SAGENT TECHNOLOGY INC - 10-Q Quarterly Report

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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES ¨ NO x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of May 12, 2003, Registrant had 46,423,512 shares of common stock issued and outstanding.

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

We were incorporated in California in April 1995 under the name Savant Software, Inc. In June 1995, we changed our name to Sagent Technology, Inc. In September 1998, we reincorporated in Delaware. References in this quarterly report to “Sagent,” “we,” “our” and “us” refer to Sagent Technology, Inc. and its subsidiaries, unless the context otherwise requires.

The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures, normally included in financial statements prepared in accordance with generally accepted accounting principles, have been condensed or omitted pursuant to such rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the Company’s financial position at March 31, 2003 and December 31, 2002, and the operating results and cash flows for the three months ended March 31, 2003 and 2002. These condensed consolidated financial statements and notes should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2002, included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 17, 2003. The results of operations for the three months ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets, and liquidation of liabilities and commitments in the normal course of business. We have incurred significant losses, including a net loss of $4.6 million for the three months ended March 31, 2003 and $22.2 million for the twelve months ended December 31, 2002. As of March 31, 2003, we have an accumulated deficit of $134.0 million and a working capital deficit of $8.5 million. These matters raise substantial doubt about our ability to continue as a going concern. On April 15, 2003, we entered into an Asset Purchase Agreement with Group I Software (see details in Note 11 Sale of Assets – Plan of Liquidation). There can be no assurance that these efforts will be successful. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The consolidated financial statements include the accounts of Sagent Technology, Inc., its majority owned subsidiary Sagent Asia/Pacific Pte Ltd., and its wholly owned subsidiaries, Qualitative Marketing Software, Inc. (QMS), Sagent U.K., Ltd., Sagent Technology GmbH, Sagent France, S.A., Sagent Technology Japan KK, Sagent Benelux, Sagent Australia Pty Ltd, Sagent de Brazil, and Sagent de Mexico. All significant intercompany accounts and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Examples of such estimates include, but are not limited to, the accounting for litigation contingencies and the allowance for doubtful accounts, goodwill impairments, restructuring costs and related charges, and income taxes. Our current estimated range of loss related to some of the pending litigation is based on claims for which we can estimate the amount and range of loss. In addition, we also analyze current accounts receivable for an allowance for doubtful accounts based on historical bad debt, customer credit-worthiness, the current business environment and historical experience with the customer. The allowance includes specific reserves for accounts where collection is deemed to be no longer probable. Actual results could differ from those estimates.

Restricted cash as of March 31, 2003 consists of $775 in stand by letter of credits issued as a guarantee of payment against certain of our lease agreements and $100 held in escrow to fulfill terms of a contractual agreement. The $775 stand by letter of credit expires on August 31, 2003.

Financial instruments that potentially subject us to concentrations of credit risk are comprised principally of cash and cash equivalents and trade accounts receivable. We invest excess cash through banks, primarily in highly liquid securities, and have investment policies and procedures that are reviewed periodically to minimize credit risk.

With respect to accounts receivable, we perform ongoing credit evaluations of our customers and generally do not require collateral. We maintain reserves for potential credit losses on customer accounts when deemed necessary. Actual credit losses to date have been within management’s expectations. At March 31, 2003 and December 31, 2002, no customer accounted for more than 10% of accounts receivable. No customer accounted for more than 10% of revenue for the three months ended March 31, 2003 or 2002.

Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired in business combinations. Prior to January 2002, we amortized goodwill on a straight-line basis over its expected useful life ranging from one to five years.

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 142 requires goodwill to be tested for impairment on an annual basis and between annual tests in certain circumstances and written down when impaired, rather than being amortized as previous accounting standards required. There was no impairment of goodwill recorded in the three months ended March 31, 2003 and 2002, respectively.

Long-lived assets and other identifiable assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Factors considered important which could trigger an impairment review include, but are not limited to, economic and industry trends, changes in our strategies in sales and marketing and research and development, changes in projected future operating results, changes in the mode of operations, the exit from facilities and significant declines in our stock price for an extended period time. When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators, impairment is measured based on a projected discounted cash flow method using a discount rate commensurate with the risk inherent in our current business model.

We license software products directly to our customers and through channel partners such as independent software vendors, resellers and distributors. Independent software vendors generally integrate our products with their applications or resell them with their products. Our other channel partners, principally resellers and distributors, sell our software products to end user customers.

We derive revenue from license fees for software products and fees for services relating to the software products, including consulting, training, software and data updates and technical support.

We recognize revenue in accordance with Statement of Position 97-2, “Software Revenue Recognition” (SOP 97-2), as amended by SOP 98-4 and 98-9 and generally recognize revenue when all of the following criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred, 3) the fee is fixed or determinable, and 4) collectibility is probable. We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists—It is our customary practice to have a written contract, which is signed by both the customer and us, or a purchase order from those customers that have previously negotiated a standard end-user license arrangement or original equipment manufacturer (OEM) arrangement, prior to recognizing revenue on an arrangement.

Delivery has occurred—Our software may be either physically or electronically delivered to the customer. For those products that we deliver physically, our standard transfer terms are FOB shipping point. For an electronic delivery of software, delivery is considered to have occurred when the customer has been provided with the access codes that allow the customer to take immediate possession of the software. If undelivered products or services exist in an arrangement that are essential to the functionality of the delivered product, delivery is not considered to have occurred until these products or services are delivered.

The fee is fixed or determinable—The fee our customers pay for products is negotiated at the outset of an arrangement. Arrangement fees are generally due within six months or less. Arrangements with payment terms extending beyond these customary payments terms are considered neither to be fixed nor determinable, and revenue from such arrangements is recognized as payments become due and payable.

Collectibility is probable—Collectibility is assessed on a customer-by-customer basis. We assess collectibility based on a number of factors, including past transaction history with the customers and their credit worthiness. New customers are subjected to a credit review process, which evaluates the customer’s financial position and ultimately their ability to pay. We obtain and review credit reports from the third-party credit reporting agencies for new customers with which we are not familiar. If we determine that collection of a fee is not probable, we defer the fee and recognize revenue at the time collection becomes probable, which is generally upon receipt of cash. The determination regarding the probability of collection

ultimately relies on management judgment. If changes in conditions cause management to determine that this criteria is not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

Revenue for transactions with enterprise application vendors, OEMs, and distributors is generally recognized when the licenses are resold or utilized by the reseller and all related obligations on our part have been satisfied. However, if the contract stipulates a non-refundable royalty payment to be paid in advance of any resale, revenue is recognized upon execution of the contract, provided all other revenue recognition criteria have been met. We report the revenue generated through distributors on a gross basis only if we act as the principal in the transaction and assume the risks and rewards of ownership, such as the risk of loss for collection, delivery and returns. In these cases we reflect the distributors’ fees under sales and marketing expenses. If the above conditions do not exist, we record revenue based on the net amount retained (that is, the amount billed to the customer less the amount paid to the distributor.)

We allocate revenue on software arrangements involving multiple elements to the delivered element using the residual method. Our determination of fair value of the undelivered elements in multiple-element arrangements is based on vendor-specific objective evidence (VSOE). We sell our data and professional services separately, and have established VSOE of fair value on this basis. We have established VSOE of fair value for maintenance services for arrangements less than $1 million through selling such services separately. VSOE of fair value for maintenance services for arrangements greater than $1 million is determined based upon the customer’s contractual annual renewal rates. Accordingly, assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery using the residual method in accordance with SOP 98-9, and revenue from data, maintenance and professional services are recognized ratably over their respective terms.

We usually license software products on a perpetual basis. If vendor specific objective evidence does not exist to allocate the total fee to all delivered and undelivered elements of the arrangement, revenue is deferred until the earlier of a) when such evidence does exist for the undelivered elements, or b) when all elements are delivered.

Our customers may require consulting and implementation services which include evaluating their business needs, identifying the data sources necessary to meet these needs and installing the software solution in a manner that fulfills their needs. When licenses are sold together with consulting and implementation services, license fees are recognized upon shipment, provided that a) the above revenue recognition criteria are met, b) payment of the license fees is not dependent upon performance of the consulting services, c) the services do not include significant alterations to the features and functionality of the software and d) VSOE of services has been established as discussed above. To date, services have not been essential to the functionality of the software products for substantially all software agreements.

Maintenance contracts generally call for us to provide technical support and software updates and upgrades to customers. Maintenance revenue is recognized ratably over the term of the maintenance contract, generally on a straight-line basis when all revenue recognition requirements are met. Other service revenue, primarily training and consulting, is generally recognized at the time the service is performed and when it is determined that we have fulfilled our obligations resulting from the service contract.

Deferred revenue represents amounts invoiced to customers under certain license, maintenance and service agreements for which the revenue earnings process has not been completed.

Development costs incurred in the research and development of new software products and enhancements to existing software products are expensed as incurred until technological feasibility in the form of a working model has been established. To date, capitalized costs for our software development have not been material.

We account for stock awards issued to employees in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”) “Accounting for Stock Issued to Employees” as interpreted by FIN 44 “Accounting for Certain Transactions Involving Stock Compensation” and comply with the disclosure provisions of FASB Statement No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation”. Under APB 25, compensation expense is based on the difference, if any, on the date of the grant, between the fair value of our stock and the exercise price of the award. Stock compensation is being amortized over the vesting period on a straight-line basis. In addition, we account for stock issued to non-employees in accordance with the provisions of SFAS 123. Pursuant to SFAS 123, stock-based compensation is accounted for at the fair value of the equity instruments issued, or at the fair value of the consideration received, whichever is more reliably measurable.

Had compensation cost for our stock-based compensation awards been determined using the fair value under SFAS 123 as calculated using the Black-Scholes option pricing model, our net loss and basic and diluted net loss per share would have been increased to the pro forma amounts indicated below:

The assumptions used for the three months ended March 31, 2003 and 2002, respectively, and the resulting estimates of weighted-average fair value per share of options granted during those periods are as follows:

We use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. We record a valuation allowance to reduce the net tax asset to an amount for which realization is more likely than not. We have recorded a valuation allowance for substantially all of our deferred tax assets, except to the extent of deferred tax liabilities, as we are presently unable to conclude that it is more likely than not that net deferred tax assets will be realized.

We enter into standard indemnification provisions within our software license agreements with our customers and technology partners. Pursuant to these provisions, we typically indemnify, defend and hold harmless the indemnified party for losses suffered or incurred by the indemnified party in connection with any U.S. patent, copyright or other intellectual property infringement claim by any third party with respect to our products. The term of these indemnification provisions is generally perpetual any time after execution of the license agreement. The maximum potential amount of future payments that we could be required to make under these indemnification provisions is unlimited. We have, in the past, incurred costs to defend intellectual property lawsuits.

We generally warrant that our software products will perform in all material respects in accordance with our standard published specifications. Historically, costs related to this warranty have not been significant.

We have agreements in place with our directors and officers whereby we indemnify them for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have a director and officer insurance policy, which may enable us to recover a portion of any future amounts paid.

Basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding, net of shares subject to repurchase during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and common equivalent shares outstanding during the period. Options, warrants and restricted stock were not included in the computation of diluted net loss per share because the effect would be anti-dilutive.

Comprehensive income (loss) is the total of net income (loss) and all other revenue, expenses, gains and losses recorded directly in equity. Our “Other comprehensive income (loss)” consists primarily of foreign currency translation adjustments. There was no significant tax effect on the components of other comprehensive loss for the three months ended March 31, 2003 and 2002, respectively.

Included in prepaid licenses are licensed technologies purchased from third parties, which are integrated into our products prior to deployment. These licensed technologies are being amortized ratably to cost of revenue over the term of the license, generally for a period of two to five years on either a per unit or straight-line basis.

The deferred charges of $669 as of December 31, 2002 related to closing and legal fees incurred in connection with short-term debt financing. For the period ended March 31, 2003, we recognized $669 interest expense resulting from the change in the nature of this short-term debt (see Note 7 for details), which is included in interest income (expense), net in the unaudited condensed consolidated statements of operations.

On October 24, 2002, we entered into an agreement with CDC Software Corporation (CDC), a wholly owned subsidiary of chinadotcom corporation (NASDAQ: CHINA), to obtain secured loans of $7 million in the aggregate. The loans bear interest at the rate of 12% per annum, payable quarterly in arrears. The principal amount of each loan was payable in full two years after the date such loan was made. The loans were secured by all of our assets, both tangible and intangible. As part of this agreement, CDC was entitled to receive warrants to purchase 8 million shares of our common stock at a price of $0.10 per share as the loan was funded. In addition, certain financial advisors also received warrants to purchase an aggregate of 400,000 shares of our common stock at $0.10 per share.

On October 31, 2002, Sagent and CDC closed on the first $5 million of the total loan facility. The net proceeds to us from the $5 million loan, after payment of expenses, were approximately $4.6 million. In connection with this loan, we issued CDC Software warrants to purchase 5.7 million shares of our common stock at a price of $0.10 per share. The estimated fair value of the warrants of $1.2 million was being charged to interest expense over the term of the loan using the effective interest method. The principal amount of the loan was payable in full on October 31, 2004.

On December 31, 2002, Sagent and CDC closed on the remaining $2 million of the total loan facility and we received net proceeds of $2 million. In connection with this loan, we issued CDC warrants to purchase 2.3 million shares of our common stock at a price of $0.10 per share. The estimated fair value of the warrants of $0.7 million was being charged to interest expense over the term of the loan using the effective interest method. The principal amount of the loan was payable in full on December 30, 2004.

On March 19, 2003, we received a notice from CDC declaring that an event of default had occurred under agreements relating to the secured loans totaling $7 million made by CDC to us in the fourth quarter of 2002. CDC declared the entire principal amount under the loans to be immediately due and payable, and asserted control over our bank deposit accounts. On March 20, 2003, CDC caused approximately $4.6 million that was in our deposit accounts to be transferred to a CDC bank account in Hong Kong. CDC also filed a complaint against us asserting claims for, among other things, breach of contract and negligent misrepresentation, in connection with the loan agreement in the U.S. District Court for the Northern District of California.

We disputed that an event of default existed under the loans, and averred that we were current in payments of interest under the loans, and that no principal payments were due under the loans prior to

October 24, 2004. We filed our own complaint asserting claims for breach of contract and conversion in the Santa Clara County Superior Court, and sought injunctive relief. Thereafter, CDC removed that action to federal court. On April 4, 2003, the parties entered into a settlement agreement by which CDC would be permitted to retain the funds transferred to Hong Kong on March 20, 2003 and we agreed to pay the remaining amounts due plus interest, and to pay $500 to CDC in exchange for all 8 million warrants held by CDC and for CDC’s expenses. On April 15, 2003, using funds derived from a secured bridge financing from Group 1 Software, Inc., we paid the amounts due under the settlement agreement. Under the terms of the settlement agreement, Sagent and CDC were to each dismiss their lawsuits. On April 18, 2003, both parties dismissed their lawsuits.

For the period ended March 31, 2003, we incurred interest expense of $2,642, which is included in the unaudited condensed consolidated statements of operations. This interest expense includes interest payable under the secured loans, the accretion of the loan discount attributable to the fair value of the related warrants and the amortization of deferred debt-offering charges.

From time to time, we have been subject to litigation including the pending litigation described below. Because of the uncertainties related to both the amount and range of loss on the pending litigation, management is unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess its potential liability and revise our estimates. Pending or future litigation could be costly, could cause the diversion of management’s attention and could upon resolution, have a material adverse affect on our business, result of operations, financial condition and cash flow.

In addition, we are engaged in certain legal and administrative proceedings incidental to our normal business activities and believe that these matters will not have a material adverse effect on our financial position, result of operations or cash flow.

From October 20, 2000 to November 27, 2000, several class action lawsuits were filed in the United States District Court for the Northern District of California on behalf of purchasers of our common stock between October 21, 1999 and April 18, 2000. The parties have settled the lawsuit. Our $5.5 million contribution to the settlement was funded by our directors’ and officers’ insurance carriers. The Court approved the settlement on April 28, 2003.

On November 17, 2000, a derivative lawsuit was filed by a purported Company shareholder in the Superior Court of California for the County of San Mateo (the “Fanucci Complaint”). On February 9, 2001, a second derivative lawsuit was filed in the Superior Court of California for the County of Santa Clara (the “Hu Complaint”). The complaints name certain of our present and former officers and directors as defendants, and our Company as a nominal defendant. The Hu Complaint also names an investment bank retained by us and an employee of that investment bank as defendants. The principal allegation of the complaints is that the defendants breached their fiduciary duties to our Company through the dissemination of allegedly misleading and inaccurate information in 1999-2000. In July 2001, the two cases were coordinated for pretrial purposes in the Superior Court of California for the County of Santa Clara. We filed a motion to dismiss the complaints, on the grounds that, among other things, the plaintiffs had failed to make a pre-suit demand on the board of directors as required by Delaware law. The officer and director defendants joined in the motions to dismiss, and also filed a motion to dismiss on the grounds that the complaint fails to allege the asserted causes of action against the individual defendants. Thereafter, the parties agreed to stay the Hu Complaint indefinitely, pending the outcome of the Fanucci matter.

On March 1, 2002, the court issued an order in the Fanucci case sustaining our motion to dismiss and granting the plaintiff leave to amend the complaint. The Fanucci plaintiff filed an amended complaint on April 2, 2002. The individual defendants and we each filed motions to dismiss to that complaint. The Court sustained the motion to dismiss, with leave to amend. The plaintiff filed an amended complaint on

November 15, 2002; the defendants file motions to dismiss on the same grounds as those identified in their prior motions. The demurrer hearing is scheduled for June 3, 2003.

In October 2001, infoUSA, Inc. filed a complaint against us in the District Court of Douglas County, Nebraska, seeking amounts infoUSA claims are owed under a license agreement between Sagent and infoUSA. The amount of the claim is $900,000, plus interest. A default judgment for the full amount of the claim was entered against us on December 20, 2001, for failure by us to respond to the initial complaint. We filed a motion to set aside the default judgment in January 2002. On February 22, 2002, the court granted our motion to set aside the default judgment, and allowed us to file its answer to the complaint. The parties entered into a Settlement and Mutual Release Agreement effective January 20, 2003. The Settlement Agreement calls for us to pay $700,000 to infoUSA in full settlement of all claims, at which time the lawsuit will be dismissed. As of March 31, 2003, the remaining payout of $550,000 was included in accounts payable in the condensed consolidated financial statements. In accordance with the agreement, we paid $150,000 in January 2003 and will pay $137,500 quarterly through December 31, 2003.

In November and December 2001, several class action lawsuits were filed in the United States District Court for the Northern District of California on behalf of purchasers of our stock between May 11, 2001 and November 28, 2001. The complaints alleged that we and certain of our officers and directors violated the Securities Exchange Act of 1934 in connection with our restatement of our condensed consolidated financial statements for the first and second quarters of 2001, resulting from a fraud scheme perpetrated on us by a former employee who falsely claimed to have made sales of our products to the federal government. A consolidated complaint was filed in April 2002, and on September 11, 2002, the court dismissed the complaint with leave to amend. Thereafter, on October 16, 2002, the plaintiffs filed a notice of their intent to stand on the complaint, without further amendment.

Beginning in February 2002, three derivative lawsuits were filed by purported Company shareholders in the United States District Court for the Northern District of California. The complaints name certain of our present and former officers and directors as defendants. The complaints allege that the defendants breached their fiduciary duties to us through the dissemination of allegedly misleading and inaccurate information. The plaintiffs filed a consolidated complaint on August 26, 2002. The defendants moved to dismiss that complaint on October 10, 2002. No order has yet been issued.

Following its investigation of the circumstances that lead to the restatement of our financial statements for the first and second quarters of 2001, and the revision of our condensed consolidated financial statements for the third quarter of 2001; we entered the Department of Defense’s (“DOD”) Voluntary Disclosure Program. On June 7, 2002, we filed with the DOD a report of our investigation which revealed that a single non-officer employee was solely responsible for submitting false documents to us which purportedly showed that we had entered into contracts with the federal government, and that we had unwittingly submitted requests for payment to U.S. government agencies not knowing that the employee had fabricated those contracts in order to defraud us of various payments and benefits including commission payments.

In March 2002, we filed suit against MICROS Systems, Inc. (“MICROS”) in Santa Clara County California alleging that MICROS had breached a contract to purchase from us certain software and a related service agreement. The value of that contract is $136,000. MICROS removed the case to the United States District Court for the Northern District of California and the case was subsequently transferred to the United States District Court for the District of Maryland, where it is currently pending. MICROS has asserted a counterclaim against us, alleging various torts and breaches of duties. MICROS’ counterclaim seeks in excess of $1 million in damages. The parties have filed motions for summary judgment that are briefed and waiting for a hearing date. After these motions are decided, the remainder of the case will be set for trial.

In early 2000, we entered into a software license agreement with Mountain Energy Corporation (“MEC”). MEC filed for bankruptcy in October 2000. We recently received a letter from the MEC bankruptcy trustee alleging that we had recently received certain preferential payments and demanding that we disgorge those payments. The amount in controversy is approximately $1,040,000. The range of this probable loss contingency is estimated to be between $62,500 and $937,500. As of March 31, 2003 and December 31, 2002, we accrued an amount which represents management’s best estimate pursuant to the provisions of SFAS No. 5 “Accrual of Loss Contingencies”.

In late 1999, we entered into a software license agreement with Convergent Communications Services, Inc. (“CCS”). CCS filed for bankruptcy in April 19, 2001. We recently received a letter from the CCS bankruptcy trustee on April 17, 2003 alleging that we had recently received certain preferential payments and demanding that we disgorge those payments. The amount in controversy is approximately $115,000.

In December 2001, we implemented a restructuring plan aimed at streamlining the underlying cost structure to better position us for growth and improved operating results. As part of the restructuring plan, we consolidated our Florida facility and implemented a reduction in workforce of approximately 14% or 51 employees and contractors through March 31, 2002.

During the second quarter of 2002, we implemented a new restructuring plan, which was executed during the remainder of 2002. The major element of the restructuring plan was to terminate certain employees; as a result, we had a reduction in force of approximately 36% or 94 employees. The reductions came from all areas of our Company, and the terminations were substantially completed by December 31, 2002. Our Chief Executive Officer and President, our Executive Vice President—Sales, and Chief Marketing Officer stepped down as part of this restructuring. Further, we decided to proceed with closing several domestic sales offices and international sales offices in Brazil, Mexico and the Netherlands. We also discontinued our marketing services business due to changes in our strategy. The purpose of the restructuring was to bring operating expenses in line with net revenues with the goal of achieving cash flow breakeven in the near future and strategically focusing our Company on its core business. The restructuring was substantially completed during 2002.

As of March 31, 2003, the remaining restructuring accrual is summarized as follow:

Non-cash charge of $143 represented application of the remaining unpaid severance benefit of a former Chief Executive Officer against his loan balance in accordance with his separation agreement made in August of 2002. We expect to pay the remaining accrual balance, primary related to the vacated leases within the next several quarters.

In August 2000, we entered into an employment agreement with our former President and Chief Executive Officer (the Executive). Under the employment agreement he received, among other things two loans:

The Executive’s employment with our Company terminated effective August 31, 2002. As part of the separation agreement with the Executive, salary and bonus amounts due to him were used to pay down a portion of the loan. The loan is due in August 2005 and is included in notes receivable from officers on the unaudited condensed consolidated balance sheets as of March 31, 2003 and December 31, 2002, at the estimated recoverable value.

For the three months ended March 31, 2003, we recognized revenue of $7 from services provided to an entity for which a member of our Board of Directors is a former officer.

On April 15, 2003, we entered into an Asset Purchase Agreement with Group 1 Software, Inc. Subject to the terms and conditions of the Asset Purchase Agreement, Group 1 will pay us up to $17 million, in exchange for substantially all of our assets, including all intellectual property, accounts receivable, cash on hand, certain contracts, property & equipment and other designated assets, and the assumption of specified liabilities. The purchase price of $17 million is payable through the cancellation of the secured bridge loans referred to below, with the remainder to be paid in cash. The purchase price of $17 million may be reduced, based on changes in the value of the acquired assets and assumed liabilities prior to the closing.

Group 1 had a period of time to complete their due diligence review of our assets and liabilities, after which Group 1’s board of directors considered the Asset Purchase Agreement for approval. On May 7, 2003, Group 1’s board of directors approved the Asset Purchase Agreement.

Subject to approval by our stockholders and satisfaction of the other closing conditions set forth in the Asset Purchase Agreement, we expect that the sale of assets will be consummated near the end of the second calendar quarter of 2003 or early in the third calendar quarter of 2003. After the closing of the sale of assets, and following the expiration of our indemnity obligations four months after the closing, we will, subject to approval by our stockholders, wind up our operating business, effect a complete liquidation and dissolution of the Company, and distribute any remaining cash to our stockholders. We expect to complete the liquidation and final distribution prior to the end of the current calendar year.

Concurrent with the signing of the Asset Purchase Agreement, Group 1 provided us with $5 million in bridge financing, secured by all of our assets. Of that amount, approximately $3.1 million was used to pay all amounts owed to CDC Software Corporation under a settlement agreement. Under the terms of the bridge financing, Group 1 has agreed to lend us an additional $2 million after the Asset Purchase Agreement is approved by Group 1’s board of directors. On May 7, 2003, Group 1’s board of directors approved the Asset Purchase Agreement. We are scheduled to receive the additional $2 million from Group 1 on May 15, 2003.

On March 17, 2003 our Board approved the acquisition of the remaining 47% interest in Sagent Asia/Pacific Pte. Ltd. for a total purchase price of $300 plus the forgiveness of intercompany balances. The transaction was completed on April 1, 2003 and will be accounted for in the second calendar quarter of 2003.

The following discussion and analysis contains “forward-looking statements” that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are generally preceded by words that imply a future state such as “expected” or “anticipated” or imply that a particular future event or events will occur such as “will.” Investors are cautioned that all forward-looking statements involve risks and uncertainties, and that actual results could be materially different from those discussed in this report. The section below entitled “Risk Factors” and similar discussions in our other SEC reports filed with the SEC discuss some of the important risk factors that may affect our business, results of operations and financial condition. Copies of our reports filed with the SEC are available from us without charge and on the SEC’s website at www.sec.gov. You should carefully consider those risks, in addition to the other information in this report and in our other filings with the SEC, before deciding to invest in our company or to maintain or increase your investment. You should not place undue reliance on our forward-looking statements, as they are not guarantees of future results, levels of activity or performance and represent our expectations only as of the date they are made.

We offer a business intelligence software platform that allows business users and information technology (IT) departments to work together to integrate, analyze, deliver and understand information. Our technology and implementation methodology reduce the time and expense required to deploy business intelligence solutions. We develop, market, and support products and services that help businesses collect, analyze, understand, and act on customer and operational information both in batch and in real-time. Our products and services provide a way for an organization’s employees, customers, and partners to use the Internet to examine the internal data they already have and to supplement that data with external, value-added information such as demographic, geographic, or other content and data feeds.

On April 15, 2003, we entered into an Asset Purchase Agreement with Group 1 Software, Inc. Subject to the terms and conditions of the Asset Purchase Agreement, Group 1 will pay us up to $17 million, in exchange for substantially all of our assets, including all intellectual property, accounts receivable, cash on hand, certain contracts, property and equipment and other designated assets, and the assumption of specified liabilities. The purchase price of $17 million is payable through the cancellation of the secured bridge loans referred to below, with the remainder to be paid in cash. The purchase price of $17 million may be reduced based on changes in the value of the acquired assets and assumed liabilities prior to the closing.

Group 1 had a period of time to complete their due diligence review of our assets and liabilities, after which Group 1’s board of directors considered the Asset Purchase Agreement for approval. On May 7, 2003 Group 1’s board of directors approved the Asset Purchase Agreement .

Concurrent with the signing of the Asset Purchase Agreement, Group 1 provided us with $5 million in bridge financing, secured by all of our assets. Of that amount, approximately $3.1 million was used to pay all amounts owed to CDC under a settlement agreement. Under the terms of the bridge financing, Group 1 has agreed to lend us an additional $2 million after the Asset Purchase Agreement is approved by Group 1’s board of directors. On May 7, 2003, Group 1’s board of directors approved the Asset Purchase Agreement. We are scheduled to receive the additional $2 million from Group 1 on May 15, 2003.

In October 2002, we entered into an agreement with CDC to obtain secured loans of up to $7 million in the aggregate. As part of this agreement, CDC was entitled to receive warrants to purchase 8 million shares of our common stock at a price of $0.10 per share as the loan was funded. In addition, certain financial advisors also received warrants to purchase an aggregate of 400,000 shares of our common stock at $0.10 per share. As of December 31, 2002, we had closed on all $7 million of the loan facility. The net proceeds to us, after payment of expenses, were approximately $6.6 million.

On March 19, 2003, we received a notice from CDC declaring that an event of default had occurred under the loan agreements. CDC declared the entire principal amount under the loans to be immediately due and payable, and asserted control over our bank deposit accounts. On March 20, 2003, CDC caused approximately $4.6 million that was in our deposit accounts to be transferred to a bank account in Hong Kong. We disputed that an event of default existed under the loans. On April 4, 2003, the parties entered into a settlement agreement by which CDC would be permitted to retain the funds transferred to Hong Kong on March 20, 2003 and we agreed to pay the remaining amounts due plus interest, and to pay $500 to CDC in exchange for all 8 million warrants and for CDC’s expenses. On April 15, 2003, using funds derived from a new secured bridge financing from Group 1 Software, Inc., we paid the amounts due under the settlement agreement. Under the terms of the settlement agreement, Sagent and CDC were to each dismiss their lawsuits. On April 18, 2003, both parties dismissed their lawsuits.

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments (reference to note 1—basis of presentation) that affect the reported amount of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of long-lived assets, intangible assets and goodwill and contingent liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements:

We discuss these policies further below, as well as the estimates and judgments involved.

We derive our revenue from license fees for software products and fees for services relating to the software products, including consulting, training, software and data updates and technical support.

We recognize revenue in accordance with Statement of Position 97-2 Software Revenue Recognition (SOP 97-2), as amended by SOP 98-4 and 98-9 and generally recognize revenue when all of the following criteria are met: 1) persuasive evidence of an arrangement exists, 2) delivery has occurred, 3) the fee is fixed or determinable, and 4) collectibility is probable. We define each of the four criteria above as follows:

Persuasive evidence of an arrangement exists—It is our customary practice to have a written contract, which is signed by both the customer and Sagent, or a purchase order from those customers that have previously negotiated a standard end-user license arrangement, or original equipment manufacturers (OEM) arrangement, prior to recognizing revenue on an arrangement.

arrangements is based on vendor-specific objective evidence (VSOE). We sell our data and professional services separately, and have established VSOE of fair value on this basis. We have established VSOE of fair value for maintenance services for arrangements less than $1 million through selling such services separately. VSOE of fair value for maintenance services for arrangements greater than $1 million is determined based upon the customer’s contractual annual renewal rates. Accordingly, assuming all other revenue recognition criteria are met, revenue from licenses is recognized upon delivery using the residual method in accordance with SOP 98-9, and revenue from data, maintenance and professional services are recognized ratably over their respective terms.

We usually license our software products on a perpetual basis. If vendor specific objective evidence does not exist to allocate the total fee to all delivered and undelivered elements of the arrangement, revenue is deferred until the earlier of a) when such evidence does exist for the undelivered elements, or b) when all elements are delivered.

Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” became effective in 2002. Upon adoption of SFAS No. 142, we have ceased to amortize any goodwill starting January 1, 2002. In lieu of amortization, we are required to perform impairment reviews of our goodwill. We assess the impairment of long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable.

In addition to the annual review of goodwill required by SFAS No. 142, the following factors could trigger an impairment review:

When we determine that the carrying value of intangibles, long-lived assets and goodwill may not be recoverable based upon any of the above indicators of impairment, we measure any impairment based on a projected discounted cash flow using a discount rate determined by our management to be commensurate with the risk inherent in our business model. If the assumptions we use to determine the valuation of these long-lived assets prove to be wrong, we may be required to record impairment charges to the carrying value of these assets in future periods.

The preparation of financial statements requires our management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.

We also analyze current accounts receivable for an allowance for doubtful accounts based on historical bad debt, customer credit-worthiness, the current business environment, and historical experience with the customer and the aging of the accounts receivable. The allowance includes specific reserves for accounts where collection is deemed to be no longer probable. In addition, we maintain a general reserve for invoices without specific reserves by applying a percentage based on the age category.

We have a 90-day warranty for any defects in the products that we sell to customers. We have not provided any allowances for returns since historically we have not had any material returns due to defects.

Our current estimated range of liability related to some of the pending litigation is based on claims for which we can reasonably estimate the amount and range of loss (as discussed in Part II. Item 1. Legal Proceedings). Because of the uncertainties related to both the amount and range of loss on the remaining pending litigation, we are unable to make a reasonable estimate of the liability that could result from an unfavorable outcome. As additional information becomes available, we will assess the potential liability related to our pending litigation and revise our estimates. Such revisions in our estimates of the potential liability could materially impact our results of operation and financial position.

The following table sets forth for the periods presented, certain data from our unaudited condensed consolidated statements of operations, including data as a percentage of total revenue. The information contained in the table below should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere in this quarterly report on Form 10-Q.

Total revenue was $7.4 and $11.3 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of 34% or $3.9 million. The decrease in total revenue was due primarily to decreases in the number of licenses sold, which was primarily attributable to a slower domestic market demand for software products in a weak global climate reflecting a continued lengthening of the enterprise sales cycle and deferral of information technology (IT) spending.

License revenue was $3.9 and $6.1 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of 36% or $2.2 million. The decrease was due primarily to a reduction in the number of licenses sold and due to the impact of current economic conditions and slowing economy.

Service revenue was $3.6 and $5.2 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of 31% or $1.6 million.

Maintenance revenue was $2.8 and $3.0 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of 7% or $0.2 million. The decrease was a result of a decline in the number of new licenses sold in prior quarters.

Professional services revenue was $0.8 and $2.1 million for the three months ended March 31, 2003 and 2002, respectively, representing a decreased of 62% or $1.3 million. The decrease in professional services revenue was a result of a decline in new license revenue in prior quarters and the deferral of information technology spending in this weak market.

A significant portion of our total revenue is generated outside the United States. Our international revenue was 45% of the total revenue or $3.3 million and 35% or $4.0 million for the three months ended March 31, 2003 and 2002, respectively, representing a decrease of $0.7 million or 17%. This decrease is attributed mainly to a decline in the number of licenses sold, a slower international market demand for

software products in weak global economic conditions, principally reflecting a continued lengthening of the enterprise sales cycle and deferral of information technology (IT) spending.

A significant portion of our total revenue is currently derived from international sales and therefore subject to its related risks, including general economic conditions in each country, the strength of international competitors, different tax structures, difficulty of managing an organization spread over various countries, changes in regulatory requirements, compliance with a variety of foreign laws and regulations, longer payment cycles, and the volatility of exchange rates in certain countries.

A portion of our business is conducted in currencies other than the U.S. dollar and the effect of exchange rates on our total revenues was immaterial during the three months ended March 31, 2003 and 2002. Foreign exchange rates will continue to affect our total revenue and results of operations depending on the U.S. dollar strengthening or weakening relative to foreign currencies. Unfavorable changes in each country’s general economic and political environment or foreign exchange rates may have a material adverse impact on our total revenue and results of operations.

Cost of revenue from license sales consists primarily of royalties, product packaging, shipping, media, and documentation. Our cost of revenue for license sales was $0.5 and $0.6 million for the three months ended March 31, 2003 and 2002, respectively, representing 13% and 10% of license revenue in the respective periods.

Cost of service revenue consists primarily of personnel costs associated with providing software maintenance, technical support, training and consulting services. Our cost of service revenue was $1.5 and $2.3 million for the three months ended March 31, 2003 and 2002, representing 41% and 45% of service revenue in the respective periods. The decline was mainly attributed to a reduction in salary related expenses as a result of our restructuring effort implemented in 2002.

Gross margin remained constant at 74% for the three months ended March 31, 2003 and 2002. The consistency in gross profit percentage was a result of our continuous effort to keep our cost of revenue in line with the respective revenue generated during the period.

Sales and marketing expenses consist primarily of personnel costs for sales and marketing, sales commissions, sales and marketing programs, sales operations, branch sales facilities and distributor’s commissions. Sales and marketing expenses were $4.0 and $7.0 million for the three months ended March 31, 2003 and 2002, respectively, representing 54% and 62% of total revenue in the respective periods. The decline of $3.0 million or 43% was primarily attributable to a $2.0 million decrease in salary and related expenses due to a reduction in headcount from 141 to 75, a $0.2 million reduction in discretionary marketing expense, a $0.3 million reduction in travel related expenses and $0.5 million decrease in facility and sales office expenses due to closing of several sales offices in 2002.

Research and development expenses consist primarily of personnel and related costs associated with the development of new products, the enhancement and localization of existing products and quality assurance testing. Research and development expenses were $2.2 and $3.4 million for the three months ended March 31, 2003 and 2002, respectively, representing 30% of total revenue in both periods. The decline of $1.2 million or 35% was primarily attributable to $1.0 million reduction in salary and related

expenses due to a reduction in headcount from 69 to 43 and a $0.2 million decrease in facility related expenses.

General and administrative expenses consist primarily of personnel costs for finance, human resources, information systems and general management as well as legal, accounting and bad debt expenses. General and administrative expenses were $1.2 and $1.3 million for the three months ended March 31, 2003 and 2002, respectively, representing 16% and 12% of total revenue in the respective periods. The decline of $0.1 million or 8% was primarily attributed to a $0.2 million reduction in salaries and employee related costs as a result of the reduction in headcount from 26 to 16 offset by an increase in bad debt expenses.

The net increase of $2.6 million in interest expense for the three months ended March 31, 2003 principally relates to interest expense recognized on the secured loan from CDC. As a result of our reviewing the notice from CDC claiming that we were in default on March 19, 2003, we recognized a $1.7 million accretion of the loan discount attributable to the fair value of related warrants and $0.7 million amortization of deferred costs as interest expense in addition to the $0.2 million interest payable under the secured loan.

On March 19, 2003, we received a notice from CDC declaring that an event of default had occurred under the loan agreements. CDC declared the entire principal amount under the loans to be immediately due and payable, and asserted control over our bank deposit accounts. On March 20, 2003, CDC caused approximately $4.6 million that was in our deposit accounts to be transferred to a bank account in Hong Kong. We disputed that an event of default existed under the loans. On April 4, 2003, the parties entered into a settlement agreement by which CDC would be permitted to retain the funds transferred to Hong Kong on March 20, 2003 and we agreed to pay the remaining amounts due plus interest, and to pay $500 to CDC in exchange for all 8 million warrants held by CDC and for CDC’s expenses. On April 15, 2003, using funds derived from a new secured bridge financing from Group 1 Software, Inc., we paid the amounts due under the settlement agreement. Under the terms of the settlement agreement, Sagent and CDC were to each dismiss their lawsuits. On April 18, 2003, both parties dismissed their lawsuits.

Concurrent with the signing of the Asset Purchase Agreement, Group 1 provided us with $5 million in bridge financing, secured by all of our assets. Of that amount, approximately $3.1 million was used to pay all amounts owed to CDC under a settlement agreement. Under the terms of the bridge financing, Group 1 has agreed to lend us an additional $2 million after the Asset Purchase Agreement is approved by Group 1’s board of directors. On May 7, 2003, Group 1’s board of directors approved the Asset Purchase Agreement. We are scheduled to receive the additional $2 million from Group 1 on May 15, 2003.

We believe that with the net proceeds of approximately $1.9 million from the Group 1 loan, together with cash from operations, and the additional $2 million loan from Group 1 we will have sufficient funds to remain in operation through the end of the second calendar

quarter. If we do not complete the asset sale transaction with Group 1 on a timely basis, we will need to obtain additional financing or take other measures to enable us to continue operations.

Moreover, there is still a risk that the asset sale will not close if our stockholders do not approve the sale of assets to Group 1 or if any other closing condition is not met. If we do not complete the transaction with Group 1, there is a significant possibility that we will not be able to raise additional funds or take other actions to the extent and in the timeframe necessary to remain in operation.

As of March 31, 2003, our principal source of liquidity consisted of $2.1 million of unrestricted cash and cash equivalents and $0.9 million restricted cash in the form of a money market account and certificate of deposit. Since inception, we have funded our operations primarily through private sales of equity securities, the use of equipment leases and the initial public offering of our common stock in April 1999, not from cash generated by our business.

Net cash used by financing activities was $5.0 million in the first quarter of 2003 due primarily to payments of short-term debt and capital lease obligations. Net cash used by financing activities was $0.8 million in the first quarter of 2002, due primarily to payments of capital lease obligations.

Net cash used in operating activities was $2.6 million and $2.1 million in the first quarter of 2003 and 2002, respectively. For such periods, net cash used in operating activities was primarily the result of the funding of our ongoing operations.

Accounts receivable decreased 11% in the first quarter of 2003 due primarily to a decline in gross revenue and an increase in accounts receivable days sales outstanding (DSO). We calculate our DSO on a “net” basis by dividing the average accounts receivable at the beginning and the end of the quarter by the revenue for the quarter multiplied by the number of business days during that quarter DSO was at 80 and 75 as of March 31, 2003 and December 31, 2002, respectively.

The following is a summary of our future minimum payments under contractual obligations as of March 31, 2003:

We have entered into several lease agreements to finance computer equipment purchases. We financed the acquisition of property and equipment, primarily computer hardware and software, and leasehold improvements and furniture totaling $0 and $0.1 million as of March 31, 2003 and December 31, 2002, respectively, through capital leases. We have entered into several agreements to lease facilities in California and several other states as well as in other countries in which we have sales operations. We are also under obligation to pay certain maintenance fees to third party vendors.

Purchase obligations relate to our settlement of the commitments with infoUSA pertaining to software maintenance for the acquired technology and data renewal contracts.

Restructuring consists primarily of personnel and facility related costs for vacated operating leases. The purpose of the restructuring was to bring operating expenses in line with net revenues with the goal of achieving cash flow breakeven in the near future and strategically focusing our efforts on core businesses as discussed in Note 9 of the accompanying unaudited condensed consolidated financial statements and notes thereto.

Our ability to maintain and grow sales and manage our expenses will have a direct impact on our liquidity and capital resources. Factors, which are reasonably likely to impact our ability to maintain or grow revenues, are as follows:

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 143, “Accounting for Asset Retirement Obligations.” SFAS No. 143 requires an enterprise to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of a tangible long-lived asset. Since the requirement is to recognize the obligation when incurred, approaches that have been used in the past to accrue the asset retirement obligation over the life of the asset are no longer acceptable. SFAS No. 143 also requires the enterprise to record the amount of the initial obligation as an increase to the carrying amount of the related long-lived asset (i.e., the associated asset retirement costs) and to depreciate that cost over the remaining useful life of the asset. The liability is changed at the end of each period to reflect the passage of time (i.e., accretion expense) and changes in the estimated future cash flows underlying the initial fair value measurement. The provisions of SFAS No. 143 are effective for fiscal years beginning after June 15, 2002. Effective January 1, 2003, we adopted SFAS No. 143 and the adoption did not have a material effect on our consolidated results of operations or financial position.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” Among other provisions, SFAS No. 145 rescinds SFAS No. 4, “Reporting Gains and Losses from Extinguishment of Debt.” Accordingly, gains or losses from extinguishment of debt shall not be reported as extraordinary items unless the extinguishment qualifies as an extraordinary item under the criteria of APB No. 30. Gains or losses from extinguishment of debt that do not meet the criteria of APB No. 30 should be reclassified to income from continuing

operations in all prior periods presented. SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. Effective January 1, 2003, we adopted SFAS No. 145 and the adoption did not have a material impact on our consolidated results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recorded when it is incurred, meeting the definition of a liability in FASB Concepts Statement No. 6, “Elements of Financial Statements”, and when its fair value can be measured. SFAS 146 supersedes FASB’s Emergency Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring.” The Statement is effective for exit or disposal activities that are initiated after December 31, 2002. Effective January 1, 2003, we adopted SFAS No. 146 and the adoption did not have a material effect on our consolidated results of operations or financial position.

In November 2002, the FASB issued Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 elaborates on the existing disclosure requirements for most guarantees, including loan guarantees such as standby letters of credit, and provides new disclosure requirements regarding indemnification provisions, including indemnification provisions typically included in a software license arrangement. It also clarifies that at the time a guarantee is issued, an initial liability must be recognized for the fair value of the obligations assumed under the guarantee and that information must be disclosed in the financial statements. The provisions related to recognizing a liability at inception of the guarantee do not apply to product warranties, indemnification provisions in our software license arrangements, or to guarantees accounted for as derivatives. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002, and the disclosure requirements apply to guarantees outstanding as of December 31, 2002. Effective January 1, 2003, we adopted FIN 45 and the adoption did not have a material effect on our consolidated results of operations or financial position.

In November 2002, the EITF reached a consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. EITF Issue No. 00-21 provides guidance on how to account for certain arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets. The provisions of EITF Issue No. 00-21 will apply to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. While we will continue to evaluate the requirements of EITF Issue No. 00-21, management does not currently believe adoption will have a significant impact on its accounting for multiple element arrangements as such accounting will generally continue to be accounted for pursuant to AICPA Statement of Position 97-2, “Software Revenue Recognition,” and related pronouncements.

In December 2002, the FASB issued SFAS 148, Accounting for Stock-based Compensation—Transition and Disclosure. SFAS 148 amends SFAS 123, Accounting for Stock-based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based methods of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of the SFAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method used for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and annual disclosure provisions of SFAS No. 148 are effective for fiscal year ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. We adopted the provisions of SFAS No. 148 for fiscal year ended December 31, 2002. The required interim disclosures under SFAS No. 148 are presented in the notes to the unaudited condensed consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements” FIN 46 establishes accounting guidance for consolidation of a variable interest entity (“VIE”), formerly referred to as special purpose entities. FIN 46 applies to any business enterprise, both public and private, that has a controlling interest, contractual relationship or other business relationship with a VIE. FIN 46 provides guidance for determining when an entity, the Primary Beneficiary, should

consolidate another entity, a VIE, that functions to support the activities of the Primary Beneficiary. By June 15, 2003, corporations must fully consolidate assets and liabilities covered by FIN 46 in their financial statements. Full disclosure, as well as consolidation, if applicable, of any newly created agreements after January 31, 2003 must begin immediately. We currently have no contractual relationship or other business relationship with a VIE and do not have any such plans and therefore we believe the adoption will not have an effect on our consolidated results of operations or financial position.

Any investment in our common stock involves a high degree of risk. You should consider carefully the following information about risks, together with the other information contained in this report, before you decide whether to buy our common stock or maintain your investment. Additional risks and uncertainties not known to us or that we now believe to be unimportant could also impair our business. If any of the following risks actually occur, our business, results of operations and financial condition could suffer significantly. As a result, the market price of our common stock could decline, and you may lose all of your investment.

We have entered into an agreement to sell substantially all of our assets. However, there can be no assurance that the sale of assets will actually be consummated.

On April 15, 2003, we entered into an Asset Purchase Agreement with Group 1 Software, Inc, pursuant to which Group 1 will pay us up to $17 million for substantially all of our assets. Group 1 had a period of time to complete their due diligence review of our assets and liabilities, after which Group 1’s board of directors considered the Asset Purchase Agreement for approval. On May 7, 2003 Group 1’s board of directors approved the Asset Purchase Agreement. Moreover, there is still a risk that the asset sale will not close if our stockholders do not approve the sale of assets to Group 1 or if any other closing condition is not met. If we do not complete the transaction with Group 1, there is a significant possibility that we will not be able to raise additional funds or take other actions to the extent and in the timeframe necessary to remain in operation.

Even if we consummate the sale of assets to Group 1 Software, we cannot assure you of the amount, if any, that will be distributed to our stockholders under the plan of liquidation.

Even if the sale of assets to Group 1 is consummated, we cannot assure you that there will be a distribution of any meaningful cash to our stockholders upon our dissolution. We expect that $7 million of the $17 million purchase price will be paid in the form of debt forgiveness. Further, the net amount of $10 million in cash is subject to reduction, possibly by a substantial amount, to account for changes in value of the transferred assets and assumed liabilities prior to closing.

Prior to any distribution to our stockholders, we will need to satisfy all outstanding obligations to creditors. We will also attempt to convert any non-cash assets into cash. Uncertainties as to the precise net value of our non-cash assets and the ultimate amount of our liabilities make it impracticable to predict the aggregate net value, if any, ultimately distributable to our stockholders. The actual nature and amount of all distributions will depend in part upon our ability to convert our remaining non-cash assets into cash. We may not be successful in selling our non-cash assets, in which case we may not generate meaningful cash, if any, to return to our stockholders.

We have current and future obligations to creditors. These include, without limitation, long-term contractual obligations associated with business agreements with customers, including certain product warranties, and other third parties. As part of the wind down process, we will attempt to settle our obligations with our creditors. We may not, however, succeed in doing so. If we cannot reach an agreement with a creditor concerning an obligation, that creditor may choose to bring a lawsuit against us. Any

litigation could delay or even prevent us from completing the plan of dissolution. Moreover, amounts required to settle our obligations to creditors will reduce the amount of remaining capital available for distribution to stockholders.

We will continue to incur claims, liabilities and expenses, which will reduce the amount available for distribution to stockholders.

Claims, liabilities and expenses from operations (such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal, SEC, accounting and consulting fees and miscellaneous office expenses) will continue to be incurred as we wind down. These expenses will reduce the amount of assets available for ultimate distribution to stockholders. If available cash and amounts received on the sale of non-cash assets are not adequate to provide for our obligations, liabilities, expenses and claims, we may not be able to distribute meaningful cash, or any cash at all, to our stockholders.

Our Board of Directors has not established a firm timetable for distributions to our stockholders, and we are currently unable to predict the precise timing of any distribution, if any, pursuant to our wind down. The timing of distribution, if any, will depend on and could be delayed by, among other things, the timing of sales of our non-cash assets, claim settlements with creditors and the amounts paid out under warranty claims. Additionally, a creditor could seek an injunction against the making of distributions to our stockholders on the ground that the amounts to be distributed were needed to provide for the payment of our liabilities and expenses. Additionally, we could seek protection from creditors under the federal bankruptcy code. Any action of this type could delay or substantially diminish, or eliminate, the amount available for distribution to our stockholders.

If we fail to create an adequate contingency reserve for payment of our expenses and liabilities, our stockholders could be held liable for payment to our creditors of each such stockholder’s pro rata share of amounts owed to the creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder.

If the plan of dissolution is ratified and approved by our stockholders, we will file a Certificate of Dissolution with the State of Delaware dissolving Sagent. Pursuant to the Delaware General Corporation Law, we will continue to exist for three years after the dissolution becomes effective or for such longer period as the Delaware Court of Chancery shall direct, for the purpose of prosecuting and defending suits against us and enabling us gradually to close our business, to dispose of our property, to discharge our liabilities and to distribute to our stockholders any remaining assets. Under the Delaware General Corporation Law, in the event we fail to create an adequate contingency reserve for payment of our expenses and liabilities during this three-year period, each stockholder could be held liable for payment to our creditors of such stockholder’s pro rata share of amounts owed to creditors in excess of the contingency reserve, up to the amount actually distributed to such stockholder.

However, the liability of any stockholder would be limited to the amounts previously received by such stockholder from us (and from any liquidating trust or trusts) in the dissolution. Accordingly, in such event a stockholder could be required to return all distributions previously made to such stockholder. In such event, a stockholder could receive nothing from us under the plan of dissolution. Moreover, in the event a stockholder has paid taxes on amounts previously received, a repayment of all or a portion of such amount could result in a stockholder incurring a net tax cost if the stockholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. There can be no assurance that the contingency reserve established by us will be adequate to cover any expenses and liabilities.

Our stock transfer books will close on the date we file the certificate of dissolution with the Delaware Secretary of State, after which it will not be possible for stockholders to publicly trade our stock.

We intend to close our stock transfer books and discontinue recording transfers of our common stock at the close of business on the date we file the Certificate of Dissolution with the Delaware Secretary of State, referred to as the “final record date.” Thereafter, certificates representing our common stock shall not be assignable or transferable on our books except by will, intestate succession or operation of law. The proportionate interests of all of our stockholders shall be fixed on the basis of their respective stock holdings at the close of business on the final record date, and, after the final record date, any distributions made by us shall be made solely to the stockholders of record at the close of business on the final record date, except as may be necessary to reflect subsequent transfers recorded on our books as a result of any assignments by will, intestate succession or operation of law.

We will continue to incur the expenses of complying with public company reporting requirements.

We have an obligation to continue to comply with the applicable reporting requirements of the Securities Exchange Act of 1934, as amended, referred to as the “Exchange Act,” even though compliance with such reporting requirements is economically burdensome. In order to curtail expenses, we intend to, after filing our Certificate of Dissolution, seek relief from the Securities and Exchange Commission from the reporting requirements under the Exchange Act. We anticipate that, if such relief were granted, we would continue to file current reports on Form 8-K to disclose material events relating to our liquidation and dissolution along with any other reports that the Securities and Exchange Commission might require. However, the Securities and Exchange Commission may not grant any such relief.

There is substantial doubt regarding our ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on a going concern basis, which means that they were prepared on the assumption that we would have a continuity of operations, realization of assets and liquidation of liabilities and commitments in the normal course of business. In recent years, we have a history of losses and may continue to incur future losses. We have incurred net losses of $4.6 million and $3.7 million for the three months ended March 31, 2003 and 2002, respectively. These losses combined with our current cash position, raise substantial doubt about our ability to continue as a going concern. We will need to generate significant revenues to achieve cash breakeven and profitability. There can be no assurance that we will be successful in our efforts to reach cash breakeven or profitability. Even if we achieve profitability, we may be unable to sustain or increase profitability on a quarterly or annual basis. If we fail to achieve and sustain both cash breakeven and profitability, the price of our stock may decline substantially.

All of our business in Japan is through indirect channels through such distributors as Kawatetsu Systems, Inc., Nihon, Unisys, and Fujitsu. Such distributors are not obligated to purchase any minimum level of products from the Company. Significant reductions in product sales to such distributors would materially and adversely affect the Company’s business, financial condition and results of operations.

For the three months ended March 31, 2003 and 2002 approximately 45% and 35%, respectively, of our total revenues were derived from markets outside of the North America. We expect that sales to the Pacific Rim and Europe will continue to represent a significant portion of its business. However, there can be no assurance that our Pacific Rim or European operations will continue to be successful.

Our international business may be affected by changes in demand resulting from localized economic and market conditions. In addition, our international business may be affected by fluctuations in currency exchange rates and currency restrictions. We have offices in a number of foreign countries, the operating expenses of which are also subject to the effects of fluctuations in foreign exchange rates. Financial exposure may result due to the timing of the transactions and movement of exchange rates. Our international business may further be affected.

Variations in our quarterly operating results due to such factors as changes in demand for our products and changes in our mix of revenues may cause our stock price to decline.

We expect our quarterly operating results to fluctuate. We therefore believe that quarter-to-quarter comparisons of our operating results may not be a good indication of our future performance, and you should not rely on them to predict our future performance or the future performance of our stock price. Our short-term expense levels are relatively fixed and are based on our expectations of future revenues. As a result, a reduction in revenue in a quarter may harm our operating results for that quarter. In the past, our operating results have fallen below the expectations of market analysts and investors. If we fall short of market expectations in future quarters, the price of our common stock may fall. Factors that may cause our operating results to fluctuate on a quarterly basis are as follows:

A slowing economy and reductions in information technology spending may negatively affect our revenues.

Our revenues may be negatively affected by the increasingly uncertain economic conditions both in the market generally and in our industry. If the economy continues to slow, some companies may reduce their budgets for spending on information technology and business software. As a consequence, our sales cycle may become longer with some customers, and other prospective customers may postpone, reduce, or even forego the purchase of our products and services, which could negatively affect our revenues.

We have transferred from the Nasdaq National Market to the SmallCap Market, and we may be subject to delisting altogether.

In August 2002, we received a notification from The Nasdaq Stock Market that we are out of compliance with the minimum bid price requirement of $1.00 per share set forth in Marketplace Rule 4450(a)(5). Therefore, our common stock is subject to delisting from The Nasdaq National Market. We determined to transition to the Nasdaq SmallCap Market, which would extend the period for which we would be able to regain compliance with the minimum price requirement. In September 2002, Nasdaq informed us that it has approved our application to list our common stock on the Nasdaq SmallCap Market. In November 2002, Nasdaq notified us that we met the initial listing criteria for the SmallCap Market, other than minimum bid price, and that we have until May 6, 2003 to regain compliance with the minimum bid price requirement. On May 7, 2003, Nasdaq notified us that we have until August 4, 2003 to regain compliance. The extension was granted due to our qualification with the $5 million stockholders’ equity requirement under Marketplace rule 4310(c)(2)(A).

In the event our shares are delisted from the Nasdaq SmallCap Market, we will attempt to have our common stock traded on the Nasdaq Over-The-Counter Bulletin Board. If our common stock is delisted, it

would seriously limit the liquidity of our common stock and impair our potential to raise future capital through the sale of our common stock, which could have a material adverse effect on our business. Delisting could also reduce the ability of holders of our common stock to purchase or sell shares as quickly and as inexpensively as they have done historically, and may have an adverse effect on the trading price of our common stock. Delisting could also adversely affect relationships with vendors and customers.

If we fail to expand our direct and indirect sales channels, we will not be able to increase revenues.

Competition for highly qualified sales personnel is intense, and we may not be able to recruit and maintain the kind and the number of sales personnel we need. Hiring highly qualified customer service and account management personnel is very competitive in the software industry due to the limited number of people available with the necessary technical skills and understanding of the space.

In order to grow our business, we need to increase market awareness and sales of our products and services. To achieve this goal, we need to increase both our direct and indirect sales channels. If we fail to do so, this failure could harm our ability to increase revenues.

We expect as part of our strategy to increase international sales principally through both direct and indirect sales. Our ability to develop and maintain direct and indirect channels will significantly affect our ability to penetrate international markets.

During the last two years, we have been the subject of several shareholder lawsuits, which are still pending. In addition, the members of our board of directors have been the subjects of derivate lawsuits alleging breaches of their fiduciary duties to us. These lawsuits could seriously harm our business and financial condition. In particular, the lawsuits could harm our relationships with existing customers and our ability to obtain new customers. The continued defense of the lawsuits could also result in the diversion of our management’s time and attention away from business operations, which could harm our business. The lawsuits could also have the effect of discouraging potential acquirers from bidding for us or reducing the consideration they would otherwise be willing to pay in connection with an acquisition. In addition, although we are unable to determine the amount, if any, that we may be required to pay in connection with the resolution of these lawsuits by settlement or otherwise, the size of any such payment could seriously harm our financial condition.

We have a relatively new management team and there is no guarantee that they will be successful in growing our business.

Our management team has not been with us for a significant length of time. In July 2002, Ben Barnes, our President and Chief Executive Officer stepped down, and Andre Boisvert, our Chairman, assumed the role of CEO. In January 2003, Steven R. Springsteel, our Chief Financial Officer and Chief Operating Officer also stepped down, and Patricia Szoka was appointed as Chief Accounting Officer. Ms. Szoka, our Chief Accounting Officer, joined us in August 2001.

The following table lists each of our officers and the month and year that each of them joined our company:

All of these employees serve “at-will” and may elect to pursue other opportunities at any time. If our management team is unable to work effectively together to accomplish our business objectives, our ability to grow our business could be severely impaired.

If we do not keep pace with technological change, our products may be rendered obsolete and our business may fail.

Our industry is characterized by rapid technological change, changes in customer requirements, frequent new product introductions and enhancements and emerging industry standards. In order to achieve broad customer acceptance, our products must be compatible with major software and e-commerce applications and operating systems. We must continually modify and enhance our products to keep pace with changes in these applications and systems. If our products were to be incompatible with popular new systems or applications, our business would be significantly harmed. In addition, the development of entirely new technologies replacing existing software could lead to new competitive products that have better performance or lower prices than our products and could render our products obsolete.

Delays or problems in the installation or implementation of our new releases may cause customers to forego purchases of our products to purchase those of our competitors.

Our markets are highly competitive and competition could harm our ability to sell products and services and reduce our market share.

Competition could seriously harm our ability to sell additional software and maintenance and support renewals on prices and terms favorable to us. Additionally, if we cannot compete effectively, we may lose market share. The markets for our products are intensely competitive and subject to rapidly changing technology. We compete against providers of decision support software, data warehousing software and enterprise application software. We also compete with providers of e-Business software, which allows for the electronic delivery of products and services that enable commerce among businesses and end users. Companies in each of these areas may expand their technologies or acquire companies to support greater enterprise intelligence functionality and capability, particularly in the areas of query response time and the ability to support large numbers of users. We may also face competition from vendors of products and turnkey solutions for e-Business applications that include internet based information functionality.

Many of our competitors have longer operating histories, significantly greater financial, technical, marketing or other resources, or greater name recognition than we do. Our competitors may be able to respond more quickly than we can to new or emerging technologies and changes in customer requirements.

We rely on marketing, technology and distribution relationships that may generally be terminated at any time, and if our current and future relationships are not successful, our growth may be limited.

We rely on marketing and technology relationships with a variety of companies that, in part, generate leads for the sale of our products. These marketing and technology relationships include relationships with:

If we cannot maintain successful marketing and technology relationships or cannot enter into additional marketing and technology relationships, we may have difficulty expanding the sales of our products and our growth may be limited.

If we lose key licenses we may be required to develop or license alternatives, which may cause delays or reductions in sales.

We rely on third-party technologies, and if we are unable to use or integrate these technologies, our product and service development may be delayed.

We rely on MainWin from MainSoft to deliver the Solaris versions of the Data Load, Data Access, and WebLink Servers. MainWin is the Windows API ported to Sun Solaris. In addition, Visual Basic for Applications has been embedded in Design Studio and Information Studio to allow customization. We rely on interfaces from Microsoft and Crystal Decisions to integrate Microsoft Excel and Crystal Reports as display options in Design Studio, Information Studio, and WebLink. The Opalis Robot from Opalis provides the basis for the Sagent Automation tool. Automation is a dependency-scheduling tool with extensive integration with operating system level tasks. Opalis may not provide a stable Solaris version in the timeframe expected by our customers. The basis for the Sagent Portal is Citrix’ XPS portal product. Citrix may discontinue this product or not make it available on the needed operating systems in a commercially viable time schedule. The DirectLink for R/3 product we offer to connect to SAP is based on metadata browsing technology and pool table connectivity from Server Enterprises. DirectLink for Mainframes, which provides connectivity to mainframe data sources, is enabled by technology from Striva and Cross Access.

We have expanded our international operations but may encounter a number of problems in managing overseas operations, which could limit our future growth.

We may not be able to successfully market, sell, deliver and support our products and services internationally. Our failure to manage our international operations effectively could limit the future growth of our business. International sales represented approximately 45% and 35% of our total revenue for the three months ended March 31, 2003 and 2002, respectively. We conduct our international sales through local subsidiaries in the United Kingdom, Germany, France, Japan, Asia/Pacific, and Australia and through distributor relationships in South Africa and Italy. In 2002, we closed several domestic sales offices and international sales offices in Brazil, Mexico and the Netherlands due to changes in our strategy. The expansion of our existing international operations and entry into or exit from additional international markets will require management attention and significant financial resources. Because of the significant growth in international business, we benefit overall from a weaker dollar and are adversely affected by a stronger dollar relative to major currencies worldwide. Changes in exchange rates, and in particular a strengthening of the U.S. dollar, may unfavorably affect our consolidated sales and net income.

We have been, and may be subject to future, intellectual property infringement claims.

We may be subject, from time to time, to claims that we are infringing the intellectual property rights of others. Any litigation regarding intellectual property rights may be costly to defend or settle, and may divert the attention of our management and key personnel from our business operations. The complexity of the technology involved and the uncertainty of intellectual property litigation increase these risks. Claims of intellectual property infringement might also require us to enter into costly royalty or license agreements. In December 2000, we settled an infringement claim brought by Timeline, Inc. Under the terms of the settlement, we paid Timeline $600,000 and issued 600,000 shares of our common stock to Timeline. We may be subject to similar or more costly claims in the future or may become subject to an injunction against use of our products. A successful claim of patent or other intellectual property infringement against us would have an immediate material adverse effect on our business and financial condition.

If we are unable to protect our intellectual property rights, this inability could weaken our competitive position, reduce our revenue and increase our costs.

Our success depends in large part on our proprietary technology. We rely on a combination of copyright, trademark and trade secrets, confidentiality procedures and licensing arrangements to establish and protect our proprietary rights. We may be required to spend significant resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, our competitive position may be harmed.

Other software providers could copy or otherwise obtain and use our products or technology without authorization. They also could develop similar technology independently, which may infringe our proprietary rights. We may not be able to detect infringement and may lose a competitive position in the market before we do so. In addition, competitors may design around our technology or develop competing technologies. The laws of some foreign countries do not protect proprietary rights to the same extent, as do the laws of the United States.

If we discover software defects we may have product-related liabilities which may lead to loss of revenue or delay in market acceptance for our products.

Our software products are internally complex and may contain errors, defects or failures, especially when first introduced or when new versions are released. We test our products extensively prior to releasing them; however, in the past we have discovered software errors in some of our products after their introduction. Despite extensive testing, we may not be able to detect and correct errors in products or releases before commencing commercial shipments, which may result in loss of revenue or delays in market acceptance.

Our license agreements with our customers typically contain provisions designed to limit our exposure to potential product liability claims. All domestic and international jurisdictions may not enforce these limitations. Although we have not experienced any product liability claims to date, we may encounter such claims in the future. Product liability claims, whether or not successful, brought against us could divert the attention of management and key personnel and could be expensive to defend.

We are subject to changes in Financial Accounting Standards, which may affect our reported revenue, or the way we conduct business.

We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”). GAAP are subject to interpretation by the Financial Accounting Standard Board, the American Institute of Certified Public Accountants (AICPA), the SEC and various bodies appointed by these organizations to interpret existing rules and create new accounting policies. Accounting policies affecting software revenue recognition, in particular, have been the subject of frequent interpretations, which have had a profound affect on the way we license our products. As a result of the recent enactment of the Sarbanes-Oxley Act and the related scrutiny of accounting policies by the SEC and the various national and international accounting industry bodies, we expect the frequency of accounting policy changes to accelerate. Future changes in financial accounting standards, including pronouncements relating to revenue recognition, may have a significant effect on our reported results and may even affect our reporting of transactions completed before the change is effective.

The following discusses our exposure to market risk related to changes in interest rates, foreign currency exchange rates and equity prices. This discussion contains forward-looking statements that are

subject to risks and uncertainties. Actual results could vary materially as a result of a number of factors including those set forth in “Risk Factors”.

Our exposure to market risk related to changes in interest rates is primarily due to our highly liquid investments. We do not use derivative financial instruments. The primarily objective of our investment activities is to preserve principal while maximizing yields without significantly increasing risk. Our investments consist primarily of highly liquid investments and certificate of deposits. Due to the nature of our investments, we believe that there is no material risk exposure. All investments are carried at cost, which is approximates market value. At March 31, 2003 and December 31, 2002, we had $2.1 million and $9.7 million, respectively, in cash and cash equivalents.

A high percentage of operations are based in the United States, and, accordingly, the majority of our transactions are denominated in U.S. Dollars. However, we do have foreign-based operations where transactions are denominated in foreign currencies and are subject to exchange rate risk with respect to fluctuations in the relative value of currencies. Currently, we have operations in Asia Pacific, Europe, Australia, Middle East and South Africa and conduct transactions in the local currency of each location. To date, the impact of any fluctuation in the relative value of other currencies has not been material due to relative size of the operations. However, we will continue to monitor our exposure to currency fluctuations, and, when appropriate, may use financial hedging techniques in the future to minimize the effect of these fluctuations, we cannot assure you that exchange rate fluctuations will not harm our business in the future. An increase in the value of the United States dollar relative to foreign currencies could make our products less competitive in international markets. Although we will continue to monitor our exposure to currency fluctuations and, when appropriate, may use economic hedging techniques in the future to minimize the effect of these fluctuations, we can make no assurances that exchange rate fluctuations will not adversely affect our financial results in the future. Through March 31, 2003, we have not engaged in foreign currency hedging activities.

We do not own any significant public equity investments. Therefore, we believe we are not currently exposed to any direct equity price risk.

Our chief executive officer and our chief accounting officer, after evaluating our “disclosure controls and procedures” (as defined in Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-14(c) and 15-d-14(c)) as of a date (the “Evaluation Date”) within 90 days before the filing date of this Quarterly Report on Form 10-Q have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Subsequent to the Evaluation Date, there were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures, nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken.

From October 20, 2000 to November 27, 2000, several class action lawsuits were filed in the United States District Court for the Northern District of California on behalf of purchasers of our common stock between October 21, 1999 and April 18, 2000. The parties have settled this lawsuit. Our $5.5 million contribution to the settlement was funded by our directors’ and officers’ insurance carriers. The Court approved the settlement on April 28, 2003.

in accounts payable on the consolidated financial statements. In accordance with the agreement, we paid $150,000 in January 2003 and will pay $137,500 quarterly through December 31, 2003.

In November and December 2001, several class action lawsuits were filed in the United States District Court for the Northern District of California on behalf of purchasers of our stock between May 11, 2001 and November 28, 2001. The complaints alleged that we and certain of our officers and directors violated the Securities Exchange Act of 1934 in connection with our restatement of our first and second quarters of 2001 financial statements, resulting from a fraud scheme perpetrated on us by a former employee who falsely claimed to have made sales of our products to the federal government. A consolidated complaint was filed in April 2002, and on September 11, 2002, the court dismissed the complaint with leave to amend. Thereafter, on October 16, 2002, the plaintiffs filed a notice of their intent to stand on the complaint, without further amendment.

Following its investigation of the circumstances that lead to the restatement of our financial statements for the first and second quarters of 2001, and the revision of our financial statements for the third quarter of 2001, we entered the Department of Defense’s (“DOD”) Voluntary Disclosure Program. On June 7, 2002, we filed with the DOD a report of our investigation which revealed that a single non-officer employee was solely responsible for submitting false documents to us which purportedly showed that we had entered into contracts with the federal government, and that we had unwittingly submitted requests for payment to U.S. government agencies not knowing that the employee had fabricated those contracts in order to defraud us of various payments and benefits including commission payments.

CCS bankruptcy trustee on April 17, 2003 alleging that we had recently received certain preferential payments and demanding that we disgorge those payments. The amount in controversy is approximately $115,000.

THE EXHIBITS LISTED IN THE ACCOMPANYING INDEX TO EXHIBITS ARE INCORPORATED BY REFERENCE AS PART OF THIS FORM 10-Q.

On March 26, 2003, we filed a Form 8-K to report that we had received notice from CDC Software Corporation declaring that an event of default has occurred under the secured loans totaling $7 million made by CDC to Sagent in the fourth quarter of 2002.

On April 17, 2003, we filed a Form 8-K to report that we entered into the Asset Purchase Agreement dated April 15, 2003 with Group 1.

On April 18, 2003, we filed a Form 8-K to report that we obtained a bridge loan from Group 1 in the principal amount of $5 million, secured by substantially all of our assets.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, as amended, the Registrant has duly caused this Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mountain View, State of California, on May 15, 2003.

SAGENT TECHNOLOGY, INC.

By:		/s/ ANDRE BOISVERT
		Andre Boisvert President and Chief Executive Officer

Delaware		94-3225290
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)

		Page No.

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Unaudited Condensed Consolidated Balance Sheets	3

	Unaudited Condensed Consolidated Statements of Operations	4

	Unaudited Condensed Consolidated Statements of Cash Flows	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4.	Controls and Procedures	40

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	41

Item 6.	Exhibits and Reports on Form 8-K	43

SIGNATURES		44

CERTIFICATIONS		45

INDEX TO EXHIBITS		47

	March 31, 2003			December 31, 2002
ASSETS
Current Assets
Cash and cash equivalents	$	2,147		$	9,711
Restricted cash		875			875
Accounts receivable, net of allowance for doubtful accounts of $1,450 in 2003 and $1,389 in 2002		6,196			6,957
Other current assets		1,237			2,202

Total current assets		10,455			19,745
Property and equipment, net		2,442			3,159
Goodwill, net		6,718			6,718
Notes receivable from officers		873			1,000
Other assets		602			638

Total assets	$	21,090		$	31,260

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	2,626		$	2,811
Accrued liabilities		4,300			6,388
Deferred revenue		8,484			8,499
Current portion of capital lease obligation		985			1,380
Short-term debt		2,566			5,285

Total current liabilities		18,961			24,363
Other long-term liabilities		100			142

Total liabilities		19,061			24,505

Minority interest		235			366
Stockholders’ Equity
Convertible preferred stock, par value $.001 per share; Authorized: 6,011 shares at March 31, 2003 and December 31, 2002; Issued and outstanding: none at March 31, 2003 and December 31, 2002		0			0
Common stock, par value $.001 per share; Authorized: 70,000 shares at March 31, 2003 and December 31, 2002; Issued and outstanding: 46,424 at March 31, 2003 and December 31, 2002		46			46
Additional paid-in capital		135,778			135,778
Accumulated other comprehensive loss		(14	)		(46	)
Accumulated deficit		(134,016	)		(129,389	)

Total stockholders’ equity		1,794			6,389

Total liabilities and stockholders’ equity	$	21,090		$	31,260

	Three Months Ended March 31,
	2003			2002
Revenue:
License	$	3,858		$	6,116
Service		3,563			5,167

Total revenue		7,421			11,283

Cost of revenue:
License		505			614
Service		1,457			2,335

Total cost of revenue		1,962			2,949

Gross profit		5,459			8,334

Operating expenses:
Sales and marketing		3,977			6,971
Research and development		2,202			3,425
General and administrative		1,215			1,336
Stock-based compensation		0			189
Restructuring credit		(5	)		(50	)

Total operating expenses		7,389			11,871

Loss from operations		(1,930	)		(3,537	)
Interest income (expense), net		(2,624	)		18
Other income (expense), net		98			(60	)

Net loss before income taxes		(4,456	)		(3,579	)
Provision for income taxes		171			144

Net loss	$	(4,627	)	$	(3,723	)

Basic and diluted net loss per share	$	(0.10	)	$	(0.08	)

Shares used in computing basic and diluted net loss per share		46,424			46,154

	Three Months Ended March 31,
	2003			2002
Cash flows from operations:
Net loss	$	(4,627	)	$	(3,723	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		723			809
Amortization of warrant costs		1,715			0
Accrued interest on short-term loan		204			0
Restructuring credit		(5	)		(50	)
Loss on disposal of property and equipment		0			80
Stock-based compensation		0			189
Minority interest in losses of subsidiary		(131	)		(37	)
Changes in operating assets and liabilities:
Accounts receivable		761			1,599
Other current assets		965			572
Other assets		163			13
Accounts payable		(185	)		(381	)
Accrued liabilities		(2,145	)		(1,797	)
Deferred revenue		(15	)		678
Other long-term liabilities		(25	)		(3	)

Net cash used in operating activities		(2,602	)		(2,051	)

Cash flows from investing activities:
Purchase of property and equipment		(6	)		(43	)

Net cash used in investing activities		(6	)		(43	)

Cash flows from financing activities:
Payments of principal under capital lease obligations		(411	)		(752	)
Payment of short-term debt		(4,577	)		0

Net cash used in financing activities		(4,988	)		(752	)

Effect of exchange rate changes		32			(163	)

Net decrease in cash and cash equivalents		(7,564	)		(3,009	)

Cash and cash equivalents, beginning of the period		9,711			15,552

Cash and cash equivalents, end of the period	$	2,147		$	12,543

Supplemental disclosure of cash flow information:
Cash payments for interest	$	18		$	70
Cash payments for taxes	$	69		$	67

Supplemental disclosure of non-cash investing and financing activity:
Net settlement of severance and note receivable from officers	$	143		$	0
Equipment acquired under capital leases	$	0		$	38

	Stock Option Plans
	3/31/03	3/31/02
Risk-free interest rate	2.54%	3.4%
Expected life	4 years	4 years
Dividends	—	—
Volatility	155%	155%
Weighted-average fair value of options granted during the period	$0.23	$0.39

	Employee Stock Purchase Plan
	3/31/03	3/31/02
Risk-free interest rate	1.43%	2.01%
Expected life	0.5 years	0.5 years
Dividends	—	—
Volatility	205%	205%
Weighted-average fair value of options granted during the period	$0.13	$0.99

	Three Months Ended March 31,
	2002			2001
Net loss	$	(4,627	)	$	(3,723	)
Other comprehensive loss:
Foreign currency translation adjustment		32			(163	)

Comprehensive loss	$	(4,595	)	$	(3,886	)

	March 31, 2003		December 31, 2002
Prepaid licenses	$	212	$	296
Deferred charges		0		669
Other		1,025		1,237

Total	$	1,237	$	2,202

	March 31, 2003		December 31, 2002
Goodwill:
Sagent UK	$	1,746	$	1,746
Sagent France SA		645		645
Sagent GmbH		1,787		1,787
Sagent Asia/Pacific Pte. Ltd		2,389		2,389
Sagent Benelux		151		151

Total	$	6,718	$	6,718

	March 31, 2003		December 31, 2002
Other assets:
Deposits	$	486	$	495
Other		116		143

Total	$	602	$	638

	March 31, 2003		December 31, 2002
Employee compensation and benefits	$	1,503	$	2,472
Sales and marketing		1,137		1,186
Sales taxes		163		421
Software royalties		359		1,162
Restructuring and related charges (Note 9)		233		607
Other		905		540

Total	$	4,300	$	6,388

	Severance			Lease Termination Costs			Total
Accrual balance as of December 31, 2002	$	301		$	306		$	607
Cash paid in Q1		(152	)		(74	)		(226	)
Non-cash charges applied in Q1		(143	)		0			(143	)
Non-cash credit in Q1		(5	)		0			(5	)

Accrual balance at March 31, 2003	$	1		$	232		$	233

(amount in millions)	Remaining of 2003		2004		2005 and thereafter		Total
Short-term debt	$	3.1	$	—	$	—	$	3.1
Capital Leases		1.0		0.1		—		1.1
Operating Leases		2.1		0.5		0.1		2.7
Purchase obligation		0.6		0		0		0.6
Restructuring		0.2		0		0		0.2

Total	$	7.0	$	0.6	$	0.1	$	7.7

Name	Position	Joined Sagent
Andre Boisvert	President and Chief Executive Officer	September 2002
Patricia Szoka	Chief Accounting Officer	August 2001
Arthur Parker	President/General Manager—Europe, Middle East & Africa	January 2001
Stephen Walden	Vice President and General Manager—Centrus	June 1996

Number		Title

2.1	(10)	Asset Purchase Agreement dated April 15, 2003 between the Registrant and Group 1 Software, Inc.

3.1	(1)	Certificate of Incorporation of Registrant.

3.2	(1)	Amended and Restated Certificate of Incorporation of Registrant.

3.3	(1)	Bylaws of Registrant.

4.1	(1)	Form of Registrant’s Common Stock Certificate.

4.2	(2)	Common Stock Rights Agreement dated February 15, 2001 between the Registrant and the parties named therein.

4.3	(4)	Common Stock Rights Agreement dated July 23, 2001 between the Registrant and the parties named therein.

10.1	(1)*	Form of Indemnification Agreement entered into by Registrant with each of its directors and executive officers.

10.2	(1)*	1998 Stock Plan and related agreements.

10.3	(1)*	1999 Employee Stock Purchase Plan and related agreements.

10.4	(1)*	1999 Director Option Plan and related agreements.

10.6	(1)*	Master Equipment Lease Agreement, dated September 28, 1998 between the Registrant and Dell Financial Services, L.P.

10.7	(1)	Standard Office Lease, dated June 1, 1998, by and between the Registrant and Asset Growth Partners, Ltd., and the Amendment thereto.

10.8	(1)+	Development and Licensing Agreement, dated January 22, 1997, between the Registrant and Abacus Concepts, Inc.

10.9	(1)+	Microsoft License and Distribution Agreement, dated August 23, 1996, between the Registrant and Microsoft Corporation.

10.10	(1)+	Sagent KK Non-Exclusive Japanese Distribution Agreement, dated as of December 17, 1997, between Sagent KK Japan and Kawasaki Steel Systems R&D Corporation.

10.11	(1)	Form of Sagent Technology, Inc. End User Software License Agreement.

10.12	(1)+	OEM Software License Agreement, effective March 31, 1998, between the Registrant and Siebel Systems, Inc.

10.13	(1)	Form of Sagent Technology, Inc. Software Maintenance and Technical Support Agreement.

10.14	(1)	Form of Sagent Technology, Inc. Agreement for Consulting Services.

10.15	(1)	Form of Sagent Technology, Inc. Agreement for Subcontractor Consulting Services.

10.16	(1)	Form of Evaluation Agreement.

10.17	(1)	Notes, dated February 1, 1999 between the Registrant and Virginia Walker.

10.18	(1)	Notes, dated February 1, 1999 between the Registrant and Virginia Walker.

10.19	(1)+	Solution Provider Agreement, effective June 27, 1997, between the Registrant and Unisys Corporation.

10.20	(1)*	Executive Change of Control Policy.

Number		Title

10.21	(1)+	Software License and Services Agreement, dated March 31, 1998, between the Registrant and Siebel Systems, Inc.

10.24	(1)	Nonexclusive International Software Value Added Reseller (“VAR”) Agreement, dated December 8, 1997, between the Registrant and Opalis S.A.

10.25	(2)*	Employment Agreement dated August 4, 2000, between the Registrant and Ben C. Barnes.

10.26	(2)*	Offer letter dated May 9, 2000, between the Registrant and David Eliff.

10.27	(2)	Common Stock Purchase Agreement dated February 15, 2001, between the Registrant and the parties named therein.

10.28	(3)*	Service Agreement, dated January 1, 2001, between the Registrant and Arthur Parker.

10.29	(4)	Stock Purchase Agreement dated July 23, 2001, between the Registrant and the parties named therein.

10.30	(6)*	Offer letter dated October 9, 2001, between the Registrant and Richard Ghiossi.

10.31	(6)*	Offer letter dated October 31, 2001, between the Registrant and Steven R. Springsteel, and addendum dated November 16, 2001.

10.32	(6)*	Settlement Agreement and Mutual Release dated December 31, 2001, between the Registrant and Kenneth C. Gardner.

10.33	(7)*	Agreement dated July 22, 2002, between the Registrant and Steven R. Springsteel.

10.34	(7)*	Agreement dated July 22, 2002, between the Registrant and Andre M. Boisvert.

10.35	(7)*	Agreement dated August 1, 2002, between the Registrant and John Maxwell.

10.36	(7)*	Separation Agreement and Release executed on October 7, 2002, between the Registrant and Ben C. Barnes.

10.37	(7)*	Separation Agreement and Release executed on September 30, 2002, between the Registrant and Richard Ghiossi.

10.38	(8)	Investor’s Rights Agreement, dated November 1, 2002, between the Registrant and CDC Software Corporation.

10.39	(8)	Note and Warrant Purchase Agreement, dated October 24, 2002, between the Registrant and CDC Software Corporation.

10.40	(8)	Security Agreement, dated October 24, 2002, between the Registrant and CDC Software Corporation.

10.41	(8)	Security Promissory Note, dated November 1, 2002, between the Registrant and CDC Software Corporation.

10.42	(8)	Warrant, dated November 1, 2002, issued by Registrant to CDC Software Corporation.

10.43	(8)	Security Promissory Note, dated December 31, 2002, between the Registrant and CDC Software Corporation.

10.44	(8)	Warrant, dated December 31, 2002, issued by Registrant to CDC Software Corporation.

10.45	(9)	Warrant, dated November 1, 2002, issued by Registrant to Baruch Halpern and Shoshana Halpern.

10.46	(9)	Warrant, dated November 1, 2002, issued by Registrant to David Dohrmann.

10.47	(9)	Warrant, dated December 31, 2002, issued by Registrant to Baruch Halpern and Shoshana Halpern.

Number		Title

10.48	(9)	Warrant, dated December 31, 2002, issued by Registrant to David Dohrmann.

10.49	*	Amendment to Employment Agreement dated January 20, 2003, between the Registrant and Andre M. Boisvert.

16.1	(5)	Letter dated as of October 18, 2000 from PricewaterhouseCoopers LLP to the Securities and Exchange Commission.

99.1		Certifications of Chief Executive Officer and Chief Accounting Officer.