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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, 2001 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 14, 2001, 25,828,980 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 14, 2001 of $1.65 per share) was
approximately $31.3 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, 2001, are
incorporated by reference in Part III hereof.
CONCUR TECHNOLOGIES, INC.
TABLE OF CONTENTS FOR FORM 10-K
PART I ................................................................................................................... 3
Item 1. Business ...................................................................................................... 3
Item 2. Properties .................................................................................................... 18
Item 3. Legal Proceedings. ............................................................................................ 18
Item 4. Submission of Matters to a Vote of Security Holders. .......................................................... 18
PART II .................................................................................................................. 19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ........................................ 19
Item 6. Selected Consolidated Financial Data .......................................................................... 21
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .................................................... 29
Item 8. Financial Statements and Supplementary Data. .................................................................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .......................... 51
PART III ................................................................................................................. 51
Item 10. Directors and Executive Officers of the Registrant ............................................................ 51
Item 11. Executive Compensation ........................................................................................ 51
Item 12. Security Ownership of Certain Beneficial Owners and Management ................................................ 51
Item 13. Certain Relationships and Related Transactions ................................................................ 51
PART IV .................................................................................................................. 51
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............................................. 51
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PART I
ITEM 1. BUSINESS
Special Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements
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. Examples of sections containing forward-looking statements
include the "Strategy" and other sections of Part I, Item 1 entitled "Business"
and the "Business Outlook" and other sections of Part I, Item 7 entitled
"Management's Discussion And Analysis Of Financial Condition And Results Of
Operations." These forward-looking statements involve substantial risks and
uncertainties. Examples of such risks and uncertainties are described under
"Factors That May Affect Results Of Operations And Financial Condition" and
elsewhere in this report, as well as 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 as of the date of this report. We assume no
obligation or duty to update any such forward-looking statements.
Overview
Concur Technologies, Inc. is a leading provider of Web-based 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 products include Concur Expense(TM)
software for automating travel and entertainment expense management, Concur
Payment(TM) software for automating employee requests for vendor payments, and
Concur Time(TM) software for automating time tracking and reporting. These
software products are designed to meet the needs of businesses of all sizes
through both license and application service provider ("ASP") models. We offer
our products on a license basis primarily to large companies that want a
highly-configurable solution that is managed in-house and delivered over a
corporate intranet. We also offer our Concur Expense product on an ASP basis
primarily to mid-size companies that want a configured solution provided on an
outsourced basis over the Internet.
Since 1996, more than 875 companies, including AT&T, Citigroup,
DaimlerChrysler, DuPont, First Union, and Pfizer, have licensed over 2.4 million
employees to use our market-leading software and services to reduce their costs,
increase their productivity, improve compliance with their business policies,
and expand their knowledge base with respect to their internal business
processes. Our strategic relationships include more than 50 world-class
organizations, such as ADP, Inc., American Express, KPMG Consulting, Inc.,
Microsoft Corporation, and Microsoft Great Plains Business Solutions.
Industry Background
In response to competitive conditions worldwide, businesses have sought
cost savings and productivity gains by using software products to automate
enterprise business processes. These products traditionally targeted discrete
functional or department-level business processes, such as sales, customer
support, finance, human resources, and manufacturing processes. While many
companies have deployed these products, historically they have not focused on
business processes that reach a high percentage of employees within a given
enterprise.
Today, companies are seeking similar products for employee-centric business
processes, including travel and entertainment expense management, employee
requests for vendor payments, and time tracking and reporting. For most
companies, these employee-centric business processes are manual, paper-based
processes that require action by many individuals. Such manual, paper-based
processes are time-consuming, inefficient, and costly, because they involve
re-keying of data, manual tracking of forms and approvals, limited data capture
and reporting, and limited ability to track and enforce business expense
policies.
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In addition, the emergence of the Internet and corporate intranets has made
it feasible for companies to deploy Web-based software products that reach all
employees in an enterprise and to connect the enterprise to corporate partners
and service providers. In contrast to traditional client-server applications,
Web-based applications can be deployed rapidly throughout the enterprise on a
cost-effective basis.
We believe a significant market opportunity exists for Web-based software
and services that automate costly and inefficient employee-centric business
processes, such as travel and entertainment expense management, employee
requests for vendor payments, and time tracking and reporting. We estimate the
market potential for the type of Web-based software and services we offer could
exceed $4 billion in one-time license revenue, and $2 billion annually in
recurring services revenue, based on data available from Dun & Bradstreet
Corporation as of November 2001. We also believe that customers using our
software and services can realize significant operating cost savings through
reduced processing costs and greater efficiency through increased business
intelligence. We think 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
products are designed to deploy rapidly, scale enterprise-wide, and integrate
easily with an organization's existing IT infrastructure. For example, our large
market customers have deployed Concur Expense under our license model to as many
as 25,000 employees in less than 90 days, and to as many as 212,000 employees
within a single enterprise. Our middle market customers have deployed Concur
Expense under our ASP model in as little as 14 days. Our customers also have
reported that their employees readily adopt our products because they are easy
to use, significantly reduce unproductive time, and shorten reimbursement,
fulfillment, and processing cycles.
Our Strategy
Our objective is to extend our leadership position in Corporate Expense
Management software and services. Key elements of our strategy include the
following:
Enhance Product Functionality, Scalability 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. We believe that our continued focus on
product innovation and enhancement will allow us to extend our leadership
position in Corporate Expense Management software and services.
Increase Customer Satisfaction with Our Products and Services. We expect to
continue to interact with our customers in a number of ways, such as surveys,
users' group meetings, and executive contact, to learn how we can deliver better
products and services to increase our customers' satisfaction.
Expand Our Middle Market Presence. We intend to expand our presence in the
market for mid-size companies by expanding our indirect sales channel and
enhancing our offering of software products and services on an ASP basis to this
market segment. Our ASP solutions are offered on a per-user subscription-pricing
basis to companies seeking to outsource Corporate Expense Management
applications. These solutions are particularly attractive to companies with 100
to 2,000 employees, which typically have limited IT staff and budget resources.
Our ASP solutions are currently available with Concur Expense; we expect to add
Concur Payment at a later date.
Expand Our ASP Solutions to the Large Market. We expect to continue our
efforts to expand our ASP solutions to large companies through both our direct
and indirect sales channels. This will enable large companies to outsource
Corporate Expense Management applications and still configure them to meet their
needs in much the same way they would have been able to configure them if they
had licensed and installed them on their intranet servers.
Increase Operational Excellence in Our ASP Hosting and Delivery. We plan to
decrease the employee hours and computer equipment necessary to deploy new
customers and support existing customers of our ASP solutions. We expect to
accomplish this through a combination of product and process improvements.
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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 products and services. 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.
Expand International Presence. We believe that additional demand exists for
our products outside of the United States. We intend to continue our investment
in international sales and marketing through both direct and indirect channels
in an effort to increase sales of our products worldwide. We also plan to
increase our localization of 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.
Our strategy involves substantial risk and 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.
Our Corporate Expense Management Solutions
We are a leading provider of Corporate Expense Management software and
services, based on a combination of factors, including the number of customers
we have deployed, the features our products provide, the flexibility of our
delivery models, and the rate of return on investment our products provide. Our
software products include:
. Concur Expense software for travel and entertainment expense
management;
. Concur Payment software for employee requests for vendor payments; and
. Concur Time software for time tracking for billing and allocation
purposes.
We offer our software products to customers through our license and ASP
delivery models. Under our license model, we offer our products primarily to
large market companies with more than 2,000 employees that want a
highly-configurable solution that is managed in-house and delivered over a
corporate intranet. We offer licenses for our products either on an
authorized-user basis, under which a customer is licensed to use our products
based on the number of user-licenses purchased, or on an enterprise basis, under
which a customer is licensed to use our products throughout its enterprise in
exchange for license fees based on the number of employees in the enterprise.
The typical order size under our license model for products and related services
ranges from $250,000 to $1.5 million, with some transactions exceeding $2.0
million.
Under our ASP model, we offer Concur Expense as a service over the Internet
primarily to middle market companies with 100 to 2,000 employees that want a
configured solution provided on an outsourced basis. We offer our ASP solutions
on a per-user subscription basis. The typical monthly fee for our ASP solutions
ranges from approximately $500 to $3,000 per month, depending on the total
number of users, with some monthly fees exceeding $15,000 per month.
Our software products benefit a number of groups within an enterprise,
including corporate management, IT professionals, and employees. For corporate
management, our software products feature 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
increase productivity for these business functions. Also, our products provide
reporting capabilities that provide 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 products. 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.
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Concur Expense
Concur Expense automates the travel and entertainment expense management
process, including expense report preparation, routing and 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 pre-populate a user's expense report with transaction data
covering various information required for the expense report, including
transaction date, type, vendor, location, method of payment, amount, and
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.
Report Routing and Approval. Concur Expense allows each customer to
determine how expense reports should be processed, whether by routing and
submission to a manager for approval before processing, or by routing to the
accounting department for immediate review and payment. Once the report is
submitted, the approver receives an e-mail message containing a 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 vendor payments;
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. Improved efficiency of the accounts paybable 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 time and
potential 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.
. Improved control of payment timing. Concur Payment automates the
manual, paper-based process, minimizing the number of steps and people
involved. This results in greater control over the timing of payment
to vendors, which in turn improves supplier relationships and
increases the capability to take advantage of discounted payment
terms.
. 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
In some organizations, particularly those in the services sector, employee
time capture is closely tied to expense reporting. For those customers, Concur
Time allows for the tracking of time for billing and allocation purposes. In
many of these businesses today, the time tracking process is fraught with
inefficiencies, such as lengthy turn-around times and procedures, errors and
inefficiencies, and lack of real-time data. 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. Concur Time allows all
timesheets to arrive in the back office electronically and be
processed, routed, and approved online.
. Improve management of project costs. Companies can access and analyze
collected information in order to gain a clearer understanding of the
true costs of their projects. This data can, in turn, be used to
adjust such matters as staffing levels and billing rates.
. Increase employee productivity. By automating this process, companies
can increase the productivity of their most valuable resource - their
employees. Using Concur Time, employees spend less time creating
timesheets and have more time to focus on their core responsibilities.
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.
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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, as well as
help customers develop a strategy for enterprise-wide deployment of our
applications.
Customer Support. We provide product upgrades and customer support through
our "CustomerOne" 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. Most all customers subscribe for the first year of the CustomerOne program
at the time they license an application; thereafter, support is typically
renewed on an annual basis.
Training. We offer a variety of training programs for our products. These
programs are tailored to particular user groups, such as end users, help desk
personnel, and trainers. Training classes are offered at customer sites and at
our headquarters in Redmond, Washington. We also provide training classes for
third-party service providers, such as systems integrators.
Customers
We have more than 875 customers that have licensed over 2.4 million
employees to use our software and services. Our customers span all major
industries, range in size from under 100 employees to over 220,000 employees,
and many are multi-national corporations. Our customer list includes Fortune 500
organizations such as American Express, AT&T, Citigroup, DaimlerChrysler,
DuPont, First Union, and Pfizer and middle market organizations such as Fender
Musical Instruments, Quantum Corporation, and YMCA. No customer accounted for
10% or more of our total revenues in fiscal 2001, 2000, or 1999.
Sales
We offer our market-leading software and services to large market companies
with more than 2,000 employees and to middle market companies with 100 to 2,000
employees. In the large market, we sell our products predominantly through our
direct sales organization, with field sales professionals located in
metropolitan areas throughout the United States and the United Kingdom.
Field-based sales engineers provide technical sales support. Direct
telemarketing representatives based at our headquarters in Redmond, Washington
support the field sales force through lead generation and lead tracking
activities. We also have a number of marketing referral partners that provide
our large-market sales force with prospects.
In the large market, our sales effort involves contact with multiple
decision makers, frequently including the prospective customer's chief financial
officer, vice president of finance, controller, and corporate travel manager.
While the average sales cycle varies substantially, for initial sales it has
generally ranged from six 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."
In the middle market, our distribution strategy includes both direct and
indirect channels. Our middle market sales organization sells our products
primarily to companies with between 1,000 and 2,000 employees, while also
working with our strategic partners to sell our products through their sales
forces primarily to companies with between 100 and 1,000 employees. We have
developed several strategic relationships focused on middle market sales
opportunities. In May 2000, we entered into a strategic relationship with ADP,
Inc., a subsidiary of Automatic Data Processing, Inc., a global payroll
solutions and computing services provider. Sales through our ADP channel
represented a large component of our overall sales of ASP solutions in the
middle market during our fiscal 2001. In February 2001, we entered into a
strategic relationship with Microsoft Great Plains Business Solutions, a leading
provider of business management solutions, under which Microsoft Great Plains
Business Solutions is authorized to resell and jointly market our ASP solutions
through its global value-added reseller network. Microsoft Great Plains Business
Solutions began sales of our ASP solutions in the fourth quarter of fiscal 2001,
one full quarter ahead of plan. While we believe that our relationships with our
strategic partners are good, any inability to maintain our strategic
relationships or to enter into additional strategic relationships may harm our
business. See "Factors That May Affect Results Of Operations And Financial
Condition--It Is Important For Us To Continue To Develop And Maintain Strategic
Relationships."
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In the middle market, our sales effort frequently includes contact with the
prospective customer's chief financial officer, vice president of finance, or
controller. While the average sales cycle varies substantially from customer to
customer, for initial sales it has generally ranged from three to six months,
with some transactions exceeding twelve months. See "Factors That May Affect
Results Of Operations And Financial Condition--Our Lengthy Sales Cycle Could
Adversely Affect Our Revenue Growth."
Substantially all of our revenues have been derived from the sales of
Concur Expense and related services. Revenues from Concur Expense and related
services represented approximately 94% of our total revenues in fiscal 2001,
compared to approximately 87% and 83% of total revenues in 2000 and 1999,
respectively. We anticipate that revenues from Concur Expense and related
services will continue to represent a substantial portion of our total revenues
in fiscal 2002. See "Factors That May Affect Results Of Operations And Financial
Condition--We Rely Heavily On Sales Of One Product."
Marketing
Our marketing programs are designed to promote the Concur brand widely in
our markets and to extend our product leadership position. We are focused on
extending our leadership in the travel and entertainment expense management
solutions and employee requested vendor payment solutions. We are also focused
on establishing ourselves as a leader in time tracking and reporting solutions.
We target our marketing efforts towards accounting, finance, and travel
executives.
We engage in a variety of marketing activities, including co-advertising
and co-marketing strategies designed to leverage existing strategic
relationships, Web site marketing, public relations campaigns, and leveraging
close relationships with recognized industry analysts. We participate actively
in technology-related conferences and demonstrate our products at trade shows
targeted at accounting, finance, and travel executives.
We believe that demand is increasing, and will continue to increase, for
Corporate Expense Management software and services 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 software and services, which could harm our business. See
"Factors That May Affect Results Of Operations And Financial Condition--We Must
Attract And Retain Qualified Personnel."
Product Development
We have been an innovator and leader in developing Corporate Expense
Management software and services. 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 software and services in an ASP model, as well as pioneered automated
solutions for non-purchase order invoice tracking and approval.
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 engineering organization will be important for the success of new
product offerings. As of September 30, 2001, we employed 81 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 further understand market needs and
requirements. When required, we also use independent development firms or
contractors 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.
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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,
Web-based software products which run on multiple platforms, including
Microsoft(R) Windows, Unix(R), and Macintosh(R). These products currently work
with enterprise class databases including Microsoft(R) SQL Server(R) and
Oracle(R).
For fiscal 2001, 2000, and 1999, we incurred gross research and
development expenditures of $16.4 million, $31.2 million, and $19.4 million,
respectively. The reduction in such expenditures in fiscal 2001, compared to
fiscal 2000, is directly attributable to our decision to focus on Corporate
Expense Management software and services, resulting in our discontinuation of
Concur Procurement in June 2000 and the sale of our Concur Human Resources
product line in March 2001. In fiscal 2002, we expect to increase headcount and
related resources in our software engineering organization as we continue to
focus on product innovation and enhancement to enable us to extend our
leadership position in Corporate Expense Management software and services. We
expect total research and development expenditures to decrease moderately as we
continue our company-wide efforts to reduce costs. 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
harm our business. See "Factors That May Affect Results Of Operations And
Financial Condition--We May Not Successfully Develop Or Introduce New Products
Or Enhancements To Existing Products" and "--Our ASP Product Offerings May
Fail."
Competition
The market for our software and services 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 vendors of Corporate Expense
Management software and services, 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, and
International Business Machines Corporation. In addition, several major ERP
vendors such as Oracle Corporation, PeopleSoft, Inc., JD Edwards, and SAP AG
have developed or created partnerships to develop Corporate Expense Management
software and services. These companies 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 software and services are functionality,
interoperability with existing IT infrastructure, price, and an installed base
of referenceable customers. With respect to functionality, we believe that we
offer products with generally more features than other competing products, and
that we have often been the first to offer new and innovative features, such as
pre-population of expense reports based on credit card information. We believe
we were one of the first providers of Corporate Expense Management software and
services, and the first company to offer these products in an ASP model. In
addition, our products 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 our product
offerings are competitively priced when compared to our competitors' products.
We believe that we have the most widely deployed Corporate Expense Management
software and services in the industry today, providing a significant installed
base of referenceable customers.
10
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.
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 change in 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 Continue To Develop 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 third parties 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, over the
past several years, we have made numerous recent changes in our product names.
Although we have 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 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 acquisitions, who have worked for
independent software vendors or other companies developing products similar to
those offered by us. Such vendors or companies 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."
11
Employees
As of September 30, 2001, we had approximately 351 full-time employees,
of whom 21 were based in the United Kingdom. There were 81 in research and
development, 88 in sales and marketing, 84 in consulting, training, and
technical support, 50 in ASP operations, and 48 in administration and finance.
No 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. 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 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. In evaluating our
business, 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 incorporated in 1993 and began licensing our software products in
1995. Since 1993, our business model and operating plan have evolved
significantly and remain unproven. This limited operating history and unproven
business model make our business operations and prospects difficult to evaluate.
Investors in our securities should consider all the risks and uncertainties that
are commonly encountered by companies in their early stages of business
operations, particularly companies, such as ours, that are in new and rapidly
evolving industries.
Since 1993, we have spent substantial financial and other resources to
develop our software products and services and otherwise fund our operations,
and we expect to continue to do so to fund our investments in research and
development and our other business operations. To date, we have incurred net
losses in each quarter of operation and have not achieved profitability. We
incurred net losses totaling $35.1 million, $75.7 million, and $46.5 million in
fiscal 2001, 2000, and 1999, respectively. As of September 30, 2001, we had an
accumulated deficit of $200.5 million. We expect to continue to incur net losses
in the immediate future and there can be no assurance that we will ever achieve
profitability.
We Rely Heavily On Sales Of One Product.
Since 1997, we have generated substantially all of our revenues from
Concur Expense products and services. We believe that sales of Concur Expense
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 and other applications, and our business
could be harmed if we fail to deliver the enhancements that customers want with
respect to our current and future products. 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 sales of such products and
services.
12
We Depend On Services Revenues; Services Revenues And Services Revenue Margins
May Decline.
Our services revenues represented 56.4% of total revenues for fiscal
2001. We anticipate that services revenues will continue to represent a
significant percentage of total revenues. The level of services revenues depends
largely upon demand for our consulting services and ongoing renewals of customer
support contracts by our installed customer base. Our consulting revenues could
decline if third-party organizations such as systems integrators compete with us
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
services 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. Due to the increasing costs
of operating a professional services organization, we may not be able to
maintain profitability in this part of our business.
We Depend On Software License Revenues, Which Makes Our Operating Results
Difficult To Predict.
Our software license revenues represented 32% of total revenues for
fiscal 2001. Our licensed software products are typically shipped when orders
are received, so license backlog at the beginning of any quarter typically
represents only a small portion of the quarter's expected license revenues. This
makes license revenues in any quarter difficult to forecast because they are
determined by 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."
Our ASP Product Offerings May Fail.
In fiscal 2000, we began to offer our software products under an
Internet-based ASP model to complement our traditional licensing of these
products. We offer our ASP solutions 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 limited experience selling products or services under an ASP model, and
our efforts to develop this ASP business 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 they
may fail to perform those services adequately. If any service provider delivers
inadequate support or service to our customers, our reputation could be harmed.
We also use resellers and strategic referral partners to market our ASP
offerings. We have limited experience utilizing resellers and strategic referral
partners 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, which is
likely to reduce our revenue.
Security And Other Concerns May Discourage Customers From Purchasing Under Our
ASP Model.
If customers determine that our ASP offerings are not scalable, do not
provide adequate security for the dissemination of information over the
Internet, or are 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.
13
We Are At Risk Of Securities Class Action Litigation.
In July 2001, we and several of our current and former officers were
named as defendants in a purported securities class-action lawsuit filed in the
United States District Court for the Southern District of New York. The
complaint generally alleges claims against the underwriters of our initial
public offering in December 1998, our company, and several of our current and
former executives, based on alleged errors and omissions concerning underwriting
terms in the prospectus for our initial public offering. The plaintiffs in this
lawsuit seek damages in an unspecified amount, which could be substantial. We
believe this lawsuit is without merit and intend to defend ourselves vigorously.
Any liability by us could harm our results of operations and financial condition
and, even if we defend ourselves successfully, there is a risk that management
distraction in dealing with this lawsuit could harm our results.
In addition, securities class action litigation has often been brought
against companies that experience periods of volatility in the market prices of
their securities, as we have experienced from time to time. We may in the future
be the target of similar litigation, which could result in substantial costs and
divert management's attention and resources.
We Have Been Public For 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 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 "--We Depend On Software License Revenues, Which 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, and from providers of enterprise resource
planning software that have developed, or may be developing, travel and
entertainment expense management software. Many of our competitors have longer
operating histories, greater financial, technical, marketing, and other
resources, greater name recognition, and a larger installed base of customers
than we do. Some of our competitors, particularly major enterprise resource
planning 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.
14
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, including such conditions as the general
economic slowdown, reduced investment in information technology by customers and
prospective customers, and reduced business travel. If we are unable to manage
changing business conditions 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. 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.
Presently, we believe that our existing cash, cash equivalents, and
marketable securities will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months.
However, 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 any new products and services, 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 profitability, or if
we require working capital beyond currently expected needs, we may be required
to seek additional financing or curtail operations. Economic and financial
market conditions may discourage potential investors. 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. Our sales
cycle, which is the time between initial contact with a potential customer and
the ultimate sale, is often lengthy and unpredictable. As a result , we have
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 "--We
Depend On Software License Revenues, Which Makes Our Operating Results Difficult
to Predict."
We Depend Significantly On Direct Sales.
We sell our licensed 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. If we were unable to
hire or retain competent sales personnel our business would suffer. 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 and strategic referral arrangements. 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 and strategic referral partners to market our ASP
products in particular. We have limited experience utilizing resellers and
referral partners to date. The failure to expand indirect channels may place us
at a competitive disadvantage.
15
It Is Important For Us To Continue To Develop 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 or reseller 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.
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.
We rely on software licensed 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 licenses could result in delays in the sale of our products and
services until equivalent technology is either developed by us, or, if
available, is identified, licensed, and integrated, which could harm our
business.
We May Not Successfully Develop Or Introduce New Products Or 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, 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.
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. We
also compete for personnel with other software 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.
16
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, or 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 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 difficulties and
special costs, including:
. costs of customizing products for foreign countries;
. laws and business practices favoring local competitors;
. 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 represented
approximately $4.4 million, $3.3 million, and $932,000 in fiscal 2001, 2000, and
1999, respectively. 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 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.
17
Our Revenue Recognition Policy May Change And Affect Our Earnings.
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 ASP Product Offerings May Fail."
ITEM 2. PROPERTIES
Our principal administrative, sales, marketing, and research and
development facility is located in Redmond, Washington and consists of
approximately 81,000 square feet of office space held under leases which expire
on May 31, 2005. As of September 30, 2001, we also leased sales offices in
Atlanta, Boston, Chicago, Dallas, London, Los Angeles, Minneapolis, New York,
Philadelphia, Phoenix, and Raleigh.
ITEM 3. LEGAL PROCEEDINGS
In July 2001, we and several of our current and former officers were
named as defendants in a purported securities class-action lawsuit filed in the
United States District Court for the Southern District of New York. The
complaint generally alleges claims against the underwriters of our initial
public offering in December 1998, our company, and several of our current and
former executives, based on alleged errors and omissions concerning underwriting
terms in the prospectus for our initial public offering. The plaintiffs in this
lawsuit seek damages in an unspecified amount, which could be substantial. We
believe this lawsuit is without merit and intend to defend ourselves vigorously.
Any liability of ours resulting from this lawsuit could harm our results of
operations and financial condition and, even if we defend ourselves
successfully, there is a risk that management distraction in dealing with this
lawsuit could harm our results.
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 business, operating results, or financial condition.
See also "Factors That May Affect Results Of Operations And Financial
Condition" above for a detailed description of the risks and uncertainties
associated with the legal proceedings described in this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our stockholders, through the
solicitation of proxies or otherwise, during the fourth quarter of fiscal year
2001.
18
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 for fiscal 2000 and 2001, as reported on the
Nasdaq National Market:
High Low
---- ---
Fiscal year ended September 30, 2000:
First Quarter ............................................................... $34.625 $10.125
Second Quarter .............................................................. $32.000 $15.063
Third Quarter ............................................................... $17.438 $ 4.125
Fourth Quarter .............................................................. $ 6.875 $ 2.156
Fiscal year ended September 30, 2001:
First Quarter ............................................................... $ 3.063 $ 1.030
Second Quarter .............................................................. $ 1.719 $ 0.313
Third Quarter ............................................................... $ 1.490 $ 0.328
Fourth Quarter .............................................................. $ 1.540 $ 0.670
On September 30, 2001, 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 any 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, 2001. 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
53 investors June 1, 1999 Common stock 3,419,929 -- Exchange for
common stock of
Seeker Software,
Inc.(1)
Officers, October 1, 1998 to Exercise of options to 116,453 $ 18,033 Cash(2)
directors, January 12, 1999 purchase common stock
employees and other
eligible
participants
1 investor December 13, 1999 Exercise of warrant to 93,785 -- Net exercise
purchase common stock
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
______________
* As part of our re-incorporation 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.
19
(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.
20
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,
------------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands, except per share data)
Consolidated Statement of Operations
- ------------------------------------
Revenues, net:
License.......................................... $ 12,489 $ 14,852 $ 24,002 $ 13,176 $ 6,504
ASP.............................................. 4,623 926 -- -- --
Services......................................... 22,407 21,146 13,011 6,952 2,499
----------- --------- -------- ------- -------
Gross revenues................................. 39,519 36,924 37,013 20,128 9,003
Sales returns & allowances....................... 215 (2,900) -- -- --
----------- --------- -------- ------- -------
Net revenues................................... 39,734 34,024 37,013 20,128 9,003
Cost of revenues:
License.......................................... 584 1,342 1,184 558 394
ASP.............................................. 8,933 2,830 -- -- --
Services......................................... 14,398 22,005 16,653 8,063 2,721
----------- --------- -------- ------- -------
Total cost of revenues.............................. 23,915 26,177 17,837 8,621 3,115
----------- --------- -------- ------- -------
Gross profit........................................ 15,819 7,847 19,176 11,507 5,888
Operating expenses:
Sales and marketing.............................. 24,622 38,556 28,993 16,070 6,692
Research and development......................... 16,449 31,212 19,371 10,276 4,479
General and administrative....................... 10,729 14,795 10,385 5,919 2,307
Merger, acquisition & restructuring charges...... 266 2,167 8,859 5,203 --
----------- --------- -------- ------- -------
Total operating expenses....................... 52,066 86,730 67,608 37,468 13,478
----------- --------- -------- ------- -------
Loss from operations............................. (36,247) (78,883) (48,432) (25,961) (7,590)
Other income (expense), net...................... 1,164 3,228 1,956 (263) 31
----------- --------- -------- ------- -------
Net loss............................................ $ (35,083) $ (75,655) $ (46,476) $(26,224) $ (7,559)
=========== ========= ========= ======== ========
Basic and diluted net loss per share................ $ (1.37) $ (3.15) $ (2.75) $ (8.18) $ (2.50)
=========== ========= ========= ======== ========
Shares used in calculation of basic and diluted
net loss per share.................................. 25,574 23,981 16,883 3,207 3,025
=========== ========= ========= ======== ========
September 30,
-------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
(in thousands)
Consolidated Balance Sheet Data
- -------------------------------
Cash, cash equivalents and marketable securities ...... $ 26,715 $ 56,242 $108,722 $ 17,058 $ 7,721
Working capital ....................................... 15,746 47,451 90,626 8,450 7,074
Total assets .......................................... 40,983 81,668 128,828 28,622 14,180
Long-term obligations, net of current portion ......... 7 1,886 6,326 8,605 3,687
Redeemable convertible preferred stock and warrants ... -- -- -- 37,956 17,345
Total stockholders' equity (deficit) .................. $ 22,777 $ 57,013 $ 93,774 $(33,551) $(12,503)
21
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 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. These
forward-looking statements involve substantial risks and uncertainties. Examples
of such risks and uncertainties are described in this report under "Factors That
May Affect Results Of Operations And Financial Condition" and elsewhere in this
report, as well as 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 as of the date of this report. We assume no obligation or duty
to update any such forward-looking statements.
Overview
Concur Technologies, Inc. is a leading provider of Web-based 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) software for automating travel and entertainment expense management,
Concur Payment(TM) software for automating employee requests for vendor
payments, and Concur Time(TM) software for automating time tracking and
reporting. These software products are designed to meet the needs of businesses
of all sizes through both license and application service provider ("ASP")
models. We offer our products on a license basis primarily to large companies
that want a highly-configurable solution that is managed in-house and delivered
over a corporate intranet. We also offer Concur Expense as a service on an ASP
delivery basis primarily to mid-size companies that want a configured solution
provided on an outsourced basis over the Internet.
Since 1996, more than 875 companies, including AT&T, Citigroup,
DaimlerChrysler, DuPont, First Union, and Pfizer, have licensed over 2.4 million
employees to use our market-leading software and services to reduce their costs,
increase their productivity, improve compliance with their business policies,
and expand their knowledge base with respect to their internal business
processes. Our strategic relationships include more than 50 world-class
organizations such as ADP, Inc., American Express, KPMG Consulting, Inc.,
Microsoft Corporation, and Microsoft Great Plains Business Solutions.
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 it through a combination of retail
channels and direct marketing, utilizing a small sales force and no consulting
or implementation staff. Over time, businesses began seeking automation of
enterprise-wide travel and entertainment expense management processes, including
back-office processing and integration to financial systems. In July 1996, in
response to this demand, we significantly expanded our product development
efforts and released Concur Expense, a client-server based Corporate Expense
Management software product. In March 1998, we released a Web-based version of
Concur Expense, which takes advantage of the Internet and corporate intranets to
reach all employees in an enterprise. Our Web-based version of Concur Expense
has accounted for a majority of Concur Expense license revenues since its
release.
On June 30, 1998, we acquired 7Software, Inc., a privately held software
company and the developer of Concur Procurement. The transaction was accounted
for as a purchase. 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.
22
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. Our 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. 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 on an ASP delivery basis,
principally to mid-size companies. In December 1999, we introduced an additional
ASP offering for large companies that want a configured solution offered on an
outsourced basis. Our ASP solutions require limited IT infrastructure and
limited IT support on the part of the customer.
On June 8, 2000, we announced a new operating plan, under which we
discontinued Concur Procurement, discontinued our planned integration of Concur
Human Resources with our other products, and announced a workforce reduction of
68 employees to bring our cost structure in line with our new operating plan.
The primary objective of this operating plan was to focus on providing Corporate
Expense Management software and services and generating positive cash flow and
profitable growth.
On March 30, 2001, we sold our Concur Human Resources product line to MBH
Solutions, Inc. The transaction consisted of the sale of certain assets to, and
assumption of certain obligations by, MBH Solutions, Inc. in exchange for cash
consideration to be paid in installments over time. The transaction resulted in
a workforce reduction of 42 employees, the majority of whom continued employment
with MBH Solutions, Inc. Our primary objective in this sale was to further our
focus on the Corporate Expense Management market.
Results of Operations
Revenues
Years Ended September 30,
(dollars in thousands) 2001 Change 2000 Change 1999
---- ------ ---- ------ ----
License $ 12,489 (15.9)% $ 14,852 (38.1)% $ 24,002
ASP 4,623 399.2% 926 -- --
Services 22,407 6.0% 21,146 62.5% 13,011
-------- -------- --------
Gross revenues 39,519 7.0% 36,924 (0.2)% 37,013
Sales returns & allowances 215 107.4% (2,900) -- --
Net revenues $ 39,734 16.8% $ 34,024 (8.1)% $ 37,013
======== ======== ========
We market our software and services through our direct sales organization
in the United States and the United Kingdom, and through strategic referral and
reseller arrangements in the United States and in international markets.
Revenues from licenses and services to customers outside the United States were
$4.4 million, $3.3 million, and $932,000 in fiscal 2001, 2000, and 1999,
respectively. Historically, as a result of the relatively small amount of our
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 fiscal 2001, 2000, or 1999.
License Revenues. License revenues consist of software license fees. The
decrease in license revenues in fiscal 2001 from fiscal 2000 reflects the
discontinuation of Concur Procurement products and the sale of the Concur Human
Resources product line. We recorded the sales returns and allowances reserve in
fiscal 2000 because of the discontinuation of Concur Procurement, and to cover
any product returns resulting from that decision. A small portion of that
reserve was reversed as a result of a change in estimate during the quarter
ended March 2001. The decrease in license revenues in fiscal 2000, compared to
fiscal 1999, was the result of the discontinuation of the Concur Procurement
products, as well as an emphasis earlier in fiscal 2000 on the marketing and
selling of products other than Concur Expense, which caused sales of Concur
Expense to decline.
23
ASP Revenues. ASP revenues consist of monthly usage fees as well as the
amortization of setup and consulting fees. Setup fees are collected at the time
of sale but revenue recognition is deferred and amortized over the expected life
of the relationship. We have experienced a significant increase in demand for
our ASP solutions since launching these product offerings during the first
quarter of fiscal 2000, which was driven in part by the introduction of sales
through our strategic relationships. In May 2000, we entered into a strategic
relationship with ADP, Inc., under which ADP markets our ASP solutions directly
and indirectly to its existing customers and to potential new customers. Sales
through this channel commenced in the September quarter of fiscal 2000. In
addition, we signed a reseller agreement with Microsoft Great Plains Business
Solutions in June 2001 under which Microsoft Great Plains Business Solutions
agreed to resell and jointly market our ASP solutions to their existing
customers and to potential new customers through its value-added reseller
network. The first sales of product through this channel occurred late in the
September quarter of fiscal 2001. The majority of new ASP sales during the
second half of fiscal 2001 occurred through our indirect channels; nearly all of
which were through ADP. We expect ASP revenues to continue to grow during fiscal
2002 as a result of the continued development and expansion of our strategic
relationships, and to a lesser extent, as we increase our direct sales focus on
companies with 1,000 to 2,000 employees.
Services Revenues. Services revenues consist of customer support fees,
consulting services fees, and training fees. Customer support fees are typically
billed annually and amortized over the period of the contract. The moderate
increase in services revenues in fiscal 2001, compared to fiscal 2000, is
primarily related to an increase in annual customer support contracts entered
into in the current and prior periods, which is a direct result of a growing
installed customer base, offset only in part by a reduction in such contracts as
a result of the discontinuation of Concur Procurement and the sale of the Concur
Human Resources product line. The increase in services revenues in fiscal 2000,
compared to fiscal 1999, was primarily achieved through increased consulting
services revenue associated with sales, upgrades, and enhancements of Concur
Expense, and to a lesser degree, license sales of Concur Human Resources and
related consulting services. We expect consulting services revenues to fluctuate
based on new sales of our products and the related services provided, as well as
the demand for upgrades and enhancements to Concur Expense.
Revenue Recognition. Revenue resulting from license fees is recognized when
persuasive evidence of an arrangement exists, delivery of the product has
occurred, the fee is fixed or determinable, and collectability is probable. If
the fee due from the customer is not fixed or determinable, revenue is
recognized as payments become due from the customer; however, if collectability
is not considered probable, revenue is recognized when the fee is collected.
Revenues resulting from ASP services, which consist primarily of initiation and
usage fees, are recognized over the lives of the related agreements, which are
typically two years, and as services are provided to end users. Customer
advances and billed amounts due from customers in excess of recognizable revenue
are recorded as deferred revenue. 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 we assume the related business
risks such as performance and credit risk. Such business risks are evidenced by,
among other things, instances in which we are the primary obligor in the
arrangement or when we establish the pricing of the arrangement. Otherwise,
these revenues are recorded on a net basis. Services revenues earned from
customers that license our 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
receive upgrades. Revenue from customer support agreements is recognized over
the life of the related agreement, which is typically one year.
24
Cost of Revenues
Years Ended September 30,
(dollars in thousands) 2001 Change 2000 Change 1999
---- ------ ---- ------ ----
Cost of license revenues $ 584 (56.5)% $ 1,342 13.3% $ 1,184
Percentage of gross license revenues 4.7% 9.0% 4.9%
Cost of ASP revenues $ 8,933 215.7% $ 2,830 -- --
Percentage of ASP revenues 193.2% 305.6% --
Cost of services revenues $ 14,398 (34.6)% $ 22,005 32.1% $ 16,653
Percentage of services revenues 64.3% 104.1% 128.0%
Total cost of revenues $ 23,915 (8.6)% $ 26,177 46.8% $ 17,837
Percentage of gross revenues 60.5% 70.9% 48.2%
Cost of License Revenues. Cost of license revenues consists mainly of
royalties for sub-licensing third-party software, and, to a lesser extent, the
costs of manuals, media, and duplication for our licensed products. The decrease
in cost of license revenues for fiscal 2001, compared to fiscal 2000, was due in
part to the amortization of purchased technology which was completed in the
third quarter of fiscal 2000. In addition, the decrease was due to a decline in
the volume of manuals, media, and duplication expenditures, as well as a
decrease in royalties paid to third parties for sub-licensed software. The
slight increase in cost of license revenues in fiscal 2000, compared to fiscal
1999, was primarily due to an increase in royalties paid for sub-licensing
third-party software. We expect that the cost of license revenues will continue
to fluctuate modestly in relation to changes in the overall demand for our
license products as well as the cost for sub-licensing third-party software.
Cost of ASP Revenues. Cost of ASP revenues consists mainly of salaries,
server costs and storage fees, telecommunication charges, strategic referral and
reseller fees, and amortization of deferred set-up costs. The cost of ASP
revenues for fiscal 2001 increased significantly from fiscal 2000, primarily due
to our investment in infrastructure to accommodate the current and near-term
growth of our ASP business and, to a lesser extent, the payment of reseller fees
associated with the increase in ASP sales generated through our strategic
partners. We expect the cost of ASP revenues to grow during fiscal 2002
primarily due to the payment of reseller fees relating to our expected growth in
ASP sales through strategic partners. However, we expect the growth in ASP
revenues to exceed the growth in cost of ASP revenues during fiscal 2002,
resulting in a positive ASP gross margin by the end of the third quarter of
fiscal 2002.
Cost of Services Revenues. Cost of services revenues includes primarily the
salaries, non-reimbursable expenses, and other operating costs of employees who
provide customer support, consulting services, and product training. The
decrease in cost of services revenues for fiscal 2001, as compared to fiscal
2000, was primarily due to continued improvements in our solutions which lead to
an overall reduction in our costs to deliver such services, as well as a
decrease in professional services personnel relating to our restructuring and
discontinuation of Concur Procurement, the sale of our Concur Human Resources
product line, and our company-wide efforts to reduce costs. The increase in cost
of services revenues in fiscal 2000 from fiscal 1999 primarily was due to
increases in professional service personnel to manage and support our growing
customer base, across a suite of products. Cost of services revenues as a
percentage of services revenues may vary between periods due to changes in the
level and mix of services provided.
Operating Expenses
Years Ended September 30,
(dollars in thousands) 2001 Change 2000 Change 1999
---- ------ ---- ------ ----
Sales and marketing $ 24,622 (36.1%) $ 38,556 33.0% $ 28,993
Percentage of gross revenues 62.3% 104.4% 78.3%
Research and development $ 16,449 (47.3%) $ 31,212 61.1% $ 19,371
Percentage of gross revenues 41.6% 84.5% 52.3%
General and administrative $ 10,729 (27.5%) $ 14,795 42.5% $ 10,385
Percentage of gross revenues 27.1% 40.1% 28.1%
Merger, acquisition & restructuring charges $ 266 (87.7%) $ 2,167 (75.5%) $ 8,859
Percentage of gross revenues 0.7% 5.9% 23.9%
Total operating expenses $ 52,066 (40.0%) $ 86,730 28.3% $ 67,608
Percentage of gross revenues 131.7% 234.9% 182.7%
25
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries, sales commissions, travel, and facility costs for our sales and
marketing personnel and, to a lesser extent, costs of advertising, trade shows,
and other promotional activities. The decrease in fiscal 2001, as compared to
fiscal 2000, was due to lower payroll, advertising expenses, commissions, and
travel costs. These decreases reflect our restructuring and discontinuation of
Concur Procurement, the sale of our Concur Human Resources product line, and our
company-wide efforts to reduce costs. The increase in fiscal 2000, compared to
fiscal 1999, was primarily due to an increase in payroll and related expenses
attributable 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.
Research and Development. Research and development expenses consist
primarily of salaries and contract labor for software development, facility
costs, and expenses associated with computer software and hardware used in our
software development activities. The decrease in fiscal 2001, compared to fiscal
2000, reflects lower utilization of outside contractors and staffing reductions,
primarily due our restructuring and discontinuation of Concur Procurement, the
sale of our Concur Human Resources product line, and our company-wide efforts to
reduce costs. The increase from fiscal 1999 to fiscal 2000 was related to
increased hiring of employees and outside contractors as software engineers,
program managers, 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 increasing market rates during that time. In
fiscal 2002, we expect to increase headcount and related resources in our
software engineering organization as we continue to focus on product innovation
and enhancement to enable us to extend our leadership position in Corporate
Expense Management software and services. We expect total research and
development expenditures to decrease moderately as we continue our company-wide
efforts to reduce costs. 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 consist
primarily of salaries and related costs associated with finance, accounting,
investor relations, human resources, administration and facilities activities.
The decrease in fiscal 2001, compared to fiscal 2000, was primarily due to lower
utilization of contract labor and to a lower provision for bad debts, and, to a
lesser degree, reflects lower facility costs and amortization of deferred stock
compensation. These decreases reflect our restructuring and discontinuation of
Concur Procurement, the sale of our Concur Human Resources product line, and our
company-wide efforts to reduce costs. The increase in fiscal 2000, compared to
fiscal 1999, 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.
Merger, Acquisition and Restructuring Charges. Restructuring charges
for fiscal 2001 consist of restructuring costs of $943,000 in connection with
the sale of our Concur Human Resources product line, less: (i) a $178,000 net
gain on the sale of these assets; and (ii) a $499,000 reduction in the amount
accrued for our restructuring in June 2000 as a result of changes in the
estimated amounts required for severance and related benefits, facilities, and
product marketing commitments. Restructuring charges for fiscal 2000 include a
charge of $3.4 million for our restructuring in June 2000, which included
amounts for severance and related benefits, facilities, and product marketing
commitments. Merger and acquisition costs for fiscal 2000 were comprised of a
reduction in the amount accrued as a result of a revision in estimated costs of
$1.2 million relating to the acquisition of Seeker Software in June 1999. Merger
costs for fiscal 1999 include all costs related to the acquisition of Seeker
Software in June 1999.
Interest Income and Interest Expense
Years Ended September 30,
(dollars in thousands) 2001 Change 2000 Change 1999
---- ------ ---- ------ ----
Interest income $ 2,011 (57.8%) $ 4,768 24.7% $ 3,825
Interest expense $ 719 (47.7%) $ 1,376 (8.9%) $ 1,511
26
Interest Income and Interest Expense. The decrease in interest income
in fiscal 2001 compared to fiscal 2000 was due to the decrease in cash, cash
equivalents and marketable securities upon which we earn interest, and to a
lesser extent, to lower interest rates earned on our investment portfolio. The
increase in interest income in fiscal 2000, compared to 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 both fiscal 2001 and fiscal
2000 was primarily due to lower outstanding interest-bearing obligations related
to bank borrowings and 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 2001 Fiscal 2000
For the quarter ended Dec 31 Mar 31 Jun 30 Sept 30 Dec 31 Mar 31 Jun 30 Sept 30
Revenues, net:
License $ 3,875 $ 2,663 $ 3,054 $ 3,112 $ 4,118 $ 5,991 $ 98 $ 1,744
ASP 732 980 1,214 1,697 90 184 211 442
Services 5,796 5,380 5,223 6,008 4,799 4,661 5,632 6,054
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Total revenues 10,403 9,023 9,491 10,817 9,007 10,836 5,941 8,240
Cost of Revenues:
License 117 195 127 145 228 289 592 233
ASP 1,819 2,097 2,471 2,546 356 776 779 919
Services 3,873 3,632 3,466 3,427 5,549 5,878 5,520 5,058
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Total cost of revenues 5,809 5,924 6,064 6,118 6,133 6,943 6,891 6,210
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Gross profit 4,594 3,099 3,427 4,699 2,874 3,893 (950) 2,030
Operating Expenses:
Sales and marketing 7,280 6,461 5,448 5,433 9,088 10,610 10,767 8,091
Research and development 5,200 5,074 3,210 2,965 8,634 9,718 7,658 5,202
General and administrative 3,165 3,092 2,681 1,791 3,475 3,493 4,847 2,980
Merger, acquisition and
restructuring charges - 338 - (72) - - 2,167 -
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Total operating expenses 15,645 14,965 11,339 10,117 21,197 23,821 25,439 16,273
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Loss from operations (11,051) (11,866) (7,912) (5,418) (18,323) (19,928) (26,389) (14,243)
Other income, net 544 332 155 133 993 614 896 725
--------- --------- --------- --------- ---------- ---------- ---------- ----------
Net loss $ (10,507) $ (11,534) $ (7,757) $ (5,285)$ (17,330)$ (19,314)$ 25,493) $ (13,518)
========= ========= ========= ========= ========== ========== ========== ==========
Basic and diluted net loss per
share $ (0.42) $ (0.45) $ (0.30) $ (0.20)$ (0.76)$ (0.83)$ (1.03) $ (0.54)
========= ========= ========= ========= ========== ========== ========== ==========
Shares used in calculation of
basic and diluted net loss per
share 25,272 25,499 25,713 25,814 22,844 23,204 24,854 25,025
========= ========= ========= ========= ========== ========== ========== ==========
Financial Condition
Our total assets were $41.0 million and $81.7 million at September 30,
2001, and 2000, respectively, representing a decrease of $40.7 million, or
49.8%. This decrease was primarily due to the use of cash in our operations
during the year, as well as a decrease in accounts receivable. As of September
30, 2001, we had $26.7 million of cash, cash equivalents and marketable
securities, compared to $56.2 million at September 30, 2000, representing a
decrease of $29.5 million, or 52.5%.
Our accounts receivable balance, net of allowance for doubtful accounts
of $979,000 and $973,000, was $6.2 million and $11.3 million as of September 30,
2001 and 2000, respectively, representing a decrease of $5.1 million, or 45.1%.
This decrease was principally a result of collected balances on large,
outstanding invoices, and a more current aging. Days' sales outstanding ("DSO")
in accounts receivable was 53 days and 104 days as of September 30, 2001 and
2000, respectively. This improvement was primarily the result of improved
collections on outstanding accounts receivable as well as the increase in
significance of monthly ASP billings which are, for the most part, collected in
advance of each monthly period. We expect that DSO will fluctuate in future
quarters, based on current period revenues, the accounts receivable aging, as
well as the revenue mix between license and ASP sales.
27
Our total current liabilities were $18.1 million and $22.6 million as
of September 30, 2001 and 2000, respectively, representing a decrease of $4.5
million, or 19.9%. This decrease consisted primarily of a decrease in the
current portion of debt and lease liabilities, as we pay off such liabilities.
This decrease was also the result of a reduction of the sales return reserve and
restructuring reserve, both of which were accrued at the time of our June 2000
restructuring event.
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, 2001 consisted principally of cash, cash equivalents, and
marketable securities, all totaling $26.7 million.
Net cash used in operating activities was $22.4 million, $75.3 million
and $36.4 million in fiscal 2001, 2000 and 1999, respectively. For such periods,
net cash used by operating activities was primarily a result of funding
operations.
Our investing activities have consisted primarily of purchases of
property and equipment, and purchase and related maturity of marketable
securities. Property and equipment acquisitions, including those acquired under
capital leases, totaled $2.3 million, $10.4 million, and $6.0 million in fiscal
2001, 2000 and 1999, representing a decrease of $8.1 million, or 77.9% in fiscal
2001 from fiscal 2000 and an increase of $4.4 million or 73.3% in 2000 from
1999. The decrease in fiscal 2001 was the result of more equipment purchases
related to start up of our ASP business, a growing employee base for which
property and equipment was purchased, and the purchase and implementation of
several software programs during fiscal 2000. The increase in property and
equipment acquisitions in fiscal 2000 resulted from a sharp increase in
personnel during the first half of that year.
Our financing activities used $4.8 million in fiscal 2001 and provided
$31.6 million and $131.8 million in fiscal 2000 and fiscal 1999, respectively.
The net usage of cash in financing activities in fiscal 2001 was primarily the
result of payments made on existing loans and capital leases, offset in part by
the issuance of common stock in connection with our Employee Stock Purchase Plan
and stock option plans. Net cash provided by financing activities for fiscal
2000 and fiscal 1999 was primarily the result of proceeds received from the
issuance of our common stock. In December 1998, we issued 3,365,000 shares of
our common stock in connection with our IPO, resulting in proceeds to us 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 us of approximately $82.2 million in cash, net
of underwriting discounts, commissions, and other offering costs. In February
2000, we completed a private placement of our common stock and received
approximately $35.0 million in cash, net of commissions and other offering
costs.
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. 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, 2001, the outstanding indebtedness under the
subordinated loan agreement was $797,000.
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, 2001, the outstanding indebtedness under the
subordinated loan agreement was $129,000.
Presently, we believe that our existing cash, cash equivalents, and
marketable securities will be sufficient to meet our anticipated cash needs for
working capital and capital expenditures for at least the next 12 months. In the
future, we may pursue 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.
29
Business Outlook
The following statements are based on our current expectations and we
do not undertake any duty to update them. These statements are forward-looking
and inherently uncertain. Actual results may differ materially as a result of
the factors described under "Factors That May Affect Results Of Operations And
Financial Condition" and elsewhere in this report, as well as in our other
filings with the Securities and Exchange Commission. Looking forward, we
currently have the following expectations for fiscal 2002:
. we expect revenues to grow 10% to 15% in fiscal 2002 over fiscal
2001and we have moderated our operating expenses accordingly;
. we expect that the business for our ASP solutions in both the
large and middle markets will become a more significant portion of
our overall business by the end of fiscal 2002;
. we expect that the business for our ASP solutions will reflect
positive gross margin by the end of the third quarter of fiscal
2002;
. we expect to achieve profitability by the end of fiscal 2002 and
to become cash flow positive before the end of fiscal 2002;
. we expect total net revenues to be between $44.0 and $46.0 million
for fiscal 2002;
. we expect total cost of revenues to be between $22.0 and $23.0
million for fiscal 2002;
. we expect total operating expenses to be between $35.0 and $36.0
million for fiscal 2002; and
. we expect a loss per share of between $0.45 and $0.54 for fiscal
2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our operating results are not materially sensitive to changes in the
general level of U.S. interest rates. Based on our marketable securities
portfolio and interest rates at September 30, 2001, a one percent increase or
decrease in interest rates would result in a decrease or increase of
approximately $3,000, 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.
29
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. ........................................................................... 31
Consolidated Balance Sheets as of September 30, 2001 and 2000. ............................................................... 32
Consolidated Statements of Operations for the years ended September 30, 2001, 2000, and 1999 ................................. 33
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended September 30, 2001, 2000, and 1999 ............. 34
Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000, and 1999 ................................. 35
Notes to Consolidated Financial Statements ................................................................................... 36
30
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, 2001 and 2000, and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for each of the three years in the period ended September 30, 2001. 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 the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Concur at
September 30, 2001 and 2000, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended September 30,
2001, in conformity with accounting principles generally accepted in the United
States.
ERNST & YOUNG LLP
Seattle, Washington
November 2, 2001
31
Concur Technologies, Inc.
Consolidated Balance Sheets
(In thousands, except share data)
September 30,
-------------
2001 2000
---- ----
Assets
Current assets:
Cash and cash equivalents $ 22,650 $ 12,224
Marketable securities 4,065 44,018
Accounts receivable, net of allowance for doubtful accounts of
$979 and $973 in 2001 and 2000, respectively (1) 6,211 11,317
Prepaid expenses and other current assets 918 2,338
Notes receivable from stockholders - 167
--------- ---------
Total current assets 33,844 70,064
Property and equipment, net 6,706 10,469
Deposits and other assets 433 1,135
--------- ---------
Total assets $ 40,983 $ 81,668
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,715 $ 2,230
Accrued payroll and benefits 3,865 3,913
Accrued restructuring costs 222 1,025
Sales return reserve - 1,326
Accrued commissions 949 1,317
Accrued payment to stockholders - 315
Other accrued liabilities 4,533 3,284
Current portion of long-term debt 926 2,942
Current portion of capital lease obligations 770 2,356
Deferred revenues 5,118 3,905
--------- ---------
Total current liabilities 18,098 22,613
Long-term debt, net of current portion - 927
Capital lease obligations, net of current portion 7 959
Accrued rent expense 101 156
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, par value $0.001 per share:
Authorized shares - 5,000,000; No shares issued or outstanding - -
Common stock, par value $0.001 per share:
Authorized shares - 60,000,000; Issued and outstanding shares -
25,814,422 and 25,088,081 in 2001 and 2000, respectively 223,245 222,577
Deferred stock compensation - (179)
Accumulated deficit (200,468) (165,385)
-------- ---------
Total stockholders' equity 22,777 57,013
--------- ---------
Total liabilities and stockholder' equity $ 40,983 $ 81,668
========= =========
See accompanying notes.
(1) Includes amounts due from related parties of $688,000 and $111,000 at
September 30, 2001 and 2000, respectively.
32
Concur Technologies Inc.
Consolidated Statements of Operations
(In thousands, except per share data)
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Revenues, net:
License $ 12,704 $ 11,952 $ 24,002
ASP 4,623 926 -
Services 22,407 21,146 13,011
-------- -------- --------
Total revenues (1) 39,734 34,024 37,013
Cost of revenues:
License 584 1,342 1,184
ASP 8,933 2,830 -
Services 14,398 22,005 16,653
-------- -------- --------
Total cost of revenues 23,915 26,177 17,837
-------- -------- --------
Gross profit 15,819 7,847 19,176
Operating expenses:
Sales and marketing 24,622 38,556 28,993
Research and development 16,449 31,212 19,371
General and administrative 10,729 14,795 10,385
Merger costs - (1,240) 8,859
Restructuring charges 266 3,407 -
-------- -------- --------
Total operating expenses 52,066 86,730 67,608
-------- -------- --------
Loss from operations (36,247) (78,883) (48,432)
Interest income 2,011 4,768 3,825
Interest expense (719) (1,376) (1,511)
Other expense, net (128) (164) (358)
-------- -------- --------
Net loss $(35,083) $(75,655) $(46,476)
======== ======== ========
Basic and diluted net loss per share $ (1.37) $ (3.15) $ (2.75)
======== ======== ========
Shares used in calculation of basic and diluted net
loss per share 25,574 23,981 16,883
======== ======== ========
See accompanying notes.
(1) Includes sales to related parties of $3.4 million, $1.3 million, and $1.1
million in the years ended September 30, 2001, 2000 and 1999, respectively.
33
Concur Technologies Inc.
Consolidated Statements of Stockholders' Equity (Deficit)
(In thousands, except share data)
Total
Convertible Stockholders'
-----------
Preferred Stock Common Stock Deferred Stock Accumulated Equity
--------------- ------------ ---------------
Shares Amount Shares Amount Compensation Deficit (Deficit)
------ ------ ------ ------ ------------ ------- ---------
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 - - 2,018,620 82,234 - - 82,234
offering, net of offering costs
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 Stock 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 Stock 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
Issuance of common stock in connection
with Employee Stock Purchase Plan - - 529,869 636 - - 636
Issuance of common stock from exercise
of stock options - - 196,472 32 - - 32
Amortization of deferred stock
compensation - - - - 179 - 179
Net loss - - - - - (35,083) (35,083)
---------- --------- ---------- --------- -------- ---------- ---------
Balance at September 30, 2001 - $ - 25,814,422 $ 223,245 $ - $ (200,468) $ 22,777
========== ========= ========== ========= ======== ========== =========
See accompanying notes.
34
Concur Technologies Inc.
Consolidated Statements of Cash Flows
(In thousands)
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Operating activities
Net loss $ (35,083) $ (75,655) $ (46,476)
Adjustments to reconcile net loss to net cash used in operating activities
Amortization of capitalized technology - 240 320
Amortization of deferred stock compensation 179 761 1,575
Depreciation 6,360 6,789 1,968
Provision for bad debts 280 1,486 540
Restructuring charges (510) 1,053 -
Adjustment to merger costs - (1,240) -
Other (55) (13) 50
Changes in operating assets and liabilities:
Accounts receivable 4,445 (3,783) (3,510)
Prepaid expenses, deposits, and other assets 1850 (534) (2,040)
Accounts payable (515) (3,093) 2,993
Accrued liabilities and accrued commissions (1,738) (1,156) 7,752
Deferred revenues 2,382 (106) 392
--------- --------- ---------
Net cash used in operating activities (22,405) (75,251) (36,436)
Investing activities
Net purchases of property and equipment (2,309) (8,846) (3,692)
Purchase of marketable securities (13,547) (56,811) (80,505)
Maturity of marketable securities 53,500 61,700 31,598
--------- --------- ---------
Net cash provided by (used in) investing activities 37,644 (3,957) (52,599)
Financing activities
Net proceeds from public offerings - - 119,603
Net proceeds from private stock offering - 34,915 -
Proceeds from issuance of common stock from exercise of stock options 32 392 237
Issuance of common stock in connection with Employee Stock Purchase Plan 636 2,826 566
Proceeds from issuance of common stock from exercise of common stock
warrants - - 2,616
Proceeds from borrowings - - 4,976
Payments on borrowings (2,943) (4,115) (3,769)
Payment on capital leases (2,538) (2,401) (1,329)
Issuance of convertible preferred stock - - 9,434
Repurchase of common and preferred stock - - (542)
--------- --------- ---------
Net cash (used in) provided by financing activities (4,813) 31,617 131,792
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 10,426 (47,591) 42,757
Cash and cash equivalents at beginning of year 12,224 59,815 17,058
--------- --------- ---------
Cash and cash equivalents at end of year $ 22,650 $ 12,224 $ 59,815
========= ========= =========
Supplemental disclosure of cash flow information
------------------------------------------------
Cash paid for interest $ 682 $ 1,320 $ 1,374
========= ========= =========
Property and equipment obtained through capital lease $ - $ 1,578 $ 2,336
========= ========= =========
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
========= ========= =========
Adjustment to deferred stock compensation for options cancelled upon
employee termination $ - $ 499 $ -
========= ========= =========
See accompanying notes.
35
Concur Technologies Inc.
Notes to Consolidated Financial Statements
September 30, 2001
Note 1. Description of the Company and Summary of Significant Accounting
Policies
Description of the Company
Concur Technologies, Inc. ("Concur" or the "Company") is a leading provider of
Corporate Expense Management software and services that automate costly and
inefficient business processes. The Company's software and services 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, and Concur Time(TM) for
time tracking and reporting. 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 ("IPO") on December 16, 1998.
Principles of Consolidation
The consolidated financial statements include the accounts of Concur
Technologies Inc. and its wholly owned subsidiaries. All significant
inter-company 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. Revenue resulting from license fees is recognized when persuasive
evidence of an arrangement exists, delivery of the product has occurred, the fee
is fixed or determinable, and collectability is probable. If the fee due from
the customer is not fixed or determinable, revenue is recognized as payments
become due from the customer. If collectability is not considered probable,
revenue is recognized when the fee is collected.
Revenues resulting from ASP services, which consist primarily of initiation and
usage fees are recognized over the lives of the related agreements, which are
typically two years. Revenues related to ASP services are recognized as services
are provided to end users. Customer advances and billed amounts due from
customers in excess of recognizable revenue are recorded as deferred revenue.
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 assumes the related business risks such as performance and credit risk.
Such business risks are evidenced by, among other things, instances in which the
Company is the primary obligor in the arrangement or when the Company
establishes the pricing of the arrangement. Otherwise, these revenues are
recorded on a net basis.
Services 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.
36
Notes to Consolidated Financial Statements
September 30, 2001
Note 1. Description of the Company and Summary of Significant Accounting
Policies (continued)
Liquidity
The Company continues to incur losses from operating results and had total
stockholders' equity of $22.8 million at September 30, 2001, including an
accumulated deficit of $200.5 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, 2002. 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, 2002. Management has the intent and
believes that it has the ability to reduce expenditures to a level at which
operations could be sustained through at least September 30, 2002 if no such
debt or equity financing were available.
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, "Accounting
for Certain Investments in Debt and Equity Securities" ("SFAS 115").
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, 2001, the fair value of marketable securities
(consisting primarily of corporate bonds and commercial paper) approximated
their cost. Therefore, no unrealized gain or loss has been recorded. All
marketable securities held at September 30, 2001, 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.
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 and
capital lease obligations at fiscal year end approximated fair value based on
the market interest rates available to the Company for debt of similar risk and
maturities.
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.
37
Notes to Consolidated Financial Statements
September 30, 2001
Note 1. Description of the Company and Summary of Significant Accounting
Policies (continued)
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 98-1, "Accounting for the Costs of Corporate Software
Developed or Obtained for Internal Use" ("SOP 98-1"). 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,
2001.
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 $753,000, $3.3 million, and $3.6 million in
the fiscal years ended September 30, 2001, 2000, and 1999, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes," 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.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB 25") and related
interpretations in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). APB
25 provides that the compensation expense relative to the Company's employee
stock options is measured based on the intrinsic value of the stock option. SFAS
123 requires companies that continue to follow APB 25 to provide a pro forma
disclosure of the impact of applying the fair value method of SFAS 123 (see Note
7). The Company accounts for stock issued to non-employees in accordance with
the provisions of SFAS 123 and the Emerging Issues Task Force consensus in Issue
No. 96-18, "Accounting for Equity Instruments that Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services."
38
Notes to Consolidated Financial Statements
September 30, 2001
Note 1. Description of the Company and Summary of Significant Accounting
Policies (continued)
Property and Equipment
Property and equipment 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 two 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 anti-dilutive.
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 across several different geographic
areas primarily 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 typically 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, 2001 and 2000. 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, if applicable to the Company. SFAS 133 establishes standards for
recognition and measurement of derivatives and hedging activities and requires
recognition of all derivatives on the balance sheet at fair value. Because the
Company has not used derivatives, management has determined that the adoption of
SFAS 133 has no significant effect on earnings or the consolidated financial
position of the Company through September 30, 2001.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101 "Revenue
Recognition in Financial Statements" ("SAB 101"), which summarizes the SEC's
views on applying generally accepted accounting principles to revenue
recognition and the related costs of those revenues. SAB 101 was adopted by the
Company prior to September 30, 2001. Because the Company's policies on revenue
recognition were already in compliance with this standard, the adoption of SAB
101 did not have a significant impact on its consolidated financial position or
results of operations.
39
Notes to Consolidated Financial Statements
September 30, 2001
In March 2000, the EITF published its consensus on EITF No. 00-3, "Application
of AICPA Statement of Position
Note 1. Description of the Company and Summary of Significant Accounting
Policies (continued)
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.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS 144"), which supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" ("SFAS 121"), and provides a single accounting model for
long-lived assets to be disposed of. Although retaining many of the fundamental
recognition and measurement provisions of SFAS 121, SFAS 144 significantly
changes the criteria that would have to be met to classify an asset as
held-for-sale. SFAS 144 also supersedes the provisions of APB No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" with regard to reporting the effects of a disposal of a segment of
a business and will require expected future operating losses from discontinued
operations to be displayed in discontinued operations in the period(s) in which
the losses are incurred. In addition, more dispositions will qualify for
discontinued operations treatment in the statement of operations. The provisions
of SFAS 144 are to be applied prospectively and will be effective for the
Company beginning October 1, 2002. Because the Company does not have any
long-lived assets, management has determined that the adoption of SFAS 144 will
have no material impact on the consolidated financial statements of the Company
once adopted.
Reclassification
Certain prior period amounts have been reclassified to conform to the current
period presentation. This includes ASP revenues and related ASP cost of revenues
which were previously classified as license revenues and license cost of
revenues, respectively.
Note 2. Property and Equipment
Property and equipment consisted of the following (in thousands):
September 30,
-------------
2001 2000
---- ----
Computer hardware and software $ 12,723 $ 11,620
Furniture and equipment 645 962
Leased equipment 6,008 6,553
Leasehold improvements 900 692
-------- --------
20,276 19,827
Less accumulated depreciation (13,570) (9,358)
-------- --------
$ 6,706 $ 10,469
======== ========
Accumulated depreciation on leased equipment was approximately $5.3 million and
$3.9 million at September 30, 2001 and 2000, respectively.
Note 3. Acquisition of Seeker Software, Inc.
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 between 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.
40
Notes to Consolidated Financial Statements
September 30, 2001
Note 3. Acquisition of Seeker Software, Inc. (continued)
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 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 2000, the Company revised its estimate of
these costs, resulting in a decrease in accrued merger costs of approximately
$1.2 million. No amounts remained as accrued liabilities relating to the merger
at September 30, 2001.
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 Combined
Technologies, Inc. Software, Inc. Company
------------------ -------------- -------
Six months ended March 31, 1999:
Net revenue $ 13,591 $ 3,223 $ 16,814
Net loss $(11,263) $(5,262) $(16,525)
In March 2001, the Company sold substantially all assets and liabilities of the
Concur Human Resource product line that it had acquired from Seeker (see Note
9).
Note 4. Long-Term Debt Obligations
Long-term debt at September 30, 2001, consisted of balances remaining on a $2.0
million subordinated promissory note and a $3.5 million subordinated promissory
note.
The subordinated promissory notes (which had an aggregate remaining balance of
$926,000 at September 30, 2001, and were subordinated to a 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 $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 Company paid off a senior term loan facility in February 2001. The interest
rate on this loan was 8.5%, and the loan was secured by a perfected senior
security interest in all non-leased assets of the Company with specific filings
for intellectual property.
An equipment loan secured by virtually all assets of the Company was paid off
during fiscal 2001.
41
Notes to Consolidated Financial Statements
September 30, 2001
Note 5. Commitments
The Company leases office space and equipment under non-cancelable 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 lease agreement after 36
months or upon the Company's achievement of certain economic goals.
Future minimum rental payments under noncancelable leases, net of the future
minimum rentals of $210,000 to be received under subleases, are as follows (in
thousands):
Capital Operating
------- ---------
Leases Leases
------ ------
Fiscal year ended September 30:
2002 $ 866 $1,537
2003 8 1,413
2004 - 1,404
2005 - 953
------ ------
874 $5,307
======
Less amount representing interest (97)
------
Present value of net minimum capital lease obligations 777
Less current portion (770)
------
Capital lease obligations, net of current portion $ 7
======
Total rent expense for fiscal 2001, 2000, and 1999 was $2.5 million, $3.6
million, and $2.2 million, respectively.
In accounting for its capital leases on equipment, the Company has accrued
amounts required to pay off the remaining residual at the end of each lease. The
accrual is reflected as a portion of other accrued liabilities on the
accompanying balance sheets.
Note 6. 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,
2001, the Company had net operating loss carryforwards of $142.9 million and tax
credit carryforwards of $1.9 million all of which expire between 2009 and 2021.
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.
Significant components of the Company's deferred tax assets are as follows (in
thousands):
September 30,
-------------
2001 2000
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 48,913 $ 43,728
Tax credit carryforwards 1,857 1,143
Expenses not currently deductible, deferred
revenue, and other 5,855 5,930
-------- --------
Total deferred tax assets 56,625 50,801
Valuation allowance (56,625) (50,801)
-------- --------
$ - $ -
======== ========
42
Notes to Consolidated Financial Statements
September 30, 2001
Note 6. Income Taxes (continued)
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 $5.8 million, $26.6 million, and $12.1 million
during fiscal 2001, 2000, and 1999, respectively.
Note 7. 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 provided
for grants 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. The Company
no longer grants stock options under the 1994 Plan.
On August 21, 1998, the Board adopted 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 stockholders approved an increase in the number of shares
issuable under the 1998 Plan to 5,240,000; in March 2001, the stockholders
approved an additional increase to 6,290,000. The Director Plan authorized
issuance of up to 240,000 shares of common stock upon the exercise of stock
options. In March 2001, the stockholders approved an increase in the number of
shares issuable under the Director Plan to 440,000. The ESPP authorizes the
issuance of up to 968,736 shares of common stock, subject to automatic annual
increases as stated in the ESPP. During fiscal 2001, 2000, and 1999, employees
purchased 529,869 shares, 384,658 shares, and 53,209 shares under the ESPP,
respectively. As of September 30, 2001, there are 1,000 shares still available
for purchase under the ESPP.
In December 1999, the Board of Directors adopted the 1999 Stock Incentive Plan
(the"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 that may be granted to officers.
Stock options granted by the Company vest at various rates as determined by the
Board of Directors, typically over four years, 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 and 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, and the Director Plan, and related weighted-average
exercise prices is as follows:
43
Notes to Consolidated Financial Statements
September 30, 2001
Note 7. Stock Option Plans and Employee Stock Purchase Plan (continued)
September 30, 2001 September 30, 2000 September 30, 1999
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- ----- ------- ----- ------- -----
Balance at beginning of year 6,341,377 $ 9.61 3,572,937 $10.73 1,869,473 $ 0.92
Granted 2,184,777 1.40 5,033,691 11.36 2,173,492 17.32
Exercised (196,472) 0.18 (413,114) 0.94 (323,217) 0.42
Cancelled (2,326,682) 9.25 (1,852,137) 18.48 (146,811) 5.98
---------- ---------- ---------
Balance at end of year 6,003,000 7.09 6,341,377 9.61 3,572,937 10.73
========== ========== =========
Exercisable at end of year 2,340,325 8.88 1,399,904 6.48 1,035,265 2.77
========== ========== =========
Weighted-average value
of options granted during
the year:
Granted at fair value $ 1.30 $ 10.60 $ 16.14
Granted below fair value - - 6.29
Information regarding the weighted-average remaining contractual life and
weighted-average exercise price of options outstanding and options exercisable
at September 30, 2001 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 Price Shares
--------------- --------------- ------ ----- ------
$ 0.13 - 0.20 4.69 275,281 $ 0.17 275,281
0.37 6.30 393,843 0.38 358,410
0.42 - 1.06 9.47 246,666 0.60 587
1.11 - 1.19 9.26 759,057 1.19 1,545
1.29 - 1.75 9.41 530,950 1.65 4,000
1.84 - 4.66 8.97 706,771 2.83 156,858
5.00 - 5.62 8.69 1,576,411 5.00 697,705
5.94 - 11.81 8.30 203,601 9.33 84,847
12.50 - 13.75 7.15 470,631 12.53 340,106
18.87 - 24.50 8.20 413,078 22.99 196,052
25.00 - 30.00 7.84 181,640 28.44 95,744
30.88 - 44.50 7.84 245,071 33.84 129,190
--------- ---------
8.32 6,003,000 8.88 2,340,325
========= =========
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. The Company recorded deferred
stock compensation expense of $3.5 million relating to options granted during
the years prior to fiscal 2000. This amount represents 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 $179,000, $761,000, and
$1.6 million was recognized during the fiscal 2001, 2000, and 1999,
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.
44
Notes to Consolidated Financial Statements
September 30, 2001
Note 7. 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 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 2001, 2000, and
1999; a dividend yield rate of 0% for all periods; a volatility of 1.55 in 2001,
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, management
has 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 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, management believes 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 per share data):
Year Ended September 30,
------------------------
2001 2000 1999
---- ---- ----
Net loss as reported $(35,083) $(75,655) $(46,476)
Pro forma incremental compensation expense under
SFAS 123 (98) (2,607) (7,540)
-------- -------- --------
Pro forma net loss $(35,181) $(78,262) $(54,016)
======== ======== ========
Pro forma loss per share $ (1.38) $ (3.26) $ (3.20)
======== ======== ========
Note 8. Stockholders' Equity
Seeker Preferred Stock
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 a bank
line of credit. 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 a lessor 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 warrant has a purchase price of $3.65 per share.
The warrants were immediately exercisable on the effective date of the
agreements and remain exercisable for the longer of a period of five years; or
two years from the effective date of the Company's IPO. The estimated fair
values of these warrants of $30,000 and $16,000, respectively, were recorded as
debt issuance costs. The warrants were exercised for common stock on a net basis
in December 1999.
45
Notes to Consolidated Financial Statements
September 30, 2001
Note 8. Stockholders' Equity (continued)
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 a bank line of credit. The warrants had an initial exercise
price of $3.65 per share, a five-year maturity, a net exercise provision,
anti-dilution 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 an increase to a senior loan facility. The
warrants became immediately exercisable on the effective date of the agreements
at an initial exercise price of $7.75 per share. 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 was recorded as debt issuance costs.
These warrants were exercised in February 1999.
In May 1998, the Company issued warrants to a lessor to purchase 56,451 shares
of Series E Preferred Stock in conjunction with a subordinated promissory note
(see Note 4). The warrants were immediately exercisable at a price of $7.75 per
share and were exercisable for the longer of a period of five years, or two
years from the effective date of the Company's IPO, whichever was longer. The
estimated fair value of these warrants of $11,000 was 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 to a business partner. 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 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 stockholder, 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, was
approximately $278,000, which has been recorded as redeemable convertible
preferred stock warrants. The option to acquire 700,000 shares of common stock
on or before October 15, 1999, was not exercised and has expired. The option to
acquire 700,000 shares of common stock on or before January 15, 2001 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.
In the period between December 1997 and September 1998, Seeker granted to the
stockholders warrants to purchase 77,140 shares of convertible preferred stock
and redeemable convertible preferred stock at exercise prices ranging between
$4.46 and $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.
46
Notes to Consolidated Financial Statements
September 30, 2001
Note 8. Stockholders' Equity (continued)
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, the Company 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 the Company's common stock at a purchase price
of $23.28 per share, which was the closing price of the common stock on that
date. The Company also entered into strategic marketing and distribution
agreements with SAFECO Life Insurance Company ("SAFECO") and Nortel Networks
Corporation ("Nortel") under which SAFECO and Nortel agreed to resell certain of
the Company's products through their respective distribution networks and agreed
to undertake joint marketing activities with the Company to promote certain of
its products. Revenues generated from the joint marketing activities, if any,
would be shared between the Company and the respective reseller. Through
September 30, 2001, Concur has not recognized any revenue under these
arrangements.
Under the terms of these agreements, the Company 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 the warrant 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, the Company
may be required to record a significant non-cash charge 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. The Company has not
recorded an expense associated with these agreements to date and is uncertain
whether these milestones will be achieved in the future. As of September 30,
2001, warrants to purchase 700,000 shares of the Company's common stock under
these agreements have expired.
Shares Reserved
The Company has reserved shares of common stock for future issuance as follows:
September 30, 2001
------------------
Outstanding stock options 6,003,000
Stock Options available for grant:
1999 Stock Incentive Plan 379,564
1998 Equity Incentive Plan 2,595,802
Director Stock Option Plan 130,750
Employee Stock Purchase Plan 1,000
Warrants to purchase common stock 5,250,000
----------
Total 14,360,116
==========
Note 9. Business Restructuring
In June 2000, the Company made a strategic decision to focus its resources on
the Corporate Expense Management market. 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. Also considered
in this decision was the shift in the Company's revenue model, which caused the
Company's cost and expense structure to be out of alignment with its revenue and
cash stream. In connection with this decision, the Company designed a new
operating plan to reduce costs and bring expenses in line with this change in
the marketplace. Under the new operating plan, the Company discontinued Concur
Procurement, its corporate procurement application, terminated the
47
Concur Notes to Consolidated Financial Statements
September 30, 2001
Note 9. Business Restructuring (continued)
Commerce Network, discontinued the planned integration of Concur Human Resources
products group with its other Corporate Expense Management products, and
effected a workforce reduction of 68 employees. As a result of this strategic
decision, the Company recorded a restructuring charge in the quarter ended June
30, 2000, in the amount of $3.4 million. During the quarter ended March 31,
2001, the Company revised its estimates related to amounts needed for severance
and termination benefits, facilities, and product marketing commitments,
resulting in a reversal of restructuring charges previously recorded in the
amount of $427,000. The reduction in these estimated costs is shown as a
reduction in restructuring costs in the accompanying statement of operations for
the period ended September 30, 2001. All liabilities related to this
restructuring were paid or charged off as of September 30, 2001.
In March 2001, the Company sold its Concur Human Resources product line to MBH
Solutions, Inc. ("MBH") to further its objective of focusing its resources on
the Corporate Expense Management market. The transaction consisted of the sale
of certain assets to, and the assumption of certain obligations by, MBH. Under
the terms of the transaction, the Company received $100,000 on the closing of
the transaction, and recorded it as a gain on sale, and is to receive future
installment payments over three years totaling $2.3 million. The gain related to
these installment payments will be recognized as the payments are received. This
transaction resulted in a workforce reduction of 42 employees, the majority of
whom continued employment with MBH. All employees were terminated by June 30,
2001.
As a result of this transaction and related restructuring costs, the Company
recorded a net charge of $765,000 in the quarter ended March 31, 2001, which
consisted of estimated restructuring liabilities in the amount of $943,000 net
of a gain on the sale of assets to, and assumption of liabilities by, MBH in the
amount of $178,000. Assets purchased by MBH included computer equipment and
software and certain accounts receivable. Additionally, MBH assumed obligations
to provide post-contract customer support to certain customers. As of September
30, 2001, the accrued liability was decreased by $72,000 due to a change in
estimate of future amounts required, which is reflected as a decrease of the net
restructuring charge in the accompanying statement of operations.
A detail of estimated restructuring costs by category and in total, less amounts
paid or written down, as of September 30, 2001 is as follows (in thousands):
Restructuring Accrued Restructuring Accrued
Liability Restructuring Restructuring Liabilities Paid or Restructuring
Accrued in Restructuring Liability at Liabilities Written Down in Liability at
Description 2000 Liabilities Paid Sept. 30, 2000 Accrued in 2001 2001 Sept. 30, 2001
- ------------------------------------------------------------------------------------------------------------------------------------
Severance and termination $ 1,661 $ (1,062) $ 599 $ - $ (599) $ -
benefits
Write-off of intangible and
other assets 800 (800) - - - -
Abandoned facilities, leases
and equipment costs 328 (298) 30 341 (252) 119
Discontinued product marketing
commitments 272 (122) 150 (150) -
Direct and incremental
transaction fees - 433 (433) -
Other 346 (100) 246 169 (312) 103
------- -------- ------- ------ -------- -----
Total $ 3,407 $ (2,382) $ 1,025 $ 943 $ (1,746) $ 222
======= ======== ======= ====== ======== =====
Direct and incremental transaction fees include all professional fees paid in
relation to the transaction, such as legal, accounting, and consulting charges.
48
Notes to Consolidated Financial Statements
September 30, 2001
Note 9. Business Restructuring (continued)
A summary of restructuring charges recorded in fiscal 2001 and 2000 is as
follows (in thousands):
2001 2000
---- ----
Restructuring liabilities recorded $ 943 $ 3,407
Write down of excess liabilities based on change in (499) -
estimate
Gain on sale of assets to, net of liabilities assumed by, MBH (178)
----- -------
-
-
Total $ 266 $ 3,407
===== =======
Note 10. International Revenues
The Company licenses and markets its products primarily in the United States,
and operates in a single industry segment. Information regarding revenues by
geographic region for the past three fiscal years is as follows (in thousands):
Revenues
--------
2001 2000 1999
---- ---- ----
Country:
United States $ 35,312 $ 30,687 $ 36,081
Europe 3,815 2,810 404
Other 607 527 528
------- -------- --------
Total $ 39,734 $ 34,024 $ 37,013
======== ======== ========
Note 11. 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 $0, $24,500, and $433,000 for
fiscal 2001, 2000, and 1999, 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 $702,000,
$54,000 and $41,000 for fiscal 2001, 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 $1.0 million for the return of this
software. This refund was recorded as a reduction in license revenue in the
quarter ended June 30, 2000. During fiscal 2001, the Company recorded $300,000
in revenues from this stockholder.
49
Notes to Consolidated Financial Statements
September 30, 2001
Note 11. Related-Party Transactions (continued)
The Company recorded net revenues in the amount of $3.1 million, $282,000, and
$1.1 million, respectively, for the sale of products and services to
stockholders and other related parties during fiscal 2001, 2000, and 1999,
respectively.
Accounts receivable from stockholders and related parties was $688,000 and
$111,000 at September 30, 2001 and 2000, respectively. Accounts payable to
stockholders and related parties was $255,000 and $16,000 at September 30, 2001
and 2000, respectively.
Note 12. 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
$507,000, $727,000, and $547,000 for the years ended September 30, 2001, 2000,
and 1999, respectively.
Note 13. Contingencies
Litigation
In July 2001, the Company and several of its current and former officers were
named as defendants in a purported securities class-action lawsuit filed in the
United States District Court for the Southern District of New York. The
complaint generally alleges claims against the underwriters of the Company's
initial public offering in December 1998, the Company, and several of the
Company's current and former executives, based on alleged errors and omissions
concerning underwriting terms in the prospectus for our initial public offering.
The plaintiffs in this lawsuit seek damages in an unspecified amount, which
could be substantial. The Company believes this lawsuit is without merit and
intends to defend itself vigorously.
From time to time, the Company is subject to various legal proceedings and
claims arising in the ordinary course of business. Management does not expect
that the results in any of these legal proceedings will have a material adverse
effect on the Company's business, operating results, or financial condition.
Note 14. Subsequent Events (Unaudited)
In December 2001, the Company offered a voluntary stock option exchange program
to its employees. The program allows employees, at their discretion, to cancel
for exchange, before January 4,2002, unexercised stock options with an exercise
price equal to or greater than $1.30 per share that were granted to eligible
optionees under the Company's 1994 Stock Option Plan, 1998 Equity Incentive
Plan, and the 1999 Stock Incentive Plan. In addition, if an employee elects to
participate, any option granted to that employee within the six months preceding
December 3, 2001 will be automatically cancelled, and those cancelled options
with an exercise price equal to or greater than $1.30 per share will be eligible
for exchange under the program. In exchange, it is expected that the employee
will be granted a new replacement option to purchase a number of shares equal to
two thirds of the number of shares subject to the eligible cancelled options at
least six months and one day after the date that the cancelled options are
accepted by the Company for exchange. The Company currently expects the
replacement grant date to occur on or after July 5, 2002. The exercise price of
the replacement option will be equal to the closing price of a share of the
Company's common stock as reported on the NASDAQ National Market on the
replacement grant date. Each replacement option will vest in accordance with a
two and one-half year vesting schedule. Options to purchase a maximum of
approximately 4,495,000 shares will be granted under the program, provided that
the maximum number of eligible options are surrendered for cancellation and
exchange. For financial reporting purposes, the stock option exchange program is
not considered compensatory or variable, therefore, Concur does not anticipate
recording stock compensation charges as a result of the implementation of the
program.
50
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, 2001. 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 .............................................. 31
Consolidated Balance Sheets as of September 30, 2001 and 2000................................... 32
Consolidated Statements of Operations for the years ended September 30, 2001, 2000, and 1999.... 33
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended September 30,
2001, 2000, and 1999............................................................................ 34
Consolidated Statements of Cash Flows for the years ended September 30, 2001, 2000, and 1999.... 35
Notes to Consolidated Financial Statements...................................................... 36
2. Schedule
The following financial statement schedule for the years ended September 30, 2001, 2000, and
1999 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.............. 55
Schedule II--Valuation and Qualifying Accounts.................................................. 56
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.
51
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 Here
- ------ ------------------- ---- -------- ------------ ------ ----
with
----
2.01 Agreement and Plan of Reorganization, dated May 26, 1999, 8-K 000-25137 06/15/99 2.1
among the Registrant, ConStar Acquisition Corp. and
Seeker Software, Inc.
3.01 Registrant's Amended and Restated Certificate of S-8 333-70455 01/12/99 4.03
Incorporation, as filed with Delaware Secretary of State
on December 24, 1998.
3.02 Certificate of Designations of Series A Junior Preferred 8-A 000-25137 04/23/01 3.2
Stock of Registrant.
3.03 Registrant's Amended and Restated Bylaws, as adopted on 8-K 000-25137 04/23/01 4.1
April 17, 2001.
4.01 Specimen Stock Certificate representing shares of S-1 333-62299 08/26/98 4.01
Registrant's Common Stock.
4.02 Third Amended and Restated Information and Registration 8-K 000-25137 06/15/99 2.1
Rights Agreement dated May 26, 1999.
4.03 Amendment to Third Amended and Restated Information and 10-K 000-25137 12/29/00 4.03
Registration Rights Agreement dated March 23, 2000.
4.04 Rights Agreement between Registrant and Wells Fargo N.A. 8-A 000-25137 04/23/01 4.1
dated April 20, 2001.
10.01 Registrant's Amended and Restated 1994 Stock Option Plan S-1 333-62299 08/26/98 10.01
and related documents.
10.02 Registrant's Amended 1998 Equity Incentive Plan. 10-Q 000-25137 05/15/01 10.02
10.03 Registrant's 1998 Employee Stock Purchase Plan and S-1 333-62299 08/26/98 10.03
related documents.
10.04 Registrant's Amended 1998 Directors Stock Option Plan. 10-Q 000-25137 05/15/01 10.02
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 S-1 333-62299 08/26/98 10.06
with each of its directors and executive officers.
10.08 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.
10.09 Facility Lease, dated October 31, 1997, between S-1 333-62299 08/26/98 10.14
Registrant and CarrAmerica Realty Corporation, as amended
on April 10, 1998.
10.10 Third Amendment to Lease, dated February 11, 1999, S-1 333-74685 03/19/99 10.27
between Registrant and CarrAmerica Realty Corporation.
10.11 Sublease, dated February 1, 1999, between Registrant and S-1 333-74685 03/19/99 10.28
Emerging Technology Solutions, Inc. (ETSI).
10.12 Facility Sublease Agreement, dated September 23, 1999, 10-K -- 12/29/99 10.35
between Registrant and Cardiac Pacemakers, Inc.
10.13 Security and Loan Agreement, dated September 3, 1997, S-1 333-62299 08/26/98 10.20
between Registrant and Imperial Bank.
52
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------ --------
10.14 Addendum to Security and Loan Agreement, dated September S-1 333-62299 08/26/98 10.21
3, 1997, between Registrant and Imperial Bank.
10.15 Second Amendment to Loan Documents, dated April 28, 1998, S-1 333-62299 08/26/98 10.22
between Registrant and Imperial Bank.
10.16 Third Amendment to Security and Loan Agreement and S-1 333-74685 03/19/99 10.29
Addendum to Security and Loan Agreement, dated March 15,
1999, between Registrant and Imperial Bank.
10.17 Stock Purchase Agreement, dated February 22, 2000, among 10-K 000-25137 12/29/00 10.31
the Company, SAFECO Corporation and Nortel Networks, Inc.
10.18 Joint Marketing and Sales Representative Agreement dated 10-K 000-25137 12/29/00 10.32
May 17, 2000 between Registrant and ADP, Inc.*
10.19 Letter Agreement, dated June 6, 2000, between Registrant 10-K 000-25137 12/29/00 10.29
and Stephen A. Yount.
10.20 Letter Agreement, dated April 19, 2000, between -- -- -- -- X
Registrant and John F. Adair.
10.21 Letter Agreement, dated June 29, 2000, between Registrant -- -- -- -- X
and Kyle R. Sugamele.
10.22 Letter Agreement, dated April 2, 1996, between Registrant -- -- -- -- X
and Scott Schwisow.
10.23 Letter Agreement, dated May 17, 2001, between Registrant -- -- -- -- X
and Simon Nelson.
21.01 List of Registrant's subsidiaries. -- -- -- -- X
23.01 Consent of Ernst & Young LLP, Independent Auditors. -- -- -- -- X
24.01 Power of Attorney (see page 54 of this report). -- -- -- -- 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 April 23, 2001, Registrant filed a Current Report on Form 8-K
relating to its announcement on April 23, 2001 of the Registrant's adoption
of a new stockholder rights plan.
53
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 21, 2001 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 John F. Adair, 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 21, 2001
- ---------------------------------------------------------
S. Steven Singh and Chairman of the Board
Principal Financial Officer
and Principal Accounting Officer:
/s/ John F. Adair Chief Financial Officer December 21, 2001
- ---------------------------------------------------------
John F. Adair
Directors:
/s/ Michael W. Hilton Director December 21, 2001
- ---------------------------------------------------------
Michael W. Hilton
/s/ Norman A. Fogelsong Director December 21, 2001
- ---------------------------------------------------------
Norman A. Fogelsong
/s/ Russell P. Fradin Director December 21, 2001
- ---------------------------------------------------------
Russell P. Fradin
/s/ Michael J. Levinthal Director December 21, 2001
- ---------------------------------------------------------
Michael J. Levinthal
/s/ William P. Hannon Director December 21, 2001
- ---------------------------------------------------------
William P. Hannon
54
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, 2001 and 2000, and for each of the three years in the
period ended September 30, 2001, and have issued our report thereon dated
November 2, 2001 (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 2, 2001
55
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
CONCUR TECHNOLOGIES, INC.
September 30, 2001
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, 2001:
Deducted from asset accounts:
Allowance for doubtful accounts................... $ 973,771 $ 280,000 $ -- $ 275,259 $ 978,512
Year ended September 30, 2000:
Deducted from asset accounts:
Allowance for doubtful accounts................... 870,160 1,486,172 -- 1,382,561 973,771
Year ended September 30, 1999:
Deducted from asset accounts:
Allowance for doubtful accounts................... 619,401 539,803 -- 289,044 870,160
(1) Uncollectible accounts written off, net of recoveries.
56
EXHIBIT INDEX
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 000-25137 06/15/99 2.1
among the Registrant, ConStar Acquisition Corp. and
Seeker Software, Inc.
3.01 Registrant's Amended and Restated Certificate of S-8 333-70455 01/12/99 4.03
Incorporation, as filed with Delaware Secretary of State
on December 24, 1998.
3.02 Certificate of Designations of Series A Junior Preferred 8-A 000-25137 04/23/01 3.2
Stock of Registrant.
3.03 Registrant's Amended and Restated Bylaws, as adopted on 8-K 000-25137 04/23/01 4.1
April 17, 2001.
4.01 Specimen Stock Certificate representing shares of S-1 333-62299 08/26/98 4.01
Registrant's Common Stock.
4.02 Third Amended and Restated Information and Registration 8-K 000-25137 06/15/99 2.1
Rights Agreement dated May 26, 1999.
4.03 Amendment to Third Amended and Restated Information and 10-K 000-25137 12/29/00 4.03
Registration Rights Agreement dated March 23, 2000.
4.04 Rights Agreement between Registrant and Wells Fargo N.A. 8-A 000-25137 04/23/01 4.1
dated April 20, 2001.
10.01 Registrant's Amended and Restated 1994 Stock Option Plan S-1 333-62299 08/26/98 10.01
and related documents.
10.02 Registrant's Amended 1998 Equity Incentive Plan. 10-Q 000-25137 05/15/01 10.02
10.03 Registrant's 1998 Employee Stock Purchase Plan and S-1 333-62299 08/26/98 10.03
related documents.
10.04 Registrant's Amended 1998 Directors Stock Option Plan. 10-Q 000-25137 05/15/01 10.02
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 S-1 333-62299 08/26/98 10.06
with each of its directors and executive officers.
10.08 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.
10.09 Facility Lease, dated October 31, 1997, between S-1 333-62299 08/26/98 10.14
Registrant and CarrAmerica Realty Corporation, as amended
on April 10, 1998.
10.10 Third Amendment to Lease, dated February 11, 1999, S-1 333-74685 03/19/99 10.27
between Registrant and CarrAmerica Realty Corporation.
10.11 Sublease, dated February 1, 1999, between Registrant and S-1 333-74685 03/19/99 10.28
Emerging Technology Solutions, Inc. (ETSI).
10.12 Facility Sublease Agreement, dated September 23, 1999, 10-K -- 12/29/99 10.35
between Registrant and Cardiac Pacemakers, Inc.
10.13 Security and Loan Agreement, dated September 3, 1997, S-1 333-62299 08/26/98 10.20
between Registrant and Imperial Bank.
Incorporated by Reference
-------------------------
Exhibit Date of Exhibit Filed
Number Exhibit Description Form File No. First Filing Number Herewith
- ------ ------------------- ---- -------- ------------ ------ --------
10.14 Addendum to Security and Loan Agreement, dated September S-1 333-62299 08/26/98 10.21
3, 1997, between Registrant and Imperial Bank.
10.15 Second Amendment to Loan Documents, dated April 28, 1998, S-1 333-62299 08/26/98 10.22
between Registrant and Imperial Bank.
10.16 Third Amendment to Security and Loan Agreement and S-1 333-74685 03/19/99 10.29
Addendum to Security and Loan Agreement, dated March 15,
1999, between Registrant and Imperial Bank.
10.17 Stock Purchase Agreement, dated February 22, 2000, among 10-K 000-25137 12/29/00 10.31
the Company, SAFECO Corporation and Nortel Networks, Inc.
10.18 Joint Marketing and Sales Representative Agreement dated 10-K 000-25137 12/29/00 10/32
May 17, 2000 between Registrant and ADP, Inc.*
10.19 Letter Agreement, dated June 6, 2000, between Registrant 10-K 000-25137 12/29/00 10.29
and Stephen A. Yount.
10.20 Letter Agreement, dated April 19, 2000, between -- -- -- -- X
Registrant and John F. Adair.
10.21 Letter Agreement, dated June 29, 2000, between Registrant -- -- -- -- X
and Kyle R. Sugamele.
10.22 Letter Agreement, dated April 2, 1996, between Registrant -- -- -- -- X
and Scott Schwisow.
10.23 Letter Agreement, dated May 17, 2001, between Registrant -- -- -- -- X
and Simon Nelson.
21.01 List of Registrant's subsidiaries. -- -- -- -- X
23.01 Consent of Ernst & Young LLP, Independent Auditors. -- -- -- -- X
24.01 Power of Attorney (see page 54 of this report). -- -- -- -- 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.