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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2000 Commission File Number: 0-25137
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CONCUR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1608052
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6222 185th Avenue NE Redmond, Washington 98052
(Address of principal executive offices)
(425) 702-8808
(Registrant's telephone number, including area code)
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Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of Class)
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
As of December 15, 2000, 25,365,936 shares of Common Stock of Registrant
were outstanding. The aggregate market value of the shares held by non-
affiliates of the Registrant (based upon the closing price of the Registrant's
Common Stock on December 15, 2000 of $1.688 per share) was approximately $42.8
million.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's definitive Proxy Statement to be filed pursuant to
Regulation 14A promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, which is anticipated to be filed within 120
days after the end of the Registrant's fiscal year ended September 30, 2000, are
incorporated by reference in Part III hereof.
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CONCUR TECHNOLOGIES, INC.
TABLE OF CONTENTS FOR FORM 10-K
PART I.................................................................................................... 3
Item 1. Business...................................................................................... 3
Item 2. Properties.................................................................................... 20
Item 3. Legal Proceedings............................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders........................................... 20
PART II................................................................................................... 20
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters......................... 20
Item 6. Selected Consolidated Financial Data.......................................................... 22
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations......... 23
Item 7A. Quantitative and qualitative disclosures about market risk.................................... 30
Item 8. Financial Statements and Supplementary Data................................................... 31
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......... 56
PART III.................................................................................................. 56
Item 10. Directors and Executive Officers of the Registrant............................................ 56
Item 11. Executive Compensation........................................................................ 56
Item 12. Security Ownership of Certain Beneficial Owners and Management................................ 56
Item 13. Certain Relationships and Related Transactions................................................ 56
PART IV................................................................................................... 56
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............................. 56
2
PART I
ITEM 1. BUSINESS
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
our plans, objectives, expectations, intentions, future financial performance,
future financial condition, and other statements that are not historical facts.
You can identify these statements by our use of the future tense, or by forward-
looking words such as "may," "will," "expect," "anticipate," "believe,"
"intend," "estimate," "continue," and other similar words and phrases. Reliance
should not be placed on these forward-looking statements because they involve
substantial risks and uncertainties. Examples of such risks and uncertainties
are described under "Factors That May Affect Results of Operations and Financial
Condition" contained in Part I, Item 1 of this report, elsewhere in this
report, and in our other filings with the Securities and Exchange Commission.
You should be aware that the occurrence of any of these risks and uncertainties
may cause our actual results to differ materially from those anticipated in our
forward-looking statements, which could have a material and adverse effect on
our business, results of operations, and financial condition. All forward-
looking statements included in this report are based on information available to
us on the date of this report. We assume no obligation or duty to update any
such forward-looking statements.
Overview
Concur Technologies, Inc.(TM) is a leading provider of Corporate Expense
Management software and services that automate costly and inefficient business
processes, allowing companies to leverage their most limited resources: time,
money, knowledge, and energy. Our software products include Concur Expense(TM)
for travel and entertainment expense management, Concur Payment(TM) for employee
requests for vendor payments, Concur Time(TM) for time tracking and reporting,
and Concur Human Resources(TM) for human resources self-service. These software
products are designed to meet the needs of businesses of all sizes through
license and application service provider ("ASP") models. Since 1996, nearly 600
companies, representing over three million employees, have selected our software
and services to reduce their costs and increase their productivity and access to
data about their internal business processes.
We sell our software and services through our direct sales organization and
through indirect channels. We also have developed a number of strategic
relationships. Currently, one of our most significant reseller arrangements is
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., a global
payroll solutions and computing services provider. ADP has agreed to resell and
jointly market our ASP solutions for travel and entertainment expense management
to ADP's existing customers and potential new customers.
Industry Background
In response to competitive conditions worldwide, businesses seek cost
savings and productivity gains by using software solutions to automate
enterprise business processes. These solutions traditionally targeted discrete
functional or department-level business processes involving relatively few
employees. However, businesses are now seeking similar solutions for employee-
centric business processes, including travel and entertainment expense
management, time tracking and reporting, employee requests for vendor payments,
human resources self-service, and facilities management. The emergence of the
Internet and corporate intranets has made it possible to deploy software
solutions that reach all employees in an enterprise and connect the enterprise
to corporate partners and service providers. In addition, in contrast to
traditional client-server applications, Internet and intranet-based applications
can be deployed rapidly throughout the enterprise on a cost-effective basis.
We believe that customers using our solutions can realize significant
operating cost savings through reduced processing costs and greater efficiency
through increased business intelligence. Based on a 1997 study conducted by
American Express, businesses using best-in-class automation solutions that
process 1,000 to 5,000 travel and entertainment expense reports per month can
achieve savings of $300,000 to $1.5 million per year in processing costs alone.
We believe our customers can achieve these cost savings rapidly because our
products are designed to minimize burdens on customer information technology
("IT") professionals and to maximize employees' ease of use. Our solutions are
designed to deploy rapidly, scale enterprise-wide, and integrate easily with an
organization's existing IT infrastructure, enabling our customers' IT personnel
to deliver and support solutions quickly and cost-effectively. For example, one
customer deployed our Concur Expense software to more than 25,000 employees in
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less than 90 days, and has since deployed Concur Expense to more than 80,000
employees. Employees readily adopt our solutions because they are easy to use,
significantly reduce unproductive time, and shorten reimbursement, fulfillment,
and processing cycles.
Our Corporate Expense Management Solutions
We believe that we are a leading provider of Corporate Expense Management
software and services, based on a combination of the number of customers we
serve, the number of our solutions, the features our solutions provide, and the
flexibility of our delivery models.
Our software products include:
. Concur Expense for travel and entertainment expense management;
. Concur Payment for employee requests for vendor payments;
. Concur Time for time tracking for billing and allocation purposes; and
. Concur Human Resources for manager and employee self-service HR
transactions.
Our software products can be delivered to customers through two delivery models:
. A license model targeted primarily to large companies; and
. An ASP model targeted primarily to mid-to-large companies that want a
configured solution offered on an outsourced basis.
Presently, we offer Concur Expense, Concur Time, Concur Payment, and Concur
Human Resources in the license model. We offer Concur Expense in the ASP model.
We offer licenses for our solutions based on the number of users or employees in
an enterprise. The typical order size for our license solutions and related
services ranges from $250,000 to $1.5 million, with some transactions exceeding
$2.0 million. We also offer our ASP solutions on a per employee subscription
basis. The typical monthly fee for our ASP solutions ranges from approximately
$500 to $3,000 per month per application, depending on the total number of
users, with some transactions exceeding $15,000 per month per application.
Our software products benefit a number of groups within an enterprise,
including corporate management, IT professionals, and employees. For corporate
management, our software products provide tools that reduce the amount of time
required to administer, manage, and process expense reports, timesheets, and
payment requests. These tools are Web-based "thin client" applications that
greatly increase productivity for these business functions. Also, our software
products provide reporting capabilities that provide corporate management with
access to the information gathered by our software products for the purposes of
trend analysis, vendor negotiation, financial planning, and other needs. For IT
professionals, our software products provide simple, Web-based, thin client
applications for the administration, management, and monitoring of our
solutions. These tools provide a means for managing employee information, batch
processes, database maintenance, and data interoperability. For employees, our
software products provide an intuitive, easy to use interface for the creation
of expense reports, timesheets, and payment requests, which reduces the amount
of time required to create these documents.
Concur Expense
Concur Expense automates the travel and entertainment expense management
process, including expense report preparation, approval, processing, and data
analysis.
Report Preparation. Concur Expense includes features that facilitate report
preparation for end-users. The application uses corporate charge or credit card
information to prepopulate a user's expense report with transaction data
covering various information required for the expense report, including
transaction date, type of expense, vendor, location, method of payment, currency
amount, and foreign currency conversion. Using a graphical user interface,
employees supply additional expense-related information by using pull-down
menus. To eliminate the task of sorting receipts, Concur Expense allows users to
enter data in any order. Features of the application also automate the
complicated process of itemizing hotel receipts. With each use of Concur
Expense, the application retains commonly-incurred expense information and uses
this information to help complete the next expense report. Other ease-of-use
features include simple "checkbook" style input screens, the ability to create
"attendees" lists, mileage reimbursement tracking, and automatic flagging of
non-compliant and incomplete entries.
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Report Approval. Concur Expense allows each customer to determine how
expense reports should be processed, whether by submission to a manager for
approval before processing, or by submission to the accounting department for
immediate review and payment. Once the report is submitted, the approver
receives an e-mail message containing an intranet link to Concur Expense, where
all reports awaiting approval are listed. Concur Expense can be configured to
route the report for approval based on cost center, dollar limit, or other
criteria. Items that do not comply with corporate policy can be automatically
flagged for review, allowing approvers to focus on problematic items. Approvers
can reject individual line items, while allowing the rest of the report to
continue in the approval process. Once approved, the report is automatically
forwarded to the next phase in the process or to the enterprise's accounting
department, and the user is notified of the action.
Report Processing. Concur Expense streamlines back-office processing of
expense reports in a number of ways. Because all expense reports are prepared
electronically, the processing department no longer needs to check the
arithmetic of each report manually. Moreover, businesses can reduce the time
spent auditing reports by choosing to audit only those reports automatically
flagged as not compliant with corporate travel and entertainment expense
policies. In addition, Concur Expense reduces the number of status inquiries
between employees and processing departments by automatically updating the
status of reports in the database, and alerting employees via e-mail to the
status of their reports. Concur Expense allows significant time savings by
automatically posting expense report information to the customer's enterprise
resource planning ("ERP") or accounting package, eliminating the manual re-entry
of this data. Concur Expense further simplifies processing by producing bar-
coded receipt submission cover pages to validate delivery of receipts associated
with expense reports. Concur Expense also helps companies claim reimbursement of
tax credits by tracking VAT, GST, and other international taxes.
Data Analysis. Concur Expense utilizes business intelligence software to
analyze expense data. This information can be presented graphically in various
display formats and allows managers to determine total spending according to
vendor, location, or other user-defined criteria. With knowledge of this data,
managers can analyze trends and determine methods for controlling costs or
negotiating more favorable terms with vendors. Managers can also analyze the
data to monitor compliance with corporate travel and expense policies and
determine if policy modifications are appropriate. Concur Expense also can
provide companies with information relating to unused airline tickets, booked
versus actual travel reporting, and foreign currency rates.
Concur Payment
Concur Payment allows companies to deploy automated "Check Request" and invoice
entry functionality to employees and dramatically reduce the data entry burden
for accounts payable departments. By deploying this functionality to the
employee, companies can ensure that the right information and approvals are
collected, reducing the overall effort for accounts payable departments. Concur
Payment automates every step in the payment process so that companies can
achieve:
. Timely and more accurate vendor payments;
. More efficient approval process;
. More accurate accounting and tracking of non-purchase order expenses;
. Improved efficiency of the accounts payable department; and
. Improved employee productivity.
Overall, Concur Payment eliminates paper forms and manual processing, reducing
processing costs and saving valuable resources. Immediate and long-term benefits
of Concur Payment include:
. Reduced costs. Concur Payment ensures that the right information is
collected up-front from the employees authorizing the purchase or
service, and automates every step within the payment process. By
capturing the right information initially, reducing re-keying and
errors, and processing payment requests online, the accounts payable
departments of our customers can significantly reduce the cost and
effort associated with managing vendor payments.
. Increased employee productivity. Concur Payment streamlines the payment
request process for employees by enabling online forms, identifying and
defaulting required information, and automating the approval process.
Employees have access to instant online status updates.
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. Improved payment turnaround time. Concur Payment automates the manual,
paper-based process, minimizing the number of steps and people involved.
This results in more timely payment to vendors, which in turn improves
supplier relationships and management.
. Increased focus on strategic activities. Concur Payment allows both
individual employees and the accounts payable departments of our
customers to minimize the administrative time and effort associated with
employee-initiated vendor payment requests, freeing them to focus on
more strategic business activities and objectives.
Concur Time
Concur Time allows customers to track time for billing and allocation purposes.
In many businesses today, the time tracking process is fraught with
inefficiencies, such as:
. Lengthy turn-around times and procedures.
. Time and costs of tracking down late or missing time sheets.
. Manual, paper-based approval process.
. Drains on employee and project manager productivity.
. Errors and inefficiencies.
. Time reporting errors due to inaccurate project codes and time data.
. Re-key in payroll or billing departments.
. Delayed billing cycles; slow turn-around on receivables.
. Lack of real-time data.
. Inability to capture real-time billing and revenue data.
. Difficulty tracking project status and cost.
. Lead times in obtaining employee utilization information.
By automating this process using Concur Time, immediate and long term benefits
include:
. Improve billing accuracy and reduce timelines - by collecting time
information directly from employees in a thin-client, Web-based
application and routing the timesheet through manager approval
automatically, companies can improve the accuracy of the timesheets that
reach the accounting department. This in turn allows invoices to reach
customers faster with more accurate information.
. Reduce time collection and accounting costs- by automating this process,
companies eliminate the thousands of paper forms that must be manually
processed through the back office. Our solution allows all timesheets to
arrive in the back office electronically and be processed, routed and
approved online.
. Improve management of project costs - as information is collected
through our solution, companies can access and analyze this information
in order to gain a clearer understanding of the true costs of their
projects. This data can in turn be used to adjust staffing levels,
billing rates, etc.
. Increase employee productivity - by automating this process, companies
can increase the productivity of their most valuable resource - their
employees. Using our solutions, employees spend less time creating
timesheets and have more time to focus on their core responsibilities.
Concur Human Resources
Concur Human Resources is a comprehensive application that automates
employee and managerial human resources processes for enterprise customers.
Concur Human Resources offers a variety of modules for employee and managerial
self-service tasks, enabling customers to choose the applications that meet
their needs and to add new components or customized applications as their
business needs grow and change. Concur Human Resources allows employees and
managers to access and update information easily, process everyday human
resources transactions quickly, and conduct many everyday transactions without
the involvement of human resources
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personnel. This reduces administrative costs and allows the human resources
staff to maximize employee productivity and efficiency.
Employee Self-Service Applications. Concur Human Resources allows employees
to review and modify information in the human resources, payroll, and benefits
management systems. Our HR Core (Personal Information) application, which is a
foundation component of Concur Human Resources, provides security, navigation,
search, display, and maintenance capabilities, and allows employees to access
information about company personnel. Our Payroll and Paid-Time-Off (Payroll
Information) application allows employees to access their payroll and W-4 data,
view their paycheck stubs and perform updates to deductions, withholdings, and
direct deposit data. Our Benefits Enrollment and Modeling (Benefits Enrollment)
application allows employees to access information about the employer's benefit
plans, and to complete enrollment forms, 24 hours per day, seven days per week.
Concur Human Resources' employee self-service applications are "role based" in
that each user's access rights, views, and workflow are tailored to that user's
role in the organization.
Managerial Self-Service Applications. Concur Human Resources also automates
managerial human resources tasks. Our Events@Work (Employee Manager)
application, which is a component of Concur Human Resources, provides managers
the convenience of a single access point to manage planning and day-to-day
transactions such as performance reviews, salary planning, and position
management (including inter-departmental transfers, salary changes, promotions,
and terminations). The Compensation and Salary Management application also
provides managers with easy access to decision-critical information such as
compensation data and department compensation plans, modeling, and approvals.
These applications reduce the time that managers must spend on routine
administrative functions, allowing them to spend more time on core business
matters. Like the Concur Human Resources employee self-service applications,
Concur Human Resources managerial self-service applications are role based.
Human Resources Management System Integration. Concur Human Resources
integrates with the back-office human resources management systems offered by
PeopleSoft and Tesseract. In addition, Concur's open system approach has been
integrated with many other human resources management systems developed by
partners and customers.
HR Procedure Control and Security. Concur Human Resources meets business
needs for scalability, security, and enterprise-wide distribution. Management
staff, HR personnel, and employees can access the HR information they need, but
access is strictly controlled so that each employee only has access to the
applications, functions, and data appropriate to their roles within the company.
Concur's security model ensures that sensitive data is available only to
appropriate users. Dynamic Profiling(TM) determines access dynamically, based on
the relationship of the user to the organization, to the employee records being
accessed, and to the transaction being performed. Company policies, employee
contracts, compensation plans, and rules are securely protected and accessible
to authorized personnel only.
Professional Services
Our professional services organization was formed in 1996 to offer
consulting, customer support, and training in connection with our Corporate
Expense Management software and services.
Consulting. We offer a variety of consulting services in connection with
implementation of our software products. Our consulting staff meets with
customers prior to product implementation to review the customer's existing
business processes and IT infrastructure, and to provide advice on ways to
improve these processes using industry best practices and prior experiences with
similar customers. Our consultants also install, configure, and test our
applications and integrate them with our customers' existing systems. Our
consultants further help customers develop a strategy for the customers'
enterprise-wide deployment of our applications.
Customer Support. We provide product upgrades and customer support through
our "CustomerOne" customer support program. Our CustomerOne program provides
telephone support as well as 24-hour electronic access via the Internet,
including online case entry and review, access to technical information
documents and technical tips. Customers routinely subscribe for the first year
of the CustomerOne program at the time they license an application; thereafter,
support may be renewed on an annual basis.
Training. We offer a variety of training programs for our products. These
classes are tailored to particular user groups, such as end users, help desk
personnel, and trainers. Training classes are offered at customer sites and
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also at our headquarters in Redmond, Washington. We also provide training
classes for third-party service providers, such as systems integrators.
Strategy
Our objective is to extend our leadership position in Corporate Expense
Management solutions that automate business processes across an enterprise. Key
elements of our strategy include the following:
Expand Product Functionality and Architecture. We plan to continue our
innovation and development of advanced features and functionality for our
products, increasing their utility to our customers and facilitating broader
market acceptance for them. In fiscal 2000, we introduced two new product
offerings - Concur Time and Concur Payment - to complement our existing
Corporate Expense Management solutions. We believe that our product expansion,
together with the increasing demand for Concur Expense as an ASP solution, will
allow us to extend our leadership position.
Expand Our Small and Mid-Sized Company Market Presence. We intend to expand
our presence in the market for small and mid-size companies through a
combination of expanding our indirect sales channel and offering our software
products on an ASP basis to this market segment. Our ASP solution is offered on
a per-employee subscription-pricing basis to companies seeking to outsource
their corporate expense management applications. We expect that this offering
will be particularly attractive to businesses with 50-1,000 employees, which
typically have limited IT staff and budget resources. Our ASP solution is
currently available with Concur Expense; we expect to add Concur Time and Concur
Payment at a later date.
Expand Our ASP Solution to the Large Company Market. We expect to expand
our ASP solution to large companies through both our direct and indirect sales
channels. This will enable large companies to outsource their travel and
entertainment expense reporting and still configure the application to meet
their needs in much the same way they would have been able to configure the
application if they had licensed Concur Expense and installed it on their
intranet servers.
Expand International Presence. We believe that additional demand exists for
our products outside of the United States. For fiscal 2000, our international
revenues increased to 10% of total revenues from less than five percent of our
total revenues for fiscal 1999. We intend to continue our investment in
international sales and marketing in an effort to increase sales of our
Corporate Expense Management solutions worldwide. We also plan to localize our
applications for new countries, and to add new features and functionality to our
products to accommodate accounting, customs, currency, and tax requirements of
foreign jurisdictions.
Expand Relationships With Strategic Third Parties. We intend to expand our
relationships with existing strategic partners and to develop additional
relationships with providers of complementary applications and products. We have
developed strong relationships with leading corporate charge card providers,
payroll processors, and systems integration and consulting firms, and we intend
to establish similar relationships with information technology outsourcing
companies.
Our strategy involves substantial risk. There can be no assurance that we
will be successful in implementing our strategy or that it will lead to
achievement of our objectives. If we are unable to implement our strategy
effectively, our business will be materially adversely affected. See "Factors
That May Affect Results of Operations and Financial Condition" below.
Customers
We have nearly 600 customers, representing over three million employees,
who have selected our solutions. The following table lists a selection of our
significant customers since fiscal 1996:
Technology/Telecommunications/Media Consumer
- ----------------------------------- --------
ADP, Inc. Anheuser-Busch Companies Inc.
AT&T Corp. Avon Products, Inc.
American Management Systems, Inc. Bestfoods
Bell South Corporation The Clorox Company
Cable & Wireless DaimlerChrysler Corporation
Cambridge Technology Partners Eastman Kodak Company
Computer Sciences Corporation The Gap, Inc.
Dell Computer Corporation The Gillette Company
DoubleClick J.C. Penney Company, Inc.
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Dow Jones & Company Levi Strauss & Co.
The Hearst Corporation Maytag Corporation
Knight-Ridder, Inc. Ocean Spray Cranberries, Inc.
KPMG Revlon, Inc.
Lucent Technologies, Inc.
Motorola, Inc. Financial Services
The New York Times Company ------------------
Quantum Corporation ABN Amro Holding N.V.
Reuters Limited American Express Travel Related Services Company
SBC, Inc. (Southwestern Bell) Bear Stearns & Co. Inc.
Seagate Technology, Inc. Comdisco, Inc.
Sprint Corporation Credit Suisse First Boston Corporation
Texas Instruments Incorporated Dresdner Kleinwort Benson
First Union Corporation
Industrial/Manufacturing J & H Marsh & McLennan, Inc.
- ------------------------ John Hancock Financial Services
Allied Signal Inc. J.P. Morgan Services Inc.
Case Corporation Lehman Brothers Inc.
Eaton Corporation Nomura International
E.I. du Pont de Nemours and Company Royal Insurance
Equistar Chemicals SAFECO Insurance Company of America
Guardian Industries Corporation Transamerica Corporation
Hughes Space and Communications Company Wells Fargo Bank, N.A.
Monsanto Company
Navistar International Energy and Natural Resources
Northrop Grumman Corporation ----------------------------
PPG Industries, Inc. Amerada Hess Corporation
Solutia, Inc. Baltimore Gas & Electric Company
The Timken Company Broken Hill Proprietary Company Limited
Trinity Industries, Inc. Exxon-Mobil Corporation
USG Corporation Florida Power & Light Company
Occidental Petroleum Corporation
Pharmaceutical/Health Care Ontario Power Generation
- -------------------------- Ultramar Diamond Shamrock Corporation
Baxter Heathcare Corporation Southern California Edison Company
Bristol-Myers Squibb Company Texaco Inc.
Columbia/HCA Healthcare Corporation
Magellan Health Services, Inc. Other
Merck, Sharpe & Dohme Limited -----
Pfizer Inc. American Airlines, Inc.
Pharmacia & Upjohn Co. Battelle Memorial Institute
Solvay Pharmaceuticals, Inc. British Midland
Tenet Healthcare Corporation Federal Express Corporation
Harvard College
J. Walter Thompson
Ontario Ministry of Labour
Rockwell International
United States Postal Service
No customer accounted for 10% or more of our total revenues in fiscal 2000,
1999, or 1998.
Sales
We sell our solutions through our direct sales organization, with sales
professionals located in metropolitan areas throughout the United States and the
United Kingdom, and through indirect channels. Field-based sales engineers
provide technical sales support. Direct telesales and telemarketing
representatives based at our headquarters in Redmond, Washington support the
field sales force in addition to directly selling our ASP solutions.
Because our solutions affect employees throughout an enterprise, our sales
effort involves multiple decision makers and frequently includes the chief
financial officer, vice president of finance, controller, and vice president of
human resources. While the average sales cycle varies substantially from
customer to customer, for initial sales it has generally ranged from three to
twelve months, with some transactions exceeding fifteen months. See "Factors
That May Affect Results of Operations and Financial Condition--Our Lengthy Sales
Cycle Could Adversely Affect Our Revenue Growth."
We have developed a number of strategic relationships. For example, ADP, a
subsidiary of Automatic Data Processing, Inc., a global payroll solutions and
computing services provider, has agreed to resell and jointly market our ASP
solutions for travel and entertainment expense management to existing ADP
customers and potential new
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customers. While we believe that our relationships with our strategic partners
are good, many of them have multiple strategic relationships, and we may not be
regarded as significant for their own businesses. In addition, our strategic
partners may attempt to develop or acquire products or services that compete
with our products or services. Any inability to maintain our strategic
relationships or to enter into additional strategic relationships may have a
material adverse effect on our business. See "Factors That May Affect Results of
Operations and Financial Condition -- It is Important for Us to Establish and
Maintain Strategic Relationships."
Substantially all of our revenues have been derived from the sale of
licenses of Concur Expense and related services, and to a lesser degree, the
sale of licenses and services relating to Concur Human Resources. Revenues from
Concur Expense and related services represented approximately 87% of our total
revenues in 2000, compared to approximately 83% and 86% of total revenues in
1999 and 1998, respectively. We anticipate that revenues from Concur Expense and
related services will continue to represent a meaningful portion of our total
revenues in 2001. See "Factors That May Affect Results of Operations and
Financial Condition -- We Rely Heavily on Sales of One Product."
Marketing
Our marketing efforts are directed at promoting the Concur brand and our
Corporate Expense Management software and services, extending our leadership
position in travel and entertainment expense management and human resources
solutions, and increasing our market share in solutions for employee requests
for vendor payments and time tracking and reporting. Our marketing programs are
targeted at accounting, finance, human resources, and travel executives, and are
focused on creating awareness of, and generating interest in, our solutions.
We engage in a variety of marketing activities, including developing and
executing co-advertising and co-marketing strategies designed to leverage our
existing strategic relationships, targeting additional strategic relationships,
managing and maintaining our Web site, conducting public relations campaigns,
and establishing and maintaining close relationships with recognized industry
analysts. We are an active participant in technology-related conferences and
demonstrate our products at trade shows targeted at accounting, finance, human
resources, and travel executives.
We believe that demand is increasing, and will continue to increase, for
Corporate Expense Management solutions such as those we sell. We may not be able
to expand our sales and marketing staff, either domestically or internationally,
to take advantage of any increase in demand for Corporate Expense Management
solutions. Our failure to expand our sales and marketing organization or other
distribution channels could materially adversely affect our business. See
"Factors That May Affect Results of Operations and Financial Condition--We
Depend on Our Key Employees" and "--We Must Attract and Retain Qualified
Personnel."
Product Development
We have been an innovator and leader in the development of Corporate
Expense Management solutions. We believe that we were one of the first to
introduce a commercially successful travel and entertainment expense reporting
software application. We also believe that we pioneered Corporate Expense
Management solutions in an ASP model.
Our software engineering organization is responsible for developing new
software and services as well as enhancing our existing software and services.
We believe that a technically skilled, quality-oriented, and highly productive
software development organization will be a key component of the continued
success of new product offerings. As of September 30, 2000, we employed 107
people in research and development. Our software engineering team is organized
into six disciplines: development, quality assurance, documentation, product
design, configuration management, and program management. Members from each of
these disciplines, along with a product manager from our marketing department,
form separate product teams that work closely with sales, marketing,
professional services, customers, and prospects to better understand market
needs and requirements. When required, we also use third-party development firms
to expand the capacity and technical expertise of our internal research and
development team. Additionally, we may license third-party technology that is
incorporated into our products. We have a well-defined software development
methodology that we believe allows us to deliver products that satisfy real
business needs and meet commercial quality expectations.
We examine new technologies and platforms on an ongoing basis to determine
their potential benefits to our customers. For example, we currently develop
products using Microsoft(R) development tools and create thin-client,
10
Web-based solutions which run on multiple platforms, including Microsoft(R)
Windows, Unix(R), and Macintosh(R). The solutions currently work with ODBC(R)
compliant databases including Microsoft(R) SQL Server(R) and Oracle(R).
For the years ended December 31, 2000, 1999, and 1998, we incurred gross
research and development expenditures of $31.2 million, $19.4 million, and $10.3
million, respectively. While we believe our software engineering team will
continue to deliver products that meet the business needs and quality
expectations of our customers, our development efforts may not be completed
within our anticipated schedules, and if completed, they may not have the
features necessary to make them successful in the marketplace. Future delays or
problems in the development or marketing of product enhancements or new products
could result in increased research and development costs and otherwise have a
material adverse effect on our business. See "Factors That May Affect Results of
Operations and Financial Condition--We May Experience Difficulties in
Introducing New Products and Enhancements to Existing Products" and "--Our
Effort to Sell Products Under an ASP Model May Fail."
Competition
The market for our solutions is intensely competitive, subject to rapid
change, and significantly affected by new product introductions and other market
activities of industry participants. Our primary source of direct competition
comes from independent software vendors of Corporate Expense Management
solutions, and from providers of ERP software applications that have or may be
developing products similar to those we sell. We also face indirect competition
from potential customers' internal development efforts and have to overcome
their reluctance to move away from existing paper-based systems.
Our major competitors in the Corporate Expense Management field include
Captura Software, Inc., Extensity, Inc., Gelco Information Systems, iClick,
Inc., Interlynx Technology Corporation, International Business Machines
Corporation, ProBusiness Services, Inc., and Workscape, Inc. In addition,
several major ERP vendors such as Oracle Corporation, PeopleSoft, Inc., JD
Edwards, and SAP AG have already developed or created partnerships to develop
Corporate Expense Management solutions. These companies have begun to sell these
products along with their ERP application suites. We also expect to face
competition from new entrants including those ERP providers that do not already
market products similar to ours. Most of the major ERP providers have a
significant installed customer base and have the opportunity to offer additional
products to those customers as additional components of their respective ERP
application suites.
We believe that the principal competitive factors considered in selecting
Corporate Expense Management solutions are functionality, interoperability with
existing IT infrastructure, price, and an installed referenceable base of
customers. With respect to functionality, we believe that we offer solutions
with generally more features than other competing solutions, and that we have
often been the first to offer new and innovative features, such as prepopulation
of expense reports based on credit card information. We believe we were one of
the first providers of Corporate Expense Management solutions, and one of the
first companies to offer these solutions in an ASP model. In addition, our
solutions were designed and built to interoperate with existing IT systems and
can often be deployed on an enterprise customer's existing IT infrastructure.
Many of our competitors have chosen to develop their Web-based applications
using an architecture that we believe is difficult to deploy on a large scale
within today's corporate IT infrastructure. We believe the prices of our product
offerings are competitive with the prices for the products of our competitors.
Many of our competitors in the Corporate Expense Management markets have
longer operating histories, significantly greater financial, technical,
marketing, and other resources, significantly greater name recognition, and a
larger installed base of customers. Moreover, a number of our competitors,
particularly major ERP vendors, have well-established relationships with our
current and potential customers as well as with systems integrators and other
vendors and service providers. In addition, these competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products, than we can.
11
It is also possible that new competitors or alliances among competitors or
other third parties may emerge and rapidly acquire market share. We expect that
competition in our markets will increase as a result of consolidation and the
formation of alliances in the industry. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
could harm our business. We may not be able to compete successfully against
current or future competitors and the competitive pressures we face may
materially adversely affect our business. See "Factors That May Affect Results
of Operations and Financial Condition--We Face Significant Competition" and "--
It is Important for Us to Establish and Maintain Strategic Relationships."
Intellectual Property Rights
Our success depends, in part, upon our proprietary technology, processes,
trade secrets, and other proprietary information, and our ability to protect
this information from unauthorized disclosure and use. We rely primarily on a
combination of copyright, trade secret and trademark laws, confidentiality
procedures, contractual provisions, and other similar measures to protect our
proprietary information. Currently, we do not own any issued patents or have
any patent applications pending. As part of our efforts to protect our
proprietary information, we enter into license agreements with our customers and
nondisclosure agreements with certain of our employees, consultants, corporate
partners, customers, and prospective customers. These agreements generally
contain restrictions on disclosure, use, and transfer of our proprietary
information. We also employ various physical security measures to protect our
software source codes, technology, and other proprietary information.
Despite our efforts to protect our proprietary rights, unauthorized parties
may attempt to copy or otherwise obtain and use our products or technology that
we consider proprietary, and third parties may attempt to develop similar
technology independently. In particular, we provide our licensed customers with
access to object code versions of our software, and to other proprietary
information underlying our software. In a small number of instances, we have
provided our licensees with limited access to source code versions of our
software in order to facilitate more extensive testing of such products.
Policing unauthorized use of our products is difficult, particularly because the
global nature of the Internet makes it difficult to control the ultimate
destination or security of software or other data transmitted. 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,
effective protection of intellectual property rights may be unavailable or
limited in certain countries. The laws of some foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States.
Overall, the protection of our proprietary rights may not be adequate and our
competitors may independently develop similar technology. In addition, in
connection with numerous recent changes in our product names, and the relatively
recent change in our company's name, we have recently filed trademark
applications in the United States and in certain foreign countries. We do not
have assurance that our strategy with respect to our trademark portfolio will
prove adequate to secure all necessary intellectual property rights in foreign
countries or to protect us from claims by third parties, either domestically or
in foreign countries. There also can be no assurance that any of our copyrights
or trademarks will not be challenged and invalidated.
We are not aware that our products, trademarks, copyrights, or other
proprietary rights infringe the proprietary rights of third parties. Third
parties may assert infringement claims against us in the future with respect to
current or future products. Further, 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. From time to time, we hire or retain
employees or consultants, including through acquisition, who have worked for
independent software vendors or other companies developing products similar to
those offered by us. Such prior employers may claim that our products are based
on their products and that we have misappropriated their intellectual property.
Any such claims, with or without merit, could cause a significant diversion of
management attention, result in costly and protracted litigation, cause product
shipment delays or require us to enter into royalty or licensing agreements with
such parties. Such royalty or licensing agreements, if required, may not be
available on terms acceptable to us or at all, which would have a material
adverse effect upon our business. See "Factors That May Affect Results of
Operations and Financial Condition--Our Ability to Protect Our Intellectual
Property is Limited and Our Products May be Subject to Infringement Claims by
Third Parties."
Employees
As of September 30, 2000, we had approximately 379 full-time employees, of
whom 19 were based in the United Kingdom and three in Australia. These employees
included 107 engaged in research and development, 90 in sales and marketing, 139
in consulting, training, and technical support, and 43 in administration and
finance. No
12
employees are known by us to be represented by a collective bargaining agreement
and we have never experienced a strike or similar work stoppage. We consider our
relations with our employees to be good. Our ability to achieve our financial
and operational objectives depends in large part upon our continuing ability to
attract, integrate, retain, and motivate highly qualified sales, technical
sales, development, professional services, and managerial personnel. Competition
for such qualified personnel in our industry is intense, particularly in the
Seattle area, where our headquarters is located, and in the San Francisco area,
where the majority of the employees servicing the Concur Human Resources product
offering is located, and particularly with respect to software development,
marketing, and management personnel. In addition, competitors may attempt to
recruit our key employees. There can be no assurance that we will be able to
attract or retain employees in the future. See "Factors That May Affect Results
of Operations and Financial Condition--We Depend on Our Key Employees," and "--
We Must Attract and Retain Qualified Personnel."
Factors That May Affect Results of Operations and Financial Condition
We operate in a dynamic and rapidly changing business environment that
involves substantial risk and uncertainty. The following discussion addresses
some of the risks and uncertainties that could cause, or contribute to causing,
actual results to differ materially from expectations. Readers should pay
particular attention to the descriptions of risks and uncertainties described
below and in other sections of this report and our other filings with the
Securities and Exchange Commission.
Our Business is Difficult to Evaluate and We Have a History of Losses.
We are still in the early stages of our development and our business model
is unproven, so evaluating our business operations and our prospects is
difficult. We incorporated in 1993 and have incurred net losses in each quarter
since then. Our business model and operating plan have evolved over time and
remain unproven. Furthermore, we expect to devote substantial financial and
other resources to expanding our sales and marketing, research and development,
and professional services organizations. These investments may never produce a
profit. We incurred net losses totaling $75.7 million, $46.5 million, and $26.2
million in fiscal 2000, 1999, and 1998, respectively. As of September 30, 2000,
we had an accumulated deficit of $165.4 million. We expect to continue to incur
net losses for the foreseeable future.
We Rely Heavily On Sales of One Product.
Since 1997, we have generated substantially all of our revenues from
licenses and services related to our Concur Expense product. We believe that
Concur Expense revenues will continue to account for a large portion of our
revenues for the foreseeable future. Our future financial performance and
revenue growth will depend upon the successful development, introduction and
customer acceptance of new and enhanced versions of Concur Expense, Concur Time,
Concur Payment, Concur Human Resources, and other applications, and our business
could be harmed if we fail to deliver the enhancements to our current and future
products that customers want. Although we believe that our products and services
present the basis for growth for our business, there can be no assurance that
our products and services will achieve widespread market penetration or that we
will derive significant revenues or any profits from the sale of such products
and services.
We Depend on Service Revenues to Increase Our Overall Revenues; Services May Not
Achieve Profitability.
Our service revenues have increased each year as a percentage of total
revenues. Service revenues represented 62.4%, 35.2%, and 34.5% of total revenues
for fiscal 2000, 1999, and 1998, respectively. We anticipate that service
revenues will continue to represent a significant percentage of total revenues.
The level of service revenues depends largely upon our consulting services and
ongoing renewals of customer support contracts by our growing installed customer
base. Our consulting revenues could decline if third-party organizations such as
systems integrators compete for the installation or servicing of our products.
In addition, our customer support contracts might not be renewed in the future.
Our ability to increase service revenues will depend in large part on our
ability to increase the scale of our services organization, including our
ability to recruit and train a sufficient number of qualified services
personnel. We formed our professional services organization in 1996. Since then,
we have not consistently achieved profitability with respect to these services.
Due to the increasing costs of operating a professional services organization,
we may not be able to sustain profitability in this part of our business in the
near future, or ever.
13
Our Dependence on Software License Revenues Makes Our Operating Results
Difficult to Predict.
Our licensed software products, from which we derive a substantial
percentage of our revenues, are typically shipped when orders are received, so
license backlog at the beginning of any quarter in the past represented only a
small portion of that quarter's expected license revenues. This makes license
revenues in any quarter difficult to forecast because they depend on orders
booked and shipped in that quarter. Moreover, we have historically recognized a
substantial percentage of revenues in the last month of the quarter, frequently
in the last week or even the last days of the quarter, and we expect this trend
to continue for as long as our licensed software products represent a
substantial part of our overall business. Since our expenses are relatively
fixed in the near term, any shortfall from anticipated revenues or any delay in
the recognition of revenues could result in significant variations in operating
results from quarter to quarter. We find it difficult to forecast quarterly
license revenues because our sales cycle, from initial evaluation to delivery of
software, is lengthy and varies substantially from customer to customer. If
revenues fall below our expectations in a particular quarter, our business could
be harmed. In the first three quarters of fiscal 2000, our revenues did, in
fact, fall below our own and consensus securities analysts' estimates for those
quarters and, as a result, the price of our stock declined significantly during
those periods. If our revenues fall below our own estimates or below the
consensus analysts' estimate in an upcoming quarter, our stock price could
decline further, harming our business significantly in terms of, among other
things, diminished employee morale and public image. See "--We Are at Risk of
Securities Class Action Litigation Due to Our Stock Price Volatility."
Our Efforts to Offer Products Under an ASP Model May Fail.
In early fiscal 2000, we began to offer our software products under an
Internet-based ASP model to complement our traditional licencing of these
products. We offer our ASP offering on a subscription basis to companies seeking
to outsource their corporate expense management applications. This business
model is unproven and represents a significant departure from the strategies we
and other enterprise software vendors have traditionally employed. We have no
experience selling products or services under an ASP model, and our efforts to
develop this ASP business have diverted, and we expect will continue to divert,
our financial resources and management time and attention away from other
aspects of our business. In connection with our ASP business, we have engaged
third-party service providers to perform many of the necessary services as
independent contractors, and we are and will be responsible for monitoring their
performance. We have limited experience outsourcing services or other important
business functions in the past, and independent contractors may not perform
those services adequately. If any service provider delivers inadequate support
or service to our customers, our reputation could be harmed. We also plan to use
resellers to market our ASP offering. We have limited experience utilizing
resellers and we may not be successful in this effort. Even if our strategy of
offering products to customers over the Internet proves successful, some of
those Internet customers may be ones that otherwise might have bought our
software and services through our traditional licensing arrangements. Any such
shift in potential license revenues to the ASP model, which is unproven and
potentially less profitable, could harm our business.
Security and Other Concerns May Discourage Customers From Purchasing Under Our
ASP Model.
If customers determine that our ASP offering is not scalable, does not
provide adequate security for the dissemination of information over the
Internet, or is otherwise inadequate for Internet-based use, or if for any other
reason customers fail to accept our ASP products for use on the Internet or on a
subscription basis, our business will be harmed. As an ASP provider, we expect
to receive confidential information, including credit card, travel booking,
employee, purchasing, supplier, and other financial and accounting data, through
the Internet or extranets, and there can be no assurance that this information
will not be subject to computer break-ins, theft and other improper activity
that could jeopardize the security of information for which we are responsible.
Any such lapse in security could expose us to litigation, loss of customers, or
other harm to our business. In addition, any person who is able to circumvent
our security measures could misappropriate proprietary or confidential customer
information or cause interruptions in our operations. We may be required to
incur significant costs to protect against security breaches or to alleviate
problems caused by breaches. Further, a well-publicized compromise of security
could deter people from using the Internet to conduct transactions that involve
transmitting confidential information. Our failure to prevent security breaches,
or well-publicized security breaches affecting the Internet in general, could
significantly harm our business, operating results, and financial condition.
We Are At Risk of Securities Class Action Litigation Due to Our Stock Price
Volatility.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of its
securities. We may in the future be the target of similar litigation, either due
to stock price declines associated with our failure to meet consensus analysts'
estimates for revenues or earnings for
14
prior fiscal periods or due to future volatility in our stock price. This
litigation could result in substantial costs and divert management's attention
and resources.
We Have Been Public for Only a Short Time and Our Stock Price has been Volatile.
We completed our initial public offering in December 1998. Since then, the
market price of our common stock has been highly volatile and is subject to wide
fluctuations. We expect our stock price to continue to fluctuate:
. in response to quarterly fluctuations in our operating results;
. in reaction to announcements of technological innovations, new products,
or significant agreements by us or our competitors;
. in reaction to changes in prices of our products or the products of our
competitors;
. because of market conditions in our industry;
. in reaction to changes in financial estimates by securities analysts,
and our failure to meet or exceed the expectations of analysts or
investors; and
. as a result of the active trading of our stock by online day traders.
See also "--Our Dependence on Software License Revenues Makes Our Operating
Results Difficult to Predict."
We Face Significant Competition.
The market for our products is intensely competitive and rapidly changing.
Direct competition comes from other providers of travel and entertainment
expense management, human resources self-service software, and from providers of
ERP software that have or may be developing travel and entertainment expense
management software or human resources self-service software. Many of our
competitors have longer operating histories, significantly greater financial,
technical, marketing, and other resources, significantly greater name
recognition, and a larger installed base of customers than we do. Some of our
competitors, particularly major ERP vendors, have well-established relationships
with our current and potential customers as well as with systems integrators and
other vendors and service providers. These competitors may also be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion, and
sale of their products, than us. In addition, we anticipate the entrance of new
competitors in the future. An increase in competition could result in price
reductions and loss of market share and could have a material adverse effect on
our business, financial condition, and results of operations. We also face
indirect competition from potential customers' internal development efforts and
have to overcome their reluctance to move away from existing paper-based
systems. See also "Business -- Competition" above.
Our Efforts to Manage Changing Business Conditions May Fail.
Our future operating results will depend, in part, on our ability to manage
changing business conditions. If we are unable to do so effectively, our
business, financial condition, and results of operations could be materially and
adversely affected. Our ability to manage changing business conditions depends,
in part, on our ability to attract, train, and retain a sufficient number of
qualified personnel to meet our ongoing needs. This may be particularly
difficult for us because we implemented a workforce reduction of approximately
68 employees in the third quarter of fiscal 2000. This reduction could impair
our ability to attract, train, and retain qualified personnel and may increase
our recruiting and training costs. There can be no assurance that we will be
successful in attracting, training, and retaining the required number of
qualified personnel to support our business in the future. Failure to manage our
operations with reduced staffing levels may strain our management, financial and
other resources, and could have a material adverse effect on our business,
financial condition, and results of operations.
We May Require Additional Financing to Fund Our Operations.
Our need for additional financing will depend upon a number of factors,
such as the commercial success of our existing products and services, the timing
and success of new products and services (if any), the progress of our research
and development efforts, our results of operations, the status of competitive
products and services, and the timing and success of potential strategic
alliances or potential opportunities to acquire or sell technologies or assets.
In addition, since our incorporation in 1993, we have experienced uneven cash
flow and operating results and significant operating losses. If we experience
delays in our progress toward reducing losses and achieving
15
profitability, or if we require working capital beyond currently expected needs,
we may be required to seek additional financing or curtail operations. There can
be no assurance that additional financing will be available on acceptable terms,
or at all. Our failure to obtain such additional financing, if needed, could
have a material adverse effect on our business, financial condition, and results
of operations.
Our Lengthy Sales Cycle Could Adversely Affect Our Revenue Growth.
Because of the high costs involved, customers for enterprise software
products typically commit significant resources to an evaluation of available
software applications and require us to expend substantial time, effort, and
money educating them about the value of our products and services. The time
between initial contact with a potential customer and the ultimate sale, our
sales cycle, typically ranges between three and twelve months, with some
transactions exceeding fifteen months. As a result of our lengthy sales cycle,
we have only a limited ability to forecast the timing and size of specific
sales. In addition, customers may delay their purchases from a given quarter to
another as they elect to wait for new product enhancements. Any delay in
completing, or failure to complete, sales in a particular quarter or fiscal year
could harm our business and could cause our operating results to vary
significantly. See "--Our Dependence on Software License Revenues Makes Our
Operating Results Difficult to Predict."
We Depend Primarily On Direct Sales.
We sell our products primarily through our direct sales force. We believe
that there is significant competition for direct sales personnel with the
advanced sales skills and technical knowledge we need. Our inability to hire
competent sales personnel, or our failure to retain them, would harm our
business. In addition, by relying primarily on a direct sales model, we may miss
sales opportunities that might be available through other sales channels, such
as domestic and international resellers. In the future, we intend to continue
developing indirect distribution channels through third-party distribution
arrangements, but we may not be successful in establishing those arrangements,
or they may not increase revenues. Furthermore, we plan to continue using
resellers to market our ASP products in particular. We have limited experience
utilizing resellers to date. The failure to expand indirect channels may place
us at a competitive disadvantage.
16
We Have Limited Experience With Large-Scale Deployment, Which Is Important To
Our Future Success.
Only a limited number of large enterprise customers have deployed our
products. We think that the ability of large customers to roll out our products
across large numbers of users is critical to our success. Similarly, because
only a limited number of customers are using the ASP product offerings, we do
not have assurance that our ASP product offerings would be able to support a
large volume of users or transactions. If our customers cannot successfully
implement large-scale deployments, or they determine that our products cannot
accommodate large-scale deployments, our business would be harmed.
Our Products Might Not be Compatible with All Major Platforms, Which Could
Inhibit Sales.
We must continually modify and enhance our products to keep pace with
changes in hardware and software platforms, database technology, and electronic
commerce technical standards. As a result, uncertainties related to the timing
and nature of new product announcements or introductions, or modifications by
vendors of operating systems, back-office applications, and browsers and other
Internet-related applications, could hurt our business. In addition, our
products are not currently based upon the Java programming language, an
increasingly widely-used language for developing Internet applications.
Accordingly, certain features available to products written in Java may not be
available in our products, and this could result in reduced customer demand.
We Rely on Third-Party Software that May Be Difficult to Replace.
Some of the software we license from third parties would be difficult to
replace. In particular, we license technology from third parties in order to
offer some of our software products. This software may not continue to be
available on commercially reasonable terms, if at all. The loss or inability to
maintain any of these technology licenses could result in delays in the sale of
our products and services until equivalent technology, if available, is
identified, licensed, and integrated, which could harm our business.
It is Important for Us To Establish and Maintain Strategic Relationships.
To offer products and services to a larger customer base than we can reach
through direct sales, telesales, and internal marketing efforts, we depend on
strategic referral relationships and reseller relationships. If we were unable
to maintain our existing strategic referral relationships or enter into
additional strategic referral or reseller relationships, we would have to devote
substantially more resources to the distribution, sales, and marketing of our
products and services. Our success depends in part on the ultimate success of
our strategic referral and reseller partners and their ability to market our
products and services successfully. Our existing strategic referral partners
are not obligated to refer any potential customers to us. In addition, some of
these third parties have entered, and may continue to enter, into strategic
relationships with our competitors. Further, many of our strategic partners
have multiple strategic relationships, and they may not regard us as significant
for their businesses. Our strategic partners may terminate their respective
relationships with us, pursue other partnerships or relationships, or attempt to
develop or acquire products or services that compete with our products or
services. Our strategic partners also may interfere with our ability to enter
into other desirable strategic relationships.
We May Experience Difficulties in Introducing New Products and Enhancements to
Existing Products.
Our future financial performance and revenue growth will depend, in part,
upon the successful development, introduction, and customer acceptance of new
and enhanced versions of Concur Expense, Concur Human Resources, and other
applications, and our business could be harmed if we fail to deliver
enhancements to our current and future products that customers desire. We have
experienced delays in the planned release dates of our software products and
upgrades, and we have discovered software defects in new releases after their
introduction. New product versions or upgrades may not be released according to
schedule, or may contain defects when released. Either situation could result in
adverse publicity, loss of sales, delay in market acceptance of our products, or
customer claims against us, any of which could harm our business. If we do not
deliver new product versions, upgrades, or other enhancements to existing
products on a timely and cost-effective basis, our business will be harmed.
We are also continually seeking to develop new product offerings. However,
we remain subject to all of the risks inherent in product development, including
unanticipated technical or other development problems which could result in
material delays in product introduction and acceptance or significantly
increased costs. There can be no assurance that we will be able to successfully
develop new products, or to introduce in a timely manner and gain acceptance of
such new products in the marketplace.
17
We May Not Meet Our Expectations for the Seeker Software Acquisition.
In June 1999, we acquired Seeker Software, Inc., which was the developer of
our Concur Human Resources product offering. We may fail to achieve our
expectations for this product offering. In particular, we may encounter
substantial difficulties and financial risks with respect to this product
offering, such as:
. difficulties in improving or selling the Concur Human Resources
software;
. problems retaining the key technical and managerial personnel;
. additional operating losses and expenses;
. difficulties in maintaining relationships with existing customers,
business partners and employees;
. competitors having more experience and better name recognition;
. the limited experience of sales and consulting personnel; and
. limited reference accounts for the Concur Human Resources software.
In addition, recent actions and comments from the Securities and Exchange
Commission have indicated that it is scrutinizing the application of the pooling
of interest method of accounting for business combinations. While we believe we
are in compliance with the rules and related guidance as they currently exist
for the Seeker Software acquisition, we can provide no assurance that the
Commission will not challenge our conclusions and ultimately seek to treat this
transaction under the purchase method of accounting for business combinations.
This could result in the restatement of financial statements requiring the
recording of goodwill and related amortization expense and as such could have a
material negative impact on our financial results for the periods subsequent to
the acquisition.
We Depend on Our Key Employees.
Our success depends on the performance of our senior management,
particularly S. Steven Singh, our Chief Executive Officer and Chairman of the
Board, who is not bound by an employment agreement. The loss of Mr. Singh's
services could cause us to lose potential customers, which would harm our
business. If one or more members of our senior management or any of our key
employees were to resign, particularly to join or form a competitor, the loss of
that personnel and any resulting loss of existing or potential customers to that
competitor would harm our business.
We Must Attract and Retain Qualified Personnel.
Our success depends in large part on our ability to continue to attract,
motivate, and retain highly qualified personnel. Competition for such personnel
is intense and there can be no assurance that we will be successful in
attracting, motivating, and retaining key personnel. Many of our competitors
for experienced personnel have greater financial and other resources than us.
In particular, we compete for personnel with Microsoft Corporation, which is
located in the same geographic area as our headquarters. We also compete for
personnel with other software vendors, including ERP vendors and consulting and
professional services companies. Further, we believe stock options are an
important component for motivating and retaining our key personnel. The
significant decline in our stock price during the past year has made stock
options previously granted with higher exercise prices less valuable to our
current employees and has consequently made it more difficult for us to retain
our key personnel. The inability to hire and retain qualified personnel or the
loss of the services of key personnel would harm our business.
Our Ability to Protect Our Intellectual Property is Limited and Our Products May
be Subject to Infringement Claims by Third-Parties.
We depend upon our proprietary technology. We rely primarily on a
combination of copyright and trademark laws, trade secrets, confidentiality
procedures, and contractual provisions to protect our proprietary information.
We presently have no patents or patent applications pending. 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. In addition, the laws of some foreign countries do not protect our
proprietary rights to as great an extent as do the laws of the United States,
and we expect that it will become more difficult to monitor use of our products
as we increase our international presence. There can be no assurance that our
means of protecting these proprietary rights will be adequate, nor that our
competitors will not independently develop similar technology. In addition,
there can be no assurance that third parties will not claim infringement by us
with respect to current or
18
future products or other intellectual property rights. Any such claims could
have a material adverse effect on our business, results of operations and
financial condition.
There are Risks Associated with International Operations.
Our international operations are subject to a number of risks, including:
. costs of customizing products for foreign countries;
. laws and business practices favoring local competition;
. dependence on local vendors;
. uncertain regulation of electronic commerce;
. compliance with multiple, conflicting and changing governmental laws
and regulations;
. longer sales cycles;
. greater difficulty in collecting accounts receivable;
. import and export restrictions and tariffs;
. difficulties staffing and managing foreign operations;
. multiple conflicting tax laws and regulations; and
. political and economic instability.
Our international operations also face foreign currency-related risks. To
date, most of our revenues have been denominated in U.S. Dollars, but we believe
that an increasing portion of our revenues will be denominated in foreign
currencies. In particular, we expect that an increasing portion of our
international sales may be Euro-denominated. The Euro is still a relatively new
currency and may be subject to economic risks that are not currently
contemplated. We currently do not engage in foreign exchange hedging
activities, and therefore our international revenues and expenses are currently
subject to the risks of foreign currency fluctuations.
Revenues from customers outside the United States, primarily in the United
Kingdom, Canada and Australia represented approximately $3.3 million, $932,000,
and $810,000 in fiscal 2000, 1999, and 1998, respectively. A key component of
our business strategy is to expand our sales and support operations
internationally. As of September 30, 2000, we employed 7 sales professionals in
the United Kingdom and Australia. We intend to expand our international sales
and marketing activities and enter into relationships with additional
international distribution partners. We are in the early stages of developing
our indirect distribution channels in markets outside the United States. We may
not be able to attract distribution partners that will be able to market our
products effectively.
We must also customize our products for local markets. For example, our
ability to expand into the European market will depend on our ability to develop
a travel and entertainment expense management solution (as well as human
resources self-service solutions) that incorporates the tax laws and accounting
practices followed in Germany and other European countries, and to develop
applications that support the Euro. Further, if we establish significant
operations overseas, we may incur costs that would be difficult to reduce
quickly because of employee practices in those countries.
Our Revenue Recognition Policy May Change.
We recognize revenues from sales of software licenses when we sign a non-
cancelable license agreement with a customer, the software is delivered, no
significant post-delivery vendor obligations remain and collection is deemed
probable. We recognize customer support revenues ratably over the contract term
(which is typically one year) and recognize revenues for consulting and training
services as such services are performed. We believe our current revenue
recognition policies and practices are consistent with applicable accounting
standards. However, current software revenue recognition accounting standards,
and accounting guidance with respect to such standards, are subject to change.
Such changes could lead to unanticipated changes in our current revenue
accounting practices, and such changes could significantly reduce our future
revenues and earnings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Our Effort to Offer Products Under an
ASP Model May Fail."
19
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing and research and development
facility is located in Redmond, Washington and consists of approximately 81,441
square feet of office space held under leases which expire on May 31, 2005. As
of September 30, 2000, we also leased sales offices in Atlanta, Boston, Chicago,
Dallas, London, Los Angeles, Minneapolis, New York, Oakland, Philadelphia,
Phoenix, Raleigh, and Sydney.
ITEM 3. LEGAL PROCEEDINGS
From time to time we are subject to various legal proceedings and claims
arising in the ordinary course of business. Our management does not expect that
the results in any of these legal proceedings will have a material adverse
effect on our financial condition, results of operations, or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the our stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded on The Nasdaq National Market under the symbol
"CNQR." The following table sets forth the range of the high and low closing
sale prices by quarter as reported on the Nasdaq National Market since December
16, 1998, the date our common stock commenced public trading.
Fiscal year ended September 30, 1999: High Low
---------- ---------
First Quarter (since December 16, 1998)......................... $30.500 $19.500
Second Quarter.................................................. $45.125 $25.000
Third Quarter................................................... $55.000 $ 24.44
Fourth Quarter.................................................. $41.063 $21.938
Fiscal year ended September 30, 2000:
First Quarter................................................... $29.000 $11.125
Second Quarter.................................................. $24.125 $15.063
Third Quarter................................................... $ 7.625 $ 4.188
Fourth Quarter.................................................. $ 3.938 $ 2.375
On September 30, 2000, there were approximately 400 stockholders of record
of our common stock.
Dividends
We have never paid cash dividends on our common stock. We intend to retain
our earnings for use in our business and, therefore, do not anticipate paying
any cash dividends on our common stock.
Recent Sales of Unregistered Securities*
The following table sets forth information regarding all of our securities
sold by us from October 1, 1998 to September 30, 2000. References to warrants
below assume the full exercise of all warrants. Preferred stock numbers are
presented on an as converted to common stock basis.
Class of Number of Aggregate Form of
Purchasers Date of Sale Title of Securities Securities Purchase Price Consideration
- ---------- ------------ ------------------- ---------- -------------- -------------
1 investor December 16, 1998 Exercise of warrant to 33,537 -- Net exercise
purchase common stock
1 investor December 21, 1998 Exercise of warrant to 225,000 $ 2,616,000 Cash
purchase common stock
1 investor February 8, 1999 Exercise of warrant to 10,515 -- Net exercise
purchase common stock
20
53 investors June 1, 1999 Common stock 3,419,929 -- Exchange for
common stock of
Seeker Software, Inc.(1)
Officers, directors, October 1, 1998 to Exercise of options to 116,453 $ 18,033 Cash(2)
employees and other January 12, 1999 purchase common stock
eligible participants
1 investor February 22, 2000 Common stock 1,073,929 $25,001,067 Cash
1 investor February 22, 2000 Common stock 429,571 $10,000,413 Cash
1 investor December 13, 2000 Exercise of warrant to 93,785 -- Net exercise
purchase common stock
__________
* As part of our reincorporation into Delaware, we exchanged 3,099,959 shares
of our common stock, 10,213,553 shares of our redeemable convertible
preferred stock and warrants to purchase 2,329,578 shares of our redeemable
convertible preferred stock for 3,099,959 shares of common stock,
10,213,553 shares of redeemable convertible preferred stock, and warrants
to purchase 2,329,578 shares of redeemable convertible preferred stock,
respectively.
(1) In connection with our acquisition of Seeker Software, we exchanged
3,419,929 shares of common stock for Seeker Software's common stock.
(2) With respect to the grant of stock options, exemption from registration
under the Securities Act was unnecessary in that none of such transactions
involved a "sale" of securities as such term is used in Section 2(3) of the
Securities Act.
All sales of common stock made pursuant to the exercise of stock options
granted under our stock option plans or those of our predecessors were made
pursuant to the exemption from the registration requirements of the Securities
Act afforded by Rule 701 promulgated under the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. The securities were
sold to a limited number of people with no general solicitation or advertising.
The purchasers were sophisticated investors with access to all relevant
information necessary to evaluate the investment and who represented to the
issuer that the shares were being acquired for investment.
21
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with our Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Year Ended September 30,
----------------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- ------- -------
(in thousands, except per share data)
Consolidated Statement of Operations Data
Revenues, net:
Licenses............................................... $ 12,808 $ 24,002 $ 13,176 $ 6,504 $ 1,717
Services............................................... 21,216 13,011 6,952 2,499 253
-------- -------- -------- ------- -------
Total revenues...................................... 34,024 37,013 20,128 9,003 1,970
Cost of revenues:
Licenses............................................... 3,816 1,184 558 394 386
Services............................................... 22,361 16,653 8,063 2,721 876
-------- -------- -------- ------- -------
Total cost of revenues.............................. 26,177 17,837 8,621 3,115 1,262
-------- -------- -------- ------- -------
Gross profit............................................. 7,847 19,176 11,507 5,888 708
Operating expenses:
Sales and marketing.................................... 38,556 28,993 16,070 6,692 2,990
Research and development............................... 31,212 19,371 10,276 4,479 1,808
General and administrative............................. 14,795 10,385 5,919 2,307 1,019
Merger costs and acquired in-process technology........ (1,240) 8,859 5,203 -- --
Restructuring charges.................................. 3,407 -- -- -- --
-------- -------- -------- ------- -------
Total operating expenses............................ 86,730 67,608 37,468 13,478 5,817
-------- -------- -------- ------- -------
Loss from operations................................... (78,883) (48,432) (25,961) (7,590) (5,109)
Other income (expense), net............................ 3,228 1,956 (263) 31 5
-------- -------- -------- ------- -------
Net loss................................................. $(75,655) $(46,476) $(26,224) $(7,559) $(5,104)
======== ======== ======== ======= =======
Basic and diluted net loss per share..................... $ (3.15) $ (2.75) $ (8.18) $ (2.50) $ (1.69)
======== ======== ======== ======= =======
Shares used in calculation of basic and diluted net loss
per share............................................... 23,981 16,883 3,207 3,025 3,019
======== ======== ======== ======= =======
September 30,
-------------------------------------------------------------
2000 1999 1998 1997 1996
------- -------- -------- -------- -------
(in thousands)
Consolidated Balance Sheet Data
Cash, cash equivalents and marketable securities....... $56,242 $108,722 $ 17,058 $ 7,721 $ 5,702
Working capital........................................ 47,451 90,626 8,450 7,074 4,292
Total assets........................................... 81,668 128,828 28,622 14,180 7,022
Long-term obligations, net of current portion.......... 1,886 6,326 8,605 3,687 415
Redeemable convertible preferred stock and
warrants.............................................. -- -- 37,956 17,345 12,386
Total stockholders' equity (deficit)................... 57,013 93,774 (33,551) (12,503) (8,330)
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis provides information which we believe
is relevant to an assessment and understanding of our results of operations and
financial condition. This discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto.
Special Note Regarding Forward-Looking Statements
This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 regarding our plans,
objectives, expectations, intentions, future financial performance, future
financial condition, and other statements that are not historical facts. You
can identify these statements by our use of the future tense, or by forward-
looking words such as "may," "will," "expect," "anticipate," "believe,"
"intend," "estimate," "continue," and other similar words and phrases. Reliance
should not be placed on these forward-looking statements because they involve
substantial risks and uncertainties. Examples of such risks and uncertainties
are described in this report and in our other filings with the Securities and
Exchange Commission. You should be aware that the occurrence of any of these
risks and uncertainties may cause our actual results to differ materially from
those anticipated in our forward-looking statements, which could have a material
and adverse effect on our business, results of operations, and financial
condition. All forward-looking statements included in this document are based
on information available to us on the date of this document. We assume no
obligation or duty to update any such forward-looking statements.
Overview
Concur Technologies, Inc.(TM) is a leading provider of Corporate Expense
Management software and services that automate costly and inefficient business
processes, allowing companies to leverage their most limited resources: time,
money, knowledge, and energy. Our software products include Concur Expense(TM)
for travel and entertainment expense management, Concur Payment(TM) for employee
requests for vendor payments, Concur Time(TM) for time tracking and reporting,
and Concur Human Resources(TM) for human resources self-service. These software
products are designed to meet the needs of businesses of all sizes through
license and application service provider ("ASP") models. Since 1996, more than
600 companies, representing over three million employees, have selected our
software and services to reduce their costs and increase their productivity and
access to data about their internal business processes.
We sell our software and services through our direct sales organization and
through indirect channels. We also have developed a number of strategic
relationships. Currently, one of our most significant reseller arrangements is
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., a global
payroll solutions and computing services provider. ADP has agreed to resell and
jointly market our ASP solutions for travel and entertainment expense management
to ADP's existing customers and potential new customers.
We were incorporated in 1993 and commenced operations in fiscal 1994,
initially developing QuickXpense, a retail, shrink-wrapped application that
automated travel and entertainment expense reporting for individuals. We first
shipped QuickXpense in fiscal 1995 and sold QuickXpense through a combination of
retail channels and direct marketing, utilizing a small sales force and no
consulting or implementation staff. In response to inquiries from businesses
seeking to automate the entire travel and entertainment expense reporting
process, including back-office processing and integration to financial systems,
we significantly expanded our product development efforts and released Concur
Expense, a client-server based enterprise travel and entertainment expense
management solution in July 1996. In March 1998, we shipped an intranet-based
version of Concur Expense. Since its release, the intranet-based version has
accounted for a majority of Concur Expense license revenues.
On June 30, 1998, we acquired 7Software, Inc., a privately held software
company and the developer of Concur Procurement. 7Software was incorporated in
May 1997. 7Software was selling the initial version of its product through a
single sales representative at the time of the acquisition. After our
acquisition we continued to sell Concur Procurement until we announced on June
8, 2000 that we had discontinued offering it for sale as part of our new
operating plan.
On June 1, 1999, we acquired Seeker Software, Inc., a privately held
software company and developer of Concur Human Resources. The transaction was
accounted for as a pooling of interests. These consolidated financial statements
have been prepared to reflect the restatement of all periods presented to
include the accounts of Seeker Software. The historical results of the pooled
entities reflect each of their actual operating cost structures and, as a
23
result, do not necessarily reflect the cost structure of the newly combined
entity. Upon our acquisition of Seeker Software, it was our intention to
integrate Concur Human Resources with Concur Expense and Concur Procurement as a
suite of solutions through a common user interface known as Concur eWorkplace.
On June 8, 2000, after carefully studying the cost of this integration effort
and its related benefits, we announced that we would not integrate these
products into a single product suite, but rather keep Concur Human Resources as
a separate product offering.
In October 1999, we began offering Concur Expense and Concur Procurement as
an Application Service Provider ("ASP") solution, principally for small and mid-
size companies. Our ASP solution requires limited IT infrastructure and limited
IT support. In December 1999, we introduced an ASP offering for large companies
that want a configured solution offered on an outsourced basis with limited IT
infrastructure and support requirements.
On June 8, 2000, we announced a new operating plan, under which we
discontinued Concur Procurement and discontinued the planned integration of
Concur Human Resources with our other Corporate Expense Management solutions as
a suite of solutions through a common user interface. Additionally, we
announced a workforce reduction of 68 employees to bring our cost structure in
line with our new operating plan. The primary goals of our new operating plan
are to focus on Corporate Expense Management solutions and to focus on
generating positive cash flow and profits.
Results of Operations
Revenues
Years Ended September 30,
================================================================================
(dollars in thousands) 2000 Change 1999 Change 1998
- --------------------------------------------------------------------------------
Licenses $12,808 (46.6%) $24,002 82.2% $13,176
- --------------------------------------------------------------------------------
Services 21,216 63.0% 13,011 87.2% 6,952
================================================================================
Total revenues $34,024 (8.1%) $37,013 83.9% $20,128
================================================================================
We market our software and services primarily through our direct sales
organization in the United States, Canada, and the United Kingdom. Revenues from
licenses and services to customers outside the United States were $3.3 million,
$932,000, and $810,000 in the years ended September 30, 2000, 1999, and 1998,
respectively. Historically, as a result of the relatively small amount of
international sales, fluctuations in foreign currency exchange rates have not
had a material effect on our operating results. We had no customer that
accounted for more than 10% of our revenues in 2000, 1999, or 1998.
License Revenues. License revenues consists of license fees for software
and ASP setup and usage fees. The dollar decrease in license revenues in fiscal
2000 from fiscal 1999 was due primarily to:
. our emphasis during the first half of fiscal 2000 on marketing and
selling Concur Procurement and Concur Human Resources, which caused
sales of Concur Expense to decline,
. increased demand from our customers during fiscal 2000 to purchase our
ASP solutions where revenue is recognized over a multiple year
relationship instead of up front as a license fee,
. our June 8, 2000 decision to discontinue Concur Procurement and to
discontinue our planned integration of Concur Human Resources with our
other Corporate Expense Management solutions as a product suite, which
caused us to lose some sales, and
. a $2.9 million sales allowance in the second half of fiscal 2000 for
sales returns associated with discontinuing Concur Procurement.
The increase in revenues in fiscal 1999 from fiscal 1998 was due primarily to
the market acceptance of Concur Expense, and to a lesser degree, Concur Human
Resources. Also driving this increase in revenues was an increase in the size
and productivity of our sales force and sales related to referrals attributable
to our December 1997 strategic marketing alliance agreement with American
Express. We believe our license revenues will increase in fiscal 2001
24
compared to fiscal 2000, as we focus more on selling our corporate expense
solutions and exploiting expected demand for our ASP solutions.
Service Revenues. Service revenues consists of consulting service fees,
customer support fees, and training fees. Service revenues represented 62.4%,
35.2%, and 34.5% of total revenues for fiscal 2000, 1999, and 1998,
respectively. The dollar increases in service revenues, and the increases in
service revenues as a percentage of total revenues, for fiscal 2000 and fiscal
1999 primarily reflected increased consulting revenue associated with sales,
upgrades, and enhancements of Concur Expense, and to a lesser degree, Concur
Human Resources license sales, as well as increased revenues related to customer
support contracts entered into in the current and prior periods. During the
second half of fiscal 2000, we developed a streamlined approach to deployment of
Concur Expense, known as Express Implementation, which benefits the customer
with a faster "best practices" installation at a lower deployment cost. As a
result, our consulting service fees for each deployment are reduced.
Accordingly, we expect consulting service fees in fiscal 2001 to increase only
slightly over fiscal 2000. Customer support fees are typically billed on an
annual contract and amortized over the period of the contract. The majority of
our license customers choose a customer support contract. We expect customer
support fees to increase in fiscal 2001 compared to fiscal 2000 with the
continued increase in our customer base. Overall, we expect service revenues to
grow modestly in fiscal 2001 compared to fiscal 2000.
Revenue Recognition. For fiscal 1998 and prior years, we recognized
revenues in accordance with the American Institute of Certified Public
Accountants Statement of Position 91-1. Software license revenues were
recognized when a non-cancelable license agreement was signed with a customer,
the software was shipped, no significant post delivery vendor obligations
remained and collection was deemed probable. Maintenance revenues were
recognized ratably over the contract term, typically one year. Revenues for
consulting services were recognized as such services were performed. Commencing
with fiscal 1999, we recognize revenues in accordance with the American
Institute of Certified Public Accountants Statement of Position 97-2, "Software
Revenue Recognition," or SOP 97-2 and Statement of Position 98-9, which amended
certain provisions of SOP 97-2. These standards generally require revenues
earned on software arrangements involving multiple elements, such as software
products, upgrades, enhancements, post-contract customer support, installation
and training, to be allocated to each element based on the relative fair values
of the elements. The fair value of an element must be based on evidence that is
specific to the vendor. Evidence of the fair value of each element is based on
the price charged when the element is sold separately. The revenues allocated to
software products, including specified upgrades or enhancements, generally are
recognized upon delivery of the products. The revenues allocated to unspecified
upgrades, updates and other post-contract customer support generally are
recognized ratably over the term of the related maintenance contract. Revenues
relating to consulting and training services provided to customers are generally
recognized as such services are performed. If evidence of the fair value for all
elements of the arrangement does not exist, all revenues from the arrangement
are deferred until such evidence exists or until all elements are delivered. In
addition, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 Revenue Recognition in Financial Statements ("SAB 101"). Concur
is required to adopt the provisions of SAB 101 in the forth quarter of Fiscal
2001. Further implementation guidelines and changes in interpretations of such
guidelines could lead to unanticipated changes in our current revenue accounting
practices that could affect our future revenues and earnings.
25
Cost of Revenues
Years Ended September 30,
================================================================================
(dollars in thousands) 2000 Change 1999 Change 1998
================================================================================
Licenses $ 3,816 222.3% $ 1,184 112.2% $ 558
- --------------------------------------------------------------------------------
Percentage of licenses 29.8% 4.9% 4.2%
- --------------------------------------------------------------------------------
Services 22,361 34.3% 16,653 106.5% 8,063
- --------------------------------------------------------------------------------
Percentage of services 105.4% 128.0% 116.0%
================================================================================
Total cost of revenues $26,177 46.8% $17,837 106.9% $8,621
- --------------------------------------------------------------------------------
Percentage of total revenues 76.9% 48.2% 42.8%
================================================================================
Cost of License Revenues. In fiscal 2000, cost of license revenues included
the cost of our ASP operations, which includes salaries, computers and other
telecommunications costs, amortization of deferred costs, and reseller fees.
Additionally, cost of license revenues in fiscal 2000, 1999, and 1998 included
amortization of purchased technology, royalties for sub-licensing third-party
software and the costs of manuals and media for licensing our products. The
dollar increase in fiscal 2000 from fiscal 1999 was primarily due to the
introduction of our ASP solution and the costs associated with this method of
delivery and, to a lesser extent, an increase in royalties paid for sub-
licensing third-party software. The dollar increase in fiscal 1999 from fiscal
1998 was primarily a result of the amortization of capitalized technology
recorded in connection with our June 1998, acquisition of 7Software, and to a
lesser extent reflects increased expenses associated with sub-licensing of
third-party software due to increased sales of Concur Expense, and the costs of
production, manuals and other media associated with licensing our products. We
expect that the dollar cost of license revenues will increase in the future
depending in part on the demand for our current software products and ASP
solutions.
Cost of Service Revenues. Cost of service revenues includes primarily the
salaries, non-reimbursable expenses, and other operating costs of employees who
provide consulting services and product training. The dollar increase in both
fiscal 2000 and fiscal 1999, was primarily due to increases in professional
service personnel to manage and support our growing customer base. Cost of
service revenues as a percentage of service revenues may vary between periods
due to changes in the level and mix of services provided by us or by our
partners.
Operating Expenses
Years Ended September 30,
============================================================================================================================
(dollars in thousands) 2000 Change 1999 Change 1998
============================================================================================================================
Sales and marketing $38,556 33.0% $28,993 80.4% $16,070
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of total revenues 113.3% 78.3% 79.8%
- ----------------------------------------------------------------------------------------------------------------------------
Research and development 31,212 61.1% 19,371 88.5% 10,276
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of total revenues 91.7% 52.3% 51.1%
- ----------------------------------------------------------------------------------------------------------------------------
General and administrative 14,795 42.5% 10,385 75.5% 5,919
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of total revenues 43.5% 28.1% 29.4%
- ----------------------------------------------------------------------------------------------------------------------------
Merger and acquisition costs (1,240) ----- 8,859 70.3% 5,203
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of revenues 3.6% 23.9% 25.8%
- ----------------------------------------------------------------------------------------------------------------------------
Restructuring charges 3,407 ----- ----- ----- -----
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of total revenues 10.0% ----- -----
============================================================================================================================
Total operating expenses $86,730 28.3% $67,608 80.4% $37,468
- ----------------------------------------------------------------------------------------------------------------------------
Percentage of total revenues 254.9% 182.7% 186.1%
============================================================================================================================
26
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, sales commissions, travel, and facility costs for the Company's sales
and marketing personnel, and, to a lesser extent, advertising, trade shows and
other promotional activities. The dollar increase in fiscal 2000 compared to
fiscal 1999 was primarily due to an increase in payroll and related expenses due
to an increase in the number of personnel in the sales and marketing area and,
to a lesser extent, an increase in advertising and other promotional activities
in the first half of fiscal 2000. The dollar increase in 1999 compared to 1998
primarily reflects our investment in our sales and marketing infrastructure,
including significant personnel-related expenses such as salaries, benefits and
commissions, recruiting fees, travel and entertainment expenses, and related
costs of hiring sales management, sales representatives, sales engineers, and
marketing personnel. The increases also reflect increased public relations and
trade show expenses, and sales referral fees paid under our agreement with our
referral partners, principally American Express. It also reflects the cost of
our ongoing international expansion of our sales organization into the United
Kingdom, and to a lesser degree, Australia. We expect our sales and marketing
expenses to decline modestly in fiscal 2001 as we focus on greater operational
efficiencies.
Research and Development. Research and development expenses include
salaries and contract labor for software development, facility costs and
expenses associated with computer software and hardware used in our software
development. The increases in both fiscal 2000 and fiscal 1999 were primarily
related to increased hiring of employees and outside contractors for software
engineers, program management, and quality assurance personnel to support our
expanded product lines and ongoing product development, and to a lesser extent,
higher salaries paid to employees due to an increase in market rates. We believe
that an increase in our research and development investment is essential for us
to maintain our market position, to continue to expand our product lines, and to
enhance the technology platform for our Corporate Expense Management solutions.
Accordingly, we anticipate that we will modestly increase our costs in product
research and development in fiscal 2001. In the development of our new products
and enhancements of existing products, the technological feasibility of the
software is not established until substantially all product development is
complete. Historically, software development costs eligible for capitalization
have been insignificant, and all costs related to internal research and
development have been expensed as incurred.
General and Administrative. General and administrative expenses include
costs associated with finance, accounting, investor relations, human resources,
administration and facilities. The increase in fiscal 2000 compared to fiscal
1999 was primarily due to an increase in the allowance for doubtful accounts,
contract labor, and occupancy and telecommunication costs. The increase in
fiscal 1999 compared to fiscal 1998 resulted from a combination of factors,
including the hiring of additional general and administrative personnel to
support the growth of our business, the increased use of outside contractors
associated with increased recruiting efforts, the higher amortization of
deferred stock compensation, and an increase in the allowance for doubtful
accounts related to our increase in revenues. We believe that our general and
administrative expenses will decrease modestly in fiscal 2001 as the we focus on
greater operational efficiencies.
Merger and Acquisition Costs. During the third quarter of fiscal 2000, we
revised our estimates for certain accrued costs related to our merger with
Seeker Software in June 1999. These adjustments resulted in a reduction of
merger and acquisition costs of $1.2 million in fiscal 2000. In connection with
our merger with Seeker Software, we recorded a charge to operating expenses of
approximately $8.9 million in the quarter ended September 30, 1999 for direct
and other merger-related costs pertaining to the transaction. Merger costs
consisted primarily of financial advisor fees for both companies, attorneys,
accountants, financial printing, and other related charges. In connection with
the acquisition of 7Software, we recorded a one-time charge of $5.2 million for
in-process technology as an expense in the quarter ended June 30, 1998.
Restructuring Charges. On June 8, 2000, we announced a new operating plan
to focus the Company on providing solutions to meet the needs of the Corporate
Expense Management market. The decision to implement this new operating plan was
based on a desire to focus our resources on our Corporate Expense Management
products, to reduce operating expenses, and to bring expenses in line with our
new operating plan. In connection with our announcement, during the three months
ended June 30, 2000, we recorded a one-time restructuring charge of $3.4 million
resulting primarily from severance and termination benefits and, to a lesser
extent, the write-off of intangible assets relating to our procurement
technology acquired in connection with our June 1998 acquisition of 7Software,
costs associated with the abandonment of facilities and equipment due to our
workforce reduction and estimated costs to terminate product marketing programs
resulting from our decision to discontinue Concur Procurement, our corporate
procurement application.
27
Interest Income and Interest Expense
Years Ended September 30,
================================================================================
(dollars in thousands) 2000 Change 1999 Change 1998
- --------------------------------------------------------------------------------
Interest income $4,768 24.7% $3,825 742.5% $ 454
- --------------------------------------------------------------------------------
Interest expense 1,376 (8.9%) 1,511 180.3% 539
================================================================================
Interest Income and Interest Expense. The increase in interest income for
both fiscal 2000 and fiscal 1999 was primarily due to interest income earned on
the higher cash, cash equivalents and marketable securities balances as a result
of proceeds received in December 1998 and April 1999 from our public offerings
as well as our private placement in February 2000. The decrease in interest
expense in fiscal 2000 compared to fiscal 1999 is primarily due to lower
outstanding interest-bearing obligations. The increase in fiscal 1999 compared
to fiscal 1998 was primarily due to additional bank borrowings and higher
capital lease obligations.
Provision for Income Taxes. No provision for federal and state income taxes
has been recorded because we have experienced net losses since inception that
have resulted in deferred tax assets. A valuation allowance has been recorded
for the entire deferred tax asset as a result of uncertainties regarding the
realization of the asset balance.
Selected Quarterly Financial Data
(in thousands, except per share data) Fiscal 2000 Fiscal 1999
---------------------------------------- -------------------------------------------
For the quarter ended Sept 30 Jun 30 Mar 31 Dec 31 Sept 30 Jun 30 Mar 31 Dec 31
Revenues, net:
License $ 2,116 $ 309 $ 6,175 $ 4,208 $ 5,224 $ 7,611 $ 5,504 $ 5,663
Services 6,124 5,632 4,661 4,799 3,782 3,582 3,191 2,456
----------------------------------------- -------------------------------------------
Total revenues 8,240 5,941 10,836 9,007 9,006 11,193 8,695 8,119
Cost of Revenues:
Licenses 1,152 1,371 1,065 228 437 174 349 224
Services 5,058 6,299 5,878 5,905 5,110 4,501 3,625 3,417
----------------------------------------- -------------------------------------------
Total cost of revenues 6,210 6,891 6,943 6,133 5,547 4,675 3,974 3,641
----------------------------------------- -------------------------------------------
Gross profit 2,030 (950) 3,893 2,874 3,459 6,518 4,721 4,478
Operating Expenses:
Sales and marketing 8,091 10,767 10,610 9,088 7,696 7,938 6,983 6,376
Research and development 5,202 7,658 9,718 8,634 6,107 5,208 4,211 3,845
General and administrative 2,980 4,847 3,493 3,475 2,930 3,111 2,396 1,948
Merger costs and acquired in
process technology - (1,240) - - - 8,859 - -
Restructuring charges - 3,407 - - - - - -
----------------------------------------- -------------------------------------------
Total operating expenses 16,273 25,439 23,821 21,197 16,733 25,116 13,590 12,169
----------------------------------------- -------------------------------------------
Loss from operations (14,243) (26,389) (19,928) (18,323) (13,274) (18,598) (8,869) (7,691)
Other income (expense), net 725 896 614 993 1,061 860 127 (92)
----------------------------------------- -------------------------------------------
Net loss $(13,518) $(25,493) $(19,314) $(17,330) $(12,213) $(17,738) $(8,742) $(7,783)
========================================= ===========================================
Basic and diluted net loss per share $ (0.54) $ (1.03) $ (0.83) $ (0.76) $ (0.54) $ (0.86) $ (0.49) $ (1.22)
========================================= ===========================================
Shares used in calculation of basic
and diluted net loss per share 25,025 24,854 23,204 22,844 22,687 20,539 17,916 6,390
========================================= ===========================================
Financial Condition
Our total assets were $81.7 million and $128.8 million at September 30,
2000, and 1999, respectively, representing a decrease of $47.1 million, or
36.6%. This decrease was primarily due to the use of cash in our operations
during the year offset by the proceeds received from the sales of our common
stock in our February 2000 private placement offering. As of September 30, 2000,
we had $56.2 million of cash and cash equivalents and marketable securities,
compared to $108.7 million at September 30, 1999, representing a decrease of
$52.5 million, or 48.3%. During December 1998, we issued 3,365,000 shares of our
common stock in connection with our IPO,
28
resulting in proceeds to Concur of approximately $37.4 million, net of offering
costs. In connection with our IPO, we also received proceeds totaling $2.6
million from the exercise of a warrant to purchase 225,000 shares of our common
stock. In April 1999, we completed a follow-on offering of our common stock and
issued an additional 2,018,620 shares, resulting in proceeds to Concur of
approximately $82.2 million in cash, net of underwriting discounts, commissions,
and other offering costs. In February 2000, we completed a private placement and
received approximately $35.0 million in cash, net of commissions and other
offering costs.
Our accounts receivable balance, net of allowance for doubtful accounts, was
$11.3 million and $9.0 million as of September 30, 2000 and 1999, respectively,
representing an increase of $2.3 million, or 25.6%. This increase was
principally a result of increased service revenues associated with sales of
Concur Expense and to a lesser degree, Concur Human Resources. Days' sales
outstanding ("DSO") in accounts receivable was 104 days and 90 days for the
quarters ended September 30, 2000 and 1999, respectively. We expect that DSO
will fluctuate significantly in future quarters, and may even increase. Deposits
and other assets were $1.1 million and $1.8 million at September 30, 2000 and
1999, respectively. Deposits and other assets decreased primarily due to
amortization of intangibles.
Our total current liabilities were $22.6 million and $28.6 million as of
September 30, 2000 and 1999, respectively, representing a decrease of $5.9
million, or 20.8%. This decrease consists primarily of a decrease in accounts
payable, accrued liabilities, and accrued commissions. The decrease in accounts
payable and accrued liabilities was primarily due to a reduction in estimated
merger costs and payment of certain accrued liabilities and a more current aging
for accounts payable.
Liquidity and Capital Resources
Since inception, we have funded our operations primarily through sales of
equity securities and to a lesser degree through the use of long-term debt,
notes payable to stockholders, and equipment leases. Our sources of liquidity
as of September 30, 2000 consisted principally of cash and cash equivalents and
marketable securities, all totaling $56.2 million, and approximately $3.4
million of available borrowings under a line of credit.
Net cash used in operating activities was $75.3 million, $36.4 million and
$16.0 million in fiscal 2000, 1999 and 1998, respectively. For such periods, net
cash used by operating activities was primarily a result of funding ongoing
operations.
Our investing activities have consisted primarily of purchases of property and
equipment. Property and equipment acquisitions, including those acquired under
capital leases, totaled $11.2 million, $6.0 million, and $2.4 million in fiscal
2000, 1999 and 1998, representing increases of $5.2 million, or 87.0% in 2000
from 1999 and $3.6 million or 153% in 1999 from 1998. We financed a significant
portion of our acquisitions of property and equipment through capital leases,
which consist primarily of computer hardware and software for our employees as
well as for our management information systems and our ASP operations. We
anticipate that our capital expenditures in fiscal 2001 will be somewhat less
than in fiscal 2000 as we do not anticipate the increase in personnel we
experienced during the first half of fiscal 2000.
Our financing activities provided $31.6 million, $131.8 million, and $26.3
million in fiscal 2000, 1999, and 1998, respectively. In fiscal 2000, cash
provided by financing activities consisted primarily of $35.0 million from our
private placement.
We have a line of credit with a bank for $4 million that expires in January
2001. The line of credit bears interest at the lending bank's prime rate plus
1.5%. Borrowings are limited to 80% of eligible accounts receivable, and are
secured by substantially all of our non-leased assets. As of September 30, 2000,
we had not borrowed under the line of credit; however, there was a standby
letter of credit outstanding for $450,000. Therefore, approximately $3.5
million remained available under this line as of September 30, 2000.
In September 1997, we entered into a $1.0 million senior term loan facility
with the same bank with which we have the line of credit, pursuant to the terms
of a security and loan agreement. In April 1998, the senior term loan facility
was amended to allow for additional borrowings up to a total of $3.0 million.
The facility, which bears interest at the lending bank's prime rate less 1.0%,
matures on February 15, 2001. Payments were interest only through February 15,
1999, at which time we started to pay off the facility in 24 equal monthly
principal payments plus interest. The loan agreement contains certain financial
restrictions and covenants, with which we are currently in compliance. As of
September 30, 2000, the outstanding indebtedness under the loan agreement was
$625,000.
29
In July 1997, we entered into a subordinated loan and security agreement with
an equipment lessor in the principal amount of $1.5 million that bears interest
at an annual rate of 8.5%. In May 1998, this agreement was amended to allow for
additional borrowings of $5.0 million bearing interest at an annual rate of 11%
on the first $3.5 million and 12.5% on the remaining $1.5 million, which expired
on December 31, 1998. The notes are due in varying monthly installments through
April 2002, and contain certain restrictions and covenants, with which we are
currently in compliance. At September 30, 2000, the outstanding indebtedness
under the subordinated loan agreement was $2.3 million.
We also have an existing equipment line of credit with a bank, which is no
longer available for additional borrowings. Principal payments of approximately
$16,000, plus interest which accrues at the prime rate plus 0.75% are due
monthly through October 2001. At September 30, 2000, the outstanding
indebtedness under the equipment line of credit was $116,000.
In September 1998, we entered into an additional subordinated promissory note
agreement with an equipment lessor in the principal amount of $2.0 million. The
note bears interest at 11%, payments are due in monthly installments of
approximately $65,000 including interest, and the note matures in November 2001.
At September 30, 2000, the outstanding indebtedness under the subordinated loan
agreement was $857,000.
In June 2000, we announced a new operating plan that focuses the Company more
on the Corporate Expense Management market where we have our strongest
competencies. This new operating plan included a workforce reduction of 68
employees and a reduction in our utilization of contract labor. In addition, our
new operating plan contains a focus on greater operational efficiencies. We
currently anticipate that, through the end of fiscal 2001, we will experience a
modest decline in our overall operating expenses. In addition to the modest
decline in operating expenses, we also believe that our revenues, especially for
our ASP solutions, will grow during fiscal 2001. This will have the effect of
decreasing our operating losses and cash used in operations during fiscal 2001.
We believe that our existing cash and cash equivalents and marketable securities
and available bank borrowings will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next 12
months. Thereafter, we may require additional funds to support our working
capital requirements or for other purposes and may seek to raise such additional
funds through private or public sales of securities, strategic relationships,
bank debt, financing under leasing arrangements, or other available means. If
additional funds are raised through the issuance of equity securities,
stockholders may experience additional dilution, or such equity securities may
have rights, preferences, or privileges senior to those of the holders of our
common stock. There can be no assurance that additional financing will be
available on acceptable terms, or at all. If adequate funds are not available or
are not available on acceptable terms, we may be unable to develop or enhance
our products, take advantage of future opportunities, or respond to competitive
pressures or unanticipated requirements, which could have a material adverse
effect on our business, financial condition and operating results. See "Factors
That May Affect Results of Operations and Financial Condition - We May Require
Additional Financing to Fund Our Operations."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our operating results are sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our cash equivalents are
invested in short-term debt instruments while certain portions of our
outstanding long-term debt bear interest at variable rates. Based on our
marketable securities portfolio and interest rates at September 30, 1999, a one
percent increase or decrease in interest rates would result in a decrease or
increase of approximately $100,000, respectively, in the fair value of the
marketable securities portfolio. Changes in interest rates may affect the fair
value of the marketable securities portfolio; however, such gains or losses
would not be realized unless the investments are sold.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of Concur Technologies, Inc.
Report of Ernst & Young LLP, Independent Auditors......................................................... 32
Consolidated Balance Sheets as of September 30, 2000 and 1999............................................. 33
Consolidated Statements of Operations for the years ended September 30, 2000, 1999, and 1998.............. 34
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended September 30, 2000,
1999, and 1998......................................................................................... 35
Consolidated Statements of Cash Flows for the years ended September 30, 2000, 1999, and 1998.............. 36
Notes to Consolidated Financial Statements................................................................ 38
31
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Concur Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Concur
Technologies, Inc. ("Concur") as of September 30, 2000 and 1999 and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for each of the three years in the period ended September 30, 2000. These
financial statements are the responsibility of the management of Concur. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Concur at
September 30, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
2000, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Seattle, Washington
November 10, 2000
32
Concur Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
September 30,
---------------------------------
2000 1999
----------- ----------
Assets
Current assets:
Cash and cash equivalents $ 12,224 $ 59,815
Marketable securities 44,018 48,907
Accounts receivable, net of allowance for doubtful accounts
of $973 and $870 in 2000 and 1999, respectively 11,317 9,020
Prepaid expenses and other current assets 2,338 1,110
Notes receivable from stockholders 167 333
----------- ----------
Total current assets 70,064 119,185
Equipment and furniture, net 10,469 7,087
Deposits and other assets 1,135 1,829
Notes receivable from stockholders, net of current portion - 167
Capitalized technology and other intangible assets, net of
accumulated amortization of $400 in 1999 - 560
----------- ----------
Total assets $ 81,668 $128,828
=========== ==========
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 2,230 $ 5,323
Accrued payroll and benefits 3,913 4,185
Accrued restructuring costs 1,025 -
Sales return reserve 1,326 -
Accrued merger costs - 3,599
Other accrued liabilities 3,284 4,025
Accrued commissions 1,317 1,452
Current portion of accrued payment to shareholders 315 333
Current portion of long-term debt 2,942 3,762
Current portion of capital lease obligations 2,356 1,869
Deferred revenues 3,905 4,011
----------- ----------
Total current liabilities 22,613 28,559
Accrued payment to shareholders, net of current portion - 167
Long-term debt, net of current portion 927 3,890
Capital lease obligations, net of current portion 959 2,269
Deferred rent expense 156 169
Commitments
Shareholders' equity:
Convertible preferred stock, par value $0.001 per share:
Authorized shares - 5,000,000
No shares issued or outstanding shares - -
Common stock, par value $0.001 per share:
Authorized shares - 60,000,000
Issued and outstanding shares - 25,088,081 and 22,693,022
in 2000 and 1999, respectively 222,577 184,943
Deferred stock compensation (179) (1,439)
Accumulated deficit (165,385) (89,730)
----------- ----------
Total shareholders' equity 57,013 93,774
----------- ----------
Total liabilities and shareholders' equity $ 81,668 $128,828
=========== ==========
See accompanying notes.
33
Concur Technologies, Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended September 30,
------------------------------------------------------
2000 1999 1998
----------- ----------- ----------
Revenues, net:
License $ 12,808 $ 24,002 $ 13,176
Services 21,216 13,011 6,952
-------- -------- --------
Total revenues 34,024 37,013 20,128
Cost of revenues:
License 3,816 1,184 558
Services 22,361 16,653 8,063
-------- -------- --------
Total cost of revenues 26,177 17,837 8,621
-------- -------- --------
Gross profit 7,847 19,176 11,507
Operating expenses:
Sales and marketing 38,556 28,993 16,070
Research and development 31,212 19,371 10,276
General and administrative 14,795 10,385 5,919
Merger costs and acquired in-process technology (1,240) 8,859 5,203
Restructuring charges 3,407 - -
-------- -------- --------
Total operating expenses 86,730 67,608 37,468
-------- -------- --------
Loss from operations (78,883) (48,432) (25,961)
Interest income 4,768 3,825 454
Interest expense (1,376) (1,511) (539)
Other expense, net (164) (358) (178)
-------- -------- --------
Net loss $(75,655) $(46,476) $(26,224)
======== ======== ========
Basic and diluted net loss per share $ (3.15) $ (2.75) $ (8.18)
======== ======== ========
Shares used in calculation of basic and diluted
net loss per share 23,981 16,883 3,207
======== ======== ========
See accompanying notes.
34
Concur Technologies, Inc.
Consolidated Statements of Shareholders' Equity (Deficit)
(In thousands, except share data)
Convertible Total
Preferred Stock Common Stock Deferred Shareholders'
---------------------- -------------------- Stock Accumulated Equity
Shares Amount Shares Amount Compensation Deficit (Deficit)
----------- --------- ----------- -------- ------------- ----------- -----------
Balance at September 30, 1997 721,682 $ 3,182 3,026,952 $ 470 $ - $ (16,155) $(12,503)
Accretion of redeemable
preferred stock - - - - - (375) (375)
Repurchase of preferred stock (5,568) (43) - - - - (43)
Issuance of common stock from
exercise of stock options - - 176,115 30 - - 30
Deferred stock compensation - - - 950 (950) - -
Amortization of deferred stock
compensation - - - - 421 - 421
Issuance of common stock in
connection with acquisition - - 708,918 4,378 - - 4,378
Assumption of stock options in
connection with acquisition - - - 765 - - 765
Net loss - - - - - (26,224) (26,224)
---------- -------- ----------- -------- ------- --------- --------
Balance at September 30, 1998 716,114 3,139 3,911,985 6,593 (529) (42,754) (33,551)
Accretion of redeemable
preferred stock - - - - - (500) (500)
Proceeds from initial public
offering, net of offering costs - - 3,365,000 37,369 - - 37,369
Proceeds from follow-on public
offering, net of offering costs - - 2,018,620 82,234 - - 82,234
Conversion of redeemable convertible
preferred stock and redeemable
convertible preferred stock warrants
into common stock and common stock
warrants - - 11,124,420 38,456 - - 38,456
Proceeds from issuance of common
stock from exercise of common
stock warrants - - 225,000 2,616 - - 2,616
Issuance of common stock from net
exercise of common stock warrants - - 44,052 - - - -
Issuance of convertible preferred stock 972,944 12,000 - - - - 12,000
Conversion of convertible preferred stock
into common stock (1,689,058) (15,139) 1,689,058 15,139 - - -
Issuance of common stock from exercise of
stock options - - 323,217 237 - - 237
Issuance of common stock in connection
with Employee Share
Purchase Plan - - 53,209 566 - - 566
Repurchase of common stock - - (61,539) (752) - - (752)
Deferred stock compensation - - - 2,485 (2,485) - -
Amortization of deferred stock compensation - - - - 1,575 - 1,575
Net loss - - - - - (46,476) (46,476)
---------- -------- ----------- -------- ------- --------- --------
Balance at September 30, 1999 - - 22,693,022 184,943 (1,439) (89,730) 93,774
Proceeds from issuance of common stock in
private placement - - 1,503,502 34,915 - - 34,915
Issuance of common stock in connection
with Employee Share Purchase Plan - - 384,658 2,826 - - 2,826
Issuance of common stock from net exercise
of common stock warrants - - 93,785 - - - -
Issuance of common stock from exercise of
stock options - - 413,114 392 - - 392
Amortization of deferred stock compensation - - - - 761 - 761
Adjustment to deferred stock compensation for
options cancelled upon employee terminations - - - (499) 499 - -
Net loss - - - - - (75,655) (75,655)
---------- -------- ----------- -------- ------- --------- --------
Balance at September 30, 2000 - $ - 25,088,081 $222,577 $ (179) $(165,385) $ 57,013
========== ======== =========== ======== ======= ========= ========
See accompanying notes.
35
Concur Technologies, Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended September 30,
------------------------------------
2000 1999 1998
-------- -------- --------
Operating activities
Net loss $(75,655) $(46,476) $(26,224)
Adjustments to reconcile net loss to net cash
used in operating activities:
Acquired in-process technology - - 5,203
Amortization of capitalized technology 240 320 80
Amortization of deferred stock compensation 761 1,575 421
Depreciation 6,789 1,968 856
Provision for bad debts 1,486 540 525
Restructuring charges 1,053 - -
Adjustment to merger costs (1,240) - -
Other (13) 50 140
Changes in operating assets and liabilities:
Accounts receivable (3,783) (3,510) (1,937)
Notes receivable from stockholders - - (668)
Prepaid expenses, deposits, and other assets (534) (2,040) (448)
Accounts payable (3,093) 2,993 1,128
Accrued liabilities and accrued commissions (1,156) 7,752 3,168
Deferred revenues (106) 392 1,778
-------- -------- --------
Net cash used in operating activities (75,251) (36,436) (15,978)
Investing activities
Purchases of equipment and furniture (8,846) (3,692) (814)
Acquisition, net of cash acquired - - (130)
Purchase of marketable securities (56,811) (80,505) -
Maturity of marketable securities 61,700 31,598 -
-------- -------- --------
Net cash used in investing activities (3,957) (52,599) (944)
Financing activities
Net proceeds from initial public offering - 37,369 -
Net proceeds from follow-on public offering - 82,234 -
Net proceeds from private stock offering 34,915 - -
Proceeds from issuance of common stock from exercise of
stock options 392 237 30
Issuance of common stock in connection with Employee
Stock Purchase Plan 2,826 566 -
Proceeds from exercise of common stock warrants - 2,616 -
Proceeds from sales leaseback transaction - - 192
Proceeds from borrowings - 4,976 7,827
Payments on borrowings (4,115) (3,769) (335)
Payment on capital leases (2,401) (1,329) (500)
Issuance of convertible preferred stock - 9,434 6,390
Repurchase of common and preferred stock - (542) (43)
Issuance of redeemable convertible preferred stock and
warrants - - 12,698
36
Concur Technologies, Inc.
Consolidated Statements of Cash Flows (continued)
(In thousands)
Year Ended September 30,
--------------------------------
2000 1999 1998
-------- -------- --------
Net cash provided by financing activities 31,617 131,792 26,259
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (47,591) 42,757 9,337
Cash and cash equivalents at beginning of year 59,815 17,058 7,721
-------- -------- --------
Cash and cash equivalents at end of year $ 12,224 $ 59,815 $ 17,058
======== ======== ========
Supplemental disclosure of cash flow information
Cash paid for interest $ 1,320 $ 1,374 $ 496
======== ======== ========
Issuance of warrants in connection with financing activity $ - $ - $ 75
======== ======== ========
Issuance of Series B redeemable convertible preferred
stock in exchange for cancellation of notes payable
and related accrued interest $ - $ - $ 1,062
======== ======== ========
======== ======== ========
Equipment and furniture obtained through capital lease $ 1,578 $ 2,336 $ 1,572
======== ======== ========
Conversion of preferred stock and preferred warrants
into common stock and common stock warrants $ - $ 53,595 $ -
======== ======== ========
Conversion of note payable to stockholders and related
accrued interest to redeemable convertible preferred stock $ - $ 2,566 $ -
======== ======== ========
Repurchase of common stock through cancellation of
note receivable and related accrued interest $ - $ 177 $ -
======== ======== ========
Net assets acquired in exchange for common stock in
connection with acquisition of 7Software $ - $ - $ 1,030
======== ======== ========
Adjustment to deferred stock compensation for options
cancelled upon employee termination $ 499 $ - $ -
======== ======== ========
See accompanying notes.
37
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
Description of the Company
Concur Technologies, Inc.(TM) ("Concur" or the "Company") is a leading provider
of Corporate Expense Management software and service solutions that automate
costly and inefficient business processes. Concur's software solutions are sold
through a direct sales organization as well as indirect channels and include
Concur Expense(TM) for travel and entertainment expense management, Concur
Payment(TM) for employee requests for vendor payments, Concur Time(TM) for time
tracking and reporting, and Concur Human Resources(TM) for human resources self-
service. These software products are designed to meet the needs of businesses of
all sizes through license and application service provider ("ASP") models. The
Company was originally incorporated in the state of Washington on August 19,
1993 and operations commenced during 1994. On November 25, 1998, the Company was
reincorporated in the State of Delaware and completed an initial public offering
on December 17, 1998.
Basis of Financial Statement Presentation
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999, among the
Company and Seeker Software, Inc. ("Seeker") the Company acquired all of the
outstanding capital of Seeker. Seeker developed, marketed, and sold Web-based
human resources self-service solutions applications that allowed employees and
managers within an organization to access, update, and share information from
their desktop computers.
The Company issued 3,419,929 shares of common stock in exchange for all
outstanding preferred stock, preferred stock purchase warrants, and common stock
of Seeker and assumed all outstanding options of Seeker employees resulting in
the issuance of options to purchase up to 680,234 shares of common stock. This
transaction has been accounted for as a pooling-of-interests and, accordingly,
these consolidated financial statements reflect the restatement of all periods
presented to include the accounts of Seeker.
In conjunction with the merger, the Company recorded a charge to operating
expenses of approximately $8.9 million for estimated direct and other merger-
related costs pertaining to the transaction in fiscal year 1999. Merger costs
consisted primarily of estimated costs and fees for financial advisement
services for both companies, attorneys, accountants, financial printing, and
other related charges. The Company periodically reviews accounting estimates
such as these, and related accruals and, when appropriate, makes changes to
reflect new estimates. During fiscal year 2000, the Company revised its estimate
of these costs, resulting in a decrease in accrued merger costs of approximately
$1.2 million. No amounts remain as accrued liabilities relating to the merger at
September 30, 2000.
38
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
Net revenue and net loss for the separate and combined companies prior to the
merger on June 1, 1999 are as follows (in thousands):
Concur Seeker
Technologies, Software, Combined
Inc. Inc. Company
-------------------------------------------
Year ended September 30, 1998:
Net revenue $ 17,159 $ 2,696 $ 20,128
Net loss $(18,074) $(8,150) $(26,224)
Six months ended March 31, 1999:
Net revenue $ 13,591 $ 3,223 $ 16,814
Net loss $(11,263) $(5,262) $(16,525)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Concur Technologies (UK) Ltd, Concur Technologies
Pty. Limited, and Seeker, which was dissolved effective March 28, 2000. All
significant intercompany accounts and transactions are eliminated in
consolidation.
Revenue Recognition Policy
The Company delivers its products in the form of software licenses or, beginning
in early fiscal year 2000, by providing customers access to its software on a
hosted basis in an ASP model.
License revenues are comprised primarily of fees for the delivery of software
licenses as well as initiation and usage fees earned for hosting services as an
application service provider. Revenue resulting from license fees is recognized
when persuasive evidence of an arrangement exists, delivery of the product has
occurred, the fee is fixed and determinable, and collectibility is probable. If
the fee due from the customer is not fixed and determinable, revenue is
recognized as payments become due from the customer. If collectibility is not
considered probable, revenue is recognized when the fee is collected. Revenues
resulting from ASP services are recognized over the lives of the related
agreements, which are typically two years. Customer advances and billed amounts
due from customers in excess of recognizable revenue are recorded as deferred
revenue.
Service revenues earned from customers that license the Company's software
result from systems integration or other consulting services, customer support
agreements, and training. When software licenses and services are sold together,
the services are evaluated to determine whether they are essential to the
functionality of the software. When services are considered essential, revenue
under the arrangement is recognized using contract accounting. When services are
not considered essential, the revenue related to the services is recognized as
the services are performed. Customer support agreements provide for technical
support and include the right to unspecified upgrades on an if-and-when-
available basis. Revenue from customer support agreements is recognized over the
life of the related agreement, which is typically one year.
39
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
In some cases, revenues generated as an application service provider are derived
from arrangements with partners and affiliates. These revenues are recorded on a
gross basis with related commissions recorded as a selling expense when the
Company is the primary obligor in the arrangement, when the Company establishes
the pricing of the arrangement, and when the Company assumes the related
business risks such as performance and credit risk. Otherwise, these revenues
are recorded on a net basis.
Liquidity
The Company continues to incur losses from operating results and had total
shareholders' equity of $57.0 million at September 30, 2000, including an
accumulated deficit of $165.4 million. As a result of its significant product
development, customer support, and selling and marketing efforts, the Company
has required substantial working capital to fund its operations. To date, the
Company has financed its operations principally through its equity offerings.
Management believes that the Company has sufficient working capital available
under its operating plan to fund its operations and capital requirements through
at least September 30, 2001. Any substantial inability to achieve the current
business plan could have a material adverse impact on the Company's financial
position, liquidity, or results of operations and may require the Company to
reduce expenditures and/or seek additional debt or equity financing to enable it
to continue operations through September 30, 2001.
Cash and Cash Equivalents
All highly liquid financial instruments purchased with an original maturity of
three months or less are reported as cash equivalents.
Marketable Securities
Marketable securities are stated at fair value at the balance sheet date. By
policy, the Company invests primarily in high-grade marketable securities.
Marketable securities are defined as available-for-sale securities under the
provisions of Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale, which are carried at fair value, with unrealized gains
and losses, net of tax, reported as a separate component of stockholders'
equity. At September 30, 2000, the fair value of marketable securities
(consisting primarily of corporate bonds and commercial paper) approximates
their cost. Therefore, no unrealized gain or loss has been recorded. All
marketable securities held at September 30, 2000 mature within one year.
Fair Values of Financial Instruments
The Company has the following financial instruments: cash and cash equivalents,
marketable securities, accounts receivable, accounts payable, accrued
liabilities, accrued commissions, long-term debt and capital lease obligations,
bank lines of credit, and standby letters of credit. The carrying value of cash
and cash equivalents, marketable securities, accounts receivable, accounts
payable, accrued liabilities and accrued commissions approximates fair value
based on the liquidity of these financial instruments or based on their short-
term nature. The carrying value of long-term debt, bank lines of credit, standby
letters of credit, and capital lease obligations approximates fair value based
on the market interest rates available to the Company for debt of similar risk
and maturities.
40
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
Research and Development
Research and development costs are expensed as incurred and consist primarily of
software development costs. Financial accounting standards require the
capitalization of certain software development costs after technological
feasibility of the software is established. In the development of the Company's
new products and enhancements to existing products, the technological
feasibility of the software is not established until substantially all product
development is complete, including the development of a working model. Internal
software development costs that were eligible for capitalization were
insignificant and were charged to research and development expense in the
accompanying consolidated statements of operations.
Internal-Use Software
Costs of software developed internally by the Company for use in its operations
are accounted for under the American Institute of Certified Public Accountants'
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Corporate
Software Developed or Obtained for Internal Use." Under SOP 98-1, the Company
expenses costs of research, including predevelopment efforts prior to
establishing technological feasibility, and costs incurred for training and
maintenance. Software development costs are capitalized when technological
feasibility has been established, it is probable that the project will be
completed, and the software will be used as intended. Costs incurred during the
application development stage were insignificant, and, accordingly, no costs
related to internal-use software have been capitalized through September 30,
2000.
Segment Information
The Company has adopted Statement of Financial Accounting Standards No. 131,
"Disclosure about Segments of an Enterprise and Related Information," which
requires companies to report selected information about operating segments, as
well as enterprise-wide disclosures about products, services, geographical
areas, and major customers. The Company operates in a single business segment
related to Corporate Expense Management software and services.
Comprehensive Net Loss
The Company's comprehensive net loss was the same as its net loss for all fiscal
years presented.
Advertising and Marketing Costs
Costs of marketing materials and advertising expenditures are charged to
operations when the materials are used or the advertising is first released.
Advertising costs were approximately $3.3 million, $3.6 million, and $2.6
million in the fiscal years ended September 30, 2000, 1999, and 1998,
respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109") which
utilizes the liability method of accounting for income taxes. A deferred tax
asset or liability is recorded for all temporary differences between financial
and tax reporting. Valuation allowances are established when necessary to reduce
deferred tax assets to amounts expected to be realized.
41
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
Stock-Based Compensation
The Company adopted the "disclosure only" provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," and has
elected to continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations. Accordingly, compensation cost for stock options issued to
employees is measured as the excess, if any, of the market price of the
Company's common stock at the date of grant over the stock option exercise
price.
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from three to five years.
Depreciation expense includes amounts amortized for assets recorded under
capital leases.
Net Loss per Share
Basic and diluted net loss per share is calculated using the weighted-average
number of shares of common stock outstanding. Other common stock equivalents,
including convertible preferred stock, stock options, and warrants, are excluded
from the computation as their effect is antidilutive.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed primarily across several different
geographic areas in the United States and in a variety of industries. No single
customer accounted for more than 10% of the Company's sales in any of the
periods presented. The Company does not require collateral or other security to
support credit sales, but provides an allowance for bad debts based on
historical experience and specific identification.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars at
the exchange rate in effect on the balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing during the year. The
translation adjustments resulting from this process were insignificant at
September 30, 2000 and 1999. Gains and losses on foreign currency transactions
are included in the consolidated statements of operations as incurred. To date,
gains and losses on foreign currency transactions have not been significant.
Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is required to be adopted in fiscal years beginning after June 15, 2000.
SFAS 133 establishes standards for recognition and measurement of derivatives
and hedging
42
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
activities and requires recognition of all derivatives on the balance sheet at
fair value. Because the Company has not used derivatives, management does not
anticipate that the adoption of SFAS 133 will have an effect on earnings or the
consolidated financial position of the Company.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in Financial
Statements," which summarizes the SEC's views on applying generally accepted
accounting principles to revenue recognition and the related costs of those
revenues. In June 2000, the SEC issued SAB 101B, which delays the implementation
date of SAB 101 until no later than the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. In October 2000, the SEC issued frequently
asked questions and answers about how the guidance in accounting standards and
SAB 101 would apply to particular transactions. The Company has reviewed the
requirements of SAB 101 and believes its policies on revenue recognition and
related costs of those revenues are in compliance with this new standard.
Therefore, the Company does not believe that SAB 101 will have a significant
impact on its consolidated financial position or results or operations. However,
the Company will continue to evaluate interpretations of the standard as they
become available.
In March 2000, the FASB issued Interpretation No. 44 (FIN 44), for Certain
Transactions Involving Stock Compensation - An Interpretation of APB Opinion No.
25. FIN 44 clarifies the application of APB Opinion No. 25 and among other
issues, clarifies the following: the definition of an employee for the purposes
of applying APB Opinion No. 25, the criteria for determining whether a plan
qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of previously fixed stock options or awards, and the
accounting for an exchange of stock compensation awards in a business
combination. FIN 44 is effective July 1, 2000, but certain conclusions in FIN 44
cover specific events that occurred after either December 15, 1998 or January
12, 2000. The application of FIN 44 had no material impact on the Company's
consolidated financial position or results of operations.
In March 2000, the Emerging Issues Task Force (EITF) published its consensus on
EITF No. 00-2, "Accounting for Web Site Development Costs," which requires the
following accounting for costs related to development of Web sites:
Costs incurred in the planning stage, regardless of whether the planning
activities relate to software, should be expensed as incurred;
Costs incurred during the development of Web site applications and
infrastructure involving acquiring or developing hardware and software to
operate the Web site, including graphics that affect the look and feel of
the Web page, should be capitalized. All costs relating to software used to
operate a Web site should be accounted for under Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1). However, if a plan exists or is being developed
to market the software externally, the costs relating to the software
should be accounted for pursuant to SFAS No. 86, "Accounting for the Costs
of Computer Software to Be Sold, Leased or Otherwise Marketed;"
Costs paid for Web site hosting services generally should be expensed over
the period of benefit; and
Costs incurred in operating the Web site, including training,
administration, maintenance, and other costs, should be expensed as
incurred. However, costs incurred in the operation stage that involved
providing additional functions or features to the Web site should be
accounted for as new software. Such costs should be capitalized or expensed
based on the requirements of SOP 98-1, or SFAS No. 86, as applicable.
43
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
1. Description of the Company and Summary of Significant Accounting Policies
(continued)
The Company is required to adopt EITF No. 00-2 in fiscal quarters beginning
after June 30, 2000. The Company's policy for accounting for costs incurred to
operate the Company's hosted services has not been impacted by adoption of this
pronouncement.
In March 2000, the EITF published its consensus on EITF No. 00-3, Application of
AICPA Statement of Position 97-2, ("SOP 97-2"), "Software Revenue Recognition,
to Arrangements That Include the Right to Use Software Stored on Another
Entity's Hardware." EITF No. 00-3 states that a software element covered by SOP
97-2 is only present in a hosting arrangement if the customer has the
contractual right to take possession of the software at any time during the
hosting period without significant penalty and it is feasible for the customer
to either run the software on its own hardware or contract with another party
unrelated to the vendor to host the software. The Company has historically
treated its ASP services in accordance with the guidance contained in this
pronouncement. The Company's ASP hosting arrangements generally do not allow
customers the contractual right to take possession of the software.
2. Equipment and Furniture
Equipment and furniture consisted of the following (in thousands):
September 30,
--------------------------------
2000 1999
------------- -----------
Computer hardware and software $11,620 $ 3,705
Furniture and equipment 962 649
Leased equipment 6,553 4,943
Leasehold improvements 692 565
------------- -----------
19,827 9,862
Less accumulated depreciation (9,358) (2,775)
------------- -----------
$10,469 $ 7,087
============= ===========
Accumulated depreciation on leased equipment was approximately $3.9 million and
$1.7 million at September 30, 2000 and 1999, respectively.
3. Acquisition of 7Software, Inc.
On June 30, 1998, the Company acquired 7Software, Inc. ("7Software"), a
privately-held software company and the developer of Concur Procurement(TM). The
Company issued 708,918 shares of its common stock in exchange for all
outstanding shares of 7Software and also assumed all outstanding 7Software
options, which were converted to options to purchase approximately 123,921
shares of the Company's common stock. The total 7Software purchase price of $6.2
million included the estimated fair value of the common stock ($4.4 million),
the estimated fair value of converted options issued ($765,000), $500,000
payable to certain former 7Software stockholders, cash payments of $130,000, and
other direct acquisition costs of $460,000. The acquisition was accounted for as
a purchase. Therefore, the results of operations of 7Software and the fair value
of the assets acquired and liabilities assumed were included in the Company's
consolidated financial statements beginning on the acquisition date.
In connection with the purchase of 7Software, the Company assumed 7Software's
1997 Stock Option Plan. All outstanding options to purchase the stock of
7Software on the acquisition date were converted into options to purchase
123,921 shares of common stock of the Company. The outstanding options can be
exercised at a price of approximately $0.025 per share, vest over four years,
and are exercisable for a period not to exceed ten years.
44
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
3. Acquisition of 7Software, Inc. (continued)
The allocation of the purchase price resulted in intangible assets (primarily
developed software and the value of an acquired workforce) of $960,000, which
was capitalized and amortized on a straight-line basis over three years.
Amortization expense for the years ended September 30, 2000, 1999, and 1998 was
$240,000, $320,000, and $80,000, respectively. In June 2000, in connection with
its decision to discontinue its licensed procurement product, the Company wrote
off the unamortized balance of these intangible assets in the amount of $320,000
(see Note 10). This charge is included in restructuring costs in the
accompanying consolidated statements of operations. Acquired in-process
technology was valued using the income approach, resulting in a charge of $5.2
million in 1998.
Values assigned to acquired in-process research and development, developed
technology, and trademarks were determined using a discounted cash flow
analysis. The value assigned to the acquired workforce was based on replacement
cost. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks, which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis resulted in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility or do not have
alternative future uses. To determine the value of the developed technology, the
expected future cash flows of the existing technology product were discounted
taking into account risks related to the characteristics and applications of
each product, existing and future markets, and assessments of the life cycle
stage of each product. Based on this analysis, the existing technology that had
reached technological feasibility was capitalized.
As of the date of acquisition, the procurement development project consisted of
ongoing research and development efforts in the following areas: (i)
compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning platforms, (iii) multiple catalog support, (iv)
fundamental redesign of the user interface, and (v) redesign and rewriting of
the administrative functionality. The cost to complete the in-process technology
was estimated based on the number of man-months required to reach technological
feasibility for the CompanyStore technology, the type of professional and
engineering staff involved in the completion process and their fully burdened
monthly salaries.
The unaudited pro forma combined historical results, as if 7Software had been
acquired on October 1, 1997, excluding the nonrecurring, one-time charge for
acquired in-process technology, are as follows (in thousands):
Year Ended
September 30, 1998
-------------------------------
Actual Pro Forma
-------------- ------------
Total revenues, net $ 20,128 $ 20,325
Net loss (26,224) (21,500)
Net loss per share (8.18) (6.21)
The pro forma information does not purport to be indicative of the results that
would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
stockholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and stockholders in the form of a note receivable. This
receivable was payable in aggregate annual installments of $167,000, plus
interest at variable rates. The note was secured by second mortgages on real
property. The balance of the note receivable at September 30, 2000 was $167,000.
45
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
4. Line of Credit
At September 30, 2000, the Company had a $4.0 million line of credit available
for operating needs. Borrowings under this line of credit bear interest at the
lending bank's prime rate plus 1.5%. The borrowing base for these lines is to be
monitored on a monthly basis and is to consist of the sum of up to 80% of
eligible accounts receivable. Interest is due monthly and principal is due upon
maturity.
There were no outstanding borrowings under the $4.0 million line at September
30, 2000. The bank had issued standby letters of credit on behalf of the Company
at September 30, 2000, in the amount of $450,000, and the amount available under
the line of credit on that date was approximately $3.5 million. All nonleased
assets of the Company, including intellectual property, secure the line. The
line of credit agreement requires the Company to meet certain financial
covenants, including limitations on the Company's ability to pay dividends. At
September 30, 2000, the Company was in compliance with these covenants. The line
of credit expires in January 2001.
5. Long-Term Debt Obligations
Long-term debt at September 30, 2000, consisted of: (i) a $3.0 million senior
term loan facility; (ii) a $1.5 million subordinated promissory note; (iii) a
$2.0 million subordinated promissory note; (iv) a $3.5 million subordinated
promissory note; and (v) an equipment loan.
The senior term loan facility with a remaining balance of $625,000 at September
30, 2000 bears interest at the lending bank's prime rate less 1.0% (8.5% at
September 30, 2000) and matures on February 15, 2001. Payments were interest
only through February 15, 1999, at which time the loan began to be paid back in
24 monthly principal payments, plus applicable interest. The loan is secured by
a perfected senior security interest in all nonleased assets of the Company with
specific filings for intellectual property. Both the line of credit and senior
term loan were issued by the same lender and include the same collateral and the
same financial covenants and restrictions discussed above.
The subordinated promissory notes (which have an aggregate remaining balance of
$3.1 million at September 30, 2000 and which are subordinated to both the line
of credit and senior term loan) are secured by the Company's receivables,
equipment, general intangibles, inventory, and all other goods and personal
property of the Company. The $1.5 million note bears interest at 8.5%, has
monthly principal and interest payments of approximately $38,000, and matures in
August 2001. The $2.0 million note bears interest at 11.0%, has monthly
principal and interest payments of approximately $65,000, and matures in
November 2001. The $3.5 million note bears interest at 11.0%, has monthly
principal and interest payments of approximately $105,000, and matures in May
2002.
The equipment loan is secured by virtually all assets of the Company and bears
interest at prime plus 0.75%. The loan is payable in aggregate monthly principal
payments of $16,000, plus accrued interest and matures in May 2001. The balance
of the equipment loan is $116,000 at September 30, 2000.
Maturities of long-term debt obligations are as follows (in thousands):
Fiscal year ended September 30:
2001 $2,942
2002 927
------
$3,869
======
6. Commitments
The Company leases office space and equipment under noncancelable operating and
capital leases. The Company leases its headquarters in Redmond, Washington under
an operating lease expiring in May 2005. The Company has the option to extend
the Redmond lease for one additional five-year term. The Company is required to
provide a $450,000 letter of credit as security for the lease. The letter of
credit may be reduced by specified amounts in the
46
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
6. Commitments (continued)
lease agreement after 36 months or upon the Company's achievement of certain
economic goals. The Company also leases facilities in Oakland, California under
an operating lease that expires in 2001 and other sales offices under operating
leases that expire over various terms.
Future minimum rental payments under noncancelable leases, net of the future
minimum rentals of $640,000 to be received under subleases, are as follows (in
thousands):
Capital Leases Operating Leases
-------------- ----------------
Fiscal year ended September 30:
2001 $ 2,541 $1,837
2002 965 1,190
2003 27 1,194
2004 - 1,215
2005 - 810
------- ------
3,533 $6,246
Less amount representing interest (218) ======
-------
Present value of net minimum capital lease
obligations 3,315
Less current portion (2,356)
-------
Capital lease obligations, net of current portion $ 959
=======
Total rent expense for the years ended September 30, 2000, 1999 and 1998 was
$3.6 million, $2.2 million, and $1.3 million, respectively.
In July 1997, the Company entered into a Master Lease Agreement with Comdisco.
In February 1998, the Company entered into a second Master Lease Agreement,
whereby the total financing commitment extended by Comdisco was increased by an
additional $1.0 million, to a total of $3.5 million. In July 1998, the Company
entered into a third Master Lease Agreement with Comdisco, whereby the total
financing commitment was increased by an additional $1.5 million for a total of
$5.0 million. The Company accounts for its obligations under these Master Lease
Agreements as capital leases.
7. Income Taxes
The Company did not provide an income tax benefit for any period presented
because it has experienced operating losses since inception. At September 30,
2000, the Company has net operating loss carryforwards of $128.6 million and tax
credit carryforwards of $1.2 million all of which expire between 2009 and 2020.
As a result of prior equity financings and the merger with Seeker, the Company
has incurred and will incur "ownership changes" pursuant to applicable
regulations in effect under the Internal Revenue Code of 1986, as amended.
Accordingly, the Company's use of net operating loss carryforwards incurred
through the date of these ownership changes will be limited during the
carryforward period. To the extent that any single year loss is not utilized to
the full amount of the limitation, such unused loss is carried over to
subsequent years until the earlier of its utilization or the expiration of the
relevant carryforward period.
47
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
7. Income Taxes (continued)
Significant components of the Company's deferred tax assets are as follows (in
thousands):
September 30
---------------------------------
2000 1999
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 43,728 $ 19,790
Tax credit carryforwards 1,143 676
Expenses not currently deductible, deferred
revenue, and other 5,930 3,762
------------ ---------
Total deferred tax assets 50,801 24,228
Valuation allowance (50,801) (24,228)
------------ ---------
$ - $ -
============ =========
Since the Company's utilization of these deferred tax assets is dependent on
future profits, which are not assured, a valuation allowance equal to the net
deferred tax assets has been provided. The valuation allowance for deferred tax
assets increased approximately $26.6 million, $12.1 million, and $6.6 million
during the years ended September 30, 2000, 1999, and 1998, respectively.
8. Stock Option Plans and Employee Stock Purchase Plan
The Company's 1994 Stock Option Plan (the 1994 Plan) provided for the issuance
of options to acquire 2,760,000 shares of common stock. The 1994 Plan provides
for the granting of incentive stock options to employees and nonqualified stock
options to employees, directors, and other eligible participants. All of the
shares of the Company's common stock that remained available for issuance under
the 1994 Stock Option Plan when the 1998 Equity Incentive Plan (the 1998 Plan)
became effective, became available for issuance under the 1998 Plan.
On August 21, 1998, the Board adopted the 1998 Equity Incentive Plan (the "1998
Plan"), the Director Stock Option Plan (the "Director Plan"), and the Employee
Stock Purchase Plan (the "ESPP"). The 1998 Plan authorized issuance of up to
3,240,000 shares of common stock upon the exercise of stock options or otherwise
pursuant to the 1998 Plan. In February 2000, the shareholders approved an
increase in the number of shares issuable under the 1998 Plan to 5,240,000. The
Director Plan authorizes issuance of up to 240,000 shares of common stock upon
the exercise of stock options that may be granted pursuant to the Director Plan.
The ESPP authorizes the issuance of up to 714,041 shares of common stock,
subject to automatic annual increases as stated in the ESPP. During fiscal 2000
and 1999, employees purchased 384,658 and 53,209 shares under the ESPP,
respectively. As of September 30, 2000, there are 276,174 shares still available
for purchase under the ESPP.
In December 1999, the Board of Directors adopted the 1999 Stock Incentive Plan
("1999 Plan"). The 1999 Plan provides for the granting of options to acquire up
to 1,500,000 shares of common stock and imposes a limitation on the number of
such options which may be granted to officers.
Stock options granted by the Company vest at various rates, typically over four
years, as determined by the Board of Directors and remain exercisable for a
period not to exceed ten years. However, in June 2000, the Company granted
options to purchase approximately 2,092,000 shares of common stock to employees
which vest over 2.5 years which are subject to accelerated vesting based on the
Company achieving certain future financial targets.
A summary of the Company's stock option activity under the 1994 Plan, the 1998
Plan, the 1999 Plan, the Director Plan, and the options issued in exchange for
options of 7Software and related weighted-average exercise prices is as follows:
48
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
8. Stock Option Plans and Employee Stock Purchase Plan (continued)
September 30, 2000 September 30, 1999 September 30, 1998
------------------------------ ------------------------------ ------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------------------------------ ------------------------------ ------------------------------
Balance at beginning of year 3,572,937 $10.73 1,869,473 $ 0.92 1,120,225 0.23
Granted 5,033,691 11.36 2,174,005 17.32 871,780 1.72
Issued in exchange for
options of 7Software - - - - 123,921 0.03
Exercised (413,114) 0.94 (323,730) 0.42 (176,121) 0.21
Canceled (1,852,137) 18.48 (146,811) 5.98 (70,332) 0.52
--------------- ----------- -----------
Balance at end of year 6,341,377 9.61 3,572,937 10.73 1,869,473 0.92
=============== =========== ===========
Exercisable at end of year 1,399,904 6.48 1,035,265 2.77 691,368 0.19
=============== =========== ===========
Weighted-average value of
options granted during the
year:
Granted at fair value $10.60 $ 16.14 $ 1.45
Granted below fair value - 6.29 1.96
Information regarding the weighted-average remaining contractual life and
weighted-average exercise price of options outstanding and options exercisable
at September 30, 2000 for selected exercise price ranges is as follows:
Options Outstanding Options Exercisable
------------------------------------- -------------------------------
Weighted Weighted
Average Average
Range of Contractual Exercise
Exercise Prices Life (in Years) Shares Shares Price
- ----------------------------------------------------------------------- ---------------------------------
$ 0.03 - 0.20 5.20 440,080 435,375 $ 0.14
0.37 7.06 434,691 307,987 0.37
0.60 - 1.19 8.24 292,337 121,749 1.16
1.65 - 4.66 9.89 476,562 5,580 2.18
5.00 - 6.94 9.62 2,406,298 62,369 5.63
7.75 - 12.50 8.32 853,458 333,740 12.41
13.06 - 25.00 9.24 888,820 5,085 23.90
25.13 - 50.38 8.82 549,131 128,019 32.28
----------------------------------------- ---------------------------------
8.79 6,341,377 1,399,904 $ 6.48
========================================= =================================
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. The Company has recorded
deferred stock compensation expense of $2.5 million and $950,000 relating to
options granted during the years ended September 30, 1999 and 1998,
respectively. These amounts represent the difference between the exercise price
and the deemed fair value for financial reporting purposes of the Company's
common stock during the periods in which such options were granted. Amortization
of deferred stock compensation of $761,000, $1.6 million, and $421,000 was
recognized during the years ended September 30, 2000, 1999, and 1998,
respectively. In June 2000, the Company reduced deferred stock compensation and
common stock by $499,000 to account for the termination of certain employees who
held unvested options granted with exercise prices below the fair value of the
stock at the date of grant.
49
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
8. Stock Option Plans and Employee Stock Purchase Plan (continued)
The following pro forma information regarding stock-based compensation has been
determined as if the Company had accounted for its employee stock options under
the fair market value method of SFAS 123. The fair value of these options was
estimated at the date of grant using a minimum value option pricing model (for
options granted prior to the Company's initial public offering (the "IPO")) and
the Black Scholes model (for options granted subsequent to the IPO) with the
following weighted-average assumptions: risk-free interest rates ranging from
5% to 6% in 2000, 1999, and 1998; a dividend yield rate of 0% for all periods; a
volatility of 1.58 in 2000 and 0.97 in 1999 (subsequent to the IPO), and an
assumption that the options will be exercised one year after they vest. As
stated, we have elected to use the Black-Scholes model to estimate the fair
value of options granted after the IPO. This valuation model was developed for
use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. This model requires the input of highly
subjective assumptions including the expected stock price volatility. Because
our employee stock options have characteristics significantly different from
those of traded options and because changes in the subjective input assumptions
can materially affect this estimate, we believe the Black-Scholes model does not
necessarily provide a reliable single measure of the fair value of our employee
stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting periods. The Company's pro
forma information is as follows (in thousands, except share data):
Year Ended September 30
-----------------------------------------------------------------
2000 1999 1998
------------------- ------------------- -------------------
Net loss as reported $(75,655) $(46,476) $(26,224)
Pro forma incremental compensation
expense under SFAS 123 (2,607) (7,540) (37)
------------------- ------------------- -------------------
Pro forma net loss $(78,262) $(54,016) $(26,261)
=================== =================== ===================
Pro forma loss per share $ (3.26) $ (3.20) $ (8.19)
=================== =================== ===================
Under SFAS 123, compensation expense representing the fair value of the option
grant is recognized over the vesting period. The initial impact on pro forma net
loss may not be representative of compensation expense in future years, when the
effect of amortization of multiple awards would be reflected in pro forma
earnings.
9. Stockholders' Equity
Concur Redeemable Convertible Preferred Stock
In June 1998, the Company designated 1,800,000 shares and issued 1,003,499
shares of Series E redeemable convertible preferred stock ("Series E Preferred
Stock") through a private offering. In August 1998, the Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") was amended for the sale of an
additional 645,161 shares of the Company's Series E Preferred Stock and Series E
Preferred Stock Warrants to purchase an additional 2,400,000 shares of Series E
Preferred Stock for $5.0 million to American Express Travel Related Services
Company, Inc. ("TRS"). The total number of shares of Series E Preferred Stock
issued was 1,648,660. Total net proceeds from the Series E Preferred Stock
financing amounted to $12.7 million.
In connection with the IPO referred to below, all Concur redeemable convertible
preferred stock and preferred stock warrants automatically converted into
10,213,553 shares of common stock.
50
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
9. Stockholders' Equity (Continued)
Seeker Preferred Stock
In March 1998, Seeker issued 839,165 shares of redeemable convertible preferred
stock at $8.94 per share for cash of approximately $6.4 million and the
conversion of notes payable to stockholders and accrued interest of
approximately $1.1 million.
In April 1999, Seeker issued 972,944 shares of Series C preferred stock in a
private placement for cash of $9.4 million and conversion of notes payable to
stockholders and accrued interest aggregating to $2.6 million.
All shares of Seeker preferred stock were exchanged for Concur common stock in
the June 1, 1999 merger.
Warrants
In May 1996, the Company issued warrants to purchase 28,125 shares of redeemable
convertible preferred stock in conjunction with a renewal and increase in the
bank line of credit (see Note 4). The warrants were immediately exercisable at a
price of $2.00 per share, expiring in May 2001. The estimated fair value of
these warrants of $5,000 has been recorded as debt issuance costs. At the time
of the IPO, the warrants were exercised.
In July 1997, the Company issued warrants to Comdisco to purchase 44,827 and
22,988 shares of Series D Preferred Stock in conjunction with the Company's
receipt of financing commitments relating to a promissory note and lease
agreement, respectively. Each has a purchase price of $3.65 per share. The
warrants become immediately exercisable on the effective date of the agreements
and remain exercisable for a period of five years; or two years from the
effective date of the Company's IPO, whichever is longer. The estimated fair
values of these warrants of $30,000 and $16,000, respectively, have been
recorded as debt issuance costs. The warrants were exercised for common stock on
a net basis in December 1999.
In September 1997, the Company issued warrants to purchase 14,000 shares of
Series D Preferred Stock in conjunction with a new loan facility and an
increase/renewal in the bank line of credit (see Note 4). The warrants had an
initial exercise price of $3.65 per share, a five-year maturity inclusive of
certain provisions to include, but not limited by, a net exercise provision,
antidilution protection and a $30,000 put option. The estimated fair value of
these warrants of $30,000 had been recorded as debt issuance costs. At the time
of the IPO, the warrants were exercised.
In April 1998, the Company issued warrants to purchase 13,187 shares of Series E
Preferred Stock in conjunction with the increase to the senior loan facility.
The warrants had an initial exercise price of $7.75 per share. The warrants
became immediately exercisable on the effective date of the agreements.
Additionally, the agreement provided for a $75,000 put option, which expired in
April 2000. The estimated fair value of these warrants of $75,000 has been
recorded as debt issuance costs. These warrants were exercised in February 1999.
In May 1998, the Company issued warrants to Comdisco to purchase 56,451 shares
of Series E Preferred Stock in conjunction with the new subordinated promissory
note (see Note 5). The warrants were immediately exercisable at a price of $7.75
per share and are exercisable for a period of five years; or two years from the
effective date of the Company's IPO, whichever is longer. The estimated fair
value of these warrants of $11,000 has been recorded as debt issuance costs.
These warrants were exercised for common stock on a net basis in December 1999.
In connection with the 1998 sale of 645,161 shares of Series E Preferred Stock,
the Company issued a warrant to purchase an additional 2,400,000 shares of
Series E Preferred Stock. The warrant was exercisable in four tranches as
follows: 300,000 shares could be acquired at the time of the Company's IPO at an
exercise price per share equal
51
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
9. Stockholders' Equity (continued)
to the IPO price per share less 7%; 700,000 shares could be acquired at any time
on or before October 15, 1999 at an exercise price of $33.75 per share; 700,000
shares may be acquired at any time on or before January 15, 2001 at an exercise
price of $50.63 per share; and the remaining 700,000 shares may be acquired at
any time on or before January 15, 2002 at an exercise price of $85.00 per share.
As was permitted by the warrant, the Company exercised its option to cancel 25%
of the shares that could have been acquired under the warrant at the time of the
IPO or on or before October 15, 1999. In connection with an amendment to the
standstill agreement with this shareholder, the Board of Directors subsequently
rescinded its 25% reduction in the number of shares that could be acquired on or
before October 15, 1999. At the time of the IPO, the initial tranche of this
warrant was exercised for 225,000 shares of common stock. The estimated fair
value of this warrant, determined based on a Black-Scholes fair value model, is
approximately $278,000, which has been recorded as redeemable convertible
preferred stock warrants. The option to acquire 700,000 of common stock on or
before October 15, 1999, was not exercised and has expired.
All Concur preferred stock warrants automatically converted into common stock
warrants upon the closing of the IPO of the Company's common stock.
Seeker Warrants
In December 1997, in connection with the issuance of notes payable to
stockholders, Seeker granted to the stockholders warrants to purchase 23,434
shares of convertible preferred stock at an exercise price of $4.46 per share.
In December 1998, in connection with the issuance of notes payable to
stockholders, Seeker granted to the stockholders warrants to purchase 27,972
shares of redeemable convertible preferred stock at an exercise price of $8.94
per share.
In September 1998, in connection with the subordinated loan and equipment line
of credit, the Company granted to the lender warrants to purchase 25,734 shares
of redeemable convertible preferred stock at an exercise price of $8.94 per
share.
All Seeker stock warrants were exchanged for Concur common stock in the June 1,
1999 merger.
IPO and Follow-On Offering
On December 16, 1998, the Company issued 3,365,000 shares of its common stock at
an IPO price of $12.50 per share. The net proceeds to the Company from the
offering, net of offering costs were approximately $37.4 million. In connection
with the IPO, warrants were exercised to purchase 225,000 shares of common stock
at a price of $11.625 per share, resulting in additional proceeds to the Company
totaling $2.6 million. Concurrent with the IPO, each outstanding share of the
Company's redeemable convertible preferred stock was automatically converted
into one share of common stock and remaining preferred stock warrants for
2,237,454 shares were automatically converted into warrants for the purchase of
2,237,454 shares of common stock.
On April 16, 1999 the Company completed a follow-on offering of its common stock
and issued an additional 2,018,620 shares at an offering price of $43.50. The
net proceeds to the Company, net of offering costs, were approximately $82.2
million.
Private Placement to SAFECO and Nortel
On February 22, 2000, Concur entered into a Stock Purchase Agreement with SAFECO
Corporation and Nortel Networks, Inc. for the purchase of 1,073,929 and 429,571
shares, respectively, of Concur's common stock at a purchase price of $23.28 per
share which was the closing price of the Company's stock on that date. Concur
has also entered into strategic marketing and distribution agreements with
SAFECO Life Insurance Company
52
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
9. Stockholders' Equity (continued)
("SAFECO") and Nortel Networks Corporation ("Nortel") under which SAFECO and
Nortel will resell certain of Concur's products through their respective
distribution networks and will undertake joint marketing activities with Concur
to promote certain of Concur's products. Revenues generated from the joint
marketing activities will be shared between Concur and the respective reseller.
Through September 30, 2000, Concur has not recognized any revenue under these
arrangements.
Under the terms of these agreements, Concur has granted SAFECO and Nortel
warrants to purchase up to 3,750,000 and 1,500,000 shares of common stock,
respectively. For each of these warrant holders, the warrants become exercisable
only if such holder achieves certain annual milestones relating to revenue,
derived in connection with the arrangements described above over the next five
years. The exercise price will be the greater of $30.26 or 50 percent of the
fair value of the common stock price on prescribed dates. In the event these
milestones are achieved or the achievement becomes probable, Concur may be
required to record a significant noncash sales and marketing expense throughout
the remaining related service period to the extent that the fair value of the
common stock exceeds the exercise price of the warrants at that time. Concur has
not recorded an expense associated with these agreements to date and is
uncertain whether these milestones will be achieved in the future. Effective
upon the closing of the sale of the common stock to SAFECO, a representative of
SAFECO was elected to serve on the Company's Board of Directors.
Shares Reserved
The Company has reserved shares of common stock for future issuance as follows:
September 30, 2000
--------------------
Outstanding stock options 6,341,377
Stock Options available for grant:
1999 Stock Incentive Plan 33,852
1998 Equity Incentive Plan 1,167,773
Director Stock Option Plan 80,000
Employee Stock Purchase Plan 276,174
Warrants to purchase common stock 6,650,000
--------------------
Total 14,549,176
====================
10. Business Restructuring
On June 8, 2000, the Company announced a new operating plan to focus on
providing solutions to meet the needs of the Corporate Expense Management
market. The decision to implement the new operating plan was based on two
primary factors. First, as the business process automation market expanded and
became more competitive, the Company realized the need to reevaluate its
business in order to balance the needs and requests of its customers with its
available management and financial resources. As a result, the Company made a
strategic decision to focus its resources on Corporate Expense Management. The
second factor was the recent shift in the Company's revenue model, which
contributed to the Company's cost and expense structure to be out of alignment
with its revenue and cash stream. The Company's new operating plan is designed
to reduce costs and bring expenses in line with this change in the marketplace.
53
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
10. Business Restructuring (continued)
Under the new operating plan, as part of its efforts to narrow the scope of its
business to focus primarily on Corporate Expense Management, the Company
implemented certain changes. First, the Company discontinued Concur
ProcurementTM, its corporate procurement application and terminated the Concur
Commerce Network. Second, the Company discontinued the planned integration of
Concur Human Resources with its other Corporate Expense Management solutions as
a suite of solutions through a common user interface.
Based on the decision to discontinue Concur Procurement(TM), the Company
recorded a charge of $2.9 million against revenues in fiscal year 2000 for
estimated returns of this product. This charge is reflected as a reduction in
license revenues. Prior to its decision to discontinue Concur Procurement(TM),
the Company had a very limited history of sales returns. There is a possibility
that net revenues could be negatively impacted in future quarters by returns in
excess of the Company's current estimates.
Additionally, the Company recorded a $3.4 million restructuring charge in June
2000 as a result of its decision to restructure its business and implement a new
operating plan. Of the $3.4 million restructuring charge, approximately $1.0
million remained as an accrued liability at September 30, 2000.
The following is an analysis of the restructuring charge by category (in
thousands):
Amounts Paid or Accrued Balance
Restructuring Charged Off as of at September 30,
Charge September 30, 2000 2000
---------------- ------------------ ------------------
Severance and termination benefits $1,661 $1,062 $ 599
Write off of intangible and other assets 800 800 -
Abandoned facilities, leases, and equipment
costs 328 298 30
Discontinued product marketing
commitments 272 122 150
Other 346 100 246
---------------- ------------------ ------------------
Total $3,407 $2,382 $1,025
================ ================== ==================
As part of the new operating plan, the Company announced a workforce reduction
of 68 employees, which represented approximately 13 percent of the Company's
employee base and included employees from all areas of the Company. In addition
to the reduction in employee headcount, the Company also reduced its utilization
of contract labor. Approximately 64 percent of the costs associated with the
workforce reduction were paid or charged against the liability through September
30, 2000. The remaining accrued balance for severance and termination benefits
is expected to be paid by the end of June 2001. All of the 68 employees had been
terminated by September 30, 2000.
Other expenses associated with the Company's new operating plan consist of the
write-off of intangible assets relating to the Company's procurement technology
acquired in connection with its June 1998 acquisition of 7Software, costs
associated with the abandonment of facilities, including lease costs, and
equipment due to its workforce reduction, and estimated costs to terminate
product marketing programs resulting from the Company's decision to discontinue
Concur Procurement(TM). All remaining costs accrued at September 30, 2000, are
expected to be paid over the next nine months.
54
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
11. International Revenues
The Company licenses and markets its products primarily in the United States,
and operates in a single industry segment. Information regarding revenues for
the years ended September 30 by geographic region, is as follows (in thousands):
Revenues
-------------------------------------------------------
2000 1999 1998
----------- ----------- -----------
Country:
United States $30,687 $36,081 $19,318
Europe 2,810 404 364
Other 527 528 446
----------- ----------- -----------
Total $34,024 $37,013 $20,128
=========== =========== ==========
12. Related-Party Transactions
In December 1997, the Company entered into a strategic alliance agreement with
American Express Company ("American Express"), a related party, under which
American Express refers to the Company its corporate charge card customers that
seek a corporate expense management software solution. Under the terms of the
agreement, American Express receives a fee for referring to the Company clients
of American Express that become Concur customers. The fee varies based upon
license revenue realized from referred customers. The Company is responsible for
the entire sales effort and also for customer support and warranty services. In
addition, in August 1998, the Company entered into a second agreement, a
Co-branded Concur Expense Service Marketing Agreement with American Express
Travel Related Services (TRS). Under the terms of the agreement, TRS receives a
fee for marketing to TRS' clients a co-branded ASP version of Concur Expense.
The marketing fee is based on the amount of revenue received. The Company is
responsible for providing warranty and customer support services to these
customers. Total costs under these agreements were $24,500, $433,000, and
$121,000 for the years ended September 30, 2000, 1999, and 1998, respectively.
In November 1998, the Company entered into a strategic alliance agreement with
ADP, Inc., a subsidiary of Automatic Data Processing, Inc. (ADP), under which
ADP agreed to refer potential customers for Corporate Expense Management
software products and services exclusively to the Company until December, 2001.
The Company and ADP also agreed to jointly market the Company's Corporate
Expense Management products and services to ADP customers. In connection with
this agreement, an officer of ADP was provided a seat on the Company's Board of
Directors. In May 2000, the Company and ADP entered into a second agreement
under which ADP will market certain co-branded versions of Concur's ASP products
on a commission basis. The agreement is effective until May 2005, unless
terminated by either party. Total costs under these agreements were $54,000 and
$41,000 for the years ended September 30, 2000 and 1999, respectively.
In March 2000, the Company recorded $2.0 million in license revenue from an
agreement to license Concur Expense, Concur Procurement, and Concur Human
Resources to a stockholder of the Company. As a result of the Company's
decision to discontinue Concur Procurement in June 2000, the stockholder
returned Concur Procurement and the Company refunded $1.1 million for the return
of this software. This refund was recorded as a reduction in license revenue in
the quarter ended June 30, 2000.
The Company recorded revenues in the amount of $282,000, $660,000 and $134,000,
respectively, for the sale of products and services to other stockholders during
the fiscal years 2000, 1999, and 1998, respectively.
Accounts receivable from stockholders were $111,000, $101,000, and $152,000 at
September 30, 2000, 1999, and 1998, respectively. Accounts payable to
stockholders were $16,000 and $83,000 at September 30, 2000 and 1998,
respectively.
55
Concur Technologies, Inc.
Notes to Consolidated Financial Statements
September 30, 2000
13. License and Other Agreements
The Company has entered into various agreements that allow the Company to
incorporate licensed technology into its products or that allow the Company the
right to sell separately the licensed technology. The Company incurs royalty
fees under these agreements that are based on a predetermined fee per license
sold. Royalty costs incurred under these agreements are recognized as products
are licensed and are included in cost of product sales. These amounts totaled
$727,000, $547,000, and $348,000 for the years ended September 30, 2000, 1999,
and 1998, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
We will furnish to the Securities and Exchange Commission a definitive
Proxy Statement (the "Proxy Statement") not later than 120 days after the close
of the fiscal year ended September 30, 2000. The information required by this
item is incorporated herein by reference to the Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference
to the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference
to the Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)
1. Financial Statements
Consolidated Financial Statements of Concur Technologies, Inc.
Report of Ernst & Young LLP, Independent Auditors.............................. 32
Consolidated Balance Sheets as of September 30, 2000 and 1999.................. 33
Consolidated Statements of Operations for the years ended September 30, 2000,
1999, and 1998................................................................. 34
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
September 30, 2000, 1999, and 1998............................................. 35
Consolidated Statements of Cash Flows for the years ended September 30, 2000,
1999, and 1998................................................................. 36
Notes to Consolidated Financial Statements..................................... 38
56
2. Schedule
The following financial statement schedule for the years ended September 30,
2000, 1999, and 1998 should be read in conjunction with the consolidated
financial statements of Concur Technologies, Inc. filed as part of this Annual
Report on Form 10-K:
Report of Ernst & Young LLP, Independent Auditors, on Financial Statement
Schedule....................................................................... 61
Schedule II--Valuation and Qualifying Accounts................................. 62
Schedules other than that listed above have been omitted since they are either
not required, not applicable, or because the information required is included in
the consolidated financial statements or the notes thereto.
3. Exhibits
The following exhibits are filed as a part of this report:
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------- --------
2.01 Agreement and Plan of Reorganization, dated May 26, 1999, 8-K -- 06/01/99 2.1
among the Registrant, ConStar Acquisition Corp. and Seeker
Software, Inc.
3.01 Registrant's Amended and Restated Certificate of Incorporation, S-8 333-70455 01/12/99 4.03
as filed with Delaware Secretary of State on December 24, 1998.
3.02 Registrant's Bylaws, as adopted on August 19, 1998. S-1 333-62299 08/26/98 3.04
4.01 Specimen Stock Certificate representing shares of Registrant's S-1 333-62299 08/26/98 4.01
Common Stock.
4.02 Third Amended and Restated Information and Registration Rights 8-K -- 06/01/99 2.1
Agreement dated May 26, 1999.
4.03 Amendment to Third Amended and Restated Information and X
Registration Rights Agreement dated March 23, 2000. -- -- -- --
10.01 Registrant's Amended and Restated 1994 Stock Option Plan and S-1 333-62299 08/26/98 10.01
related documents.
10.02 Registrant's Amended 1998 Equity Incentive Plan. -- -- -- -- X
10.03 Registrant's 1998 Employee Stock Purchase Plan and related S-1 333-62299 08/26/98 10.03
documents.
10.04 Registrant's 1998 Directors Stock Option Plan and related S-1 333-62299 08/26/98 10.04
documents.
10.05 Registrant's 401(k) Profit Sharing and Trust Plan. S-1 333-62299 08/26/98 10.05
10.06 Registrant's 1999 Stock Incentive Plan. S-8 333-31190 02/28/00 4.09
10.07 Form of Indemnity Agreement entered into by Registrant with S-1 333-62299 08/26/98 10.06
each of its directors and executive officers.
10.08 Strategic Marketing Alliance Agreement, dated December 17, S-1 333-62299 08/26/98 10.09
1997, between Registrant and American Express Company.**
10.09 Co-Branded XMS Service Marketing Agreement, dated August 11, S-1 333-62299 08/26/98 10.10
1998, between Registrant and American Express Travel Related
Services Company ("TRS").*
10.10 Warrant, dated August 11, 1998, to purchase shares of S-1 333-62299 08/26/98 10.11
Registrant's Series E Preferred Stock issued by Registrant
to TRS.
10.11 Facility Lease, dated October 31, 1997, between Registrant and S-1 333-62299 08/26/98 10.14
CarrAmerica Realty Corporation, as amended on April 10, 1998.
10.12 Third Amendment to Lease, dated February 11, 1999, between S-1 333-74685 03/19/99 10.27
Registrant and CarrAmerica Realty Corporation.
10.13 Sublease, dated February 1, 1999, between Registrant and S-1 333-74685 03/19/99 10.28
Emerging Technology Solutions International (ETSI), Inc.
10.14 Office Lease, dated August 7, 1997, between Seeker Software, S-1 333-81227 06/21/99 10.33
Inc. and Webster Street Partners, Ltd.
10.15 First Amendment to Office Lease, dated November 10, 1998, S-1 333-81227 06/21/99 10.34
between Seeker Software, Inc. and Webster Street Partners, Ltd.
10.16 Facility Sublease Agreement, dated September 23, 1999, between 10-K -- 12/29/99 10.35
Registrant and Cardiac Pacemakers, Inc.
10.17 Security and Loan Agreement, dated September 3, 1997, between S-1 333-62299 08/26/98 10.20
Registrant and Imperial Bank.
57
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------- --------
10.18 Addendum to Security and Loan Agreement, dated September 3, 1997, S-1 333-62299 08/26/98 10.21
between Registrant and Imperial Bank.
10.19 Second Amendment to Loan Documents, dated April 28, 1998, between S-1 333-62299 08/26/98 10.22
Registrant and Imperial Bank.
10.20 Third Amendment to Security and Loan Agreement and Addendum to S-1 333-74685 03/19/99 10.29
Security and Loan Agreement, dated March 15, 1999, between
Registrant and Imperial Bank.
10.21 Letter Agreement, dated April 21, 1994, between Registrant and S-1 333-62299 08/26/98 10.15
Sterling R. Wilson
10.22 Letter Agreement, dated June 20, 1994, between Registrant and S-1 333-62299 08/26/98 10.16
Jon T. Matsuo.
10.23 Letter Agreement, dated June 24, 1998, between Registrant and S-1 333-62299 08/26/98 10.26
Michael Watson.
10.24 Letter Agreement, dated March 2, 1999, between Registrant and S-1 333-74685 03/19/99 10.30
Bruce Chatterley.
10.25 Letter Agreement, dated April 12, 1999, between Registrant and 10-K -- 12/29/99 10.37
Alan Brown.
10.26 Letter Agreement, dated May 26, 1999, between Registrant and S-1 333-81227 06/21/99 10.31
Robert K. Reid.
10.27 Letter Agreement, dated May 26, 1999, between Registrant and S-1 333-81227 06/21/99 10.32
Gary L. Durbin.
10.28 Letter Agreement, dated September 17, 1999, between Registrant 10-K -- 12/29/99 10.36
and Ajay Kela.
10.29 Letter Agreement, dated June 6, 2000, between Registrant and -- -- -- -- X
Stephen A. Yount.
10.30 Letter Agreement, dated December 17, 1999, between Registrant -- -- -- -- X
and Kathleen Urbelis.
10.31 Stock Purchase Agreement, dated February 22, 2000, among the -- -- -- -- X
Company, SAFECO Corporation and Nortel Networks, Inc.
10.32 Joint Marketing and Sales Representative Agreement dated May 17, -- -- -- -- X
2000 between Registrant and ADP, Inc.**
21.01 List of Registrant's subsidiaries. S-1 333-81227 06/21/99 10.32
23.01 Consent of Ernst & Young LLP, Independent Auditors. -- -- -- -- X
24.01 Power of Attorney (see page 59 of this report). -- -- -- -- X
27.01 Financial Data Schedule -- -- -- -- X
* Confidential treatment has been granted with respect to certain portions of
this agreement. Such portions were omitted from the respective filing and
were filed separately with the Securities and Exchange Commission.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
(b) Reports on Form 8-K
. On October 18, 1999, Registrant filed a Current Report on Form 8-K relating
to its announcement on October 5, 1999 of its results of operations for the
three months ended September 30, 1999.
. On February 24, 2000, Registrant filed a Current Report on Form 8-K
relating to its announcement on February 23, 2000 of its agreement to
Nortel Networks Corporation and SAFECO Corporation to form a strategic
alliance and complete certain transactions in connection with such
alliance.
. On May 5, 2000, Registrant filed a Current Report on Form 8-K relating to
its announcement on April 26, 2000 of the resignation of its Chief
Financial Officer.
58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CONCUR TECHNOLOGIES, INC.
December 29, 2000 By: /s/ S. Steven Singh
-----------------------------------------
S. Steven Singh
President, Chief Executive Officer and
Chairman of the Board
Each person whose signature appears below hereby constitutes and appoints S.
Steven Singh and Stephen A. Yount, jointly and severally, his attorney in fact,
each with the full power of substitution, for such person, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this annual report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in
connection therewith, as fully to all intents and purposes as he might do or
could do in person hereby ratifying and confirming all that each of said
attorneys-in-fact and agents, or his substitute, may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
annual report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Name Title Date
---- ----- ----
Principal Executive Officer:
/s/ S. Steven Singh President, Chief Executive Officer December 29, 2000
- -------------------------------------------------- and Chairman of the Board
S. Steven Singh
Principal Financial Officer
and Principal Accounting Officer:
/s/ Stephen A. Yount Chief Financial Officer December 29, 2000
- -------------------------------------------------- and Executive Vice President
Stephen A. Yount of Operations
Directors:
/s/ Michael W. Hilton Director December 29, 2000
- --------------------------------------------------
Michael W. Hilton
/s/ Jeffrey D. Brody Director December 29, 2000
- --------------------------------------------------
Jeffrey D. Brody
/s/ Norman A. Fogelsong Director December 29, 2000
- --------------------------------------------------
Norman A. Fogelsong
/s/ Russell P. Fradin Director December 29, 2000
- --------------------------------------------------
Russell P. Fradin
/s/ Randall H. Talbot Director December 29, 2000
- --------------------------------------------------
Randall H. Talbot
/s/ Michael J. Levinthal Director December 29, 2000
- --------------------------------------------------
Michael J. Levinthal
/s/ James D. Robinson III Director December 29, 2000
- --------------------------------------------------
James D. Robinson III
59
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS ON
FINANCIAL STATEMENT SCHEDULE
We have audited the consolidated financial statements of Concur Technologies,
Inc. as of September 30, 2000 and 1999, and for each of the three years in the
period ended September 30, 2000, and have issued our report thereon dated
November 10, 2000 (included elsewhere in this annual report). Our audits also
included the financial statement schedule listed in Item 14 (a) of this Form 10-
K. This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
November 10, 2000
60
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
September 30, 2000
Column A Column B Column C Column D Column E
-------- ------------- --------------------- ------------ -------------
Additions (1)
---------------------
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts-- Deduction-- End of
Description Period Expenses Describe Describe Period
----------- ------------ ----------- ----------- ----------- -----------
Year ended September 30, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts.............. $870,160 $1,498,303 $ -- $1,394,692 $973,771
Year ended September 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts.............. 619,401 539,803 -- 289,044 870,160
Year ended September 30, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts.............. 170,000 566,304 -- 116,903 619,401
- --------------------
(1) Uncollectible accounts written off, net of recoveries.
61
EXHIBIT INDEX
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------- --------
Agreement and Plan of Reorganization, dated May 26, 1999,
among the Registrant, ConStar Acquisition Corp. and Seeker
2.01 Software, Inc. 8-K -- 06/01/99 2.1
Registrant's Amended and Restated Certificate of Incorporation,
3.01 as filed with Delaware Secretary of State on December 24, 1998. S-8 333-70455 01/12/99 4.03
3.02 Registrant's Bylaws, as adopted on August 19, 1998. S-1 333-62299 08/26/98 3.04
Specimen Stock Certificate representing shares of Registrant's
4.01 Common Stock. S-1 333-62299 08/26/98 4.01
Third Amended and Restated Information and Registration Rights
4.02 Agreement dated May 26, 1999. 8-K -- 06/01/99 2.1
Amendment to Third Amended and Restated Information and
4.03 Registration Rights Agreement dated March 23, 2000. -- -- -- -- X
Registrant's Amended and Restated 1994 Stock Option Plan and
10.01 related documents. S-1 333-62299 08/26/98 10.01
10.02 Registrant's Amended 1998 Equity Incentive Plan. -- -- -- -- X
Registrant's 1998 Employee Stock Purchase Plan and related
10.03 documents. S-1 333-62299 08/26/98 10.03
10.04 Registrant's 1998 Directors Stock Option Plan and related
documents. S-1 333-62299 08/26/98 10.04
10.05 Registrant's 401(k) Profit Sharing and Trust Plan. S-1 333-62299 08/26/98 10.05
10.06 Registrant's 1999 Stock Incentive Plan. S-8 333-31190 02/28/00 4.09
Form of Indemnity Agreement entered into by Registrant with
10.07 each of its directors and executive officers. S-1 333-62299 08/26/98 10.06
Strategic Marketing Alliance Agreement, dated December 17,
10.08 1997, between Registrant and American Express Company.** S-1 333-62299 08/26/98 10.09
Co-Branded XMS Service Marketing Agreement, dated August
11, 1998, between Registrant and American Express Travel
10.09 Related Services Company ("TRS").* S-1 333-62299 08/26/98 10.10
Warrant, dated August 11, 1998, to purchase shares of
Registrant's Series E Preferred Stock issued by Registrant
10.10 to TRS. S-1 333-62299 08/26/98 10.11
Facility Lease, dated October 31, 1997, between Registrant and
10.11 CarrAmerica Realty Corporation, as amended on April 10, 1998. S-1 333-62299 08/26/98 10.14
Third Amendment to Lease, dated February 11, 1999, between
10.12 Registrant and CarrAmerica Realty Corporation. S-1 333-74685 03/19/99 10.27
Sublease, dated February 1, 1999, between Registrant and
10.13 Emerging Technology Solutions International (ETSI), Inc. S-1 333-74685 03/19/99 10.28
Office Lease, dated August 7, 1997, between Seeker Software,
10.14 Inc. and Webster Street Partners, Ltd. S-1 333-81227 06/21/99 10.33
First Amendment to Office Lease, dated November 10, 1998,
10.15 between Seeker Software, Inc. and Webster Street Partners, Ltd. S-1 333-81227 06/21/99 10.34
Facility Sublease Agreement, dated September 23, 1999, between
10.16 Registrant and Cardiac Pacemakers, Inc. 10-K -- 12/29/99 10.35
Security and Loan Agreement, dated September 3, 1997, between
10.17 Registrant and Imperial Bank. S-1 333-62299 08/26/98 10.20
Addendum to Security and Loan Agreement, dated September 3,
10.18 1997, between Registrant and Imperial Bank. S-1 333-62299 08/26/98 10.21
Second Amendment to Loan Documents, dated April 28, 1998,
10.19 between Registrant and Imperial Bank. S-1 333-62299 08/26/98 10.22
Third Amendment to Security and Loan Agreement and
Addendum to Security and Loan Agreement, dated March 15,
10.20 1999, between Registrant and Imperial Bank. S-1 333-74685 03/19/99 10.29
Letter Agreement, dated April 21, 1994, between Registrant and
10.21 Sterling R. Wilson S-1 333-62299 08/26/98 10.15
Letter Agreement, dated June 20, 1994, between Registrant and
10.22 Jon T. Matsuo. S-1 333-62299 08/26/98 10.16
Letter Agreement, dated June 24, 1998, between Registrant and
10.23 Michael Watson. S-1 333-62299 08/26/98 10.26
62
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------- --------
Letter Agreement, dated March 2, 1999, between Registrant and
10.24 Bruce Chatterley. S-1 333-74685 03/19/99 10.30
Letter Agreement, dated April 12, 1999, between Registrant and
10.25 Alan Brown. 10-K -- 12/29/99 10.37
Letter Agreement, dated May 26, 1999, between Registrant and
10.26 Robert K. Reid. S-1 333-81227 06/21/99 10.31
Letter Agreement, dated May 26, 1999, between Registrant and
10.27 Gary L. Durbin. S-1 333-81227 06/21/99 10.32
Letter Agreement, dated September 17, 1999, between Registrant
10.28 and Ajay Kela. 10-K -- 12/29/99 10.36
Letter Agreement, dated June 6, 2000, between Registrant and
10.29 Stephen A. Yount. -- -- -- -- X
Letter Agreement, dated December 17, 1999, between Registrant
10.30 and Kathleen Urbelis. -- -- -- -- X
Stock Purchase Agreement, dated February 22, 2000, among the
10.31 Company, SAFECO Corporation and Nortel Networks, Inc. -- -- -- -- X
Joint Marketing and Sales Representative Agreement dated May
10.32 17, 2000 between Registrant and ADP, Inc.** -- -- -- -- X
21.01 List of Registrant's subsidiaries. S-1 333-81227 06/21/99 10.32
23.01 Consent of Ernst & Young LLP, Independent Auditors. -- -- -- -- X
24.01 Power of Attorney (see page 59 of this report). -- -- -- -- X
27.01 Financial Data Schedule -- -- -- -- X
* Confidential treatment has been granted with respect to certain portions of
this agreement. Such portions were omitted from the respective filing and
were filed separately with the Securities and Exchange Commission.
** Confidential treatment is being sought with respect to certain portions of
this agreement. Such portions have been omitted from this filing and have
been filed separately with the Securities and Exchange Commission.
63