 1,900 2,198 2,300 2,922 3,458 4,818 6,257
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues 6,112 5,937 7,404 9,143 10,303 13,501 17,823 21,503
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Licenses 122 504 131 117 595 244 465 787
Services and maintenance 2,516 1,511 1,404 1,484 1,961 2,217 3,069 3,823
- ----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 2,638 2,015 1,535 1,601 2,556 2,461 3,534 4,610
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin 3,474 3,922 5,869 7,542 7,747 11,040 14,289 16,893
Operating expenses:
Sales and marketing 1,995 2,056 2,954 3,560 4,061 5,642 6,832 7,932
Research and development 1,024 1,259 1,583 1,516 1,780 2,080 2,315 2,706
General and administrative 363 390 583 833 850 1,200 1,372 1,567
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 3,382 3,705 5,120 5,909 6,691 8,922 10,519 12,205
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations 92 217 749 1,633 1,056 2,118 3,770 4,688
Other income, net 37 14 118 299 311 265 431 720
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 129 231 867 1,932 1,367 2,383 4,201 5,408
Provision for income taxes 48 85 320 716 519 882 1,541 2,001
- ----------------------------------------------------------------------------------------------------------------------------------
Net income $ 81 $ 146 $ 547 $ 1,216 $ 848 $ 1,501 $ 2,660 $ 3,407
==================================================================================================================================
Net income per share $ 0.01 $ 0.01 $ 0.03 $ 0.07 $ 0.04 $ 0.08 $ 0.13 $ 0.16
==================================================================================================================================
Shares used in per share computations 15,866 16,388 17,297 16,448 19,110 19,160 20,211 21,707
==================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Licenses 60.0% 68.0% 70.3% 74.8% 71.6% 74.4% 73.0% 70.9%
Services and maintenance 40.0 32.0 29.7 25.2 28.4 25.6 27.0 29.1
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
- -----------------------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Licenses 2.0 8.4 1.7 1.3 5.8 1.8 2.6 3.6
Services and maintenance 41.2 25.5 19.0 16.2 19.0 16.4 17.2 17.8
- -----------------------------------------------------------------------------------------------------------------------------------
Total cost of revenues 43.2 33.9 20.7 17.5 24.8 18.2 19.8 21.4
- -----------------------------------------------------------------------------------------------------------------------------------
Gross margin 56.8 66.1 79.3 82.5 75.2 81.8 80.2 78.6
Operating expenses:
Sales and marketing 32.6 34.6 39.9 38.9 39.4 41.8 38.3 36.9
Research and development 16.8 21.2 21.4 16.6 17.3 15.4 13.0 12.6
General and administrative 5.9 6.6 7.9 9.1 8.2 8.9 7.7 7.3
- -----------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 55.3 62.4 69.2 64.6 64.9 66.1 59.0 56.8
- ----------------------------------------------------------------------------------------------------------------------------------
Income from operations 1.5 3.7 10.1 17.9 10.3 15.7 21.2 21.8
Other income, net 0.6 0.2 1.6 3.3 3.0 2.0 2.4 3.3
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 2.1 3.9 11.7 21.2 13.3 17.7 23.6 25.1
Provision for income taxes 0.8 1.4 4.3 7.8 5.0 6.5 8.6 9.3
- -----------------------------------------------------------------------------------------------------------------------------------
Net income 1.3% 2.5% 7.4% 13.4% 8.3% 11.2% 15.0% 15.8%
===================================================================================================================================
</TABLE>
21
<PAGE>
Item 7. Management's Discussion and Analyses of Financial Condition and Results
of Operations
This report contains forward looking statements that involve risks and
uncertainties. The statements contained in this report that are not purely
historical are forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and section 21E of the Securities and
Exchange Act of 1934, as amended, including without limitation statements
regarding the Company's expectations, beliefs, intentions or strategies
regarding the future. All forward looking statements included in this report are
based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward looking statements. The
Company's actual results could differ materially from those anticipated in these
forward looking statements as a result of certain factors, including those set
forth below, under "Risk Factors" and elsewhere in this report.
OVERVIEW
The Company was founded in March 1991 to develop, market and support
client/server software applications and tools for the customer information
management market. The Company has been profitable in each fiscal year since its
inception. The Company's business has grown rapidly with total revenues
increasing from $15.3 million in 1995 to $28.6 million in 1996 and $63.1 million
in 1997. The Company's revenues consist of license revenues and services and
maintenance revenues. License revenues are comprised of fees for the license of
the Company's products, and services and maintenance revenues are comprised of
fees for consulting, training and post-contract support ("maintenance").
In recent periods, the Company has sought to increase the use of third party
consultants and system integrators to provide implementation, customization and
consulting services directly to the Company's customers. The Company's
increasing reliance on such third party consultants and systems integrators
poses several risks that could have a material adverse effect on the Company's
business, operating results and financial condition. For example, there can be
no assurance that these third party providers, who have direct obligations to
the Company's customers, will be able to continue to provide a level of quality
of service required to meet the needs of such customers. If the Company is
unable to develop further and to maintain effective, long-term relationships
with these third parties, or if these third parties fail to meet the needs of
the Company's customers in a timely fashion, the Company's business, operating
results and financial condition will be materially adversely affected.
The Company's quarterly operating results have varied substantially in the past
and are likely to vary substantially from quarter to quarter in the future due
to a variety of factors. Estimating future revenues is difficult because the
Company ships its products soon after an order is received and as such does not
have a significant backlog. Thus, quarterly license revenues are heavily
dependent upon orders received and shipped within the same quarter. Moreover,
the Company has generally recorded 50% to 70% of its total quarterly revenues in
the third month of the quarter, with a concentration of these revenues in the
last half of that third month. This concentration of revenues is influenced by
customer tendencies to make significant capital expenditures at the end of a
fiscal quarter. The Company expects these revenue patterns to continue for the
foreseeable future. In addition, quarterly license revenues are dependent on the
timing of revenue recognition, which can be affected by many factors, including
the timing of customer installations, completion of customization activity and
the fulfillment of acceptance criteria. In this regard the Company has from time
to time experienced delays in recognizing revenues with respect to certain
orders. Despite the uncertainties in its revenue patterns, the Company's
operating expenses are based upon anticipated revenue levels and such expenses
are incurred on an approximately ratable basis throughout the quarter. As a
result, if expected revenues are deferred or otherwise not realized in a quarter
for any reason, the Company's business, operating results and financial
condition would be materially adversely affected.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain consolidated
statements of operations data expressed as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
---------------------------------------------------
1995 1996 1997
- --------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Licenses 72.8 % 69.1 % 72.4 %
Services and maintenance 27.2 30.9 27.6
- --------------------------------------------------------------------------------------------------------
Total revenues 100.0 100.0 100.0
- --------------------------------------------------------------------------------------------------------
Cost of revenues:
Licenses 3.9 3.0 3.3
Services and maintenance 21.9 24.2 17.5
- --------------------------------------------------------------------------------------------------------
Total cost of revenues 25.8 27.2 20.8
- --------------------------------------------------------------------------------------------------------
Gross margin 74.2 72.8 79.2
Operating expenses:
Sales and marketing 38.9 36.9 38.8
Research and development 17.8 18.8 14.1
General and administrative 7.7 7.7 7.8
- --------------------------------------------------------------------------------------------------------
Total operating expenses 64.4 63.4 60.7
- --------------------------------------------------------------------------------------------------------
Income from operations 9.8 9.4 18.5
Other income, net 0.4 1.6 2.7
- --------------------------------------------------------------------------------------------------------
Income before income taxes 10.2 11.0 21.2
Provision for income taxes 3.8 4.1 7.8
- --------------------------------------------------------------------------------------------------------
Net income 6.4 % 6.9 % 13.4 %
========================================================================================================
</TABLE>
REVENUES
The Company recognizes revenue in accordance with the provisions of Statement of
Position 91-1 "Software Revenue Recognition." The Company generates revenue
primarily from licensing the rights to use its software products to end users
and to a lesser extent from sublicense fees from resellers. The Company also
generates revenues from consulting, training and maintenance services performed
for customers who license its products.
Revenues from perpetual software license agreements are recognized as revenue
upon receipt of an executed license agreement, (or an unconditional purchase
order under an existing license agreement), and shipment of the software, if
there are no significant post-delivery obligations and collection of the
receivables is probable.
Revenues from maintenance services are recognized ratably over the term of the
maintenance periods which is typically one year. If maintenance services are
included free of charge or discounted in a license agreement, such amounts are
unbundled from the license fee at their fair market value based upon the value
established by independent sales of such maintenance services to customers.
Consulting and training revenues are generally recognized as the services are
performed. Consulting services are typically performed under separate service
agreements and are usually performed on a time and materials basis.
23
<PAGE>
Such services primarily consist of implementation services related to the
installation of the Company's products and do not include significant
customization to or development of the underlying software code.
Total revenues increased 88% from $15.3 million in 1995 to $28.6 million in 1996
and increased 121% to $63.1 million in 1997.
LICENSES
License revenues increased from $11.1 million in 1995 to $19.8 million in 1996
and $45.7 million in 1997, representing 73%, 69% and 72% of total revenues in
the respective periods. The increase in license revenues in each period was
primarily attributable to expansion of the market for the Company's products,
increasing market awareness and acceptance of the Company's products, continuing
enhancement and increasing breadth of the Company's product offerings, expansion
of the Company's sales and marketing organization and increased sales to new
industry segments.
SERVICES AND MAINTENANCE
Revenues from services and maintenance increased from $4.2 million in 1995 to
$8.8 million in 1996 and $17.4 million in 1997, representing 27%, 31% and 28% of
total revenues in the respective periods. The increases in services and
maintenance revenues were primarily the result of increased demand for
consulting and systems implementation services from customers purchasing the
Company's products for large scale, enterprise-wide implementations, and
increases in maintenance revenues from a larger installed product base.
COST OF REVENUES
LICENSES
Cost of licenses consists primarily of royalty payments to third party software
vendors and costs of product media, duplication and packaging. Cost of licenses
was $601,000 in 1995, $874,000 in 1996, and $2.1 million in 1997, representing
5%, 4% and 5% of license revenues in the respective periods.
SERVICES AND MAINTENANCE
Cost of services and maintenance consists of costs for personnel to provide
customer support, training and consulting services, as well as costs paid to
third party consulting firms for those services. Cost of services and
maintenance was $3.3 million in fiscal 1995, $6.9 million in 1996 and $11.1
million in 1997, representing 80%, 78% and 63% of services and maintenance
revenues in the respective periods. The decreases in cost of services and
maintenance as a percentage of services and maintenance revenues, in each
period, reflect improvements in productivity and efficiencies in both the
professional services and technical support organizations. Additionally,
maintenance revenues as a percentage of total services and maintenance revenues
increased during 1996 and 1997, and costs associated with providing maintenance
services are generally lower as a percentage of revenues than the costs
associated with consulting services.
OPERATING EXPENSES
SALES AND MARKETING
Sales and marketing expenses increased from $5.9 million in 1995 to $10.6
million in 1996 and $24.5 million in 1997, representing 39%, 37% and 39% of
total revenues in the respective periods. The increased dollar amounts of such
spending are attributable to the Company's continued expansion of its direct
sales force, primarily in the U.S. and also, in 1997, in Europe, and increased
marketing activities to support the Company's expanded product line. The Company
is in the process of significantly increasing direct sales and marketing
expenditures to
24
<PAGE>
address certain international and vertical markets. As a result, such expenses
may increase as a percentage of total revenues in future periods.
RESEARCH AND DEVELOPMENT
Research and development expenses increased from $2.7 million in 1995 to $5.4
million in 1996 and $8.9 million in 1997, representing 18%, 19% and 14% of total
revenues in the respective periods. The increases in the dollar amounts of such
spending were the result of increased staffing and associated support costs of
software engineers and consultants in connection with expansion and enhancement
of the Company's product line and its quality assurance and testing
organization. However, continued significant investment in research and
development, may vary as a percentage of total revenues.
Based on the Company's research and development process, costs incurred between
the establishment of technological feasibility which has been defined as a
working model and the time the related product is offered for sale have been
insignificant and therefore have not been capitalized in accordance with
Statement of Financial Accounting Standards No. 86. All research and development
costs are expensed as incurred.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased from $1.2 million in 1995 to $2.2
million in 1996 and $5.0 million in 1997, representing 8% of total revenues in
each of 1995, 1996 and 1997. The increases in dollar amounts were primarily due
to increased staffing and related expenditures required to enhance the
infrastructure to support the Company's growth.
OTHER INCOME, NET
Other income, net, increased from $59,000 in 1995 to $468,000 in 1996 and $1.7
million in 1997. The substantial increases in 1996 and 1997 was primarily due to
investment income earned on the proceeds from the Company's public offerings in
November 1995 and November 1996.
PROVISION FOR INCOME TAXES
The Company's effective tax rate was 37% for 1995, 1996 and 1997. Income taxes
are accounted for in accordance with Statement of Financial Accounting Standards
No. 109. The effective income tax rate differs from the statutory income tax
rate in each year primarily due to the utilization of research and development
credits.
LIQUIDITY AND CAPITAL RESOURCES
In November 1995 and 1996, the Company completed public offerings of its Common
Stock and recorded net proceeds of $23.9 million and $47.1 million,
respectively. Prior to its initial public offering in November 1995, the Company
funded its operations through private sales of equity securities and cash
generated from operations.
Operating activities generated cash of $1.2 million, $3.4 million and $7.7
million in 1995, 1996 and 1997, respectively. The increases were primarily a
result of higher net income and increases in current liabilities and
depreciation and amortization, offset by increases in accounts receivable and
prepaid expenses and other assets. The Company's accounts receivables increased
from $7.5 million in 1996 to $17.7 million in 1997, primarily as a result of the
growth in revenues. The average days sales outstanding remained constant at 74
days at March 31, 1996 and 1997. The levels of accounts receivables at each
quarter end will be affected by the concentration of revenues in the final weeks
of each quarter and may be negatively affected by expanded international
revenues in relation to total revenues, as licenses to international customers
often have longer payment terms.
Investing activities used cash of $1.5 million, $1.8 million and $6.4 million in
1995, 1996 and 1997, respectively. Investing activities consisted primarily of
purchases of property and equipment, primarily computer hardware
25
<PAGE>
and software to support the growing organization. The Company's excess cash is
invested in investment grade securities. During 1996 and 1997 the Company
invested $7.5 million and $24.2 million, respectively, in short term
investments. As of March 31, 1997, the Company had no significant capital
commitments other than normal purchase commitments and commitments under
operating leases.
Financing activities provided cash of $3.1 million, $24.1 million and $48.7
million in 1995, 1996 and 1997, respectively, primarily as a result of $3.8
million proceeds from the issuance of preferred stock in 1995 and $23.9 million
and $47.1 million of proceeds from public offerings of common stock in 1996 and
1997, respectively.
The Company believes that its existing cash balances, investments and the cash
flows generated from operations, if any, will be sufficient to meet its
anticipated needs for at least the next twelve months.
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISK
VARIABILITY OF OPERATING RESULTS; UNCERTAINTY OF FUTURE OPERATING RESULTS. The
Company was incorporated in March 1991 and introduced its first product in
February 1992. Although the Company has been profitable each fiscal year since
inception, there can be no assurance that the Company will be able to sustain
profitability on a quarterly or annual basis in the future. In addition, the
Company's revenues and operating results have varied substantially in the past
and are likely to vary substantially in the future due to a variety of factors,
including (i) the timing and size of the Company's individual license
transactions, and, in particular, the fact that the Company's revenues in any
quarter can be largely dependent on a limited number of large licenses, (ii) the
fact that a significant portion of the Company's revenues in any given quarter
are recognized in the last month, weeks or even days of the quarter, (iii) the
relatively long sales cycle for the Company's software products, which is
typically six to nine months, (iv) the relative proportion of total revenues
derived from license revenues and services and maintenance revenues, (v) the
timing of the introduction of new products or product enhancements by the
Company and its competitors, (vi) the extent of customization required by any
individual license transaction, which can result in deferral of significant
revenues until completion or acceptance of certain customized portions of the
software, (vii) changes in customer budgets, (viii) seasonality of technology
purchases by customers and general economic conditions, (ix) the mix of revenues
among various distribution channels and between domestic and international
customers, (x) the relative proportion of implementation services performed by
the Company for which the Company engages independent contractors, which are
typically more costly than internal personnel and (xi) the relative proportion
of license revenues derived from third party products distributed by the Company
in conjunction with its products. Therefore, the Company believes that period to
period comparisons of its revenues and operating results are not necessarily
meaningful and that such comparisons cannot be relied upon as indicators of
future performance.
Estimating future revenues is difficult because the Company ships its products
soon after an order is received and as such does not have a significant backlog.
Thus, quarterly license revenues are heavily dependent upon orders received and
shipped within the same quarter. Moreover, the Company has generally recorded
50% to 70% of its total quarterly revenues in the third month of the quarter,
with a concentration of these revenues in the last half of that third month.
This concentration of revenues is influenced by customer tendencies to make
significant capital expenditures at the end of a fiscal quarter. The Company
expects these revenue patterns to continue for the foreseeable future. In
addition, quarterly license revenues are dependent on the timing of revenue
recognition, which can be affected by many factors, including the timing of
customer installations, completion of customization activity and the fulfillment
of acceptance criteria. The Company has from time to time experienced delays in
recognizing revenues with respect to certain orders. Despite the uncertainties
in its revenue patterns the Company's operating expenses are based upon
anticipated revenue levels and such expenses are incurred on an approximately
ratable basis throughout the quarter. As a result, if expected revenues are
deferred or otherwise not realized in a quarter for any reason, the Company's
business, operating results and financial condition would be materially
adversely affected.
26
<PAGE>
The Company intends to continue to increase its research and development
expenditures in order to pursue its strategy of developing applications tailored
to the requirements of specific additional vertical markets, and to continue to
increase sales and marketing expenditures significantly as the Company expands
its domestic and international sales and marketing staff and develops indirect
sales and distribution channels. In addition, general and administrative
expenses have increased as the Company invests in the infrastructure needed to
support its growing operations. Accordingly, to the extent that such expenses
precede or are not subsequently followed by increased revenues, the Company's
business, operating results and financial condition will be materially adversely
affected.
Due to all of the foregoing factors, it is likely that in some future period the
Company's total revenues or operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely decline, perhaps substantially.
INTENSE COMPETITION. The customer information management software market is
relatively new, intensely competitive, highly fragmented, subject to rapid
change, and highly sensitive to new product introductions and marketing efforts
by industry participants. The Company competes with a variety of other companies
depending on the target market for their products. These competitors include (i)
a select number of companies, such as Clarify Inc. and The Vantive Corporation,
targeting the enterprise-wide customer information market; (ii) certain public
companies, such as Remedy Corporation, Siebel Systems, Inc., Aurum Software,
Inc. (which has entered into an agreement to be acquired by Baan Company) and
Software Artistry, Inc., as well as a large number of private companies, which
offer products targeted at one or more specific markets, including the customer
support market, the help desk market, the quality assurance market and the sales
and marketing automation market; (iii) professional services organizations, such
as Andersen Consulting, that design and develop custom systems; (iv) large
information technology providers such as International Business Machines
Corporation (''IBM'') and Computer Associates International, Inc.; and (v) the
internal information technology departments of potential customers, which
develop proprietary customer information management applications. Among the
Company's potential competitors are also a number of large hardware and software
companies that may develop or acquire products that compete with the Company's
products. In this regard, SAP AG and Oracle Corporation have each introduced a
customer support module as part of their application suites. The Company
believes that many existing competitors and new market entrants will attempt to
develop fully integrated customer information management systems that will
compete with the Company's products.
Current and potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced operating margins and loss of
market share, any one of which could materially adversely affect the Company's
business, results of operations or financial condition. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing and other resources than the Company. As a result, they may
be able to respond more quickly to new or emerging technologies and to changes
in customer requirements, or to devote greater resources to the development,
promotion and sale of their products, than can the Company. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures will not materially
adversely affect the Company's business, operating results and financial
condition.
DEPENDENCE ON IMPLEMENTATION RELATIONSHIPS. The Company historically relied on
internal resources and subcontracted consultants on an as-needed basis to
provide consulting and implementation services for the Company's products. In
recent periods, the Company has sought to increase the use of third party
consultants and system integrators to provide implementation, customization and
consulting services directly to the Company's customers. The Company's
increasing reliance on such third party consultants and systems integrators
poses several risks that could have a material adverse effect on the Company's
business, operating results or financial condition. For example, there can be no
assurance that these third party providers, who will have direct obligations to
the Company's customers, will be able to provide a level of quality of service
required
27
<PAGE>
to meet the needs of such customers. If the Company is unable to develop further
and to maintain effective, long-term relationships with these third parties, or
if these third parties fail to meet the needs of the Company's customers in a
timely fashion, the Company's business, operating results and financial
condition will be materially and adversely affected. Further, there can be no
assurance that these third party providers, many of whom have significantly
greater financial, technical, personnel and marketing resources than the
Company, will not market software products that compete with the Company's
products, or will not otherwise reduce or discontinue their relationship with or
support of the Company and its products. Finally, many of these current and
potential third party providers have existing relationships or may undertake
relationships with the Company's direct competitors. The inability to recruit,
or the loss of, important third party systems integrators or professional
consulting firms would have a material adverse effect on the Company's business,
operating results and financial condition.
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON PRODUCT DEVELOPMENT. The market for
the Company's products is characterized by rapid technological advances,
evolving industry standards in computer hardware and software technology,
changes in customer requirements and frequent new product introductions and
enhancements. The Company is currently investing significant resources in
product development and expects to continue to do so in the future. The
Company's future success will depend on its ability to continue to enhance its
current product line and to continue to develop and introduce new products that
keep pace with competitive product introductions and technological developments,
satisfy diverse and evolving customer requirements and otherwise achieve market
acceptance. There can be no assurance that the Company will be successful in
continuing to develop and market on a timely and cost-effective basis fully
functional product enhancements or new products that respond to technological
advances by others, or that these products will achieve market acceptance. In
addition, the Company has in the past experienced delays in the development,
introduction and marketing of new and enhanced products, and there can be no
assurance that the Company will not experience similar delays in the future. Any
failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, would have a material adverse effect on the
Company's business, operating results and financial condition.
Due to the complexity and sophistication of the Company's software products, the
Company's products from time to time contain defects or "bugs" which can be
difficult to correct. Furthermore, as the Company continues to develop and
enhance its products, there can be no assurance that the Company will be able to
identify and correct defects in such a manner as will permit the timely
introduction of such products. Moreover, despite extensive testing, the Company
has from time to time discovered defects only after its products have been used
by many customers. There can be no assurance that software defects will not
cause delays in product introductions and shipments, result in increased costs,
require design modifications, or impair customer satisfaction with the Company's
products. Any such event could materially adversely affect the Company's
business, operating results and financial condition.
EXPANSION OF DISTRIBUTION CHANNELS. The Company has historically sold its
products through its direct sales force and a limited number of distributors.
The Company's ability to achieve significant revenue growth in the future will
depend in large part on its success in recruiting and training sufficient sales
personnel and establishing relationships with distributors, resellers and
systems integrators. The Company is currently investing, and plans to continue
to invest, significant resources to expand its domestic and international direct
sales force and develop distribution relationships with certain third party
distributors, resellers and systems integrators. The Company's existing
distribution relationships are generally non-exclusive and can be terminated by
either party without cause. The Company's distributors also sell or can
potentially sell products offered by the Company's competitors. There can be no
assurance that the Company will be able to retain or attract a sufficient number
of its existing or future third party distribution partners or that such
partners will recommend, or continue to recommend, the Company's products. The
inability to establish or maintain successful relationships with distributors,
resellers or systems integrators could have a material adverse effect on the
Company's business, operating results or financial condition. In addition, there
can be no assurance that the Company will be able to successfully expand its
direct sales force or other distribution channels. Any failure by the Company to
expand
28
<PAGE>
its direct sales force or other distribution channels would materially adversely
affect the Company's business, operating results and financial condition.
EXPANSION OF INTERNATIONAL OPERATIONS; FOREIGN CURRENCY FLUCTUATIONS. An
important element of the Company's strategy is to expand its international
operations. In this regard, although the Company has established subsidiaries in
the United Kingdom, Canada and France and is currently investing significant
resources in its international operations, including the development of certain
third party distributor relationships and the hiring of additional sales
representatives, international sales to date have been limited and there can be
no assurance that the Company will be successful in expanding its international
operations. In the event the Company is able to increase international revenues
as a percentage of total revenues, the Company's business, operating results or
financial condition could be materially adversely affected by risks inherent in
conducting business internationally, such as changes in currency exchange rates,
longer payment cycles, difficulties in staffing and managing international
operations, problems in collecting accounts receivable, seasonal reductions in
business activity during the summer months in Europe and certain other parts of
the world, increases in tariffs, duties, price controls or other restrictions on
foreign currencies and trade barriers imposed by foreign nationalities. In this
regard, to the extent the Company's international operations expand, the Company
expects that an increasing portion of its international license revenues will be
denominated in foreign currencies. In addition, the Company has only limited
experience in developing localized versions of its products and marketing and
distributing its products internationally. There can be no assurance that the
Company will be able to successfully localize, market, sell and deliver its
products internationally. The inability of the Company to successfully expand
its international operations in a timely manner could materially adversely
affect the Company's business, operating results or financial condition.
MANAGEMENT OF GROWTH. The rapid growth of the Company's business and expansion
of its customer base has placed and is expected to continue to place a
significant strain on the Company's management and operations. The Company's
future operating results will depend on its ability to continue to broaden the
Company's senior management group. In this regard, certain key members of the
Company's management, including its Chief Financial Officer, Vice President
North America Field Operations and Vice President, Europe have recently joined
the Company. From time to time, engineers and other employees have left the
Company for various reasons, and the Company's future success will depend on its
ability to attract, hire and retain skilled employees and to hire replacements
for employees that leave the Company. The Company's expansion has also resulted
in substantial growth in the number of its employees and the burden placed upon
its operating and financial systems, resulting in increased responsibility for
both existing and new management personnel. In addition, the Company's ability
to effectively manage and support its growth will be substantially dependent on
its ability to continue to build upon its financial and management controls,
reporting systems and procedures on a timely basis and to expand and maintain
highly trained internal and third party resources to provide product
customization, implementation, training and other support services. The Company
also expects to increase its customer support operations to the extent the
installed base of the Company's products continues to grow. Accordingly, the
Company's future operating results will depend on the ability of its management
and other key employees to continue to implement and improve its systems for
operations, financial control and information management, to recruit, train and
manage its employee base, in particular, its direct sales force and customer
support organization, and to work effectively with third party consulting and
implementation service providers. There can be no assurance that the Company
will be able to manage or continue to manage its recent or any future growth
successfully, and any inability to do so would have a material adverse effect on
the Company's business, operating results and financial condition. There also
can be no assurance that the Company will be able to sustain the rates of
revenue growth that it has experienced in the past.
DEVELOPING MARKETS; PRODUCT CONCENTRATION. The Company's future financial
performance will depend in large part on the growth in demand for individual
customer information management applications as well as the number of
organizations adopting comprehensive customer information systems for their
client/server computing environments. The markets for these applications are
relatively new and developing. If the demand for customer information management
applications develops more slowly than the Company currently anticipates, it
would
29
<PAGE>
have a material adverse effect on the demand for the Company's applications and
on its business, operating results and financial condition. The Company
currently markets five application products, together with related application
service modules and a customization tool which are licensed for use in
conjunction with the Company's applications. Although the Company's application
service modules and customization tool are offered separately from the Company's
applications, the Company believes it is unlikely that any significant revenues
could be derived from such modules and such tool unless the customer is using at
least one of the Company's applications. Accordingly, in the event the Company's
applications are not accepted by the marketplace, the Company's business,
operating results and financial condition would be materially adversely
affected.
INTELLECTUAL PROPERTY RIGHTS. The Company's success is dependent on its ability
to protect its proprietary technology. The Company licenses its products in
object code form only, although it has source code escrow arrangements with
certain customers. The Company relies on a combination of copyright, trademark
and trade secret laws, as well as confidentiality agreements and licensing
arrangements, to establish and protect its proprietary rights. The Company does
not have any patents or patent applications pending, and existing copyright,
trademark and trade secret laws afford only limited protection. In addition, the
laws of certain countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. Accordingly, there can be no
assurance that the Company will be able to protect its proprietary rights
against unauthorized third party copying or use, which could materially
adversely affect the Company's business, operating results or financial
condition.
Despite the Company's efforts to protect its proprietary rights, attempts may be
made to copy or reverse engineer aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Moreover, there can
be no assurance that others will not develop products that infringe the
Company's proprietary rights, or that are similar or superior to those developed
by the Company. Policing the unauthorized use of the Company's products is
difficult. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect the Company's trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, operating
results or financial condition.
As is common in the software industry, the Company from time to time receives
notices from third parties claiming infringement by the Company's products of
third party proprietary rights. While the Company is not currently subject to
any such claim, the Company expects its software products will increasingly be
subject to such claims as the number of products and competitors in the
Company's industry segments grows and the functionality of products overlaps.
Any such claim, with or without merit, could result in significant litigation
costs and require the Company to enter into royalty and licensing agreements,
which could have a material adverse effect on the Company's business, operating
results or financial condition. Such royalty and licensing agreements, if
required, may not be available on terms acceptable by the Company or at all.
The Company also relies on certain technology which it licenses from third
parties, including software which is integrated with internally developed
software and used in the Company's products to perform key functions. There can
be no assurance that these third party technology licenses will continue to be
available to the Company on commercially reasonable terms. The loss of or
inability of the Company to maintain any of these technology licenses could
result in delays or reductions in product shipments until equivalent technology
could be identified, licensed and integrated. Any such delays or reductions in
product shipments would materially adversely affect the Company's business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon a limited number of members of senior management and other key
employees, including Ori Sasson, the Company's Chairman, President and Chief
Executive Officer. The Company does not maintain key man life insurance on any
such persons. The loss of the service of one or more key managers or other
employees could have a material adverse effect upon the Company's business,
operating results or financial condition. In addition, the Company believes that
its future success will depend in large part upon its ability to attract and
retain additional highly skilled
30
<PAGE>
technical, management, sales and marketing personnel. Competition for such
personnel in the computer software industry is intense. There can be no
assurance the Company will be successful in attracting and retaining such
personnel, and, the failure to do so, could have a material adverse effect on
the Company's business, operating results or financial condition.
PRODUCT LIABILITY. Although the Company has not experienced any product
liability claims to date, the sale and support of products by the Company and
the incorporation of products from other companies may entail the risk of
product liability claims. The Company's license agreements with its customers
typically contain provisions intended to limit the Company's exposure to such
claims, but such provisions may not be effective in limiting the Company's
exposure. A successful product liability action brought against the Company
could have a material adverse effect upon the Company's business, operating
results or financial condition.
VOLATILITY OF SHARE PRICE. The market price for the Company's Common Stock has
been and is expected to continue to be significantly affected by factors such as
the announcement of new products or product enhancements by the Company or its
competitors, technological innovation by the Company or its competitors,
quarterly variations in the Company's results of operations or the results of
operations of the Company's competitors, changes in earnings estimates or
recommendations by securities analysts and general market conditions. In
particular, the stock prices for many companies in the technology and emerging
growth sector have experienced wide fluctuations which have often been unrelated
to the operating performance of such companies. Such fluctuations may adversely
affect the market price of the Company's Common Stock.
CONTROL BY OFFICERS, DIRECTORS AND AFFILIATED ENTITIES. The Company's executive
officers and directors and venture capital funds affiliated with such directors
beneficially own in the aggregate approximately 20.8%, of the issued and
outstanding shares of Common Stock. Accordingly, such shareholders will have
significant influence over the outcome of all matters (including the election of
directors and any merger, consolidation or sale of all or substantially all of
the Company's assets) submitted to the shareholders for approval. This ownership
interest in the Company may also have the effect of making certain transactions
more difficult or impossible, absent the support of such shareholders. Such
transactions could include proxy contests, mergers involving the Company, tender
offers and open market purchase programs involving Common Stock that could give
shareholders of the Company the opportunity to realize a premium over the then
prevailing market price for their shares of Common Stock.
EFFECT OF ANTITAKEOVER PROVISIONS. The Company's Board of Directors has the
authority to issue up to 2,500,000 shares of Preferred Stock and to determine
the price, rights, preferences and privileges of such shares without any further
vote or action by the Company's shareholders. The rights of the holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any shares of Preferred Stock that may be issued in the future.
While the Company has no present intention to issue shares of Preferred Stock,
such issuance, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. In addition, such Preferred Stock may have other rights,
including economic rights senior to the Common Stock, and, as a result, the
issuance thereof could have a material adverse effect on the market value of the
Common Stock. See "Description of Capital Stock."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements together with related notes and
the report of Coopers & Lybrand L.L.P., independent accountants, are set forth
beginning on page F-1 of Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
31
<PAGE>
Part III
Certain information required by Part III is omitted from this Report on Form 10-
K in that the Company will file its definitive Proxy Statement for its Annual
Meeting of Stockholders to be held on July 23, 1997, pursuant to Regulation 14A
of the Securities and Exchange Act of 1934, as amended (the "Proxy Statement"),
not later than 120 days after the end of the fiscal year covered by this Report,
and certain information included in the Proxy Statement is incorporated herein
by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Executive Officers -- See the section titled "Executive Officers and
Directors" in Part I, Item 1 hereof.
(b) Directors -- The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
The disclosure required by Item 405 of Regulation S-K is incorporated by
reference to the section entitled "Section 16(a) Reporting Delinquencies" in the
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
section entitled "Executive Compensation" in the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
section entitled "Certain Transactions" in the Proxy Statement.
32
<PAGE>
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page Number
(a) The following documents are filed as part of this Form:
<S> <C>
1. FINANCIAL STATEMENTS
Report of Independent Accountants................................................................ F-1
Consolidated Balance Sheets
As of March 31, 1996 and 1997.................................................................... F-2
Consolidated Statements of Operations
For the Three Years Ended March 31, 1997......................................................... F-3
Consolidated Statements of Changes in Shareholders' Equity
For the Three Years Ended March 31, 1997......................................................... F-4
Consolidated Statements of Cash Flows
For the Three Years Ended March 31, 1997......................................................... F-5
Notes to Consolidated Financial Statements....................................................... F-6
2. FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts.................................................. F-16
3. EXHIBITS
See Index to Exhibits. The Exhibits listed in the accompanying Index to
Exhibits are filed or incorporated by reference as part of this report.
</TABLE>
(b) Reports on Form 8-K:
None
(c) Exhibits
See (a) above
(d) Financial Statement Schedules
See (a) above
33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Emeryville, California on
this 25th day of June, 1997.
SCOPUS TECHNOLOGY, INC.
/s/ Ori Sasson
By: _________________________________
Ori Sasson
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Ori Sasson and Michele L. Axelson and each
of them acting individually, as his or her attorney-in-fact, each with full
power of substitution, for him or her in any and all capacities, to sign any and
all amendments to this Report on Form 10-K, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact, and
each of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises as fully to
all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming our signatures as them may be signed by our said
attorney to any and all amendments to this Report on Form 10-K.
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
Report on Form 10-K has been signed by the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ori Sasson Chairman, and Chief Executive Officer June 25, 1997
- ---------------------------------------- (Principal Executive Officer)
Ori Sasson
/s/ Michele L. Axelson Chief Financial Officer (Principal June 25, 1997
- ---------------------------------------- Financial and Accounting Officer)
Michele L. Axelson
/s/ J. Michael Cline Director June 25, 1997
- ----------------------------------------
J. Michael Cline
/s/ Christopher R. Gibbons Director June 25, 1997
- ----------------------------------------
Christopher R. Gibbons
/s/ Ronald Abelmann Director June 25, 1997
- ----------------------------------------
Ronald Abelmann
/s/ Max D. Hopper Director June 25, 1997
- ----------------------------------------
Max D. Hopper
</TABLE>
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF
SCOPUS TECHNOLOGY, INC. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheets of Scopus
Technology, Inc. and Subsidiaries as of March 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended March 31, 1997. We have also audited
the financial statement schedule listed in Item 14(a)2 of this Form 10K. These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Scopus Technology,
Inc. and Subsidiaries as of March 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1997 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
April 18, 1997
F1
<PAGE>
SCOPUS TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
(In thousands, except share and per share data) 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash and cash equivalents $21,792 $ 54,824
Investments 7,462 24,417
Accounts receivable, net of allowance for doubtful accounts of
$665 and $1,271 in 1996 and 1997, respectively 7,530 17,712
Prepaid expenses and other 648 1,047
Deferred income taxes 574 1,639
- ------------------------------------------------------------------------------------------------------------------------------------
Total current assets 38,006 99,639
Property and equipment, net 2,734 7,038
Prepaid royalties 326 1,007
Deferred income taxes 83 48
Other assets 432 797
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets $41,581 $108,529
- ------------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,561 $ 2,234
Accrued liabilities 2,544 7,177
Income taxes payable 740 1,938
Deferred revenue 3,270 4,856
- ------------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 8,115 16,205
Deferred income taxes 11 -
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities 8,126 16,205
- ------------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 8)
Shareholders' equity:
Preferred stock, $0.01 par value, authorized 2,500,000 shares:
none issued and outstanding
Common stock, $0.001 par value; authorized 50,000,000 shares;
17,558,237 and 20,199,163 shares issued and outstanding at
March 31, 1996 and 1997, respectively 18 20
Additional paid-in capital 29,938 80,256
Deferred compensation (271) (138)
Cumulative translation adjustment (4) (4)
Retained earnings 3,774 12,190
- ------------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 33,455 92,324
- ------------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $41,581 $108,529
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F2
<PAGE>
SCOPUS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------
(In thousands, except per share amounts) 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C>
Licenses $11,097 $19,753 $45,675
Services and maintenance 4,153 8,843 17,455
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 15,250 28,596 63,130
- ---------------------------------------------------------------------------------------------------------------------
Cost of revenues:
Licenses 601 874 2,091
Services and maintenance 3,340 6,915 11,070
- ---------------------------------------------------------------------------------------------------------------------
Total cost of revenues 3,941 7,789 13,161
- ---------------------------------------------------------------------------------------------------------------------
Gross margin 11,309 20,807 49,969
Operating expenses:
Sales and marketing 5,937 10,565 24,467
Research and development 2,716 5,382 8,881
General and administrative 1,170 2,169 4,989
- ---------------------------------------------------------------------------------------------------------------------
Total operating expenses 9,823 18,116 38,337
- ---------------------------------------------------------------------------------------------------------------------
Income from operations 1,486 2,691 11,632
Other income, net 59 468 1,727
- ---------------------------------------------------------------------------------------------------------------------
Income before income taxes 1,545 3,159 13,359
Provision for income taxes 572 1,169 4,943
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 973 $ 1,990 $ 8,416
- ---------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.07 $ 0.12 $ 0.42
- ---------------------------------------------------------------------------------------------------------------------
Shares used in per share computations 14,525 16,448 20,067
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F3
<PAGE>
SCOPUS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series B Convertible
Preferred Stock Common Stock Additional
------------------------------------------- Paid-in Deferred
(In thousands except share and per share data) Shares Amount Shares Amount Capital Compensation
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 - $ - 9,413,500 $ 9 $ 306 $ -
Common stock issued for cash upon exercise of options - - 56,968 1 30 -
Preferred stock issued for cash at $2.00 per share,
net of issuance costs of $21 1,895,000 19 - - 3,750 -
Net income - - - - -
Translation adjustment - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 1,895,000 19 9,470,468 10 4,086 -
Common stock issued for cash upon exercise of options - - 135,989 - 74 -
Issuance of common stock in public offering, net
of issuance costs of $968 - - 3,337,500 3 23,860 -
Conversion of mandatorily redeemable preferred stock,
Series A - - 2,386,365 2 1,398 -
Conversion of Series B preferred stock (1,895,000) (19) 1,895,000 2 17 -
Common stock issued for cash on exercise of Series
B-2 warrants - - 51,251 - 137 -
Common stock issued on non-cash exercise of Series
B-2 warrants - - 281,664 1 (1) -
Issuance of stock options below fair value - - - - 367 (367)
Amortization of deferred compensation related to
stock options - - - - - 96
Net income - - - - - -
Translation adjustment - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 - - 17,558,237 18 29,938 (271)
Common stock issued for cash upon exercise of options - - 489,656 - 668 -
Issuance of common stock in public offering, net of
issuance costs of $633 - - 2,020,500 2 47,102 -
Issuance of common stock under Employee Stock
Purchase Plan - - 130,770 - 919 -
Tax benefit from stock plans - - - - 1,677
Cancellation of stock options issued below fair value - - - - (48) 48
Amortization of deferred compensation related to
stock options - - - - - 85
Net income - - - - - -
Translation adjustment - - - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 - $ - 20,199,163 $ 20 $ 80,256 $ (138)
<CAPTION>
Cumulative Total
Translation Retained Shareholders'
(In thousands except share and per share data) Agreement Savings Equity
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at March 31, 1994 $ - $ 811 $ 1,126
Common stock issued for cash upon exercise of options - - 31
Preferred stock issued for cash at $2.00 per share,
net of issuance costs of $21 - - 3,769
Net income - 973 973
Translation adjustment 1 - 1
- -------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 1 1,784 5,900
Common stock issued for cash upon exercise of options - - 74
Issuance of common stock in public offering, net
of issuance costs of $968 - - 23,863
Conversion of mandatorily redeemable preferred stock,
Series A - - 1,400
Conversion of Series B preferred stock - - -
Common stock issued for cash on exercise of Series
B-2 warrants - - 137
Common stock issued on non-cash exercise of Series
B-2 warrants - - -
Issuance of stock options below fair value - - -
Amortization of deferred compensation related to
stock options - - 96
Net income - 1,990 1,990
Translation adjustment (5) - (5)
- -------------------------------------------------------------------------------------------------------------
Balance at March 31, 1996 (4) 3,774 35,455
Common stock issued for cash upon exercise of options - - 668
Issuance of common stock in public offering, net of
issuance costs of $633 - - 47,104
Issuance of common stock under Employee Stock
Purchase Plan - - 919
Tax benefit from stock plans 1,677
Cancellation of stock options issued below fair value - - -
Amortization of deferred compensation related to
stock options - - 85
Net income - 8,416 8,416
Translation adjustment - - -
- -------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 (4) $12,190 $92,324
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F4
<PAGE>
SCOPUS TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31
---------------------------------------------------------
(In thousands) 1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 973 $ 1,990 $ 8,416
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 519 947 2,166
NoncashAa charges (credits), net 193 (126) -
Changes in assets and liabilities:
Increase in accounts receivable (2,322) (1,882) (10,182)
Decrease (increase) in prepaid expenses and other 71 (1,167) (1,445)
Increase in deferred income taxes (138) (357) (1,041)
Increase in accounts payable 286 828 673
Increase in accrued liabilities 875 986 4,633
Increase in income taxes payable 17 467 2,875
Increase in deferred revenue 686 1,742 1,586
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,160 3,428 7,681
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of investments - (7,466) (24,220)
Proceeds from sale of investments - 555 7,265
Purchase of property and equipment (1,516) (1,815) (6,401)
Proceeds from disposal of property and equipment 14 15 16
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,502) (8,711) (23,340)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of common stock options 31 74 668
Proceeds from issuance of stock under Employee Stock
Purchase Plan - - 919
Proceeds from public offering of stock, net - 23,863 47,104
Proceeds from exercise of warrants - 137 -
Proceeds from issuance of preferred stock 3,769 - -
Repayments undr line of credit, net (750) - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 3,050 24,074 48,691
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,708 18,791 33,032
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 293 3,001 21,792
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $3,001 $21,792 $54,824
====================================================================================================================================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 16 $ 22 $ -
Cash paid for income taxes $ 702 $ 1,071 $ 3,109
</TABLE>
See accompanying notes to consolidated financial statements.
F5
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION:
Scopus Technology, Inc. and its subsidiaries (the "Company") is a leading
provider of client/server software solutions for the customer information
management market. The Company's applications automate external customer
support, the product design change process, sales and marketing activities and
internal help desk support. The Company's applications are designed to enable
organizations to build a customer information knowledgebase that can be accessed
and utilized by individuals throughout the enterprise to improve the
effectiveness and efficiency of customer support in order to increase customer
satisfaction.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements of the Company include the accounts of
Scopus Technology, Inc. and its wholly-owned subsidiaries, Scopus Technology
U.K. Limited, Scopus Technology Canada Inc. and Scopus Technology France SARL.
All significant intercompany accounts and transactions are eliminated in
consolidation.
REVENUE RECOGNITION:
The Company recognizes revenue in accordance with the provisions of Statement of
Position 91-1 "Software Revenue Recognition." The Company generates revenue
primarily from licensing the rights to use its software products to end users
and to a lesser extent from sublicense fees from resellers. The Company also
generates revenues from consulting, training and post-contract support
("maintenance") services performed for customers who license its products.
Revenues from perpetual software license agreements are recognized as revenue
upon receipt of an executed license agreement, (or an unconditional purchase
order under an existing license agreement), and shipment of the software, if
there are no significant post-delivery obligations and collection of the
receivables is probable.
Revenues from maintenance are recognized ratably over the term of the
maintenance period, which is typically one year. If maintenance services are
included free of charge or discounted in a license agreement, such amounts are
unbundled from the license fee at their fair market value based upon the value
established by independent sales of such maintenance to customers.
Consulting and training revenues are generally recognized as the services are
performed. Consulting services are typically performed under separate service
agreements and are usually performed on a time and materials basis. Such
services primarily consist of implementation services related to the
installation of the Company's products and do not include significant
customization to or development of the underlying software code.
COST OF REVENUES:
Cost of licenses includes the cost of media, product packaging, documentation
and other production costs, and third-party royalties.
Cost of services consists primarily of salaries, benefits and allocated overhead
costs related to consulting, training and customer support personnel, including
cost of services provided by third party consultants engaged by the Company.
F-6
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. The Company's cash and cash
equivalents are maintained with a bank and a brokerage institution.
INVESTMENTS:
The Company accounts for investments in accordance with Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities (SFAS 115). This statement requires that securities be
classified as "held to maturity," "available for sale" or "trading," and
the securities in each classification be accounted for at either amortized cost
or fair market value, depending upon their classification. The Company has the
intent and ability to hold all investments until maturity. Therefore, all such
investments are classified as held to maturity investments and carried at
amortized cost in the accompanying financial statements.
SOFTWARE DEVELOPMENT COSTS:
The Company anticipates capitalizing eligible software development costs upon
the establishment of technological feasibility which the Company has defined as
completion of a working model. The period of time beginning with the
establishment of a working model and ending when a product is offered for sale
is typically very short. Accordingly, costs eligible for capitalization have
been insignificant and, therefore the Company has charged all software
development costs to research and development expense in the accompanying
consolidated statements of operations.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. Depreciation is calculated using the
straight-line method over the estimated useful lives of three years for computer
hardware and software, five years for furniture and fixtures, and over the
remaining term of the principal facility lease for leasehold improvements.
When assets are sold or retired, the cost and related accumulated depreciation
are removed from the accounts and any resulting gain or loss is included in
operations. Maintenance and repairs are charged to operations as incurred.
INCOME TAXES:
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes (SFAS 109). Under SFAS
109, deferred income tax liabilities and assets are determined based on the
difference between the financial reporting amounts and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates in effect for the years in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized. Income tax expense is the tax payable for the period and the
change during the period in deferred tax assets and liabilities.
FOREIGN CURRENCY TRANSLATIONS AND TRANSACTIONS:
The accounts of the Company's U.K., Canadian and French subsidiaries are
translated into U.S. dollars at period end rates of exchange. Revenues and
expenses are translated at average rates for the period. The resultant
translation adjustments are shown as a separate component of shareholders'
equity. Gains and losses from foreign currency transactions are included in the
determination of net income and are not material.
F-7
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
COMPUTATION OF EARNINGS PER SHARE:
Net income per common share is computed using the weighted average number of
common and dilutive common equivalent shares outstanding during each period.
Fully diluted and primary earnings per common share are the same amounts for
each of the periods presented. Dilutive common equivalent shares consist of
stock options and warrants (using the treasury stock method) and convertible
preferred stock. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common shares issued by the Company during the twelve months
immediately preceding an initial public offering date, plus the number of common
equivalent shares which became issuable during the same period pursuant to the
grant of stock options (using the treasury stock method and the proposed public
offering price), have been included in the calculation of common and common
equivalent shares as if they were outstanding for all periods presented.
Convertible preferred stock issued and outstanding is treated as if converted to
common stock on their respective dates of original issuance.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the dates of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
STOCK SPLIT:
All share and per share amounts for all periods presented have been restated to
reflect the three-for-two stock split (effected in the form of a stock dividend)
which was effective February 19, 1997.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:
In February 1997, Statement of Financial Accounting Standards No. 128, Earnings
Per Share, (SFAS 128) was issued and will become effective during the Company's
fiscal year ending March 31, 1998. The Company expects that the implementation
of SFAS 128 should not have a material effect on the earnings per share
calculation.
3. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of temporary cash investments and trade
receivables. The Company has investment policies that limit the amount of credit
exposure to any one issuer and restrict placement of these investments to
issuers evaluated as credit worthy. The Company's customer base consists
primarily of large, well established companies. The Company provides reserves
for credit losses which have not been significant to date. In 1995, 1996 and
1997, there were no customers that accounted for greater than 10% of revenues.
F-8
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. INVESTMENTS:
At March 31, 1996 and 1997, the amortized cost and fair value of the Company's
investments consisted of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Municipal debt securities $6,462 $6,474 $24,417 $24,410
U.S. Treasury debt securities 1,000 999 - -
- ------------------------------------------------------------------------------------------------------------------------------------
$7,462 $7,473 $24,417 $24,410
- ------------------------------------------------------------------------------------------------------------------------------------
At March 31, 1997, amortized cost and fair values of debt securities by contractual maturity were as
follows:
AMORTIZED FAIR
COST VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
Due within one year $24,417 $24,410
Due after one year through five years - -
- ------------------------------------------------------------------------------------------------------------------------------------
$24,417 $24,410
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer equipment and software $ 3,484 $ 8,664
Furniture and fixtures 740 1,671
Leasehold improvements 70 332
- ------------------------------------------------------------------------------------------------------------------------------------
4,294 10,667
Less accumulated depreciation and amortization (1,560) (3,629)
- ------------------------------------------------------------------------------------------------------------------------------------
Total property and equipment, net $ 2,734 $ 7,038
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
F-9
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED LIABILITIES:
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Commissions $ 842 $2,283
Employee compensation 635 1,394
Employee withholdings 359 498
Sales and use taxes 98 590
Royalties 134 524
Other 476 1,888
- --------------------------------------------------------------------------------
$2,544 $7,177
- --------------------------------------------------------------------------------
</TABLE>
7. LINE OF CREDIT:
As of March 31, 1996, the Company had a $4,000,000 line of credit agreement with
a bank under which there were no amounts outstanding. The line expired in
September 1996 and the Company has not renewed it.
8. COMMITMENTS AND CONTINGENCIES:
LEASES:
The Company leases administrative and sales offices under non-cancellable
operating leases and subleases expiring through March 2002. Total rent expense
for the years ended March 31, 1995, 1996 and 1997, was $648,000, $859,000 and
$1,589,000, respectively. Minimum future rental payments under these operating
leases as of March 31, 1997, are as follows (in thousands):
<TABLE>
<CAPTION>
1997
- ------------------------------------
<S> <C>
1998 $1,436
1999 1,286
2000 622
2001 86
2002 86
Thereafter -
- ------------------------------------
$3,516
- ------------------------------------
</TABLE>
The Company is subject to variou legal proceedings and claims, either asserted
or unasserted, which arise in the ordinary course of business. While the outcome
of these claims cannot be predicted with certainty, management does not believe
that the outcome of any of these legal matters will have a material adverse
effect on the Company's consolidated results of operations or consolidated
financial position.
F-10
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. SHAREHOLDERS' EQUITY
In November 1995, the Company completed the initial public offering (IPO) of
4,140,000 shares of its common stock, of which 3,337,500 shares were issued and
sold by the Company and 802,500 were sold by selling shareholders. As a result
of this offering, the Company recorded proceeds of $23.9 million, net of related
underwriting discounts and offering expenses. In conjunction with the IPO, all
shares of Series A and B preferred stock were automatically converted to common
stock. Additionally, 422,500 Series B-2 warrants were exercised on a net
exercise basis for 281,664 shares of common stock.
In November 1996, the Company completed the public offering of 3,450,000 shares
of its common stock, of which 2,020,500 shares were issued and sold by the
Company and 1,429,500 were sold by selling shareholders. As a result of this
offering, the Company recorded proceeds of $47.1 million, net of related
underwriting discounts and offering expenses.
PREFERRED STOCK:
At March 31, 1997, the Company was authorized to issue 2,500,000 shares of
preferred stock. No preferred stock was issued or outstanding as of March 31,
1997.
In June 1994, 1,895,000 shares of Series B-1 preferred stock were issued at a
price of $2.00 per share for proceeds of $3,768,684, net of issuance costs of
$21,315. In conjunction with this issuance, the purchasers received warrants to
purchase up to 473,750 shares of Series B-2 preferred stock. The warrants were
exercisable, at an exercise price of $2.67 per share. In connection with the
initial public offering of the Company's common stock, warrants to purchase
51,250 shares of Series B-2 preferred stock were exercised for cash and 281,664
shares of Series B-2 preferred stock were issued upon the cashless exercise of
the remaining 422,500 warrants. All outstanding shares of Series A preferred
stock and Series B preferred stock were automatically converted into common
stock upon the initial public offering.
1991 STOCK OPTION PLAN:
In December 1991, the Company adopted the 1991 Stock Option Plan (the "Plan")
under which eligible employees, directors, and consultants can receive options
to purchase shares of the Company's common stock at a price generally not less
than 100% and 85% of the fair value of the common stock on the date of the grant
of incentive stock options and nonstatutory stock options, respectively. Stock
purchase rights may also be granted under the Plan. The Plan, as amended, allows
for the issuance of a maximum of 5,550,000 shares of the Company's common stock,
provided that the Plan as amended shall allow for the issuance of a maximum of
7,050,000 shares of the Company's common stock upon approval of the Company's
shareholders. This number of shares of common stock has been reserved for
issuance under the Plan. The options granted under the Plan are exercisable over
a maximum term of ten years from the date of grant and generally vest in various
installments over a four-year period.
F-11
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A summary of the activity under the 1991 Plan is set forth below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------------------------------------------------
WEIGHTED
OPTIONS AVERAGE
AVAILABLE NUMBER OF PRICE PER EXERCISE AGGREGATE
FOR GRANT SHARES SHARE PRICE PRICE
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 1,256,295 392,627 $ 0.54 $ 0.54 $ 213,590
Granted (527,625) 527,625 0.54 0.54 287,028
Exercised - (56,968) 0.54 0.54 (30,991)
Canceled 158,627 (158,627) 0.54 0.54 (86,293)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1995 887,297 704,657 0.54 0.54 383,334
Authorized 1,595,860 - - - -
Granted (1,678,577) 1,678,577 0.54 - 9.67 3.58 6,010,078
Exercised - (135,989) 0.54 0.54 (73,978)
Canceled 221,201 (221,201) 0.54 - 8.00 0.98 (217,125)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 1,025,781 2,026,044 0.54 - 9.67 3.01 6,102,309
Authorized 750,000 - - - -
Granted (1,561,978) 1,561,978 8.67 - 32.17 20.37 31,819,092
Exercised - (489,656) 0.54 - 9.67 1.37 (668,515)
Canceled 221,812 (221,812) 0.54 - 23.33 5.07 (1,124,056)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at March 31, 1997 435,615 2,876,554 $0.54 - $32.17 $12.56 $36,128,830
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
EXERCISABLE AT MARCH 31, 1997 546,592 $0.54 - $23.33 $ 3.84 $ 2,100,006
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Company recorded deferred compensation of $367,000 for options granted
during the year ended March 31, 1996. This deferred compensation, net of
cancellations, is being amortized ratably over the vesting period of the
related options.
1995 DIRECTOR PLAN:
In September 1995, the Company adopted a stock option plan for non-employee
members of its Board of Directors (the "Director Plan") pursuant to which
112,500 shares of the Company's common stock have been reserved for issuance. As
of March 31, 1997, 45,000 options, with exercise prices ranging from $11.75 to
$12.17 have been granted, 39,375 options were outstanding and none were
exercisable under the plan.
In addition, two directors declined their automatic initial grants under the
Director Plan. On August 16, 1996, such directors were each granted, pursuant to
the 1991 Stock Option Plan, an option to purchase 22,500 shares of common stock
at the fair market value of the common stock at the date of grant. Such options
vest ratably over a four year period, and none are exercisable as of March 31,
1997.
EMPLOYEE STOCK PURCHASE PLAN:
In September 1995, the Company adopted the 1995 Employee Stock Purchase Plan
(the "Purchase Plan"). A total of 450,000 shares of the Company's common stock
has been reserved for issuance under the Purchase Plan. The Purchase Plan
enables eligible employees to purchase common stock at 85% of the lesser of the
fair market
F-12
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
value of the Company's common stock on (i) the date of the participant's entry
into a one-year offering period, or (ii) the end of the applicable six-month
purchase segment within such offering period. As of March 31, 1997, 130,770
shares had been issued under this plan.
STOCK-BASED COMPENSATION:
The Company has elected to continue to use the intrinsic value-based method to
account for all its employee stock-based compensation plans. Under APB Opinion
No. 25, Accounting for Stock Issued to Employees, the Company has recorded no
compensation expense related to its stock option plans for the years ended March
31, 1995, 1996 and 1997, except for the options granted during the period May
1995 through September 1995, because the exercise price of each option equals or
exceeds the fair value of the underlying common stock as of the grant date for
each stock option.
Pursuant to Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation, (SFAS 123), the Company is required to disclose the
pro forma effects on net income and net income per share as if the Company had
elected to use the fair value approach to account for all its employee stock-
based compensation plans. Had compensation cost for the Company's plans been
determined consistent with the fair value approach enumerated in SFAS 123, the
Company's net income and net income per share for the year ended March 31, 1996
and 1997 would have been as indicated below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
(In thousands, except per share amounts) 1996 1997
- ------------------------------------------------------------------------------------------------------------------------------------
- ----
<S> <C> <C>
Net income - as reported $1,990 $8,416
Net income - pro forma $1,433 $5,352
Earnings per share - as reported $ 0.12 $ 0.42
Earnings per share - pro forma $ 0.09 $ 0.27
- ------------------------------------------------------------------------------------------------------------------------------------
- ----
</TABLE>
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1997; risk-free interest rate of 5.74%;
expected life of 3.84 years; 75% expected volatility; and no dividends.
The fair value of employees' stock purchase rights under the Purchase Plan was
estimated using the Black-Scholes model with the following weighted average
assumptions for 1996 and 1997; risk-free interest rate of 5.74%; expected life
of 0.75 years; 75% expected volatility; and no dividends.
Pro forma net income reflects only options granted in 1996 and 1997. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options vesting period of generally four
years, and compensation cost for options granted prior to April 1, 1995 is not
considered.
F-13
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes information about stock options outstanding at
March 31, 1997:
<TABLE>
<CAPTION>
March 31, 1997
- ------------------------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
- ------------------------------------------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 0.5440 - $ 2.6667 737,617 7.87 $ 0.9567 311,685 $ 0.7833
$ 4.5333 - $ 9.8333 874,344 8.82 $ 7.4224 216,934 $ 6.6847
$10.8333 - $23.3333 903,403 9.69 $20.5776 17,973 $22.5731
$25.2500 - $32.1667 400,565 9.74 $26.4795 - $ -
- ------------------------------------------------------------------------------------------------------------------
$ 0.5440 - $32.1667 2,915,929 8.91 $12.5441 546,592 $ 3.8420
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
10. INCOME TAXES:
The components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------
1995 1996 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $565 $1,200 $4,658
Deferred (130) (335) (876)
- ------------------------------------------------------------------------------------------------------------------
435 865 3,782
- ------------------------------------------------------------------------------------------------------------------
State:
Current 129 283 1,193
Deferred (8) (22) (77)
- ------------------------------------------------------------------------------------------------------------------
121 261 1,116
- ------------------------------------------------------------------------------------------------------------------
Foreign:
Current 16 43 45
Deferred - - -
- ------------------------------------------------------------------------------------------------------------------
16 43 45
- ------------------------------------------------------------------------------------------------------------------
Provision for income taxes $572 $1,169 $4,943
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
F-14
<PAGE>
SCOPUS TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effective income tax rate differs from the statutory federal income tax rate
for the following reasons:
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------
1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 34.0 % 34.0 % 35.0 %
State taxes, net of federal income tax benefit 6.1 6.1 6.3
Utilization of research and development credits (7.6) (4.1) (3.0)
Other 4.5 1.0 (1.3)
- ---------------------------------------------------------------------------------------------------------------------
37.0 % 37.0 % 37.0 %
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Significant components of the Company's deferred tax balances are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31
---------------------------------
1996 1997
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Current:
Accrued employee benefits $161 $621
Allowance for doubtful accounts 267 523
Deferred rent 30 27
State taxes 94 428
Capital loss carryforwards 22 26
Prepaid royalties - 14
- ---------------------------------------------------------------------------------------------------------------------
574 1,639
- ---------------------------------------------------------------------------------------------------------------------
Noncurrent:
Prepaid royalties 83 48
- ---------------------------------------------------------------------------------------------------------------------
83 48
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 657 1,687
- ---------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities
Noncurrent:
Property and equipment (11) -
- ---------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities (11) -
- ---------------------------------------------------------------------------------------------------------------------
Net deferred tax assets $646 $1,687
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
11. 401(K) SAVINGS PLAN:
The Company adopted a 401(k) plan for employees on April 1, 1994. All employees
who meet certain service requirements are eligible to participate. Matching
contributions are at the discretion of the Company. As of March 31, 1997, the
Company had not elected to make any discretionary contributions.
F-15
<PAGE>
SCOPUS TECHNOLOGY, INC.
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Allowance for Doubtful Accounts (in thousands):
<TABLE>
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions End of Period
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1995 $150 $ 551 - $ (352) $ 349
Year ended March 31, 1996 349 1,072 - (756) 665
Year ended March 31, 1997 665 1,967 - (1,361) 1,271
- -------------------------------------------------------------------------------------------------------------
</TABLE>
F-16
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
3.1 * Restated Articles of Incorporation of the Company.
3.4 ** Bylaws of the Company.
4.1 ** Specimen Common Stock Certificate of the Company.
10.1 ** Form of Indemnification Agreement.
10.2 ***(1) 1991 Stock Option Plan and form of Stock Option Agreement.
10.3 **(1) Employee Stock Purchase Plan and form of subscription agreement.
10.4 **(1) Director Stock Option Plan.
10.5 ** Amended and Restated Rights Agreement dated as of June 10, 1994
by and among the Company and certain investors.
10.6 ** Watergate Office Lease between Watergate Tower Associates and the
Company dated as of August 22, 1994, as amended by Amendment
thereto dated April 1995.
11.1 Computation of Earnings per Share.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Auditors.
24.1 Power of Attorney (see page 34).
27 Article 5 of Regulation S-X
* Incorporated by reference to the Company's annual report on Form 10-K for
the fiscal year ended March 31, 1996 (number 0-26948)
** Incorporated by reference from the Company's Registration Statement on Form
SB-2 (number 33-97674-LA), as amended, filed on October 2, 1995.
*** Incorporated by reference to the Company's Registration Statement on Form
S-1 (number 333-15593), filed on November 8, 1996.
(1) Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report on Form 10-K pursuant to Item 14(c) of
this report.
S1
<PAGE>
EXHIBIT 11.1
SCOPUS TECHNOLOBY, INC.
STATEMENTS OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------
(In thousands, expect per share data) 1995 1996 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
Weighted average number of common 8,853 10,182 18,575
shares outstanding
Shares issuable pursuant to options granted under - 783 1,492
employee stock option plan, less assumed repurchased
at the average fair market value during the year
Adjustments to reflect requirements of the Securities 830 - -
and Exchange Commission's Staff Accounting Bulletin
No. 83 regarding stock option grants
- ----------------------------------------------------------------------------------------------
Number of shares for computation of net income per share 9,683 10,965 20,067
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net income $ 973 $ 1,990 $ 8,416
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net income per share $ 0.10 $ 0.18 $ 0.42
- ----------------------------------------------------------------------------------------------
<CAPTION>
Year Ended March 31,
------------------------------
(In thousands, expect per share data) 1995 1996 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fully Diluted
Weighted average number of common 8,853 10,182 18,576
shares outstanding
Shares issuable pursuant to options granted under - 888 1,675
employee stock option plan, less assumed repurchased
at the average fair market value during the year
Adjustments to reflect requirements of the Securities 830 - -
and Exchange Commission's Staff Accounting Bulletin
No. 83 regarding stock option grants
- ----------------------------------------------------------------------------------------------
Number of shares for computation of net income per share 9,683 11,070 20,251
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net income $ 973 $ 1,990 $ 8,416
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
Net income per share $ 0.10 $ 0.18 $ 0.42
- ----------------------------------------------------------------------------------------------
</TABLE>
S2
<PAGE>
EXHIBIT 21.1
SCOPUS TECHNOLOGY, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION OWNERSHIP PERCENTAGE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Scopus Technology U.K. Limited United Kingdom 100%
Scopus Technology Canada Inc. Canada 100%
Scopus Technology France SARL France 100%
</TABLE>
S3
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Scopus Technology, Inc. and Subsidiaries on Form S-8/S-3 (File No. 333-16427) of
our report dated April 18, 1997 on our audits of the consolidated financial
statements and the financial statement schedule of Scopus Technology, Inc. and
Subsidiaries as of March 31, 1997 and 1996, and for the years ended March 31,
1997, 1996 and 1995, which report is included in this Annual Report on Form 10-
K.
/s/ Coopers & Lybrand L.L.P.
San Francisco, California
June 25, 1997
S4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 54,824
<SECURITIES> 24,417
<RECEIVABLES> 18,983
<ALLOWANCES> 1,271
<INVENTORY> 0
<CURRENT-ASSETS> 99,639
<PP&E> 10,667
<DEPRECIATION> 3,629
<TOTAL-ASSETS> 108,529
<CURRENT-LIABILITIES> 16,205
<BONDS> 0
0
0
<COMMON> 20
<OTHER-SE> 92,304
<TOTAL-LIABILITY-AND-EQUITY> 108,529
<SALES> 45,675
<TOTAL-REVENUES> 63,130
<CGS> 2,091
<TOTAL-COSTS> 13,161
<OTHER-EXPENSES> 38,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,359
<INCOME-TAX> 4,943
<INCOME-CONTINUING> 8,416
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,416
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
