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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 000-25315
SAGENT TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3225290
(STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
OR ORGANIZATION)
800 W. EL CAMINO REAL, SUITE 300
MOUNTAIN VIEW, CA 94040
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
(650) 815-3100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates based
on closing sales price of the registrant's common stock as reported on The
Nasdaq Stock Market as of March 23, 2001, was approximately $61.9 million.
As of March 23, 2001, Registrant had 35,565,887 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III of this annual report is incorporated
by reference to portions of the registrant's Proxy Statement for its 2001 Annual
Meeting of Stockholders to be filed on or prior to April 30, 2001.
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SAGENT TECHNOLOGY, INC.
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 7
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition
and Results
of Operations............................................... 11
Risk Factors That May Affect Future Results................. 17
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 25
Item 8. Financial Statements and Supplementary Data................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures................................... 51
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 51
Item 11. Executive Compensation...................................... 51
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 52
Item 13. Certain Relationships and Related Transactions.............. 52
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and
Reports on Form 8-K......................................... 52
Signatures............................................................ 55
Exhibit Index
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"Sagent," "Sagent Solution," "Real-time e-Business Intelligence," "Sagent
Data Load Server," "Sagent Data Access Server," "Sagent Admin," "Sagent
Automation," "Sagent Design Studio," "Sagent Information Studio," "Sagent
Analysis," "Sagent Reports," "Sagent WebLink," "Sagent Portal," "Sagent Address
Cleanser," "Sagent Forecaster Transform," "Sagent Statistical Calculator," are
trademarks, trade names or service marks of Sagent. This prospectus also
contains trademarks, trade names and service marks of companies other than
Sagent, and these trademarks, trade names and service marks are the property of
their respective holders.
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PART I
This annual report contains forward-looking statements based on the current
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to the
timing and amounts of our capital needs and expectations regarding licensing
revenues and operating expenses. You can identify these forward-looking
statements when you see us using words such as "expect," "anticipate,"
"believe," "estimate" and other similar expressions, or when you see an asterisk
(*) preceding a sentence. These forward-looking statements involve risks and
uncertainties, including those described in the section entitled "Risk Factors
that May Affect Future Results" of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this annual
report. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, our actual results could differ
materially from those anticipated in these forward-looking statements. We
undertake no obligation to publicly update any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
ITEM 1. BUSINESS
We provide real-time e-business intelligence solutions that enable
enterprises to improve customer acquisition and retention and operational
effectiveness. We develop, market, and support products and services that help
businesses collect, analyze, understand, and act on customer and operational
information both in batch and in real-time. Our products and services provide a
way for an organization's employees, customers, and partners to use the Internet
to examine the internal data they already have and to supplement that data with
external, value-added information such as demographic, geographic, or other
content and data feeds. We refer to our products as "real-time e-business
intelligence" solutions because they enable organizations to rapidly make more
informed, intelligent decisions and to spread that ability across the
enterprise.
We were incorporated in California in April 1995 under the name Savant
Software, Inc. In June 1995, we changed our name to Sagent Technology, Inc. In
September 1998, we reincorporated in Delaware. References in this prospectus to
"Sagent," "we," "our" and "us" refer to Sagent Technology, Inc. and its
subsidiaries, unless the context otherwise requires. Our principal executive
office is located at 800 W. El Camino Real, Suite 300, Mountain View, California
94040, and our telephone number at that office is (650) 815-3100.
INDUSTRY BACKGROUND
Today, information about an organization's customers, products and
operations is one of its most important strategic assets. In particular, as
organizations pursue more complex operational strategies, their need for timely
information increases. As businesses continue to streamline their organizational
structures to improve time to market and responsiveness to rapidly changing
market conditions, decision making authority is expected to become more
distributed, thus heightening the need for broader dissemination of information
throughout the enterprise. Recently, the rapid adoption of the Internet has
given organizations the ability to share information internally and externally
on a cost-effective basis and has dramatically increased the number of people
who can receive and access information.
To be successful in the Internet age, companies must use the Internet to
grow their top-line revenue and to manage their bottom-line organizational
performance to track the health of their enterprise. Increased competition
places a premium on finding and retaining customers, while reduced margins and
shortened business cycles make it crucial to control costs and streamline
operations. Organizations need to put all of their information assets to work to
attract and retain customers, while at the same time increasing operational
efficiencies.
The Internet offers new ways of identifying, qualifying and selling to
customers while they are at a company's website, call center, or store location.
Many businesses use data about customers' prior buying habits to target
marketing activities and create compelling offers for new products or services.
But this historical data only delivers part of the picture. Integrating the data
businesses collect during each customer interaction with value-added external
information -- such as demographic, firmographic, and geographic
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content -- provides a clearer picture of who a company's customers are and what
they really need. Having a complete view of the customer enables companies to
improve customer relationships and identify new opportunities for selling,
cross-selling, and up-selling. In addition, by understanding the customer, the
actual geographic location of his/her household, and the customer's proximity to
services and potential hazards, companies can make rapid assessment of
customer-value as well as risk.
In addition to gaining a better understanding of customers, today's
companies also require a clear picture of their own operations in order to
succeed in the competitive environment of e-business. Enterprises need to
understand exactly what is happening within their organization, variances in key
performance indicators, and use that knowledge to rapidly reshape and transform
the way they run their business. Companies that cannot respond to changing
market conditions will be quickly surpassed by their more nimble competitors.
To improve the timeliness and quality of critical business decisions,
companies must give front-line managers the ability to rapidly develop, track,
and respond to key business metrics. Empowering employees to make better
operational decisions requires an information supply chain that delivers a
thorough understanding of all business processes. Unfortunately, the critical
business information companies need to facilitate strategic decision-making is
often locked up in multiple, disparate applications, databases, and legacy
systems across departments, divisions, and the enterprise.
SOLUTION
We provide real-time e-business intelligence solutions to help companies
maximize revenue, reduce costs, and streamline business processes by offering
products and services that provide a clearer view of their customers and their
internal organization. Elements of our solution include:
- A suite of integrated software products that provide a platform for
collecting, organizing, and manipulating information from a variety of
sources;
- Software tools that enhance enterprise data by dynamically integrating it
with demographic information, geographic data, and other value-added
content;
- Web-based services that allow our customers to access our data
enhancement tools over the Internet, enabling them to improve the quality
and consistency of their internal data and to supplement this data with
value-added content and external data sources;
- Industry-specific data and applications that provide a "rapid deployment"
solution for select vertical industries, including pre-packaged data
models, metadata, reports, and business rules and metrics; and
- Consulting services to help customers rapidly and effectively install,
configure, and deploy our software and services.
Our solution provides three primary benefits to our customers. First, it
combines in one integrated product key functions that a customer requires, such
as extracting information from multiple data sources and providing end-users
with the capability to analyze information and publish reports. This saves time
and money otherwise spent combining many different products from many different
vendors. Second, our product suite can handle a very large number of users and a
very large amount of data. This allows our product suite to scale to the
increasing numbers of employees or customers who need access to information from
inside organizations or through the Internet. Third, the our product suite is
designed for the Internet. We have invested significant resources in technology
to rapidly distribute information over the web.
PRODUCTS AND SERVICES
The Sagent Solution
Our main product, the Sagent Solution, gathers data from a variety of
sources, such as relational databases, mainframe databases, flat files and the
Internet, and organizes that data into a common structure or repository known as
a data mart. A data mart is used to more efficiently manage a subset of
corporate data focused on the needs of a specific group of users. Once data is
organized into our data mart, the Sagent
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Solution product suite allows organizations to efficiently analyze the data and
provides access to the information through personal computers, reports, and,
importantly, through web browsers over the Internet. We also provide design,
systems engineering and education services to facilitate successful customer
implementations. The Sagent Solution includes a number of components:
- Sagent Data Load Server -- a high performance application server for
data extraction, transformation and loading that rapidly integrates
information from multiple complex sources.
- Sagent Data Access Server -- a tool that rapidly delivers customized
business views of information to users throughout the enterprise and over
the Internet.
- Sagent Admin -- a tool that enables system administrators to control a
distributed network of data stores from a single location, providing a
single, integrated view of all system components.
- Sagent Automation -- an event-driven scheduler that delivers robust
automation, troubleshooting, and messaging capabilities to ease the
process of deploying and providing access to data marts.
- Sagent Design Studio -- a graphical environment for administrators to
develop data flow plans, data staging and storage, metadata creation and
online analysis. Developers use this component to define their data
extraction, transformation and movement requirements, while users utilize
it to perform ad hoc queries, online analysis and reporting.
- Sagent Information Studio -- a graphical interface for easily accessing
and sharing information. This client-side component enables users to
build powerful data requests, store result sets for easy reuse and
collaborate with other users.
- Sagent Analysis -- an information studio plug-in for analyzing Sagent
data, including cross-tabulation, slicing, drilling, charting and
manipulation of information from relational data sources.
- Sagent Reports -- an enterprise-level reporting tool that enables users
to rapidly create, publish and view graphically rich reports and forms.
- Sagent WebLink -- an Internet interface that provides access to Sagent
components through popular browsers, enabling users to run data requests
and view result sets quickly and easily from their desktop.
- Sagent Portal -- a web-based interface that gives employees, vendors and
customers a single point of access to up-to-the-second, relevant
information in context, from within the enterprise and beyond, all on a
single web page.
- Sagent Address Cleanser and Coder Transform -- a fast, precise transform
that seamlessly integrates address standardization and geocoding
capabilities into the Sagent Solution.
- Sagent Forecaster Transform -- an application that predicts future values
based on the historical data stored in a data mart.
- Statistical Calculator -- a tool that delivers a wide range of
statistical functions that apply advanced manipulations to data, making
it easy to create powerful expressions for loading data and delivering
information to end users.
Product Enhancements from QMS Acquisition
Our acquisition in December 1999 of Qualitative Marketing Software, Inc.,
or QMS further enhanced the capabilities of our product suite. With the QMS
technologies, we now provide tools and services for data quality, enhancement
and profiling. These products enable our customers to supplement the data they
already have with value-added external information -- such as demographic,
firmographic, and geographic content. This enables a number of important
applications for marketing, customer service, and customer relationship
management, including:
- Data enhancement -- records are appended with neighborhood, household,
and business information U.S. Census demographics and national consumer
and business data.
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- Spatial enhancement and analysis -- records are appended with
address-level latitude and longitude coordinates.
- Address standardization, correction and verification -- records are
checked against the official U.S. Postal Service deliverable address
database for address correction and addition of ZIP+4, carrier route,
delivery point bar code data, line-of-travel codes and more.
- Householding and record consolidation -- data from diverse sources are
consolidated to combine records of people living under the same roof into
a single record.
- Move updating -- our technology matches customer and prospect databases
against approximately 16 million individuals and businesses in the USPS
FASTforward database that have changed addresses during the past six
months. When a match is found, that record is updated automatically.
Release of Sun-based Solution
During 2000, we passed a critical development milestone with the release of
the internationalized Sagent Solution for the Sun Microsystems Solaris platform.
This represents the initial step in our move from a Microsoft NT-centric
solution, to a solution that operates on both NT and Unix platforms, roughly
doubling the server platform opportunities worldwide for our products.
Analytical Applications
In response to the market demand for more packaged solutions, we formed our
Analytical Applications Group in September 2000. By augmenting the Sagent
Solution with vertical and horizontal specific data models, metadata libraries,
pre-configured reports and process plans, we provide pre-packaged analytical
applications. The initial Sagent Analytical Application, serving credit unions
and community banks in the financial services markets was beta tested in the
fourth quarter. Additional Sagent analytical applications are expected to be
released in 2001 in the property & casualty insurance market.
Further Product Development
We intend to continue making substantial investments in research and
development and related activities to maintain and enhance our product lines.
Product development is based upon a consolidation of the requirements from
existing customers, technical support and engineering. The development group
infrastructure provides documentation, quality assurance and delivery and
support capabilities (as well as product design and implementation) for our
products. There can be no assurance that we will be able to complete these
engineering activities in a timely or successfully manner, and the failure to do
so could have a material adverse effect upon our business, operating results and
financial condition.
Services
To complement our product offering, we also offer professional consulting
and training services to help customers achieve fast and full value from their
implementation of the Sagent Solution. Sagent Professional Services, or SPS,
provides a wealth of product and industry experience, from project definition
and application development to deployment, training, and ongoing support.
SALES AND MARKETING
We are focused on building market awareness and acceptance of our products
and services and on developing strategic partnerships. Our marketing strategy
includes several components: image and awareness building, direct marketing to
both prospective and existing customers, a strong Internet presence, and
marketing activities with key local and global partners. Our corporate marketing
strategy includes extensive public relations activities, corporate advertising,
presentations at conferences and trade shows, and working with key analysts and
other market influencers. Our direct marketing activities include participation
in selected trade shows and conferences, targeted advertising, direct mail
efforts to existing and prospective customers, and local, regional and web-based
seminars. Our corporate website is also used to generate leads
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for follow-up by our sales organization. Our inside sales group provides
telemarketing support, as well as qualification of leads from other channels.
Our partner and channel marketing activities help to recruit, train, support and
conduct cooperative marketing with technology partners, resellers and
value-added resellers. These programs help to foster strong relationships with
our partners. Our marketing organization also provides a wide-range of programs,
materials and events to support the sales organization in its efforts. We have
several strategic relationships, including ADP, Advent Software, CommerceOne,
Compaq, EDS, IBM, Microsoft and Cubiweb. During the first quarter of 2001, we
announced strategic partnerships with SAS Institute and Breakaway Solutions,
Inc.
The sales and marketing staff is based at our corporate headquarters in
Mountain View, California. Our inside sales organization is based in Clearwater,
Florida. We also have field sales offices in 29 locations around the United
States, and 21 field sales offices in countries throughout the world.
CUSTOMERS
We currently have more than 1,500 customers throughout the world and across
such diverse industries as insurance, financial services, retail, e-commerce,
healthcare and telecommunications. The following are several of our larger
customers:
- - Advent Software
- - Allstate
- - Boeing Credit Union
- - Breakaway Solutions
- - California State Auto Association
- - Carrefour (France)
- - Convergent Communications
- - Haht Software
- - Hughes Aircraft
- - IndyMac Bank
- - Kawasaki Steel (Japan)
- - Micro Systems
- - Nationwide (UK)
- - OfficeMax
- - Sears
- - Siebel Systems
- - Telcordia
- - Tickets.com
- - United Health Group
- - Victory Consulting
We had no single customer during 2000 that accounted for 10% or more of our
total 2000 revenues. Sales to customers located outside the United States and
Canada accounted for 13% of our total 2000 revenues.
COMPETITION
We operate in an intensely competitive, highly fragmented, and rapidly
changing market. Our current and potential competitors offer a variety of
software solutions and generally fall within five categories:
- Vendors of packaged analytic applications such as Informatica, Broadbase,
e.Piphany, and Hyperion;
- Vendors of business intelligence software such as Cognos, Business
Objects, Brio, MicroStrategy, and Hummingbird;
- Vendors of data warehousing/data mart infrastructure environments such as
Informatica, Ascential, and Acta;
- Database vendors that offer products which operate specifically with
their proprietary database, such as Oracle, IBM, and Informix;
- Data providers and distributors such as Axciom and HotData.
The variety of current and potential competitors, and the emerging nature
of the market makes our competitive position uncertain. We have experienced and
expect to continue experiencing increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than us. Such competitors may be able to devote
greater resources to the development, promotion and sales of their products, or
to respond more quickly to changes in customer
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requirements and/or evolving technology. We anticipate additional competition as
other vendors enter the market and new products and technologies are introduced.
Increased competition could result in price reductions, fewer customer orders,
reduced gross margins, longer sales cycles and loss of market share, any of
which could materially and adversely affect our business, operating results and
financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current or future indirect channel partners may
establish cooperative relationships with our current or potential competitors,
thereby limiting our ability to sell products through particular distribution
channels. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. Such competition could materially adversely affect our ability to obtain
new licenses, and maintenance and support renewals for existing licenses on
favorable terms. Further, competitive pressures may require us to reduce the
price of its products, which could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that we will be able to compete successfully against current and future
competitors, and the failure to do so could have a material adverse effect upon
our business, operating results and financial condition.
Our products compete on the basis of the following factors:
- completeness of solution
- product features
- product breadth
- product quality
- product performance
- analytical capabilities
- access to external information
- user scalability
- web integration
- data volume scalability
- ease of use
- customer support
- rapid implementation services
- price
We believe our products presently compete favorably with respect to each of
these factors. However, our market is still evolving and there can be no
assurance that we will be able to compete successfully against current and
future competitors, and the failure to do so successfully could have a material
adverse effect on our business, operating results and financial condition.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position.
We seek to protect our software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. We
hold 5 United States patents. There can be no assurance that our patents will
not be invalidated, circumvented or challenged, or that the rights thereunder
will provide us with competitive advantages.
There can be no assurance that others will not develop technologies that
are similar or superior to our technology or design around any patent that we
may come to own. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our products is difficult, and while we are unable to determine the extent to
which piracy of its software products exists, software piracy can be expected to
be a persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the United States.
There can be no assurance that our means of protecting its proprietary rights in
the United States or abroad will be adequate or that competitors will not
independently develop similar technology.
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We have entered into source code escrow agreements with a number of
customers and indirect channel partners requiring release of source code. Such
agreements provide that the contracting party will have a limited, non-exclusive
right to use the code subject to the agreement in the event that:
- there is a bankruptcy proceeding by or against us;
- if we cease to do business; or
- in some cases, if we fail to meet our contractual obligations.
We expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claims, with or without merit, could:
- be time consuming to defend;
- result in costly litigation;
- divert management's attention and resources;
- cause product shipment delays; or
- require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to license the infringed or
similar technology, our business, operating results and financial condition
could be materially adversely affected.
Finally, in the future we may rely upon software that we may license from
third parties, including software that may be integrated with our internally
developed software and used in our products to perform key functions. There can
be no assurance that these third-party software licenses will be available on
commercially reasonable terms. Our inability to obtain or maintain any third
party software licenses could result in shipment delays or reductions until
equivalent software could be developed, identified, licensed and integrated,
which could have a material adverse effect on our business, operating results
and financial condition.
EMPLOYEES
As of December 31, 2000, we employed 310 full-time personnel, including 190
in sales and services, 23 in marketing, 70 in research and development and 27 in
general and administrative positions. Of these employees, 269 were located in
the United States and 41 were employed in other countries.
None of our employees are represented by a labor union. We have experienced
no work stoppages and believe that our employee relations are good. We believe
that our future success will also depend in large part upon our ability to
attract and retain highly skilled managerial, engineering, sales and marketing
and finance personnel. Competition for such personnel is intense, and there can
be no assurance that we will be successful in attracting and retaining such
personnel. The loss of the services of any of the key personnel, the inability
to attract or retain qualified personnel in the future, or delays in either
hiring required personnel, or the rate at which new people become productive,
particularly sales personnel and engineers, could have a material adverse effect
on our business, operating results and financial condition.
ITEM 2. PROPERTIES
Our principal offices currently occupy approximately 34,000 square feet in
Mountain View, California, pursuant to a lease which expires in October 2003. We
lease research facilities in Boulder, Colorado, and office
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space in Clearwater, Florida, and have 19 short-term executive suites leases in
North America, including locations in:
- California - New Hampshire
- Colorado - New York
- Florida - Pennsylvania
- Georgia - Virginia
- Illinois - Washington
- District of
- Massachusetts Columbia
We also have sales offices in Germany, France, Brazil, Japan, Mexico, and
the United Kingdom. We believe that our facilities are adequate to meet our
needs for the next 12 months and that, if required, suitable additional space
will be available on commercially reasonable terms to accommodate expansion of
our operations.
ITEM 3. LEGAL PROCEEDINGS
On March 22, 1999 Timeline, Inc. filed a complaint against us in the United
States District Court alleging that our DMS product suite infringed upon one or
more of the claims of a Timeline patent. We filed our original answer to the
complaint, asserting, among other things, that the Timeline patent was invalid
and unenforceable. In December 2000, we reached a settlement with Timeline.
Under the terms of the settlement, we received a license to the Timeline
patents, and we paid Timeline $600,000 in cash and 600,000 shares of our common
stock. Timeline dismissed the lawsuit with prejudice.
From October 20, 2000 to November 27, 2000, several class action lawsuits
were filed in the United States District Court on behalf of the individual
investors who purchased our common stock between October 21, 1999 and April 18,
2000. The claims allege that we misrepresented our 1999 and 2000 prospects. The
court recently consolidated the complaints and selected a lead plaintiff and
counsel. A consolidated amended complaint will be filed in April 2001. We intend
to defend vigorously the asserted claims.
On November 17, 2000, a derivative lawsuit was filed by a purported Sagent
shareholder in the Superior Court of California for the County of San Mateo. On
February 9, 2001, a second derivative lawsuit was filed in the Superior Court of
California for the County of Santa Clara. The complaints name certain of our
present and former officers and directors as defendants. The complaint in Santa
Clara County also named an investment bank retained by us and an employee of
that firm as defendants. We have also been named as a nominal defendant. The
principal allegation of the complaints is that the defendants breached their
fiduciary duties to us. On March 15, 2001, the California Judicial Council
ordered the presiding judge of the Superior Court of California for the County
of Santa Clara to assign a judge to determine whether these actions should be
coordinated in Santa Clara County. The court assigned a judge on March 22, 2001,
and a coordination hearing has been scheduled for May 7, 2001. We intend to
defend vigorously the asserted claims.
From time to time, we may be involved in litigation relating to claims
arising in the ordinary course of business. We establish reserves for such
claims when a loss is probable and the amount of such loss is reasonably
estimable.
The uncertainty associated with substantial unresolved lawsuits could
seriously harm our business and financial condition. In particular, the lawsuits
could harm our relationships with existing customers and our ability to obtain
new customers. The continued defense of the lawsuits could also result in the
diversion of our management's time and attention away from business operations,
which could harm our business. The lawsuits could also have the effect of
discouraging potential acquirors from bidding for us or reducing the
consideration they would otherwise be willing to pay in connection with an
acquisition. In addition, although we are unable to determine the amount, if
any, that we may be required to pay in connection with the resolution of these
lawsuits by settlement or otherwise, the size of any such payment could
seriously harm our financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our 2000 annual meeting of stockholders, held on October 26, 2000, our
stockholders voted as follows upon the following matters:
BROKER
ACTION FOR AGAINST WITHHELD ABSTAIN NON-VOTES
------ --- ------- -------- ------- ---------
1. Election of Class I Directors for 3-year
terms
Shanda Bahles............................ 23,554,366 n/a 144,124 n/a n/a
Klaus S. Luft............................ 23,553,846 n/a 144,644 n/a n/a
2. Approval of Amendment to 1998 Stock Plan
increasing the number of authorized
shares by 2,000,000 shares............... 6,071,025 2,068,797 n/a 32,450 15,526,218
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Our common stock is listed for trading on The Nasdaq Stock Market's
National Market under the symbol "SGNT." The following table lists the high and
low closing sales prices of our common stock for the periods indicated.
HIGH LOW
------ ------
Year Ended December 31, 2000:
Fourth Quarter........................................... $ 7.63 $ 1.19
Third Quarter............................................ $13.94 $ 7.44
Second Quarter........................................... $28.00 $ 6.25
First Quarter............................................ $43.63 $16.63
Year Ended December 31, 1999:
Fourth Quarter........................................... $29.94 $ 7.88
Third Quarter............................................ $13.50 $ 8.31
Second Quarter........................................... $15.56 $ 6.38
At March 23, 2001, there were approximately 281 stockholders of record of
our common stock, as shown in the records of our transfer agent, although we
believe that there is a significantly larger number of beneficial owners of our
common stock.
We have never declared or paid cash dividends on our common stock. We
expect to retain future earnings, if any, for use in the operation of our
business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated annual and quarterly financial data are
qualified by reference to, and should be read in conjunction with, our
Consolidated Financial Statements, including the notes, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this annual report.
SELECTED ANNUAL FINANCIAL DATA
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net revenues................................. $ 58,188 $ 48,001 $ 25,001 $ 12,322 $ 2,917
Net loss..................................... $(23,704) $(12,092) $(15,056) $ (7,188) $(6,854)
Net loss per common share:
Basic and diluted.......................... $ (0.82) $ (0.55) $ (2.60) $ (1.46) $ (1.89)
Total assets................................. $ 46,087 $ 66,704 $ 18,617 $ 11,586 $ 7,577
Long-term obligations........................ $ 895 $ 1,491 $ 4,062 $ 5,363 $ 2,782
Retained earnings (accumulated deficit)...... $(66,941) $(43,237) $(31,145) $(16,089) $(8,901)
Total stockholder's equity................... $ 26,665 $ 43,374 $ 2,299 $ 5,106 $ 6,921
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SELECTED QUARTERLY FINANCIAL DATA
THREE MONTHS ENDED
-----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------- ------- ------------- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
2000:
Revenue...................................... $14,537 $17,502 $13,820 $ 12,329
------- ------- ------- --------
Gross profit................................. $11,831 $14,586 $10,261 $ 8,679
------- ------- ------- --------
Net loss before income taxes................. $(2,009) $ 1,539 $(8,182) $(14,543)
------- ------- ------- --------
Net loss..................................... $(2,019) $ 1,532 $(8,381) $(14,837)
======= ======= ======= ========
Earnings per share:
Basic...................................... $ (0.07) $ 0.05 $ (0.29) $ (0.51)
Diluted.................................... $ (0.07) $ 0.05 $ (0.29) $ (0.51)
1999:
Revenue...................................... $ 8,998 $ 9,895 $13,074 $ 16,034
------- ------- ------- --------
Gross profit................................. $ 6,770 $ 6,657 $ 9,437 $ 13,388
------- ------- ------- --------
Net loss before income taxes................. $(3,298) $(2,064) $ (453) $ (6,014)
------- ------- ------- --------
Net loss..................................... $(3,370) $(2,110) $ (516) $ (6,096)
======= ======= ======= ========
Earnings per share:
Basic...................................... $ (0.53) $ (0.08) $ (0.02) $ (0.22)
Diluted.................................... $ (0.53) $ (0.08) $ (0.02) $ (0.22)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements that involve
risks and uncertainties, such as statements regarding our objectives,
expectations and intentions. When used in this discussion, and elsewhere in this
annual report, the words "expects," "anticipates," "intends," "believes,"
"plans" and other similar expressions or an asterisk sign (*) preceding a
sentence are intended to identify certain of these forward-looking statements.
The cautionary statements made in this annual report should be read as being
applicable to all related forward-looking statements wherever they appear in
this document. Our actual results could differ materially from those discussed
in this annual report. Factors that could cause or contribute to such
differences include those discussed in the section entitled "Risk Factors
Factors That May Affect Future Results" below.
OVERVIEW
We provide real-time e-business intelligence solutions that enable
enterprises to win, retain, and grow new customers and improve operational
effectiveness. We develop, market, and support products and services that help
businesses collect, analyze, understand, and act on customer and operational
information both in batch and in real-time. Our products and services provide a
way for an organization's employees, customers, and partners to use the Internet
to examine the internal data they already have and to supplement that data with
external, value-added information such as demographic, geographic, or other
content and data feeds. We refer to our products as "real-time e-business
intelligence" solutions because they enable organizations to rapidly make more
informed, intelligent decisions and to spread that ability across the
enterprise.
Revenue
We sell our software products directly to our customers and through channel
partners such as enterprise software vendors, resellers and distributors.
Enterprise software vendors generally integrate our products with their
applications and will embed them into their products or resell them with their
products. Our other channel partners, principally resellers and distributors,
sell our software products to end user customers.
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We derive our revenue from license fees for software products and fees for
services relating to the software products, including consulting, training,
software and data updates, technical support and real-time marketing services
over the Internet.
We recognize revenue from sales of software licenses to end users upon:
determination that persuasive evidence of an arrangement exists; delivery of the
software to a customer; determination that collection of a fixed or determinable
license fee is probable; and determination that no undelivered services are
essential to the functionality of the software.
If consulting services are essential to the functionality of the licensed
software, then both the license revenue and the consulting service revenue are
recognized as the services are performed. Our arrangements regarding sales of
software licenses generally do not include services that are essential to the
functionality of the software.
Revenue for transactions with enterprise application vendors, OEMs, and
distributors is generally recognized as earned when the licenses are resold or
utilized by the reseller and all related obligations on our part have been
satisfied. We provide for sales allowances on an estimated basis. We accrue
royalty revenue through the end of the reporting period based on reseller
royalty reports or other forms of customer-specific historical information. In
the absence of customer-specific historical information, royalty revenue is
recognized when the customer-specific objective information becomes available.
Any subsequent changes to previously recognized royalty revenues are reflected
in the period when the updated information is received from the reseller.
However, if the contract stipulates an advance, non-refundable royalty payment,
revenue is recognized upon execution of the contract.
Maintenance contracts generally call for us to provide technical support
and software updates and upgrades to customers. Maintenance revenue is
recognized ratably over the term of the maintenance contract, generally on a
straight-line basis when all revenue recognition requirements are met. Other
service revenue, primarily training and consulting, is generally recognized at
the time the service is performed and when it is determined that the Company has
fulfilled our obligations resulting from the services contract.
During the fourth quarter of 2000, we adopted Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements," ("SAB No. 101"). The
adoption of SAB No. 101 did not have a material effect on our consolidated
statement of financial position or results of operation.
Statement of Position, 97-2, "Software Revenue Recognition" (SOP 97-2) was
issued in 1997 by the American Institute of Certified Public Accountants (AICPA)
and amended by Statements of Position 98-4 and 98-9. We adopted SOP 97-2
effective January 1, 1998. Based on our reading and interpretation of SOP's
97-2, 98-4 and 98-9, we believe our current revenue recognition policies and
practices are consistent with SOP's 97-2, 98-4, and 98-9.
Cost of Revenue
Cost of revenue from license sales consists primarily of royalties, product
packaging, shipping, media and documentation. Cost of services consists
primarily of salaries and benefits of consulting, customer service and training
personnel and fees paid to third party providers of data and data updates.
Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of
compensation, travel, marketing programs, and facilities.
Research and Development. Research and development expenses consist
primarily of personnel and related costs associated with the development of new
products, the enhancement and localization of existing products, quality
assurance, testing and facilities.
General and Administrative. General and administrative expenses consist
primarily of personnel costs for Sagent's finance, human resources, information
systems and general management as well as legal and bad debt reserves.
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RESULTS OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
The following table sets forth, for the periods presented, certain data
from our consolidated statements of operations as a percentage of total revenue.
The information contained in the table below should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included elsewhere in
this annual report.
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
------ ------ ------
Revenue:
License................................................... 59.6% 71.1% 62.4%
Service................................................... 40.4 28.9 37.6
----- ----- -----
Total revenue..................................... 100.0 100.0 100.0
----- ----- -----
Cost of revenue:
License................................................... 3.3 5.9 2.3
Service................................................... 18.7 15.3 27.5
Amortization of abandoned development projects............ -- 3.3 --
----- ----- -----
Total cost of revenue............................. 22.0 24.5 29.8
----- ----- -----
Gross profit................................................ 78.0 75.5 70.2
----- ----- -----
Operating expenses:
Sales and marketing....................................... 64.7 56.0 63.7
Research and development.................................. 29.2 26.0 33.7
General and administrative................................ 29.2 10.6 22.9
Merger and integration charges............................ (4.0) 9.7 --
Acquired in-process research and development.............. -- -- 9.7
----- ----- -----
Total operating expenses.......................... 119.1 102.3 130.0
----- ----- -----
Loss from operations........................................ (41.3) (26.7) (59.8)
Other income (expense), net................................. 1.4 2.1 (1.1)
----- ----- -----
Loss before income taxes.................................... (39.9) (24.6) (60.9)
Income tax expense (benefit)................................ 0.9 0.6 (0.7)
----- ----- -----
Net loss.................................................... (40.8)% (25.2)% (60.2)%
===== ===== =====
Revenue
Our total revenue was $58.2 million, $48.0 million and $25.0 million in
2000, 1999 and 1998, respectively, representing increases of $10.2 million or
21.3% from 1999 to 2000 and $23.0 million or 92.0% from 1998 to 1999. The 92.0%
increase in revenues from 1998 to 1999 resulted from a 118.6% increase in
license revenues and a 47.8% increase in service revenues. While service
revenues continued to increase steadily from 1999 to 2000, license revenues
increased only 1.6%, resulting in overall revenue growth of 21.3%.
License revenues increased to $34.7, $34.1 and $15.6 million in 2000, 1999
and 1998, respectively, representing increases of $0.5 million or 1.6% from 1999
to 2000 and $18.5 million or 118.6% from 1998 to 1999. Increases from 1998 to
1999 were primarily due to increased acceptance of the Sagent Solution,
expansion in the domestic and international direct sales organization and
expansion in the reseller channels resulting in increases in the number of
licenses sold and average transaction size. During 2000, we experienced turnover
in our sales force and restructured our sales organization resulting in reduced
sales productivity. *Although we believe that as of the beginning of the first
quarter of 2001, we had taken the actions necessary to restructure our sales
force and refocus attention on increased sales productivity, there can be no
assurance that such efforts will yield increased license revenue. The average
transaction size remained stable from 1999 to 2000. *We anticipate that license
revenue, which has represented a majority of our revenue in the past, will
continue to represent a substantial portion of our revenue for the foreseeable
future. However, if we continue
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to experience turnover in our sales force and fail to expand our direct and
indirect sales channels, our license revenue may decrease as a percentage of
total revenues.
Service revenue was $23.5 million, $13.9 million and $9.4 million in 2000,
1999 and 1998, respectively, representing increases of $9.7 million or 70% from
1999 to 2000 and $4.5 million or 47.8% from 1998 to 1999. The increase in
service revenues from 1998 to 1999 were due to increases in all components of
service revenues -- consulting, training and maintenance related to the increase
in the number of licenses sold and the increased average transaction size from
the prior year. Training and consulting services relating to the acquisition of
Talus, Inc. in 1998 further increased service revenues from 1998 to 1999. The
increase from 1999 to 2000 was primarily a result of our concerted efforts to
involve the consulting organization in each license transaction as it concerns
installation and implementation which led to higher customer satisfaction and
follow-on sales opportunities in the resulting months.
Cost of Revenue
Cost of revenue from license sales consists primarily of royalties, product
packaging, shipping media and documentation. Cost of revenue from license sales
was $1.9 million, $2.8 million and $0.6 million in 2000, 1999, and 1998,
respectively, representing 5.6%, 8.2% and 3.8% of license revenue in the
respective periods. From 1998 to 1999, the absolute dollar and percentage
increase resulted from increased costs of royalties and documentation. From 1999
to 2000 the absolute dollar and percentage decrease was primarily due to reduced
royalties, reductions in headcount in this area, and increased efficiencies in
packaging, shipping, media and documentation expense.
Cost of services consists primarily of salaries, commissions and benefits
of consulting, customer service and training personnel and fees paid to third
party providers of data and data updates. Cost of services was $10.9 million,
$7.3 million and $6.9 million, in 2000, 1999 and 1998, respectively,
representing 46.3%, 52.6% and 73.2% of services revenue in the respective
periods. The absolute dollar increases were primarily due to increases in
technical support staff and consultants. The percentage decreases were due to
improved utilization of consulting personnel, increased productivity of our
customer service division and a reduction in the use of outside consultants to
provide consulting and training services.
Sales and Marketing
Sales and marketing expenses consist primarily of compensation, travel,
marketing programs, and branch facilities. Sales and marketing expenses were
$37.7 million, $26.9 million and $15.9 million in 2000, 1999 and 1998,
respectively, representing 64.7%, 56.0% and 63.7% of total revenue in the
respective periods. The absolute dollar increases reflect the hiring of
additional personnel in connection with building the direct, indirect and
reseller/OEM channels and increased sales commissions associated with increasing
revenues. The percentage decrease from 1998 to 1999 was attributable to the
increase in revenue in 1999 and a slower level of increasing sales resources in
the QMS group from the prior year. In addition, 1998 amounts reflect the
creation of user conferences, expanded advertising campaigns and design of the
Enterprise Intelligence seminar series. The percentage increase from 1999 to
2000 reflects the investment in building the direct and indirect sales
organizations and the cost associated with the restructuring of the sales force
in 2000. *We believe that as we continue to expand our direct sales and presales
support organization, our third-party partnering relationships and our indirect
channel sales organization on a worldwide basis, sales and marketing expenses
will continue to increase in absolute dollars. *We expect sales and marketing
expenses to decrease as a percentage of total revenues, provided that our
efforts to improve and expand our sales organization are successful in growing
our revenues.
Research and Development
Research and development expenses consist primarily of personnel and
related costs associated with the development of new products, the enhancement
and localization of existing products, quality assurance, testing and
facilities. Research and development expenses were $17.0 million, $12.5 million
and $8.4 million in 2000, 1999 and 1998, respectively, representing 29.2%, 26.0%
and 33.7% of total revenue in the respective
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periods. The absolute dollar increase in the respective periods was due to
significant investment in the form of additional personnel to develop new
versions of our software products, new product offerings and localization
enhancements of existing products for foreign countries. *We believe that
significant investment for research and development is essential to our future
success and we will continue to commit substantial resources to research and
development in the future. *We anticipate that research and development
expenditures will continue to increase in absolute dollars, although such
expenses are expected to decrease as a percentage of total revenues.
General and Administrative
General and administrative expenses consist primarily of personnel costs
for Sagent's finance, human resources, information systems and general
management as well as legal, accounting and bad debt expenses. General and
administrative expenses were $17.0 million, $5.1 million and $5.7 million for
2000, 1999 and 1998, respectively, representing 29.2%, 10.6% and 22.9% of total
revenues in the respective periods. The absolute dollar decrease from 1998 to
1999 was primarily due to increased efficiencies and reduced third party
professional fees. The absolute dollar increase from 1999 to 2000 was primarily
due to the settlement of the Timeline litigation, large non-recurring third
party professional fees, recruitment and relocation of our senior management
team, certain executive compensation charges and an increase in bad debt
allowance. In particular, allowance for doubtful accounts increased from $630 in
1999 to $5.0 million in 2000. In addition, in 2000 we settled litigation with
Timeline Inc. by issuing 600 shares of our common stock valued at $1.4 million
and $600 in cash, and incurred $1.1 million in expenses associated with
recruitment and relocation of executive management. The percentage decrease from
1998 to 1999 was attributable to reduced costs combined with increased revenues.
The percentage increase from 1999 to 2000 was attributable to the increased
costs associated with the Timeline litigation, expenses associated with
relocation and hiring costs related to the new management team and the increase
in bad debt allowance in 2000. *We expect general and administrative expenses to
rise in absolute dollars as we expand staffing to support operations, but to
decrease as a percentage of total revenue.
Merger Related Charges
As a result of the business combination with QMS on December 11, 1999,
accounted for as a pooling of interests, we incurred merger-related costs of
$4.6 million. These costs included transaction costs, write-off of duplicate
equipment and other assets, and severance pay and outplacement for nine
employees. The residual accrual in the amount of $2.3 million was reversed in
2000. As of December 31, 2000 there was no remaining balance as accrued merger
related costs.
Acquired In-Process Technology
As a result of the business combination with Talus in February 1998, we
acquired certain in-process technology. This technology under development
consisted of analytical software applications for high technology,
manufacturing, food service and hospitality industries. After considering such
factors as degree of completion, technological uncertainties, costs incurred,
and projected costs to complete, we expensed $2.4 million of in-process
technology and allocated $517 of the purchase price to additional intangible
assets, primarily non-compete agreements and the value of an assembled
workforce. The technology under development has been successfully integrated
into our product line.
Other
We evaluate the recoverability of long lived assets such as goodwill, other
intangible assets and property and equipment on a periodic basis. We have not
recorded impairment expenses related to long lived assets in 2000 or 1998, but
we recognized $1.6 million of amortization of abandoned development projects in
1999 as a component of cost of revenue. If future events or changes in
circumstances indicate that any of our long lived assets will not be
recoverable, impairment expenses may be recognized to reduce their carrying
values to then estimated fair values. In 2000 we recorded $0.5 million in other
expenses related to the disposal of property and equipment.
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Income Taxes
At December 31, 2000 and 1999, we had available net operating loss
carryforwards for federal and state income tax purposes of approximately $41.4
and $23.6 million, respectively. These carryforwards expire from 2003 to 2019.
At December 31, 1999 and 2000, we also had available research and development
credit carryforwards for federal and state income tax purposes of approximately
$1.4 million.
For federal and state tax purposes, a portion of our net operating loss
carryforwards may be subject to certain limitation on annual utilization due to
changes in ownership, as defined by federal and state tax law.
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, we have placed a valuation allowance against our
net deferred tax assets. The difference between the statutory rate of
approximately 40.0% (34% federal and 6.0% state, net of federal benefits) and
the tax benefit of zero that we have recorded is primarily due to our full
valuation allowance against its net deferred tax assets.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had cash and marketable securities totaling $6.4
million, a decrease of $31.8 million from December 31, 1999. Since inception, we
have funded our operations primarily through private sales of equity securities,
the use of equipment leases and the initial public offering of our common stock
in April 1999, not from cash generated by our business.
Net cash used in operating activities was $25.9 million, $7.6 million and
$10.7 million in 2000, 1999 and 1998, respectively. For such periods, net cash
used in operating activities was primarily a result of funding ongoing
operations.
During 2000 and 1998, we financed the acquisition of property and
equipment, primarily computer hardware and software, and leasehold improvements
and furniture totaling $1.6 million and $4.3 million, respectively, through
capital leases. Similar financing was not obtained in 1999. Capital lease
payments were $.9 million, $4.9 million and $.8 million in 2000, 1999 and 1998,
respectively.
During 2000, we entered into a $10 million bank line of credit agreement
collateralized by certain of our assets. The credit line allows for advances
against eligible accounts receivable in an aggregate amount not to exceed the
lesser of the committed revolving line or the borrowing base, less any
outstanding letters of credit. Advances against the revolving line bear interest
at the bank's prime rate plus 1%, which was 10.5% at December 31, 2000. As of
December 31, 2000 and March 31, 2001, there were no advances on the line of
credit. The line of credit expires in June 2001. Under the agreement, Sagent is
required to comply with certain covenants, among which are minimum liquidity
ratios and tangible net worth ratios. As of December 31, 2000, Sagent was not in
compliance with these covenants.
In February 2001, we completed a private placement of approximately 5.75
million shares of our common stock and received proceeds of $16.3 million, net
of $0.4 million in offering costs. In connection with the private placement, we
issued to certain placement agents warrants to purchase approximately 210,093
shares of our common stock.
*We believe that the net proceeds from the private placement, together with
any equipment lease lines, will be sufficient to meet our operating requirements
for the next 12 months. Thereafter, we may require additional funds to support
our operating requirements and may seek, even before such time, to raise
additional funds through public or private equity financing or from other
sources. There can be no assurance that additional financing will be available
at all, or that if available, such financing will be obtainable on acceptable or
favorable terms or that such financing will not be dilutive to our stockholders.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
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sheet as either an asset or liability measured at its fair value. We adopted
SFAS 133 in the first quarter of 2001, and such adoption did not have a material
effect on our results of operations or financial position.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about risks, together with
the other information contained in this annual report, before you decide whether
to buy our common stock. Additional risks and uncertainties not known to us or
that we now believe to be unimportant could also impair our business. If any of
the following risks actually occur, our business, results of operations and
financial condition could suffer significantly. As a result, the market price of
our common stock could decline, and you may lose all or your investment.
WE HAVE A HISTORY OF LOSSES, EXPECT LOSSES IN THE FORESEEABLE FUTURE AND MAY
NEVER BECOME PROFITABLE.
We incurred net losses of $23.7 million, $12.1 million, and $15.1 million
in 2000, 1999 and 1998, respectively. We had stockholders' equity of $26.7
million as of December 31, 2000, and $43.4 million as of December 31, 1999.
We have not achieved profitability to date, and we expect to incur losses
in the foreseeable future. We have incurred significant operating expenses in
the past and expect to do so again in the future and, as a result, will need to
significantly increase revenues in order to achieve profitability. We cannot
assure you that we will ever achieve profitability, and if we do achieve
profitability, that we will be able to sustain profitability.
WE HAVE LIMITED WORKING CAPITAL AND MAY NEED TO RAISE ADDITIONAL CAPITAL IN THE
FUTURE
At December 31, 2000, we had cash, cash equivalents and marketable
securities totaling $6.4 million. In February 2001, we completed a private
placement of our common stock and received proceeds of $16.3 million, net of
offering costs.
To date, we have not achieved profitability or positive cash flow. Although
we believe that our current cash, cash equivalents and marketable securities,
and any net cash provided by operations, will be sufficient to meet anticipated
cash needs for working capital and capital expenditures for the next twelve
months, because our revenue is unpredictable, a revenue shortfall could deplete
our limited financial resources and require us to reduce operations
substantially or to raise additional funds through equity or debt financings.
There can be no assurance any equity or debt financing will be available to us
on favorable terms, if at all, or that if available, such financing will not be
dilutive to our stockholders. If we are unable to raise additional capital, we
will take actions to conserve our cash balances, including significantly
reducing our operating expenses, downsizing our staff and closing existing
branch offices, all of which could have a material adverse effect on our
business, financial condition and our ability to reduce losses or generate
profits.
WE MAY NOT BE ABLE TO MANAGE EXPENSES GIVEN THE UNPREDICTABILITY OF OUR REVENUE
We expended significant resources in 1999 and 2000 to build our
infrastructure and hire personnel, particularly in our consulting services and
sales and marketing groups. We currently expect to continue to hire personnel in
2001 in order to support anticipated higher revenue levels. Consequently, we
continue to incur a relatively high level of short term fixed expenses. If
planned revenue growth does not materialize, our business, financial condition
and results of operation will be materially harmed.
PENDING LITIGATION COULD HARM OUR BUSINESS.
From October 20, 2000 to November 27, 2000, several class action lawsuits
were filed in the United States District Court on behalf of the individual
investors who purchased our common stock between October 21, 1999 and April 18,
2000. The claims allege that we misrepresented our 1999 and 2000 prospects. The
court recently consolidated the complaints and selected a lead plaintiff and
counsel. A consolidated amended complaint will be filed in April 2001.
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On November 17, 2000, a derivative lawsuit was filed by a purported Sagent
shareholder in the Superior Court of California. On February 9, 2001, a second
derivative lawsuit was filed. The complaints name certain of our present and
former officers and directors as defendants. The principal allegation of the
complaints is that the defendants breached their fiduciary duties to Sagent.
The uncertainty associated with substantial unresolved lawsuits could
seriously harm our business and financial condition. In particular, the lawsuits
could harm our relationships with existing customers and our ability to obtain
new customers. The continued defense of the lawsuits could also result in the
diversion of our management's time and attention away from business operations,
which could harm our business. The lawsuits could also have the effect of
discouraging potential acquirors from bidding for us or reducing the
consideration they would otherwise be willing to pay in connection with an
acquisition. In addition, although we are unable to determine the amount, if
any, that we may be required to pay in connection with the resolution of these
lawsuits by settlement or otherwise, the size of any such payment could
seriously harm our financial condition.
VARIATIONS IN QUARTERLY OPERATING RESULTS DUE TO SUCH FACTORS AS CHANGES IN
DEMAND FOR OUR PRODUCTS AND CHANGES IN OUR MIX OF REVENUES MAY CAUSE OUR STOCK
PRICE TO DECLINE.
We expect our quarterly operating results to fluctuate. We therefore
believe that quarter-to-quarter comparisons of our operating results may not be
a good indication of our future performance, and you should not rely on them to
predict our future performance or the future performance of our stock price. Our
short-term expense levels are relatively fixed and are based on our expectations
of future revenues. As a result, a reduction in revenue in a quarter may harm
our operating results for that quarter. Our quarterly revenue, expenses and
operating results could vary significantly from quarter-to-quarter. If our
operating results in future quarters fall below the expectations of market
analysts and investors, the trading price of our common stock will fall. Factors
that may cause our operating results to fluctuate on a quarterly basis are:
- varying size, timing and contractual terms of orders for our products,
- lengthy sales and implementation cycles associated with our products,
- our ability to timely complete our service obligations related to product
sales,
- changes in the mix of revenue attributable to higher-margin product
license revenue as opposed to substantially lower-margin service revenue,
- customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next,
- changes in demand for our software or for enterprise software and real
time marketing solutions generally,
- announcements or introductions of new products by our competitors,
- software defects and other product quality problems,
- our ability to integrate acquisitions,
- any increase in our need to supplement our professional services
organization by subcontracting to more expensive consulting organizations
to help provide implementation, support and training services when our
own capacity is constrained, and
- our ability to hire, train and retain sufficient engineering, consulting,
training and sales staff.
IF WE FAIL TO EXPAND OUR DIRECT AND INDIRECT SALES CHANNELS, WE WILL NOT BE ABLE
TO INCREASE REVENUES.
In order to grow our business, we need to increase market awareness and
sales of our products and services. To achieve this goal, we need to increase
both our direct and indirect sales channels. If we fail to do so, this failure
could harm our ability to increase revenues. We currently receive substantially
all of our revenues from direct sales, but we intend to increase sales through
indirect sales channels in the future. We also need to expand our direct sales
force by hiring additional salespersons and sales management.
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We intend to derive revenues from indirect sales channels by selling our
software through value added resellers. These resellers offer our software
products to their customers together with consulting and implementation services
or integrate our software solutions with other software. We also intend to
increasingly offer our software through application service providers, who
install our software on their own computer servers and charge their customers
for access to that software. We need to expand our indirect sales channels by
entering into additional relationships with these third parties.
We expect as part of our strategy to increase international sales
principally through the use of indirect sales channels. We will be even more
dependent on indirect sales channels in the future due to our international
strategy. We also plan to use international direct sales personnel and therefore
must hire additional sales personnel outside the United States. Our ability to
develop and maintain these channels will significantly affect our ability to
penetrate international markets.
WE HAVE A RELATIVELY NEW MANAGEMENT TEAM AND THERE IS NO GUARANTEE THAT THEY
WILL BE SUCCESSFUL IN GROWING OUR BUSINESS.
Our management team has not worked together for a significant length of
time and may not be able to successfully implement our strategy. Ben C. Barnes,
our Chief Executive Officer, joined us in August 2000, replacing founder Ken
Gardner. David Eliff, our Chief Financial Officer, joined us in May 2000. Jack
Peters, Senior Vice President, Sales--Americas, Robert Flynn, Senior Vice
President, Marketing, and Arthur Parker, President/General Manager--Europe,
Middle East and Africa, joined us in September 2001, November 2000 and January
2001, respectively. These employees serve "at-will" and may elect to pursue
other opportunities at any time. If our management team is unable to work
effectively together to accomplish our business objectives, our ability to grow
our business could be severely impaired.
A SLOWING ECONOMY AND REDUCTIONS IN INFORMATION TECHNOLOGY SPENDING MAY
NEGATIVELY AFFECT OUR REVENUE.
Our revenue may be negatively affected by the increasingly uncertain
economic conditions both in the market generally and in our industry. If the
economy continues to slow, some companies may reduce their budgets for spending
on information technology and business software. As a consequence, our sales
cycle may become longer with some customers, and other prospective customers may
postpone, reduce, or even forego the purchase of our products and services,
which could negatively affect our revenues.
WE DEPEND ON INCREASED BUSINESS FROM NEW CUSTOMERS, AND IF WE FAIL TO GROW OUR
CLIENT BASE OR GENERATE REPEAT OR EXPANDED BUSINESS, OUR OPERATING RESULTS COULD
BE HARMED.
If we fail to grow our client base or generate repeat and expanded business
from our current and future clients, our business and operating results will be
seriously harmed. In some cases, our customers initially make a limited purchase
of our products and services. These clients may not choose to purchase
additional licenses to expand their use of our products. These clients have not
yet developed or deployed initial applications based on our products. If these
clients do not successfully develop and deploy these initial applications, they
may choose not to purchase deployment licenses or additional development
licenses. Our business model generally depends on the expanded use of our
products within our customers' organizations.
In addition, as we introduce new versions of our products or new products,
our current customers may not require the functionality of our new products and
may not ultimately license those products. Because the total amount of
maintenance and support fees we receive in any period depends in large part on
the size and number of licenses that we have previously sold, any downturn in
our license revenue would negatively affect our future services revenue. In
addition, if clients elect not to renew their maintenance agreement, our
services revenue could decline significantly. Further, some of our customers are
Internet-based companies, which have been forced to significantly reduce their
operations in light of limited access of sources of financing and current
economic slowdown. If customers are unable to pay for their current products or
are unwilling to purchase additional products,our revenues would decline.
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WE MAY LOSE EXISTING CUSTOMERS OR BE UNABLE TO ATTRACT NEW CUSTOMERS IF WE DO
NOT DEVELOP NEW PRODUCTS.
If we are not able to improve our product line and develop new products
that keep pace with competitive product introductions and technological
developments, satisfy diverse and evolving customer requirements and achieve
market acceptance, we may lose existing customers or be unable to attract new
customers. We may not be successful in developing and marketing new versions,
other product enhancements or new products that respond to technological
advances by others on a timely or cost-effective basis, or that these products,
if developed, will achieve market acceptance.
We have experienced delays in releasing new products and product
enhancements and may experience similar delays in the future. These delays or
problems in the installation or implementation of our new releases may cause
customers to forego purchases of our products to purchase those of our
competitors.
OUR MARKETS ARE HIGHLY COMPETITIVE AND COMPETITION COULD HARM OUR ABILITY TO
SELL PRODUCTS AND SERVICES AND REDUCE OUR MARKET SHARE.
Competition could seriously harm our ability to sell additional software
and maintenance and support renewals on prices and terms favorable to us.
Additionally, if we cannot compete effectively, we may lose market share. The
markets for our products are intensely competitive and subject to rapidly
changing technology. We compete against providers of decision support software,
data warehousing software and enterprise application software. We also compete
with providers of e-Business software, which allows for the electronic delivery
of products and services that enable commerce among businesses and end users.
Companies in each of these areas may expand their technologies or acquire
companies to support greater enterprise intelligence functionality and
capability, particularly in the areas of query response time and the ability to
support large numbers of users. We may also face competition from vendors of
products and turnkey solutions for e-Business applications that include Internet
based information functionality.
Many of our competitors have longer operating histories, significantly
greater financial, technical, marketing or other resources, or greater name
recognition than we do. Our competitors may be able to respond more quickly than
we can to new or emerging technologies and changes in customer requirements.
WE NEED TO ATTRACT, TRAIN AND RETAIN ADDITIONAL QUALIFIED PERSONNEL IN A
COMPETITIVE EMPLOYMENT MARKET.
Our success depends on our ability to attract, train and retain qualified,
experienced employees. There is substantial competition for experienced
management, engineering, sales and marketing personnel, particularly in the
market segment in which we compete. If we are unable to retain our existing key
personnel, or to attract, train and retain additional qualified personnel, we
may experience inadequate levels of staffing to develop and sell our products
and perform services for our customers.
The market price of our common stock has fluctuated substantially since our
initial public offering in April 1999, and has experienced a significant decline
since the first quarter of 2000. We have relied historically on our ability to
attract employees using equity incentives, and any perception by potential and
existing employees that our equity incentives are less attractive could harm our
ability to attract and retain qualified employees.
WE RELY ON MARKETING, TECHNOLOGY AND DISTRIBUTION RELATIONSHIPS THAT MAY
GENERALLY BE TERMINATED AT ANY TIME, AND IF OUR CURRENT AND FUTURE RELATIONSHIPS
ARE NOT SUCCESSFUL, OUR GROWTH MAY BE LIMITED.
We rely on marketing and technology relationships with a variety of
companies that, in part, generate leads for the sale of our products. These
marketing and technology relationships include relationships with:
- system integrators and consulting firms;
- vendors of e-commerce and Internet software;
- vendors of software designed for customer relationship management or for
management of organizations' operational information;
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- vendors of key technology and platforms;
- demographic data providers; and
- an application service provider and an Internet hoster.
If we cannot maintain successful marketing and technology relationships or
cannot enter into additional marketing and technology relationships, we may have
difficulty expanding the sales of our products and our growth may be limited.
IF WE LOSE KEY LICENSES WE MAY BE REQUIRED TO DEVELOP OR LICENSE ALTERNATIVES
WHICH MAY CAUSE DELAYS OR REDUCTIONS IN SALES.
We rely on software that we have licensed from Opalis S.A. to perform key
functions of our Sagent Automation product that automates common tasks in
managing data. We also rely on software we have licensed from Microsoft
Corporation to allow users to be able to customize the user interface provided
by our Sagent Design Studio product. These licenses may not continue to be
available to us on commercially reasonable terms. The loss of either of these
licenses could result in delays or reductions of shipments of our product suite
until equivalent software could be developed, identified, licensed and
integrated. If customers require the automation and/or the user interface
customization features when licenses for either of those is not available, they
may delay or decline to purchase our product suite.
FAILURE OF COMMERCIAL USERS TO ACCEPT INTERNET SOLUTIONS COULD LIMIT OUR FUTURE
GROWTH.
A key element of our strategy is to offer users the ability to access,
analyze and report information from a data server through a Web browser. Our
growth would be limited if businesses do not accept Internet solutions or
perceive them to be cost-effective. Continued viability of the Internet depends
on several factors, including:
- Third parties' abilities to develop new enabling technologies in a timely
manner
- The Internet's ability to handle increased activity
- The Internet's ability to operate as a fast, reliable and secure network
- Potential changes in government regulation
Moreover, critical issues concerning the commercial use of the Internet,
including data corruption, cost, ease of use, accessibility and quality of
service, remain unresolved and may negatively affect commerce and communication
on the Internet. These issues will need to be addressed in order for the market
for our products and services to grow.
CUSTOMER SATISFACTION AND DEMAND FOR OUR PRODUCTS WILL DEPEND ON OUR ABILITY TO
EXPAND OUR PROFESSIONAL SERVICES GROUP, WHICH ASSISTS OUR CUSTOMERS WITH THE
IMPLEMENTATION OF OUR PRODUCTS.
We believe that growth in our product sales depends on our ability to
provide our customers with professional services to assist with support,
training, consulting and initial implementation of our products and to educate
third-party systems integrators in the use of our products. As a result, we plan
to increase the number of professional services personnel to meet these needs.
New professional services personnel will require training and take time to reach
full productivity. We may not be able to attract or retain a sufficient number
of highly qualified professional services personnel. Competition for qualified
professional services personnel with the appropriate knowledge is intense. We
are in a new market and there is a limited number of people who have the
necessary skills. To meet our customers' needs for professional services, we may
also need to use more costly third-party consultants to supplement our own
professional services group. In addition, we could experience delays in
recognizing revenue if our professional services group falls behind schedule in
connecting our products to customers' systems and data sources.
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WE HAVE EXPANDED OUR INTERNATIONAL OPERATIONS BUT MAY ENCOUNTER A NUMBER OF
PROBLEMS IN MANAGING OVERSEAS OPERATIONS WHICH COULD LIMIT OUR FUTURE GROWTH.
We may not be able to successfully market, sell, deliver and support our
products and services internationally. Our failure to manage our international
operations effectively could limit the future growth of our business.
International sales represented approximately 13% of our total revenue for the
year ended December 31, 2000. We conduct our international sales through local
subsidiaries in the United Kingdom, Germany, France, Japan, Brazil, and Canada
and through distributor relationships in, Benelux, South Africa and eight
Pacific Rim countries. The expansion of our existing international operations
and entry into additional international markets will require significant
management attention and financial resources to hire international sales
personnel. Localizing our products is difficult and may take longer than we
anticipate due to difficulties in translation and delays we may experience in
recruiting and training international staff. In addition, we currently have
limited experience in developing local versions of our products, as well as
marketing, selling and supporting our products and services overseas.
WE HAVE BEEN, AND MAY BE SUBJECT TO FUTURE, INTELLECTUAL PROPERTY INFRINGEMENT
CLAIMS.
We may be subject, from time to time, to claims that we are infringing the
intellectual property rights of others. Any litigation regarding intellectual
property rights may be costly to defend or settle, and may divert the attention
of our management and key personnel from our business operations. The complexity
of the technology involved and the uncertainty of intellectual property
litigation increase these risks. Claims of intellectual property infringement
might also require us to enter into costly royalty or license agreements.
In December 2000 we settled an infringement claim brought by Timeline, Inc.
Under the terms of the settlement, we paid Timeline $600,000 and issued 600,000
shares of our common stock to Timeline.
We may subject to similar or more costly claims in the future or may become
subject to an injunction against use of our products. A successful claim of
patent or other intellectual property infringement against us would have an
immediate material adverse effect on our business and financial condition.
IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THIS INABILITY
COULD WEAKEN OUR COMPETITIVE POSITION, REDUCE OUR REVENUE AND INCREASE OUR
COSTS.
Our success depends in large part on our proprietary technology. We rely on
a combination of copyright, trademark and trade secrets, confidentiality
procedures and licensing arrangements to establish and protect our proprietary
rights. We may be required to spend significant resources to monitor and police
our intellectual property rights. If we fail to successfully enforce our
intellectual property rights, our competitive position may be harmed.
Other software providers could copy or otherwise obtain and use our
products or technology without authorization. They also could develop similar
technology independently which may infringe our proprietary rights. We may not
be able to detect infringement and may lose a competitive position in the market
before we do so. In addition, competitors may design around our technology or
develop competing technologies. The laws of some foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE OUR PRODUCT MAY BE RENDERED
OBSOLETE AND OUR BUSINESS MAY FAIL.
Our industry is characterized by rapid technological change, changes in
customer requirements, frequent new product introductions and enhancements and
emerging industry standards. In order to achieve broad customer acceptance, our
products must be compatible with major software and e-commerce applications and
operating systems. We must continually modify and enhance our products to keep
pace with changes in these applications and systems. Internet selling system
technology is complex and new products enhancements can require long development
and testing periods. If our products were to be incompatible with a popular new
systems or applications, our business would be significantly harmed. In
addition, the development of entirely
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new technologies replacing existing software could lead to new competitive
products that have better performance or lower prices than our products and
could render our products obsolete.
WE HAVE RECENTLY ISSUED A LARGE NUMBER OF SHARES OF OUR COMMON STOCK, AND THE
SALE OF THESE SHARES COULD CAUSE OUR STOCK PRICE TO DECLINE.
During the first quarter of 2001, we issued an aggregate of 7,509,896
shares of our common stock in private transactions. We issued 600,000 shares of
our common stock to Timeline, Inc., in settlement of litigation, 950,000 shares
of our common stock to eGlobal Technology Services Limited in exchange for an
additional 33% equity interest in Sagent (Asia Pacific) Pte Ltd., and 5,749,803
shares of our common stock to investors in a private placement at a price per
share of $2.90. In connection with the private placement, we also issued to
certain placement agents warrants to purchase 210,093 shares of our common stock
at an exercise price per share of $2.90. We are under an obligation to file
registration statements under the Securities Act of 1933 covering the sale of
all of the foregoing shares. We expect to file such registration statements in
April 2001. If these stockholders sell substantial amounts of our common in the
public market following this offering, the market price of our common stock
could fall.
IF OUR STOCK PRICE DECLINES FURTHER, THERE IS A RISK THAT WE MAY BE DELISTED BY
NASDAQ.
Our common stock trades on the Nasdaq National Market, which has certain
compliance requirements for continued listing of common stock. If the minimum
closing bid price per share is less than $1.00 for a period of 30 consecutive
business days, our shares may be delisted following a 90 day notice period
during which the minimum closing bid price must be $1.00 or above per share for
a period of 10 consecutive business days, if we do not file an appeal. As of the
close of business on April 3, 2001, our common stock closed at a minimum bid
price per share of $1.312.
The result of delisting from the Nasdaq National Market would be a
reduction in the liquidity of any investment in our common stock. Delisting
would reduce the ability of holders of our common stock to purchase or sell
shares as quickly and as inexpensively as they have done historically. This lack
of liquidity would make it more difficult for us to raise capital in the future.
ENTERPRISE INTELLIGENCE SOFTWARE MARKETS MAY NOT GROW.
Since all of our revenue are attributable to the sale of enterprise
intelligence software and related maintenance, consulting and training services,
if the market for enterprise intelligence software does not grow, our business
will not grow. We expect enterprise intelligence software and services to
account for substantially all of our revenue for the foreseeable future.
Although demand for Enterprise Intelligence software has grown in recent years,
the market may not continue to grow or, even if the market does grow, businesses
may not adopt our products.
We are focusing our selling efforts on large, enterprise-wide
implementations of our products, and we expect such sales to constitute an
increasing portion of any future revenue growth. While we have devoted
significant resources to promoting market awareness of our products and the
problems such products address, we do not know whether these efforts will be
sufficient to support significant growth in the market for enterprise
intelligence products.
WE RELY ON A CONTINUOUS POWER SUPPLY TO CONDUCT OUR OPERATIONS, AND CALIFORNIA'S
CURRENT ENERGY CRISIS COULD DISRUPT OUR OPERATIONS AND INCREASE OUR EXPENSES.
California is in the midst of an energy crisis that could disrupt our
operations and increase our expenses. In the event of an acute power shortage,
that is, when power reserves for the State of California fall below certain
critical levels, California has on some occasions implemented, and may in the
future continue to implement, rolling blackouts throughout California. We
currently do not have backup generators or alternate sources of power in the
event of a blackout, and our current insurance does not provide coverage for any
damages we or our customers may suffer as a result of any interruption in our
power supply. If blackouts interrupt our power supply, we would be temporarily
unable to continue operations at our California facilities.
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Any such interruption in our ability to continue operations at our facilities
could damage our reputation, harm our ability to retain existing customers and
to obtain new customers, and could result in lost revenue, any of which could
substantially harm our business and results of operations.
Furthermore, the deregulation of the energy industry instituted in 1996 by
the California government has caused power prices to increase. Under
deregulation, utilities were encouraged to sell their plants, which
traditionally had produced most of California's power, to independent energy
companies that were expected to compete aggressively on price. Instead, due in
part to a shortage of supply, wholesale prices have skyrocketed over the past
year. If wholesale prices continue to increase, the operating expenses
associated with our facilities are located in California will likely increase,
which would harm our results of operations.
OUR ACQUISITIONS COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS AND
DILUTE STOCKHOLDER VALUE.
We may make investments in or acquire complementary companies, products and
technologies. If we buy a company, we could have difficulty in assimilating that
company's operations. In addition, we may be unsuccessful in retaining the key
personnel of the acquired company. Moreover, we currently do not know and cannot
predict the accounting treatment of any such acquisition, in part because we
cannot be certain what accounting regulations, conventions or interpretations
may prevail in the future. If we acquire complementary technologies or products,
we could experience difficulties assimilating the acquired technology or
products into our operations. These difficulties could disrupt our ongoing
business, distract our management and employees and increase our expenses.
Furthermore, we may have to incur debt or issue equity securities to pay for any
future acquisitions, the issuance of which could be dilutive to our existing
stockholders, and adversely affect the price of our common stock.
FAILURE OF COMMERCIAL USERS TO ACCEPT INTERNET SOLUTIONS COULD LIMIT OUR FUTURE
GROWTH.
A key element of our strategy is to offer users the ability to access,
analyze and report information from a data server through a Web browser. Our
growth would be limited if businesses do not accept Internet solutions or
perceive them to be cost-effective. Continued viability of the Internet depends
on several factors, including:
- Third parties' abilities to develop new enabling technologies in a timely
manner;
- The Internet's ability to handle increased activity;
- The Internet's ability to operate as a fast, reliable and secure network;
and
- Potential changes in government regulation;
Moreover, critical issues concerning the commercial use of the Internet,
including data corruption, cost, ease of use, accessibility and quality of
service, remain unresolved and may negatively affect commerce and communication
on the Internet. These issues will need to be addressed in order for the market
for our products and services to grow.
IF WE DISCOVER SOFTWARE DEFECTS WE MAY HAVE PRODUCT-RELATED LIABILITIES WHICH
MAY LEAD TO LOSS OF REVENUE OR DELAY IN MARKET ACCEPTANCE FOR OUR PRODUCTS.
Our software products are internally complex and may contain errors,
defects or failures, especially when first introduced or when new versions are
released. We test our products extensively prior to releasing them; however, in
the past we have discovered software errors in some of our products after their
introduction. Despite extensive testing, we may not be able to detect and
correct errors in products or releases before commencing commercial shipments,
which may result in loss of revenue or delays in market acceptance.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. All
domestic and international jurisdictions may not enforce these limitations.
Although we have not experienced any product liability claims to date, we may
encounter such claims in the future. Product liability claims, whether or not
successful, brought against us could divert the attention of management and key
personnel and could be expensive to defend.
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WE HAVE ANTI-TAKEOVER DEFENSES THAT COULD DELAY OR PREVENT AN ACQUISITION OF OUR
COMPANY.
Provisions of our certificate of incorporation, bylaws, other agreements
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. Our board of directors
could choose not to negotiate with an acquirer that it did not feel was in the
strategic interests of our company. If the acquirer was discouraged from
offering to acquire us, or prevented from successfully completing a hostile
acquisition by the anti-takeover measures, you could lose the opportunity to
sell your shares at a favorable price.
WE DO NOT INTEND TO PAY DIVIDENDS AND YOU MAY NOT EXPERIENCE A RETURN ON
INVESTMENT WITHOUT SELLING SHARES.
We have never declared or paid any cash dividends on our capital stock.
Therefore, you will not experience a return on your investment in our common
stock without selling your shares since we currently intend on retaining future
earnings to fund our growth and do not expect to pay dividends in the
foreseeable future.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in "Risk Factors That May Affect Results"
beginning on page 12.
INTEREST RATE RISK
At December 31, 2000, we had cash totaling $6.4 million, compared to $38.2
million of cash, cash equivalents and marketable securities at December 31,
1999. Therefore, we believe we are not currently exposed to significant interest
rate risk.
In 2000, we entered into a $10 million line of credit agreement with a bank
collateralized by our assets. Advances against the revolving line bear interest
at the bank's prime rate, plus 1%. Although we have no outstanding balance under
the line of credit, we may borrow under the line in the future. If we do so and
market interest rates rise, then our interest payments would increase
accordingly.
FOREIGN CURRENCY EXCHANGE RATE RISK
Substantially all of our revenue recognized to date has been denominated in
U.S. dollars and a significant portion of which has been realized outside of the
United States. To the extent that we engage in international sales denominated
in U.S. dollars, an increase in the value of the U.S. dollar relative to foreign
currencies could make our products less competitive in international markets.
Although we will continue to monitor our exposure to currency fluctuations, and,
when appropriate, may use financial hedging techniques in the future to minimize
the effect of these fluctuations, we cannot assure you that exchange rate
fluctuations will not harm our business in the future.
EQUITY PRICE RISK
We do not own any significant public equity investments. Therefore, we
believe we are not currently exposed to any direct equity price risk.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SAGENT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Accountants.......................... 27
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 29
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... 30
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for the Years Ended December 31, 2000,
1999 and 1998............................................. 31
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... 32
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2000, 1999 and 1998.................... 33
Schedule II -- Valuation and Qualifying Accounts............ 51
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
We have audited the accompanying consolidated balance sheet of Sagent
Technology, Inc., and subsidiaries as of December 31, 2000 and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows for the year then ended. Our audit also included the
financial statement schedule as listed in the Index at Item 14(a) as of and for
the year ended December 31, 2000. The consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sagent
Technology, Inc., and subsidiaries at December 31, 2000 and the results of their
operations and their cash flows for the year then ended, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the related financial statement schedule as of and for the year
ended December 31, 2000, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Mountain View, CA
February 5, 2001, except as to
Note 15 which is as of March 5, 2001.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and comprehensive
loss, and cash flows present fairly, in all material respects, the financial
position of Sagent Technology, Inc. and its subsidiaries at December 31, 1999
and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 10, 2000
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SAGENT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
AS OF DECEMBER 31,
--------------------
2000 1999
-------- --------
Current assets:
Cash and cash equivalents................................. $ 6,372 $ 15,910
Marketable securities..................................... -- 22,309
Accounts receivable, net of allowance for doubtful
accounts of $4,968 in 2000 and $630 in 1999............ 14,667 11,027
Prepaid expenses.......................................... 6,261 4,576
-------- --------
Total current assets.............................. 27,300 53,822
Property and equipment, net................................. 5,718 3,676
Goodwill, net............................................... 7,323 7,895
Other assets, net........................................... 2,595 1,311
Notes receivable from officers.............................. 3,151 --
-------- --------
Total assets...................................... $ 46,087 $ 66,704
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 3,296 $ 1,151
Accrued liabilities....................................... 5,842 10,034
Accrued merger costs...................................... -- 4,109
Deferred revenue.......................................... 8,352 5,910
Current portion of capital lease obligations.............. 1,037 635
-------- --------
Total current liabilities......................... 18,527 21,839
Deferred revenue............................................ -- 1,140
Deferred rent............................................... 245 --
Long-term portion of capital lease obligations.............. 650 351
-------- --------
Total liabilities................................. 19,422 23,330
-------- --------
Commitments and contingencies (Note 5)
Stockholders' equity:
Convertible preferred stock, par value $.001 per share;
Authorized: 15,556 shares in 2000 and 1999; Issued and
outstanding: none in 2000 and 1999..................... -- --
Common stock, par value $.001 per share; Authorized:
70,000 shares; Issued and outstanding: 29,829 shares in
2000 and 27,896 shares in 1999......................... 30 28
Additional paid-in capital................................ 97,354 89,135
Notes receivable from stockholders........................ (2,423) (2,625)
Deferred compensation..................................... (1,566) --
Accumulated deficit....................................... (66,941) (43,237)
Accumulated other comprehensive loss...................... 211 73
-------- --------
Total stockholders' equity........................ 26,665 43,374
-------- --------
Total liabilities and stockholders' equity........ $ 46,087 $ 66,704
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
32
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
REVENUE:
License.................................................. $ 34,666 $ 34,130 $ 15,613
Service.................................................. 23,522 13,871 9,388
-------- -------- --------
Total revenue, net............................... 58,188 48,001 25,001
-------- -------- --------
COST OF REVENUE:
License.................................................. 1,940 2,834 588
Service.................................................. 10,891 7,315 6,870
Amortization of abandoned development projects........... -- 1,600 --
-------- -------- --------
Total cost of revenue............................ 12,831 11,749 7,458
-------- -------- --------
Gross profit............................................... 45,357 36,252 17,543
-------- -------- --------
OPERATING EXPENSES:
Sales and marketing...................................... 37,668 26,862 15,920
Research and development................................. 17,003 12,466 8,431
General and administrative............................... 17,019 5,111 5,723
Merger and integration charges........................... (2,318) 4,646 --
Acquired in-process research and development............. -- -- 2,425
-------- -------- --------
Total operating expenses......................... 69,372 49,085 32,499
-------- -------- --------
Loss from operations....................................... (24,015) (12,833) (14,956)
Interest income (expense), net............................. 1,277 1,005 (290)
Other income (expense)..................................... (456) (1) 8
-------- -------- --------
Loss before income taxes................................... (23,194) (11,829) (15,238)
Income tax expense (benefit)............................... 510 263 (182)
-------- -------- --------
Net loss................................................... $(23,704) $(12,092) $(15,056)
======== ======== ========
Net loss per share:
Basic and diluted........................................ $ (0.82) $ (0.55) (2.60)
======== ======== ========
Number of shares used in calculation of net loss per share:
Basic and diluted........................................ 28,773 21,868 5,797
The accompanying notes are an integral part of these consolidated financial
statements.
30
33
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
---------------- --------------- PAID-IN FROM DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION DEFICIT
------- ------ ------ ------ ---------- ------------ ------------ -----------
BALANCES, DECEMBER 31, 1997..... 12,390 $12 5,324 $ 5 $21,178 $ -- -- $(16,089)
Net loss....................... -- -- -- -- -- -- -- (15,056)
Translation adjustment......... -- -- -- -- -- -- -- --
Comprehensive loss.............
Preferred stock issued, net.... 1,941 2 -- -- 10,357 -- -- --
Preferred stock issued related
to acquisition............... 259 1 -- -- 1,400 -- -- --
Preferred stock repurchased.... (46) -- -- -- (118) -- -- --
Stock warrants issued.......... -- -- -- -- 114 -- -- --
Common stock options
exercised.................... -- -- 725 1 290 -- -- --
Common stock repurchased....... -- -- (57) -- (20) -- -- --
Common stock issued for notes
receivable................... -- -- 180 -- 522 (522) -- --
Exercise of stock purchase
right........................ -- -- 28 -- 121 -- -- --
------- --- ------ --- ------- ------- ------- --------
BALANCES, DECEMBER 31, 1998..... 14,544 15 6,200 6 33,844 (522) -- (31,145)
Net loss....................... -- -- -- -- -- -- -- (12,092)
Translation adjustment......... -- -- -- -- -- -- -- --
------- --- ------ --- ------- ------- ------- --------
Comprehensive loss.............
Common stock issued in
connection with initial
public offering.............. (14,544) (15) 20,248 21 46,348 -- -- --
Common stock issued for notes
receivable................... -- -- -- -- 2,284 (2,284) -- --
Repayment of notes receivable
issued for common stock...... -- -- -- -- -- 315 -- --
Interest on notes receivable
issued for common stock...... -- -- -- -- -- (134) -- --
Common stock options
exercised.................... -- -- 978 1 1,160 -- -- --
Common stock issued related to
employee stock purchase
plan......................... -- -- 68 -- 521 -- -- --
Common stock warrants
exercised.................... -- -- 236 -- 786 -- -- --
Common stock issued related to
acquisitions................. -- -- 166 -- 1,437 -- -- --
Common stock options issued
below market value........... -- -- -- -- 2,755 -- -- --
------- --- ------ --- ------- ------- ------- --------
BALANCES, DECEMBER 31, 1999..... -- -- 27,896 28 89,135 (2,625) -- (43,237)
Net loss....................... -- -- -- -- -- -- -- (23,704)
Translation adjustment......... -- -- -- -- -- -- -- --
------- --- ------ --- ------- ------- ------- --------
Comprehensive loss.............
Issuance of stockholder notes
receivable................... -- -- -- -- -- (136) -- --
Common stock repurchased by
note cancellation............ -- -- (85) -- (482) 482 -- --
Interest on notes receivable
issued for common stock...... -- -- -- -- -- (144) -- --
Common stock issued related to
litigation settlements....... -- -- 725 1 2,354 -- -- --
Common stock options
exercised.................... -- -- 886 1 3,019 -- -- --
Common stock issued related to
employee stock purchase
plan......................... -- -- 256 -- 1,045 -- -- --
Restricted common stock issued
to executive................. -- -- 150 -- 1,742 -- (1,566) --
Stock warrants issued.......... -- -- -- -- 15 -- -- --
Common stock issued to non-
employees.................... -- -- 14 -- 527 -- -- --
Common stock repurchased....... -- -- (13) -- (1) -- -- --
------- --- ------ --- ------- ------- ------- --------
BALANCES, DECEMBER 31, 2000..... -- $-- 29,829 30 97,354 (2,423) (1,566) (66,941)
======= === ====== === ======= ======= ======= ========
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE STOCKHOLDERS'
LOSS EQUITY
------------- -------------
BALANCES, DECEMBER 31, 1997..... $ -- $ 5,106
Net loss....................... -- (15,056)
Translation adjustment......... 101 101
Comprehensive loss............. (14,955)
Preferred stock issued, net.... -- 10,359
Preferred stock issued related
to acquisition............... -- 1,401
Preferred stock repurchased.... -- (118)
Stock warrants issued.......... -- 114
Common stock options
exercised.................... -- 291
Common stock repurchased....... -- (20)
Common stock issued for notes
receivable................... -- --
Exercise of stock purchase
right........................ -- 121
---- --------
BALANCES, DECEMBER 31, 1998..... 101 2,299
Net loss....................... -- (12,092)
Translation adjustment......... (28) (28)
---- --------
Comprehensive loss............. (12,120)
Common stock issued in
connection with initial
public offering.............. -- 46,354
Common stock issued for notes
receivable................... -- --
Repayment of notes receivable
issued for common stock...... -- 315
Interest on notes receivable
issued for common stock...... -- (134)
Common stock options
exercised.................... -- 1,161
Common stock issued related to
employee stock purchase
plan......................... -- 521
Common stock warrants
exercised.................... -- 786
Common stock issued related to
acquisitions................. -- 1,437
Common stock options issued
below market value........... -- 2,755
---- --------
BALANCES, DECEMBER 31, 1999..... 73 43,374
Net loss....................... -- (23,704)
Translation adjustment......... 138 138
---- --------
Comprehensive loss............. (23,566)
Issuance of stockholder notes
receivable................... -- (136)
Common stock repurchased by
note cancellation............ -- --
Interest on notes receivable
issued for common stock...... -- (144)
Common stock issued related to
litigation settlements....... -- 2,355
Common stock options
exercised.................... -- 3,020
Common stock issued related to
employee stock purchase
plan......................... -- 1,045
Restricted common stock issued
to executive................. -- 176
Stock warrants issued.......... -- 15
Common stock issued to non-
employees.................... -- 527
Common stock repurchased....... -- (1)
---- --------
BALANCES, DECEMBER 31, 2000..... 211 26,665
==== ========
The accompanying notes are an integral part of these consolidated financial
statements.
31
34
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEARS ENDED DECEMBER 31,
------------------------------
2000 1999 1998
-------- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(23,704) (12,092) (15,056)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 4,033 4,350 2,011
Provision for doubtful accounts......................... 4,793 122 58
In-process research and development..................... -- -- 2,425
Loss on disposal of property and equipment.............. 656 -- --
Shares issued in litigation settlement.................. 2,355 -- --
Issuance of common stock for services................... 527 2,755 262
Issuance of common stock warrants for services.......... 15 -- 114
Stock-based employee compensation....................... 176 -- --
Share of losses in equity investment.................... 170 -- --
Accrued interest on notes receivable.................... (144) -- --
Net change in operating assets and liabilities:
Accounts receivable..................................... (8,433) (4,603) (3,549)
Prepaid assets.......................................... (1,685) (2,956) (825)
Other assets............................................ (75) (7,056) (1,011)
Accounts payable........................................ 2,145 (1,748) 1,957
Accrued liabilities..................................... (4,192) 5,367 2,498
Accrued merger costs.................................... (4,109) 4,109 --
Deferred revenue........................................ 1,302 4,196 389
Deferred rent........................................... 245 -- --
-------- ------- -------
Net cash used in operating activities............... (25,925) (7,556) (10,727)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities......................... (39,666) (22,309) --
Sale of marketable securities............................. 61,975 -- --
Purchase of property and equipment........................ (3,535) (2,904) (1,233)
Purchases of long-term investments........................ (1,379) -- --
Sale of property and equipment............................ 200 1,539 --
Business acquisitions, net of cash acquired............... (1,228) (1,132) (2,696)
Employee notes............................................ (3,287) -- --
Capitalized software development.......................... -- (612) (1,209)
-------- ------- -------
Net cash used in investing activities............... 13,080 (25,418) (5,138)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from capital lease financing..................... -- -- 4,329
Payments of capital lease obligations..................... (895) (4,911) (781)
Proceeds from issuance of preferred stock, net............ -- -- 10,360
Repurchase of common stock................................ (1) -- (20)
Repurchase of preferred stock............................. -- -- (118)
Proceeds from issuance of common stock, net............... 4,065 50,440 1,199
-------- ------- -------
Net cash provided by financing activities........... 3,169 45,529 14,969
-------- ------- -------
Effect of exchange rate changes............................. 138 (28) 101
-------- ------- -------
Net increase (decrease) in cash and cash equivalents........ (9,538) 12,527 (795)
Cash and cash equivalents, beginning of year................ 15,910 3,383 4,178
-------- ------- -------
Cash and cash equivalents, end of year...................... $ 6,372 15,910 3,383
======== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
32
35
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business. Sagent Technology, Inc., ("Sagent" or the "Company"), develops,
markets and supports software designed to address organizations' information
access, analysis and delivery needs. Sagent, formerly Savant Software, Inc., was
incorporated under the laws of the State of California in April 1995 and
reincorporated in Delaware in 1998.
Principles of consolidation. The consolidated financial statements include
the accounts of Sagent Technology, Inc. and its wholly-owned subsidiaries,
Qualitative Marketing Software, Inc. (QMS), Sagent U.K., Ltd., Sagent Technology
GmbH, Sagent France, S.A., Sagent Technology Japan KK, Sagent Technology Canada
Inc., and Sagent Brazil. All intercompany accounts and transactions have been
eliminated. The 1999 acquisition of QMS is accounted for as a pooling of
interests. The consolidated financial statements have been restated for all
periods presented as if QMS and the Company had always been combined.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Foreign currency translation. The functional currency of Sagent's
subsidiaries is the local currency. Accordingly, Sagent applies the current rate
method to translate the subsidiaries' financial statements into U.S. dollars.
Translation adjustments are included as a separate component of accumulated
other comprehensive loss in the accompanying consolidated financial statements.
Cash and cash equivalents. Sagent considers all highly liquid investments
with an original maturity of three months or less at the time of purchase to be
cash equivalents. Sagent's cash and cash equivalents at December 31, 2000 and
1999 consisted of deposits in domestic banks and money market funds.
Supplemental cash flow information. Selected cash payments and non-cash
activities were as follows:
YEARS ENDED DECEMBER 31,
--------------------------
2000 1999 1998
----- -------- -----
Supplemental disclosure of cash flow information:
Cash payments for interest............................... $ 95 $ 407 $297
Cash payments for taxes.................................. 196 200 --
Supplemental non-cash financing activities:
Common stock repurchased by note cancellation............ 482 -- --
Property and equipment acquired through capital lease.... 1,596 -- --
Common stock issued for notes receivable................. -- 2,284 522
Net liabilities assumed in connection with
acquisitions.......................................... 66 489 956
Common stock issued related to acquisition............... -- 1,437 --
Preferred stock issued related to acquisition............ -- -- 1,400
Conversion of preferred stock to common.................. -- 29,471 --
Marketable securities. Management determines the appropriate
classifications of investments in debt and equity securities at the time of
purchase. At December 31, 1999 Sagent's marketable securities consisted of
commercial paper and corporate debt securities, are classified as
available-for-sale, and are carried at fair value. The fair value of Sagent's
available-for-sale securities is based on quoted market prices at the balance
sheet dates. Realized gains and losses and declines in value judged to be
other-than-temporary on available-
33
36
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
for-sale securities are included in interest and other income (expense), in the
accompanying consolidated statements of operations. The cost of securities sold
is based on the specific identification method. Interest on securities
classified as available-for-sale is included in interest and other income
(expense), in the accompanying consolidated statements of operations.
Concentration of credit risk and fair value of financial
instruments. Financial instruments which potentially subject Sagent to
concentrations of credit risk consist primarily of trade accounts receivable.
Sagent maintains allowances for potential credit losses and such losses to date
have been within management's expectations. There were no customers with
balances due to Sagent in excess of 10% of aggregate accounts receivable at
December 31, 2000 or 1999.
Property and equipment. Property and equipment are stated at cost and
depreciated on a straight-line basis over the estimated useful lives of the
related assets, generally one to five years. Leased assets are amortized on a
straight-line basis over the lesser of the estimated useful life or the lease
term. Gains and losses upon asset disposal are taken into income in the year of
disposition.
Long lived assets, including property, equipment, goodwill and other
intangible assets. The costs of long lived assets, except for property and
equipment, are amortized over their estimated useful lives of three to ten
years. If events or changes in circumstances indicate that the property,
equipment and other long lived assets will not be recoverable, as determined
based on the undiscounted cash flows of the acquired business over the remaining
amortization period, the carrying value is reduced to net realizable value.
There were no such reductions in carrying value in 2000, or 1998. The Company
recognized $1,600 of amortization of abandoned development projects in 1999.
Notes receivable from officers. Notes receivable from officers are loans
made by the Company that are secured by real estate. The notes bear interest at
rates between 5.0% and 8.0%. Principal and interest are due by August 30, 2005.
Additionally, there is a note in the amount of $750 to one of the officers which
is forgiven over a 5-year period.
Revenue recognition. Revenue consists principally of fees for licenses of
the Company's software products, maintenance, consulting, and training. The
Company recognizes revenue using the residual method in accordance with
Statement of Position 97-2 (SOP 97-2), "Software Revenue Recognition," as
amended by SOP 98-9, "Modification of SOP 97-2, Software Revenue Recognition
with Respect to Certain Transactions." Under the residual method, revenue is
recognized in a multiple element arrangement in which Company-specific objective
evidence of fair value exists for all of the undelivered elements in the
arrangement, but does not exist for one or more of the delivered elements in the
arrangement. Company-specific objective evidence of fair value of maintenance
and other services is based on the Company's customary pricing for such
maintenance and/or services when sold separately. At the outset of the
arrangement with the customer, the Company defers revenue for the fair value of
its undelivered elements (e.g., maintenance, consulting, and training) and
recognizes revenue for the remainder of the arrangement fee attributable to the
elements initially delivered in the arrangement (i.e., software product) when
the basic criteria in SOP 97-2 have been met. If such evidence of fair value for
each element of the arrangement does not exist, all revenue from the arrangement
is deferred until such time that evidence of fair value does exist or until all
elements of the arrangement are delivered.
Under SOP 97-2, revenue attributable to an element in a customer
arrangement is recognized when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, collectibility is
probable, and the arrangement does not require services that are essential to
the functionality of the software. If at the outset of the customer arrangement,
the Company determines that the arrangement fee is not fixed or determinable,
revenue is recognized when the arrangement fee becomes due and payable. If
34
37
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
at the outset of the customer arrangement, the Company determines that
collectability is not probable, revenue is recognized as the arrangement fee is
collected.
The Company's specific policies for recognition of license revenues and
services revenues are as follows:
License revenue. The Company recognizes revenue from sales of software
licenses to end users upon: determination that persuasive evidence of an
arrangement exists; delivery of the software to a customer; determination that
collection of a fixed or determinable license fee is probable; and determination
that no undelivered services are essential to the functionality of the software.
If consulting services are essential to the functionality of the licensed
software, then both the license revenue and the consulting service revenue are
recognized as the services are performed. The Company's arrangements generally
do not include services that are essential to the functionality of the software.
Revenue for transactions with enterprise application vendors, OEMs, and
distributors is generally recognized as earned when the licenses are resold or
utilized by the reseller and all related obligations of the Company have been
satisfied. The Company provides for sales allowances on an estimated basis. The
Company accrues royalty revenue through the end of the reporting period based on
reseller royalty reports or other forms of customer-specific historical
information. In the absence of customer-specific historical information, royalty
revenue is recognized when the customer-specific objective information becomes
available. Any subsequent changes to previously recognized royalty revenues are
reflected in the period when the updated information is received from the
reseller. However, if the contract stipulates an advance, non-refundable royalty
payment, revenue is recognized upon execution of the contract.
Service revenue. Maintenance contracts generally call for the Company to
provide technical support and software updates and upgrades to customers.
Maintenance revenue is recognized ratably over the term of the maintenance
contract, generally on a straight-line basis when all revenue recognition
requirements are met. Other service revenue, primarily training and consulting,
is generally recognized at the time the service is performed and it is
determined that the Company has fulfilled its obligations resulting from the
services contract.
During the fourth quarter of 2000, the Company adopted Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB No.
101"). The adoption of SAB No. 101 did not have a material effect on the
Company's consolidated statement of financial position or results of operation.
Deferred revenue. Deferred revenue represents amounts received from
customers under certain license, maintenance and service agreements for which
the revenue earnings process has not been completed. In situations where the
services are not expected to be provided and revenue recognized within twelve
months of the balance sheet date, such amounts are classified as noncurrent
deferred revenue.
Advertising. Sagent expenses advertising costs as incurred. Advertising
costs amounted to $686, $213, and $815 for 2000, 1999 and 1998, respectively.
Stock-Based Compensation. Sagent accounts for stock-based compensation in
accordance with SFAS No. 123, "Accounting for Stock-based Compensation,"
pursuant to which companies may account for such costs in accordance with APB
No. 25, "Accounting for Stock Issued to Employees" as interpreted by FIN 44
"Accounting for Certain Transactions involving Stock Compensation." Under APB
No. 25, compensation expense is based on the difference, if any, on the date of
the grant, between the fair value of common stock and the exercise price.
Additionally, pursuant to SFAS No. 123, stock issued to non-employees is
accounted for at the fair value of the equity instruments issued, or at the fair
value of the consideration received, whichever is more reliably measurable.
35
38
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Research and development expense. Software development costs associated
with new products and enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a working model has been
established. In the year ended December 31, 2000, the time period between
establishment of technological feasibility and the completion of software
development has been short, and no significant development costs have been
incurred during that period. Accordingly, no software development costs have
been capitalized in the year ended December 31, 2000. The Company capitalized
software development costs of $612 and $1,209 in the years ended December 31,
1999 and 1998, respectively.
Income taxes. Sagent uses the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities. Sagent records a valuation allowance to reduce
tax assets to an amount for which realization is more likely than not.
Net loss per share. Basic net loss per share is computed by dividing the
net loss available to common stockholders for the period by the weighted average
number of common shares outstanding, net of shares subject to repurchase during
the period. Diluted net loss per share is computed by dividing the net loss for
the period by the weighted average number of common and common equivalent shares
outstanding during the period. Options, warrants, restricted stock and
convertible preferred stock were not included in the computation of diluted net
loss per share because the effect would be antidilutive.
Comprehensive loss. Differences between comprehensive loss and net loss
related to translation adjustments during each period reported which are
reported as a separate component of stockholders' equity. Tax effects of
comprehensive loss are not considered material for any period.
Recent accounting pronouncements. In June 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." The
Statement establishes accounting and reporting standards requiring every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Company adopted SFAS 133 in the first
quarter of 2001, and such adoption did not have a material effect on the
Company's results of operations or financial position.
Reclassification. Sagent has reclassified the presentation of certain prior
year information to conform to the current year presentation. These changes had
no effect on previously reported financial position or results of operations.
36
39
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2. BUSINESS COMBINATIONS
Pooling of Interests
On December 11, 1999, Sagent completed its merger with Qualitative
Marketing Software, Inc. (QMS). The merger was accounted for as a pooling of
interests. Sagent issued 2,100 shares of common stock in exchange for all
outstanding stock of QMS. Sagent also assumed all options to purchase QMS stock
which were converted into options to purchase 428 shares of Sagent stock.
Historical results of Sagent and QMS for the two full years prior to the
consummation of the merger were:
1999 1998
-------- --------
Revenue:
Sagent............................................... $ 36,004 $ 17,043
QMS.................................................. 11,997 7,958
-------- --------
$ 48,001 $ 25,001
======== ========
Net loss:
Sagent............................................... $ (7,016) $(13,701)
QMS.................................................. (5,076) (1,355)
-------- --------
$(12,092) $(15,056)
======== ========
Costs incurred in connection with the merger during years ended December
31, 2000 and 1999 were:
DECEMBER 31,
COSTS COSTS 1999
ACCRUED PAID BALANCE
------- ----- ------------
YEAR ENDED DECEMBER 31, 1999:
Severance and other personnel cost.......................... $ 328 $ -- $ 328
Transaction costs........................................... 3,366 153 3,213
Elimination of duplicate systems and equipment.............. 118 -- 118
Other....................................................... 834 384 450
------ ---- ------
$4,646 $537 $4,109
====== ==== ======
DECEMBER 31, DECEMBER 31,
1999 COSTS CREDIT 2000
BALANCE PAID AMOUNTS BALANCE
------------ ------ ------- ------------
YEAR ENDED DECEMBER 31, 2000:
Severance and other personnel cost............. $ 328 $ 222 $ 106 $--
Transaction costs.............................. 3,213 1,344 1,869 --
Elimination of duplicate systems and
equipment.................................... 118 48 70 --
Other.......................................... 450 177 273 --
------ ------ ------ ---
$4,109 $1,791 $2,318 $--
====== ====== ====== ===
Severance and other personnel costs consists of severance pay and
outplacement for nine employees. Transaction costs consists of professional
service fees. In 2000, the Company had satisfied all merger related obligations,
and the residential accrual of $2,318 was reversed. The provision in 1999 and
the reversal of the residual accrual in 2000 were recorded as merger and
integration charges in the accompanying Statements of Operations.
37
40
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During 1999 and 1998 certain employees of QMS were granted options at
prices below fair value. Expenses related to the grant of these options were
recognized during 1999 and 1998, respectively. Such expense is included in
operating expenses as follows:
YEAR ENDED
DECEMBER 31,
--------------
1999 1998
------ ----
Sales and marketing......................................... $1,262 $ 84
Research and development.................................... 1,260 162
General and administrative.................................. 233 16
------ ----
$2,755 $262
====== ====
PURCHASE BUSINESS COMBINATIONS
On March 17, 2000, Sagent acquired Sagent Brazil Ltd. Under the terms of
the agreement, Sagent acquired net liabilities of $66 consisting of property and
equipment in the amount of $68 and assumed certain liabilities including
deferred revenue in the amount of $134 in exchange for $1,148 in cash.
Concurrent with the acquisition, the Company entered into two consulting
agreements with the former owners to provide consulting services for a term of
four years. Under the provisions of the agreement, Sagent will pay $1,500 in
either Sagent common stock or cash, at Sagent's option, in annual installments
over the term of the agreements. Such amounts will be recorded as operating
expenses as the services are performed.
On November 30, 1999, Sagent acquired Sagent Technology GmbH, its
distributor in Germany from a partnership in which a member of Sagent's Board of
Directors serves as general partner. Under the terms of the agreement, Sagent
acquired all of the outstanding stock of Sagent Technology GmbH for
approximately $2,457. Revenues from sales of products and services to this
distributor prior to Sagent's acquisition were $300 and $20 in 1999 and 1998,
respectively.
On November 30, 1999, Sagent acquired Sagent France S.A., its distributor
in France. Under the terms of the agreement, Sagent acquired all of the
outstanding stock of Sagent France S.A. in exchange for 20 shares of Sagent
common stock valued at approximately $445.
On June 11, 1999, Sagent acquired Sagent U.K., Ltd., its distributor in the
United Kingdom. Under the terms of the agreement, Sagent acquired all
outstanding stock of Sagent, U.K., Ltd., for cash of approximately $1,000, 146
shares of common stock valued at $1,600, stock options valued at $212 and the
assumption of certain liabilities.
In February 1998, Sagent acquired Talus, Inc., a software developer and
consulting service provider. Under the terms of the agreement, Sagent acquired
all of the outstanding stock of Talus, Inc., for cash of approximately $1,200,
259 shares of Series E Preferred Stock valued at $1,400 and the assumption of
certain liabilities.
A portion of the purchase price was allocated to acquired in-process
technology related to analytical software applications being developed by Talus
to complement its design and implementation business. This allocation was based
upon the degree of completion, costs incurred, and projected costs to complete.
As these software applications under development had no alternative future use,
they were fully written off during 1998.
The allocation of the purchase price resulted in additional intangible
assets, primarily non-compete agreements and the value of an assembled workforce
of $587, which has been capitalized and is being amortized on a straight line
basis over six months to three years. Amortization expense for the years ended
December 31, 2000, 1999 and 1998 was $123, $120 and $102, respectively.
38
41
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Sagent accounted for these acquisitions under the purchase method of
accounting. The allocation of Sagent's aggregate purchase price to the tangible
and identifiable intangible assets acquired and liabilities assumed in
connection with these acquisitions is summarized below:
SAGENT SAGENT SAGENT
SAGENT FRANCE, U.K., TALUS, BRAZIL
GMBH S.A. LTD. INC. LTD.
------ ------- ------ ------ ------
Net assets........................................ $ (582) $ (660) $ (672) $ 494 $ (134)
Property and equipment............................ 23 19 102 11 68
Other intangibles................................. -- -- -- 587 --
Acquired in-process research and development...... -- -- -- 2,425 --
Goodwill.......................................... 3,016 1,086 3,557 9 1,214
------ ------ ------ ------ ------
Total purchase price.............................. $2,457 $ 445 $2,987 $3,526 $1,148
====== ====== ====== ====== ======
The following summary prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations for the years ended December
31, 2000, 1999 and 1998 with the results of operations of Sagent Brazil, Sagent
GmbH, Sagent France SA, Sagent UK, Ltd., and Talus as if each company had been
acquired as of January 1, 1998, respectively.
2000 1999 1998
-------- -------- --------
YEARS ENDED DECEMBER 31,
Revenue............................................ $ 58,236 $ 48,909 $ 26,241
Net loss........................................... (23,794) (13,108) (16,121)
Basic and diluted net loss per share............... $ (0.83) (0.60) (2.70)
Number of shares used in pro forma per share
calculation...................................... 28,773 21,971 5,963
The proforma adjustments give effect to available information and
assumptions that Sagent believes are reasonable. The unaudited pro forma results
of operations should be read in conjunction with Sagent's historical financial
statements and the financial statements of Sagent UK, Ltd., Sagent France, S.A.,
and Sagent GmbH and the notes thereto included or incorporated elsewhere herein.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2000 and 1999 consist of:
2000 1999
------- -------
Computer equipment and software.......................... $ 5,534 $ 5,355
Furniture, fixtures and office equipment................. 1,657 1,120
Leasehold improvements................................... 3,498 356
------- -------
10,689 6,831
Less accumulated depreciation and amortization........... (4,971) (3,155)
------- -------
$ 5,718 $ 3,676
======= =======
Equipment under capital leases at December 31, 2000 and 1999 was $2,698 and
$2,733, respectively. Accumulated amortization of leased equipment at such dates
was $962 and $1,767, respectively.
During 1999, Sagent entered into an agreement with a third party provider
of information technology services to outsource such services. Under the terms
of the agreement, Sagent pays a monthly fee in exchange for information
technology support and procurement services. In addition the service provider
purchased computer equipment from Sagent with a net book value of $1,500 for an
equal amount. Separately, revenues from licenses and services sold to the
service provider were $1,000 during 1999.
39
42
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. GOODWILL AND OTHER ASSETS
Goodwill and other intangible assets as of December 31, 2000 and 1999 were
as follows:
ECONOMIC
LIFE 2000 1999
-------- ------ ------
Goodwill, net:
Sagent UK............................................. 5 $2,496 $3,051
Sagent France S.A. ................................... 5 863 1,068
Sagent GmbH........................................... 5 2,378 2,967
Sagent Brazil......................................... 5 971 --
Smarter Software, Inc. ............................... 10 615 809
------ ------
$7,323 $7,895
====== ======
Amortization of goodwill was $1,957, $452, and $390 for the years ended
December 31, 2000, 1999, and 1998, respectively.
2000 1999
------ ------
Other assets, net:
eGlobal joint venture, net............................... $ 830 $ --
NetAcumen, Inc. joint venture............................ 759 380
Deposits................................................. 942 626
Other.................................................... 64 305
------ ------
$2,595 $1,311
====== ======
5. ACCRUED LIABILITIES
Accrued liabilities consists of:
2000 1999
------ -------
Employee compensation and benefits........................ $2,759 $ 2,809
Payments due -- acquired distributors..................... -- 2,446
Sales taxes............................................... 622 330
Software royalties........................................ 302 819
Other..................................................... 2,159 3,630
------ -------
$5,842 $10,034
====== =======
40
43
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. COMMITMENTS AND CONTINGENCIES
Commitments
Sagent leases various facilities under noncancelable operating leases and
has acquired certain computer and other equipment under capital lease
obligations which are collateralized by the related assets. Sagent also pays a
monthly fee in exchange for the information technology services described in
Note 3. Future minimum lease payments under these commitments at December 31,
2000, are as follows:
OPERATING CAPITAL
LEASES LEASE
--------- -------
2001.................................................... $3,101 1,184
2002.................................................... 2,976 677
2003.................................................... 2,354 --
2004.................................................... 620 --
2005.................................................... 114 --
Thereafter.............................................. -- --
------ -------
Total minimum lease payments............................ $9,165 1,861
======
Less amount representing interest....................... (174)
-------
Present value of minimum lease payments................. 1,687
Current portion......................................... (1,037)
-------
$ 650
=======
Rent expense was $4,200, $2,800, and $1,700, for the years ended December
31, 2000, 1999, and 1998, respectively.
Litigation
On March 22, 1999 Timeline, Inc. filed a complaint against Sagent in
Federal District Court alleging that Sagent's DMS product suite infringed one or
more of the claims of a Timeline patent. In December 2000, the Company issued
600 shares of common stock valued at $1,400 and made a payment of cash in the
amount of $600 to Timeline in full settlement of the complaint. The settlement
expense is included in general and administrative expenses in the accompanying
fiscal 2000 Statement of Operations.
On December 23, 1999, QMS and Sagent were served with a demand for
arbitration prepared by the Corum Group Ltd. ("Corum"). In its demand, Corum
claims that QMS breached an agreement to convey to Corum a certain percentage of
the consideration received by QMS as a result of its acquisition by Sagent.
During 2000, the Company issued 125 shares of common stock to Corum valued at
approximately $938 to settle the arbitration demand.
From October 20, 2000 to November 27, 2000, several class action lawsuits
were filed in the United States District Court on behalf of the individual
investors who purchased our common stock between October 21, 1999 and April 18,
2000. The claims allege that we misrepresented our 1999 and 2000 prospects. The
court recently consolidated the complaints and selected a lead plaintiff and
counsel. A consolidated amended complaint will be filed in April 2001. We intend
to defend vigorously the asserted claims.
On November 17, 2000, a derivative lawsuit was filed by a purported Sagent
shareholder in the Superior Court of California for the County of San Mateo. On
February 9, 2001, a second derivative lawsuit was filed in the Superior Court of
California for the County of Santa Clara. The complaints name certain of our
present and former officers and directors as defendants. The complaint in Santa
Clara County also named an investment bank retained by us and an employee of
that firm as defendants. We have also been named as a
41
44
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
nominal defendant. The principle allegation of the complaints is that the
defendants breached their fiduciary duties to us. On March 15, 2001, the
California Judicial Council ordered the presiding judge of the Superior Court of
California for the County of Santa Clara to assign a judge to determine whether
these actions should be coordinated in Santa Clara County. The court assigned a
judge on March 22, 2001, and a coordination hearing has been scheduled for May
7, 2001. We intend to defend vigorously the asserted claims.
From time to time, Sagent may be involved in litigation relating to claims
arising out of its ordinary course of business. Sagent provides for costs
relating to these matters when a loss is probable and the amount is reasonably
estimable. Appropriate reserves have been established for such claims. Sagent
believes that, including the matters described above, there are no claims or
actions pending or threatened against Sagent, the ultimate disposition of which
would have a material impact on Sagent's financial position or results of
operations.
7. LINE OF CREDIT
Sagent has a $10,000 line of credit agreement with a bank collateralized by
the assets of the Company. The line consists of advances against eligible
accounts receivable in an aggregate amount not to exceed the lesser of, the
committed revolving line or the borrowing base, less any outstanding letters of
credit. Advances against the revolving line bear interest at the bank's prime
rate plus 1%, which was 10.5% at December 31, 2000. As of December 31, 2000
there were no advances on the line of credit.
On December 1, 2000 the Company issued to the bank warrants to purchase 10
shares of the Company's common stock at a price of $2.50 per share. In
consideration the bank adjusted certain financial covenants, waived a covenant
violation at September 30, 2000 and extended the expiration date of the line to
June 2, 2001. The warrants were valued using the Black-Scholes model and expense
of $15 was recorded as interest expense in the accompanying statement of
operations.
Under the agreement, Sagent is required to comply with certain covenants,
among which are minimum liquidity ratios and tangible net worth ratios. As of
December 31, 2000, Sagent was not in compliance with these covenants.
8. CAPITALIZATION
On April 13, 1999, Sagent issued 5,750 shares of its common stock at an
initial public offering (IPO) price of $9.00 per share. The proceeds to Sagent
from the offering, net of offering costs were approximately $47,200. In
connection with the IPO, common stock warrants were exercised to purchase 110
thousand shares of common stock at prices ranging from $3.18 to $6.48 per share,
resulting in additional proceeds to Sagent totaling $700.
Preferred Stock
Concurrent with the IPO, each outstanding share of Sagent's convertible
preferred stock was converted into one share of common stock. Prior to
conversion into common stock, holders of preferred stock were entitled to
preferential noncumulative dividends, liquidation preferences, conversion on a
one to one basis into shares of common stock, and one vote for each common share
into which such preferred stock was convertible. Remaining preferred stock
warrants for the purchase of 236 shares were converted into warrants for the
purchase of 236 shares of common stock.
Warrants
During 2000, Sagent issued warrants to purchase 10 shares of common stock
at $2.50 per share in connection with a bank agreement. See Note 7.
42
45
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During 1998, Sagent issued warrants to purchase 22 shares of common stock
at $5.40 per share in connection with an international joint venture. The
estimated fair value of the warrants of $60 was recorded as general and
administrative expense. In addition, Sagent issued warrants to purchase 6 shares
of common stock at $6.50 per share, 9 shares of Series C Preferred Stock at
$3.18, and 3 shares of Series E Preferred Stock at $5.40 in connection with a
line of credit agreement with a financial institution during 1998. The estimated
fair value of the warrants of $54 was recorded as debt issuance costs.
The estimated fair values of warrants were calculated using the Black
Scholes model.
During 1999, all outstanding warrants issued through 1999 were exercised
for the purchase of 236 shares of common stock for an exercise price totaling
$786.
Notes Receivable from Stockholders
Notes receivable from stockholders were issued in exchange for common
stock. The notes bear interest at rates ranging from 4.62% to 7.50% and are due
at dates from January 28, 2002 to August 30, 2005. The notes are full recourse
and collateralized by the underlying common stock issued.
Restricted Stock Purchase Agreement
Sagent has sold shares of its common stock to founders and employees of
Sagent under agreements which provide for repurchase of the shares by Sagent at
the stock's original sale price upon termination of employment of such persons.
Sagent's right to repurchase shares generally lapses as to 1/48 of the total
shares on the date of sale and 1/48 on the first day of each subsequent month.
At December 31, 2000 and 1999, 335 and 421 shares of common stock were subject
to repurchase at cost, respectively.
9. STOCK OPTIONS
1995 Plan
Options granted under the 1995 Plan were exercisable immediately,
conditioned upon the optionee entering into a restricted stock purchase
agreement, and generally vest to the extent of 1/48 per month. Options granted
expire 10 years from the date of grant. Upon adoption of the 1998 Plan, all
shares of common stock reserved under the 1995 Plan were no longer reserved for
issuance.
1998 Plan
In December 1998, the board of directors approved the 1998 stock option
plan which authorized 2,440 shares of common stock as available for issuance to
employees, officers, directors and consultants of Sagent.
Under the terms of the 1998 Plan, incentive options may be granted at
prices not lower than fair market value at the date of grant, while nonqualified
options may be granted at prices as determined by the administrator at the date
of grant. However, if an employee or other person who, at the time of the grant
of such stock option, owns stock representing more than 10.0% of the voting
power of all classes of stock in Sagent, the exercise price may be no less than
110% of the fair market value per share on the date of grant.
Options granted under the 1998 stock option plan are generally exercisable
one year after the vesting commencement date. Upon exercise of an option, the
optionee shall enter into a restricted stock purchase agreement. Options
generally vest to the extent of 25% of the shares granted 12 months from the
vesting commencement date and the remainder to the extent of 1/48 of the shares
granted each month thereafter, such that all options granted will be vested four
years from the vesting commencement date. Options generally expire 10 years from
the date of grant.
43
46
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Options to purchase 290 shares of common stock of Sagent were issued to
employees of QMS on December 11, 1999 at the then current fair value of Sagent
common stock. These options vest at a rate of 1/48 per month over a four-year
period based on the employees original hire date.
At December 31, 2000, shares reserved for issuance under the 1998 stock
option plan totaled 1,771. Exercised options subject to repurchase totaled 15 at
December 31, 2000.
Director Plan
In January 1999, the board of directors adopted the director plan, which
allows Sagent to grant up to 150 shares of common stock to non-employee
directors. The exercise price of any option granted under the director plan is
equal to the fair market value per share of common stock on the date of grant.
Each option granted will have a term of ten years and the shares subject to the
option will generally become exercisable in four equal annual installments
subject to the optionee's completion of each year of board service. During 2000,
options to purchase 60 shares of stock have been granted with a value of $375.
Of these, 60 shares are exercisable, but none have yet been exercised.
Employee Stock Purchase Plan
In February 1999, stockholders approved the 1999 Employee Stock Purchase
Plan. A total of 450 shares of common stock has been reserved for issuance under
the 1999 employee stock purchase plan. The number of shares reserved will be
subject to an annual increase every January equal to the lesser of the number of
shares optioned during the prior year or lesser amount determined by the board
of directors. The 1999 employee stock purchase plan permits eligible employees
to purchase common stock through payroll deductions at a price equal to 85% of
the lower of the fair market value of the common stock at the beginning or end
of each six-month offering period.
Non-Plan Stock Options
During 1996, Sagent granted options to purchase 268 shares to an officer of
Sagent exercisable at $0.09 per share and vest equally over a 48 month period.
During 1997 and 1996 options to purchase 230 and 36 shares, respectively were
exercised. At December 31, 2000, no shares were subject to repurchase.
44
47
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table summarizes option activity under all Plans for the
years ended December 31, 2000, 1999 and 1998:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------ --------
Outstanding at December 31, 1997.......................... 1,755 $1.33
Granted................................................... 1,367 4.85
Canceled.................................................. (122) 2.30
Exercised................................................. (725) 1.11
------ -----
Outstanding at December 31, 1998.......................... 2,275 3.43
Granted................................................... 2,793 9.05
Canceled.................................................. (464) 4.61
Exercised................................................. (978) 3.66
------ -----
Outstanding at December 31, 1999.......................... 3,626 7.55
Granted................................................... 4,732 5.30
Canceled.................................................. (1,245) 7.84
Exercised................................................. (757) 3.98
------ -----
Outstanding at December 31, 2000.......................... 6,356 $6.23
====== =====
The following table summarizes information with respect to stock options
outstanding at December 31, 2000:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- -----------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OF REMAINING AVERAGE OF AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ----------- ------------ --------- ----------- ---------
$ 0.09 - 0.09 7 5.40 $ 0.09 7 $ 0.1
0.25 - 0.25 6 5.80 0.25 6 0.3
1.19 - 1.19 10 10.00 1.19 -- --
1.88 - 2.8 2,390 9.60 2.18 141 2.4
2.9 - 4.3 164 7.20 4.15 63 4.0
4.6 - 6.88 1,927 8.90 6.51 552 6.5
7 - 9.13 791 8.50 8.39 269 8.2
11.06 - 13 875 9.50 11.28 839 11.2
25 - 25 186 8.90 25.00 47 25.0
----- ----- ------ ----- -----
$ 0.09 - 25 6,356 9.10 $ 6.23 1,924 $ 8.8
===== ===== ====== ===== =====
45
48
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following pro forma net loss and net loss per share information has
been prepared in accordance with the provisions of SFAS No. 123:
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net loss:
As reported...................................... $(23,704) $(12,092) $(15,056)
Pro forma........................................ (27,976) (22,764) (15,354)
Basic and diluted net loss per share As reported... (0.82) (0.55) (2.60)
Pro forma........................................ $ (0.97) $ (1.04) $ (2.65)
Valuation
The pro forma value of each option grant has been estimated on the date of
grant using the Black-Scholes option pricing model. The Black-Scholes option
pricing model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because Sagent
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair value of
its options.
Assumptions used in completing the option-pricing model for years ended
December 31, included:
STOCK OPTION PLANS
------------------------------------
2000 1999 1998
------- ---------- -----------
Risk-free interest rate........................... 5.9% 5.6% 5.1 - 5.9%
Expected life..................................... 4 years 3.43 years 4 years
Dividends......................................... -- -- --
Volatility........................................ 130% 70% 0%
ESPP
-----------------------------------
2000 1999 1998
--------- --------- ---------
Risk-free interest rate............................ 5.7% 4.6% n/a
Expected life...................................... 0.5 years 0.5 years n/a
Dividends.......................................... -- -- n/a
Volatility......................................... 130% 70% n/a
The weighted average estimated fair value of employee stock options granted
during fiscal years 2000, 1999, and 1998 with exercise prices equivalent to the
market price of the Company's common stock at the date of grant were $4.18,
$11.79, and $4.94 per share, respectively. During 2000 the Company granted stock
options with an exercise price below the market value of the Company's common
stock on the date of grant. The weighted average estimated fair value of those
options granted below market value was $11.62. The weighted average estimated
fair value of employee stock purchase rights granted under the ESPP during 2000
and 1999 were $4.60 and $4.29.
46
49
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
10. INCOME TAXES
Sagent's provision for income taxes differs from the amount derived by
applying the U.S. Federal statutory tax rate as follows:
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Tax benefit at statutory rate......................... $(7,886) $(3,762) $(5,196)
State taxes, net of federal benefit................... 5 (271) (822)
Permanent differences................................. 10 2,436 24
Nonrecognition of tax benefits........................ 7,876 1,743 6,283
Foreign taxes......................................... 505 256 --
Tax credits........................................... -- (137) (420)
Other................................................. -- (2) (51)
------- ------- -------
$ 510 $ 263 $ (182)
======= ======= =======
The types of temporary differences that give rise to significant portions
of the Company's deferred tax assets and liabilities are set forth below.
2000 1999
-------- --------
Deferred tax assets:
Net operating loss and credit carryforwards............... $ 16,167 $ 10,373
Research and development credits.......................... 1,425 1,425
Depreciation and amortization............................... -- 1,204
Deferred revenue............................................ 3,264 1,186
Other reserves and accruals................................. 4,003 --
Other....................................................... 2 578
-------- --------
Gross deferred tax assets................................... 24,861 14,766
Valuation allowance......................................... (24,736) (14,766)
-------- --------
Total deferred tax assets................................... 125 --
Deferred tax liabilities:
Fixed assets................................................ (125) --
-------- --------
Total deferred tax liabilities.............................. (125) --
Net deferred tax assets:.................................... -- --
======== ========
At December 31, 2000, management has established a valuation allowance for
the portion of deferred tax assets for which realization is uncertain. The
valuation allowance for deferred tax assets on December 31, 2000, 1999 and 1998
was $24,736, $14,766 and $13,043, respectively. The net change in the total
valuation allowance for the years ended December 31, 2000, 1999, and 1998 was an
increase of $9,970, $1,723 and 6,297, respectively.
As of December 31, 2000 and 1999, the Company has net operating loss
carryforwards for federal and state income tax purposes of approximately $41,422
and $23,566, respectively, available to reduce future income subject to income
taxes. The federal net operating loss carryforwards expire beginning in 2018
through 2020. State net operating loss carryforwards expire beginning in 2003
47
50
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of December 31, 2000, the Company also has research credit carryforwards
for federal and state purposes of approximately $870 and $555, respectively,
available to reduce future income taxes. The federal research credit
carryforwards expire beginning 2018 through 2020. The research credit
carryforwards for state purposes carry forward indefinitely until utilized.
For federal and state tax purposes, a portion of Sagent's net operating
loss carryforwards may be subject to certain limitation on annual utilization
due to changes in ownership, as defined by federal and state tax law.
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net loss........................................... $(23,704) $(12,092) $(15,056)
Weighted average common shares outstanding......... 29,020 22,221 6,026
Adjustment to reflect shares subject to
repurchase....................................... (247) (353) (229)
-------- -------- --------
Shares used in computing net loss per share, basic
and diluted...................................... 28,773 21,868 5,797
======== ======== ========
Net loss per share, basic and diluted.............. $ (0.82) $ (0.55) $ (2.60)
======== ======== ========
Antidilutive securities including options, warrants
and preferred stock not included in historical
net loss per share calculations.................. 3,411 2,403 17,055
======== ======== ========
12. SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires disclosures of certain information regarding operating
segments, products and services, geographic areas of operation and major
customers. The method for determining what information to report under SFAS No.
131 is based upon the "management approach," or the way the management organizes
the operating segments within a company, for which separate financial
information is available that is evaluated regularly by the Chief Operating
Decision Maker (CODM) in deciding how to allocate resources and in assessing
performance. The Company's CODM is the Chief Executive Officer.
The Company provides software and services to address organization's
information access, analysis and delivery needs. Sagent sells its products
domestically and internationally. For the purpose of making operating decisions,
the CODM primarily considers financial information presented on a consolidated
basis accompanied by disaggregated information about revenues by geographic
area. There are no differences between the accounting policies used to measure
profit or loss for the Company segment and those used on a consolidated basis.
Revenue is defined as revenues from external customers.
The disaggregated financial information reviewed by the CODM is revenues by
geographic area. Such information for the years ended December 31, were as
follows:
2000 1999 1998
---- ---- ----
United States and Canada.................................... 87% 88% 94%
International............................................... 13% 12% 6%
No one country outside of the United States comprised more than 10% of
total revenues for fiscal 2000, 1999 and 1998. None of Sagent's international
operations have material long-lived assets.
48
51
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13. EMPLOYEE BENEFIT PLANS
401(k) Plan
Sagent maintains a 401(k) Plan for its employees. The 401(k) Plan allows
eligible employees to defer up to 15%, but no greater than the stated limitation
in any plan year, of their pretax compensation in certain investments at the
discretion of the employee.
Employer contributions under the Plans totaled $51 in 1998. No
contributions were made to the plans during 2000 and 1999.
14. RELATED PARTY TRANSACTIONS
During 2000, Sagent recognized revenues of $780 from licenses and services
sold to a company for which Sagent's Chairman serves as a member of their Board
of Directors.
15. SUBSEQUENT EVENTS
In January 2001, the Company agreed to issue 950,000 shares of its common
stock to eGlobal for an additional 33% interest in an entity jointly owned by
Sagent and eGlobal.
In February 2001, the Company issued 5,750 shares of its Common Stock for
$2.90 per share in a private placement transaction. The net proceeds to the
Company from the offering, after deducting the expenses of the offering, were
approximately $16,300. In connection with the private sale, the Company also
issued warrants to purchase 210,093 shares of its common stock at an exercise
price of $2.90 per share.
49
52
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 10, 2000 appearing in this Form 10-K of Sagent Technology,
Inc., also included an audit of the Financial Statement Schedule listed in Item
14(a)2 of this Form 10-K. In our opinion, this Financial Statement Schedule
present fairly, in all material respects, the information set forth therein in
conjunction with the related consolidated financial statements.
/s/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 10, 2000
50
53
SCHEDULE II
SAGENT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ----------
YEAR ENDED DECEMBER 31, 1998:
Allowance for returns and doubtful accounts... $450 $ 58 $ -- $ 508
YEAR ENDED DECEMBER 31, 1999:
Allowance for returns and doubtful accounts... 508 122 -- 630
YEAR ENDED DECEMBER 31, 2000:
Allowance for returns and doubtful accounts... $630 $4,793 $455 $4,968
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 13, 2000, we dismissed PricewaterhouseCoopers LLP as our
independent accountants. The audit committee of our board of directors
participated in and approved the decision to change independent accountants. The
reports of PricewaterhouseCoopers LLP on the financial statements for the fiscal
years ended December 31, 1998 and 1999 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with its audits for the
fiscal years ended December 31, 1998 and 1999, and through the period ending
October 13, 2000, there were no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope of procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on financial statements for such periods.
We have retained KPMG, LLP as our independent auditors effective as of
October 13, 2000. During the fiscal years ended December 31, 1998 and 1999 and
the period ended October 13, 2000 we did not consult with KPMG, LLP regarding
(i) either: the application of accounting principles to a specific transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on our financial statements, and either a written report was provided
to us or oral advice was provided that KPMG, LLP concluded was an important
factor we considered in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was either the subject of a
disagreement or reportable event with PricewaterhouseCoopers LLP.
PART III
The information required by Part III is omitted from this report and will
be included in the proxy statement for our 2001 annual meeting of stockholders,
which will be filed by April 30, 2001.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information regarding directors and executive officers appearing under
the headings "Election of Directors" "Other Information" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the proxy statement for our 2001
annual meeting of stockholders is incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the headings "Executive Officer
Compensation", "Director Compensation", "Report of the Compensation Committee of
the Board of Directors" and "Certain Relationships and
51
54
Related Transactions" in the proxy statement for our 2001 annual meeting of
stockholders is incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the proxy statement for our 2001 annual
meeting of stockholders is incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain Relationships and
Related Transactions" in the proxy statement for our 2001 annual meeting of
stockholders is incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Consolidated Financial Statements:
PAGE
----
Reports of Independent Accountants.......................... 26
Consolidated Balance Sheets as of December 31, 2000 and
1999...................................................... 28
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998.......................... 29
Consolidated Statements of Stockholders' Equity and
Comprehensive Loss for the Years Ended December 31, 2000,
1999 and 1998............................................. 30
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998.......................... 31
Notes to Consolidated Financial Statements for the Years
Ended December 31, 2000, 1999 and 1998.................... 32
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts............ 50
3. Exhibits
NUMBER TITLE
- ------ -----
3.1 Certificate of Incorporation of Registrant.
3.2 Amended and Restated Certificate of Incorporation of
Registrant.
3.3 Bylaws of Registrant.
4.1 Form of Registrant's Common Stock Certificate.
4.2 Sixth Amended and Restated Registration Rights Agreement,
dated as of February 24, 1998, between the Registrant and
the parties named therein.
4.3 Common Stock Registration Rights Agreement, dated as of
September 14, 1998, between the Registrant and Robert Hawk.
4.4 Common Stock Rights Agreement dated February 15, 2001
between the Registrant and the parties named therein.
4.5 Registration Rights Agreement dated January 19, 2001 between
the Registrant and eGlobal Technology Holding Limited.
10.1* Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2* Amended and Restated 1995 Stock Plan and related agreements.
52
55
NUMBER TITLE
- ------ -----
10.3* 1998 Stock Plan and related agreements.
10.4* 1999 Employee Stock Purchase Plan and related agreements.
10.5* 1999 Director Option Plan and related agreements.
10.6 Master Equipment Lease Agreement, dated August 7, 1995,
between the Registrant and Lighthouse Capital Partners, L.P.
10.7 Master Lease Agreement, dated as of September 26, 1998,
between the Registrant and Dell Financial Services L.P.
10.8 Loan and Security Agreement, dated as of July 16, 1997,
between the Registrant and Venture Banking Group, a division
of Cupertino National Bank, and amendments thereto.
10.9 Standard Office Lease, dated June 1, 1998, by and between
the Registrant and Asset Growth Partners, Ltd., and the
First Amendment thereto.
10.10+ Development and Licensing Agreement, dated January 22, 1997,
between the Registrant and Abacus Concepts, Inc.
10.11+ Microsoft License and Distribution Agreement, dated August
23, 1996, between the Registrant and Microsoft Corporation.
10.12+ Sagent KK Non-Exclusive Japanese Distribution Agreement,
dated as of December 17, 1997, between Sagent KK Japan and
Kawasaki Steel Systems R&D Corporation.
10.13 Form of Sagent Technology, Inc. End User Software License
Agreement.
10.14+ OEM Software License Agreement, effective March 31, 1998,
between the Registrant and Siebel Systems, Inc.
10.15 Form of Sagent Technology, Inc. Software Maintenance and
Technical Support Agreement.
10.16 Form of Sagent Technology, Inc. Agreement for Consulting
Services.
10.17 Form of Sagent Technology, Inc. Agreement for Subcontractor
Consulting Services.
10.18 Form of Evaluation Agreement.
10.19* Note, dated February 1, 1998, of W. Virginia Walker.
10.20* Note, dated February 1, 1998, of W. Virginia Walker.
10.21+ Solution Provider Agreement, effective June 27, 1997,
between the Registrant and Unisys Corporation.
10.22* Executive Change of Control Policy.
10.23*+ Software License and Services Agreement, dated March 31,
1998, between the Registrant and Siebel Systems, Inc.
10.24* Common Stock Purchase Agreement, dated February 28, 1999,
between the Registrant and Klaus S. Luft.
10.25* Notes, dated February 5, 1999, between the Registrant and
Tom Lounibos.
10.26* Note, dated March 15, 1999, of Kenneth C. Holcomb.
10.27 Nonexclusive International Software Value Added Reseller
("VAR") Agreement, dated December 8, 1997, between the
Registrant and Opalis S.A.
10.28* Employment Agreement dated August 4, 2000 between the
Registrant and Ben C. Barnes.
10.29* Offer letter dated May 9, 2000 between the Registrant and
David Eliff.
10.30* Note dated October 4, 2000 between the Registrant and Paul
Wray.
10.31 Common Stock Purchase Agreement dated February 15, 2001
between the Registrant and the parties named therein.
16.1 Letter dated as of October 18, 2000 from
PricewaterhouseCoopers LLP to the Securities and Exchange
Commission.
53
56
NUMBER TITLE
- ------ -----
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
- ---------------
* Denotes management contract or compensatory plan or arrangement.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.
(b) Report on Form 8-K
On October 13, 2000, we filed a report on Form 8-K relating to the
dismissal of PricewaterhouseCoopers LLP as our independent accountants and the
engagement of KPMG, LLP as our independent accountants.
(c) Exhibits
See Item 14(a)(3), above.
(d) Financial Statement Schedules
See Item 14(a)(2), above.
54
57
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, as amended, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mountain View, State of California, on April 4, 2001.
SAGENT TECHNOLOGY, INC.
By: /s/ BEN C. BARNES
------------------------------------
Ben C. Barnes
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Ben C. Barnes and David
Eliff and each one of them, his true and lawful attorney-in-fact and agents,
each with full power of substitution, for his and in his name, place and stead,
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 all other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as she might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or any of them, or his or their substitute of
substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Exchange Act, this report has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ BEN C. BARNES President, Chief Executive April 4, 2001
- ----------------------------------------------------- Officer and Director (Principal
Ben C. Barnes Executive Officer)
/s/ DAVID ELIFF Executive Vice President and April 4, 2001
- ----------------------------------------------------- Chief Financial Officer
David Eliff (Principal Financial and
Accounting Officer)
/s/ KENNETH C. GARDNER Director and Chairman April 4, 2001
- -----------------------------------------------------
Kenneth C. Gardner
Director
- -----------------------------------------------------
John E. Zicker
/s/ SHANDA BAHLES Director April 4, 2001
- -----------------------------------------------------
Shanda Bahles
55
58
SIGNATURE TITLE DATE
--------- ----- ----
/s/ JEFFREY T. WEBBER Director April 4, 2001
- -----------------------------------------------------
Jeffrey T. Webber
/s/ KLAUS S. LUFT Director April 4, 2001
- -----------------------------------------------------
Klaus S. Luft
Director
- -----------------------------------------------------
Keith A. Maib
56
59
EXHIBIT INDEX
NUMBER TITLE
- ------ -----
3.1* Certificate of Incorporation of Registrant.
3.2* Amended and Restated Certificate of Incorporation of
Registrant.
3.3* Bylaws of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
4.2* Sixth Amended and Restated Registration Rights Agreement,
dated as of February 24, 1998, between the Registrant and
the parties named therein.
4.3* Common Stock Registration Rights Agreement, dated as of
September 14, 1998, between the Registrant and Robert Hawk.
4.4 Common Stock Rights Agreement dated February 15, 2001
between the Registrant and the parties named therein.
4.5 Registration Rights Agreement dated January 19, 2001 between
the Registrant and eGlobal Technology Holding Limited.
10.1* Form of Indemnification Agreement entered into by Registrant
with each of its directors and executive officers.
10.2* Amended and Restated 1995 Stock Plan and related agreements.
10.3* 1998 Stock Plan and related agreements.
10.4* 1999 Employee Stock Purchase Plan and related agreements.
10.5* 1999 Director Option Plan and related agreements.
10.6* Master Equipment Lease Agreement, dated August 7, 1995,
between the Registrant and Lighthouse Capital Partners, L.P.
10.7* Master Lease Agreement, dated as of September 26, 1998,
between the Registrant and Dell Financial Services L.P.
10.8* Loan and Security Agreement, dated as of July 16, 1997,
between the Registrant and Venture Banking Group, a division
of Cupertino National Bank, and amendments thereto.
10.9* Standard Office Lease, dated June 1, 1998, by and between
the Registrant and Asset Growth Partners, Ltd., and the
First Amendment thereto.
10.10*+ Development and Licensing Agreement, dated January 22, 1997,
between the Registrant and Abacus Concepts, Inc.
10.11*+ Microsoft License and Distribution Agreement, dated August
23, 1996, between the Registrant and Microsoft Corporation.
10.12*+ Sagent KK Non-Exclusive Japanese Distribution Agreement,
dated as of December 17, 1997, between Sagent KK Japan and
Kawasaki Steel Systems R&D Corporation.
10.13* Form of Sagent Technology, Inc. End User Software License
Agreement.
10.14*+ OEM Software License Agreement, effective March 31, 1998,
between the Registrant and Siebel Systems, Inc.
10.15* Form of Sagent Technology, Inc. Software Maintenance and
Technical Support Agreement.
10.16* Form of Sagent Technology, Inc. Agreement for Consulting
Services.
10.17* Form of Sagent Technology, Inc. Agreement for Subcontractor
Consulting Services.
10.18* Form of Evaluation Agreement.
10.19* Note, dated February 1, 1998, of W. Virginia Walker.
10.20* Note, dated February 1, 1998, of W. Virginia Walker.
10.21*+ Solution Provider Agreement, effective June 27, 1997,
between the Registrant and Unisys Corporation.
60
NUMBER TITLE
- ------ -----
10.22* Executive Change of Control Policy.
10.23*+ Software License and Services Agreement, dated March 31,
1998, between the Registrant and Siebel Systems, Inc.
10.24* Common Stock Purchase Agreement, dated February 28, 1999,
between the Registrant and Klaus S. Luft.
10.25* Notes, dated February 5, 1999, between the Registrant and
Tom Lounibos.
10.26* Note, dated March 15, 1999, of Kenneth C. Holcomb.
10.27* Nonexclusive International Software Value Added Reseller
("VAR") Agreement, dated December 8, 1997, between the
Registrant and Opalis S.A.
10.28 Employment Agreement dated August 4, 2000 between the
Registrant and Ben C. Barnes.
10.29 Offer letter dated May 9, 2000 between the Registrant and
David Eliff.
10.30 Note dated October 4, 2000 between the Registrant and Paul
Wray.
10.31 Common Stock Purchase Agreement dated February 15, 2001
between the Registrant and the parties named therein.
16.1** Letter dated as of October 18, 2000 from
PricewaterhouseCoopers LLP to the Securities and Exchange
Commission.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants.
- ---------------
* Incorporated by reference to the exhibits to the Registrant's Registration
Statement on Form S-1 (No. 333-71369), declared effective by the Securities
and Exchange Commission on April 14, 1999.
** Incorporated by reference to Exhibit 16.1 to the Registrant's Current Report
on Form 8-K filed with the Securities and Exchange Commission on October 19,
2000.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the Securities
and Exchange Commission.