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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________ .
Commission file number 000-25315
SAGENT TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3225290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
800 W. El Camino Real, Suite 300
Mountain View, CA 94040
(Address of principal executive offices including zip code)
(650) 815-3100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$0.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates based
on closing sales price of the registrant's common stock as reported on The
Nasdaq Stock Market as of March 28, 2002, was approximately $46.2 million.
As of March 28, 2002, Registrant had 46,245,761 shares of common stock
issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information required in Part III of this annual report is incorporated
by reference to portions of the registrant's Proxy Statement for its 2002 Annual
Meeting of Stockholders to be filed on or prior to April 30, 2002.
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SAGENT TECHNOLOGY, INC.
FORM 10-K
For The Fiscal Year Ended December 31, 2001
TABLE OF CONTENTS
Page
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PART I
Item 1. Business ............................................................................... 3
Item 2. Properties ............................................................................. 12
Item 3. Legal Proceedings ...................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders .................................... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters .............. 14
Item 6. Selected Financial Data ................................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations... 15
Risk Factors That May Affect Future Results ............................................ 27
Item 7A. Quantitative and Qualitative Disclosure About Market Risk .............................. 34
Item 8. Financial Statements and Supplementary Data ............................................ 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures... 59
PART III
Item 10. Directors and Executive Officers of the Registrant ..................................... 59
Item 11. Executive Compensation ................................................................. 59
Item 12. Security Ownership of Certain Beneficial Owners and Management ......................... 60
Item 13. Certain Relationships and Related Transactions ......................................... 60
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules and Reports on Form 8-K ........... 60
Signatures ........................................................................................... 64
Exhibit Index
______________________
"Sagent," "Sagent Solution," "Real-time e-Business Intelligence," "Sagent
Data Load Server," "Sagent Data Access Server," "Sagent Admin," "Sagent
Automation," "Sagent Design Studio," "Sagent Information Studio," "Sagent
Analysis," "Sagent Reports," "Sagent WebLink," "Sagent Portal," "Sagent Address
Cleanser," "Sagent Forecaster Transform," "Sagent Statistical Calculator," are
trademarks, trade names or service marks of Sagent. This annual report also
contains trademarks, trade names and service marks of companies other than
Sagent, and these trademarks, trade names and service marks are the property of
their respective holders.
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PART I
This annual report contains forward-looking statements based on the current
beliefs of our management as well as assumptions made by and information
currently available to our management, including statements related to the
timing and amounts of our capital needs and expectations regarding licensing
revenues and operating expenses. You can identify these forward-looking
statements when you see us using words such as "expect," "anticipate,"
"believe," "estimate" and other similar expressions. These forward-looking
statements involve risks and uncertainties, including those described in the
section entitled "Risk Factors that May Affect Future Results" of "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this annual report. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect, our
actual results could differ materially from those anticipated in these
forward-looking statements. We undertake no obligation to publicly update any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
Item 1. Business
Sagent offers a complete 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 proven implementation methodology reduce the time and expense
required to deploy custom business intelligence solutions. Our technology also
forms the basis for multiple partner solutions that address the needs of
specific vertical and functional application areas.
More than 1,500 customers in a variety of market segments have realized the
value of Sagent-based solutions and have experienced an immediate return on
their investments.
Sagent was 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 annual report
to "Sagent," "we," "our" and "us" refer to Sagent Technology, Inc. and its
subsidiaries, unless the context otherwise requires. Our principal executive
office is located at 800 W. El Camino Real, Suite 300, Mountain View, California
94040, and our telephone number at that office is (650) 815-3100.
Industry Background
A company's information -- about its customers, products and operations --
has become a critical and strategic asset. As organizations pursue more complex
operational strategies, their need for timely information increases. With
businesses seeking to improve time to market and respond to rapidly changing
market conditions, decision-making processes are becoming more distributed, thus
heightening the need for broader dissemination of information throughout the
enterprise. The Internet has given organizations the ability to share
information internally and externally on a cost-effective basis and has
dramatically increased the number of people who can receive and access
information.
Companies are looking for new, more effective ways to identify, qualify and
sell to customers while they are at a company's website, call center, or store
location. Many businesses use data about customers' prior buying habits to
target marketing activities and create compelling offers for new products or
services. But this historical data only delivers part of the picture. By
augmenting the data collected during each customer interaction with value-added
external information -- such as demographic, firmographic, and geographic
content -- companies can get a clearer picture of who their customers are and
what they need. Having a complete view of the customer enables companies to
improve customer relationships and identify new opportunities for selling,
cross-selling, and up-selling. Moreover, by understanding the actual geographic
location of a customer's household, and the customer's proximity to services and
potential hazards, companies can make rapid assessment of customer value as well
as risk.
In addition to gaining insight into customers, today's companies also
require a better understanding of their own operations. To improve the
timeliness and quality of critical business decisions, companies must give
front-line managers the ability to rapidly develop, track, and respond to key
business metrics. Empowering employees to make better operational decisions
requires an information supply chain that delivers a thorough understanding of
all business processes. However, the critical business information companies
need to facilitate strategic decision-making is often locked up in multiple,
disparate applications, databases, and legacy systems across departments,
divisions, and the enterprise.
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Finally, with many companies seeking to develop analytic applications that
give them insight into their business, a new challenge for the industry is to
deliver rapid results (a driver behind packaged applications) while
accommodating the business models that are unique to each company (traditionally
accomplished through custom-coded solutions). Organizations want to preserve the
company-specific analytics that mirror their objectives, processes and "go to
market" strategy, but are anxious to leverage pre-built industry or
functional-area content to accelerate time to deployment and reduce
implementation costs.
Solution
Sagent provides business users with a complete business intelligence
platform and lifecycle methodology that simplifies the steps to business
insight, minimizes project costs and risks, and creates new opportunities for
rapid business analysis. Our solutions are designed to organize disparate data
and support thousands of users as they pursue goals such as reduced operational
costs, increased profitability, and improved customer retention. We combine
subject matter expertise with pre-built metrics and data extraction components
for specific functional areas to rapidly deliver results that fit each
individual company.
To augment our in-house capabilities, Sagent has partnered with leading
subject matter experts in industries such as retail, banking, insurance,
finance, energy, government and telecommunications. We work closely with these
experts to create semi-custom solution packages that are targeted at specific
business problems. Each package has an aggressive implementation schedule and an
attractive timeline for return on investment. Our implementation partners and we
initiate a joint consulting engagement that follows our Business Intelligence
Lifecycle, and uses our Business Intelligence Platform and its built-in
analytics as an enabling infrastructure for solution construction and
deployment.
Since Sagent is a technology company focused on business solutions, we
partner with leading regional and global systems integrators to leverage our
manpower, business expertise and presence in the global business intelligence
marketplace. Through partner alliances with companies such as Cap Gemini Ernst &
Young, Satyam Computer Services and Affiliated Computing Services (ACS), Sagent
offers its customers the ability to expand their plans to include
enterprise-wide deployments that cross departmental, divisional and
international boundaries.
Sagent offers many examples in which this model has been successfully
applied. In the U.S. insurance industry, we have helped several companies to
improve their business by systematically managing underwriting risk and by
matching insurance product offerings with customers based on a specific
geographic location. In the telecommunications industry, this same spatial
analysis capability is being used with wire line and facility location data to
pre-qualify customers for Digital Subscriber Line (DSL) technology that enables
high-speed communications over existing telephone networks. In the credit union
marketplace, we have helped customers such as Boeing Employees Credit Union,
Provident Central Credit Union and Hughes Aircraft Employees Federal Credit
Union build complete views of their customers and replace their legacy systems.
Each of these implementations leveraged our or our partners' subject matter
expertise to rapidly deploy custom analytic solutions that addressed specific
business problems.
Products and Services
The Sagent Business Intelligence Lifecycle
Sagent's products are organized around the concept of a complete Business
Intelligence (BI) Lifecycle -- a business-focused process for managing the
design, technical implementation and deployment of custom Business Intelligence
solutions. With the BI Lifecycle, Sagent simplifies Business Intelligence so
companies can deal with the real complexities that face their businesses. The BI
Lifecycle brings together people, process and technology to close the gap
between the amount of information available to the business and the number of
key decisions that need to be made.
The Business Intelligence Lifecycle consists of seven distinct phases, each
of which is supported by one or more Sagent products or services.
Design
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. Sagent supports a proven, repeatable methodology that encompasses
business requirements analysis, project management, data warehouse
design, system implementation and end-user training (Sagent Design
Workshop, Sagent ROI Analysis Workshop)
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. Sagent professional services consultants deploy these techniques quickly
and efficiently through proof of concepts, design workshops, formal
classroom training and onsite mentoring of project staff (Sagent
Educational Services, Sagent RightStart Workshop)
Connect
- -------
. Sagent has the ability to understand a wide variety of data source formats
spanning the spectrum from old legacy applications to the latest e-business
systems (Sagent DirectLink for Mainframe and AS/400, Sagent DirectLink for
R/3, Sagent Load Server, Sagent Access Server)
. Sagent customers interact with an easy-to-use visual design environment
that lets them quickly evaluate and assimilate new sources of data (Sagent
Design Studio)
Cleanse
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. Sagent includes a powerful set of functions that can be used to
systematically cleanse data and put it in a format that is appropriate for
business analysis (Sagent Load Server)
. Address information can be easily corrected to help companies obtain a
complete and accurate view of their customers and suppliers (Sagent Address
Cleanser / Coder, Sagent Address Broker, Sagent Merge/Purge)
Integrate
- ---------
. Sagent can process massive amounts of data using all of the computing power
available on any sized server, and can support the daily processing
requirements of any sized organization (Sagent Load Server)
. Sagent joins, merges and consolidates multiple streams of data in real
time, and supports both database loading and presentation of data (Sagent
Load Server, Sagent Access Server)
Analyze
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. Sagent allows business users to work with their data using analytic
components that connect together in flexible ways and do not require
programming (Sagent Access Server, Sagent Information Studio)
. Sagent's analytical component library includes solutions for forecasting,
statistical analysis and geo-spatial determination (Sagent Forecaster,
Sagent Analytical Calculator, Sagent Point in Polygon and Sagent Closest
Site Transforms)
Deliver
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. Sagent provides a web-based, thin-client information delivery
infrastructure that scales to hundreds and thousands of users across both
intranets and extranets (Sagent WebLink, Sagent iPortal)
. Sagent enables real-time analysis through an intuitive, easy-to-use
browser-based interface that can be understood by beginners and exploited
by power users (Sagent iStudio)
. Sagent enables information delivery through third party delivery tools
including Business Objects and Crystal Decisions (Sagent Access Server)
Understand
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. Sagent provides built-in support for online analytical processing (OLAP)
using data in relational databases from leading vendors such as Oracle,
Microsoft, IBM and Sybase (Sagent Analysis)
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. Operational reports can be easily deployed to large numbers of users with
excellent performance and a high-degree of reliability, and can also be
extended for use with 3rd-party front-end tools such as Microsoft Excel and
Crystal Reports (Sagent Reports, Sagent iStudio)
Sagent's Products
Sagent Business Intelligence Platform
-------------------------------------
Sagent's Business Intelligence Platform is a complete, open and
high-performance software infrastructure that supports every phase of the BI
Lifecycle and allows companies to aggressively develop custom analytic solutions
that yield insight into their customers and business operations. The platform
consists of several key components that integrate with a growing number of data
integration and information delivery tools from Sagent and 3rd-party providers.
Sagent Data Flow Server
-----------------------
The Sagent Data Flow Server is multi-user application server that processes
disparate sources of data and prepares it for use within analytical
applications. When it is bundled with the foundation library, the Data Flow
Server is sold as the Sagent Data Load Server and is used for data warehouse
construction and maintenance. When it is bundled with the display library, the
Data Flow Server is sold as the Sagent Access Server and is used to prepare
information for use within reporting and analysis tools
Sagent Repository
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The Sagent Repository stores all of the technical metadata (data about
data) required to create and manage data warehouses, as well as the information
required for deploying Sagent access plans to front-end tools. The Sagent
Repository is open, and can be hosted on any of the popular relational
databases.
Sagent Analytical Component Libraries
-------------------------------------
Business Intelligence professionals and business analysts use our analytic
components to solve a broad variety of data integration and data analysis
problems. Analytic components are discrete software components that can be
created, installed and upgraded independently of one another. Analytic
components package the knowledge, methods and best practices developed by
subject matter experts and allow it to be implemented by business users with
minimal training.
Sagent WebLink
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WebLink is the server layer that connects the Data Flow Server to the
Internet. It provides a robust, scalable interface to web servers and web
application servers. WebLink allows corporate developers and our system
integration partners to create and deploy custom analytic solutions over
corporate intranets and the Internet
Research and Development
Product Enhancements from QMS Acquisition
-----------------------------------------
Our acquisition in December 1999 of Qualitative Marketing Software, Inc., or
QMS, further enhanced the capabilities of our product suite. With the QMS
technologies, we now provide tools and services for data quality, enhancement
and profiling. These products enable our customers to supplement the data they
already have with value-added external information -- such as demographic,
firmographic, and geographic content. This enables a number of important
applications for marketing, customer service, and customer relationship
management, including:
. Data enhancement -- records are appended with neighborhood, household,
and business information U.S. Census demographics and national
consumer and business data.
. Spatial enhancement and analysis -- records are appended with
address-level latitude and longitude coordinates.
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. Address standardization, correction and verification -- records are
checked against the official U.S. and Canada Postal Services
deliverable address database for address correction and addition of
ZIP+4, carrier route, delivery point bar code data, line-of-travel
codes and more.
. Householding and record consolidation -- data from diverse sources are
consolidated to combine records of people living under the same roof
into a single record.
. Move updating -- our technology matches customer and prospect
databases against approximately 16 million individuals and businesses
in the USPS FAST forward database that have changed addresses during
the past six months. When a match is found, that record is updated
automatically.
Release of Sun-based Solution
-----------------------------
In Q1 2001, we passed a critical development milestone with the release of
the internationalized Sagent Solution for the Sun Microsystems Solaris platform.
During the year we won major new accounts with the new Solaris release including
SunGard Securities, Pinnacle West Energy, California State AAA Insurance, Mentor
Graphics, CTC (largest Sun reseller in the world), Singapore Telephone and NTT
DoCoMo.
Release of Sagent Solution 4.5i
-------------------------------
In Q3 2001, we released Sagent Solution 4.5i. This was a major milestone
for Sagent, as it was the first product release for both NT and Solaris, with
simultaneous domestic and international availability. The release incorporated
significant performance enhancements (50% improvement), new analytic transforms,
and iStudio -Sagent's first web-based reporting solution. Of the new customers
in 2001, over 30 percent purchased the complete Sagent Solution-confirming the
market's growing requirement for an end-to-end business intelligence solution.
Integrated Business Intelligence Solution for Mainframes
--------------------------------------------------------
In Q4 2001, we launched our new integrated business intelligence solution
for mainframe computers and IBM AS/400 mid-range computers. This capability
allows for data extraction and data integration without time-consuming, tedious
programming.
In Q4 2001, we were granted a new patent by the U.S. patent office for our
unique metadata definitions process, illustrating our continued and innovative
technology leadership.
Further Product Development
---------------------------
We intend to continue making substantial investments in research and
development and related activities to maintain and enhance our product lines.
Product development is based upon a consolidation of the requirements from the
BI markets, existing customers, technical support and engineering. Sagent
provides documentation, quality assurance and delivery and support capabilities
(as well as product design and implementation) for our products. There can be no
assurance that we will be able to complete these engineering activities in a
timely or successfully manner, and the failure to do so could have a material
adverse effect upon our business, operating results and financial condition.
Services
To complement our product offering, we also offer professional consulting
and training services to help customers achieve fast and full value from their
implementation of the Sagent Solution. Sagent Professional Services, or SPS,
provides a wealth of product and industry experience, from project definition
and application development to deployment, training, and ongoing support.
Sales and Marketing
We are focused on building market awareness, acceptance of our products and
services, and on developing strategic partnerships. Key components of our
marketing strategy are image and awareness building, direct marketing to both
prospective and existing customers, a strong Internet presence, and marketing
activities with key local and global partners. Our corporate marketing strategy
includes extensive public relations activities, lead generation campaigns and
presentations at conferences and trade shows. Our direct marketing activities
include participation in selected trade shows and conferences, targeted
advertising, direct mail efforts to existing
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and prospective customers, and local, regional and on-site and web-based
seminars. Our corporate website is also used to generate leads for follow-up by
our sales organization. Our inside sales group provides telemarketing support,
as well as qualification of leads from other channels. Our partner and channel
marketing activities help to recruit, train, support and conduct cooperative
marketing with technology partners, resellers and value-added resellers. These
programs help to foster strong relationships with our partners and take
advantage of opportunities for marketing leverage. Our marketing organization
also provides a wide-range of programs, materials and events to support the
sales organization in its efforts. We have several strategic relationships,
including Hyperion Solutions, Advent Software, Cap Gemini Ernst & Young, EDS,
UNISYS and Microsoft.
In 2001 we created subsidiaries in the Netherlands, Australia and Mexico.
We gained majority ownership in our Asia Pacific joint venture, a joint venture
between Sagent and eGlobal. We also entered into an agency agreement with a
distributor in Italy.
In Q3 2001, we signed a system integrator agreement with Satyam in India,
an end-to-end IT solutions provider. In Q4 2001 we closed a major OEM contract
and strategic partnership with Hyperion to embed various components of our
technology into Hyperion's Business Intelligence Platform, and to have Hyperion
resell certain Sagent products to their customers. We also signed a systems
integration agreement with Cap Gemini Ernst & Young, which yielded five new
customers. In Q4 2001, we signed a joint sales and marketing agreement with CTC,
the largest Sun distributor in the world. Lastly, we are continuing to have
success with system integrator partner, UNISYS, particularly in Latin America.
The sales and marketing staff is based at our corporate headquarters in
Mountain View, California. Our inside sales organization is based in Boulder,
Colorado. We also have field sales offices in 12 locations around the United
States, and 13 field sales offices in countries throughout the world.
Indirect Sales
We have grown our indirect sales channel by focusing on expanding our
relationships with partners who create Sagent-integrated solutions for the needs
of companies globally, who resell our product line, who are certified experts in
delivering custom application consulting and implementation, and those who
extend our marketing reach. About twenty-five percent (25%) of Sagent's 2001
revenue was generated through such indirect channels. These channels included
the following:
. Independent Software Vendors (ISV's) - OEM partners embed Sagent
products in their own applications to form specialized analytical
solutions for vertical or functional applications. Key partners
include Advent Software, Hyperion Solutions, Risk Management System
(RMS) and Siebel Systems.
. Systems Integrators - Systems integrator partners deliver custom
application consulting and related implementation, integration, and/or
training services. Key systems integrator partners include ACS, Cap
Gemini Ernst & Young, and Satyam.
. Alliance Programs - Alliance partners cooperatively position and
market the benefits of a comprehensive, integrated multi-vendor
solution to the marketplace. Key alliance partners include Microsoft
and Sun Microsystems.
. Distributors - To complement our global sales efforts and address
certain international markets, Sagent uses resellers and distributors
to market many of our products. Key distributors include Fujitso,
Intec and Kavasaki.
Sagent offers a compelling value proposition to partners; for example, for
ISV partners, Sagent provides business intelligence extensions to partner
product lines. By taking advantage of our visual programming interface and fully
integrated analytic components, ISV partners achieve faster time to market and
lower their non-recurring engineering costs and maintenance costs.
Sagent enables solutions-oriented sytem integrator (SI) partners to lower
software integration costs and offer feature-rich products that permit more
rapid deployment of the initial solution. Total software costs, with Sagent
Solutions, are typically less than alternatives (e.g., AB Initio, Informatica,
Ascential, Cognos, Microstrategy, Trillium, Firstlogic, etc.) because Sagent
offers a complete solution, with products that address the entire Business
Intelligence Lifecycle. Sagent's SI partners are able to increase consulting
margins by entering fixed-bid engagements with confidence and focusing on higher
margin business process consulting for solution deployment.
Sagent has a comprehensive SI partner program. Certified SI partners are
entitled to participate in programs such as: discounted consultant training,
practice/project leader awareness, joint sales & marketing, development and
demonstration software licenses, and user conferences.
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Customers
We currently have more than 1,500 customers throughout the world and across
such diverse industries as insurance, financial services, retail, e-commerce,
healthcare and telecommunications. The following are several of our larger
customers:
. Allstate
. Boeing Credit Union
. California State Auto Association
. Carrefour (France)
. Fujitsu (Japan)
. Haht Software
. Hughes Aircraft
. Hyperion
. IndyMac Bank
. Kawasaki Steel (Japan)
. Nationwide (UK)
. OfficeMax
. Risk Management System
. Sears
. Siebel Systems
. Telcordia
. Tickets.com
. United Health Group
. Unisys
We had no single customer during 2001 that accounted for 10% or more of our
total 2001 revenues. Sales to customers located outside the United States
accounted for 28% of our total 2001 revenue.
Competition
We operate in an intensely competitive, highly fragmented, and rapidly
changing market. Our current and potential competitors offer a variety of
software solutions and generally fall within five categories:
. Vendors of packaged analytic applications such as Informatica,
Broadbase, E.Piphany;
. Vendors of business intelligence software such as Cognos, Brio,
MicroStrategy, and Hummingbird;
. Vendors of data warehousing/data mart infrastructure environments such
as Informatica, Ascential, and Acta;
. Database vendors that offer products which operate specifically and
only with their proprietary database, such as Oracle, IBM, and
Microsoft;
. Data providers and distributors such as Axciom and HotData.
The variety of current and potential competitors, and the emerging nature
of the market makes our competitive position uncertain. We have experienced and
expect to continue experiencing increased competition from current and potential
competitors, many of whom have significantly greater financial, technical,
marketing and other resources than us. Such competitors may be able to devote
greater resources to the development, promotion and sales of their products, or
to respond more quickly to changes in customer requirements and/or evolving
technology. We anticipate additional competition as other vendors enter the
market and new products and technologies are introduced. Increased competition
could result in price reductions, fewer customer orders, reduced gross margins,
longer sales cycles and loss of market share, any of which could materially and
adversely affect our business, operating results and financial condition.
Current and potential competitors may make strategic acquisitions or
establish cooperative relationships among themselves or with third parties,
thereby increasing the ability of their products to address the needs of our
prospective customers. Our current or future indirect channel partners may
establish cooperative relationships with our current or potential competitors,
thereby limiting our
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ability to sell products through particular distribution channels. Accordingly,
it is possible that new competitors or alliances among current and new
competitors may emerge and rapidly gain significant market share. Such
competition could materially adversely affect our ability to obtain new
licenses, and maintenance and support renewals for existing licenses on
favorable terms. Further, competitive pressures may require us to reduce the
price of its products, which could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that we will be able to compete successfully against current and future
competitors, and the failure to do so could have a material adverse effect upon
our business, operating results and financial condition.
Our products compete on the basis of the following factors:
. completeness of solution
. product features
. product breadth
. product quality
. product performance
. analytical capabilities
. access to external information
. data quality features
. user scalability
. web integration
. data volume scalability
. ease of use
. customer support
. rapid implementation services
. price
We believe our products presently compete favorably with respect to each of
these factors. However, our market is still evolving and there can be no
assurance that we will be able to compete successfully against current and
future competitors, and the failure to do so successfully could have a material
adverse effect on our business, operating results and financial condition.
Intellectual Property
We rely on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect our
proprietary rights. We also believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position.
We seek to protect our software, documentation and other written materials
under trade secret and copyright laws, which afford only limited protection. We
hold 5 United States patents. There can be no assurance that our patents will
not be invalidated, circumvented or challenged, or that the rights thereunder
will provide us with competitive advantages.
There can be no assurance that others will not develop technologies that
are similar or superior to our technology or design around any patent that we
may come to own. Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Policing unauthorized use of
our products is difficult, and while we are unable to determine the extent to
which piracy of our software products exists, software piracy can be expected to
be a persistent problem. In addition, the laws of some foreign countries do not
protect our proprietary rights as fully as do the laws of the United States.
There can be no assurance that our means of protecting our proprietary rights in
the United States or abroad will be adequate or that competitors will not
independently develop similar technology.
We have entered into source code escrow agreements with a number of
customers and indirect channel partners requiring release of our source code
under certain circumstances. Such agreements provide that the contracting party
will have a limited, non-exclusive right to use the code subject to the
agreement in the event that:
. there is a bankruptcy proceeding by or against us;
. if we cease to do business; or
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. in some cases, if we fail to meet our contractual obligations.
We expect that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in our industry
segment grows and the functionality of products in different industry segments
overlaps. Any claims, with or without merit, could:
. be time consuming to defend;
. result in costly litigation;
. divert management's attention and resources;
. cause product shipment delays; or
. require us to enter into royalty or licensing agreements.
Such royalty or licensing agreements, if required, may not be available on
acceptable terms, if at all. In the event of a successful claim of product
infringement against us and our failure or inability to license the infringed or
similar technology, our business, operating results and financial condition
could be materially adversely affected.
Finally, in the future we may rely upon software that we may license from
third parties, including software that may be integrated with our internally
developed software and used in our products to perform key functions. There can
be no assurance that these third-party software licenses will be available on
commercially reasonable terms. Our inability to obtain or maintain any third
party software licenses could result in shipment delays or reductions until
equivalent software could be developed, identified, licensed and integrated,
which could have a material adverse effect on our business, operating results
and financial condition.
Employees
As of December 31, 2001, we employed 283 full-time personnel, including 174
in sales and services, 11 in marketing, 73 in research and development and 25 in
general and administrative positions. Of these employees, 197 were located in
the United States and 86 were employed in other countries.
None of our employees are represented by a labor union. We have experienced
no work stoppages and believe that our employee relations are good. We believe
that our future success will also depend in large part upon our ability to
attract and retain highly skilled managerial, engineering, sales and marketing
and finance personnel. Competition for such personnel is intense, and there can
be no assurance that we will be successful in attracting and retaining such
personnel. The loss of the services of any of the key personnel, the inability
to attract or retain qualified personnel in the future, or delays in either
hiring required personnel, or the rate at which new people become productive,
particularly sales personnel and engineers, could have a material adverse effect
on our business, operating results and financial condition.
11
Item 2. Properties
Our principal offices currently occupy approximately 34,000 square feet in
Mountain View, California, pursuant to a lease which expires in October 2003. We
also lease a research facility in Boulder, Colorado and have 14 short-term
executive suites leases in North America, including locations in:
. Arizona
. California
. Colorado
. Florida
. Georgia
. Illinois
. Massachusetts
. New York
. Texas
. Virginia
. Washington
Sagent exited the Florida property as part of its restructuring program
approved by the Board of Directors in December 2001. We also have sales offices
in Germany, France, Netherlands, Brazil, Japan, Mexico, Australia, and the
United Kingdom. We believe that our facilities are adequate to meet our needs
for the next 12 months and that, if required, suitable additional space will be
available on commercially reasonable terms to accommodate expansion of our
operations.
Item 3. Legal Proceedings
From time to time, the Company has 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, the Company
will assess its potential liability and revise its 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, the Company is engaged in certain legal and administrative
proceedings incidental to our normal business activities and believes 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 on behalf of the individual
investors who purchased Sagent common stock between October 21, 1999 and April
18, 2000. The claims allege that Sagent misrepresented its prospects for 1999
and the first quarter of 2000. Thereafter, the court consolidated the complaints
and selected a lead plaintiff and counsel. A consolidated amended complaint was
filed in April 2001. The defendants filed a motion to dismiss the consolidated
amended complaint. On September 28, 2001, the court granted the defendants'
motion, and gave the plaintiffs leave to amend the complaint. On December 28,
2001, the class plaintiffs filed a second amended complaint. Defendants filed a
motion to dismiss that complaint on February 15, 2002. The hearing on
defendants' motion is scheduled for May 6, 2002.
On November 17, 2000, a derivative lawsuit was filed by a purported Sagent
shareholder in the Superior Court of California for the County of San Mateo (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. The Hu complaint also names an investment bank retained
by us and an employee of that firm as defendants. We have also been named as a
nominal defendant. The principal allegation of the complaints is that the
defendants breached their fiduciary duties to Sagent. In July 2001, the two
cases were coordinated for pretrial purposes in the Superior Court of California
for the County of Santa Clara. Sagent filed a motion to dismiss the Fanucci
complaint, on the ground that, among other things, the plaintiff 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 that motion, and also moved to
dismiss on the grounds that the complaint fails to allege the asserted causes of
action against the individual defendants. Similar motions were filed concerning
the Hu complaint.
The parties agreed to defer the Hu proceeding indefinitely, pending the
outcome of the Fanucci matter. The court entered an order deferring the Hu
complaint on January 11, 2002. Thereafter, on January 16, 2002, the Fanucci
plaintiff filed a motion to
12
transfer and/or remand that case back to the Superior Court for San Mateo County
where it was originally filed. The court heard oral argument on defendants'
motion to dismiss the Fanucci complaint, and the plaintiffs' transfer motion on
January 28, 2002. On March 1, 2002, the court issued an order sustaining
Sagent's motion to dismiss, granting the plaintiff leave to amend his complaint,
denying the plaintiff's motion to transfer an/or remand the Fanucci case to San
Mateo County, and ordering Sagent to produce a limited quantity of documents to
the plaintiff.
In October 2001, infoUSA, Inc. filed a complaint against Sagent 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 Sagent on December 20, 2001, for failure by Sagent to
respond to the intial complaint. Sagent filed a motion to set aside the default
judgment in January, 2002. On February 22, 2002, the court granted Sagent's
motion to set aside the default judgment, and allowed Sagent to file its answer
to the complaint.
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 investors who purchased Sagent common stock between May 11, 2001 and
November 28, 2001. The complaints allege that Sagent and certain of its officers
and directors violated the Securities Exchange Act of 1934. The complaints
allege that during the class period, the defendants caused Sagent's shares to
trade at artificially inflated levels through the issuance of false and
misleading financial statements. The court has selected a lead plaintiff in that
action and we expect a consolidated amended complaint to be filed.
In February 2002, two derivative lawsuits were filed by purported Sagent
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 principal allegation of the complaints is that the
defendants breached their fiduciary duties to Sagent.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of 2001.
13
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Our common stock is listed for trading on The Nasdaq Stock Market's
National Market under the symbol "SGNT." The following table lists the high and
low closing sales prices of our common stock for the periods indicated.
HIGH LOW
-------- --------
Year Ended December 31, 2001:
Fourth Quarter............................ $ 1.93 $ 0.61
Third Quarter............................. $ 2.56 $ 1.10
Second Quarter............................ $ 2.20 $ 1.12
First Quarter............................. $ 4.88 $ 1.63
Year Ended December 31, 2000:
Fourth Quarter............................ $ 7.63 $ 1.19
Third Quarter............................. $ 13.94 $ 7.44
Second Quarter............................ $ 28.00 $ 6.25
First Quarter............................. $ 43.63 $ 16.63
At March 25, 2002, there were approximately 271 stockholders of record of
our common stock, and the last reported sales price of our common stock was
$1.08. Because many of our shares of common stock are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of shareholders requested by these record holders.
We have never declared or paid cash dividends on our common stock. We
expect to retain future earnings, if any, for use in the operation of our
business and do not anticipate paying any cash dividends on our common stock in
the foreseeable future.
14
Item 6. Selected Financial Data
The following selected consolidated annual and quarterly financial data are
qualified by reference to, and should be read in conjunction with, our
Consolidated Financial Statements, including the Notes, and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this annual report.
Selected Annual Financial Data
Year Ended December 31,
----------------------------------------------------------------
2001 2000 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Net revenue ..................................... $ 47,418 $ 58,188 $ 48,001 $ 25,001 $ 12,322
Net loss ........................................ $ (40,263) $ (23,704) $ (12,092) $ (15,056) $ (7,188)
Net loss per common share:
Basic and diluted ............................. $ (1.02) $ (0.82) $ (0.55) $ (2.60) $ (1.46)
Total assets .................................... $ 49,786 $ 46,087 $ 66,704 $ 18,617 $ 11,586
Long-term obligations ........................... $ 1,554 $ 895 $ 1,491 $ 4,062 $ 5,363
Retained earnings (accumulated deficit) ......... $ (107,204) $ (66,941) $ (43,237) $ (31,145) $ (16,089)
Total stockholder's equity ...................... $ 24,853 $ 26,665 $ 43,374 $ 2,299 $ 5,106
Selected Quarterly Financial Data
Three Months Ended
-----------------------------------------------------------
March 31 June 30 September 30 December 31
--------- ---------- ------------ -----------
(in thousands, except per share data)
2001:
Revenue .................................... $ 10,291 $ 12,534 $ 11,448 $ 13,145
Gross profit ............................... $ 6,327 $ 8,757 $ 7,327 $ 8,768
Net loss before income taxes ............... $(10,499) $ (6,911) $(12,508) $ (9,831)
Net loss ................................... $(10,524) $ (6,943) $(12,760) $(10,036)
Earnings (losses) per share:
Basic and Diluted ........................ $ (0.32) $ (0.19) $ (0.31) $ (0.22)
2000:
Revenue .................................... $ 14,537 $ 17,502 $ 13,819 $ 12,330
Gross profit ............................... $ 11,831 $ 14,587 $ 10,256 $ 8,524
Net loss before income taxes ............... $ (2,009) $ 1,540 $ (8,182) $(14,543)
Net loss ................................... $ (2,019) $ 1,533 $ (8,381) $(14,837)
Earnings (losses) per share:
Basic .................................... $ (0.07) $ 0.05 $ (0.29) $ (0.51)
Diluted .................................. $ (0.07) $ 0.05 $ (0.29) $ (0.51)
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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 "Factors That May Affect
Future Results" 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.
In November 2001, we discovered that certain sales orders were invalid. We
undertook an investigation, which determined that the invalid sales orders were
limited to software licenses to certain government agencies submitted by one
employee in the Washington D.C. office. As a result, the unaudited condensed
consolidated financial statements included in the Quarterly Reports on Form 10-Q
filed on May 15, 2001 and August 14, 2001 were restated to remove the effect of
the invalid sales orders. To the extent the following discussion and analysis
refers to financial results for the period ended December 31, 2001, such
discussion and analysis refers to such results as so revised.
15
Overview
We provide business intelligence solutions that enable enterprises to win,
retain, and grow new customers and improve operational effectiveness. We
develop, market, and support products and services that help businesses collect,
analyze, understand, and act on customer and operational information both in
batch and in real-time. Our products and services provide a way for an
organization's employees, customers, and partners to use the Internet to examine
the internal data they already have and to supplement that data with external,
value-added information such as demographic, geographic, or other content and
data feeds. We refer to our products as business intelligence solutions because
they enable organizations to rapidly make more informed, intelligent decisions
and to spread that ability across the enterprise.
Recent Major Developments
Restructuring
In response to challenges in the business environment, in December 2001,
our Board of Directors approved a restructuring program aimed at streamlining
its underlying cost structure to better position us for growth and improved
operating results. The reductions came from all areas of the organization and,
as of December 31, 2001, the majority of these terminations were completed and
resulted in a restructuring charge of $0.7 million, which consisted of $0.3
million related to reduction in workforce and $0.4 million in estimated facility
and exit costs that were associated with the closing of two facilities.
The majority of the cost savings is expected to be realized as a result of
lower headcount and reduced facility costs. Over time, these cost savings are
expected to be partially offset by increased operating expenses to support
future growth.
While we believe that our business realignment will assist us in increasing
revenues, reducing expenses, and thereby achieving profitability, we cannot
assure you that we will achieve these anticipated results. We may in the future
need to take additional actions, including further changes to the business
organization, in order to realign the business with anticipated requirements. If
we are not successful in realigning our business to increase revenues and
decrease costs, we may never achieve profitability.
Private Placements
In February 2001, we completed a private placement of approximately 5.7
million shares of our common stock and received proceeds of $16.0 million, net
of $0.6 million in offering costs. In connection with the private placement, we
also issued to certain placement agent warrants to purchase 0.2 million shares
of our common stock. In August 2001, we completed a second private placement of
approximately 9.1 million shares of our common stock and received proceeds of
$15.8 million, net of $1.0 million in offering costs. In connection with the
private placement, we also issued to certain placement agent warrants to
purchase 0.5 million shares of our common stock. We plan to use the net proceeds
of these offerings as working capital to finance the daily operation of the
company.
Strategic Alliance
In December 2001, we entered into an alliance agreement with Hyperion to
embed various components of our technology into Hyperion's Business Intelligence
solution. Under the terms of the agreement, our patented Data Flow Server, data
transformation capabilities and various elements of our user interface will be
integrated into Hyperion's enterprise business intelligence solutions. Hyperion
may also resell certain Sagent products as a value-add to customers. Sagent and
Hyperion have agreed to share existing and future patent rights related to the
Sagent technology used in the Hyperion business intelligence solution. We were
paid an up front fee in connection with this agreement in December 2001 and have
the opportunity to earn royalties in the future as Hyperion re-sells the
licensed technology.
Business Combinations
In January 2001, we acquired an additional 33% interest in Sagent
Asia/Pacific Pte. Ltd from eGlobal, a privately held company that specializes in
the distribution of technology products and services in Singapore and other Asia
countries. In consideration for 1.0 million shares of our common stock, valued
at $3.5 million, we received an additional 2.1 million common shares of Sagent
Asia/Pacific Pte. Ltd. This brings the total interest of Sagent in Sagent
Asia/Pacific Pte. Ltd to 53%. The acquisition was recorded
16
under the purchase method of accounting. In connection with the acquisition, we
recorded goodwill of $2.8 million, which is being amortized on a straight-line
basis over a period of five years and acquired gross assets of approximately
$2.8 million and minority interest of $1.3 million. Goodwill amortization will
cease on January 1, 2002, upon adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets". Assets acquired
consist primarily of cash and accounts receivable. The results of operations for
Sagent Asia/Pacific Pte. Ltd. have been included in our consolidated results
from the date of the acquisition.
In April 2001, we acquired 100% interest in Sagent Benelux for cash of $0.1
million and the assignment of a portion of our outstanding accounts receivable
valued at $0.2 million to the selling shareholders. The acquisition was recorded
under the purchase method of accounting. In connection with the acquisition, we
recorded goodwill of $0.2 million, which is being amortized on a straight-line
basis over a period of five years. Goodwill amortization will cease on January
1, 2002, upon adoption of Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets". The results of operations of Sagent
Benelux have been included in our consolidated results from the date of the
acquisition.
Critical Accounting Policies
Sagent's critical accounting policies are as follows:
. Revenue Recognition
. Valuation of long-lived assets and goodwill
. Consolidation of Sagent's international operations
. Valuation allowances
Revenue recognition
Sagent sells its software products directly to our customers and through
channel partners such as enterprise software vendors, resellers and
distributors. Enterprise software vendors generally integrate our products with
their applications and will embed them into their products or resell them with
their products. Our other channel partners, principally resellers and
distributors, sell our software products to end user customers.
Sagent derives its revenue from license fees for software products and fees
for services relating to the software products, including consulting, training,
software and data updates, technical support and real-time marketing services
over the Internet.
Sagent recognizes 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 as set
forth in paragraph 8 of SOP 97-2: 1) persuasive evidence of an arrangement
exists, 2) delivery had 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 the
Company.
Delivery has occurred - Our software may be either physically or
electronically delivered to the customer. 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 - Arrangement fees are generally due
within six months or less. Arrangements with payment terms extending beyond
these customary payments terms are considered not to be fixed or determinable,
and revenue from such arrangements is recognized as payments become due.
Collectibility is probable - Collectibility is assessed on a
customer-by-customer basis. New customers are subjected to a credit review
process, which evaluates the customers' financial positions and ultimately their
ability to pay. Sagent assesses collectibility based on a number of factors,
including past transaction history with the customers and their credit
worthiness. Sagent obtains and reviews credit reports from the third-party
credit reporting agencies for new customers with which it is not familiar. If
Sagent
17
determines that collection of a fee is not probable, it defers the fee and
recognizes revenue at the time collection becomes probable, which is generally
upon receipt of cash.
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 have analyzed all of the elements
included in our multiple-element arrangements and determined that we have
sufficient VSOE to allocate revenue to maintenance, professional services and
data services components of our license arrangements. We sell our data and
professional services separately, and have established VSOE on this basis. We
have also established VSOE for maintenance services for accounts less than $1
million through selling such services separately. VSOE for maintenance services
for accounts greater than $1 million is determined based upon the customer's
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 support services is recognized ratably over their respective terms.
Sagent usually licenses its 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) such evidence does exist for the undelivered elements,
or b) all elements are delivered. Where software license contracts call for
payment terms of six months or more from the date of delivery, revenue is
recognized as payments become due and all other conditions for revenue
recognition have been satisfied.
Sagent's customers generally 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. Were consulting services essential to the
functionality of the licensed software, then both the license revenue and the
consulting service revenue would be recognized as the services are performed.
Our arrangements regarding sales of software licenses generally do not include
services that are essential to the functionality of the software.
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, and c) the services do
not include significant alterations to the features and functionality of the
software. To date, services have not been essential to the functionality of the
software products for substantially all software agreements.
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.
Maintenance contracts generally call for us to provide technical support
and software updates and upgrades to customers. Maintenance revenue is
recognized ratably over the term of the maintenance contract, generally on a
straight-line basis when all revenue recognition requirements are met. Other
service revenue, primarily training and consulting, is generally recognized at
the time the service is performed and when it is determined that the Company has
fulfilled our obligations resulting from the services contract.
Valuation of long-lived assets
Sagent assesses the impairment of identifiable intangibles, long-lived
assets and goodwill whenever events or changes in circumstances indicate that
the carrying value may not be recoverable.
The following factors could trigger an impairment review:
. Changes in economic and industry trends
. Changes in the strategies of the company in sales and marketing and
research and development
. Changes in projected future operating results
. Changes in the mode of operations and the exit from facilities
. Significant decline in Sagent's stock price for a significant period
of time.
When Sagent determines that the carrying value of intangibles, long-lived
assets and goodwill may not be recoverable based upon any of the above
indicators of impairment, Sagent measures any impairment based on a projected
discounted cash flow using a
18
discount rate determined by our management to be commensurate with the risk
inherent in our business model. Cash flows are projected for each of the
Company's geographic regions, which are the lowest level of identifiable cash
flows.
Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill
and Other Intangible Assets" became effective in 2002. Upon adoption of SFAS No.
142, Sagent will cease to amortize any goodwill in 2002. In lieu of
amortization, we are required to perform an impairment review of our goodwill in
2002 and annual reviews thereafter. Sagent does not expect to record an
impairment charge upon completion of the initial review, however, there can be
no assurance that at the time the review is completed a material impairment
charge will not be recorded. Sagent expects to complete the initial review
during the first half of 2002.
Asset impairment charges of $3.4 million in 2001 consisted of $1.8 million
reserve on shareholders' notes, $0.3 million reduction in the carrying value of
goodwill, $1.2 million impairment of prepayments for data center services, and
$0.1 million of other losses related to the closing of a remote facility.
Sagent has a minority investment in a privately held company. This
investment is included in other long-term assets on the balance sheet and is
carried at cost since Sagent owns less than 20% of the voting equity and does
not have the ability to exercise significant influence over this company. This
investment is inherently high risk as the market for technologies marketed by
the company is at a very early stage and may never be significant. Sagent can
potentially lose all its investment in this company. As a result, Sagent
continuously monitors its investments for impairment and makes appropriate
reductions in carrying values when necessary. In performing the impairment
assessment, Sagent considers the Company's recent equity transactions, current
solvency and access to capital. At December 31, 2001, Sagent recognized a $230
loss in this investment.
Consolidation of Sagent's international operations
Sagent has several international subsidiaries that accounted for 28% of our
net revenue, 15% of our total assets and 15% of our total liabilities as of
December 31, 2001. The functional currency of our foreign subsidiaries is the
local currency. The functional currency is determined based on management
judgment and involves consideration of all relevant economic facts and
circumstances affecting the subsidiary. Generally, the currency in which the
subsidiary transacts a majority of its transactions, including billings,
financing, payroll and other expenditures would be considered the functional
currency but any dependency upon the parent and the nature of the subsidiary's
operations must also be considered. Sagent translates the assets and liabilities
of international subsidiaries into U.S. dollars at the current rates of exchange
in effect during each period. Revenue and expenses are translated using rates
that approximate those in effect during the period. Gains and losses from
translation adjustments are included in stockholders' equity in the consolidated
balance sheet caption "Accumulated other comprehensive loss."
Accordingly, we had a cumulative translation loss of $0.2 million and a
cumulative translation gain of $0.1 million at December 31, 2001 and 2000,
respectively. Had we determined that the functional currency of our subsidiaries
was the U.S. dollar, these loss and gains would have increased or decreased our
loss for each of the years presented. The magnitude of these gains and losses is
dependent upon movements in the exchange rates of the foreign currencies in
which we transact business against the United States dollar. These currencies
include the following:
. U.K. British Pound
. Japan Japanese Yen
. Germany Euro
. France French Franc
. Australia Australian Dollar
. Brazil Brazilian Real
. Benelux Euro
. Mexico Mexican Peso
. Asia Pacific Singapore Dollar
Any future translation gains and losses could be significantly higher than
those noted in each of these years if the international business continues to
grow. In addition, if we determine that a change in the functional currency of
our subsidiaries has occurred at any point in time, we would be required to
include any translation gains or losses from the date of change in our statement
of operations.
Valuation allowances
19
The preparation of financial statements requires Sagent's 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.
Sagent's 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. Because of the uncertainties related to both the
amount and range of loss on the remaining pending litigation, Sagent is unable
to make a reasonable estimate of the liability that could result from
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.
Sagent also analyzes current accounts receivable for a reserve for doubtful
accounts based on historical bad debt, customer credit-worthiness, the current
business environment and historical experience with the customer. The allowance
for doubtful accounts was $1.7 million and $5.0 million as of December 31, 2001
and 2000, respectively. The allowance includes specific reserves for accounts
where collection is no longer considered probable. In addition, we maintain a
general reserve for invoices without specific reserves by applying a percentage
based on the age category. In 2001, Sagent recognized $2.3 million of bad debt
expense and wrote-off $5.6 million in accounts receivable against the allowance
for doubtful accounts.
Sagent has a 90 days warranty for any defects in the products that it sells
to customers. Sagent has not provided any allowances for returns since
historically we have not had any material returns due to defects.
Results of operations for fiscal years ended December 31, 2001, 2000 and 1999
The following table sets forth certain data from our consolidated
statements of operations as a percentage of total revenue. The information
contained in the table below should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this annual report.
YEARS ENDED DECEMBER 31,
------------------------
2001 2000 1999
---------------------------------------------------------------
Revenue:
License ........................................ $ 25,804 54% $ 34,666 60% $ 34,130 71%
Service ........................................ 21,614 46 23,522 40 13,871 29
---------- ---- ---------- ---- ---------- ----
Total net revenue ...................... 47,418 100 58,188 100 48,001 100
---------- ---- ---------- ---- ---------- ----
Cost of revenue:
License ........................................ 3,855 8 2,164 4 3,195 7
Service (1) ................................... 10,497 22 10,491 18 6,954 14
Amortization of abandoned development projects . -- -- -- -- 1,600 3
Impairment of licensed technology .............. 1,887 4 335 -- -- --
---------- ---- ---------- ---- ---------- ----
Total cost of revenue .................. 16,239 34 12,990 22 11,749 24
---------- ---- ---------- ---- ---------- ----
Gross profit ..................................... 31,179 66 45,198 78 36,252 76
---------- ---- ---------- ---- ---------- ----
Operating expenses:
Sales and marketing (2) ....................... 37,413 79 37,141 64 25,600 53
Research and development (3) .................. 13,560 29 16,668 29 11,206 23
General and administrative (4) ................ 13,451 29 15,062 26 4,426 9
Stock-based compensation ....................... 844 2 703 1 2,755 6
Amortization of goodwill ....................... 2,439 5 1,957 3 452 1
Asset impairment ............................... 3,429 7 -- -- -- --
Restructuring costs ............................ 683 1 -- -- -- --
Merger and integration charges and (credits) ... -- -- (2,318) (4) 4,646 10
---------- ---- ---------- ---- ---------- ----
Total operating expenses ............. 71,819 152 69,213 119 49,085 102
---------- ---- ---------- ---- ---------- ----
Loss from operations ........................... (40,640) (86) (24,015) (41) (12,833) (26)
Interest income .................................. 623 1 1,367 2 1,167 2
Interest (expense) ............................... (540) (1) (90) -- (162) --
Other income (expense), net ...................... 808 2 (456) (1) (1) --
---------- ---- ---------- ---- ---------- ----
20
Loss before income taxes ......... (39,749) (84) (23,194) (40) (11,829) (24)
Income tax expense ............... 514 1 510 1 263 1
---------- ---- ---------- ---- ---------- ----
Net loss ......................... $ (40,263) (85)% $ (23,704) (41)% $ (12,092) (25)%
========== ==== ========== ==== ========== ====
(1) Excludes stock-based compensation of $0, $176, and $0 for the years
ended December 31, 2001, 2000 and 1999, respectively.
(2) Excluded stock-based compensation of $248, $527 and $1,262 for the
years ended December 31, 2001, 2000 and 1999, respectively.
(3) Excluded stock-based compensation of $0, $0 and $1,260 for the years
ended December 31, 2001, 2000 and 1999, respectively.
(4) Excluded stock-based compensation of $596, $0 and $233 for the years
ended December 31, 2001, 2000 and 1999, respectively.
Revenue
Our total revenue was $47.4, $58.2 and $48.0 million in 2001, 2000 and
1999, respectively, representing a decrease of 19% or $10.8 million from 2000 to
2001 and an increase of 21% or $10.2 million from 1999 to 2000. The decrease in
revenue from 2000 to 2001 was primarily attributed to a slower domestic market
demand for software products in a generally weakened economic and information
technology purchasing environment. The 21% overall revenue growth from 1999 to
2000 was primarily due to the increase of 70% or $9.7 million in service revenue
during 2000.
License revenue was $25.8, $34.7, and $34.1 million in 2001, 2000 and 1999,
respectively, representing a decrease of 26% or $8.9 million from 2000 to 2001
and an increase of 2% or 0.6 million from 1999 to 2000. The decline in license
revenue from 2000 to 2001 were primarily due to a slower domestic market demand
for software products and lack of execution of larger transactions coupled with
lower sales force productivity caused by organizational and leadership changes
that continued from prior year. In fiscal year 2000, we experienced turnover in
our sales and marketing organizations that delayed integrating certain
Qualitative Marketing Software's operations and products into our sales, product
marketing and general operations and as a result the license sales in 2000 was
flat compared to 1999.
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999
------------ ------------ ----------
Service:
Maintenance $ 10,367 $ 7,683 $ 3,517
Professional services 11,247 15,839 10,354
-------- -------- ---------
Total service revenue $ 21,614 $ 23,522 $ 13,871
======== ======== =========
Service revenue was $21.6, $23.5 and $13.9 million in 2001, 2000 and 1999,
respectively, representing a decrease of 8% or $1.9 million from 2000 to 2001
and an increase of 70% or $9.6 million from 1999 to 2000.
Maintenance revenue was $10.4, $7.7 and $3.5 million in 2001, 2000 and
1999, respectively, representing an increase of 35% or $2.7 million from 2000 to
2001 and an increase 118% or $4.2 million from 1999 to 2000. The sequential
increases in maintenance revenue were due primarily to new licenses and an
increased effort to renew the maintenance agreements within the existing
customer base. We expect maintenance revenue to continue to rise during 2002 as
a result of our effort to continue to increase our installed base of customers
and maintain consistent maintenance renewal rates.
Professional services revenue was $11.2, $15.9 and $10.4 million in 2001,
2000 and 1999 respectively, representing a decrease of 29% or $4.7 million from
2000 to 2001 and an increase 53% or $5.5 million from 1999 to 2000. The decrease
in professional services revenue in 2001 from 2000 was due to the slow down of
the economy and a decline in new license revenue in 2001. The increase from 1999
to 2000 was primarily the result of our concerted efforts to involve the
consulting organization in license transactions for related installation and
implementation projects, which led to higher customer satisfaction and follow-on
sales opportunities in the subsequent periods.
Sagent continued to grow internationally as such our international revenue
was 28% or $13.4 million, 13% or $7.6 million and 12% or $5.8 million of our
total net revenue in 2001, 2000 and 1999, respectively, representing increases
of $5.8 million or 76% from 2000 to 2001 and $1.8 million or 31% from 1999 to
2000. This increase is attributed mainly to expansion of our international
operations during 2000 and 2001 as well as stronger overseas market demand for
our products. A significant portion of our total
21
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 their affect on our total revenues were immaterial during 2001 and 2000.
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 a material adverse impact on
our total revenue and results of operations.
Cost of Revenue
Cost of revenue from license sales consists primarily of license fees paid
to third parties for integrated technology, royalties, fees paid to third party
providers of data and data updates, product packaging, shipping media and
documentation. Cost of revenue from license sales was $3.9, $2.2 and $3.2
million in 2001, 2000, and 1999, respectively, representing 15%, 6% and 9% of
license revenue in the respective periods. The increase in absolute dollar
amount from 2000 to 2001 was primarily due to an increase in fees paid to third
parties for integrated technology license fees and royalties impairment. The
decrease in absolute dollar amount from 1999 to 2000 were primarily due to
reduced integrated technology license fees, royalties, reductions in headcount,
and increased efficiencies in packaging, shipping, media and documentation
expense.
Cost of service consists primarily of personnel costs associated with
providing software maintenance, technical support, training and consulting
services. Cost of service was $10.5, $10.5 and $7.0 million, in 2001, 2000 and
1999, respectively, representing 49%, 45% and 50% of services revenue in the
respective periods. The percentage increase from 2000 to 2001 was primarily due
to lower utilization of professional services consultants. The increase in
absolute dollar amounts from 1999 to 2000 was primarily due to increases in
technical support staff and consultants. The percentage decreases were due to
improved utilization of consulting personnel, increased productivity of our
customer service and a reduction in the use of outside consultants.
Included in cost of revenue, Sagent also incurred licensed technology
impairments of $1.9 and $0.3 million in 2001 and 2000, respectively, as such
licensed technology were no longer expected to be utilized in our future product
sales.
Gross Profit
Gross profit was $31.2, $45.2 and $36.3 million in 2001, 2000 and 1999,
respectively, representing 66%, 78% and 76% of total revenue in the respective
periods. The decline from 2000 to 2001 was primarily attributed to the $1.6
million charge for the impairment of licensed technology and an increase $1.6
million in the cost of revenue for license and service. The increase from 1999
to 2000 was primarily due to an increase in revenue and lower cost of sales for
licenses.
Sales and Marketing
Sales and marketing expenses consist primarily of personnel, commissions,
travel, sales and marketing programs, branch sales facilities and distributor's
commission. Sales and marketing expenses were $37.4, $37.1 and $25.6 million in
2001, 2000 and 1999, respectively, representing 79%, 64% and 53% of total
revenue in the respective periods. The sales and marketing expenses remained
constant in 2001 and 2000. In 2001, Sagent incurred $2.5 million expenses in
connection with its international expansion and $0.3 million in distributor's
commissions. These overall increases were offset in part by the decreases of
$0.5 million for closing branch sales offices, $0.5 million in commissions, $0.4
million in travel and entertainment expenses and $1.4 million in sales and
marketing expenses as a result of decline in new license fees and implementation
of cost cutting measures to control discretionary spending. The increase from
1999 to 2000 reflects the additional expenses that Sagent incurred in building
the direct and indirect sales organizations, the cost associated with
restructuring of our sales force in 2000 and expansion of Sagent's operation
internationally.
We expect sales and marketing expenses to decrease as a percentage of total
revenue, provided that our efforts to improve and expand our sales organization
are successful in growing our revenue and increasing our sales productivity.
Research and Development
Research and development expenses consist primarily of personnel and
related costs associated with the development of new products, the enhancement
and localization of existing products, quality assurance, testing and
facilities. Research and development expenses were $13.6, $16.7 and $11.2
million in 2001, 2000 and 1999, respectively, representing 29%, 29% and 23% of
total revenue
22
in the respective periods. The decline from 2000 to 2001 in absolute dollar
amount was attributable to cost cutting measures, including $2.9 million
decrease in salary and related fringe benefits and $0.2 million net decrease in
other expenses as a result of the restructuring plan to reduce headcount and
control discretionary spending. The increase from 1999 to 2000 was primarily due
to significant investment in the form of additional personnel cost and capital
equipment was incurred to develop new versions of our software products, new
product offerings and localization enhancements of existing products for foreign
countries.
We are committed to maintain the same level of investment in research and
development in the future. We expect that research and development expenses will
increase modestly in the future, even though we anticipate it will decrease as a
percentage of total revenue.
General and Administrative
General and administrative expenses consist primarily of personnel costs
for finance, human resources, information systems and general management as well
as legal, and accounting, bad debt expenses. General and administrative expenses
were $13.5, $15.1 and $4.4 million for 2001, 2000 and 1999, respectively,
representing 29%, 26% and 9% of total revenue in the respective periods. The
decline from 2000 to 2001 in absolute dollar amounts was attributable to cost
cutting measures, including $1.1 million savings resulting from the closing of
offices, $2.5 million decrease in bad debt expense and $2.0 million decrease in
legal fees related to litigation. These decreases were offset in part by the
increases of $1.0 million in compensation resulting from officers' loan
forgiveness, $0.4 million in reserve for notes receivable, $1.3 million in
capital lease amortization, $0.8 million in audit and related services and $0.6
million in administrative expenses for the new subsidiaries. The absolute dollar
amount increase from 1999 to 2000 was primarily due to the settlement of
litigation, large non-recurring third party professional fees, recruitment and
relocation of our senior management team, certain executive compensation charges
and increase in bad debt expense.
We believe that general and administrative expenses in 2002 will decline in
absolute dollar amounts and as a percentage of revenue due to cost cutting
measures enacted in the later part of 2001.
Stock-Based Compensation
In 2000, Sagent granted restricted stock to an officer and recorded
deferred stock-based compensation of $1.7 million, this amount represents the
difference between the fair value of our stock and the purchase price at the
date of grant. This deferred stock-based compensation is being amortized to
operating expense over a four-year vesting period. Sagent also recorded deferred
stock-based compensation of $0.4 and $0.5 million in 2001 and 2000,
respectively, related to the issuance of options to employees. These amounts
have been included in prepaid compensation under other current assets. The
amounts were computed using the Black-Scholes option valuation model and the
related amortization is being charged to operating expenses over the terms of
these consulting agreements. In addition, we recorded $2.7 million of
stock-based compensation in conjunction with certain stock options granted in
the acquisition of QMS in 1999, which was expensed in full to operating expenses
for the year ended December 31, 1999. Deferred stock-based compensation is
presented as a reduction of stockholders' equity. Amortization of stock-based
compensation amounted to $ 0.4 and $0.2 million in 2001 and 2000, respectively.
Other related stock-based compensation amounted to $ 0.4, $ 0.5 and $ 2.7
million for the years ended December 31, 2001, 2000 and 1999, respectively.
These amounts are being amortized over the respective vesting periods of these
equity instruments in a manner consistent with Financial Accounting Standards
Board Interpretation No. 28.
Amortization of Goodwill
Amortization of goodwill was $2.4, $2.0 and $0.5 million in 2001, 2000 and
1999, respectively, representing 5%, 3% and 1% of total revenue in the
respective periods. Goodwill represents the excess of the aggregate purchase
price over the fair value of the tangible and identifiable assets we have
acquired. Sagent amortizes goodwill on a straight-line basis for a period of
five years. Beginning January 1, 2002, Sagent will adopt SFAS 142. Sagent
expects to complete the first of the required impairment tests of goodwill
during the first half of 2002. The effects of these tests on the earnings and
financial position of Sagent are not expected to be material. Upon the adoption
of SFAS 142, Sagent will cease to amortize approximately $7.5 million of
goodwill. Sagent has recorded $2.4 million of goodwill amortization in the year
ended December 31, 2001 and was anticipating an additional $2.4 million in the
year ended December 31, 2002.
Asset Impairment
23
Asset impairment charges of $3.4 million in 2001 consisted of $1.8 million
reserve on shareholders' notes, $1.2 million impairment of prepayments for data
center services, $0.3 million reduction in the carrying value of goodwill, and
$0.1 million of other losses related to the closing of a remote facility.
Restructuring Cost
The restructuring cost is the result of a restructuring program approved by
our Board of Directors in December 2001 aimed at streamlining the underlying
cost structure to better position us for growth and improved operating results.
The reductions came from all areas of the organization and as of December 31,
2001, the majority of these terminations were completed and resulted in a
restructuring charge of $0.7 million, which consisted of $0.3 million related to
reduction in workforce and $0.4 million in estimated facility and exit costs
that were associated with the closing of two facilities.
Merger Related Charges (Credit)
As a result of the business combination with QMS on December 11, 1999,
which was accounted for as a pooling of interests, we estimated merger-related
costs of $4.6 million. These costs included transaction costs, write-off of
duplicate equipment and other assets, and severance pay and outplacement for
nine employees. In 2000, the remaining balance of $2.3 million in accrued merger
related costs was reversed resulting in a credit on the consolidated statement
of operations.
Interest Income
Interest income decreased to $0.6 million in 2001, from $1.4 million in
2000 and $1.2 million in 1999. Interest income was earned primarily from
investments in cash equivalents and short-term marketable securities as a result
of a higher average cash and investment balances which were derived from
operations and the net proceeds from the initial public offering in 1999. During
2000, Sagent liquidated or sold the remaining balance of marketable securities,
as result, the interest income was decreased substantially in 2001.
Interest Expense
Interest expense was $0.5, $0.1 and 0.2 million in 2001, 2000 and 1999,
respectively. The higher costs in 2001 and 1999 were primarily due to interest
attributable to an increase in capital lease arrangements in 2001 and interest
on the bank loan in 1999.
Other Income (Expense), net
Net other income was $0.8 million in 2001 compared with net other expense
of $0.5 million in 2000. Net other income of $0.8 million in 2001 consisted of
$0.4 million gain from settlement of litigation in relation to Convergent lease
agreement, recognition of $0.7 million of minority interest in equity loss in
Sagent Asia/Pacific offset by $0.2 million impairment of investment in NetAcumen
and $0.1 million in loss of disposal of long-lived assets. The net other expense
in 2000 consisted mainly of equity loss in investment and loss on disposal of
long-lived asset.
Income Tax Expense
Income tax expense was $0.5, $0.5 and $0.3 million in 2001, 2000 and 1999,
respectively. Income tax expense consists mainly of state franchise, local tax
and foreign withholding tax. The increase from 1999 to 2000 was attributable
mainly to the foreign withholding tax assessed on the revenue generated from our
effort to expand into the international market in 2000. The amount was
consistent in 2001 compared that of 2000.
At December 31, 2001, we had available net operating loss carryforwards for
federal and state income tax purposes of approximately $77.7 million and $35.0
million, respectively. The federal net operating loss carryforwards expire
beginning in 2010. State net operating net loss carryforwards expire beginning
in 2002. At December 31, 2001, we also had available research and development
credit carryforwards for federal and state income tax purposes of approximately
$2.2 million and $1.4 million, respectively.
For federal and state tax purposes, a portion of our net operating loss
carryforwards may be subject to certain limitation on annual utilization due to
changes in ownership, as defined by federal and state tax law.
24
Due to the uncertainty surrounding the realization of the deferred tax
asset in future tax returns, we recorded a valuation allowance against all of
our net deferred tax assets. Tax expense for the year ended December 31, 2001
consisted of mainly state taxes and foreign withholding taxes.
Liquidity and Capital Resources
As of December 31, 2001, Sagent's principal source of liquidity consisted
of $15.6 million of unrestricted cash and cash equivalents and $0.8 million
restricted cash in the form of 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 provided by financing activities was $30.9 million in 2001, due
primarily from the net proceeds of $32.5 million in connection of the two
private placements completed in February and August of 2001. Net cash provided
by financing activities was $3.2 million in 2000, primarily from the proceeds
related to issuance of common stock upon exercise of stock option and employee
stock purchase plan (ESPP). Net cash provided by financing activities was $45.5
million, due primarily from the net proceeds of our initial public offering of
$46.3 million.
Net cash provided by investing activities was $1.0 million and $13.1
million in 2001 and 2000, respectively. Net cash used by investing activities
was $25.4 million during 1999. Net cash provided by investing activities was
primarily due to $2.3 million cash receipt in purchase of Sagent Asia/Pacific
Pte. Ltd. in 2001, and sale of marketable securities for $62.0 million in 2000.
Net cash used for investing activities was primarily due to purchase of certain
property and equipment for $0.5 million, $3.5 million and $2.9 million in 2001,
2000 and 1999, respectively
Net cash used in operating activities was $22.6 million, $25.9 million and
$7.6 million in 2001, 2000 and 1999, respectively. For such periods, net cash
used in operating activities was primarily the result of the funding of our
ongoing operations.
Accounts receivable decreased 14% during 2001 due to a decline in gross
revenue as well as improvement in accounts receivable days sales outstanding
(DSO). Sagent calculates its DSO on a "net" basis by dividing the average
accounts receivable at the beginning and the end of the quarter by the revenue
booked for the quarter multiplied by the number of business days during that
quarter. There was improvement in collections of accounts receivables during
2001, specifically in the fourth quarter of 2001 compared to the fourth quarter
of 2000. DSO was at 82 in the fourth quarter of 2001 compared to 91 in the
fourth quarter of 2000.
The following is a summary of our future minimum payments under contractual
obligations as of December 31, 2001:-
2004 and
(amount in million) 2002 2003 thereafter Total
------------------ ------ ------ ---------- -----
Capital leases $ 2.4 $ 1.4 $ --- $ 3.8
Operating leases 3.1 2.0 0.6 5.7
Purchase obligations 0.6 0.1 --- 0.7
------ ------ ------ -----
$ 6.1 $ 3.5 $ 0.6 $10.2
------ ------ ------ -----
Purchase obligations relate to Sagent's future commitments pertained to
software maintenance for the acquired technology and data renewal contract.
In November 2001, Sagent entered into a $5 million line of credit agreement
with a financial institution collateralized by certain of our assets. The line
consists of advances against eligible accounts receivable in an aggregate amount
not to exceed the lesser of the committed revolving line of the borrowing base,
less any outstanding letters of credit, foreign currency exchange contracts, or
any other extension of credit by the financial institution. Advances against the
revolving line bear interest at the bank's prime rate plus 1%. The line of
credit expires on October 5, 2002. As of December 31, 2001, Sagent has not
utilized the credit line. As of December 31, 2001, the Company was not in
compliance with certain of the financial covenants of the line of credit
agreement. As a result, the bank required us to maintain $0.8 million cash
equivalents on deposits to support the stand by letters of credit, which is
classified as restricted cash on the consolidated balance sheets. The Company is
evaluating offers for a replacement credit facility with less restrictive terms.
If the Company does not secure such a credit facility or improve its financial
performance or liquidity to comply with the financial covenants, the line of
credit and deposits supporting the stand by letters of credit will remain
unavailable.
25
Sagent has entered into several agreements to finance computer equipment
leases. Sagent financed the acquisition of property and equipment, primarily
computer hardware and software, and leasehold improvements and furniture
totaling $4.0 million and $1.6 million in 2001 and 2000, respectively, through
capital leases. Sagent has also entered into several agreements to lease sites
in California and several other states (see Item 2 of Part I) as well as in
other countries in which it has sales operations. Sagent is also under
obligation to pay certain maintenance fees to third party vendors.
Our ability to 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:
. general economic conditions and the information technology spending
environment;
. the growth or contraction of the enterprise intelligence software
market;
. competition from other participants in the enterprise intelligence
software market;
. our ability to expand our direct and indirect sales channels;
. our ability to maintain and expand our marketing, technology and
distribution relationships;
. our access to licensed technologies integrated in our products and
services
. market acceptance of Internet solutions;
. our ability to manage our international expansion;
. our ability to protect our intellectual property rights; and
. our ability to anticipate and respond to technological change.
We believe that our existing cash balances and any cash provided by
operations will be sufficient to meet our operating requirements for the next 12
months. Thereafter, we may require additional funds to support our operating
requirements and may seek, even before such time, to raise additional funds
through public or private equity financing, debt financing or any other sources.
There can be no assurance that additional financing will be available at all, or
that if available, such financing will be obtained on terms favorable to us and
would not result in additional dilution to our stockholders. If we are unable to
raise additional capital, we will take actions to conserve our cash balances,
including significantly reducing our operating expenses, downsizing our staff
and closing existing branch offices, all of which could have a material adverse
effect on our business financial condition and our ability to reduce losses or
generate profits.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations" requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The adoption of SFAS No. 141 has not had a
significant impact on our financial statements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other
Intangible Assets", which is effective for fiscal year beginning after December
15, 2001. SFAS No. 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions upon
adoption for the reclassification of certain existing recognized intangibles as
goodwill, reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill and
the testing for impairment of existing goodwill and other intangibles. Upon
adoption of SFAS No. 142, the Company will cease to amortize approximately $ 7.5
million of goodwill, Sagent had recorded $2.4 million of goodwill amortization
in the year ended December 31, 2001and was anticipating approximately $2.4
million of amortization during 2002. In lieu of amortization, the Company will
be required to perform an impairment review of its goodwill balance upon the
initial adoption of SFAS No. 142. The impairment review will involve a two-step
process as follows:
. Step 1 - the Company will compare the fair value of its reporting
units to the carrying value, including goodwill of each of those
units. For each reporting unit where the carrying value, including
goodwill, exceeds the unit's fair value, the Company will move to step
2. If a unit's fair value exceeds the carrying value, no further work
is performed and no impairment charge is necessary.
. Step 2 - the Company will perform an allocation of the fair value of
the reporting unit to its identifiable tangible and non-goodwill
intangible assets and liabilities. This will derive an implied fair
value for the reporting unit's goodwill. The
26
Company will then compare the implied fair value of the reporting
unit's goodwill is greater than the implied fair value of its
goodwill, an impairment loss must be recognized for the excess.
The Company expects to complete the initial review during the first half of
2002. The Company does not expect to record an impairment charge upon completion
of the initial review, however, there can be no assurance that at the time the
review is completed a material impairment charge will not be recorded.
In August 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. Statement No.
143 also requires the enterprise to record the contra to 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 provision of SFAS No. 143 is effective for fiscal years beginning after June
15, 2002. We do not expect the adoption of SFAS No. 143 to have a material
effect on our consolidated results of operations or financial position.
In October 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No.144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. This statement supersedes SFAS No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 144
also supersedes the accounting and reporting provisions of APB Opinion No.30,
"Reporting the Results of Operations - Reporting the Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions," for the disposal of a segment of business. The provision will be
effective for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal periods. The Company plans to adopt the provision on January
1, 2002. We do not expect the adoption of SFAS No. 144 to have a material effect
on our consolidated results of operations or financial position.
Risk Factors That May Affect Future Results
Any investment in our common stock involves a high degree of risk. You
should consider carefully the following information about risks, together with
the other information contained in this 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 recently restated our financial results for portions of 2001.
On November 28, 2001, we announced that we were revising our reported
revenues for the first nine months of 2001 as a result of an internal
investigation into the validity of sales orders to various government agencies.
Our investigation confirmed that sales orders totaling approximately $5 million
booked by one of our employees were forged. As a result, we filed Form 10-Q/A's
for the periods ended March 31, 2001 and June 30, 2001 with financial statements
restated to remove the effect of the invalid sales orders.
As a result of the restatement, Sagent has been named in shareholder
lawsuits. 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 also could result in the diversion of our management's
time and attention away from business operations, which could harm our business.
Negative developments with respect to the lawsuits could cause our stock price
to decline significantly. 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. The complaints generally allege that we
and the other named defendants made false or misleading statements of material
facts about our financial results during 2001. The complaints, in general, do
not specify the amount of damages that plaintiffs seek. As a result, we are
unable to estimate the possible range of damages that might be incurred as a
result of the lawsuits. We have not set aside any financial reserves relating to
potential damages associated with any of these lawsuits.
27
Our workforce reduction and financial performance may adversely affect the
morale and performance of our personnel and our ability to hire new employees.
In connection with our effort to streamline operations, increase revenues,
reduce costs and bring our staffing and structure in line with our current and
anticipated requirements, we recently realigned our business organization, which
included 20% reduction in workforce. There may be costs associated with the
workforce reduction, and our realignment plan may yield unanticipated
consequences, such as attrition beyond our planned reduction in staff. In
addition, our common stock has recently declined in value below the exercise
price of many options granted to employees pursuant to our stock option plan.
Thus, the intended benefits of the stock option granted to our employees, the
creation of performance and retention incentives, may not be realized. In
addition, workforce reductions and management changes create anxiety and
uncertainty and may adversely affect employee morale. As a result, we may lose
employees whom we would prefer to retain. Due to above factors, our remaining
personnel may seek employment with larger, more established companies they
perceive as having less volatile stock prices.
If our stock price declines further, there is a risk that we may be delisted by
Nasdaq.
Our common stock trades on the Nasdaq National Market, which has certain
compliance requirements for continued listing of common stock. If the minimum
closing bid price per share is less than $1.00 for a period of 30 consecutive
business days, our shares may be delisted following a 90 calendar days notice
period during which the minimum closing bid price must be $1.00 or above per
share for a period of 10 consecutive trading days, if we do not file an appeal.
On March 28, 2002, the closing price for our common stock was $1.00. The result
of delisting from the Nasdaq National Market would be a reduction in the
liquidity of any investment in our common stock. Delisting would reduce the
ability of holders of our common stock to purchase or sell shares as quickly and
as inexpensively as they have done historically. This lack of liquidity would
make it more difficult for us to raise capital in the future.
We may need to raise additional capital in the future to fund our operations.
Since our inception, we have funded our operations primarily through sales
of equity securities, and not from cash generated by our business. During the
last nine months, we have completed two separate private offerings of our common
stock. In February 2001, we sold 5.8 million shares of our common stock to a
group of private investors, raising approximately $16.1 million in net proceeds.
In August 2001, we completed the sale of 9.1 million shares of our common stock
to a group of private investors, netting approximately $16.0 million in
proceeds.
Although we believe that our current cash and cash equivalents and any net
cash provided by operations will be sufficient to meet anticipated cash needs
for the next twelve months, a revenue shortfall could require us to reduce
operations or raise additional funds through equity or debt financings. We
cannot assure you any equity or debt financing will be available to us on
favorable terms, if at all, or that if available, such financing will not be
dilutive to our stockholders. If we are unable to raise additional capital, we
will take actions to conserve our cash balances, including significantly
reducing our operating expenses, downsizing our staff and closing existing
branch offices, all of which could have a material adverse effect on our
business, financial condition and our ability to reduce losses or generate
profits.
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 include:
. varying size, timing and contractual terms of orders for our products;
. lengthy sales cycles associated with our products;
. changes in the mix of revenue attributable to higher-margin product
license revenue as opposed to lower-margin service revenue;
28
. customers' decisions to defer orders or implementations, particularly
large orders or implementations, from one quarter to the next;
. announcements or introductions of new products by our competitors,
. our ability to hire, train and retain sufficient engineering,
consulting, training and sales staff; and
. subcontracting to more expensive consulting organizations to help
provide implementation, support and training services when our own
capacity is constrained.
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.
Enterprise intelligence software markets may not grow.
Since all of our revenues are attributable to the sale of enterprise
intelligence software and related maintenance, consulting and training services,
if the market for enterprise intelligence software does not grow, our business
will not grow. We expect enterprise intelligence software and services to
account for substantially all of our revenue for the foreseeable future.
Although demand for enterprise intelligence software has grown in recent years,
the market may not continue to grow or, even if the market does grow, businesses
may not adopt our products.
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 currently receive a significant
portion of our revenues from direct sales, but we intend to increase sales
through indirect sales channels in the future.
We intend to derive revenues from indirect sales channels by selling our
software through value-added resellers (VARs) and original equipment
manufacturers (OEMs). These VARs and OEMs offer our software products to their
customers together with consulting and implementation services or integrate our
software solutions with other software. Our ability to increase our revenues is
dependent on entering into relationships with these VARs and OEMs.
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.
Pending litigation could harm our business.
During the last two years, Sagent has 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 Sagent. More recently, as the result of the
restatement by Sagent of its financial results for portions of 2001, Sagent has
been named in additional shareholder lawsuits. 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.
29
We have a relatively new management team and there is no guarantee that they
will be successful in growing our business.
The following table lists each of our officers and the month and year that each
of them joined our company:
NAME POSITION JOINED SAGENT
---- -------- -------------
Ben C. Barnes .................... President and Chief Executive Officer August 2000
Steven R. Springsteel ............ Executive Vice President of Finance and November 2001
Administration and Chief Financial Officer
Richard Ghiossi .................. Chief Marketing Officer October 2001
Jack Peters ...................... Senior Vice President of Sales-- Americas September 2000
Arthur Parker .................... President/General Manager-- Europe, Middle East & January 2001
Africa
Larry Scroggins .................. Senior Vice President of Business Development January 2001
John Maxwell ..................... Senior Vice President of Sales - Asia Pacific May 1999
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, in part, on equity incentives to attract and retain employees, and the
performance of our stock price may impair our ability to attract and retain
qualified personnel.
The market price of our common stock has fluctuated substantially since our
initial public offering in April 1999, and has experienced a significant decline
since the first quarter of 2000. We have relied historically on our ability to
attract and retain employees using equity incentives, and any perception by
potential or existing employees that our equity incentives are less attractive
could harm our ability to attract and retain qualified employees.
30
We rely on marketing, technology and distribution relationships that may
generally be terminated at any time, and if our current and future relationships
are not successful, our growth may be limited.
We rely on marketing and technology relationships with a variety of
companies that, in part, generate leads for the sale of our products. These
marketing and technology relationships include relationships with:
. system integrators and consulting firms;
. vendors of e-commerce and Internet software;
. vendors of software designed for customer relationship management or
for management of organizations' operational information;
. vendors of key technology and platforms;
. demographic data providers; and
. an application service provider.
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.
Sagent relies 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.
Failure of commercial users to accept Internet solutions could limit our future
growth.
A key element of our strategy is to offer users the ability to access,
analyze and report information from a data server through a Web browser. Our
growth may be limited if businesses do not accept Internet solutions or perceive
them to be cost-effective. Continued viability of the Internet depends on
several factors, including:
. Third parties' abilities to develop new enabling technologies in a
timely manner;
. The Internet's ability to handle increased activity;
. The Internet's ability to operate as a fast, reliable and secure
network; and
. Potential changes in government regulation.
Moreover, critical issues concerning the commercial use of the Internet,
including data corruption, cost, ease of use, accessibility and quality of
service, remain unresolved and may negatively affect commerce and communication
on the Internet. These issues will need to be addressed in order for the market
for our products and services to grow.
31
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 28%, 13% and 13% of our total
revenue for the year ended December 31, 2001, 2000 and 1999, respectively. We
conduct our international sales through local subsidiaries in the United
Kingdom, Germany, France, Japan, Brazil, Asia/Pacific, Benelux, and Australia
and through distributor relationships in South Africa and Spain. The expansion
of our existing international operations and entry into 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 have anti-takeover defenses that could delay or prevent an acquisition of our
company.
Provisions of our certificate of incorporation, bylaws, other agreements
and Delaware law could make it more difficult for a third party to acquire us,
even if doing so would be beneficial to our stockholders. Our board of directors
could choose not to negotiate with an acquirer that it did not feel was in the
strategic interests of our company. If the acquirer was discouraged from
offering to acquire
32
us, or prevented from successfully completing a hostile acquisition by the
anti-takeover measures, you could lose the opportunity to sell your shares at a
favorable price.
33
Item 7A. Quantitative and Qualitative Disclosure About Market Risks
The following discusses our exposure to market risk related to changes in
interest rates, foreign currency exchange rates and equity prices. This
discussion contains forward-looking statements that are subject to risks and
uncertainties. Actual results could vary materially as a result of a number of
factors including those set forth in "Risk Factors That May Affect Results"
beginning on page 12.
Interest Rate Risk
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 December 31, 2001 and 2000, we had $15.6 and
$6.4 million, respectively, in cash and cash equivalents.
In 2001, Sagent has a $5 million line of credit agreement with a bank
collateralized by the assets of the Company. The line consists of advances
against eligible accounts receivable in an aggregate amount not to exceed the
lesser of, the committed revolving line or the borrowing base, less any
outstanding letters of credit. Advances against the revolving line bear interest
at the bank's prime rate plus 1%, the prime rate was at 4.75% at December 31,
2001. Although we have no outstanding balance under the line of credit, we may
borrow under the line in the future. If we do so and market interest rates rise,
then our interest payments would increase accordingly.
Foreign Currency Exchange Rate Risk
The majority of our 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 market risk with respect to
fluctuations in the relative value of currencies. Currently, we have operations
throughout Asia, Asia Pacific, Europe, Middle East, South Africa and Latin
America 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. 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.
Item 8. Financial Statements and Supplementary Data
SAGENT TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of KPMG LLP, Independent Auditors ....................................................... 35
Report of PricewaterhouseCoopers LLP, Independent Accountants ................................. 36
Consolidated Balance Sheets .................................................................... 37
Consolidated Statements of Operations .......................................................... 38
Consolidated Statements of Stockholders' Equity and Comprehensive Loss ......................... 39
Consolidated Statements of Cash Flows .......................................................... 40
Notes to Consolidated Financial Statements ..................................................... 41
Schedule II -- Valuation and Qualifying Accounts ............................................... 59
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
We have audited the accompanying consolidated balance sheets of Sagent
Technology, Inc., and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the years then ended. Our audit also
included the consolidated financial statement schedule as listed in the Index at
Item 14(a) as of and for the two years ended December 31, 2001. The consolidated
financial statements and consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements and financial statement
schedule based on our audit.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sagent
Technology, Inc., and subsidiaries as of December 31, 2001 and 2000 and the
results of their operations and their cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the related consolidated financial statement
schedule as of and for the two years ended December 31, 2001, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG LLP
Mountain View, CA
February 1, 2002.
35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
In our opinion, the accompanying consolidated statements of operations,
stockholders' equity and comprehensive loss, and cash flows present fairly, in
all material respects, the results of operations of Sagent Technology, Inc. and
its subsidiaries and their cash flows for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 10, 2000
36
SAGENT TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
As of December 31,
----------------------
2001 2000
-------- -------
Current assets:
Cash and cash equivalents....................................................... $ 15,550 $ 6,372
Accounts receivable, net of allowance for doubtful accounts of $1,670 in 2001
and $4,968 in 2000.............................................................. 12,560 14,667
Other current assets............................................................ 3,700 6,261
---------- ----------
Total current assets.................................................... 31,810 27,300
Restricted cash................................................................... 777 25
Property and equipment, net....................................................... 6,138 5,718
Goodwill, net..................................................................... 7,514 7,323
Notes receivable from officers.................................................... 2,409 3,151
Other assets, net................................................................. 1,138 2,570
---------- ----------
Total assets............................................................ $ 49,786 $ 46,087
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................ $ 3,369 $ 3,296
Accrued liabilities............................................................. 8,437 5,842
Deferred revenue................................................................ 8,701 8,352
Current portion of capital lease obligations.................................... 2,214 1,037
---------- ----------
Total current liabilities............................................... 22,721 18,527
Deferred rent..................................................................... 139 245
Long-term portion of capital lease obligations.................................... 1,415 650
---------- ----------
Total liabilities....................................................... 24,275 19,422
---------- ----------
Commitments and contingencies (Note 7)
Minority interest................................................................ 658 --
Stockholders' equity:
Convertible preferred stock, par value $.001 per share;
Authorized: 20,556 shares in 2001 and 2000; Issued and outstanding:
none in 2001 and 2000......................................................... -- --
Common stock, par value $.001 per share; Authorized:
70,000 shares; Issued and outstanding: 46,245 shares in 2001 and
29,829 shares in 2000......................................................... 46 30
Additional paid-in capital...................................................... 133,726 97,354
Notes receivable from stockholders.............................................. (602) (2,423)
Deferred compensation........................................................... (1,130) (1,566)
Accumulated other comprehensive income.......................................... 17 211
Accumulated deficit............................................................. (107,204) (66,941)
---------- ----------
Total stockholders' equity.............................................. 24,853 26,665
---------- ----------
Total liabilities and stockholders' equity.............................. $ 49,786 $ 46,087
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
37
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
YEARS ENDED DECEMBER 31,
--------------------------------------
2001 2000 1999
----------- ----------- --------
Revenue:
License............................................................... $ 25,804 $ 34,666 $ 34,130
Service............................................................... 21,614 23,522 13,871
---------- ---------- ----------
Total net revenue............................................. 47,418 58,188 48,001
---------- ---------- ----------
Cost of Revenue:
License............................................................... 3,855 2,164 3,195
Service (exclusive of stock-based compensation of $0, $176 and $0 10,497 10,491 6,954
for the years ended December 31, 2001, 2000and 1999, respectively)
Amortization of abandoned development projects........................ -- -- 1,600
Impairment of licensed technology..................................... 1,887 335 --
---------- ---------- ----------
Total cost of revenue......................................... 16,239 12,990 11,749
---------- ---------- ----------
Gross profit............................................................ 31,179 45,198 36,252
---------- ---------- ----------
Operating Expenses:
Sales and marketing (exclusive of stock-based compensation
of $248, $527and $1,262 for the years ended
December 31, 2001, 2000 and 1999, respectively)..................... 37,413 37,141 25,600
Research and development (exclusive of stock-based compensation of $0,
$0 and $1,260 for the years ended December 31, 2001, 2000 and
1999, respectively)................................................. 13,560 16,668 11,206
General and administrative (exclusive of stock-based compensation of
$596, $0 and $233 for the years ended December 31, 2001,
2000 and 1999, respectively)........................................ 13,451 15,062 4,426
Stock-based compensation.............................................. 844 703 2,755
Amortization of goodwill.............................................. 2,439 1,957 452
Asset impairment...................................................... 3,429 -- --
Restructuring costs................................................... 683 -- --
Merger and integration charges........................................ -- (2,318) 4,646
---------- ---------- ----------
Total operating expenses...................................... 71,819 69,213 49,085
---------- ---------- ----------
Loss from operations.................................................... (40,640) (24,015) (12,833)
Interest income......................................................... 623 1,367 1,167
Interest expense........................................................ (540) (90) (162)
Other income (expense).................................................. 808 (456) (1)
---------- ---------- ----------
Loss before income taxes................................................ (39,749) (23,194) (11,829)
Income tax expense...................................................... 514 510 263
---------- ---------- ----------
Net loss................................................................ $ (40,263) $ (23,704) $ (12,092)
========== ========== ==========
Net loss per share:
Basic and diluted..................................................... $ (1.02) $ (0.82) $ (0.55)
========== ========== ==========
Number of shares used in calculation of net loss per share:
Basic and diluted..................................................... 39,323 28,773 21,868
The accompanying notes are an integral part of these
consolidated financial statements.
38
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE LOSS
(In thousands, except per share data)
NOTES
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE
-------------------- ---------------------- PAID-IN FROM DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION
---------- -------- ---------- ---------- ---------- ------------ ------------
Balances, December 31, 1998 ............... 14,544 $ 15 6,200 $ 6 $33,844 $ (522) --
Net loss ................................. -- -- -- -- -- -- --
Translation adjustment ................... -- -- -- -- -- -- --
-------- ------- ---------- -------- --------- ------------ -----------
Comprehensive loss .......................
Common stock issued in connection with
initial public offering ................ (14,544) (15) 20,248 21 46,348 -- --
Common stock issued for notes
receivable ............................. -- -- -- -- 2,284 (2,284) --
Repayment of notes receivable issued for
common stock ............................ -- -- -- -- -- 315 --
Interest on notes receivable issued for
common stock ........................... -- -- -- -- -- (134) --
Common stock options, exercised .......... -- -- 978 1 1,160 -- --
Common stock issued related to employee
stock purchase plan .................... -- -- 68 -- 521 -- --
Common stock warrants exercised .......... -- -- 236 -- 786 -- --
Common stock issued related to
acquisitions ........................... -- -- 166 -- 1,437 -- --
Common stock options issued below market
value .................................. -- -- -- -- 2,755 -- --
-------- ------- --------- -------- --------- ------------ -----------
Balances, December 31, 1999 ............... -- -- 27,896 28 89,135 (2,625) --
Net loss ................................. -- -- -- -- -- -- --
Translation adjustment ................... -- -- -- -- -- -- --
-------- ------- --------- -------- --------- ------------ -----------
Comprehensive loss .......................
Issuance of stockholder notes
receivable ............................. -- -- -- -- -- (136) --
Common stock repurchased by note
cancellation ........................... -- -- (85) -- (482) 482 --
Interest on notes receivable issued for
common stock ........................... -- -- -- -- -- (144) --
Common stock issued related to litigation
settlements ............................ -- -- 725 1 2,354 -- --
Common stock options exercised ........... -- -- 886 1 3,019 -- --
Common stock issued related to employee
stock purchase plan .................... -- -- 256 -- 1,045 -- --
Restricted common stock issued to
executive .............................. -- -- 150 -- 1,742 -- (1,566)
Stock warrants issued .................... -- -- -- -- 15 -- --
Common stock issued to non- employees .... -- -- 14 -- 527 -- --
Common stock repurchased ................. -- -- (13) -- (1) -- --
-------- ------- --------- -------- --------- ------------ -----------
Balances, December 31, 2000 ............... -- 29,829 30 97,354 (2,423) (1,566)
-------- ------- --------- -------- --------- ------------ -----------
Net loss .................................. -- -- -- -- -- -- --
Translation adjustment ................... -- -- -- -- -- -- --
-------- ------- --------- -------- --------- ------------ -----------
Comprehensive loss .......................
Common stock issued in connection with
private placements ..................... -- -- 14,865 15 30,510 -- --
Warrants issued in connection with
private placements ..................... -- -- -- -- 1,355 -- --
Common stock issued related to
acquisition ............................ -- -- 950 1 3,474 -- --
Interest on notes receivable issued for
common stock ........................... -- -- -- -- -- (121) --
Common stock issued below market value ... -- -- -- -- 322 -- --
Common stock options exercised ........... -- -- 190 -- 43 -- --
Common stock issued related to employee
stock purchase Plan .................... -- -- 411 -- 668 -- --
Amortization of stock based
compensation ........................... -- -- -- -- -- -- 436
Note forgiveness ......................... -- -- -- -- -- 151 --
Reserve for notes receivable ............. -- -- -- -- -- 1,791 --
-------- ------- --------- -------- --------- ------------ -----------
Balances, December 31, 2001 ............... -- 46,245 $ 46 $133,726 $ (602) $ (1,130)
======== ======= ========= ======== ========= ============ ===========
ACCUMULATED
OTHER TOTAL
COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
LOSS DEFICIT EQUITY
------------- ----------- -------------
Balances, December 31, 1998 ............... $ 101 $ (31,145) $ 2,299
Net loss ................................. -- (12,092) (12,092)
Translation adjustment ................... (28) -- (28)
-------- ---------- -----------
Comprehensive loss ....................... (12,120)
Common stock issued in connection with
initial public offering ................ -- -- 46,354
Common stock issued for notes receivable.. -- -- --
Repayment of notes receivable issued for
common stock ........................... -- -- 315
Interest on notes receivable issued for
common stock ........................... -- -- (134)
Common stock options, exercised .......... -- -- 1,161
Common stock issued related to employee
stock purchase plan .................... -- -- 521
Common stock warrants exercised .......... -- -- 786
Common stock issued related to
acquisitions ........................... -- -- 1,437
Common stock options issued below market
value .................................. -- -- 2,755
-------- ---------- -----------
Balances, December 31, 1999 ............... 73 (43,237) 43,374
Net loss ................................. -- (23,704) (23,704)
Translation adjustment ................... 138 -- 138
-------- ---------- -----------
Comprehensive loss ....................... (23,566)
Issuance of stockholder notes receivable.. -- -- (136)
Common stock repurchased by note
cancellation ........................... -- -- --
Interest on notes receivable issued for
common stock ........................... -- -- (144)
Common stock issued related to litigation
settlements ............................ -- -- 2,355
Common stock options exercised ........... -- -- 3,020
Common stock issued related to employee
stock purchase plan .................... -- -- 1,045
Restricted common stock issued to
executive .............................. -- -- 176
Stock warrants issued .................... -- -- 15
Common stock issued to non-employees ..... -- -- 527
Common stock repurchased ................. -- -- (1)
-------- ---------- -----------
Balances, December 31, 2000 ............... 211 (66,941) 26,665
-------- ---------- -----------
Net loss .................................. -- (40,263) (40,263)
Translation adjustment ................... (194) -- (194)
-------- ---------- -----------
Comprehensive loss ....................... (40,457)
Common stock issued in connection with
private placements ..................... -- -- 30,525
Warrants issued in connection with
private placements ..................... -- -- 1,355
Common stock issued related to
acquisition ............................ -- -- 3,475
Interest on notes receivable issued for
common stock ........................... -- -- (121)
Common stock issued below market value ... -- -- 322
Common stock options exercised ........... -- -- 43
Common stock issued related to employee
stock purchase plan .................... -- -- 668
Amortization of stock based compensation.. -- -- 436
Note forgiveness ......................... -- -- 151
Reserve for notes receivable ............. -- -- 1,791
-------- ---------- -----------
Balances, December 31, 2001 ............... $ 17 $(107,204) $ 24,853
======== ========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
39
SAGENT TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEARS ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Cash Flows From Operating Activities:
Net loss ........................................................... $(40,263) $(23,704) $(12,092)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization .................................... 6,367 4,033 4,350
Asset impairments ................................................ 5,316 335 --
Restructuring costs .............................................. 547 -- --
Bad debt expense ................................................. 2,298 4,793 122
Loss on disposal of property and equipment ....................... 100 656 --
Gain on settlement of capital lease obligation ................... (369) -- --
Shares issued in litigation settlement ........................... -- 2,355 --
Issuance of common stock for services ............................ 408 527 2,755
Issuance of common stock warrants for services ................... -- 15 --
Stock-based compensation ......................................... 436 176 --
Officer notes forgiven ........................................... 958 -- --
Accrued interest on notes receivable ............................. (186) (144) --
Share of losses in equity investment ............................. (428) 170 --
Net change in operating assets and liabilities:
Accounts receivable .............................................. 660 (8,433) (4,603)
Prepaid assets ................................................... (343) (2,020) (2,956)
Other assets ..................................................... 677 (50) (7,056)
Accounts payable ................................................. (83) 2,145 (1,748)
Accrued liabilities .............................................. 1,444 (4,192) 5,367
Accrued merger costs ............................................. -- (4,109) 4,109
Deferred revenue ................................................. 7 1,302 4,196
Deferred rent .................................................... (106) 245 --
-------- -------- --------
Net cash used in operating activities ........................ (22,560) (25,900) (7,556)
-------- -------- --------
Cash Flows From Investing Activities:
Purchase of marketable securities .................................. -- (39,666) (22,309)
Restricted cash .................................................... (752) (25) --
Sale of marketable securities ...................................... -- 61,975 --
Purchase of property and equipment ................................. (513) (3,535) (2,904)
Purchases of long-term investments ................................. -- (1,379) --
Cash acquired in purchase of Sagent Asia/Pacific Pte. Ltd. ......... 2,298 -- --
Other business acquisitions, net of cash acquired .................. (88) (1,228) (1,132)
Proceeds from disposal of property and equipment ................... -- 200 1,539
Proceeds from sale of acquired technology .......................... 50 -- --
Employee notes ..................................................... -- (3,287) --
Capitalized software development ................................... -- -- (612)
-------- -------- --------
Net cash provided by or (used in) investing activities ....... 995 13,055 (25,418)
-------- -------- --------
Cash Flows From Financing Activities:
Payments of principal under capital lease obligations .............. (1,654) (895) (4,911)
Proceeds from issuance of common stock, net ........................ 32,548 4,065 50,440
Repurchase of common stock ......................................... -- (1) --
Proceeds from exercise of stock options ............................ 43 -- --
-------- -------- --------
Net cash provided by financing activities .................... 30,937 3,169 45,529
-------- -------- --------
Effect of exchange rate changes ...................................... (194) 138 (28)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ................. 9,178 (9,538) 12,527
Cash and cash equivalents, beginning of year ......................... 6,372 15,910 3,383
-------- -------- --------
Cash and cash equivalents, end of year ............................... $ 15,550 $ 6,372 $ 15,910
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
40
SAGENT TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts)
1. Description of Business and Summary of Significant Accounting Policies
Business
Sagent offers a complete business intelligence software platform that
allows business users and Information Technology (IT) departments to work
together to integrate, analyze, deliver and understand information. Sagent's
technology and proven implementation methodology reduce the time and expense
required to deploy custom business intelligence solutions. Sagent technology
also forms the basis for multiple partner solutions that address the needs of
specific vertical and functional application areas.
Sagent was 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 annual report
to "Sagent," "we," "our" and "us" refer to Sagent Technology, Inc. and its
subsidiaries, unless the context otherwise requires.
Principles of Consolidation
The consolidated financial statements include the accounts of Sagent
Technology, Inc. and its majority owned subsidiary 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 do Brazil,
and Sagent de Mexico. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Sagent's current estimated range of liability related to some
of the pending litigation is based on claims for which we can estimate the
amount and range of loss. In addition, Sagent also analyzes current accounts
receivable for a reserve 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 no longer probable. Actual results could differ
from those estimates.
Foreign Currency Translation
The functional currencies of our foreign subsidiaries are the local
currencies. Sagent translates the assets and liabilities of international
subsidiaries into dollars at the current rates of exchange in effect during each
period. Revenues and expenses are translated using rates that approximate those
in effect during the period. Gains and losses from translation adjustments are
included in stockholders' equity in the consolidated balance sheet caption
"Accumulated other comprehensive loss." Currency transaction gains and losses,
derived on monetary assets and liabilities stated in a currency other than the
functional currency, are recognized in current operations and have not been
significant to Sagent's operating results in any period. The effect of foreign
currency rate exchange on cash and cash equivalents has not been significant in
any period.
Cash and Cash Equivalents
Cash and cash equivalent include all highly liquid investments with an
original maturity of three months or less at the time of purchase. Sagent's cash
and cash equivalents at December 31, 2001 and 2000 consisted of deposits in
banks and money market funds.
Supplemental Cash Flow Information.
Selected cash payments and non-cash activities were as follows:
41
YEARS ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
-------- ------- -------
Supplemental disclosure of cash flow information:
Cash payments for interest ...................................... $ 510 $ 95 $ 407
Cash payments for taxes ......................................... $ 253 $ 196 $ 200
Supplemental non-cash financing activities:
Common stock repurchased by note cancellation ................... -- 482 --
Property and equipment acquired through capital lease ........... $ 3,965 $ 1,596 --
Common stock issued for notes receivable ........................ -- -- 2,284
Net liabilities assumed in connection with acquisitions ......... -- $ 66 $ 489
Common stock issued related to acquisition ...................... $ 3,475 -- $ 1,437
Warrants issued in connection with private placement ............ $ 1,355 -- --
Conversion of preferred stock to common ......................... -- -- 29,471
Restricted Cash
Certain of our lease agreements require us to provide stand by letters of
credit to guarantee payment. As of December 31, 2001, $777 of the stand by
letters of credit was issued against the line of credit agreement. As of
December 31, 2001, the Company was not in compliance with certain of the
financial covenants of the line of credit agreement. As a result, the bank
required us to maintain $777 cash equivalents on deposit to support the stand by
letters of credit, which is classified as restricted cash on the consolidated
balance sheets, In March 2002; the bank waived all instances of noncompliance
with covenants as of December 31, 2001.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash and cash equivalents
and trade accounts receivable. Sagent maintains its cash and cash equivalent
with high quality financial institutions. Sagent maintains allowances for
potential credit risks and for estimated future returns upon shipment. Returns
to date have not been material. Actual credit losses to date have been within
management's expectations. As of December 31, 2001 and 2000, there were no
customers with balances due to Sagent in excess of 10% of aggregate accounts
receivable.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets, generally ranging from three to five years.
Depreciation commences upon placing the asset in service. Capital leases are
recorded at the lesser of the fair value of the leased asset at the inception of
the lease or the present value of the minimum lease payments as of the beginning
of the lease term. Leased assets are amortized on a straight-line basis over the
estimated useful life of the asset or the lease term. Leasehold improvements are
amortized over the shorter of the useful life or the remaining lease term. Gains
and losses upon asset disposal of the assets are taken into the statement of
operations in the year of disposition. Sagent reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair
value of net assets acquired in business combination. Sagent amortized goodwill
on a straight-line basis over their expected useful lives ranging from one to
five years.
Starting January 1, 2002, Sagent will adopt SFAS 142."Goodwill and other
Intangible Assets", at that time, Sagent will cease amortization of goodwill and
evaluate goodwill for impairment in accordance with Company policy stated below.
Impairment of Long-Lived Assets and Identifiable Intangible Assets
Sagent reviews long-lived assets, including goodwill, and other
identifiable assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable or that the
useful lives of other assets are no longer appropriate. Factors considered
important which could trigger an impairment review include, but are not limited
to, significant underperformance relative to expected historical or projected
future operating results, significant changes in the manner of use of the
acquired assets or the strategy for the Company's overall business, significant
negative industry or economic trends, significant decline in the Company's stock
price for a sustained period, and the Company's market capitalization relative
to net book value.
42
When the Company determines that the carrying value of long-lived assets may not
be recoverable based upon the existence of one or more of the above indicators
of impairment, the Company measures any impairment based on a projected
discounted cash flow method using a discount rate commensurate with the risk
inherent in the Company's current business model.
Notes Receivable from Officers
Notes from officers represent five-year promissory notes to key executives.
These promissory notes are full recourse. The notes bear interest at rates
between 5.0% and 8.0%. Principal and interest are due by August 4, 2005. In the
year ended December 31, 2001, Sagent has forgiven a total of $807 from the
balance due from two of the officers in lieu of bonuses. Such amounts have been
recorded in general and administrative expense. As of December 31, 2001, $550 of
the outstanding loans will be forgiven during the remaining life of the note,
contingent upon continued employment of the officer.
Revenue Recognition.
Sagent sells its software products directly to our customers and through
channel partners such as enterprise software vendors, resellers and
distributors. Enterprise software vendors generally integrate our products with
their applications and will embed them into their products or resell them with
their products. Our other channel partners, principally resellers and
distributors, sell our software products to end user customers.
Sagent derives its revenue from license fees for software products and fees
for services relating to the software products, including consulting, training,
software and data updates, technical support and real-time marketing services
over the Internet.
Sagent recognizes revenue from sales of software licenses to end users upon
contract execution, provided all shipment obligations have been met, fees are
fixed and determinable, collection is probable, and vendor specific objective
evidence exists to allocate the total fee between all delivered and undelivered
elements of the arrangement. 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) such evidence does
exist for the undelivered elements, or b) all elements are delivered. Fees from
license agreements which include the right to receive unspecified future
products are recognized over the term of the arrangement or, if not specified,
the estimated economic life of the product.
Sagent's customers generally 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. Where consulting services are essential to the
functionality of the licensed software, both the license revenue and the
consulting service revenue are recognized as the services are performed. Our
arrangements regarding sales of software licenses generally do not include
services that are essential to the functionality of the software.
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, and c) the services do
not include significant alterations to the features and functionality of the
software. To date, services have not been essential to the functionality of the
software products for substantially all software agreements.
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.
Maintenance contracts generally call for us to provide technical support
and software updates and upgrades to customers. Maintenance revenue is
recognized ratably over the term of the maintenance contract, generally on a
straight-line basis when all revenue recognition requirements are met. Other
service revenue, primarily training and consulting, is generally recognized at
the time the service is performed and when it is determined that the Company has
fulfilled our obligations resulting from the services contract.
Statement of Position, 97-2, "Software Revenue Recognition" (SOP 97-2) was
issued in 1997 by the American Institute of Certified Public Accountants (AICPA)
and amended by Statements of Position 98-4 and 98-9. We adopted SOP 97-2
effective January 1, 1998. Based on our reading and interpretation of SOP's
97-2, 98-4 and 98-9, we believe our current revenue recognition policies and
practices are consistent with SOP's 97-2, 98-4, and 98-9
43
Deferred Revenue
Deferred revenue represents amounts received from customers under certain
license, maintenance and service agreements for which the revenue earnings
process has not been completed.
Software Development Costs
Software development costs are included in product development and are
expensed as incurred. After technological feasibility is established, material
software development costs are capitalized in accordance with SFAS No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed." The period between achieving technological feasibility, which Sagent
has defined as the establishment of a working model, typically occurring when
the beta testing commences, and the general availability of such software has
been short, and software development costs qualifying for capitalization have
been insignificant. No software development costs have been capitalized for the
years ended December 31, 2001 and 2000. $612 was capitalized for the year ended
December 31, 1999.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $446,
$686, and $213 for the years ended December 31, 2001, 2000 and 1999,
respectively.
Stock-Based Compensation
Sagent accounts for stock 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 complies with the disclosure provision of
FASB Statement No. 123 ("SFAS 123"). Under APB No. 25, compensation expense is
based on the difference, if any, on the date of the grant, between the fair
value of the Company's stock and the exercise price of the option. Stock
compensation is being amortized over the vesting period of the individual awards
in manner consistent with the method described in FASB Interpretation No. 28,
"Accounting for Stock Appreciation Rights and Other Variable Stock Option Award
Plus." In addition, the Company accounts for stock issued to non-employees in
accordance with the provision of SFAS 123. Pursuant to SFAS No. 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.
Income Taxes
Sagent uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
financial statement carrying amounts and the tax basis of existing assets and
liabilities. Sagent records a valuation allowance to reduce tax assets to an
amount for which realization is more likely than not.
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing the net income
(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 income (loss) per share is computed by dividing the net
income (loss) for the period by the weighted average number of common and common
equivalent shares outstanding during the period. Options, warrants, restricted
stock and convertible preferred stock were not included in the computation of
diluted net loss per share for those periods in which Sagent incurred a loss
because the effect would be antidilutive.
Comprehensive Loss
Comprehensive income (Loss) is the total of net income (loss) and all other
revenues, expenses, gains and losses recorded directly in equity. Sagent's
"Other comprehensive loss" consists of foreign currency translation adjustments.
There was no significant tax effect on the components of other comprehensive
loss for the years ended December 30, 2001, 2000 and 1999, respectively. We
disclosed comprehensive income and its components on our consolidated statements
of stockholder's equity and comprehensive loss.
Reclassification
Sagent has reclassified the presentation of certain prior year information
to conform to the current year presentation.
44
2. Business Combinations
Pooling of Interests
On December 11, 1999, Sagent completed its merger with Qualitative
Marketing Software, Inc. (QMS). The merger was accounted for as a pooling of
interests. Sagent issued 2,100 shares of common stock in exchange for all
outstanding stock of QMS. Sagent also assumed all options to purchase QMS stock,
which were converted into options to purchase 428 shares of Sagent stock.
Historical results of Sagent and QMS for the year prior to the consummation of
the merger was:
1999
----------
Revenue:
Sagent ............. $ 36,004
QMS ................ 11,997
----------
$ 48,001
==========
Net loss:
Sagent ............. $ (7,016)
QMS ................ (5,076)
----------
$(12,092)
==========
Costs incurred in connection with the merger during years ended December 31,
2000 and 1999 were:
DECEMBER 31, DECEMBER 31,
COSTS COSTS 1999 COSTS CREDIT 2000
ACCRUED PAID BALANCE PAID AMOUNTS BALANCE
------- ----- -------- -------- ------- -------
Severance and other personnel cost ... $ 328 $ -- $ 328 $ 222 $ 106
Transaction costs .................... 3,366 153 3,213 1,344 1,869 --
Elimination of duplicate systems
and equipment ................... 118 -- 118 48 70 --
Other ................................ 834 384 450 177 273 --
-------- ------ ------- ------- ------- ------
$ 4,646 $ 537 $ 4,109 $ 1,791 $ 2,318
======== ====== ======= ======= ======= ======
Severance and other personnel costs consist of severance pay and
outplacement for nine employees. Transaction costs consists of professional
service fees. In 2000, the Company had satisfied all merger related obligations,
and the residential accrual of $2,318 was reversed. The provision in 1999 and
the reversal of the residual accrual in 2000 were recorded as merger and
integration charges (credits) in the accompanying consolidated statements of
operations.
During 1999 certain employees of QMS were granted options at prices below
fair value. Expenses related to the grant of these options were recognized
during 1999. Such expense is included in 1999 operating expenses as follows:
1999
--------
Sales and marketing .................... $ 1,262
Research and development ............... 1,260
General and administrative ............. 233
--------
$ 2,755
========
Purchase Business Combinations
In April 2001, Sagent acquired 100% interest in Sagent Benelux for cash of
$100 and the assignment of a portion of Sagent's outstanding accounts receivable
valued at $200 to the selling shareholders. The acquisition was recorded under
the purchase method of accounting. In connection with the acquisition, Sagent
recorded goodwill of $197, which is being amortized on a straight-line basis
over a period of five years. The results of operations of Sagent Benelux have
been included in our consolidated results from the date of the acquisition.
45
In January 2001, Sagent acquired an additional 33% interest in Sagent
Asia/Pacific Pte. Ltd from eGlobal, a privately held company that specializes in
distribution of technology services in Singapore. In consideration for 950
shares of Sagent's common stock, valued at $3.5 million, Sagent received an
additional 2,113 common shares of Sagent Asia/Pacific Pte. Ltd. This brings the
total interest of Sagent in Sagent Asia/Pacific Pte. Ltd to 53%. The acquisition
was recorded under the purchase method of accounting. In connection with the
acquisition, Sagent recorded goodwill of $2,832, which is being amortized on a
straight-line basis over a period of five years and acquired gross assets of
approximately $2,775 and minority interest of $1,316. Assets acquired consisting
primarily of cash and accounts receivable. The results of operations for Sagent
Asia/Pacific Pte. Ltd. have been included in our consolidated results from the
date of the acquisition.
In March 2000, Sagent acquired Sagent Brazil Ltd. Under the terms of the
agreement, Sagent acquired net liabilities of $66 consisting of property and
equipment in the amount of $68 and assumed certain liabilities including
deferred revenue in the amount of $134 in exchange for $1,148 in cash.
Concurrent with the acquisition, the Company entered into two consulting
agreements with the former owners to provide consulting services for a term of
four years. Under the provisions of the agreement, Sagent will pay $1,500 in
either Sagent common stock or cash, at Sagent's option, in annual installments
over the term of the agreements. Such amounts will be recorded as operating
expenses as the services are performed. For the years ended December 31, 2001
and 2000, Sagent recorded stock-based compensation in the amount of $408 and
$500, respectively relating to the issuance of options to two employees.
In November 1999, Sagent acquired Sagent Technology GmbH, its distributor
in Germany, from a partnership in which a member of Sagent's Board of Directors
serves as general partner. Under the terms of the agreement, Sagent acquired all
of the outstanding stock of Sagent Technology GmbH for approximately $2,457.
Revenues from sales of products and services to this distributor prior to
Sagent's acquisition were $300 in 1999.
In November 1999, Sagent acquired Sagent France S.A., its distributor in
France. Under the terms of the agreement, Sagent acquired all of the outstanding
stock of Sagent France S.A. in exchange for 20 shares of Sagent common stock
valued at approximately $445.
In June 1999, Sagent acquired Sagent U.K., Ltd., its distributor in the
United Kingdom. Under the terms of the agreement, Sagent acquired all
outstanding stock of Sagent, U.K., Ltd., for cash of approximately $1,000, 146
shares of common stock valued at $1,600, stock options valued at $212 and the
assumption of certain liabilities.
Sagent accounted for these acquisitions under the purchase method of
accounting. The allocation of Sagent's aggregate purchase price to the tangible
and intangible assets acquired and liabilities assumed in connection with these
acquisitions is summarized below:
SAGENT SAGENT SAGENT SAGENT SAGENT
SAGENT FRANCE, U.K., BRAZIL ASIA/PACIFIC BENELUX
GMBH S.A. LTD. LTD. PTE. LTD LTD.
--------- --------- --------- --------- -------- --------
Net current assets .............................. $ (582) $ (660) $ (672) $ (134) $ 2,775 $ 12
Property and equipment .......................... 23 19 102 68 15 --
Goodwill ........................................ 3,016 1,086 3,557 1,214 2,832 197
Minority interest ............................... -- -- -- -- (1,316) --
-------- -------- -------- -------- -------- --------
Total purchase price ............................ $ 2,457 $ 445 $ 2,987 $ 1,148 $ 4,306 $ 209
======== ======== ======== ======== ======== ========
46
The following summary, prepared on an unaudited pro forma basis, combines
the Company's consolidated results of operations for the years ended December
31, 2001, 2000 and 1999 with the results of operations of Sagent Benelux, Sagent
Asia/Pacific, Pte. Ltd., Sagent Brazil, Sagent GmbH, Sagent France SA and Sagent
UK, Ltd., as if each company had been acquired as of January 1, 1999,
respectively.
2001 2000 1999
-------- -------- --------
Years Ended December 31,
Revenue .................................................. $ 49,990 $ 59,959 $ 49,051
Net loss ................................................. (41,115) (24,349) (13,109)
Basic and diluted net loss per share ..................... $ (1.05) $ (0.85) (0.60)
Number of shares used in pro forma per share calculation . 39,323 28,773 21,971
The proforma adjustments give effect to available information and
assumptions that Sagent believes are reasonable. The unaudited pro forma results
of operations should be read in conjunction with Sagent's historical financial
statements and the financial statements of Sagent Benelux, Sagent Asia/Pacific
Pte. Ltd., Sagent UK, Ltd., Sagent France, S.A., and Sagent GmbH and the notes
thereto included or incorporated elsewhere herein.
3. Other Current Assets
Other current assets consists of:
2001 2000
-------- --------
Prepaid licenses ............................. $ 2,135 $ 2,572
Other ........................................ 1,565 3,689
-------- --------
$ 3,700 $ 6,261
======== ========
Included in prepaid licenses are license technologies purchased from third
party, which are integrated into our products and services prior to deployment.
These license technologies are being amortized ratably over the term of the
license, generally for a period of two years.
4. Property and Equipment
Property and equipment at December 31, 2001 and 2000 consist of:
2001 2000
-------- --------
Computer equipment and software .................. $13,222 $ 5,534
Furniture, fixtures and office equipment ......... 1,031 1,657
Leasehold improvements ........................... 512 3,498
------- -------
14,765 10,689
Less accumulated depreciation and amortization ... (8,627) (4,971)
------- -------
$ 6,138 $ 5,718
======= =======
Equipment under capital leases was $6,953 and $2,698 at December 31, 2001
and 2000, respectively and the related accumulated amortization at such dates
was $2,806 and $962, respectively.
5. Goodwill and Other Assets
Goodwill as of December 31, 2001 and 2000 is as follows:
ECONOMIC
LIFE 2001 2000
--------- -------- --------
Goodwill, net:
Sagent UK ........................ 5 $1,746 $2,496
Sagent France S.A ................ 5 645 863
Sagent GmbH ...................... 5 1,787 2,378
Sagent Brazil .................... 5 728 971
Smarter Software, Inc ............ 1 68 615
Sagent Asia/Pacific Pte. Ltd ..... 5 2,389 --
Sagent Benelux ................... 5 151 --
------ ------
$7,514 $7,323
====== ======
47
Amortization of goodwill was $2,439, $1,957, and $452 for the years ended
December 31, 2001, 2000, and 1999, respectively.
2001 2000
---- ----
Other assets, net:
eGlobal joint venture, net ..... $ -- $ 830
NetAcumen, Inc. joint venture .. 529 759
Deposits ....................... 545 942
Other .......................... 64 39
------ ------
$1,138 $2,570
====== ======
Investment in Sagent Asia/Pacific Pte. Ltd., a joint venture between Sagent
and eGlobal was accounted for under the equity method as of December 31, 2000.
Sagent's ownership interest in Sagent Asia/Pacific Pte Ltd. was 53%, and 19.99%
as of December 31, 2001 and 2000 respectively. For the year ended December 31,
2001, the consolidated financial statements of Sagent include the accounts of
Sagent Asia/Pacific Pte. Ltd. As a result, $658 minority interest liability was
recorded at December 31, 2001 and reflects the original investment by the
minority stockholders, along with their proportional share of accumulated
losses. The $658 minority interest in Sagent Asia/Pacific's losses is included
in other income (expense) in the consolidated statements of operations for the
year ended December 31, 2001.
Sagent has a minority investment in Net Acumen, a privately held company.
The investment in NetAcumen is accounted for under the cost method. Sagent's
ownership interest in NetAcumen, Inc. was 8.7% as of December 31, 2001. Sales to
NetAcumen were $0 and $780 for the years ended December 31, 2001 and 2000. At
December 31, 2001, Sagent recognized a $230 loss in investment in NetAcumen due
to a decline in the fair value of the investment, which is included in other
income (expense) in the consolidated statements of operations.
6. Accrued Liabilities
Accrued liabilities consists of:
2001 2000
---- ----
Employee compensation and benefits ........... $3,219 $2,759
Sales and marketing .......................... 1,393 1,320
Sales taxes .................................. 686 622
Software royalties ........................... 1,006 302
Other ........................................ 2,133 839
------ ------
$8,437 $5,842
====== ======
7. Commitments and Contingencies
Commitments
Sagent leases various facilities under noncancelable operating leases and
has acquired certain computer and other equipment under capital lease
obligations which are collateralized by the related assets. Future minimum lease
payments under these commitments at December 31, 2001, are as follows:
OPERATING CAPITAL
LEASES LEASE
---------- -------
2002 ........................................ $3,070 $ 2,415
2003 ........................................ 1,993 1,382
2004 ........................................ 532 23
2005 ........................................ 108 7
2006 ........................................ -- 6
Thereafter .................................. -- --
------ -------
Total minimum lease payments ................ $5,703 3,833
======
Less amount representing interest ........... (204)
-------
Present value of minimum lease payments ..... 3,629
Current portion ............................. (2,214)
-------
$ 1,415
=======
48
Rent expense was $3,613, $4,200, and $2,800, for the years ended December
31, 2001, 2000, and 1999, respectively.
Litigation
From time to time, the Company has 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, the Company
will assess its potential liability and revise its 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, the Company is engaged in certain legal and administrative
proceedings incidental to our normal business activities and believes 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 on behalf of the individual
investors who purchased Sagent common stock between October 21, 1999 and April
18, 2000. The claims allege that Sagent misrepresented its prospects for 1999
and the first quarter of 2000. Thereafter, the court consolidated the complaints
and selected a lead plaintiff and counsel. A consolidated amended complaint was
filed in April 2001. The defendants filed a motion to dismiss the consolidated
amended complaint. On September 28, 2001, the court granted the defendants'
motion, and gave the plaintiffs leave to amend the complaint. On December 28,
2001, the class plaintiffs filed a second amended complaint. Defendants filed a
motion to dismiss that complaint on February 15, 2002. The hearing on
defendants' motion is scheduled for May 6, 2002.
On November 17, 2000, a derivative lawsuit was filed by a purported Sagent
shareholder in the Superior Court of California for the County of San Mateo (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. The Hu complaint also names an investment bank retained
by us and an employee of that firm as defendants. We have also been named as a
nominal defendant. The principal allegation of the complaints is that the
defendants breached their fiduciary duties to Sagent. In July 2001, the two
cases were coordinated for pretrial purposes in the Superior Court of California
for the County of Santa Clara. Sagent filed a motion to dismiss the Fanucci
complaint, on the ground that, among other things, the plaintiff 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 that motion, and also moved to
dismiss on the grounds that the complaint fails to allege the asserted causes of
action against the individual defendants. Similar motions were filed concerning
the Hu complaint.
The parties agreed to stay the Hu complaint indefinitely, pending the
outcome of the Fanucci matter. The court entered an order staying the Hu
complaint on January 11, 2002. Thereafter, on January 16, 2002, the Fanucci
plaintiff filed a motion to transfer and/or remand that case back to the
Superior Court for San Mateo County where it was originally filed. The court
heard oral argument on defendants' motion to dismiss the Fanucci complaint, and
the plaintiffs' transfer motion on January 28, 2002. On March 1, 2002, the court
issued an order sustaining Sagent's motion to dismiss, granting the plaintiff
leave to amend the complaint, denying the plaintiff's motion to transfer an/or
remand the Fanucci case to San Mateo County, and ordering Sagent to produce a
limited quantity of documents to the plaintiff.
In October 2001, infoUSA, Inc. filed a complaint against Sagent 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 Sagent on December 20, 2001, for failure by Sagent to
respond to the initial complaint. Sagent filed a motion to set aside the default
judgment in January 2002. On February 22, 2002, the court granted Sagent's
motion to set aside the default judgment, and allowed Sagent to file its answer
to the complaint.
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 investors who purchased Sagent common stock between May 11, 2001 and
November 28, 2001. The complaints allege that Sagent and certain of its officers
and directors violated the Securities Exchange Act of 1934. The complaints
allege that during the class period, the defendants caused Sagent's shares to
trade at artificially inflated levels through the issuance of false and
misleading financial statements. The court has selected a lead plaintiff in that
action and we expect a consolidated amended complaint to be filed.
49
In February 2002, two derivative lawsuits were filed by purported Sagent
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 principal allegation of the complaints is that the
defendants breached their fiduciary duties to Sagent.
8. Line of Credit
Sagent has a $5 million line of credit agreement with a bank collateralized
by the assets of the Company. The line consists of advances against eligible
accounts receivable in an aggregate amount not to exceed the lesser of, the
committed revolving line or the borrowing base, less any outstanding letters of
credit. Advances against the revolving line bear interest at the bank's prime
rate plus 1%, the prime rate was at 4.75% at December 31, 2001. As of December
31, 2001 there were no advances on the line of credit.
Certain of our lease agreements require us to provide stand by letters of
credit to guarantee payment. As of December 31, 2001, $777 of the stand by
letters of credit was issued against the line of credit agreement. As of
December 31, 2001, the Company was not in compliance with certain of the
financial covenants of the line of credit agreement. As a result, the bank
required us to maintain $777 cash equivalents on deposit to support the stand by
letters of credit, which is classified as restricted cash on the consolidated
balance sheets. In March 2002, the bank waived all instances of noncompliance
with covenants as of December 31, 2001.
9. Capitalization
In August 2001, Sagent completed a private placement of approximately 9,115
shares of its common stock and received proceeds of $15,833, net of $990 in
offering costs. In connection with the private placement, Sagent also issued to
certain placement agents warrants to purchase 456 shares of Sagent's common
stock with an estimated fair value of $886, which has been included in
additional paid-in capital. This estimated fair value was calculated using the
Black-Scholes option pricing model with the following factors and assumptions:
expected volatility of 135.8%, contractual life of 4 years, stock price of $2.27
on the date of grant, exercise price of $1.84, and risk free interest rate of
4.13% per annum.
In February 2001, Sagent completed a private placement of approximately
5,750 shares of its common stock and received proceeds of $16,047, net of $628
in offering costs. In connection with the private placement, Sagent also issued
to certain placement agents warrants to purchase 210 shares of Sagent's common
stock with an estimated fair value of $469, which has been included in
additional paid-in capital. This estimated fair value was calculated using the
Black-Scholes option pricing model with the following factors and assumptions:
expected volatility of 130%, contractual life of 5 years, stock price of $2.78
on the date of grant, exercise price of $2.90, and risk free interest rate of 5%
per annum.
In April 1999, Sagent issued 5,750 shares of its common stock at an initial
public offering (IPO) price of $9.00 per share. The proceeds to Sagent from the
offering, net of offering costs were approximately $47,200. In connection with
the IPO, common stock warrants were exercised to purchase 110 shares of common
stock at prices ranging from $3.18 to $6.48 per share, resulting in additional
proceeds to Sagent totaling $700.
Preferred Stock
Concurrent with the IPO, each outstanding share of Sagent's convertible
preferred stock was converted into one share of common stock. Prior to
conversion into common stock, holders of preferred stock were entitled to
preferential noncumulative dividends, liquidation preferences, conversion on a
one to one basis into shares of common stock, and one vote for each common share
into which such preferred stock was convertible. Remaining preferred stock
warrants for the purchase of 236 shares were converted into warrants for the
purchase of 236 shares of common stock.
Warrants
During 2001, Sagent issued warrants to purchase 210 shares of common stock
at $2.23 per share in connection with February 2001 private placement. Sagent
also issued warrants to purchase 456 shares of common stock at $1.94 per share
in connection with August 2001 private placement.
During 2000, Sagent issued warrants to purchase 10 shares of common stock
at $2.50 per share, with an estimated fair value of $15 in connection with a
bank agreement to secure a $10 million line of credit that expired in June 2001.
The estimated fair values of warrants were calculated using the Black Scholes
model.
50
During 1999, all outstanding warrants issued through 1999 were exercised
for the purchase of 236 shares of common stock for an exercise price totaling
$786. As of December 31, 2001, warrants totaling 676 are still outstanding.
10. Notes Receivable from Stockholders
Notes receivable from stockholders were issued in exchange for common
stock. The notes bear interest at rates ranging from 4.62% to 7.50% and are due
at dates from January 28, 2002 to August 30, 2005. The notes are full recourse
and collateralized by the underlying common stock issued.
Restricted Stock Purchase Agreement
Sagent has sold shares of its common stock to founders and employees of
Sagent under agreements which provide for repurchase of the shares by Sagent at
the stock's original sale price upon termination of employment of such persons.
Sagent's right to repurchase shares generally lapses as to 1/48 of the total
shares on the date of sale and 1/48 on the first day of each subsequent month.
There were 102 and 335 shares of common stock subject to repurchase at cost at
December 31, 2001 and 2000, respectively.
11. Stock Options
1995 Plan
Options granted under the 1995 Plan were exercisable immediately,
conditioned upon the optionee entering into a restricted stock purchase
agreement, and generally vest over a period of four years. Options granted
expire 10 years from the date of grant. Upon adoption of the 1998 Plan, all
shares of common stock reserved under the 1995 Plan were no longer reserved for
issuance.
1998 Plan
In December 1998, the board of directors adopted the 1998 Stock Option plan
(the "1998 Plan") under which incentive stock option or non-statutory stock
options may be granted to employees, directors and consultants of Sagent. A
total of 7,351 shares of common stock have been reserved for issuance under the
1998 Plan. Under the terms of the 1998 Plan, incentive options may be granted at
prices not lower than fair market value at the date of grant, while nonqualified
options may be granted at prices as determined by the administrator at the date
of grant. However, if an employee or other person who, at the time of the grant
of such stock option, owns stock representing more than 10.0% of the voting
power of all classes of stock in Sagent, the exercise price may be no less than
110% of the fair market value per share on the date of grant. Options granted
under the 1998 stock option plan are generally exercisable one year after the
vesting commencement date. Upon exercise of an option, the optionee shall enter
into a restricted stock purchase agreement. Options generally vest over a period
of four years and expire 10 years from the date of grant. As of December 31,
2001, a total of 456 shares remain available for future grant.
1999 Director Plan
In January 1999, the board of directors adopted a Non-statutory Stock
Options Plan for Directors (the "Director Plan"). A total of 150 shares of
common stock have been reserved for issuance under the Director Plan. The
exercise price for each option granted under the Director Plan will be equal to
the fair market value of common stock on the date of grant. The options that
were granted will have a term of ten years and the shares subject to the option
will generally become exercisable in four equal annual installments subject to
optionee's completion of one-year board service. As of December 31, 2001, no
shares were available for grant under the Director Plan.
2000 Plan
In December 2000, the board of directors adopted a Non-statutory Stock
Options Plan for key employees and consultants (the "2000 Plan"). A total of
2,135 shares of common stock have been reserved for issuance under the 2000
Plan. The exercise price for each option granted under the 2000 Plan shall be
determined by the administrator on the date of grant. Options granted generally
vest over a period of four years and expire ten years from the date of grant. As
of December 31, 2001, a total of 125 shares remain available for future grant.
51
Employee Stock Purchase Plan
In February 1999, stockholders approved the 1999 Employee Stock Purchase
Plan. A total of 700 shares of common stock have been reserved for issuance
under the 1999 employee stock purchase plan. The number of shares reserved will
be subject to an annual increase every January equal to the lesser of the number
of shares optioned during the prior year or lesser amount determined by the
board of directors. The 1999 employee stock purchase plan permits eligible
employees to purchase common stock through payroll deductions at a price equal
to 85% of the lower of the fair market value of the common stock at the
beginning or end of each six-month offering period.
The following table summarizes option activity under all Plans for the
years ended December 31, 2001, 2000 and 1999:
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE
------- --------
Outstanding at December 31, 1998 ..... 2,275 $ 3.43
Granted .............................. 2,793 9.05
Canceled ............................. (464) 4.61
Exercised ............................ (978) 3.66
------- -------
Outstanding at December 31, 1999 ..... 3,626 7.55
Granted .............................. 4,732 5.30
Canceled ............................. (1,245) 7.84
Exercised ............................ (757) 3.98
------- -------
Outstanding at December 31, 2000 ..... 6,356 6.23
Granted .............................. 5,320 1.38
Canceled ............................. (2,705) 4.27
Exercised ............................ (190) 0.23
------- -------
Outstanding at December 31, 2001 ..... 8,781 $ 4.01
======= =======
The following table summarizes information with respect to stock options
outstanding at December 31, 2001:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------ ---------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OF REMAINING AVERAGE OF AVERAGE
RANGE OF SHARES CONTRACTUAL EXERCISE SHARES EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- --------------- ------------ ------------ ---------- ------------ --------
$ 0.09-- 0.09 7 4.4 $ 0.09 7 $ 0.09
0.25-- 0.25 6 4.8 0.25 6 0.25
0.71-- 0.76 598 9.9 0.73 20 0.73
1.12-- 1.63 2,485 9.2 1.28 711 1.41
1.72-- 2.50 2,896 7.9 2.10 1,811 2.18
2.60-- 3.47 32 2.9 3.19 32 3.19
4.30-- 6.25 599 6.6 6.07 384 5.98
6.50-- 9.13 1,194 7.1 7.47 765 7.45
11.06--11.19 825 8.5 11.18 825 11.18
25.00--25.00 139 7.7 25.00 72 25.00
------ ----- -------- ----- -------
$ 0.09--25.00 8,781 8.2 $ 4.01 4,633 $ 5.20
====== ===== ======== ===== =======
The following pro forma net loss and net loss per share information has
been prepared assuming stock option grants and the employee stock purchase plan
had been accounted for in accordance with the provisions of SFAS No. 123:
YEAR ENDED DECEMBER 31,
----------------------------------
2001 2000 1999
---------- ----------- ---------
Net loss:
As reported .......................... $(40,263) $ (23,704) $ (12,092)
Pro forma ............................ (48,414) (27,976) (22,764)
Basic and diluted net loss per share:
As reported .......................... (1.02) (0.82) (0.55)
Pro forma .............................. $ (1.23) $ (0.97) $ (1.04)
52
Valuation
The pro forma value of each option grant has been estimated on the date of
grant using the Black-Scholes option pricing model. The Black-Scholes option
pricing model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, option valuation models require the input of highly subjective
assumptions, including the expected stock price volatility. Because Sagent
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in the opinion of management, the existing
models do not necessarily provide a reliable single measure of the fair value of
its options.
Assumptions used in completing the option-pricing model for years ended
December 31, included:
STOCK OPTION PLANS
-------------------------------------
2001 2000 1999
---------- ------------- ---------
Risk-free interest rate .......... 4.5% 5.9% 5.6%
Expected life .................... 4 years 4 years 3.43 years
Dividends ........................ -- -- --
Volatility ....................... 130% 130% 70%
ESPP
----------------------------------------
2001 2000 1999
------------ ------------ -----------
Risk-free interest rate .......... 5.19% 5.7% 4.6%
Expected life .................... 0.5 years 0.5 years 0.5 years
Dividends ........................ -- -- --
Volatility ....................... 130% 130% 70%
The weighted average estimated fair value of employee stock options granted
during fiscal years 2001, 2000, and 1999 with exercise prices equivalent to the
market price of the Company's common stock at the date of grant were $1.19,
$4.18, and $11.79 per share, respectively.
During 2001 and 2000 the Company granted stock options with an exercise
price below the market value of the Company's common stock on the date of grant.
The weighted average estimated fair value of those options granted below market
value were $2.00 and $11.62, respectively.
The weighted average estimated fair value of employee stock purchase rights
granted under the ESPP was $1.03, $4.60 and $4.29 during 2001, 2000 and 1999
respectively.
12. Income Taxes
The Company's pre-tax income (loss) from operations for the years ended
December 31, 2001, 2000, and 1999 consisted of the following components:
2001 2000 1999
---------- --------- ---------
Domestic ........................ $(34,673) $(18,250) $(10,940)
Foreign ......................... (5,076) (4,944) (889)
--------- --------- ---------
Total pretax loss ............... $(39,749) $(23,194) $(11,829)
========= ========= =========
53
Income tax expense for the years ended December 31, 2001 and 2000, were
comprised of the following:
2001 2000 1999
--------- --------- --------
Current:
State ............................... $ 105 $ 5 $ --
Foreign ............................. 409 505 263
--------- --------- --------
Total current tax expense ............. 514 510 263
--------- --------- --------
Deferred .............................. -- -- --
--------- --------- --------
Total deferred tax expense ............ -- -- --
--------- --------- --------
Total tax expense ..................... $ 514 $ 510 $ 263
========= ========= ========
The 2001, 2000, and 1999 income tax expense differed from the amounts
computed by applying the U.S. federal statutory income tax rate of 34% to pretax
income as a result of the following:
2001 2000 1999
---------- ---------- ---------
Tax benefit at statutory rate ....... $ (13,514) $ (7,886) $ (3,762)
State taxes, net of federal benefit . 69 5 (271)
Nonrecognition of tax benefits ...... 12,437 7,876 1,743
Foreign taxes ....................... 409 505 256
Tax credits ......................... -- -- (137)
Permanent differences ............... 1,113 10 2,436
Other ............................... -- -- (2)
--------- --------- ----------
$ 514 $ 510 $ 263
========= ========= ==========
The components of the temporary differences that give rise to significant
portions of the Company's deferred tax assets and liabilities are set forth
below.
2001 2000 1999
----------- ----------- ----------
Deferred tax assets:
Net operating loss and credit carryforwards ... $ 29,508 $ 16,167 $ 10,373
Tax credits ................................... 3,628 1,425 1,425
Depreciation and amortization ................... -- -- 1,204
Deferred revenue ................................ 3,290 3,264 1,186
Other reserves and accruals ..................... 1,778 4,003 --
Other ........................................... -- 2 578
---------- ---------- ----------
Gross deferred tax assets ....................... 38,204 24,861 14,766
Valuation allowance ............................. (36,605) (24,736) (14,766)
---------- ---------- ----------
Total deferred tax assets ....................... 1,599 125 --
Deferred tax liabilities:
Fixed assets .................................... (1,599) (125) --
---------- ---------- ----------
Total deferred tax liabilities .................. (1,599) (125) --
---------- ---------- ----------
Net deferred tax assets: ........................ -- -- --
========== ========== ==========
At December 31, 2001, management had established a valuation allowance for
the portion of deferred tax assets for which realization is uncertain. The
valuation allowance for deferred tax assets on December 31, 2001. 2000 and 1999
were $36,605, $24,736 and $14,766 respectively. The net change in the total
valuation allowance for the years ended December 31, 2001, 2000 and 1999 was an
increase of $11,869, $9,970, and $1,723 respectively. Included in the valuation
allowance is a tax benefit attributable to the exercise of employee stock
options, when realized, will be a credit to additional paid-in-capital.
As of December 31, 2001, the Company has net operating loss carryforwards
for federal and state income tax purposes of approximately $77,684 and $35,014,
respectively, available to reduce future income subject to income taxes. The
federal net operating loss carryforwards expire beginning in 2010. State net
operating loss carryforwards expire beginning in 2002.
As of December 31, 2001, the Company also has research credit carryforwards
for federal and state purposes of approximately $2,157 and $1,432, respectively,
available to reduce future income taxes. The federal research credit
carryforwards expire beginning 2010. The research credit carryforwards for state
purposes carry forward indefinitely until utilized.
For federal and state tax purposes, a portion of Sagent's net operating
loss carryforwards may be subject to certain limitation on annual utilization
due to changes in ownership, as defined by federal and state tax law.
54
13. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share:
YEAR ENDED DECEMBER 31,
-------------------------------------
2001 2000 1999
----------- ----------- ----------
Net loss ............................................................... $ (40,263) $ (23,704) $ (12,092)
Weighted average common shares outstanding ............................. 39,425 29,020 22,221
Adjustment to reflect shares subject to repurchase ..................... (102) (247) (353)
---------- ---------- ----------
Shares used in computing net loss per share, basic and diluted ......... 39,323 28,773 21,868
========== ========== ==========
Net loss per share, basic and diluted .................................. $ (1.02) $ (0.82) $ (0.55)
========== ========== ==========
Antidilutive securities including options, warrants and preferred stock
not included in historical net loss per share calculations ........... 9,457 6,395 2,403
========== ========== ==========
14. Segment Reporting
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, requires disclosures of certain information regarding operating
segments, products and services, geographic areas of operation and major
customers. The method for determining what information to report under SFAS No.
131 is based upon the "management approach," or the way the management organizes
the operating segments within a company, for which separate financial
information is available that is evaluated regularly by the Chief Operating
Decision Maker (CODM) in deciding how to allocate resources and in assessing
performance. The Company's CODM is the Chief Executive Officer.
The Company provides software and services to address organization's
information access, analysis and delivery needs. Sagent sells its products
domestically and internationally. For the purpose of making operating decisions,
the CODM considers financial information presented on a consolidated basis
accompanied by disaggregated information about revenues by geographic area. The
company operates in a single segment.
The components of service revenue are as follows:
YEAR ENDED DECEMBER 31,
------------------------------------
2001 2000 1999
----------- ----------- ----------
Service:
Maintenance ............ $ 10,367 $ 7,683 $ 3,517
Professional services .. 11,247 15,839 10,354
-------- -------- ---------
Total service revenue ...... $ 21,614 $ 23,522 $ 13,871
======== ======== =========
It is impractical for the company to disclose license revenue by product
type.
The disaggregated financial information reviewed by the CODM is revenues by
geographic area. Such information for the years ended December 31, were as
follows:
2001 2000 1999
----- ----- -----
United States ..................... 72% 87% 87%
International ..................... 28% 13% 13%
No one country outside of the United States comprised more than 10% of
total revenue for fiscal 2001, 2000, and 1999. None of Sagent's international
operations have material long-lived assets. The international sales are based on
revenue generated from customers located outside the United States.
15. Employee Benefit Plans
401(k) Plan
Sagent maintains a 401(k) Plan for its employees. The 401(k) Plan allows
eligible employees to defer up to 15%, but no greater than the stated limitation
in any plan year, of their pretax compensation in certain investments at the
discretion of the employee.
55
No contributions were made to the plans during 2001, 2000, and 1999.
16. Restructuring and Asset Impairment
Restructuring costs
In December 2001, Sagent Board of Directors approved a restructuring plan
aimed at streamlining its underlying cost structure to better position Sagent
for growth and improved operating results. As part of restructuring plan, Sagent
implemented a reduction in workforce of approximately 14% or 51 employees and
contractors. The reductions came from all areas of the Company and, as of
December 31, 2001, the majority of these terminations were completed or reserved
for.
REMAINING RESERVE
NON-CASH AS OF DECEMBER 31,
TOTAL CHARGES CASH PAYMENT CHARGES 2001
Facility exit costs $ 397 $ -- $ (145) $ 252
Severance and personnel costs 286 (136) -- 150
------------- ------------ ------------ ---------
Total $ 683 $ (136) $ (145) $ 402
============= ============ ============ =========
The remaining balance will be paid in the first quarter of 2002.
Asset Impairment
Asset impairment charge of 3.4 million in 2001 consisted of $1.8 million
reserve on shareholders' notes, $1.2 million impairment of prepayments made to
service provider for data center services which is no longer in business, $0.3
million reduction in the carrying value of goodwill due to sale of acquired
technology to a third party, and $0.1 million of other losses related to the
closing of a remote facility due to consolidation of its operation into
headquarter location.
17. Related Party Transactions
Agreements and Arrangement with Executive Officers
In August 2000, we entered into an employment agreement with our President
and Chief Executive Officer. The employment agreement provides that he will
receive, among other things two loans:
1) an interest-free $750 loan for use towards the purchase of a home,
which loan would be forgiven over a period of five years provided he
continues to be employed with us, and
2) a $2,000 loan for use towards the purchase of a home bearing simple
interest at a rate of 5% per year and maturing in five years. On
January 2, 2002, the Board approved amendment to his employment
agreement. The Company agreed to forgive $282 of the principal of this
loan.
The difference between the market interest rates and stated interest rates
have been imputed to the loans and recognized as compensation expense over the
term of the employment agreement. As of December 31, 2001, a total of $2,409 in
unpaid principal and interest was outstanding under the two loans
In May 2000, we entered into a letter agreement with our previous Executive
Vice President, Finance and Administration, and Chief Financial Officer. The
letter agreement provides that our previous Chief Financial Officer will
receive, among other things, a $400 loan for use towards the purchase of a home
bearing interest at a rate of 7.5% per year and maturing in five years. During
year 2001, Sagent forgave a total of $ 316 of the principal and interest. As of
December 31, 2001, $126 in unpaid principal and interest was outstanding under
the loan.
Agreements and Arrangements with Directors
Sagent recognized revenues of $0, $783 and $73 in 2001, 2000 and 1999 from
licenses and services sold to companies for which Sagent's former Chairman
serves as a member of their Board of Directors. A member of Sagent's Board of
Directors is also an officer of an entity from which Sagent received
approximately $145, $1,032 and $882 royalty fees in 2001, 2000 and 1999,
respectively.
56
During 2000, one of our director sublet property to Sagent Technology Gmbh,
a wholly owned subsidiary pursuant to a sublease arrangement that expired in
April 2001. Sagent recorded lease payment of $13 and $35 for the years ended
December 31, 2001 and 2000, respectively.
One of our director also provided consulting services to Sagent Technology
GmbH, the amount paid for such services was approximately $114 and $130 for the
years ended December 31, 2001 and 2000, respectively. Sagent also sold this
director product and services total $21 in 2001.
Other Transactions
Sagent incorporates by reference the information set forth under the
captions "Certain Relationships and Related Transactions," and "Executive
Compensation," in our definitive Proxy Statement to be filed for our Annual
Shareholders Meeting.
57
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Sagent Technology, Inc.
Our audit of the consolidated financial statements referred to in our
report dated March 10, 2000 appearing in this Form 10-K of Sagent Technology,
Inc., also included an audit of the Financial Statement Schedule listed in Item
14(a) 2 of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in need conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 10, 2000
58
SCHEDULE II
SAGENT TECHNOLOGY, INC.
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- -----------
Year Ended December 31, 1999:
Allowance for returns and doubtful accounts ............... $ 508 $ 122 $ -- $ 630
Year Ended December 31, 2000:
Allowance for returns and doubtful accounts ............... 630 4,793 455 4,968
Year Ended December 31, 2001:
Allowance for returns and doubtful accounts ............... $4,968 $2,298 $5,596 $1,670
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
On October 13, 2000, we dismissed PricewaterhouseCoopers LLP as our
independent accountants. The audit committee of our board of directors
participated in and approved the decision to change independent accountants. The
reports of PricewaterhouseCoopers LLP on the financial statements for the fiscal
years ended December 31, 1998 and 1999 contained no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope, or accounting principles. In connection with its audits for the
fiscal years ended December 31, 1998 and 1999, and through the period ending
October 13, 2000, there were no disagreements with PricewaterhouseCoopers LLP on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope of procedure, which disagreements if not resolved to the
satisfaction of PricewaterhouseCoopers LLP would have caused them to make
reference thereto in their report on financial statements for such periods.
We retained KPMG LLP as our independent auditors effective as of October
13, 2000. During the fiscal years ended December 31, 1998 and 1999 and the
period ended October 13, 2000 we did not consult with KPMG LLP regarding (i)
either: the application of accounting principles to a specific transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on our financial statements, and either a written report was provided
to us or oral advice was provided that KPMG LLP concluded was an important
factor we considered in reaching a decision as to the accounting, auditing or
financial reporting issue; or (ii) any matter that was either the subject of a
disagreement or reportable event with PricewaterhouseCoopers LLP.
PART III
The information required by Part III is omitted from this report and will
be included in the proxy statement for our 2002 annual meeting of stockholders,
which will be filed by April 30, 2002.
Item 10. Directors and Executive Officers of the Registrant
The information regarding directors and executive officers appearing under
the headings "Election of Directors" "Other Information" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the proxy statement for our 2002
annual meeting of stockholders is incorporated by reference.
Item 11. Executive Compensation
The information contained under the headings "Executive Officer
Compensation", "Director Compensation", "Report of the Compensation Committee of
the Board of Directors" and "Certain Relationships and Related Transactions" in
the proxy statement for our 2002 annual meeting of stockholders is incorporated
by reference.
59
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained under the heading "Security Ownership of Certain
Beneficial Owners and Management" in the proxy statement for our 2002 annual
meeting of stockholders is incorporated by reference.
Item 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain Relationships and
Related Transactions" in the proxy statement for our 2002 annual meeting of
stockholders is incorporated by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Consolidated Financial Statements:
PAGE
----
KPMG LLP, Independent Auditors ........................................... 35
PricewaterhouseCoopers LLP, Independent Accountants ..................... 36
Consolidated Balance Sheets .............................................. 37
Consolidated Statements of Operations .................................... 38
Consolidated Statements of Stockholders' Equity and Comprehensive Loss ... 39
Consolidated Statements of Cash Flows .................................... 40
Notes to Consolidated Financial Statements ............................... 41
2. Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts ......................... 59
3. Exhibits
NUMBER TITLE
- ------ -----
3.1 Certificate of Incorporation of Registrant.
3.2 Amended and Restated Certificate of Incorporation of Registrant.
3.3 Bylaws of Registrant.
4.1 Form of Registrant's Common Stock Certificate.
4.2 Common Stock Rights Agreement dated February 15, 2001 between the
Registrant and the parties named therein.
4.3 Common Stock Rights Agreement dated July 23, 2001 between the
Registrant and the parties named therein.
10.1* Form of Indemnification Agreement entered into by Registrant with each
of its directors and executive officers.
10.2* 1998 Stock Plan and related agreements.
10.3* 1999 Employee Stock Purchase Plan and related agreements.
10.4* 1999 Director Option Plan and related agreements.
10.5 Master Equipment Lease Agreement, dated August 7, 1995, between the
Registrant and Lighthouse Capital Partners, L.P.
10.6 Master Lease Agreement, dated as of September 26, 1998, between the
Registrant and Dell Financial Services L.P.
10.7 Standard Office Lease, dated June 1, 1998, by and between the
Registrant and Asset Growth Partners, Ltd., and the First Amendment
thereto.
10.8+ Development and Licensing Agreement, dated January 22, 1997, between
the Registrant and Abacus Concepts, Inc.
10.9+ Microsoft License and Distribution Agreement, dated August 23, 1996,
between the Registrant and Microsoft Corporation.
10.10+ Sagent KK Non-Exclusive Japanese Distribution Agreement, dated as of
December 17, 1997, between Sagent KK Japan and Kawasaki Steel Systems
R&D Corporation.
60
Number Title
- ------ -----
Japan and Kawasaki Steel Systems R&D Corporation.
10.11 Form of Sagent Technology, Inc. End User Software License Agreement.
10.12+ OEM Software License Agreement, effective March 31, 1998, between the
Registrant and Siebel Systems, Inc.
10.13 Form of Sagent Technology, Inc. Software Maintenance and Technical
Support Agreement.
10.14 Form of Sagent Technology, Inc. Agreement for Consulting Services.
10.15 Form of Sagent Technology, Inc. Agreement for Subcontractor Consulting
Services.
10.16 Form of Evaluation Agreement.
10.17* Note, dated February 1, 1998, between the Registrant and W. Virginia
Walker.
10.18* Note, dated February 1, 1998, between the Registrant and W. Virginia
Walker.
10.19+ Solution Provider Agreement, effective June 27, 1997, between the
Registrant and Unisys Corporation.
10.20* Executive Change of Control Policy.
10.21*+ Software License and Services Agreement, dated March 31, 1998, between
the Registrant and Siebel Systems, Inc.
10.22* Notes, dated February 5, 1999, between the Registrant and Tom
Lounibos.
10.23* Note, dated March 15, 1999, between the Registrant and Kenneth C.
Holcomb.
10.24 Nonexclusive International Software Value Added Reseller ("VAR")
Agreement, dated December 8, 1997, between the Registrant and Opalis
S.A.
10.25* Employment Agreement dated August 4, 2000, between the Registrant and
Ben C. Barnes.
10.26* Offer letter dated May 9, 2000, between the Registrant and David
Eliff.
10.27 Common Stock Purchase Agreement dated February 15, 2001, between the
Registrant and the parties named therein.
10.28* Service Agreement, dated January 1, 2001, between the Registrant and
Arthur Parker.
10.29 Common Stock Purchase Agreement dated July 23, 2001 between the
Registrant and the parties named therein.
10.30* Offer letter dated October 9, 2001, between the Registrant and Richard
Ghiossi.
10.31* Offer letter dated October 31, 2001, between the Registrant and Steven
R. Springsteel, and addendum dated November 16, 2001.
10.32* Settlement Agreement and Mutual Release dated December 31, 2001
between the Registrant and Kenneth C. Gardner.
16.1 Letter dated as of October 18, 2000 from PricewaterhouseCoopers LLP to
the Securities and Exchange Commission.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on signature page)
- ----------
* Denotes management contract or compensatory plan or arrangement.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(b) Report on Form 8-K
On December 5, 2001, Sagent filed a Form 8-K to report the appointment of
Steven R. Springsteel as its Executive Vice President and Chief Financial
Officer.
On December 6, 2001, Sagent filed a Form 8-K to report the restatement of
its previously reported financials results for portions of 2001.
61
(c) Exhibits
See Item 14(a)(3), above.
(d) Financial Statement Schedules
See Item 14(a)(2), above.
INDEX TO EXHIBITS
Number Title
------ -----
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.
10.5(1) Master Equipment Lease Agreement, dated August 7, 1995, between
the Registrant and Lighthouse Capital Partners, L.P.
10.6(1) Master Lease Agreement, dated as of September 26, 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 First
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) Note, dated February 1, 1998, between the Registrant and W.
Virginia Walker
10.18(1) Note, dated February 1, 1998, between the Registrant and W.
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.
10.21(1)+ Software License and Services Agreement, dated March 31, 1998,
between the Registrant and Siebel Systems, Inc.
10.22(1) Notes, dated February 5, 1999, between the Registrant and Tom
Lounibos.
10.23(1) Note, dated March 15, 1999, between the Registrant and Kenneth
C. Holcomb.
10.24(1) Nonexclusive International Sofware Value Added Reseller ("VAR")
Agreement, dated December 8, 1997,
62
Number Title
------ -----
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 Offer letter dated October 9, 2001, between the Registrant and
Richard Ghiossi.
10.31 Offer letter dated October 31, 2001, between the Registrant and
Steven R. Springsteel, and addendum dated November 16, 2001.
10.32 Settlement Agreement and Mutual Release dated December 31,
2001, between the Registrant and Kenneth C. Garnder.
16.1(5) Letter dated as of October 18, 2000 from PricewaterhouseCoopers
LLP to the Securities and Exchange Commission.
23.1 Consent of KPMG LLP, Independent Auditors.
23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
24.1 Power of Attorney (included on signature page).
__________
(1) Incorporated by reference to the exhibits to the Registrant's Registration
Statement on Form S-1 (No. 333-71369), declared effective by the Securities
and Exchange Commission (SEC) on April 14, 1999.
(2) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 2000.
(3) Incorporated by reference to the exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 2001.
(4) Incorporated by reference to the exhibits to the Registrant's Current
Report on Form 8-K filed with the SEC on August 7, 2001.
(5) Incorporated by reference to the exhibit to the Registrant's Current Report
on Form 8-K filed with the SEC on October 19, 2000.
+ Confidential treatment has been granted with respect to certain portions of
this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, as amended, the Registrant has duly caused this Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Mountain View, State of California, on March 28, 2002.
SAGENT TECHNOLOGY, INC.
By: /s/ BEN C. BARNES
----------------------------------
Ben C. Barnes
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints, jointly and severally, Ben C. Barnes and Steven
R. Springsteel and each one of them, his true and lawful attorney-in-fact and
agents, each with full power of substitution, for his and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this report
on Form 10-K, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as she might or could do in person, hereby ratifying and confirming all
that each of said attorneys-in-fact and agents or any of them, or his or their
substitute of substitutes, may lawfully do or cause to be done or by virtue
hereof.
Pursuant to the requirements of the Exchange Act, this report has been
signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
President, Chief Executive Officer and March 28, 2002
- -------------------------------------- Director (Principal Executive Officer)
Ben C. Barnes
Vice President and Chief Financial Officer March 28, 2002
- -------------------------------------- (Principal Financial and Accounting Officer)
Steven R. Springsteel
Chairman and Director March 28, 2002
- --------------------------------------
Andre Boisvert
Director March 28, 2002
- --------------------------------------
Ali Jenab
Director March 28, 2002
- --------------------------------------
Irv H. Lichtenwald
Director March 28, 2002
- --------------------------------------
Keith A. Maib
Director March 28, 2002
- --------------------------------------
John E. Zicker
64