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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(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
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-30389
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EXE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1719817
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8787 STEMMONS FREEWAY 75247
DALLAS, TEXAS (zip code)
(Address of principal executive
offices)
(214) 775-6000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
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None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $0.01 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 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 of the
registrant, based upon the closing sale price of common stock on March 1, 2001
as reported on the Nasdaq National Market, was approximately $141 million.
As of March 1, 2001, the Registrant had 45,192,737 outstanding shares of
common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the 2001 Annual
Meeting of Stockholders, which will be filed with the Securities and Exchange
Commission within 120 days of the Registrant's fiscal year end, are incorporated
by reference into Part III hereof.
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TABLE OF CONTENTS
FORM 10-K
PART I
Item 1. Business.................................................... 3
Item 2. Properties.................................................. 15
Item 3. Legal Proceedings........................................... 15
Item 4. Submission of Matters to a Vote of Security Holders......... 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 17
Item 6. Selected Consolidated Financial Data........................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 38
Item 8. Financial Statements and Supplementary Data................. 39
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................... 64
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 64
Item 11. Executive Compensation...................................... 64
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 64
Item 13. Certain Relationships and Related Transactions.............. 64
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 64
Signatures.......................................................................... 66
Index to Exhibits and Exhibits...................................................... 68
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K
contains forward-looking statements. Any statements contained herein (including
without limitation statements to the effect that the Company or its management
"believes," "expects," "anticipates," "plans," and similar expressions) that
relate to future events or conditions should be considered forward-looking
statements. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
reflected in these forward-looking statements. Factors that might cause such a
difference include, but are not limited to, those discussed in the section
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Certain Factors That May Affect Future Results."
Discussions containing forward-looking statements may be found in the materials
set forth under "Item 1. Business," "Item 2. Properties," "Item 3. Legal
Proceedings," "Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters," "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Item 7A. Quantitative and Qualitative
Disclosures About Market Risk." Readers are cautioned not to place undue
reliance on these forward-looking statements, which reflect management's
opinions only as of the date hereof. The Company undertakes no obligations to
revise or publicly release the results of any revision to these forward-looking
statements, whether as a result of new information, future events or otherwise.
PART I
ITEM 1. BUSINESS
OVERVIEW
EXE Technologies provides fulfillment, warehousing and distribution software
for e-commerce and traditional sales channels. Our software allows companies to
efficiently manage and control the flow of inventory throughout the supply chain
using the Internet and traditional communication methods. Companies use our
software to reduce distribution costs, manage inventory across the supply chain,
and increase customer loyalty and satisfaction. We provide global service and
support for our software from established facilities in North America, Europe,
the Middle East, Asia and Australia. Revenue from our international operations
for the year ended December 31, 2000 was approximately $46.9 million, or 40.5%
of our total revenue, and for the year ended December 31, 1999 was approximately
$35.0 million, or 36.2% of our total revenue.
We sell our software worldwide through a direct sales force and through
strategic alliances with complementary software vendors and consulting
organizations. We target companies in industries characterized by large product
selections, high transaction volumes and increasing demands for
customer-specific order processing, including traditional and e-commerce
retailers, manufacturers and outsourced e-commerce and third-party logistics
providers.
We were organized in July 1997 and commenced operations in September 1997
following the acquisition of Dallas Systems Corporation, based in Dallas, Texas,
by Neptune Systems, Inc., based in Philadelphia, Pennsylvania. Although Dallas
Systems had been in existence for 18 years and Neptune for five years, we have
operated on a combined basis as EXE Technologies, Inc. for slightly more than
three years.
RECENT DEVELOPMENTS
On January 25, 2001, we completed the acquisition of AllPoints
Systems, Inc. of Norwood, Massachusetts. The transaction was completed in a
stock-for-stock merger in which we issued 1,590,357 shares of our common stock
and assumed options for an additional 409,606 shares of our common stock in
exchange for all of the outstanding securities of AllPoints Systems. The
acquisition is intended
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to strengthen our global leadership by deepening our vertical market presence
and expanding our software and service offerings.
THE OPPORTUNITY
We believe that the large market for logistics services worldwide represents
a significant opportunity as companies increasingly focus on reducing costs,
improving efficiency and increasing customer loyalty and satisfaction. According
to Banc of America Securities LLC (BofA), spending on logistics (supply chain)
may represent as much as 10% of the Gross Domestic Product (GDP) of the United
States. About a third of this spending is for inventory carrying costs
(interest, obsolescence, warehousing, etc.) representing total spending in
excess of $300 billion in the United States alone in the year 2000. BofA further
notes that the international logistics market could be nearly twice the size of
the United States market. Our solutions are designed to reduce costs by
increasing inventory turnover, improving visibility and creating new
opportunities to generate revenue through value-added processing.
In addition, the Internet has emerged as a powerful global commerce and
communications medium, creating opportunities for companies to conduct business
and interact directly with their customers. We believe that the rise of the
Internet and e-commerce has established a common platform and standards,
creating the opportunity to bring increased efficiency to supply chain
operations. However, the new relationships created between buyer and seller,
especially in the business to business, or B2B, market, are driving a
fundamental change in order execution and fulfillment requiring increased
collaboration among the parties. Since competitive information is easily
accessible over the Internet, companies are finding it increasingly difficult to
differentiate their offerings solely on product, location or price. Accordingly,
we believe that companies must distinguish their product and service offerings
by providing reliable delivery and value-added services during the fulfillment
process according to the consumers' individual preferences.
THE NEW SUPPLY CHAIN FULFILLMENT IS MORE COMPLEX THAN TRADITIONAL
FULFILLMENT
Traditional warehouse management and distribution solutions were primarily
intended for replenishing "bricks-and-mortar" establishments, such as retail
stores and distributors, where orders are typically large, undifferentiated and
not shipped directly to the consumer. The majority of these traditional
solutions were designed before the widespread commercial use of the Internet,
and were not intended for large scale, direct to customer transactions.
We believe the challenges of modern fulfillment are more complex than those
associated with traditional warehouse management distribution. These challenges
include:
- managing complex fulfillment processes across the supply chain;
- supporting business models, such as electronic exchanges where multiple
buyers and sellers can trade products;
- facilitating visibility of inventory, delivery and order status to both
customers and suppliers;
- providing personalized service during fulfillment, including value-added
services such as customer-specific marketing, product assembly and product
configuration;
- developing global fulfillment capabilities;
- processing orders from multiple media, including the Internet, facsimile,
electronic data interchange and telephone;
- handling significant and rapid increases in the volume of transactions;
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- determining optimal locations from which to ship and optimal methods of
how to ship inventory; and
- controlling reverse logistics functions such as product recall and
returns.
In addition to these challenges, companies are faced with the task of
rapidly developing their new fulfillment capabilities in response to the
increased competition for customers.
COMPANIES MUST IMPLEMENT NEW FULFILLMENT SOLUTIONS
The impact of the Internet on supply chain management has dramatically
shifted the focus from warehouse management distribution systems to fulfillment
systems. We believe that the ability of fulfillment systems to facilitate
value-added, customer-specific order completion on a global scale will be a
critical success factor for both e-commerce and traditional businesses as they
implement their business strategies. Many traditional retailers, who have
historically relied on warehouse management and replenishment solutions, are
evolving into multi-channel retailers with the capability to transact business
through stores or directly with customers. In addition, many traditional
manufacturers, who have historically relied on distributors and retailers to
transact with customers, are now directly fulfilling customer orders or looking
to use third-party logistics providers or industry-specific marketplaces to
manage their supply chain. We believe that many electronic exchanges will evolve
into supply chain managers and must provide, either directly or through alliance
companies, management of the logistics process and guaranteed product delivery.
Many companies that implemented traditional warehouse management systems
have discovered that their existing systems do not allow them to provide
value-added, customer-specific order completion on a global scale. Fulfillment
solutions offer new opportunities for companies to engage in customer-specific
fulfillment for the benefit of both buyers and sellers. Buyers benefit since
products can be assembled, configured and personalized to meet their individual
needs. At the same time, sellers benefit since this "postponement strategy"
allows them to significantly reduce inventories and pursue targeted marketing
campaigns where promotions, customer loyalty programs and other retention
enhancement strategies can be pursued quickly and effectively.
A NEW GENERATION OF FULFILLMENT SOFTWARE IS REQUIRED
We believe companies must now invest in and deploy new fulfillment software
to meet the specific requirements of their individual customer bases. To date,
we believe that businesses have focused the majority of their Internet-related
investments on marketing and have overlooked the strategic complexity of
delivering goods through the supply chain. We believe that the success of many
e-commerce initiatives will lie in effective implementation and profitable
management of new fulfillment processes and meeting stringent customer service
requirements. Many companies launching e-commerce initiatives must invest in and
deploy advanced, Internet-enabled technologies that offer efficient control of
physical fulfillment processes, are adaptable to meet the needs of a growing
business and are reliable. This fulfillment software must also capitalize on the
ability of the Internet to interact directly with suppliers, customers, customer
relationship management systems and advanced planning systems, so suppliers and
customers share a common, collaborative view of customer fulfillment activity.
THE EXE SOLUTION
Our software manages the fulfillment of orders initiated through both
e-commerce and traditional sales channels. It provides control over fulfillment
processes both inside the four walls of logistics centers and across company
supply chains. Our software provides customers and suppliers with a real-time
view of customer fulfillment and provides the basis for developing improved
procurement, logistics and distribution processes and personalized
customer-specific order fulfillment. In addition, we complement our software
with a global professional services organization, which facilitates
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implementation, integration and modification of our software to meet the
specific needs of our customers.
We provide the following benefits to our customers:
- REDUCED COSTS AND IMPROVED EFFICIENCY. We believe our software offers
customers the opportunity to reduce operating costs by automating and
streamlining many of the labor-intensive processes in both traditional and
e-commerce related logistics and distribution operations. Our software
allows companies to implement industry best practices to reduce inventory
handling, increase inventory turnover, reduce inventory obsolescence and
optimize labor requirements.
- REDUCED TIME TO ENTER NEW MARKETS. We believe our software provides all
of the functionality necessary for fulfillment in a single, packaged
solution. Our easy-to-install applications reduce the time it takes for
companies to launch or enhance e-commerce initiatives, while
simultaneously automating their traditional supply chains.
- SUPPLY CHAIN WIDE PROCESS MANAGEMENT. Our software enables companies to
exercise control over processes that span the supply chains of their
suppliers and customers. These processes may include product recall,
returns processing, and merge-in-transit. By automating these workflows
and combining them with execution capability, companies are able to
utilize their supply chain network to reduce costs and improve revenue.
- CUSTOMER-SPECIFIC FULFILLMENT. Our software allows companies to treat
each transaction individually by automating and coordinating complex
fulfillment, assembly, product configuration and customer-specific
marketing campaigns across multiple sales channels. Through the
personalization of each customer order, companies are able to enhance
customer interaction and maximize customer retention.
- FLEXIBILITY AND RELIABILITY. Our software has the flexibility to be
deployed across most major computer systems and can operate in a hosted
environment. Our software is expandable to meet growing client needs which
is increasingly critical in e-commerce fulfillment environments, as well
as in broader enterprise environments that support multiple sales
channels. Our software has been proven reliable in high volume businesses
that distribute through retail stores or sell directly to customers.
- VISIBILITY. Our software provides a real-time view of customer
fulfillment activities and order status across multiple channels and
platforms. This allows suppliers to track orders and to implement targeted
marketing campaigns at strategic times during the fulfillment cycle.
- GLOBAL CAPABILITY. Our software currently operates in 17 languages and is
designed to accommodate rapid translations of product upgrades. In
addition, we provide local service and support from established facilities
in North America, Europe, the Middle East, Asia and Australia. We believe
that our global presence benefits our customers by providing localized
service and global customer support.
- ADAPTABILITY FOR COMPLEX NEW BUSINESS MODELS. Our software is designed to
handle complex logistics situations. This adaptability is increasingly
critical to third party logistics providers and exchanges where the
ability to handle products owned by multiple companies is fundamental to
their success.
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STRATEGY
Our goal is to be the leading global provider of fulfillment software to
companies offering products and services through both e-commerce and traditional
sales channels. To achieve this goal, we plan to:
- TAKE ADVANTAGE OF OUR EXPERIENCE AND ESTABLISHED MARKET POSITION. We
intend to continue to leverage our market position, our strategic
relationships and our brand recognition from the traditional warehouse
management and distribution market to grow our share of the fulfillment
market. We intend to accomplish this by providing comprehensive,
expandable and flexible solutions for our customers as they develop
e-commerce initiatives and integrate them with traditional sales channels.
- USE OUR INTERNATIONAL INFRASTRUCTURE TO GAIN GLOBAL MARKET SHARE. We
believe there is significant demand for our software solutions in
international markets and have established a global infrastructure to
target leading businesses worldwide. We provide sales, service and support
from locations in North America, Europe, the Middle East, Asia and
Australia. Our software is installed in 36 countries and currently
operates in 17 languages, including Chinese, French, German, Japanese and
Spanish. We intend to continue to invest in our infrastructure and
increase our sales and marketing efforts in Europe, Asia and South
America.
- EXPAND OUR STRATEGIC ALLIANCES. We have established strategic alliances
with industry-leading consultants and software systems implementors,
including Cap Gemini Ernst & Young, IBM Global Services and
PricewaterhouseCoopers, to supplement our direct sales force and
professional services organization. These alliances help extend our market
coverage and provide us with new business leads and access to trained
implementation personnel, which we believe are crucial to the deployment
of complex software solutions. We also have alliances with complementary
software vendors, such as i2 Technologies, which allow us to offer a
comprehensive solution for e-commerce fulfillment and supply chain
execution, which includes ordering, transporting, handling, storing and
delivering inventory as it moves from manufacturer to the end customer. We
will continue to seek to expand the number of companies with which we work
to further penetrate our global market.
- ENHANCE OUR SOLUTIONS. We have enhanced our Internet-enabled products by
releasing upgrades and introducing value-added modular components. We
believe our customers will continue to demand greater breadth and depth
from e-commerce solutions. We intend to broaden our product offerings to
integrate additional functionality and new technologies. We are beginning
to incorporate additional process management capabilities that will allow
us to manage entire work flows in the supply chain and we intend to
incorporate additional components by the second quarter of 2001. Our
ability to easily add software modules allows us to rapidly introduce new
product features and functionality and to penetrate accounts that are in
different stages of developing and implementing their business strategies.
- CAPTURE THE GROWING OPPORTUNITY CREATED BY PRIVATE ELECTRONIC MARKETPLACES
(EXCHANGES). Our experience with third party logistics providers has
helped us create software well suited for fulfillment and distribution
centers with multiple tenants and service models. We believe that
exchanges that deal in physical goods will need to provide, either
directly or through their alliances, physical settlement of the business
transaction. We intend to use our technology to provide the software and
process infrastructure for them to offer these services to their market
participants.
- EXPLOIT THE GROWING TREND TO OUTSOURCE BUSINESS PROCESSES AND COMPUTER
SERVICES. We intend to pursue additional relationships with third party
providers that will deliver our solution as an outsourced, externally
hosted service to be packaged with their differentiated service and
technology offerings. We believe there is a significant need for companies
to outsource their
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business processes, including their fulfillment needs. By using an
outsourced service, a company can improve the time it takes to begin
operations without making the investment in technology and staff necessary
to support a complex e-commerce solution. We believe our relationships
with logistics outsourcers will enable our hosted solutions to become more
broadly available and increase our market penetration to companies outside
our target markets, especially small- and medium-sized companies.
EXE SOFTWARE
Our EXceed fulfillment software was launched in January 1999. EXceed allows
companies to deploy integrated e-commerce order fulfillment solutions across the
Internet and multiple computer systems. The software includes functionality for:
- operating fulfillment centers;
- creating customer-specific fulfillment services;
- integrating fulfillment centers to web sites and planning engines;
- optimizing fulfillment center layout; and
- connecting multiple centers with each other and other e-commerce and
enterprise systems.
Our EXceed fulfillment software is designed to run on the most widely used
hardware, operating system and database platforms, generating a consistent
display of the data to all concurrent users. Depending on our customers'
specific needs, EXceed software can be deployed on UNIX, Windows NT/2000, IBM
O/S 390 and AS 400 with Oracle, SQL Server or DB2 as the database engine.
Our EXceed fulfillment software includes two software suites:
- EXceed Fulfill--manages and controls operations within the fulfillment
center, including receiving, stocking, picking, product configuration,
packing, shipping, crossdocking, quality assurance, inventory control and
reporting.
- EXceed Collaborate--allows users, suppliers and customers to manage
workflows and share information across our applications, third-party
applications and networks of fulfillment centers.
The table below describes the components and functionality of the EXceed
Fulfill and Collaborate Suites:
EXCEED FULFILL SUITE
COMPONENTS FUNCTIONALITY
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EXCEED WMS Provides functionality for fulfillment center or warehouse
management, including order management, receiving,
stocking, replenishment, picking, labor control, radio
frequency support and task management.
EXCEED VALUE Automates customer-specific marketing activities and other
more complex make-to-order operations.
EXCEED CROSSDOCK Merges inbound products shipped directly from suppliers with
inventoried products in a high speed fashion.
EXCEED BILLING Generates activity-based charges for storage and labor to
charge to customers or divisions.
EXCEED OPTIMIZE Simulates and optimizes the attributes of a fulfillment
center.
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COMPONENTS FUNCTIONALITY
- ---------- -------------
EXCEED MANIFEST Coordinates with third-party software to perform shipping
functions such as rating, routing, best-way shipping,
carrier tender, carrier labeling and consolidation.
EXCEED RETURNS Controls the disposition of returned items, including
reprocessing product, repackaging, return to stock and
other operations.
EXCEED QUALITY Manages inbound and outbound quality control processes and
activities associated with reprocessing product for future
sale or disposal.
EXCEED DOCK Schedules and coordinates shipping and receiving functions
with transportation.
EXCEED COLLABORATE SUITE
COMPONENTS FUNCTIONALITY
- ---------- -------------
EXCEED COLLABORATE FOUNDATION Provides a repository of supply chain events, documentation
flows, and inventory status.
EXCEED ANALYZERS Provides industry and process specific key performance
indicators for analyzing foundation data repository.
EXCEED PROCESS MANAGER Provides industry and process specific work flow managers
for connecting EXceed software suites with other supply
chain packages and providing automated event management
and exception handling.
EXCEED WORKBENCHES Provides packaged combination of Analyzers and Process
Managers designed to solve specific supply chain problems
such as product recall and returns.
EXCEED CONNECT Connects EXceed application components among themselves and
with third-party applications.
EXCEED ALERT Sends electronic notifications of fulfillment activity and
issues to e-mail, pagers, fax or other media.
EXCEED TRACKER Provides customer "self help" order tracking over the
Internet.
EXCEED SUPPLIER PORTAL Coordinates with third party software to link suppliers to
fulfillment centers over the Internet, allowing them to
perform vendor managed inventory activities.
EXCEED CUSTOMER PORTAL Coordinates with third party software to link customers to
fulfillment centers over the Internet, allowing them to
manage their orders through the entire fulfillment
process.
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EXE PRODUCT PACKAGING AND PRICING
We offer a variety of packaging options for our software. These options
allow us to market our technology to companies in different stages of executing
their fulfillment strategies. For example, customers seeking an enterprise
fulfillment solution may license our EXceed Fulfill and Collaborate Suites,
including all associated components. Companies pursuing less comprehensive
e-commerce initiatives may license our EXceed WMS and EXceed Connect as stand
alone applications, with additional software components to be added later.
Flexible packaging options allow our customers to make investments in our
technology without necessarily committing to a larger enterprise platform.
We offer a variety of pricing options which allow our customers to purchase
our software for a single site, a business unit or an entire enterprise. License
fees for our products typically range from approximately several hundred
thousand dollars to several million dollars. We have recently introduced
additional pricing options which we believe may allow us to expand our market
presence. For example, we have entered into an agreement with a third-party
provider that hosts our software so we can sell subscriptions to small and
medium-sized businesses.
PROFESSIONAL SERVICES
We offer a range of professional services that help facilitate the
successful implementation and integration of our software with our customers'
existing systems. Our professional services include implementation project
management, on-site software training, operational engineering, industrial
engineering, software modification and supply chain consulting. Our professional
services are billed on a time and material basis or, when requested, on a fixed
fee basis.
Our internally developed Global Execution Methodology, or GEM, is a nine
step uniform process for implementing our software. GEM is supported by a
globally deployed software application that aids in planning, change management
and quality control during system implementation. The application allows our
professional services staff, customers and alliance companies to access project
information on a global basis.
Our professional services personnel have extensive experience in the
deployment of fulfillment systems. When we assist companies in the
implementation of our software, we help them determine how to use our technology
in a way that fits their individual fulfillment strategy. We can, if requested,
adapt the software to specific customer business practices.
We believe that the use of outside consulting and service providers is an
important component of our strategy to expand our professional services business
and support the growth in our software license revenue. We currently intend to
expand our relationships with and reliance on strategic alliance companies and
consultants. We also believe this will allow us to manage the growth of our own
professional services group without affecting other parts of our business.
We provide a comprehensive upgrade and support program through which our
customers, should they choose to participate, can receive upgrades to our
licensed products and access to our support center. These services are typically
offered under annual upgrade and support contracts or under separate annual
upgrade and annual software support contracts. Our support center is open year
round, seven days per week and twenty-four hours per day. Our support center can
remotely access the customers' systems and provide on-line assistance,
diagnostics and software upgrades.
We also offer an intensive education and training program for our customers,
employees and third-party service providers, either at our offices or at the
customer's site, through our EXE University. Students who are certified by EXE
University are qualified to implement our software. EXE University also offers
an accreditation program for those wishing to train others. We currently offer
training in North America, Europe and Asia.
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SALES AND MARKETING
We have multi-disciplined sales teams that consist of sales, technical and
sales support professionals. Our senior management also takes an active role in
our sales efforts. We market and sell our software through our direct sales
force, which is located in North America, Europe, the Middle East, Asia and
Australia, and through our strategic alliances. In North America, our sales
organization is focused on our targeted vertical markets, with resources
assigned to retail, manufacturing and third party logistics. In Europe and Asia,
our sales organization is deployed by geographic region, but targets the same
vertical markets as in North America.
We have sales offices in the Dallas, Boston, Philadelphia, London, Paris,
Amsterdam, Berlin, Cologne, Dubai, Tokyo, Seoul, Hong Kong, Singapore, Kuala
Lumpur and Melbourne metropolitan areas. As of December 31, 2000, our worldwide
sales organization consisted of 103 employees. We also supplement our sales
organization with our Alliance Sales Program. We use this program to sell to
companies around the world that we do not service directly and to supplement our
sales initiatives in certain overseas markets.
Our marketing organization uses a variety of programs to support our sales
efforts, including:
- market and product research and analysis;
- product and strategy updates with industry analysts;
- public relations activities and speaking engagements;
- Internet-based and direct mail marketing programs;
- seminars and trade shows;
- brochures, data sheets and white papers; and
- web site marketing.
As of December 31, 2000, our marketing organization consisted of nine
employees.
STRATEGIC ALLIANCES AND RELATIONSHIPS
Another key element of our growth strategy is the formation of strategic
relationships with industry leaders whose business offerings complement our own.
We believe that these relationships will allow us to scale our business rapidly
and effectively by enabling the expansion of our:
- global brand;
- qualified sales opportunities;
- capacity to implement effectively our software offerings for new and
existing customers; and
- ability to deliver enhanced value to our customers.
We have established relationships with large, international systems
integrators and consulting services companies, including Cap Gemini Ernst &
Young, IBM Global Services and PricewaterhouseCoopers. Under these
relationships, we provide referrals for services work to these companies or
subcontract work to these companies in connection with the installation of our
software. These companies may provide referrals of potential licensees to us. In
general, the relationships are governed by short-term, non-exclusive, renewable
written or oral contracts, with limited or no up-front financial commitments.
Some of the contracts provide for compensation to the referring party, typically
in the form of a commission or finder's fee upon conclusion of a transaction. We
intend to expand these relationships and add new relationships to increase our
capacity to sell and implement our products on a global basis. Our existing
alliances have been aligned to coincide with our target vertical
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markets. We will continue to pursue relationships that enhance our strategy in
industry-specific marketplaces.
We also have relationships with vendors of complementary software including
IBM, i2 Technologies, Microsoft and Oracle. For example, we recently extended
our existing relationship with i2 and began integrating our EXceed software into
i2's FulfillmentMatrix and TradeMatrix Fulfill solutions to provide a combined
order management and fulfillment solution. We also have a resale agreement with
i2 under which we resell i2's transportation management, transportation
optimization and global visibility solutions, and i2 resells our EXceed software
suites. In connection with the i2 agreement, we granted i2 a warrant to purchase
our common stock. However, in general, the relationships are governed by
short-term, non-exclusive, renewable contracts, with no or limited up-front
financial commitments. These relationships typically involve reseller or
marketing arrangements, or both, under which the reseller or marketer is
compensated by the vendor in the form of discounts or commissions. We intend to
pursue additional relationships with vendors of complementary software to
increase our ability to deliver enhanced value to our customers.
We also have alliance relationships with hardware vendors such as
Hewlett-Packard, IBM, Intermec, Sun Microsystems and Symbol Technologies. We act
as a marketer or reseller, or both, of their server and radio frequency
hardware. In general, the relationships are governed by short-term,
non-exclusive, renewable written or oral contracts, with no or limited up-front
financial commitments. We receive discounts or commissions as compensation for
sales under some of these relationships. On an ongoing basis, we intend to
pursue additional technology relationships that we believe will increase our
value to potential customers, expand our ability to offer integrated enterprise
solutions and increase our market opportunities.
CUSTOMERS
We have targeted and will continue to target selected vertical industries
characterized by large product selections, high transaction volumes and
increased demands for personalized fulfillment, including traditional and
e-commerce retailers, manufacturers and outsourced e-commerce and third party
logistics providers. The following is a list of our top customers by revenue and
industry to whom we have provided our products or services in the year ended
December 31, 2000. In 2000:
- the retail customers listed below accounted for 6.9% of our revenue;
- the third party logistics customers listed below accounted for 7.3% of our
revenue;
- the manufacturing customers listed below accounted for 5.5% of our
revenue; and
- the e-commerce customers listed below accounted for 5.5% of our revenues.
RETAIL THIRD PARTY LOGISTICS
- ------ ---------------------
Abastex (Grupo Bimbo) FedEx
Fleming Companies Frans Maas
Safeway Maersk/Mercantile
Sainsbury's UPS
MANUFACTURING E-COMMERCE
- ------------- ---------------------
Con Agra barnesandnoble.com
Ford Grocery Gateway
Mitsui GroceryWorks.com
Toyota
12
Our license agreements with our customers are typically perpetual in
duration. Our support and upgrade services contracts ordinarily are annual
contracts, subject to renewal. Our professional services agreements are
relatively short in duration, lasting anywhere from a few months to a year,
depending on the project requirements.
RESEARCH AND DEVELOPMENT
As of December 31, 2000, we had 57 full time employees and 37 contractors
engaged in research and development. This team is responsible for product
planning and design, development of functionality within the EXceed Fulfill and
Collaborate Suites and general release and quality assurance functions.
We have arrangements with HCL Technologies America, Inc. and Span Systems
Corporation to provide software development and implementation services on an
outsourced basis. Under these relationships, HCL and Span Systems provide
project dedicated software developers to develop products and application
functionality based on specifications provided by us and to provide
implementation services to our customers. The formal term of the HCL agreement
recently expired, but we expect to extend the term in a new agreement. The Span
Systems agreement does not have a defined termination date. We believe our
relationships with these firms provide us with access to a skilled labor pool,
more rapid development cycles and a cost-effective solution to our research and
development needs.
COMPETITION
The market for fulfillment solutions is intensely competitive, fragmented
and subject to rapid technological change. The principal competitive factors in
this market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability and flexibility;
- immediate, interactive capability with customer and partner systems;
- global capability;
- ability to support specific industry requirements;
- ease of application use and deployment;
- speed of implementation;
- customer service and support; and
- initial price and total cost of ownership.
We believe that we compete favorably with competitors in terms of our
technology, the comprehensiveness of our solutions and our global presence, as
well as our targeted vertical focus.
Our competitors include companies or groups that:
- focus on providing fulfillment applications, such as McHugh Software
International, Manhattan Associates and Yantra;
- offer enterprise platforms for order management and fulfillment, such as
IMI and SAP; and
- service internal customers, such as internal information technology
groups.
13
There are a substantial number of other companies focused on providing
Internet-enabled software applications for fulfillment or related supply chain
functions that may offer competitive products in the future. We believe that the
market for integrated fulfillment solutions is still in its formative stage, and
that no currently identified competitor represents a dominant presence in this
market.
We expect competition to increase as a result of software industry
consolidation. For example, a number of enterprise software companies have
acquired point solution providers to expand their product offerings. Our
competitors may also package their products in ways that may discourage users
from purchasing our products. Current and potential competitors may establish
alliances among themselves or with third parties or adopt aggressive pricing
policies to gain market share. In addition, new competitors could emerge and
rapidly capture market share.
INTELLECTUAL PROPERTY
Our intellectual property rights are significant and are critical to our
success and our ability to compete. We rely on intellectual property laws,
including copyright, trademark, trade secret and other laws, confidentiality
procedures and contractual provisions to protect our proprietary rights in our
products and technology. Under the terms of our agreements with our customers,
we usually own all modifications to our software that are implemented for a
customer. We believe, however, that these steps to protect our intellectual
property afford only limited protection to us, particularly on an international
basis. We do not currently have any patents issued or patent applications
pending. We give some of our customers, alliance companies, resellers and
development partners access to our software program instructions, or source
code, and other intellectual property in certain limited circumstances when
necessary to facilitate a project. In addition, our source code is held in
escrow to be released to customers on specific events such as bankruptcy or
failure to provide support. Access to our source code may create a risk of
disclosure or other inappropriate use. Despite our contractual protections, this
access could enable a third party to use our intellectual property, including
our source code, to wrongfully develop and manufacture competing products. In
addition, policing unauthorized use of our products is difficult.
We cannot be certain that others will not independently develop
substantially equivalent or better intellectual property, gain access to our
trade secrets or intellectual property, or disclose our intellectual property or
trade secrets. We also conduct a substantial amount of business abroad, and the
laws of many foreign countries do not protect our intellectual property to the
same degree as the laws of the United States.
Also, we may desire or be required to renew or to obtain licenses from
others to enable us to develop and market commercially viable products and to
run our internal software systems, including for financial reporting and other
purposes. We can give you no assurances that any necessary licenses will be
available on reasonable terms, if at all.
From time to time, third parties may assert claims or initiate litigation
against us or our alliance companies alleging that our products infringe their
proprietary rights. As the number of fulfillment and supply chain execution
applications in the industry increases and products overlap, we may become
increasingly subject to claims of infringement or misappropriation of the
intellectual property rights of others. In addition, we may in the future
initiate claims or litigation against third parties for infringement of our
proprietary rights to determine the scope and validity of our proprietary
rights. Litigation claims, with or without merit, could be time-consuming and
costly, divert management's attention, cause product shipment delays, require us
to develop non-infringing technology or enter into royalty or licensing
agreements. Royalty or licensing agreements, if required, may not be available
on acceptable terms, if at all.
We have received notices from four customers requesting defense and
indemnification for patent claims in lawsuits brought or threatened against them
by a third party with respect to the use of bar
14
code technology. We are currently investigating these claims. We have become
aware that several manufacturers of bar code scanning equipment are challenging
the underlying patents in a separate lawsuit, and we continue to monitor the
progress of this litigation. Based on our investigation to date, we do not
believe that we have an obligation to defend or that we ultimately will have
liability for the indemnification requests of customers. However, if the various
disputes are resolved unfavorably to us, then they could have a material adverse
effect on our business, operations and financial condition. For example, we may
be required to modify our software, obtain additional licenses and defend and
indemnify our customers. Furthermore, our future customers may be required to
obtain additional licenses in order to use our software.
EMPLOYEES
As of December 31, 2000, we had a total of 630 employees, of which 57 were
in research and development, 112 were in sales and marketing, 102 were in
finance and administration, and 359 were in professional services and support.
None of our employees is represented by a labor union. We have not experienced
any work stoppages and consider our relations with our employees to be good.
FOREIGN OPERATIONS
In 1998, 1999 and 2000, the revenues from our foreign operations were
$25.1 million, $35.0 million and $46.9 million, respectively. At December 31,
1998, 1999 and 2000, the assets from our foreign operations were $5.9 million,
$11.4 million and $10.3 million, respectively.
ITEM 2. PROPERTIES
Our corporate headquarters occupy approximately 136,000 square feet in
Dallas, Texas. Our lease for this facility expires in May 2014. Our facility in
Philadelphia, Pennsylvania currently occupies approximately 16,000 square feet.
Our lease for this facility expires in July 2006. Our facility in Norwood,
Massachusetts currently occupies 22,175 square feet. Our lease for this facility
expires in January 2005. We believe these existing facilities will be adequate
to meet our needs for the next 12 months. We also lease offices in London,
Paris, Amsterdam, Cologne, Dubai, Tokyo, Seoul, Hong Kong, Kuala Lumpur,
Singapore and Melbourne. We also have 59,000 square feet of additional space
available to us in our Dallas headquarters under a sublease agreement that will
expire in July 2001.
ITEM 3. LEGAL PROCEEDINGS
We are engaged in legal proceedings incidental to the normal course of
business. Although the ultimate outcome of our pending legal proceedings cannot
be determined, we believe that the final outcome of these matters will not
seriously harm our business. Information concerning asserted and potential
claims regarding our intellectual property is discussed above under "Item 1.
Business--Intellectual Property."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
EXECUTIVE OFFICERS
The following table sets forth information regarding our current executive
officers:
NAME AGE POSITION
- ---- -------- --------
Raymond R. Hood........................... 41 President, Chief Executive Officer and
Director
David E. Alcala........................... 53 Senior Vice President, Business
Development
Nigel R. Bahadur.......................... 30 Senior Vice President, Research and
Development
Michael A. Burstein....................... 37 Senior Vice President, Finance, Chief
Financial Officer and Treasurer
Mark R. Weaser............................ 38 Senior Vice President, International
Operations
Christopher F. Wright..................... 40 Senior Vice President, Administration,
General Counsel and Secretary
RAYMOND R. HOOD has served as our President and Chief Executive Officer and
as a director since September 1997. From 1990 to September 1997, Mr. Hood served
as chief executive officer of Neptune, a provider of supply chain execution
software and services, and predecessor of the Company, which he co-founded with
Adam Belsky, one of our directors. Prior to 1990, Mr. Hood was a partner at
Microtek.
DAVID E. ALCALA has served as our Senior Vice President, Business
Development since August 1999. From April 1998 to August 1999, he served as our
Senior Vice President, Industry Marketing, and from September 1997 to
April 1998 he served as our Senior Vice President, Sales and Marketing. From
January 1997 to September 1997, Mr. Alcala served as the senior vice president
and chief operating officer of Neptune. From July 1995 to November 1996,
Mr. Alcala served as senior vice president/ general manager of the Logistics
Systems Division of HK Systems, Inc. From October 1993 to July 1995, Mr. Alcala
served as president and chief executive officer of MTA, Inc.
NIGEL R. BAHADUR has served as our Senior Vice President, Research and
Development since February 2000. From September 1997 to February 2000,
Mr. Bahadur served as our Chief Technology Officer and Vice President of
Research and Development. From 1992 to September 1997, Mr. Bahadur held various
positions in Neptune including vice president of research and development.
MICHAEL A. BURSTEIN has served as our Senior Vice President, Finance, Chief
Financial Officer and Treasurer since November 1999. From August 1999 to
November 1999, he served as our Director, Corporate Finance and Assistant
Treasurer. Prior to joining us, Mr. Burstein served as the chief financial
officer of Sequel Systems, Inc., from August 1998 to August 1999. From 1996 to
1998, Mr. Burstein served as the chief financial officer of Paradigm
Geophysical Ltd. From 1989 to 1996, Mr. Burstein served in a variety of
capacities at Occidental Chemical.
MARK R. WEASER has served as our Senior Vice President, International
Operations since January 2000. From September 1997 to January 2000, he served as
our Managing Director of Asia/ Pacific and served in the same position for
Neptune since August 1996. From July 1995 to July 1996, he was the Asia vice
president for Telxon Corporation. From February 1993 to June 1995, Mr. Weaser
was the sales director for American President Lines in Hong Kong, Taiwan and
Vietnam.
CHRISTOPHER F. WRIGHT has served as our Senior Vice President,
Administration since November 1999 and as our General Counsel and Secretary
since July 1998. Prior to July 1998, Mr. Wright was a partner with the law firm
of Pepper Hamilton LLP, which he joined as an associate in 1990.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock began trading on the Nasdaq National Market on August 4,
2000 under the symbol "EXEE." Prior to that time, there had been no market for
our common stock. The following table sets forth the high and low sales price
information per share of our common stock on the Nasdaq National Market for the
indicated periods.
PRICE RANGE
-------------------
CALENDAR YEAR HIGH LOW
- ------------- -------- --------
2000
Third Quarter (beginning August 4, 2000).................... $21.000 $7.875
Fourth Quarter.............................................. $19.125 $7.750
The number of record holders of our common stock as of March 1, 2000 was
191. We believe that a larger number of beneficial owners hold shares of our
common stock in depository or nominee form.
We have never declared or paid cash dividends on our capital stock. We
currently intend to retain any earnings for use in our business and do not
anticipate paying any cash dividends in the foreseeable future. Future
dividends, if any, will be determined by our Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
During the quarter ended December 31, 2000, we sold the securities set forth
below which were not registered under the Securities Act of 1933:
1. We issued an aggregate of 43,325 shares of common stock upon the exercise of
stock options at exercise prices ranging from $0.75 per share to $7.50 per
share.
2. On October 23, 2000, we issued options to purchase 716,600 shares of common
stock under our Amended and Restated 1997 Incentive and Non-Qualified Stock
Option Plan at an exercise price of $17.0625 per share.
3. On December 28, 2000, we issued 440,000 shares of common stock upon the
exercise of a warrant previously granted to a third party at an exercise
price of $4.00 per share.
We believe that the transactions described above were exempt from
registration under Section 3(b) or 4(2) of the Securities Act because the
subject securities were issued pursuant to a compensatory benefit plan pursuant
to Rule 701 under the Securities Act or because the subject securities were sold
to a limited group of persons, each of whom was believed to be a sophisticated
investor or to have had a pre-existing business or personal relationship with us
or our management and to have been purchasing for investment without a view to
further distribution. In addition, the recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the certificates
issued in such transactions. All recipients had adequate access, though their
relationships with us, to information about us. No underwriters were involved in
the foregoing transactions.
USE OF PROCEEDS
The company completed its initial public offering of 8.0 million shares of
its common stock pursuant to a Registration Statement on Form S-1 (Registration
No. 333-35106, effective August 3, 2000) on August 9, 2000. The managing
underwriters in the offering were Donaldson, Lufkin & Jenrette, Salomon Smith
Barney, and Banc of America Securities LLC. The underwriters exercised a
17
portion of their over-allotment option and purchased an additional 840,000
shares of the Company's common stock, at $8.00 per share, on August 16, 2000.
Total proceeds from the offering, including the exercise of the over-allotment
option, were approximately $63.9 million, net of underwriting discounts and
commissions of approximately $5.0 million and other related fees and expenses of
approximately $1.8 million.
From the date of receipt through December 31, 2000, approximately
$16.6 million of the offering proceeds were used to pay off and terminate the
Company's revolving line of credit and term loan. The remainder of the proceeds
have been invested in investment grade corporate and government securities and
money market funds. None of the net proceeds of the offering were paid by the
Company, directly or indirectly, to any director, officer, or general partner of
the Company or any of their associates, or to any persons owning ten percent or
more of any class of the Company's equity securities, or any affiliates of the
Company.
ITEM 6. SELECTED CONSOLITATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our consolidated financial statements and the related notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this document. The statement of operations
data for the years ended December 31, 1998, 1999 and 2000 and the balance sheet
data as of December 31, 1999 and 2000 are derived from our audited consolidated
financial statements included elsewhere in this document. The statement of
operations data for the years ended December 31, 1996 and 1997 and the balance
sheet data as of December 31, 1996, 1997 and 1998 are derived from our audited
financial statements for the years then ended, which are not included in this
document.
We commenced operations on September 15, 1997, following the acquisition of
Dallas Systems by Neptune, which was accounted for as a purchase of Dallas
Systems by Neptune. As such, the historical financial statements of Neptune are
presented as our historical financial statements. The assets and liabilities of
Dallas Systems were recorded at the fair market value at the date of the
acquisition. We do not believe that our financial statements for the periods
prior to the acquisition are comparable to the periods after the acquisition due
to the significant impact of the acquisition.
18
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license........................... $4,326 $ 8,429 $ 22,418 $ 25,390 $38,665
Services and maintenance................... 3,390 12,781 59,758 64,103 68,708
Resale of software and equipment........... 698 5,562 9,114 7,307 8,215
------ ------- -------- -------- -------
Total revenue............................ 8,414 26,772 91,290 96,800 115,588
Cost and expenses:
Cost of software licenses.................. 206 749 234 254 1,391
Cost of services and maintenance........... 2,146 9,967 46,474 53,473 53,585
Cost of resale of software and equipment... 608 4,129 7,206 5,851 6,607
Sales and marketing........................ 1,258 6,721 23,664 24,464 25,496
Research and development................... 600 3,534 15,473 11,544 9,578
General and administrative................. 2,219 4,263 12,670 14,888 14,445
Amortization of intangibles................ -- 1,430 4,452 4,819 4,615
Warrant and stock compensation expense..... -- -- 285 3,321 2,762
Write-off of in-process research and
development.............................. -- 2,700 -- -- --
Loss on lease abandonment.................. -- -- 1,000 288 --
Restructuring costs........................ -- -- -- 1,952 --
------ ------- -------- -------- -------
Total costs and expenses................. 7,037 33,493 111,458 120,854 118,479
------ ------- -------- -------- -------
Operating income (loss)........................ 1,377 (6,721) (20,168) (24,054) (2,891)
Other income (expense)......................... (22) (208) (14) (2,030) (441)
------ ------- -------- -------- -------
Income (loss) before minority interest and
taxes........................................ 1,355 (6,929) (20,182) (26,084) (3,332)
Minority interest in subsidiary loss
(income)..................................... 94 76 (30) -- --
------ ------- -------- -------- -------
Income (loss) before income taxes.............. 1,449 (6,853) (20,212) (26,084) (3,332)
Provision (benefit) for income taxes........... 609 (225) (578) -- --
------ ------- -------- -------- -------
Net income (loss).............................. $ 840 $(6,628) $(19,634) $(26,084) $(3,332)
====== ======= ======== ======== =======
Net income (loss) per share--basic and
diluted...................................... $ 0.10 $ (0.59) $ (1.24) $ (1.62) $ (0.12)
Shares used in computing net income (loss) per
share--basic and diluted..................... 8,500 11,228 15,885 16,096 26,800
AS OF DECEMBER 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents.......................... $1,804 $6,653 $ 780 $8,932 $39,820
Working capital.................................... 1,518 12,039 1,135 920 56,359
Total assets....................................... 5,208 56,407 57,063 67,670 116,580
Long-term debt (less current portion).............. 590 17 5,420 5,333 102
Stockholders' equity............................... 2,034 37,765 24,824 21,233 87,044
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
OUR FORMATION
We began operations following the acquisition of Dallas Systems by Neptune
in September 1997. For accounting purposes the acquisition was accounted for as
a purchase of Dallas Systems by Neptune. Prior to the acquisition, Neptune was
focused on delivering packaged supply chain execution software solutions
primarily for manufacturing and third-party logistics companies. Dallas Systems
was focused on the development and sale of supply chain execution software
solutions, primarily for retail companies, capable of operating in complex
business environments. Dallas Systems also provided implementation and
consulting services.
OUR REVENUE
Software license revenue from our EXceed Fulfill products and their
predecessors increased from $9.1 million in 1998 to $17.9 million in 1999 and
$34.9 million in 2000. Overall revenue from our Exceed Fulfill products and
their predecessors increased from $19.7 million in 1998 to $41.2 million in 1999
and $73.4 million in 2000. We anticipate that software license revenue will
continue to grow on an annual basis as a result of increased market acceptance
of our EXceed Fulfill products, expansion into new geographical markets,
increased sales through our strategic alliances and an increase in the size and
productivity of our sales force. We also anticipate a decline in revenue
generated from our EXceed 2000 warehouse management system product as demand
continues to shift toward products with broader fulfillment capabilities. We
presently do not intend to stop enhancing, selling and supporting the EXceed
2000 warehouse management system, as we believe it continues to be a viable
product for some of our customers.
We derive our revenue from:
- the sale of software licenses, which we recognize as software license
revenue;
- product related consulting, training, maintenance and support, which we
recognize as services and maintenance revenue; and
- the resale of hardware and software, which we recognize as resale software
and equipment revenue.
We recognize license revenue under Statement of Position, or SOP, No. 97-2.
Under SOP No. 97-2, software license revenue is recognized upon execution of a
contract and delivery of the software, provided that the license fee is fixed
and determinable, no significant production, modification or customization of
the software is required and collection of the license fee is considered
probable by management. Product related maintenance and support revenue is
recognized ratably over the term of the contract, which is typically one year,
and revenue from product related consulting and training is recognized as such
services are performed.
In January 2000, we sold our mainframe services and maintenance practice to
an unrelated third party consulting firm in exchange for royalties that will be
received on future revenue generated by customers using this product. Services
and maintenance revenue associated with this product as a percentage of total
services and maintenance revenue represented 12.5% and 7.5%, respectively, for
the years ended December 31, 1998 and 1999. The royalties earned by EXE are
based upon a declining percentage of the consulting firm's services and
maintenance revenues generated from customers using our mainframe product,
subject to a maximum of $425,000 per year. The percentages of revenue are: 20.0%
for the first two years, 15.0% for the third year, 10.0% for the fourth and
fifth years and 5.0% for each year after the fifth year. The agreement is
perpetual, but may be terminated at EXE's option
20
in the event of default by the consulting firm. Royalties recognized in 2000
totaled $425,000. We do not expect these royalties to be a material portion of
our future services and maintenance revenues. The royalties are included as a
component of services and maintenance revenue.
SOFTWARE PRICING AND PROFESSIONAL SERVICES
We offer a variety of pricing options, which allow our customers to purchase
our software for a single site, a business unit or an entire enterprise. We
market our software and services through our direct sales organization in North
America, Europe, the Middle East, Asia and Australia and through our strategic
alliance relationships. We recently opened two offices in Germany and we intend
to continue to expand our international sales activities by opening additional
offices in Europe, Asia and South America in 2001 and by expanding the size of
our existing offices. In addition, we plan to expand strategic relationships
with industry leaders whose business offerings complement our own.
We offer professional services that help facilitate the successful
implementation and integration of our products with our customers' existing
systems. Our professional services include installation, implementation project
management, on-site software training, operational engineering, industrial
engineering, software modification and supply chain consulting. Our professional
services are billed on a time and material basis or, when requested, on a fixed
fee basis. For the year ended December 31, 2000, approximately 11% of our total
revenue was derived from fixed fee contracts.
RECENT DEVELOPMENTS
On January 25, 2001, we completed the acquisition of AllPoints
Systems, Inc. of Norwood, Massachusetts. The transaction was completed in a
stock-for-stock merger in which we issued 1,590,357 shares of our common stock
and assumed options for an additional 409,606 shares of our common stock in
exchange for all of the outstanding securities of AllPoints Systems. The
acquisition is intended to strengthen our global leadership by deepening our
vertical market presence and expanding our software and service offerings. The
transaction will be accounted for as a purchase.
21
RESULTS OF OPERATIONS
The following table sets forth our statement of operations data as a
percentage of total revenue for the three years ended December 31, 1998, 1999
and 2000:
YEARS ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
-------- -------- --------
AS A PERCENTAGE OF TOTAL REVENUE:
Revenue:
Software license........................................ 24.6 % 26.2 % 33.5 %
Services and maintenance................................ 65.4 66.2 59.4
Resale of software and equipment........................ 10.0 7.6 7.1
----- ----- -----
Total Revenue......................................... 100.0 100.0 100.0
Cost and expenses:
Cost of software licenses............................... 0.3 0.3 1.2
Cost of services and maintenance........................ 50.9 55.2 46.3
Cost of resale of software and equipment................ 7.9 6.0 5.7
Sales and marketing..................................... 25.9 25.3 22.1
Research and development................................ 16.9 11.9 8.3
General and administrative.............................. 13.9 15.4 12.5
Amortization of intangibles............................. 4.9 5.0 4.0
Warrant and stock compensation expense.................. 0.3 3.4 2.4
Loss on lease abandonment............................... 1.1 0.3 --
Restructuring costs..................................... -- 2.0 --
----- ----- -----
Total costs and expenses.............................. 122.1 124.8 102.5
----- ----- -----
Operating income (loss)..................................... (22.1) (24.8) (2.5)
Other income (expense)...................................... -- (2.1) (0.4)
----- ----- -----
Income (loss) before minority interest and taxes............ (22.1) (26.9) (2.9)
Minority interest in subsidiary loss (income)............... -- -- --
----- ----- -----
Income (loss) before income taxes........................... (22.1) (26.9) (2.9)
Provision (benefit) for income taxes........................ (0.6) -- --
----- ----- -----
Net income (loss)........................................... (21.5)% (26.9)% (2.9)%
===== ===== =====
YEAR ENDED DECEMBER 31, 2000 COMPARED TO THE YEAR ENDED DECEMBER 31, 1999
REVENUE
TOTAL REVENUE. Total revenue increased by $18.8 million, or 19.4%, to
$115.6 million for the year ended December 31, 2000, from $96.8 million for the
year ended December 31, 1999. International revenue accounted for 40.5% of total
revenue in 2000 and 36.2% of total revenue in 1999. No single customer accounted
for more than 10.0% of total revenue in 2000 or 1999.
SOFTWARE LICENSE. Software license revenue increased $13.3 million, or
52.3%, to $38.7 million for the year ended December 31, 2000, from
$25.4 million for the year ended December 31, 1999. This increase was due to
continued growth in the sales of our EXceed Fulfill and predecessor products.
Sales of our EXceed Fulfill and predecessor products increased by $17.0 million
for the year ended December 31, 2000, as compared to the year ended
December 31, 1999. This increase was offset by a $3.7 million decline in sales
from our EXceed 2000 warehouse management system and our mainframe products.
Software license revenue as a percentage of total revenue was 33.5% for the year
ended December 31, 2000 versus 26.2% for the year ended December 31, 1999. Our
EXceed Fulfill and
22
predecessor products accounted for 90.2% of total software license revenue in
2000 and 70.6% of total software license revenue in 1999.
SERVICES AND MAINTENANCE. Services and maintenance revenue increased
$4.6 million, or 7.2%, to $68.7 million for the year ended December 31, 2000,
from $64.1 million for the year ended December 31, 1999. The increase was due to
higher software license sales in 2000 as compared to 1999, which generated
higher services and maintenance revenue opportunities. Services and maintenance
revenue from our EXceed Fulfill and predecessor products increased
$15.1 million, while services and maintenance revenue from our EXceed 2000
warehouse management system declined $7.7 million for the year ended
December 31, 2000. Additionally, in January 2000 we sold our mainframe services
and maintenance practice in exchange for a royalty that will be received on
future revenue generated by these mainframe customers, resulting in a
$3.8 million decline in services and maintenance revenue for the year ended
December 31, 2000. This decrease was partially offset by an increase of
$1.0 million in product related training for the same time period. Services and
maintenance revenue as a percentage of total revenue was 59.4% for the year
ended December 31, 2000 versus 66.2% for the year ended December 31, 1999. The
decline was due to the increasing portion of our revenue generated from our
EXceed Fulfill products, which are more easily deployable and require less
personnel to install than our EXceed 2000 warehouse management system, and the
disposition of our mainframe business. Our EXceed Fulfill and predecessor
products accounted for 56.1% of total services and maintenance revenue in 2000
versus 36.5% of total services and maintenance revenue in 1999.
RESALE SOFTWARE AND EQUIPMENT. Resale software and equipment revenue
increased $0.9 million, or 12.4%, to $8.2 million for the year ended
December 31, 2000, from $7.3 million for the year ended December 31, 1999. The
increase was due to higher software license sales in 2000 as compared to 1999,
which generated greater resale software and equipment revenue opportunities.
Resale software and equipment as a percentage of total revenue was 7.1% for the
year ended December 31, 2000 versus 7.5% for the year ended December 31, 1999.
The decline reflects the continued shift in demand to our EXceed Fulfill
products, which have a lower opportunity for resale of software and equipment
than the EXceed 2000 warehouse management system and mainframe products.
COSTS AND EXPENSES
COST OF SOFTWARE LICENSES. Cost of software licenses consists primarily of
royalties associated with software used to develop our software products, the
cost of reproduction, and the cost of complementary software applications that
we purchase to sell to our customers. Cost of software licenses increased
$1.1 million, or 448%, to $1.4 million for the year ended December 31, 2000,
from $0.3 million for the year ended December 31, 1999. The increase was due to
the cost of purchasing a partner's transportation management software that was
sold to a customer. The customer purchased the transportation management
software to operate in concert with our EXceed Fulfill products. Cost of
software licenses represented 3.6% of software license revenue for the year
ended December 31, 2000 and 1.0% of software license revenue for the year ended
December 31, 1999.
COST OF SERVICES AND MAINTENANCE. Cost of services and maintenance consists
primarily of salaries of professional staff and costs associated with
implementation, consulting and training services, hotline telephone support, new
releases of software and updating user documentation. Cost of services and
maintenance increased $0.1 million, or 0.2%, to $53.6 million for the year ended
December 31, 2000, from $53.5 for the year ended December 31, 1999. As a
percentage of services and maintenance revenue, cost of services and maintenance
decreased to 78.0% for the year ended December 31, 2000, from 83.4% for the year
ended December 31, 1999. The decrease in cost as a percentage of services and
maintenance revenue was due to an increase in productivity (i.e., higher revenue
generated per employee) as we continued the transition from our EXceed 2000
warehouse management system and mainframe products to our EXceed Fulfill
products.
23
COST OF RESALE SOFTWARE AND EQUIPMENT. Cost of resale software and
equipment consists primarily of the costs of the database software tools and
hardware we purchase to resell to our customers. Cost of resale software and
equipment increased $0.7 million, or 12.9%, to $6.6 million for the year ended
December 31, 2000, from $5.9 million for the year ended December 31, 1999. The
increase was due to a higher sales volume of resale software and equipment,
which resulted in higher purchase costs. As a percentage of resale software and
equipment revenue, cost of resale software and equipment was 80.4% for the year
ended December 31, 2000 and 80.1% for the year ended December 31, 1999.
SALES AND MARKETING. Sales and marketing expenses consist primarily of
salaries, commissions, bonuses, recruiting costs, travel, marketing materials
and trade shows. Sales and marketing expenses increased $1.0 million, or 4.2%,
to $25.5 million for the year ended December 31, 2000, from $24.5 million for
the year ended December 31, 1999. The increase in sales and marketing expenses
was due to higher advertising costs, as well as higher sales commissions
resulting from increased software license sales. As a percentage of total
revenue, sales and marketing expenses decreased to 22.1% for the year ended
December 31, 2000, from 25.3% for the year ended December 31, 1999.
RESEARCH AND DEVELOPMENT. Research and development expenses consist
primarily of salaries and other personnel-related costs for our product
development activities. Research and development expenses decreased
$1.9 million, or 17.0%, to $9.6 million for the year ended December 31, 2000,
from $11.5 million for the year ended December 31, 1999. The decrease in
research and development expenses was related primarily to a reduction in the
number of employees used to develop our products. As a percentage of total
revenue, research and development expenses decreased to 8.3% for the year ended
December 31, 2000, from 11.9% for the year ended December 31, 1999. This decline
in spending for the year ended December 31, 2000 was due to the completion of
the initial releases and testing of the new EXceed Fulfill product core.
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist
primarily of salaries and other personnel-related costs of our finance, human
resources, information systems, administrative, legal and executive departments,
insurance costs and the costs associated with legal, accounting, and other
administrative services. General and administrative costs decreased
$0.5 million, or 3.0%, to $14.4 million for the year ended December 31, 2000,
from $14.9 million for the year ended December 31, 1999. The decrease in general
and administrative expenses was due to a reduction in personnel expenses and
outside legal fees. As a percentage of total revenue, general and administrative
expenses declined to 12.5% for the year ended December 31, 2000, from 15.4% for
the year ended December 31, 1999.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles declined
$0.2 million to $4.6 million for the year ended December 31, 2000, from
$4.8 million for the year ended December 31, 1999. The amortization primarily
relates to intangibles acquired in connection with the 1997 acquisition of
Dallas Systems.
NON-CASH WARRANT AND STOCK COMPENSATION. Non-cash warrant and stock
compensation expense decreased $0.5 million to $2.8 million for the year ended
December 31, 2000, from $3.3 million for the year ended December 31, 1999.
Warrant expense decreased $1.8 million for the year ended December 31, 2000
versus 1999 due primarily to stock warrants that were issued and expensed in the
fourth quarter of 1999 in connection with a consulting agreement with an
independent third party. Additionally, stock compensation expense increased
$1.3 million for the year ended December 31, 2000 due to the amortization of
deferred compensation recorded primarily in connection with stock options
granted to employees between October 1999 and June 2000. The deferred
compensation recorded represented the difference between the exercise price and
the deemed fair value of our common stock on the date of grant of these options.
24
LOSS ON LEASE ABANDONMENT. Loss on lease abandonment was $0.3 million for
the year ended December 31, 1999. The loss was due to the decision to vacate our
old corporate headquarters and relocate to our current headquarters in Dallas,
Texas.
RESTRUCTURING COSTS. In August 1999, we implemented a restructuring plan to
reduce costs and improve operating efficiency. In connection with this plan, we
recorded a charge of $2.0 million for the year ended December 31, 1999. The
restructuring charge included $0.7 million for severance and other employee
related costs for the termination of 97 services, sales, development, and
administrative employees; $0.8 million for the abandonment of certain leased
office space less estimated sublease rentals for the corporate facility in
Dallas, Texas and a sales and service office in Australia; and $0.5 million for
the abandonment of leased equipment and disposal of other fixed assets. As of
December 31, 2000, cash charges of $1.7 million have been applied against the
original restructuring charge.
OTHER INCOME (EXPENSE) ITEMS
OTHER INCOME (EXPENSE). Other expense decreased $1.6 million to
$0.4 million for the year ended December 31, 2000, from $2.0 million for the
year ended December 31, 1999. The decrease in other expense is due to higher
interest income of $1.7 million and lower interest expense of $0.7 million,
partially offset by higher foreign currency exchange losses of $0.8 million.
INCOME TAX. No income tax benefit was recorded during the years ended
December 31, 2000 and 1999 due to the uncertainty of the timing and amount of
future taxable income.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUE
TOTAL REVENUE. Total revenue increased $5.5 million, or 6.0%, to
$96.8 million for the year ended December 31, 1999, from $91.3 million for the
year ended December 31, 1998. International revenue accounted for 36.2% of total
revenue in 1999 and 27.5% of total revenue in 1998. No single customer accounted
for more than 10.0% of total revenue in 1999 or 1998.
SOFTWARE LICENSE. Our software license revenue increased $3.0 million, or
13.3%, to $25.4 million for the year ended December 31, 1999, from
$22.4 million for the year ended December 31, 1998. This increase was due to
increased volume as a result of market acceptance of our EXceed Fulfill and
predecessor products and our expansion into Japan and Korea, offset by a
decrease in volume of our EXceed 2000 warehouse management system and mainframe
products. Total software license revenue from our EXceed Fulfill and predecessor
products increased by $8.8 million, while sales of our EXceed 2000 warehouse
management system and mainframe products decreased by $5.9 million. Software
license revenue as a percentage of total revenue was 26.2% for the year ended
December 31, 1999 versus 24.6% for the year ended December 31, 1998. Our EXceed
Fulfill and predecessor products accounted for 70.6% of total software license
revenue in 1999 and 40.5% of total software license revenue in 1998.
SERVICES AND MAINTENANCE. Services and maintenance revenue increased
$4.3 million, or 7.3%, to $64.1 million for the year ended December 31, 1999,
from $59.8 million for the year ended December 31, 1998. This increase was
primarily due to increases in revenue generated in our Asia/ Pacific and
Europe/Middle East regions as compared to the same period in 1998. A significant
portion of this increase was a result of a $4.0 million increase in revenue from
maintenance on initial license contracts and maintenance contract renewals.
Services and maintenance revenue as a percentage of total revenue was 66.2% for
the year ended December 31, 1999 versus 65.4% for the year ended December 31,
1998. Our EXceed Fulfill and predecessor products accounted for 36.5% of total
services and maintenance revenue in 1999 and 17.9% of total services and
maintenance revenue in 1998.
25
RESALE SOFTWARE AND EQUIPMENT. Our resale software and equipment revenue
decreased $1.8 million, or 19.8%, to $7.3 million for the year ended
December 31, 1999, from $9.1 million for the year ended December 31, 1998. This
decline was due to the shift in demand to our EXceed Fulfill products, which do
not provide the same opportunity to resell software and hardware as the EXceed
2000 warehouse management system product. Resale software and equipment revenue
as a percentage of total revenue was 7.6% for the year ended December 31, 1999
versus 10.0% for the year ended December 31, 1998.
COST AND EXPENSES
COST OF SOFTWARE LICENSES. Cost of software licenses represented 1.0% of
software license revenue in each of the years ended December 31, 1999 and
December 31, 1998.
COST OF SERVICES AND MAINTENANCE. Our cost of services and maintenance
increased $7.0 million, or 15.1%, to $53.5 million for the year ended
December 31, 1999, from $46.5 million for the year ended December 31, 1998. The
increase in cost of services and maintenance for the year ended December 31,
1999 was due primarily to the expansion in Japan and Korea and incremental costs
associated with providing new office space for services and maintenance
personnel. As a percentage of services and maintenance revenue, cost of services
and maintenance increased to 83.4% for the year ended December 31, 1999, from
77.8% for the year ended December 31, 1998. Of this 5.6% percent increase,
approximately 4.0% of the percentage increase was attributed to project delays
and implementation issues as we encountered, identified and fixed software bugs
associated with our EXceed Fulfill products, and approximately 1.0% of the
change was associated with training new and existing personnel on implementation
of our EXceed Fulfill products. In addition, we maintained more services and
maintenance personnel for our EXceed 2000 warehouse management system than we
needed during 1999.
COST OF RESALE SOFTWARE AND EQUIPMENT. Our cost of resale software and
equipment decreased $1.3 million, or 18.8%, to $5.9 million for the year ended
December 31, 1999, from $7.2 million for the year ended December 31, 1998. The
decrease in cost of resale software and equipment for the year ended
December 31, 1999 was due primarily to a decrease in volume of reselling
activities. As a percentage of resale software and equipment revenue, cost of
resale software and equipment increased to 80.1% for the year ended
December 31, 1999, from 79.1% for the year ended December 31, 1998. The
percentage increase for the year ended December 31, 1999 was due primarily to
our lower volume of reselling activities and an inability to obtain better
pricing from our suppliers due to the decrease in sales volume.
SALES AND MARKETING. Sales and marketing expenses increased $0.8 million,
or 3.4%, to $24.5 million for the year ended December 31, 1999, from
$23.7 million for the year ended December 31, 1998. The increase in sales and
marketing expenses was related primarily to the expansion of our office in Japan
and the opening of a new office in Korea. Although our office in Japan opened in
1998, we only incurred expenses for a portion of the 1998 year because the
office was opened during the second half of the year. As a percentage of total
revenue, sales and marketing expenses decreased to 25.3% for the year ended
December 31, 1999, from 25.9% for the year ended December 31, 1998. The
percentage decrease for the year ended December 31, 1999 was due primarily to
revenue increasing at a more rapid rate than sales and marketing expenses.
RESEARCH AND DEVELOPMENT. Research and development expenses decreased
$4.0 million, or 25.4%, to $11.5 million for the year ended December 31, 1999,
from $15.5 million for the year ended December 31, 1998. The decrease in
research and development expenses was related primarily to a 79.0% reduction in
the average number of outside contractors and a 15.9% reduction in the average
number of employees used to develop our products. As a percentage of total
revenue, research and development expenses decreased to 11.9% for the year ended
December 31, 1999 from 16.9% for the
26
year ended December 31, 1998. The percentage decrease for the year ended
December 31, 1999 was due primarily to the reduction in workforce and the
decrease in allocation of overhead costs related to a reduction in development
efforts for our EXceed 2000 warehouse management system and mainframe products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
$2.2 million, or 17.5%, to $14.9 million for the year ended December 31, 1999,
from $12.7 million for the year ended December 31, 1998. The increase in general
and administrative expenses was related primarily to a 34.3% increase in the
number of employees in internal support functions worldwide and the incremental
costs associated with leasing a larger and more expensive headquarters facility.
As a percentage of total revenue, general and administrative expenses increased
to 15.4% for the year ended December 31, 1999 from 13.9% for the year ended
December 31, 1998. General and administrative expenses in 1998 included
$2.3 million in expenses associated with our original proposed public offering
process, which we did not complete.
AMORTIZATION OF INTANGIBLES. Amortization of intangibles increased
$0.4 million to $4.8 million for the year ended December 31, 1999, from
$4.4 million for the year ended December 31, 1998. The amortization relates to
intangibles acquired in connection with the acquisition of Dallas Systems.
LOSS ON LEASE ABANDONMENT. Loss on lease abandonment was $0.3 million for
the year ended December 31, 1999 and $1.0 million for the year ended
December 31, 1998. Loss on lease abandonment resulted from our decision to
vacate our old corporate headquarters and relocate to our current headquarters
in Dallas, Texas during 1998. During 1999, we reached an agreement with the
owner of the building we vacated, LAB Holdings, a company controlled by our
Chairman of the Board, at which time we recorded the additional $0.3 million
loss on abandonment.
RESTRUCTURING COSTS. In August 1999, we implemented a restructuring plan to
reduce costs and improve operating efficiency. In connection with this plan, we
recorded a charge of $2.0 million for the year ended December 31, 1999. The
restructuring charge included $0.7 million for severance and other employee
related costs for the termination of 97 services, sales, development and
administrative employees; $0.8 million for the abandonment of certain leased
office space less estimated sublease rentals for the corporate facility in
Dallas, Texas and a sales and service office in Australia; and $0.5 million for
the abandonment of leased equipment and disposal of other fixed assets.
OTHER INCOME (EXPENSE) ITEMS
OTHER INCOME (EXPENSE). Other income (expense) primarily consists of
interest expense and loan cost amortization on outstanding debt offset by
interest income on short-term investments and currency gains. Other expense
increased to $2.0 million for the year ended December 31, 1999. The increase was
due to interest expense on debt from increased borrowings under our then
outstanding $20.0 million revolving credit line and $5.0 million term loan
facility during the year ended December 31, 1999.
INCOME TAX. There was no income tax benefit recorded in 1999. In 1998, a
$0.6 million income tax benefit was recorded. The recorded benefit differs from
the amount computed at the statutory rate due to operating losses generated in
1999 and 1998, for which no benefit was recorded due to the uncertainty of the
timing and amount of future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
We have funded our operations through the issuance of our preferred and
common stock, bank borrowings and cash flow from operations. As of December 31,
2000, we had $39.8 million in cash and cash equivalents, $9.1 million in
short-term marketable securities, $10.2 million in long-term marketable
securities, and $56.4 million in working capital.
27
Net cash provided by operating activities was $0.5 million for the year
ended December 31, 2000. Cash provided by operating activities arose primarily
from net income before non-cash charges for depreciation, amortization,
provision for losses on receivables, and warrant and stock compensation expense,
offset by increases in accounts receivable and prepaid and other assets, and a
decrease in deferred revenue. Net cash used in operating activities was
$11.3 million for the year ended December 31, 1999 and $14.7 million for the
year ended December 31, 1998. The cash used for operating activities in each of
these years reflects net losses and increases in accounts receivable, offset by
non-cash charges for depreciation, amortization and the provision for losses on
receivables, as well as deferred revenue and accruals.
Net cash used in investing activities was $20.9 million for the year ended
December 31, 2000, $5.3 million for the year ended December 31, 1999 and
$7.5 million for the year ended December 31, 1998. During the year-ended
December 31, 2000, we purchased investment grade marketable securities with
proceeds from our initial public offering. Additionally, we used cash for the
purchase of capital equipment, such as computer equipment and furniture and
fixtures, to support our growth.
Net cash provided by financing activities was $51.3 million for the year
ended December 31, 2000, $24.8 million for the year ended December 31, 1999 and
$16.3 million for the year ended December 31, 1998. In 2000, we received net
proceeds of $63.9 million from our initial public offering and used
$16.6 million of these proceeds to repay all outstanding amounts under our
revolving credit facility and term loan, which we subsequently terminated. In
1999, we issued preferred and common stock for $19.5 million and received net
proceeds from the issuance of debt of $5.3 million. In 1998, we issued preferred
and common stock for $9.9 million, received proceeds from the issuance of debt
of $9.5 million, and purchased treasury stock of $3.1 million.
We currently expect to experience significant growth in our operating
expenditures. In particular, we currently expect to use a portion of the net
proceeds from our initial public offering to fund acquisitions of, or
investments in, businesses and technologies that are complementary to our
business. In January 2001, we completed the acquisition of AllPoints
Systems, Inc. Approximately $2.4 million was spent on acquisition costs and debt
retirement associated with this transaction.
Over the next year, as we expand our operations in new and existing markets
and we make additional investments in the development of complementary products
and improvements in our existing products, we expect to increase spending for
our sales, marketing and consulting services capabilities, invest in research
and development activities and increase spending for general and administrative
personnel and systems. Our plans for expansion, as well as the market for our
products, may be impacted by changing economic conditions. We expect that
companies will continue to purchase our software to maximize supply chain
efficiency. However, our short-term profitability and our plans for expansion
may be adversely impacted by an economic slowdown or recession, which could
result in operating losses.
We have no specific agreements, commitments or understandings to make new
acquisitions or investments. We believe that our existing working capital will
be sufficient to fund our operations for the next year. However, there can be no
assurance that we will not require additional financing in the future. We cannot
be sure that we will be able to obtain this additional financing or that, if we
can, the terms will be acceptable to us.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which as
amended, will be effective for the Company's fiscal year beginning January 1,
2001. SFAS No. 133 requires that all derivatives be recognized at fair value on
the balance sheet and that related gains and losses be included in net income or
comprehensive income depending on the nature of the hedging relationship. As of
December 31, 2000, the Company has not
28
entered into contracts that will be classified as derivative financial
instruments under SFAS No. 133. However, the Company may enter into contracts
that are classified as derivative financial instruments in the future.
Management believes that SFAS No. 133 will not have an impact on the results of
operations or financial position of the Company when adopted, however management
cannot estimate its impact on future results of operations and financial
position.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
RISKS RELATING TO OUR BUSINESS
WE CAN GIVE YOU NO ASSURANCE THAT WE WILL BE ABLE TO GROW AND INCREASE OUR LEVEL
OF REVENUE OR MAINTAIN PROFITABILITY IN THE FUTURE.
Our growth rates and, consequently, our future operating results may be
affected by any of the following factors:
- a decline in general economic conditions;
- the level of market acceptance of, and demand for, our software;
- the overall growth rate of the markets in which we compete;
- our competitors' products and prices;
- our ability to establish strategic marketing relationships and to develop
and market new and enhanced products;
- our ability to successfully train alliance companies and consulting
organizations;
- our ability to control costs;
- changes in our products and services mix; and
- our ability to expand our direct sales force and indirect distribution
channels worldwide.
WE MAY NOT BE PROFITABLE IN THE FUTURE.
With the exception of the third and fourth quarters of the year ended
December 31, 2000, we have experienced quarterly and annual losses since the
acquisition of Dallas Systems in September 1997. We experienced net losses of
$6.6 million in 1997, $19.6 million in 1998, $26.1 million in 1999 and
$3.3 million in 2000. We may continue to incur losses on both a quarterly and an
annual basis. Moreover, we expect to continue to incur significant sales and
marketing, research and development and general and administrative expenses and,
as a result, we will need to generate significant revenue to report net income
in future periods. We may not achieve our planned growth or generate sufficient
revenue to report net income in future periods.
OUR CUSTOMERS MAY DELAY OR CANCEL SPENDING ON SOFTWARE AND SERVICES BECAUSE OF
THE CURRENT ECONOMIC CLIMATE.
Since the second half of 2000, some companies have experienced financial
difficulties or uncertainty and have begun to delay spending on fulfillment
software and services as a result. If companies continue to delay, or cancel,
their fulfillment software or services initiatives because of the current
economic climate, or for other reasons, our business, financial condition and
results of operations could be materially adversely affected.
29
OUR REVENUE COULD DECLINE IF OUR CUSTOMERS DO NOT ACCEPT OUR NEW PRODUCTS,
INCLUDING FULFILLMENT PRODUCTS, AS QUICKLY AS WE ANTICIPATE.
We expect to derive a majority of our product license revenue in the future
from our fulfillment products and their components, which were launched in 1999.
Our business depends on successful customer acceptance of these products and the
release, introduction and customer acceptance of new products, in addition to
the continued acceptance of our traditional products. We expect that we will
continue to depend on revenue from new and enhanced versions of our fulfillment
products, and our revenue could decline if our target customers do not adopt and
expand their use of these products and their components.
OUR QUARTERLY OPERATING RESULTS DEPEND HEAVILY ON SOFTWARE LICENSE REVENUE,
WHICH IS DIFFICULT TO FORECAST AND MAY FLUCTUATE.
Our quarterly software license revenue is difficult to forecast because our
sales cycles, from initial evaluation to delivery of software, vary
substantially from customer to customer. Revenue in any quarter is dependent on
orders received, contracts signed and products shipped in that quarter. We
typically recognize the majority of our revenue in the last month of the
quarter, frequently in the last week or even days of the quarter. In addition,
the timing of large individual license sales is difficult for us to predict,
and, in some cases, transactions are concluded later than anticipated. Since our
operating expenses are based on anticipated revenue levels and most of our
operating expenses, particularly personnel and facilities costs, are relatively
fixed in advance of any particular quarter, any revenue shortfall may cause
fluctuations in operating results in any particular quarter. We can give you no
assurance that revenue will grow in future periods, that revenue will grow at
historical rates or that we will achieve and maintain positive operating margins
in future quarters. If revenue falls below our expectations in a particular
quarter, our operating results could be harmed.
BECAUSE OUR SALES CYCLES ARE LENGTHY AND SUBJECT TO UNCERTAINTIES, IT IS
DIFFICULT TO FORECAST OUR SALES, AND THE DELAY OR FAILURE OF A SIGNIFICANT
SOFTWARE LICENSE TRANSACTION OR OUR INABILITY TO ANTICIPATE A DELAY COULD HARM
OUR OPERATING RESULTS.
Our software is used for critical division- or enterprise-wide purposes and
involves a significant commitment of resources by customers. A customer's
decision to license our software usually involves the evaluation of the
available alternatives by a number of personnel in multiple functional and
geographic areas, each often having specific and conflicting requirements.
Accordingly, we typically must expend substantial resources educating
prospective customers about the value of our solutions. For these and other
reasons, the length of time between the date of initial contact with the
potential customer and the execution of a software license agreement typically
ranges from three to nine months, and is subject to delays over which we may
have little or no control. As a result of the length and variability of the
sales cycle for our software products, our ability to forecast the timing and
amount of specific sales is limited, and the delay or failure to complete one or
more anticipated large license transactions could harm our operating results.
FAILURE TO EXPAND OUR ALLIANCE RELATIONSHIPS WITH CONSULTING FIRMS AND
COMPLEMENTARY SOFTWARE VENDORS AND TO ESTABLISH NEW STRATEGIC ALLIANCES MAY SLOW
ACCEPTANCE OF OUR SOFTWARE AND DELAY THE GROWTH OF OUR REVENUE.
To supplement our direct sales force and our implementation capabilities, we
have established strategic marketing alliances with consulting firms and
complementary software vendors, and we rely on them to recommend our software to
their customers and to periodically install and support our software. To
increase our sales and implementation capabilities, one of our key strategies is
to expand our existing relationships and establish new strategic alliances with
consulting firms and complementary software vendors. The loss of, or failure to
expand, existing relationships or our failure to establish new
30
strategic alliances could limit the number of transactions we may complete and
may result in our inability to recognize revenue.
IF WE ARE UNSUCCESSFUL IN IDENTIFYING, FINANCING AND INTEGRATING SUITABLE
ACQUISITION CANDIDATES, INCLUDING BUSINESSES, PRODUCTS AND TECHNOLOGIES, OUR
GROWTH COULD BE HARMED.
Due to the intense competition we face, we may not be able to identify
suitable acquisition candidates available for purchase at reasonable prices,
consummate any acquisition or successfully integrate any acquired business into
our operations, such as our recent acquisition of AllPoints Systems, Inc.
Further, acquisitions may involve a number of additional risks, including:
- diversion of management's attention;
- failure to retain key personnel of the acquired businesses;
- unanticipated events or circumstances;
- legal liabilities; and
- amortization of acquired intangible assets.
We expect to finance any future acquisitions with cash on hand, as well as
with possible debt financing or the issuance of common or preferred stock. If we
were to proceed with one or more future acquisitions for cash, a substantial
portion of our available cash could be used to complete them. If we were to
proceed with one or more acquisitions for stock, our stockholders would suffer
dilution of their interests. We can give you no assurance that we would be able
to arrange for any needed debt financing on terms acceptable to us. Most of the
businesses that might be attractive acquisition candidates are likely to have
significant intangible assets, and acquisition of these businesses would
typically result in substantial goodwill amortization charges to us, reducing
future earnings. For example, in connection with Neptune's acquisition of Dallas
Systems, we acquired $18.1 million of goodwill, and $6.9 million of other
intangible assets, which are being amortized over three to six years and
resulted in amortization expense of $4.6 million for the year ended
December 31, 2000 and $4.8 million in 1999. In addition, acquisitions could
involve acquisition-related charges, such as one-time acquired research and
development charges, reducing future earnings. For example, we recorded a
one-time research and development charge of $2.7 million in 1997 in connection
with Neptune's acquisition of Dallas Systems.
OUR INTERNATIONAL OPERATIONS, WHICH WE PLAN TO EXPAND, ARE SUBJECT TO HEIGHTENED
RISKS. IF ANY OF THESE RISKS ACTUALLY OCCUR, OUR EARNINGS COULD DECLINE.
International revenue accounted for approximately 41% of our total revenue
during the year ended December 31, 2000 and approximately 36% of our total
revenue during 1999. We expect international revenue to continue to account for
a significant percentage of total revenue in the future, and we plan to continue
to expand our international activities as part of our growth strategy. This
expansion will require significant financial resources and management attention
that could have a negative effect on our earnings. As our international
operations continue to develop, they may become increasingly subject to risks
inherent in international business activities, including:
- difficulty in staffing and managing geographically diverse operations;
- longer accounts receivable payment cycles in certain countries;
- compliance with a variety of foreign laws and regulations;
- unexpected changes in regulatory requirements and overlap of different tax
structures;
- greater difficulty in safeguarding intellectual property;
31
- trade restrictions;
- changes in tariff rates and import and export licensing requirements; and
- general economic conditions in international markets.
Our earnings could decline if these or other factors affect international
operations.
BECAUSE MANY OF OUR CUSTOMERS PAY US IN FOREIGN CURRENCIES, WE MAY BE EXPOSED TO
EXCHANGE RATE RISKS AND OUR PROFITABILITY MAY SUFFER DUE TO CURRENCY
FLUCTUATIONS.
A majority of the revenue and expenses incurred by our international
operations are denominated in currencies other than the United States dollar. In
particular, our revenue and costs of operations in Japan and Singapore are
denominated in Japanese yen and Singapore dollars and in Europe some of our
contracts are denominated in the Euro. In addition, with the expansion of
international operations, the number of foreign currencies in which we must
operate is likely to increase, resulting in increased exposure to exchange rate
fluctuations. Exchange rate fluctuations have caused and will continue to cause
currency transaction gains and losses. For the year ended December 31, 2000, we
experienced currency transaction losses of $0.8 million. We can give you no
assurance that currency transaction losses will not continue to adversely affect
our results in future periods.
OUR SUCCESS DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL, IN
PARTICULAR PROFESSIONAL SERVICES PERSONNEL. IF WE ARE UNABLE TO ATTRACT THESE
PERSONNEL AND USE THEM EFFICIENTLY, OUR ABILITY TO IMPLEMENT OUR SOFTWARE COULD
BE HARMED.
We believe our success will depend significantly on our ability to attract,
motivate and retain additional highly skilled technical, managerial, consulting,
sales and marketing and, in particular, professional services, personnel. We
compete intensely for these personnel, and we may be unable to achieve our
personnel goals. Our failure to attract, motivate and retain such highly skilled
personnel could seriously limit our ability to expand our business.
Also, we believe our success will depend on our ability to productively
manage an increase in the number of our personnel. Our professional services
staff for our fulfillment and their predecessor products has increased since
1998, and we expect to continue to increase the number of our professional
services staff. This growth may result in increased salary expenses and training
costs in advance of any resulting increase in revenue due to the typically lower
productivity levels of newer service personnel. Moreover, any growth in software
license revenue will likely generate the need for more professional services
personnel to deploy and implement software and to train customers. A shortage in
the number of trained personnel, either within our company or available from
outside consulting firms, could limit our ability to implement our software on a
timely and cost-effective basis. Our earnings will suffer if we generate
insufficient revenue to cover growth-related expenses, significantly strain
management resources with additional responsibilities, fail to successfully
expand our relationships and develop additional relationships with third party
implementers or fail to have sufficiently trained professional services
personnel.
WE DEPEND ON THE SERVICES OF A NUMBER OF KEY PERSONNEL, AND A LOSS OF ANY OF
THESE PERSONNEL COULD DISRUPT OUR OPERATIONS AND RESULT IN REDUCED REVENUE.
Our success depends on the continued services and performance of our senior
management staff, in particular, Raymond Hood, our President and Chief Executive
Officer. The loss of the services of Mr. Hood or any of our other senior
management staff or key employees could seriously impair our ability to operate
and achieve our objectives, which could reduce our revenue. We have
$3.0 million of key man life insurance on Mr. Hood. This amount may not be
sufficient to compensate us for the loss of his services. We also have
employment agreements with Mr. Hood and with most of our executive officers.
However, these employment agreements do not prevent Mr. Hood, or other key
employees, from voluntarily terminating his or her employment with us.
32
THE LENGTH AND COMPLEXITY OF OUR IMPLEMENTATION CYCLE MAY RESULT IN
IMPLEMENTATION DELAYS, WHICH MAY CAUSE CUSTOMER DISSATISFACTION.
Due to the size and complexity of some of our software implementations, our
implementation cycle can be lengthy and may result in delays. These delays could
result in customer dissatisfaction, which could adversely affect our reputation.
Additional delays could result if we fail to attract, train and retain services
personnel, or if our alliance companies fail to commit sufficient resources
towards implementing our software. These delays and resulting customer
dissatisfaction could harm our reputation and cause our revenue to decline.
THE USE OF FIXED-PRICE SERVICE CONTRACTS SUBJECTS US TO THE RISK THAT WE MAY NOT
SUCCESSFULLY COMPLETE THESE CONTRACTS ON BUDGET.
We offer software implementation and related consulting services to our
customers. Although we typically provide services on a "time and material"
basis, we have from time to time entered into fixed-price service contracts, and
we expect that some customers will demand these contracts in the future. These
contracts specify certain milestones to be met by us regardless of actual costs
incurred in meeting those obligations. If we are unable to successfully complete
these contracts on budget, our earnings could suffer.
WE RELY ON SOFTWARE LICENSES THAT MAY BE TERMINATED OR UNAVAILABLE TO US ON
COMMERCIALLY REASONABLE TERMS.
We market and resell, under license, third-party software, including:
- software embedded in our products;
- software that enables our software to interact with other software systems
or databases; and
- software in conjunction with which our software operates.
We also license software tools used to develop our software and software for
internal systems. We cannot assure you that the third-party software or software
tools will continue to be available to us on commercially reasonable terms. The
loss or inability to maintain any of these software licenses could result in
delays or reductions in product shipments until equivalent software could be
identified and licensed or compiled, which could harm our business.
WE MAY EXPERIENCE DELAYS IN THE SCHEDULED INTRODUCTION OF NEW OR UPGRADED
SOFTWARE, AND OUR SOFTWARE MAY CONTAIN UNDETECTED ERRORS OR "BUGS," RESULTING IN
LOSS OF REVENUE AND HARM TO OUR REPUTATION.
Historically, we have issued significant new releases of our software
periodically, with interim releases issued more frequently. Our software is
particularly complex, because it must perform in environments operating multiple
computer systems and respond to customer demand for high performance
fulfillment, warehousing and distribution applications and major new product
enhancements. Our software requires long development and testing periods before
it is commercially released. For example, the development cycle for the
introduction of our EXceed Crossdock component took approximately nine months.
If we experience delays in the scheduled introduction of new software or
software upgrades, our customers may become dissatisfied and our reputation and
operating results could be harmed.
Also, despite testing by us, our software may contain undetected errors or
"bugs." In the past, we have discovered software bugs in new versions of our
software after its release. We may experience software bugs in the future. These
bugs could result in a delay or loss of revenue, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
impaired market acceptance and sales of this software, any of which could harm
our operating results.
33
PRODUCT LIABILITY AND OTHER CLAIMS RELATED TO OUR CUSTOMERS' BUSINESS OPERATIONS
COULD RESULT IN SUBSTANTIAL COSTS.
Many of our installations involve projects that are critical to the
operations of our clients' businesses and provide benefits that may be difficult
to quantify. Any failure in a client's system or any intellectual property
infringement claims by third parties could result in a claim for substantial
damages against us, regardless of our responsibility for the failure or for the
alleged intellectual property infringement. We cannot assure you that our
customer contracts will protect us in the event of any such claim. In addition,
although we maintain general liability insurance coverage, including coverage
for errors or omissions, we cannot assure you that this coverage will continue
to be available on reasonable terms or will be available in sufficient amounts
to cover one or more large claims, or that the insurer will not disclaim
coverage.
The successful assertion of one or more large claims against us that exceeds
available insurance coverage or changes in our insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could result in substantial costs.
Four customers have recently requested defense and indemnification from us
for threatened patent claims against them by a third party relating to bar code
technology. For additional information about these requests, see "Item 1.
Business--Intellectual Property".
SALES OF SIGNIFICANT AMOUNTS OF OUR COMMON STOCK BY OUR EXECUTIVE OFFICERS AND
DIRECTORS MAY CAUSE OUR STOCK PRICE TO DECLINE.
Certain of our executive officers and directors have entered into
pre-established trading plans to sell up to an aggregate total of approximately
1.5 million shares of our common stock beginning in February 2001. These trading
plans have varying completion dates extending until April 2002 and may include
restrictions based on the trading price of EXE's shares and on general market
conditions. Sales under these plans continue until the trading plans are
modified or terminated. There can be no assurance that all of the planned sales
will occur. In addition, certain of our other executive officers and directors
may establish similar pre-arranged trading plans to sell shares. The sale of
shares under any present or future plans may cause the market price of our stock
to decline.
WE EXPECT OUR RESULTS OF OPERATIONS TO FLUCTUATE, AND THE PRICE OF OUR COMMON
STOCK COULD FALL IF QUARTERLY RESULTS DIFFER FROM THE EXPECTATIONS OF SECURITIES
ANALYSTS.
Our operating results historically have fluctuated on a quarterly basis and
may continue to do so in the future. If our quarterly results differ from the
expectations of securities analysts, the price of our common stock could fall.
Some of the factors which could cause our operating results to fluctuate
include:
- general economic conditions;
- demand for our products and services;
- our competitors' products and prices;
- the timing and market acceptance of new product introductions and upgrades
by us or our competitors;
- our success in expanding our services, customer support and marketing and
sales organizations, and the timing of these activities;
- the mix of products and services sold;
- delays in, or cancellations of, customer implementations;
- customers' budget constraints;
34
- the level of research and development expenditures;
- the size of recurring compensation charges;
- changes in foreign currency exchange rates;
- our ability to control costs; and
- the timing of acquisitions.
A large portion of our expenses, including expenses for facilities,
equipment and personnel, is relatively fixed. Accordingly, if our revenue
declines or does not grow as anticipated, we may not be able to correspondingly
reduce our operating expenses in a timely manner. Failure to achieve anticipated
levels of revenue could therefore significantly harm our operating results for a
particular fiscal period.
OUR STOCK PRICE COULD BE EXTREMELY VOLATILE AND MAY RESULT IN LITIGATION AGAINST
US.
The stock market has experienced significant price and volume fluctuations,
and the market price for our common stock has been in the past and could
continue to be volatile. In the past, following periods of volatility in the
market price of a company's securities, securities class action litigation has
often been instituted. Litigation could result in substantial costs and a
diversion of management's attention and resources.
THE CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK MAY HAVE THE EFFECT OF
DELAYING OR PREVENTING A CHANGE OF CONTROL OF US.
Our directors, executive officers and their affiliated companies
beneficially own the majority of our outstanding common stock. As a result,
these stockholders will have the ability to elect our directors and to determine
the outcome of corporate actions requiring stockholder approval. This
concentration of ownership may have the effect of delaying or preventing a
change of control of us. As a result, if these stockholders voted as a group,
they would have the ability to significantly influence the outcome of corporate
actions requiring stockholder approval.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT MAY DISCOURAGE A CHANGE OF
CONTROL.
Our certificate of incorporation authorizes the issuance of 20,000,000
shares of preferred stock. Our board of directors has the power to determine the
price and terms of any preferred stock. The ability of our board of directors to
issue one or more series of preferred stock without stockholder approval could
deter or delay unsolicited changes of control by discouraging open market
purchases of our common stock or a non-negotiated tender or exchange offer for
our common stock. Discouraging open market purchases may be disadvantageous to
our stockholders who may otherwise desire to participate in a transaction in
which they would receive a premium for their shares.
In addition, some provisions of our certificate of incorporation and by-laws
may also discourage a change of control by means of a tender offer, open market
purchase, proxy contest or otherwise. These provisions include:
- a board that is divided into three classes, each of which is elected to
serve staggered three year terms;
- provisions under which only the board of directors or our president or
secretary may call a special meeting of the stockholders;
- provisions which permit the board of directors to increase the number of
directors and to fill these positions without a vote of the stockholders;
- provisions under which no director may be removed at any time except for
cause and by a majority vote of the outstanding shares of voting stock;
and
35
- provisions under which stockholder action may be taken only at a
stockholders meeting and not by written consent of the stockholders.
These provisions may have the effect of discouraging takeovers and
encouraging persons seeking to acquire control first to negotiate with us.
RISKS RELATING TO OUR INDUSTRY
WE FACE INTENSE COMPETITION FROM NUMEROUS COMPETITORS, SOME OF WHOM HAVE A
SIGNIFICANT COMPETITIVE ADVANTAGE OVER US. IF WE LOSE OUR COMPETITIVE POSITION,
OUR REVENUE COULD DECLINE.
The market for fulfillment solutions is intensely competitive, fragmented
and subject to rapid technological change. The principal competitive factors in
our market include:
- adherence to emerging Internet-based technology standards;
- comprehensiveness of applications;
- adaptability and flexibility;
- immediate, interactive capability with customer and other third-party
systems;
- global capability;
- ability to support requirements of diverse industries;
- ease of application use and deployment;
- speed of implementation;
- customer service and support; and
- initial price and total cost of ownership.
Because we offer both fulfillment and traditional supply chain software, we
consider a number of companies in different market categories to be our
competitors. Our competitors include companies and groups that:
- focus on providing fulfillment applications;
- offer fulfillment solutions for traditional supply chains;
- offer enterprise platforms for order management and fulfillment; and
- service internal customers, such as internal information technology
groups.
We believe that the market for integrated fulfillment solutions is still in
its formative stage, and that no currently identified competitor represents a
dominant presence in this market.
We expect competition to increase as a result of software industry
consolidation. New competitors could emerge and rapidly capture market share. We
can give you no assurance that we can maintain our competitive position against
current and potential competitors, especially those with greater name
recognition, comparable or superior products, significant installed customer
bases, long-standing customer relationships or the ability to price products as
incremental add-ons to existing systems. If we lose our competitive position,
our revenue could decline.
THE MARKET FOR OUR SOFTWARE IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. IF
WE FAIL TO RESPOND PROMPTLY AND EFFECTIVELY TO TECHNOLOGICAL CHANGE AND
COMPETITORS' INNOVATIONS, OUR GROWTH AND OPERATING RESULTS COULD BE HARMED.
The market for fulfillment, warehousing and distribution systems experiences
rapid technological change, changing customer needs, frequent new product
introductions and evolving industry standards
36
that may render existing products and services obsolete. Our growth and future
operating results will depend in part on our ability to enhance existing
applications and develop and introduce new applications or components. These new
applications must:
- meet or exceed technological advances in the marketplace;
- meet changing customer requirements;
- respond to competitive products; and
- achieve market acceptance.
Our product development and testing efforts have required, and are expected
to continue to require, substantial investments. Also, we may be unable to
successfully identify new software opportunities and develop and bring new
software to market quickly and efficiently. Our software may not achieve market
acceptance and current or future products may not conform to industry standards
in the markets served. If we are unable to develop and introduce new and
enhanced software in a timely manner, our growth and operating results could be
harmed.
IF THE E-COMMERCE MARKET DOES NOT CONTINUE TO DEVELOP, OR IF ITS DEVELOPMENT IS
DELAYED, OUR CUSTOMER BASE AND OUR REVENUE COULD DECLINE.
Our software addresses the e-commerce market. The failure of this market to
develop, or a delay in the development of this market, could cause a decline in
our customer base and our revenue. The success of e-commerce depends
substantially upon the widespread adoption of the Internet as a primary medium
for commerce and business applications. Critical issues concerning the
commercial use of the Internet, such as security, reliability, cost,
accessibility and quality of service, remain unresolved and may negatively
affect the growth of Internet use or the attractiveness of commerce and business
communications over the Internet.
CAPACITY CONSTRAINTS MAY RESTRICT THE USE OF THE INTERNET AS A COMMERCIAL
MARKETPLACE, RESULTING IN DECREASED DEMAND FOR OUR PRODUCTS.
The Internet infrastructure may not be able to support the demands placed on
it by increased usage or by the transmission of large quantities of data. Other
risks associated with commercial use of the Internet could slow its growth,
including:
- outages and other delays resulting from inadequate network infrastructure;
- slow development of enabling technologies and complementary products; and
- limited availability of cost-effective, high-speed access.
Delays in the development or adoption of new equipment standards or
protocols required to handle increased levels of Internet activity, or increased
governmental regulation, could cause the Internet to lose its viability as a
means of communication among participants in the supply chain, resulting in
decreased demand for our products.
WE DEPEND ON INTELLECTUAL PROPERTY LAWS, WHICH MAY NOT FULLY PROTECT US FROM
UNAUTHORIZED USE OR MISAPPROPRIATION OF OUR PROPRIETARY TECHNOLOGIES.
We rely on intellectual property laws, confidentiality procedures and
contractual provisions to protect our proprietary rights in our products and
technology. These measures afford only limited protection to us, particularly on
an international basis. We may be unable to avoid infringement or
misappropriation claims regarding current or future technology, or unable to
adequately deter misappropriation or independent third party development of our
technology. In addition, policing unauthorized use of our products is difficult.
We are unable to determine the extent to which piracy of our software products
exists and software piracy could become a problem. Litigation to defend and
37
enforce our intellectual property rights could result in substantial costs and
diversion of resources, regardless of the final outcome of such litigation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop products in the United States and market our products in North
America, Europe, the Middle East, Asia and Australia. As a result, our financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in foreign markets. Some of our
revenue is denominated in currencies other than the U.S. dollar, in particular
the Japanese yen, the Singapore dollar and the Euro. However, most of our sales
are currently made in U.S. dollars and a strengthening of the dollar could make
our products less competitive in foreign markets.
We used a portion of the proceeds obtained from our August 2000 initial
public offering to repay all outstanding amounts under our revolving credit
facility and term loan, which we subsequently terminated. To the extent that we
enter into a new credit facility in the future, future interest expense could be
subject to fluctuations based on the general level of U.S. interest rates.
Pending their application, we have invested the remaining proceeds from our
initial public offering in investment grade corporate and government securities
and money market funds. The primary objective of our investment activities is to
preserve capital while at the same time maximizing the income we receive from
our investments without significantly increasing risk. Some of the securities
that we invest in may have market risk. This means that a change in prevailing
interest rates may cause the principal amount of the investment to fluctuate.
For example, if we hold a security that was issued with a fixed interest rate at
the then-prevailing rate and the prevailing interest rate later rises, the
principal amount of our investment will probably decline. As of December 31,
2000, we had $32.6 million of securities which mature in 90 days or less,
$9.1 million of securities which mature between 90 days and one year, and
$10.2 million of securities which mature between one and two years. We do not
believe that we have any material exposure to interest rate risk.
38
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
--------
Report of Ernst & Young LLP, Independent Auditors........... 40
Consolidated Balance Sheets at December 31, 1999 and 2000... 41
Consolidated Statements of Operations for the three years
ended December 31, 2000................................... 42
Consolidated Statements of Stockholders' Equity for the
three years ended December 31, 2000....................... 43
Consolidated Statements of Cash Flows for the three years
ended December 31, 2000................................... 44
Notes to Consolidated Financial Statements.................. 46
39
REPORT OF INDEPENDENT AUDITORS
Stockholders and
Board of Directors
EXE Technologies, Inc.
We have audited the accompanying consolidated balance sheets of EXE
Technologies, Inc. and subsidiaries as of December 31, 1999 and 2000, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
EXE Technologies, Inc. and subsidiaries at December 31, 1999 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
ERNST & YOUNG LLP
Dallas, Texas
February 7, 2001
40
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
---------------------------
1999 2000
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 8,932,073 $ 39,820,056
Marketable securities..................................... -- 9,147,506
Accounts receivable, net of allowance for doubtful
accounts and adjustments of approximately $5,534,000 and
$5,168,000 at December 31, 1999 and 2000,
respectively............................................ 30,617,523 33,029,674
Other receivables and advances............................ 757,140 614,781
Prepaid and other current assets.......................... 1,717,855 3,180,221
------------ ------------
Total current assets.................................... 42,024,591 85,792,238
Marketable securities, long-term............................ -- 10,235,457
Property and equipment, net................................. 9,996,453 8,233,891
Other assets................................................ 1,002,844 2,175,655
Intangible assets........................................... 14,646,410 10,142,402
------------ ------------
Total assets............................................ $ 67,670,298 $116,579,643
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 5,260,922 $ 6,065,703
Accrued expenses.......................................... 8,673,369 9,931,202
Accrued payroll and benefits.............................. 3,459,531 2,812,071
Deferred revenue.......................................... 14,115,533 10,431,348
Revolving credit line and current portion of long-term
debt and capital lease obligations...................... 9,595,201 192,883
------------ ------------
Total current liabilities............................... 41,104,556 29,433,207
Long-term debt and capital lease obligations, net of
current portion......................................... 5,333,136 102,477
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A through D, $.01 par
value: shares authorized--20,000,000; shares issued and
outstanding--17,687,562 at December 31, 1999; aggregate
liquidation value--$52,000,000 at December 31, 1999..... 52,000,000 --
Common stock, voting, $.01 par value: shares
authorized--150,000,000; shares issued--16,766,529 and
44,487,495 at December 31, 1999 and 2000,
respectively............................................ 167,665 444,875
Common stock, Class B non-voting, $.01 par value: shares
issued--380,022 at December 31, 1999.................... 3,800 --
Additional paid-in capital................................ 26,355,416 149,691,336
Treasury stock, at cost, 924,071 and 999,483 shares of
common stock at December 31, 1999 and 2000,
respectively............................................ (3,208,912) (3,431,464)
Accumulated deficit....................................... (52,345,661) (55,677,267)
Deferred compensation..................................... (973,260) (3,688,059)
Other comprehensive loss.................................. (766,442) (295,462)
------------ ------------
Total stockholders' equity.............................. 21,232,606 87,043,959
------------ ------------
Total liabilities and stockholders' equity.............. $ 67,670,298 $116,579,643
============ ============
See accompanying notes.
41
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1999 2000
------------ ------------ ------------
REVENUE:
Software license.................................. $ 22,417,541 $ 25,389,808 $ 38,665,121
Services and maintenance.......................... 59,758,460 64,103,262 68,708,446
Resale of software and equipment.................. 9,114,495 7,307,199 8,214,867
------------ ------------ ------------
Total revenue................................... 91,290,496 96,800,269 115,588,434
COSTS AND EXPENSES:
Cost of software licenses......................... 234,325 253,898 1,391,435
Cost of services and maintenance.................. 46,474,254 53,473,619 53,584,519
Cost of resale of software and equipment.......... 7,205,982 5,850,776 6,607,214
Sales and marketing............................... 23,663,539 24,464,339 25,495,730
Research and development.......................... 15,472,884 11,544,037 9,577,655
General and administrative........................ 12,670,111 14,888,095 14,444,617
Amortization of intangibles....................... 4,452,069 4,818,670 4,615,507
Warrant and stock compensation expense allocated
to:
Cost of services and maintenance................ -- 25,487 842,695
Sales and marketing............................. 142,625 1,116,735 1,305,674
Research and development........................ -- -- 17,032
General and administrative...................... 142,625 2,178,316 597,037
Loss on lease abandonment......................... 1,000,000 288,022 --
Restructuring costs............................... -- 1,952,256 --
------------ ------------ ------------
Total costs and expenses........................ 111,458,414 120,854,250 118,479,115
------------ ------------ ------------
Operating loss...................................... (20,167,918) (24,053,981) (2,890,681)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income..................................... 105,588 147,049 1,810,108
Interest expense.................................... (199,765) (1,877,297) (1,210,237)
Other............................................... 79,802 (299,795) (1,040,796)
------------ ------------ ------------
Total other expense................................. (14,375) (2,030,043) (440,925)
------------ ------------ ------------
Loss before minority interest and taxes............. (20,182,293) (26,084,024) (3,331,606)
Minority interest in subsidiary income.............. (30,119) -- --
------------ ------------ ------------
Loss before taxes................................... (20,212,412) (26,084,024) (3,331,606)
Income tax benefit.................................. (578,746) -- --
------------ ------------ ------------
Net loss............................................ $(19,633,666) $(26,084,024) $ (3,331,606)
============ ============ ============
Net loss per common share--basic and diluted........ $ (1.24) $ (1.62) $ (0.12)
============ ============ ============
Weighted average number of common shares
outstanding--basic and diluted.................... 15,885,212 16,095,682 26,799,558
============ ============ ============
See accompanying notes.
42
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONVERTIBLE
CLASS A CLASS B PREFERRED SERIES A
COMMON STOCK COMMON STOCK THROUGH D
--------------------- ------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
---------- -------- -------- -------- ----------- ------------
Balance as of December 31, 1997................ 16,304,863 $163,049 -- $ -- 11,337,562 $ 25,000,000
Net loss..................................... -- -- -- -- -- --
Issuance of common stock..................... 461,666 4,616 - - -- --
Purchase of treasury stock................... -- -- -- -- -- --
Net proceeds from issuance of Series C
convertible preferred stock................ -- -- -- -- 1,600,000 8,000,000
Exercise of stock options.................... -- -- 127,875 1,279 -- --
Deferred compensation related to stock
options.................................... -- -- -- -- - -
Amortization of deferred compensation........ -- -- -- -- -- --
Issuance of warrants......................... -- -- -- -- -- --
Foreign currency translation adjustment...... -- -- -- -- -- --
---------- -------- -------- ------- ----------- ------------
Balances as of December 31, 1998............... 16,766,529 167,665 127,875 1,279 12,937,562 33,000,000
Net loss..................................... -- -- -- -- -- --
Purchase of treasury stock................... -- -- -- -- -- --
Net proceeds from issuance of Series D
convertible preferred stock................ -- -- -- -- 4,750,000 19,000,000
Exercise of stock options.................... - - 252,147 2,521 - -
Deferred compensation related to stock
options.................................... -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Issuance of warrants......................... -- -- -- -- -- --
Foreign currency translation adjustment...... - - - - - -
---------- -------- -------- ------- ----------- ------------
Balance as of December 31, 1999................ 16,766,529 167,665 380,022 3,800 17,687,562 52,000,000
Net loss..................................... -- -- -- -- -- --
Net proceeds from initial public offering.... 8,840,000 88,400 -- -- -- --
Conversion of Class B common and convertible
preferred shares to common stock........... 18,067,584 180,676 (380,022) (3,800) (17,687,562) (52,000,000)
Purchase of treasury stock................... -- -- -- -- -- --
Exercise of stock options.................... 185,882 1,859 -- -- -- --
Exercise of warrants......................... 627,500 6,275 -- -- -- --
Deferred compensation related to stock
options.................................... -- -- -- -- -- --
Amortization of deferred compensation........ -- -- -- -- -- --
Expense associated with warrants issued for
services................................... -- -- -- -- -- --
Foreign currency translation adjustment...... -- -- -- -- -- --
Unrealized gain (loss) on securities
available for sale......................... -- -- -- -- -- --
---------- -------- -------- ------- ----------- ------------
Balance as of December 31, 2000................ 44,487,495 $444,875 -- $ -- -- $ --
========== ======== ======== ======= =========== ============
RETAINED
ADDITIONAL TREASURY STOCK EARNINGS
PAID-IN ---------------------- (ACCUMULATED DEFERRED
CAPITAL SHARES AMOUNT DEFICIT) COMPENSATION
------------ -------- ----------- ------------- --------------
Balance as of December 31, 1997................ $ 19,395,523 4,176 $ (9,262) $ (6,627,971) $ --
Net loss..................................... -- -- -- (19,633,666) --
Issuance of common stock..................... 1,559,346 -- -- -- --
Purchase of treasury stock................... -- 902,601 (3,106,177) -- --
Net proceeds from issuance of Series C
convertible preferred stock................ -- -- -- -- --
Exercise of stock options.................... 251,914 -- -- -- --
Deferred compensation related to stock
options.................................... 811,210 -- -- -- (811,210)
Amortization of deferred compensation........ -- -- -- -- 285,250
Issuance of warrants......................... 75,000 -- -- -- --
Foreign currency translation adjustment...... -- -- -- -- --
------------ ------- ----------- ------------ -----------
Balances as of December 31, 1998............... 22,092,993 906,777 (3,115,439) (26,261,637) (525,960)
Net loss..................................... -- -- -- (26,084,024) --
Purchase of treasury stock................... -- 17,294 (93,473) -- --
Net proceeds from issuance of Series D
convertible preferred stock................ -- -- -- -- --
Exercise of stock options.................... 494,585 - - - -
Deferred compensation related to stock
options.................................... 729,000 -- -- -- (729,000)
Amortization of deferred compensation........ -- -- -- -- 281,700
Issuance of warrants......................... 3,038,838 -- -- -- --
Foreign currency translation adjustment...... - - - - -
------------ ------- ----------- ------------ -----------
Balance as of December 31, 1999................ 26,355,416 924,071 (3,208,912) (52,345,661) (973,260)
Net loss..................................... -- -- -- (3,331,606) --
Net proceeds from initial public offering.... 63,854,529 -- -- -- --
Conversion of Class B common and convertible
preferred shares to common stock........... 51,823,124 -- -- -- --
Purchase of treasury stock................... -- 75,412 (222,552) -- --
Exercise of stock options.................... 427,305 -- -- -- --
Exercise of warrants......................... 1,753,725 -- -- -- --
Deferred compensation related to stock
options.................................... 4,601,125 -- -- -- (4,601,125)
Amortization of deferred compensation........ (300,000) -- -- -- 1,886,326
Expense associated with warrants issued for
services................................... 1,176,112 -- -- -- --
Foreign currency translation adjustment...... -- -- -- -- --
Unrealized gain (loss) on securities
available for sale......................... -- -- -- -- --
------------ ------- ----------- ------------ -----------
Balance as of December 31, 2000................ $149,691,336 999,483 $(3,431,464) $(55,677,267) $(3,688,059)
============ ======= =========== ============ ===========
OTHER
COMPREHENSIVE
LOSS TOTAL
--------------- ------------
Balance as of December 31, 1997................ $ (156,801) $ 37,764,538
Net loss..................................... -- (19,633,666)
Issuance of common stock..................... -- 1,563,962
Purchase of treasury stock................... -- (3,106,177)
Net proceeds from issuance of Series C
convertible preferred stock................ -- 8,000,000
Exercise of stock options.................... -- 253,193
Deferred compensation related to stock
options.................................... -- --
Amortization of deferred compensation........ -- 285,250
Issuance of warrants......................... -- 75,000
Foreign currency translation adjustment...... (378,572) (378,572)
----------- ------------
Balances as of December 31, 1998............... (535,373) 24,823,528
Net loss..................................... -- (26,084,024)
Purchase of treasury stock................... -- (93,473)
Net proceeds from issuance of Series D
convertible preferred stock................ -- 19,000,000
Exercise of stock options.................... - 497,106
Deferred compensation related to stock
options.................................... -- --
Amortization of deferred compensation........ -- 281,700
Issuance of warrants......................... -- 3,038,838
Foreign currency translation adjustment...... (231,069) (231,069)
----------- ------------
Balance as of December 31, 1999................ (766,442) 21,232,606
Net loss..................................... -- (3,331,606)
Net proceeds from initial public offering.... -- 63,942,929
Conversion of Class B common and convertible
preferred shares to common stock........... -- --
Purchase of treasury stock................... -- (222,552)
Exercise of stock options.................... -- 429,164
Exercise of warrants......................... -- 1,760,000
Deferred compensation related to stock
options.................................... -- --
Amortization of deferred compensation........ -- 1,586,326
Expense associated with warrants issued for
services................................... -- 1,176,112
Foreign currency translation adjustment...... 432,652 432,652
Unrealized gain (loss) on securities
available for sale......................... 38,328 38,328
----------- ------------
Balance as of December 31, 2000................ $ (295,462) $ 87,043,959
=========== ============
See accompanying notes.
43
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
------------------------------------------
1998 1999 2000
------------ ------------ ------------
CASH FLOW FROM OPERTATING ACTIVITIES:
Net loss.......................................... $(19,633,666) $(26,084,024) $ (3,331,606)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization................. 7,323,683 8,602,458 8,790,904
Provision for losses on receivables........... 2,252,000 6,973,886 6,141,903
Amortization of deferred compensation......... 285,250 281,700 1,586,326
Deferred income taxes......................... (1,118,210) -- --
Issuance of warrants for services............. -- 3,038,838 1,176,112
Minority interest............................. 30,119 -- --
Changes in operating assets and liabilities:
Accounts receivable......................... (7,994,786) (14,226,085) (8,554,054)
Other receivables and advances.............. 940,897 (366,992) 142,359
Prepaids and other assets................... (2,218,850) 1,701,121 (1,462,366)
Other long-term assets...................... (590,108) 84,212 (1,172,811)
Accounts payable............................ (656,413) (509,719) 804,781
Accrued payroll and benefits................ 1,635,390 106,960 (647,460)
Deferred revenue............................ 2,611,229 5,357,095 (3,684,185)
Income tax payable.......................... (58,656) 496,887 564,288
Accrued expenses............................ 3,107,526 3,398,317 693,543
Other....................................... (580,711) (175,614) (506,335)
------------ ------------ ------------
Net cash provided by (used in) operating
activities.............................. (14,665,306) (11,320,960) 541,399
CASH FLOW FROM INVESTING ACTIVITES:
Purchases of property and equipment................. (7,259,900) (5,380,184) (1,556,386)
Net proceeds from sale of fixed assets.............. 202,756 100,898 9,369
Purchase of marketable securities................... -- -- (19,382,963)
Purchase of minority interest in subsidiary......... (490,000) -- --
------------ ------------ ------------
Net cash used in investing activities..... (7,547,144) (5,279,286) (20,929,980)
44
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31,
----------------------------------------
1998 1999 2000
----------- ----------- ------------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of preferred stock........................... $ 8,000,000 $19,000,000 $ --
Issuance of common stock for options and warrants..... 1,892,155 497,106 2,189,164
Proceeds from initial public offering, net............ -- -- 63,942,929
Proceeds from long-term debt.......................... 9,553,740 5,000,000 --
Payments on long-term debt............................ -- (5,087,317) (5,227,064)
Proceeds from bridge loan............................. -- 3,000,000 --
Payments on bridge loan............................... -- (3,000,000) --
Proceeds from revolving line of credit................ -- 5,436,107 2,220,946
Retirement of revolving line of credit................ -- -- (11,626,859)
Purchase of treasury stock............................ (3,106,177) (93,473) (222,552)
----------- ----------- ------------
Net cash provided by financing activities........... 16,339,718 24,752,423 51,276,564
----------- ----------- ------------
Net increase (decrease) in cash and cash
equivalents......................................... (5,872,732) 8,152,177 30,887,983
Cash and cash equivalents at beginning of year........ 6,652,628 779,896 8,932,073
----------- ----------- ------------
Cash and cash equivalents at end of year.............. $ 779,896 $ 8,932,073 $ 39,820,056
=========== =========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest................................ $ 248,489 $ 1,801,264 $ 1,036,091
=========== =========== ============
Cash paid for income taxes............................ $ 289,486 $ -- $ 213,009
=========== =========== ============
NON-CASH ACTIVITIES:
Lease abandonment..................................... $ 1,000,000 $ 288,000 $ --
=========== =========== ============
Issuance of warrants with debt........................ $ 75,000 $ -- $ --
=========== =========== ============
See accompanying notes.
45
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
EXE Technologies, Inc. (the Company or EXE) is a leading provider of
fulfillment, warehousing and distribution software for e-commerce and
traditional sales channels. The Company operates from its headquarters located
in Dallas, Texas, and through its various subsidiary and sales offices serving
North America, Europe, the Middle East, Asia, and Australia. Through July 31,
1998, the Company had a 51.0% interest in a joint venture with Fuji SystemHouse,
a Japanese corporation, to operate EXE Technologies (SEA) Pte. Ltd. (formed in
1996 and formerly known as Triton SystemHouse Pte. Ltd.), a Singapore
corporation which also is engaged in licensing software and providing services
for the logistics industry in Southeast Asia. During August 1998, the Company
acquired the remaining 49.0% interest in the joint venture for a cash payment of
$490,000.
The consolidated financial statements of the Company include the accounts of
the Company and its majority owned subsidiaries. All significant intercompany
transactions and balances have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company's revenues consist of software license revenues, consulting
service revenues, maintenance revenues, and revenues from the resale of software
and equipment. Software license revenues are recognized in accordance with the
American Institute of Certified Public Accountants' Statement of Position (SOP)
97-2, "Software Revenue Recognition." Under SOP 97-2, software license revenues
are recognized upon execution of a contract and delivery of software, provided
that the license fee is fixed and determinable; no significant production,
modification, or customization of the software is required; vendor-specific
objective evidence of fair value exists to allow the allocation of the total fee
to elements of the arrangement; and collection is considered probable by
management.
Revenue from services is recognized as the services are provided. The
Company's standard service arrangement limits the customer's remedy and the
Company's liability to the underlying service fees specified in the separate
service arrangement. If disputes arise with a customer, a provision is recorded
based on the specific customer situation and the Company's assessment of the
potential outcome of that situation. Maintenance revenue is recognized on a
straight-line basis over the period of the obligation. Revenues from resale of
software and equipment are recognized upon receipt of a purchase order and
shipment of the software and equipment to the customer provided the following
criteria are met: payment terms are fixed and determinable; no significant
production, modification, or customization is required; and collection is
considered probable by management.
The Company's standard license arrangements specify that the customer
accepts the software under the arrangement when the software is shipped and that
the license fees under the arrangement are not refundable. The Company
periodically enters into arrangements which do not have standard acceptance and
warranty provisions. Such contracts are analyzed and timing of revenue
recognition is determined based upon specific facts and circumstances. If
warranty and acceptance criteria differs from the Company's standard criteria,
revenue recognition is deferred until acceptance is obtained or the warranty
period lapses. The Company's standard license arrangement warrants that its
products will function substantially in accordance with the documentation
provided to customers for periods ranging from three to twelve months. As of
December 31, 2000, the Company has not incurred any significant expenses related
to warranty claims.
46
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
No single customer represented greater than 10.0% of total revenues during
the years ended December 31, 1998, 1999 and 2000.
In January 2000, the Company sold its mainframe services and maintenance
practice to an unrelated third party consulting firm in exchange for royalties
that will be received on future revenue generated by customers using this
product. Services and maintenance revenue associated with this product as a
percentage of total services and maintenance revenue represented 12.5% and 7.5%,
respectively, for the years ended December 31, 1998 and 1999. The royalties are
a declining percentage of the consulting firm's services and maintenance
revenues generated from customers using our mainframe product, subject to a
maximum of $425,000 per year. The percentages of revenue are: 20.0% for the
first two years, 15.0% for the third year, 10.0% for the fourth and fifth years
and 5.0% for each year after the fifth year. The agreement is perpetual, but may
be terminated at EXE's option in the event of default by the consulting firm.
Royalties recognized in 2000 totaled $425,000 and are included as a component of
services and maintenance revenue.
SOFTWARE DEVELOPMENT
In accordance with Statement of Financial Accounting Standards (SFAS)
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed," software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers. The
establishment of technological feasibility of the Company's products and general
release of such software have substantially coincided. As a result, software
development costs qualifying for capitalization have been insignificant and,
therefore, the Company has expensed all software development costs.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION
Financial statements of foreign operations, where the local currency is the
functional currency, are translated using exchange rates in effect at period end
for assets and liabilities and average exchange rates during the period for
results of operations. Foreign currency transaction gains (losses) were
approximately $160,000, $109,000 and ($848,000) for the years ended
December 31, 1998, 1999 and 2000, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist primarily of bank deposits and investment
grade corporate and government debt securities and money market funds. The
Company considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. The carrying value of cash
equivalents approximates fair market value.
47
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company's investments in debt securities are comprised of investment
grade debt securities in accordance with the Company's investment policy.
Management determines the appropriate classification of investments in debt
securities at the time of purchase and reevaluates such determinations at each
balance sheet date. At December 31, 2000, the Company's debt securities are
classified as available for sale. Securities available for sale are carried at
fair value, with the unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity. Fair value is determined based on
quoted market rates. The amortized cost of debt securities in this category is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included as a component of interest income. Realized gains
and losses and declines in value judged to be other-than-temporary on securities
available for sale are included as a component of interest income. The cost of
securities sold is based on the specific identification method. Interest and
dividends on securities classified as available for sale are included as a
component of interest income. Securities available for sale with remaining
maturities in excess of one year at December 31, 2000 have been classified as
long-term securities.
ACCOUNTS RECEIVABLE AND CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk principally consist of temporary cash investments
and accounts receivable, including receivables from license contracts. The
Company places temporary cash investments with financial institutions and limits
its exposure with any one financial institution. At December 31, 1998, 1999 and
2000, no single customer represented greater than 10.0% of the total receivable
balance. The Company's billings are due upon receipt with collections generally
occurring within 30 to 60 days, and the Company does not require collateral on
accounts. A large portion of the Company's customer base is composed of FORTUNE
1000 companies or foreign equivalents, which the Company believes mitigates its
credit risk. The Company continually evaluates the creditworthiness of its
customers' financial condition and generally does not require collateral. The
Company maintains an allowance for losses on receivables based upon the expected
collectibility of all accounts receivable. Write-offs of receivables during the
three years ended December 31, 1998, 1999 and 2000 were approximately $710,000,
$3,972,000, and $6,508,000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. All
property and equipment is depreciated using the straight-line method.
The estimated useful lives of property and equipment are as follows (in
years):
Computer equipment.......................................... 3-5
Furniture and equipment..................................... 5-7
Leasehold improvements...................................... 9-15
Other....................................................... 3-7
48
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company evaluates the carrying value of its long-lived assets under SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which requires impairment losses to be recognized for
long-lived assets used in operations when indicators of impairment are present
and when the future estimated undiscounted cash flows generated by those assets
are not sufficient to recover the assets' carrying amount.
DEFERRED REVENUE
Deferred revenue primarily represents amounts collected prior to complete
performance of maintenance services. Deferred revenue also consists of amounts
billed or received in advance of satisfying revenue recognition criteria.
FINANCIAL INSTRUMENTS
The Company's financial instruments, including accounts receivable, accounts
payable and its revolving credit line, approximate fair value due to their
short-term nature. The fair value of long-term debt approximates book value at
December 31, 1999 and 2000.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans utilizing the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," because, as discussed in Note 8, the alternative fair
value accounting provided for under SFAS No. 123, "Accounting for Stock-Based
Compensation," requires the use of option valuation models that were not
developed for use in valuing employee stock options. However, SFAS No. 123
requires disclosure of pro forma information regarding net income (loss) and net
income (loss) per share based on fair value accounting for stock-based
compensation plans. Compensation expense associated with stock options is
recognized ratably over the vesting period of the underlying option.
ADVERTISING COSTS
Advertising costs are expensed as incurred and were approximately
$3,793,000, $3,071,000 and $3,969,000 for the years ended December 31, 1998,
1999 and 2000, respectively.
EARNINGS PER SHARE
The Company computes net income (loss) per share in accordance with the
provisions of SFAS No. 128, "Earnings per Share." Basic net income (loss) per
common share is computed using the weighted average number of shares of common
stock outstanding during each period.
Diluted net income (loss) per common share is computed using the weighted
average number of shares of common stock outstanding during each period and
common equivalent shares consisting of preferred stock, warrants and stock
options (using the treasury stock method), if dilutive. Diluted loss per common
share is the same as basic loss per common share for all periods presented
because all
49
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
potentially dilutive securities were anti-dilutive. The following table sets
forth anti-dilutive securities which have been excluded from diluted earnings
per share for the periods presented:
AS OF DECEMBER 31,
-----------------------------------
1998 1999 2000
---------- ---------- ---------
Common stock options.............................. 5,181,376 4,471,975 6,266,312
Warrants.......................................... 50,000 1,085,000 50,000
Preferred stock................................... 12,937,562 17,687,562 --
---------- ---------- ---------
Total anti-dilutive securities excluded........... 18,168,938 23,244,537 6,316,312
========== ========== =========
COMPREHENSIVE LOSS
Comprehensive loss includes foreign currency translation gains (losses) and
unrealized gains (losses) on securities available for sale. The following table
sets forth the calculation of comprehensive loss for the periods presented:
YEARS ENDED DECEMBER 31,
-----------------------------------------
1998 1999 2000
------------ ------------ -----------
Net loss..................................... $(19,633,666) $(26,084,024) $(3,331,606)
Foreign currency translation gains
(losses)................................... (378,572) (231,069) 432,652
Unrealized gain on securities available for
sale....................................... -- -- 38,328
------------ ------------ -----------
Total comprehensive loss..................... $(20,012,238) $(26,315,093) $(2,860,626)
============ ============ ===========
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which as
amended, will be effective for the Company's fiscal year beginning January 1,
2001. SFAS No. 133 requires that all derivatives be recognized at fair value on
the balance sheet and that related gains and losses be included in net income or
comprehensive income depending on the nature of the hedging relationship. As of
December 31, 2000, the Company has not entered into contracts that will be
classified as derivative financial instruments under SFAS No. 133. However, the
Company may enter into contracts that are classified as derivative financial
instruments in the future. Management believes that SFAS No. 133 will not have
an impact on the results of operations or financial position of the Company when
adopted, however management cannot estimate its impact on future results of
operations and financial position.
3. MARKETABLE SECURITIES
There were no gross realized gains (losses) on the sale of securities
available for sale during 2000. The net unrealized holding gain on marketable
securities included as a separate component of stockholders' equity totaled
approximately $38,000 as of December 31, 2000.
The amortized cost and estimated fair value of debt securities at
December 31, 2000, by contractual maturity, are shown below. Expected maturities
may differ from contractual maturities
50
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. MARKETABLE SECURITIES (CONTINUED)
because the issuers of the securities may have the right to prepay obligations
without prepayment penalties.
AS OF DECEMBER 31, 2000
-------------------------
AMORTIZED FAIR MARKET
COST VALUE
----------- -----------
Securities available for sale maturing:
Within one year............................................ $ 9,152,286 $ 9,147,506
One to two years........................................... $10,192,349 $10,235,457
4. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost, consist of the following:
AS OF DECEMBER 31,
--------------------------
1999 2000
----------- ------------
Computer equipment........................................ $ 9,905,530 $ 10,997,819
Furniture and equipment................................... 4,768,973 4,896,958
Leasehold improvements.................................... 1,977,428 2,920,289
Other..................................................... 456,702 495,630
----------- ------------
17,108,633 19,310,696
Less accumulated depreciation............................. (7,112,180) (11,076,805)
----------- ------------
$ 9,996,453 $ 8,233,891
=========== ============
Depreciation expense for the years ended December 31, 1998, 1999 and 2000,
was approximately $2,872,000, $3,784,000 and $4,175,000, respectively.
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
AS OF DECEMBER 31,
---------------------------
1999 2000
------------ ------------
Intangible assets:
Developed technology..................................... $ 3,700,000 $ 3,700,000
Assembled work force..................................... 1,350,000 1,350,000
Customer base............................................ 1,800,000 1,800,000
Goodwill................................................. 18,497,621 18,609,120
------------ ------------
25,347,621 25,459,120
Less accumulated amortization............................ (10,701,211) (15,316,718)
------------ ------------
$ 14,646,410 $ 10,142,402
============ ============
51
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INTANGIBLE ASSETS (CONTINUED)
The intangible assets arose primarily from the initial formation of EXE in
September 1997. Excluding assembled work force and goodwill, intangible assets
are amortized over six years based upon the associated estimated revenue stream.
Assembled work force and goodwill are amortized on a straight-line basis over a
three- and six-year period, respectively. The carrying value of intangible
assets will be reviewed if the facts and circumstances suggest that they may be
permanently impaired. If a comparison of the undiscounted cash flow method to
the carrying value of intangible assets indicates that the intangible assets
will not be recoverable, the assets will be reduced to their estimated
recoverable value. The amortization of intangibles was approximately $4,452,000,
$4,819,000 and $4,616,000, respectively, during the years ended December 31,
1998, 1999 and 2000.
6. DEBT
The Company's debt consists of the following:
YEAR ENDED DECEMBER 31,
------------------------
1999 2000
------------ ---------
$25 million revolver and term loan:
Revolving line of credit.................................. $ 9,418,251 $ --
Term loan................................................. 5,000,000 --
Capital lease obligations................................... 502,458 295,360
Other....................................................... 7,628 --
----------- --------
Total borrowings............................................ 14,928,337 295,360
Less revolving credit line and current portion of long-term
debt and capital lease obligations........................ 9,595,201 192,883
----------- --------
Long-term debt, net of current portion...................... $ 5,333,136 $102,477
=========== ========
On May 10, 1999, the Company finalized a Loan and Security Agreement (the
Loan Agreement) with a bank. In connection with finalizing the Loan Agreement,
all previous borrowings were paid off and all other financing agreements were
terminated. The Loan Agreement provided for a revolving credit line and a
$5 million term loan. Borrowings under the revolving credit line and term loan
could not exceed $25 million in the aggregate. Advances under the revolving
credit line were subject to a specified advance rate as defined in the Loan
Agreement and were secured by all of the Company's assets. The interest rate on
borrowings under the Loan Agreement was adjusted monthly and was computed as the
highest LIBOR rate in effect during each month plus 4.87% per annum, subject to
certain limitations and adjustments. Interest on borrowings under the Loan
Agreement were payable on the last day of each month. In conjunction with the
initial public offering, the Company used $16.6 million of the offering proceeds
to payoff and terminate the Loan Agreement.
On August 31, 1999 and September 2, 1999, the Company received bridge loans
(the "bridge loans") totaling $3 million from entities associated with Michael
S. Dell and Technology Crossover Ventures. The bridge loans were issued in five
separate convertible promissory notes with the principal and all accrued
interest on each note due on the earlier of February 28, 2000 or, at the payee's
demand, any time after September 30, 1999. Each note's interest rate was 10% per
annum. The bridge loans were cancelled on September 29, 1999 as partial
consideration for the issuance of $19 million of Series D preferred stock.
52
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
Components of the provision (benefit) for income taxes are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1999 2000
--------- -------- --------
Current:
Federal................................................... $ (92,042) $ -- $ --
State..................................................... (4,965) -- --
Foreign................................................... 636,472 -- --
Deferred:
Federal................................................... (976,882) -- --
State..................................................... (141,329) -- --
--------- ---- ----
Total....................................................... $(578,746) $ -- $ --
========= ==== ====
The provision (benefit) for income taxes is reconciled with the federal
statutory rate as follows:
YEARS ENDED DECEMBER 31,
---------------------------------------
1998 1999 2000
----------- ----------- -----------
Benefit computed at federal statutory rate..... $(6,872,220) $(9,129,408) $(1,132,746)
Non-deductible expenses and goodwill
amortization................................. 1,108,977 1,097,486 1,055,439
State income taxes, net of federal benefit..... (93,277) (143,852) (39,691)
Foreign taxes.................................. 376,738 -- --
Foreign tax credit............................. (403,293) -- --
Increase (decrease) in valuation allowance..... 5,223,604 8,066,386 (276,516)
Other, net..................................... 80,725 109,388 393,514
----------- ----------- -----------
Income tax provision (benefit)................. $ (578,746) $ -- $ --
=========== =========== ===========
53
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
The significant components of the Company's deferred tax liabilities and
assets are as follows:
AS OF DECEMBER 31,
---------------------------
1999 2000
------------ ------------
Deferred tax liabilities:
Identifiable intangible assets......................... $ (1,179,459) $ (591,509)
------------ ------------
Total deferred tax liabilities....................... (1,179,459) (591,509)
Deferred tax assets:
Bad debt reserves...................................... 1,694,471 1,238,935
Fixed assets........................................... 259,622 372,101
Net operating losses................................... 10,567,914 9,678,558
Stock compensation..................................... 139,234 297,242
Accrued contract obligations........................... 976,888 832,307
Accrued expenses....................................... -- 104,144
Foreign tax credits.................................... 696,084 696,084
Research and development credits....................... 381,012 499,782
Other, net............................................. (158,648) (27,042)
------------ ------------
Total deferred tax assets............................ 14,556,577 13,692,111
Valuation allowance...................................... (13,377,118) (13,100,602)
------------ ------------
Total deferred tax assets, net....................... 1,179,459 591,509
------------ ------------
Deferred income tax liabilities, net of deferred
income tax assets.................................. $ -- $ --
============ ============
At December 31, 2000, the Company had a federal net operating loss
carryforward and research and development credits of approximately
$24.3 million and $0.5 million, respectively, both of which will expire in the
year 2013. The Company also had net operating loss carryforwards of
approximately $4.2 million in foreign jurisdictions. The Company has established
a valuation allowance to reserve its net deferred tax assets at December 31,
1999 and 2000 due to the uncertainty of the timing and amount of future taxable
income.
8. STOCK OPTIONS AND DEFERRED COMPENSATION
In October 1997, the Company adopted the 1997 Incentive and Nonqualified
Stock Option Plan (the 1997 Plan) which replaced all previous plans of Neptune
and Dallas Systems. Under the 1997 Plan, an aggregate of 12,000,000 shares of
common stock are authorized for issuance. The 1997 Plan provides for the grant
of incentive stock options (ISOs) to employees of the Company and nonqualified
stock options (NQSOs) to employees or consultants. Exercise prices for ISOs may
not be less than fair market value as determined by the Board of Directors in
the absence of a public market and exercise prices for NQSOs may be greater or
less than fair market on the date of grant. The options generally vest and
become exercisable ratably over a four-year period and expire after ten years
unless determined otherwise by the Board of Directors.
In October 1997, the Company adopted the Non-Employee Directors Plan (the
Directors Plan). Under the Directors Plan, an aggregate of 300,000 shares of
common stock are authorized for issuance.
54
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND DEFERRED COMPENSATION (CONTINUED)
The Directors Plan provides for the grant of a specified number of NQSOs to
non-employee directors of the Company as defined in the Directors Plan at
exercise prices equal to the fair market value of the Company's stock on the
date of grant. The options vest over four years. At December 31, 1999 and 2000,
150,000 options were outstanding under the Directors Plan. Options outstanding
under the Directors Plan had weighted average exercise prices of $5.33 and
$10.33 per share at December 31, 1999 and 2000, respectively. As of
December 31, 1999 and 2000, 12,500 and 37,500 of these options were exercisable
at a weighted average price of $10.00 and $7.67 per share, respectively.
Under the 1997 Plan, in the event of a change of control, the Board shall
have the right, in its sole discretion, to accelerate the vesting of all options
that have not vested as of the date of the change of control and/or establish an
earlier date for the expiration of the exercise of an option. In addition, in
the event of a change of control of the Company, the Board shall have the right,
in its sole discretion, subject to and conditioned upon a sale of the Company:
(a) to arrange for the successor company (or other entity) to assume all of the
rights and obligations of the Company under the 1997 Plan or (b) to terminate
the 1997 Plan and (i) pay to all optionees cash with respect to those options
that are vested as of the date of the sale of the Company in an amount equal to
the difference between the option price and the fair market value of a share of
common stock (determined as of the date the 1997 Plan is terminated) multiplied
by the number of options that are vested as of the date of the sale of the
Company which are held by the optionee as of the date of the sale of the
Company, (ii) arrange for the exchange of all options for options to purchase
common stock in the successor corporation, or (iii) distribute to each optionee
other property in an amount equal to and in the same form as the optionee would
have received from the successor corporation if the optionee had owned the
shares subject to options that are vested as of the date of the sale of Company
rather than the option at the time of the sale of the Company. The form of
payment or distribution to the optionee pursuant to this section shall be by the
Board in its sole discretion.
55
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND DEFERRED COMPENSATION (CONTINUED)
Stock option transactions under the 1997 Plan for the years ended
December 31, 1998, 1999 and 2000, are summarized as follows:
OPTIONS OUTSTANDING
---------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER OF EXERCISE
GRANT SHARES PRICE
------------- ---------- --------
Balance at December 31, 1997........................ 2,103,137 1,196,863 $1.48
Authorized.......................................... 5,200,000 -- --
Grants.............................................. (4,255,008) 4,255,008 5.14
Exercised........................................... -- (127,875) 1.98
Forfeitures......................................... 295,276 (295,276) 2.79
---------- ---------- -----
Balance at December 31, 1998........................ 3,343,405 5,028,720 4.49
Grants.............................................. (1,914,875) 1,914,875 4.13
Exercised........................................... -- (149,491) 1.95
Forfeitures......................................... 2,472,129 (2,472,129) 4.23
---------- ---------- -----
Balance at December 31, 1999........................ 3,900,659 4,321,975 4.56
Authorized.......................................... 3,500,000 -- --
Grants.............................................. (2,764,525) 2,764,525 8.56
Exercised........................................... -- (185,882) 2.31
Forfeitures......................................... 784,306 (784,306) 4.76
---------- ---------- -----
Balance at December 31, 2000........................ 5,420,440 6,116,312 $6.36
========== ========== =====
The weighted average grant-date fair value of options granted under the 1997
Plan during the year ended December 31, 1998 and 1999 and prior to the
completion of the Company's initial public offering in 2000 using a minimum
value option pricing model was $0.94, $0.71 and $4.45 per option. For options
granted after the completion of the Company's initial public offering through
December 31, 2000, the weighted average grant date fair value was $8.38. At
December 31, 1998, 1999 and 2000, 1,157,471, 1,542,070 and 2,187,659 options
were exercisable. The weighted average exercise price of options exercisable was
$1.65, $3.22 and $3.94 at December 31, 1998, 1999 and 2000, respectively. The
remaining estimated contractual life of the 6,116,312 options outstanding at
December 31, 2000, is approximately 7.6 years. Options outstanding at
December 31, 2000 have exercise prices ranging from $0.75 to $17.06.
During 1998, the Company granted 102,656 options at $2.00 per share, outside
the plans to a former employee. The employee exercised those options in 1999.
SFAS No. 123, "Accounting for Stock Based Compensation," requires the
disclosure of pro forma net income and earnings per share information computed
as if the Company had accounted for its employee stock options granted under the
fair value method set forth in SFAS No. 123. The fair value for these options
was estimated at the date of grant using a Black-Scholes option pricing model
and the following weighted-average assumptions for 1998, 1999 and 2000: a
risk-free interest rate of 5.33% in 1998, 6.00% in 1999 and 6.41% in 2000, no
dividend, an expected life of three to four years, and a volatility of zero for
grants prior to the Company's initial public offering and 1.24 for grants
subsequent
56
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. STOCK OPTIONS AND DEFERRED COMPENSATION (CONTINUED)
to the Company's initial public offering. Pro forma net loss and loss per share
for 1998, 1999 and 2000 would have been $20,147,026 ($1.27 per share),
$26,833,186 ($1.67 per share) and $5,279,679 ($0.20 per share), respectively,
determined as if the Company had accounted for its stock options granted in
1998, 1999 and 2000 under the fair value method set forth in SFAS No. 123.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which 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 the Company's employee stock 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 management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. In addition, because
options vest over several years and additional option grants are expected, the
effects of these hypothetical calculations are not likely to be representative
of similar future calculations.
The Company recorded deferred compensation of approximately $811,000 for the
difference between the exercise price and the deemed fair value of certain of
the Company's common stock on the grant date for certain options granted during
1998. The Company granted options to purchase 2,517,758 shares of common stock
with an exercise price ranging from $2.00 to $5.00 per share during 1998. Such
exercise price was less than the deemed fair value of the Company's common stock
on the date of grant. The deemed fair value of the Company's common stock on the
individual grant dates for these option grants ranged from $2.20 to $7.50.
The Company recorded additional deferred compensation of approximately
$729,000 in 1999 for differences between the exercise price and the deemed fair
value of the Company's common stock on the grant date for certain options
granted during 1999. The Company granted options to purchase 280,250 shares of
common stock, with exercise prices of $3.00 in 1999. Such exercise price was
less than the deemed fair value of the Company's common stock on the date of
grant. The deemed fair value of the Company's common stock on the individual
grant dates ranged from $4.96 to $7.02.
The Company recorded additional deferred compensation of approximately
$4,601,000 in 2000 for the difference between the exercise price and the deemed
fair value of the Company's common stock on the grant date. The Company granted
options to purchase 1,463,225 shares of common stock with exercise prices
ranging from $3.00 to $8.00. Such exercise prices were less than the deemed fair
value of the Company's common stock on the grant date. The deemed fair value of
the Company's common stock on the individual grant dates ranged from $7.75 to
$8.50.
The deferred compensation is being amortized ratably over the vesting period
of the individual options, generally three to four years. Compensation expense
recognized in 1998, 1999 and 2000 totaled approximately $285,000, $282,000 and
$1,586,000, respectively.
9. RELATED PARTY TRANSACTIONS
The Company also has various advances to officers and stockholders of the
Company. The total balance of these receivables at December 31, 1999 and 2000
was $59,214 and $52,574, respectively. Additionally, the Company has long-term
notes receivable from employees and stockholders which bear interest ranging
from 8.5% to 12.0% and have a remaining balance of $246,475 and $958,259 at
December 31, 1999 and 2000, respectively.
57
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LEASE COMMITMENTS
The Company leases certain facilities and property and equipment for use in
operations. In May 1998, the Company entered into leases with terms of
ten-and-one-half-years for office space for the North American operations. The
leases provide for free rent during the first six months and contain an
escalation clause in year five. In March 1999, the Company amended the lease
agreements such that the leases were extended to fifteen year terms. The Company
intends to recognize the total minimum lease payments as expense on the
straight-line basis over the lease term. The leases have two five-year renewal
options which are at a rate not less than 95% of the then-prevailing market rate
for comparable premises.
The Company leased office space from a stockholder under a lease which was
to expire in August 2002, with monthly rental payments of $86,569. During 1998,
in connection with the move to new office space for the North American
operations, the Company decided to vacate the office space leased from the
stockholder. The Company recorded a $1,000,000 loss on abandonment related to
the office space in 1998 for the estimated loss to be incurred as a result of
vacating the office space. In 1999, the Company finalized an agreement with the
stockholder and recorded an additional $288,022 loss related to this
abandonment. The total paid to the stockholder during the year ended
December 31, 1999 and 2000 for lease abandonment was $872,047 and $410,000,
respectively.
The minimum rental commitments under operating leases and the minimum
rentals to be received under subleases and other leases with terms exceeding one
year, are as follows:
LEASES SUBLEASES
----------- ----------
2001........................................................ $ 7,487,429 $1,191,483
2002........................................................ 6,787,130 --
2003........................................................ 6,343,195 --
2004........................................................ 3,110,712 --
2005........................................................ 722,096 --
Thereafter.................................................. 919,079 --
----------- ----------
$25,369,641 $1,191,483
=========== ==========
Total rent expense was approximately $3,395,000, $4,736,000 and $3,952,000
(net of sublease income of approximately $0, $146,000 and $1,358,000) for the
years ended December 31, 1998, 1999 and 2000, respectively. Included in rent
expense is approximately $1,039,000, $260,000 and $0 paid to a stockholder for
facility rental in 1998, 1999 and 2000, respectively.
11. EMPLOYEE BENEFIT PLAN
The Company sponsors a defined contribution plan for eligible employees. The
plan covers all employees located in the United States who have completed one
month of service and have attained the age of 21. The Company's contribution to
the plan matches the first 5% of the employee's contributions of eligible
earnings. Additionally, discretionary contributions may also be made. The
Company recognized expenses of approximately $1,147,000, $931,000 and $696,000
for the defined contribution plan during the years ended December 31, 1998, 1999
and 2000, respectively.
The company also sponsors a defined contribution plan for its employees in
the United Kingdom. The plan covers all employees located in the United Kingdom
who have completed six months of
58
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. EMPLOYEE BENEFIT PLAN (CONTINUED)
service. The Company's contribution to the plan matches the first 5% of the
employee's contributions of eligible earnings. The Company recognized expenses
of approximately $234,000, $343,000 and $262,000 for the defined contribution
plan during the years ended December 31, 1998, 1999 and 2000, respectively.
12. STOCKHOLDERS' EQUITY
COMMON STOCK
The Company completed its initial public offering of 8,000,000 shares of its
common stock pursuant to a Registration Statement on Form S-1 on August 9, 2000.
Additionally, the underwriters exercised a portion of their over-allotment
option to purchase an additional 840,000 shares of the Company's common stock,
at $8.00 per share, on August 16, 2000. Total proceeds from this offering,
including the exercise of the over-allotment option, were approximately
$63.9 million, net of underwriting fee and offering expenses of approximately
$6.8 million.
All Class A common stock was renamed as "common stock" and all Class B
common stock converted into shares of common stock on a one-for-one basis as a
result of closing the offering. The Company is now authorized to issue
150,000,000 shares of common stock.
PREFERRED STOCK
As a result of the Company's initial public offering, all outstanding shares
of Series A through D preferred stock automatically converted into 17,687,562
shares of common stock. The Company is now authorized to issue a total of
20 million shares of preferred stock.
In addition to conversion rights, the Series A through D preferred stock had
voting rights equal to common stock, certain liquidation preferences and
dividend rights equivalent to the common stockholders. Activity relating to
preferred stock including shares issued, proceeds from sale and conversion is
presented in the accompanying Consolidated Statements of Stockholders' Equity.
WARRANTS
In December 1998, and in connection with obtaining certain financing, the
Company issued warrants to acquire up to 50,000 shares of the Company's common
stock. The warrants had an exercise price of $7.50 per share, were exercisable
upon issuance and expired the later of December 31, 2001, or two years after the
completion of an initial public offering of the Company's common stock but in no
event later than December 31, 2002. The warrants were valued at $75,000, which
was recorded as additional interest expense over the term of the loan agreement.
The warrants were exercised in January 2001.
In March 1999, the Company entered into a two year sales and marketing
agreement with an independent third party. The Company and the third party each
have a non-exclusive right to market and resell the other party's products. As
part of the agreement, the Company issued warrants to purchase the Company's
common stock with an exercise price of $4 per share, of which, 330,000 of the
warrants were immediately vested, exercisable and nonforfeitable. The remaining
330,000 of the warrants were to vest at a rate of 110,000 warrants for each
$2,000,000 of net license revenue the Company recognizes on sales of the
Company's products sold by the third party. The fair value of $640,000 for the
330,000 warrants, which vested immediately, is amortized to operating expense
over
59
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. STOCKHOLDERS' EQUITY (CONTINUED)
the term of the agreement. Through June 2000, the 330,000 warrants which vest
over time were marked to fair value at the end of each accounting period and the
remeasured value was amortized to operating expense on a straight-line basis
over the term of the agreement. Prior to June 30, 2000, warrants to purchase
110,000 shares of the Company's common stock had vested as a result of the
Company recognizing $2,000,000 of net license revenue from sales of the
Company's products sold by the third party. In June 2000, the Company and the
third party amended the sales and marketing agreement such that the unvested
warrants to purchase 220,000 shares of the Company's common stock were canceled.
The Company recorded expense of approximately $988,000 and $1,176,000 for the
warrants during the years ended December 31, 1999 and 2000, respectively. The
fair value of the warrants was calculated using a Black-Scholes option pricing
model with the following assumptions for 1999 and 2000 respectively: risk-free
interest rate of 4.60% and 5.16%; dividend yield of zero; volatility of 85%; and
a warrant life of five years. The warrants were exercised in December 2000.
In October 1999, the Company entered into a consulting agreement with an
independent third party. The Company issued 375,000 warrants to purchase the
Company's common stock to the third party for consulting services rendered. The
warrants were immediately vested, exercisable and non-forfeitable with an
exercise price of $4 per share. The fair value of the warrants of approximately
$2,051,000 was recorded as expense in 1999. The fair value of the warrants was
calculated using a Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.11%; dividend yield of zero;
volatility of 85%; and a warrant life of three years. The warrants were
exercised in August 2000.
13. CONTINGENCIES
The Company is involved in various legal actions and claims which arise in
the normal course of business. In the opinion of management, the final
disposition of these matters will not have a material adverse effect on the
Company's financial position or results of operations.
14. RESTRUCTURING
In August 1999, the Company implemented a restructuring plan to reduce costs
and improve operating efficiency. The Company recorded a pretax charge of
$1,952,256 for its restructuring plan. The Company recorded liabilities
associated with the restructuring in the amounts of approximately $709,000 for
severance and other employee related costs for the termination of 97 services,
sales, development and administrative employees, $803,000 for the abandonment of
certain leased office space less estimated sublease rentals at the Company's
North American and Australian facilities, $179,000 for the abandonment of leased
equipment, and $261,000 for the disposal of other fixed assets. The Company
recorded approximately $1,325,000 and $400,000 of cash charges against the
original restructuring reserve during the year ended December 31, 1999 and 2000,
respectively. The remaining liability at December 31, 2000 is approximately
$227,000 and is expected to be paid out through the end of 2003.
60
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT INFORMATION
The Company is engaged in the design, development, marketing and support of
fulfillment, warehousing and distribution software for e-commerce and
traditional sales channels. All financial information is reviewed on a
consolidated basis with additional information by geographic region used to make
operating decisions and assess the results of the Company. The Company's
geographic information as of and for the years ended December 31, 1998, 1999 and
2000 is as follows:
EUROPE
UNITED AND THE ASIA
STATES MIDDLE EAST PACIFIC ELIMINATIONS TOTAL
------------ ----------- ---------- ------------ ------------
December 31, 1998
Revenue...................................... $ 66,168,055 $15,843,179 $9,279,262 $ -- $ 91,290,496
Amortization of intangibles.................. (4,452,069) -- -- -- (4,452,069)
Warrant and stock compensation expense....... 285,250 -- -- -- 285,250
Loss on lease abandonment.................... 1,000,000 -- -- -- 1,000,000
Operating income (loss)...................... (16,872,813) (557,885) (2,737,220) -- (20,167,918)
Property and equipment, net.................. 6,357,983 1,000,437 1,197,990 -- 8,556,410
Total assets................................. 54,128,526 4,840,421 1,103,474 (3,009,531) 57,062,890
December 31, 1999
Revenue...................................... 61,793,501 19,187,242 15,819,526 -- 96,800,269
Amortization of intangibles.................. (4,818,670) -- -- -- (4,818,670)
Warrant and stock compensation expense....... 3,320,538 -- -- -- 3,320,538
Loss on lease abandonment.................... 288,022 -- -- -- 288,022
Restructuring costs.......................... 1,795,713 -- 156,543 -- 1,952,256
Operating income (loss)...................... (20,965,782) (328,696) (2,759,503) -- (24,053,981)
Property and equipment, net.................. 7,841,274 987,103 1,168,076 -- 9,996,453
Total assets................................. 59,523,158 8,855,736 2,535,546 (3,244,142) 67,670,298
December 31, 2000
Revenue...................................... 68,734,644 21,885,999 24,967,791 -- 115,588,434
Amortization of intangibles.................. (4,559,316) (38,052) (18,139) -- (4,615,507)
Warrant and stock compensation expense....... (2,361,430) (77,183) (323,825) -- (2,762,438)
Operating income (loss)...................... (3,795,750) (1,278,475) 2,183,544 -- (2,890,681)
Property and equipment, net.................. 5,949,734 1,548,552 735,605 -- 8,233,891
Total assets................................. $109,364,697 $4,423,799 $5,883,550 $(3,092,403) $116,579,643
16. SUBSEQUENT EVENTS
On January 25, 2001, the Company completed the acquisition of AllPoints
Systems, Inc. The transaction was completed in a stock-for-stock merger in which
EXE issued 1,590,357 shares of EXE common stock and assumed options for an
additional 409,606 shares of EXE common stock in exchange for all of the
outstanding securities of AllPoints Systems, Inc. The transaction will be
accounted for as a purchase.
17. SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following tables set forth certain unaudited quarterly data for each of
the eight quarters in the years ended December 31, 1999 and 2000. The data has
been derived from the Company's unaudited consolidated financial statements
that, in management's opinion, include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of such information
when read in
61
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
conjunction with the Consolidated Financial Statements and Notes thereto. The
results of operations for any quarter are not necessarily indicative of the
results of operations for any future period.
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1999 1999 1999 1999
----------- ----------- ------------- ------------
Revenue:
Software license........................ $ 6,391,659 $ 4,191,211 $ 6,809,173 $ 7,997,765
Services and maintenance................ 17,318,694 16,525,330 13,870,219 16,389,019
Resale of software and equipment........ 1,904,703 2,271,697 1,572,155 1,558,644
----------- ----------- ----------- -----------
Total revenue......................... 25,615,056 22,988,238 22,251,547 25,945,428
Cost and expenses:
Cost of software licenses............... 62,427 42,663 68,092 80,716
Cost of services and maintenance........ 12,793,578 14,259,628 13,910,574 12,509,839
Cost of resale of software and
equipment............................. 1,465,210 1,908,508 1,221,296 1,255,762
Sales and marketing..................... 6,457,637 6,257,492 6,050,897 5,698,313
Research and development................ 4,008,922 3,486,442 2,554,500 1,494,173
General and administrative.............. 3,597,682 4,143,069 3,636,193 3,511,151
Amortization of intangibles............. 1,204,666 1,204,668 1,204,668 1,204,668
Warrant and stock compensation
expense............................... 53,100 213,150 213,975 2,840,313
Loss on lease abandonment............... -- -- 288,022 --
Restructuring costs..................... -- -- 1,952,256 --
----------- ----------- ----------- -----------
Total costs and expenses.............. 29,643,222 31,515,620 31,100,473 28,594,935
----------- ----------- ----------- -----------
Operating loss............................ (4,028,166) (8,527,382) (8,848,926) (2,649,507)
Other expense............................. (294,290) (638,892) (663,585) (433,276)
----------- ----------- ----------- -----------
Net loss.................................. (4,322,456) (9,166,274) (9,512,511) (3,082,783)
=========== =========== =========== ===========
Net loss per common share--basic and
diluted................................. $ (0.27) $ (0.57) $ (0.59) $ (0.19)
=========== =========== =========== ===========
62
EXE TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17. SELECTED CONSOLIDATED QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(CONTINUED)
THREE MONTHS ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2000 2000 2000 2000
----------- ----------- ------------- ------------
Revenue:
Software license........................ $ 7,895,475 $ 8,701,167 $10,238,534 $11,829,945
Services and maintenance................ 16,034,310 17,631,991 17,926,569 17,115,576
Resale of software and equipment........ 1,548,402 1,744,930 2,396,678 2,524,857
----------- ----------- ----------- -----------
Total revenue......................... 25,478,187 28,078,088 30,561,781 31,470,378
Cost and expenses:
Cost of software licenses............... 78,955 87,012 179,164 1,046,304
Cost of services and maintenance........ 13,105,715 14,280,374 13,680,831 12,517,599
Cost of resale of software and
equipment............................. 1,337,811 1,444,020 1,726,575 2,098,808
Sales and marketing..................... 5,972,423 6,520,536 6,148,200 6,854,571
Research and development................ 1,853,963 2,277,450 2,715,790 2,730,452
General and administrative.............. 3,362,785 3,419,835 3,651,843 4,010,154
Amortization of intangibles............. 1,139,829 1,139,829 1,178,580 1,157,269
Warrant and stock compensation
expense............................... 1,064,763 858,721 569,478 269,476
----------- ----------- ----------- -----------
Total costs and expenses.............. 27,916,244 30,027,777 29,850,461 30,684,633
----------- ----------- ----------- -----------
Operating income (loss)................... (2,438,057) (1,949,689) 711,320 785,745
Other income (expense).................... (449,811) (659,892) (193,379) 862,157
----------- ----------- ----------- -----------
Net income (loss)......................... $(2,887,868) $(2,609,581) $ 517,941 $ 1,647,902
=========== =========== =========== ===========
Net income (loss) per common
share--basic............................ $ (0.18) $ (0.16) $ 0.02 $ 0.04
=========== =========== =========== ===========
Net income (loss) per common
share--diluted.......................... $ (0.18) $ (0.16) $ 0.01 $ 0.04
=========== =========== =========== ===========
63
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item concerning directors of the Company is
incorporated herein by reference from the section entitled "Election of
Directors--Directors of the Company" included in the Company's definitive Proxy
Statement for the 2001 Annual Meeting of Stockholders, which will be filed with
the Securities and Exchange Commission within 120 days of the Company's fiscal
year end (the "2001 Proxy Statement"). The information required by this Item
concerning executive officers of the Company is included in Part I of this
Annual Report on Form 10-K under the section captioned "Executive Officers". The
information required by this Item concerning compliance with Section 16(a) of
the Securities Exchange Act of 1934, as amended, is incorporated herein by
reference from the section entitled "Section 16(a) Beneficial Ownership
Reporting Compliance" included in the 2001 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference
from the sections entitled "Election of Directors--Compensation Committee
Interlocks and Insider Participation", "Election of Directors--Compensation of
Directors", "Executive Compensation", and "Executive Compensation--Employment
Agreements" included in the 2001 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference
from the section entitled "Beneficial Ownership of Voting Stock" included in the
2001 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference
from the section entitled "Executive Compensation--Employment Agreements" and
"--Certain Transactions" in the 2001 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1)FINANCIAL STATEMENTS
The consolidated financial statements filed as a part of this Annual Report
on Form 10-K are listed on the Index to Consolidated Financial Statements under
Item 8, which Index to Consolidated Financial Statements is incorporated herein
by reference.
(a)(2)FINANCIAL STATEMENT SCHEDULES
All schedules to the consolidated financial statements are omitted because
they are not applicable, not required, or the information required is included
in the financial statements or notes thereto.
(a)(3)EXHIBITS
The Exhibits filed as part of this Annual Report on Form 10-K are listed on
the Exhibit Index immediately preceding such Exhibits, which Exhibit Index is
incorporated herein by reference.
64
Documents listed on such Exhibit Index, except for documents identified by
footnotes, are being filed as exhibits herewith. Documents identified by
footnotes are not being filed herewith and, pursuant to Rule 12b-32 under the
Securities Exchange Act of 1934, reference is made to such documents as
previously filed as exhibits with the Securities and Exchange Commission.
(a)(4)REPORTS ON FORM 8-K
The Company did not file a current report on Form 8-K during the fourth
quarter of the fiscal year ended December 31, 2000.
65
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2001.
EXE TECHNOLOGIES, INC.
By: /s/ MICHAEL A. BURSTEIN
-----------------------------------------
Michael A. Burstein
SENIOR VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ LYLE A. BAACK
------------------------------------------- Chairman of the Board of March 29, 2001
Lyle A. Baack Directors
Chief Executive Officer,
/s/ RAYMOND R. HOOD President and Director
------------------------------------------- (Principal Executive March 29, 2001
Raymond R. Hood Officer)
Senior Vice President,
/s/ MICHAEL A. BURSTEIN Finance, Chief Financial
------------------------------------------- Officer and Treasurer March 29, 2001
Michael A. Burstein (Principal Financial and
Accounting Officer)
/s/ ADAM C. BELSKY
------------------------------------------- Director March 29, 2001
Adam C. Belsky
/s/ KLAUS P. BESIER
------------------------------------------- Director March 29, 2001
Klaus P. Besier
/s/ GREGORY A. BRADY
------------------------------------------- Director March 29, 2001
Gregory A. Brady
/s/ J. MICHAEL CLINE
------------------------------------------- Director March 29, 2001
J. Michael Cline
/s/ STEVEN A. DENNING
------------------------------------------- Director March 29, 2001
Steven A. Denning
66
SIGNATURE TITLE DATE
--------- ----- ----
/s/ MICHAEL J. DURHAM
------------------------------------------- Director March 29, 2001
Michael J. Durham
/s/ JAY C. HOAG
------------------------------------------- Director March 29, 2001
Jay C. Hoag
/s/ JEFFREY R. RODEK
------------------------------------------- Director March 29, 2001
Jeffrey R. Rodek
67
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3.1(2) Second Amended and Restated Certificate of Incorporation of
the Company.
3.2(2) Amended and Restated By-laws of the Company.
9.1(1) Voting Trust Agreement, dated December 9, 1999, by and
between Marianne T. Shada Hood and Raymond Hood.
10.1(1)(+) Amended and Restated EXE Technologies, Inc. 1997 Incentive
and Non-Qualified Stock Option Plan.
10.2(1)(+) EXE Technologies, Inc. Amended and Restated Stock Option
Plan for Non-Employee Directors.
10.3a(1)(+) Employment Agreement, dated November 18, 1996, by and
between Neptune Systems, Inc. and David E. Alcala, as
amended as of September 11, 1997.
10.3b(1)(+) Acknowledgement, dated January 5, 2000, by and between the
Company and David E. Alcala.
10.4(+) Amended and Restated Employment Agreement, dated as of
October 18, 2000, by and between the Company and Mark R.
Weaser.
10.5(1)(+) Employment Agreement, dated as of July 13, 1998, by and
between the Company and Christopher F. Wright.
10.6(1)(+) Employment Agreement, dated July 1, 2000, by and between the
Company and Raymond R. Hood.
10.7+ Promissory Note, issued by Raymond R. Hood in favor of the
Company, dated November 16, 2000.
10.8+ Pledge Agreement, dated November 16, 2000, by and between
the Company and Raymond R. Hood.
10.9+ Employment Agreement, dated July 2, 1999, by and between the
Company and Richard J. Sherman.
10.10+ Employment Letter, dated December 4, 1999, by and between
the Company and Frederick S. Gattelaro.
10.11+ Employment Agreement, dated as of August 9, 1999, by and
between the Company and Michael A. Burstein.
10.12+ Promissory Note, issued by Michael A. Burstein in favor of
the Company, dated October 27, 2000.
10.13+ Pledge Agreement, dated October 27, 2000, by and between the
Company and Michael A. Burstein.
10.14a(1) Office Lease, dated May 18, 1999, by and between the Company
and BLI-8787, Ltd, as amended by letter agreement dated
February 22, 2000.
10.14b(1) Sublease Agreement and Consent to Sublease, dated
November 11, 1999, by and between the Company and Fritz
Companies, Inc.
10.15a(1) Office Lease, dated April 3, 1995, by and between Neptune
Systems, Inc. and Baldwin Towers Associates, L.P., as
amended on July 6, 1995, June 17, 1996, June 26, 1996,
October 29, 1996, November 27, 1996, March 25, 1997,
March 23, 1998 and November 8, 1999.
10.15b Amendment to Office Lease, dated May 17, 2000, by and
between the Company and Baldwin Office Associates, L.P.
10.16(1) Letter Agreement, dated October 7, 1999, by and between the
Company and LAB Holdings, Inc.
68
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.17(1) Second Amended and Restated Registration Rights Agreement,
dated as of September 29, 1999, by and among the Company,
General Atlantic Partners 57, L.P., General Atlantic
Partners 41, L.P., GAP Coinvestment Partners, L.P., GAP
Coinvestment Partners II, L.P., MSD 1998 GRAT #6, Triple
Marlin Investments, LLC, Rothko Investments, LLC, MSD
Portfolio L.P.--Investments, TCV III (Q), L.P., TCV III
Strategic Partners, L.P., TCV III, L.P., TCV III (GP) and
the stockholders named therein.
10.18 Form of Indemnification Agreement, by and between the
Company and certain directors of the Company.
10.19 Form of Indemnification Agreement, by and between the
Company and certain executive officers of the Company.
21.1 Schedule of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP, independent auditors of the
Company.
- ------------------------
(1) Incorporated herein by reference to the Company's registration statement on
Form S-1 (File No. 333-35106).
(2) Incorporated herein by reference to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 2000.
(+) Management contract or compensation plan or arrangement required to be
filed as an exhibit pursuant to Items 14(a) and 14(c) of Form 10-K.
69