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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
JUNE 1, 1999
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
CONCUR TECHNOLOGIES, INC.
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(Exact name of Registrant as specified in its
charter)
DELAWARE 000-25137 91-1608052
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(State of incorporation) (Commission file number) (I.R.S. Employer
Identification No.)
6222 185TH AVENUE NE
REDMOND, WASHINGTON 98052
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(Address of principal executive offices, including zip code)
(425) 702-8808
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(Registrant's telephone number, including area code)
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CONTENTS
ITEM 2. Acquisition or Disposition of Assets................................ 2
ITEM 7: Financial Statements and Exhibits .................................. 3
Signatures .................................................................. 53
Exhibits..................................................................... 54
ITEM 2.
On June 15, 1999, Concur Technologies, Inc. filed a Form 8-K to report its
completing the acquisition of Seeker Software, Inc. Pursuant to Item 7 of
Form 8-K, Concur indicated that it would file certain financial information
no later than the date required by Item 7 of Form 8-K. This Amendment No. 1
is being filed to provide such financial information.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Seeker Software, Inc. Audited Financial Statements
(i) Report of Ernst & Young LLP, Independent Auditors
(ii) Balance Sheets as of December 31, 1997 and 1998 and March 31, 1999
(iii) Statements of Operations for the years ended December 31, 1997 and
1998 and for the three months ended March 31, 1998 and 1999
(iv) Statements of Reedeemable Convertible Preferred Stock and
Shareholders' Deficit for the years ended December 31, 1997 and 1998
and for the three months ended March 31, 1999
(v) Statements for Cash Flows for the years ended December 31, 1997 and
1998 and for the three months ended March 31, 1998 and 1999
(vi) Notes to Financial Statements
(b) PRO FORMA FINANCIAL INFORMATION AND SUPPLEMENTAL CONSOLIDATED FINANCIAL
STATEMENTS*
Pro Forma Consolidated Balance Sheet
(i) Pro Forma Consolidated Balance Sheet as of March 31, 1999
(ii) Notes to Pro Forma Consolidated Balance Sheet
Supplemental Consolidated Financial Statements
(i) Report of Ernst & Young LLP, Independent Auditors
(ii) Supplemental Consolidated Balance Sheets as of September 30, 1997 and
1998 and March 31, 1999
(iii) Supplemental Consolidated Statements of Operations for the years
ended September 30, 1996, 1997, and 1998 and for the six months
ended March 31, 1998 and 1999
(iv) Supplemental Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended September 30, 1996, 1997, and 1998 and
for the six months ended March 31, 1999
(v) Supplemental Consolidated Statement of Cash Flows for the years
ended September 30, 1996, 1997, and 1998 and for the six months ended
March 31, 1998 and 1999
(vi) Notes to Supplemental Consolidated Financial Statements
(c) EXHIBITS
The following exhibit is filed herewith:
23.01 Consent of Ernst & Young LLP, Independent Auditors.
* Supplemental Consolidated Financial Statements are included herein in
response to the pro forma financial statement requirements of Form 8-K.
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REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Seeker Software, Inc.
We have audited the accompanying balance sheets of Seeker Software, Inc.
(the Company) as of December 31, 1997 and 1998, and the related statements of
operations, redeemable convertible preferred stock and shareholders' deficit,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Seeker Software, Inc. at
December 31, 1997 and 1998, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Walnut Creek, California
April 21, 1999
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SEEKER SOFTWARE, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
------- -------- -----------
(UNAUDITED)
Current assets:
Cash and cash equivalents.......................... $ 675 $ 3,069 $ 1,248
Accounts receivable, net of allowance for doubtful
accounts of $150 at December 31, 1998 and March
31, 1999......................................... 1,028 2,276 1,569
Prepaid expenses and other current assets.......... 94 46 88
------- -------- --------
Total current assets................................. 1,797 5,391 2,905
Property and equipment, net.......................... 539 940 848
Other assets......................................... 34 228 168
------- -------- --------
Total assets......................................... $ 2,370 $ 6,559 $ 3,921
======= ======== ========
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS'
DEFICIT
Current liabilities:
Accounts payable................................... $ 190 $ 1,039 $ 1,241
Accrued compensation and related liabilities....... 287 744 640
Notes payable to shareholders...................... 1,047 2,500 2,500
Current portion of borrowings under lines of
credit........................................... 222 921 223
Current portion of borrowings under subordinated
note payable..................................... -- 553 895
Deferred revenue................................... 369 715 675
------- -------- --------
Total current liabilities............................ 2,115 6,472 6,174
Borrowings under lines of credit..................... 278 339 378
Borrowings under subordinated note payable........... -- 1,353 1,800
Commitments
Redeemable convertible preferred stock:
Series B, $0.001 par value; 5,200,000 shares
authorized, 5,000,000 shares issued and
outstanding at December 31, 1998 and March 31,
1999 (liquidation preference -- $8,249 at March
31, 1999)........................................ -- 8,015 8,201
Shareholders' deficit:
Series A convertible preferred stock, $0.001 par
value; 4,439,626 shares authorized; shares issued
and outstanding -- 4,300,000 in 1997 and
4,266,827 in 1998 and March 31, 1999 (liquidation
preference -- $3,938 at March 31, 1999).......... 3,182 3,139 3,139
Common stock, $0.001 par value; 20,000,000 shares
authorized; shares issued and
outstanding -- 4,630,525, 4,980,757 and 5,086,659
in 1997, 1998 and March 31, 1999, respectively... 217 500 2,587
Deferred stock compensation........................ -- (219) (2,010)
Accumulated deficit................................ (3,422) (13,040) (16,348)
------- -------- --------
Total redeemable convertible preferred stock and
shareholders' deficit.............................. (23) (1,605) (4,431)
------- -------- --------
Total liabilities, redeemable convertible preferred
stock and shareholders' deficit.................... $ 2,370 $ 6,559 $ 3,921
======= ======== ========
See accompanying notes.
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SEEKER SOFTWARE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
Revenues:
License fees........................ $ 743 $ 2,490 $ 103 $ 306
Services............................ 901 1,567 186 803
------- ------- ------- -------
Total revenues........................ 1,644 4,057 289 1,109
Operating expenses:
Cost of revenues.................... 546 2,824 505 939
Sales and marketing................. 1,639 4,738 829 1,269
Product development................. 1,683 3,936 733 1,318
General and administrative.......... 908 1,615 234 599
------- ------- ------- -------
Total operating expenses.............. 4,776 13,113 2,301 4,125
------- ------- ------- -------
Operating loss........................ (3,132) (9,056) (2,012) (3,016)
Interest income....................... 61 134 30 19
Interest expense...................... (19) (133) (55) (125)
------- ------- ------- -------
Net loss.............................. $(3,090) $(9,055) $(2,037) $(3,122)
======= ======= ======= =======
See accompanying notes.
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SEEKER SOFTWARE, INC.
STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND SHAREHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT SHARE DATA)
SHAREHOLDERS' DEFICIT
SERIES B ------------------------------------------------------------------------------
REDEEMABLE SERIES A
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
------------------ ------------------ ------------------ DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT TOTAL
--------- ------ --------- ------ --------- ------ ------------ ----------- -------
Balance at December 31,
1996...................... -- $ -- -- $ -- 4,394,000 $ 211 $ -- $ (332) $ (121)
Issuance of Series A
convertible preferred
stock (net of issuance
costs of $42,982)....... -- -- 4,300,000 3,182 -- -- -- -- 3,182
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 236,525 6 -- -- 6
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (3,090) (3,090)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1997...................... -- -- 4,300,000 3,182 4,630,525 217 -- (3,422) (23)
Issuance of Series B
redeemable convertible
preferred stock (net of
issuance costs of
$48,000)................ 5,000,000 7,452 -- -- -- -- -- -- 7,452
Accretion of Series B
preferred stock......... -- 563 -- -- -- -- -- (563) --
Repurchase of Series A
preferred stock......... -- -- (33,173) (43) -- -- -- -- (43)
Issuance of common stock
under employee stock
option plan............. -- -- -- -- 350,232 20 -- -- 20
Deferred compensation..... -- -- -- -- -- 263 (263) -- 0
Amortization of deferred
compensation............ -- -- -- -- -- -- 44 -- 44
Net loss and comprehensive
loss.................... -- -- -- -- -- -- -- (9,055) (9,055)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at December 31,
1998...................... 5,000,000 8,015 4,266,827 3,139 4,980,757 500 (219) (13,040) (1,605)
Accretion of Series B
preferred stock
(unaudited)............. -- 186 -- -- -- -- -- (186) --
Issuance of common stock
under employee stock
option plan
(unaudited)............. -- -- -- -- 105,902 7 -- -- 7
Deferred compensation
(unaudited)............. -- -- -- -- -- 2,080 (2,080) -- --
Amortization of deferred
stock compensation
(unaudited)............. -- -- -- -- -- -- 289 -- 289
Net loss and comprehensive
loss (unaudited)........ -- -- -- -- -- -- -- (3,122) (3,122)
--------- ------ --------- ------ --------- ------ ------- -------- -------
Balance at March 31, 1999
(unaudited)............... 5,000,000 $8,201 4,266,827 $3,139 5,086,659 $2,587 $(2,010) $(16,348) $(4,431)
========= ====== ========= ====== ========= ====== ======= ======== =======
See accompanying notes.
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SEEKER SOFTWARE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED THREE MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------ ------------------
1997 1998 1998 1999
------- ------- ------- -------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss.................................................. $(3,090) $(9,055) $(2,037) $(3,122)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation......................................... 80 220 34 92
Amortization of deferred stock compensation.......... -- 44 -- 289
Accrued interest converted to preferred stock........ -- 15 -- --
Changes in operating assets and liabilities:
Accounts receivable................................ (899) (1,248) 482 707
Prepaid expenses and other current assets.......... (109) 48 41 (42)
Other assets....................................... (35) (194) 35 60
Accounts payable and accrued liabilities........... 155 849 6 202
Accrued compensation and related liabilities....... 287 457 60 (104)
Deferred revenue................................... 206 346 101 (40)
------- ------- ------- -------
Net cash used in operating activities..................... (3,405) (8,518) (1,278) (1,958)
INVESTING ACTIVITIES
Purchase of furniture and equipment, net.................. (570) (621) (106) --
------- ------- ------- -------
Net cash used in investing activities..................... (570) (621) (106) --
FINANCING ACTIVITIES
Proceeds from issuance of preferred stock................. 3,070 6,390 7,500 --
Proceeds from issuance of common stock.................... 6 20 -- 7
Repurchase of preferred stock............................. -- (43) -- --
Proceeds from lines of credit............................. 500 1,039 -- 370
Proceeds from notes payable to shareholders............... 1,047 2,500 -- --
Proceeds from subordinated debt........................... -- 2,000 -- --
Payments on equipment line of credit...................... (25) (279) (74) (95)
Payments of subordinated debt............................. (94) (1,051) (145)
------- ------- ------- -------
Net cash provided by financing activities................. 4,598 11,533 6,375 137
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents.......... 623 2,394 4,991 (1,821)
Cash and cash equivalents at beginning of period.......... 52 675 675 3,069
------- ------- ------- -------
Cash and cash equivalents at end of period................ $ 675 $ 3,069 $ 5,666 $ 1,248
======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid............................................. $ 13 $ 126 $ 16 $ 75
======= ======= ======= =======
Series B redeemable convertible preferred stock issued in
exchange for cancellation of notes payable and related
accrued interest........................................ $ -- $ 1,062 $ -- $ --
======= ======= ======= =======
See accompanying notes.
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
Seeker Software, Inc. (the "Company"), a Delaware corporation develops,
markets and sells web-based self-service HR workplace solution applications
which allow employees within an organization to access, update and share
information from their desktop computers.
In December 1996, the unit holders of Seeker Software, LLC (predecessor
business) transferred all of the assets and liabilities of the predecessor
business to the Company in exchange for 4,394,000 shares of the Company's common
stock in a recapitalization transaction. The recapitalization transaction was
accounted for on a historical cost basis.
Unaudited Interim Financial Information
The financial information as of March 31, 1999 and for the periods ended
March 31, 1998 and 1999 is unaudited, but includes all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of the financial position at such dates and the operations and
cash flows for the periods then ended. Operating results for the period ended
March 31, 1999 are not necessarily indicative of results that may be expected
for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers investments in highly liquid instruments purchased
with original maturities of 90 days or less to be cash equivalents. Cash
equivalents are recorded at cost, which approximates fair value.
Fair Values of Financial Instruments
At December 31, 1998, the Company has the following financial instruments:
cash and cash equivalents, accounts receivable, accounts payable, accrued
liabilities, notes payable and lines of credit ("LOC"). The carrying value of
cash and cash equivalents, accounts receivable, accounts payable, and accrued
liabilities approximates fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of notes
payable and LOC approximates carrying value based on the market interest rates
available to the Company for debt of similar risk and maturities.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives ranging from three to five
years.
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Software Development Costs
The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed," under which
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model. To date, costs incurred subsequent to the
establishment of technological feasibility have not been significant, and all
software development costs have been charged to product development expense in
the accompanying statements of operations.
Revenue Recognition
The Company licenses software under non-cancelable license agreements and
provides post-contract customer services (including maintenance, support and
periodic upgrades/enhancements) and other services (including installation,
training and consulting). License fee revenues are recognized when a
non-cancelable license agreement has been signed, the product has been
delivered, there are no uncertainties surrounding product acceptance, the fees
are fixed and determinable and collection is considered probable. Revenues from
post-contract customer services are recognized ratably over the related term,
which is generally one year. Other revenues are recognized as performed. Revenue
from one customer accounted for 18% of total revenue for the year ended December
31, 1998 and revenue from two customers accounted for 45% of total revenue at
December 31, 1997.
The Company performs ongoing credit evaluations of its customers, all of
which are located in the U.S., and generally does not require collateral.
Deferred revenue consists primarily of prepaid license and maintenance
fees.
Stock-Based Compensation
The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and has adopted the "disclosure only" alternative
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). The effect of applying the fair
value method of SFAS 123 to the Company's stock options results in a net loss
for the years ended December 31, 1997 and 1998, respectively, that is not
materially different from the amounts reported.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires the use of the liability method. Under this method, deferred tax assets
and liabilities are measured
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
2. NOTE RECEIVABLE FROM A FORMER SHAREHOLDER
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March 1998. The note
bears interest at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by
200,000 shares of common stock of the Company owned by the former shareholder.
In connection with this agreement the Company has the right to repurchase the
common stock for $1.05 per share. In May 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by the payment of cash of approximately $30,000.
3. FURNITURE AND EQUIPMENT
Furniture and equipment consists of the following:
DECEMBER 31,
--------------
1997 1998
---- ------
(IN THOUSANDS)
Computer equipment..................................... $412 $ 963
Furniture and office equipment......................... 217 331
---- ------
629 1,294
Less accumulated depreciation and amortization......... (90) (354)
---- ------
$539 $ 940
==== ======
4. NOTES PAYABLE TO SHAREHOLDERS
In December 1997, the Company issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1998. The notes payable to
shareholders accrued interest at the prime rate (8.5% at December 31, 1997) and
were due and payable with accrued interest in December 2000. The Company closed
a private placement in March 1998, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Series
B preferred stock.
In December 1998, the Company issued $2,500,000 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock in 1999. The notes payable to
shareholders accrued interest at the prime rate (7.75% at December 31, 1998) and
were payable with accrued interest in December 2005. As further described in
Note 11, The Company closed a private placement in April 1999, in which all of
the notes payable to shareholders, along with accrued interest, were converted
into shares of Series C preferred stock.
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LEASE OBLIGATIONS
The Company leases its office facilities under non-cancelable operating
leases. Rent expense under operating leases amounted to approximately $102,000
and $266,529 in the years ended December 31, 1997 and 1998, respectively.
Future minimum lease payments under leases are as follows at December 31,
1998:
1999......................................... $311,071
2000......................................... 309,829
2001......................................... 247,914
--------
Total........................................ $868,814
========
6. EQUIPMENT AND WORKING CAPITAL LINE OF CREDIT
Equipment Line of Credit
The Company has an equipment line of credit with a bank which allows for
borrowings up to $1,000,000 expiring in May 1999, of which $944,984 was
outstanding as of December 31, 1998. Payments of principal of approximately
$32,000 plus interest, which accrues at the prime rate plus 1.5% (9.25% at
December 31, 1998), are due monthly until October 2001.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1,000,000 and
expires in September 1999. Borrowings under the line of credit bear interest,
payable monthly, at 8.25% per year. No amounts were outstanding at December 31,
1998. The Company issued warrants to the lender to purchase 20,000 shares of
Series B redeemable convertible preferred stock for $1.50 per share through
September 2005.
Working Capital Line of Credit
The Company has a working capital line of credit with the same bank which
allows for borrowings up to $1,000,000 and expires in May 1999, at which time
all outstanding principal and remaining interest under the line of credit
agreement become due and payable. Borrowings under this working capital line of
credit accrue interest at the prime rate plus 0.50% (8.25% at December 31,
1998). Borrowings under the working capital line of credit were $524,693 at
December 31, 1998.
7. SUBORDINATED NOTE PAYABLE
In September, 1998, the Company entered into a subordinated loan agreement
in the aggregate principal amount of $2,000,000. The subordinated note payable
bears interest of 11% per annum The Company issued warrants to the lender to
purchase 133,333 shares of Series B redeemable, convertible preferred stock for
$1.50 per share through September 2005.
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK
Series A Convertible Preferred Stock
In February 1997, the Company issued 4,300,000 shares of Series A preferred
stock at $.75 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
Dividends
The holders of Series A preferred stock are entitled to receive, when and
as declared by the Board of Directors, but only out of funds that are legally
available, non-cumulative dividends at the rate of 10% of the original Series A
issue price per annum on each outstanding share of Series A preferred stock
(subject to adjustment for certain anti-dilution provisions). Should dividends
be declared on common stock, the holders of Series A preferred stock would have
been entitled to an additional equivalent dividend per share on an as-converted
basis.
Conversion
Each share of Series A preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilution provisions). All shares of Series A preferred stock will
automatically convert into shares of common stock at any time upon the
affirmative vote or written consent of the holders of at least 50% of the
then-outstanding shares of Series A preferred stock, or immediately upon the
closing of a underwritten public offering of common stock which generates gross
proceeds of at least $7,500,000, with an offering price per share of at least
$4.00 (as adjusted for certain anti-dilution provisions).
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series A preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of common stock, an amount per share
equal to the sum of the original Series A issue price for each share, plus an
amount equal to 10% of the original Series A issue price per annum, plus all
declared and unpaid dividends with respect to such shares. Assuming full payment
of the Series A liquidation preference, the remaining assets of the Company
legally available for distribution, if any, will be distributed to the holders
of common stock until each common stock holder receives an amount per share of
common stock equal to the Series A liquidation preference. After the payment of
the full Series A liquidation preference and an equivalent amount per share to
all holders of common stock, the remaining assets legally available for
distribution will be paid ratably to the holders of common stock and the holders
of Series A preferred stock on an as-converted basis (as adjusted for certain
anti-dilution provisions).
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SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Voting
The holder of each share of Series A preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series A preferred stock could be converted.
Series B Redeemable Convertible Preferred Stock
In March 1998, the Company issued 5,000,000 shares of Series B preferred
stock at $1.50 per share (the "Original Series B Issue Price") for cash of
approximately $6,442,000 and the conversion of notes payable to shareholders and
accrued interest of approximately $1,062,000.
Dividends
The holders of shares of Series B are entitled to receive, when and as
declared by the Board of Directors, but only out of funds that are legally
available, dividends at the rate of 10% of the Original Issue Price per annum on
each outstanding share of Series B Preferred Stock (as adjusted for certain
anti-dilutive provisions). Should dividends be declared on common stock, the
holders of Series B preferred stock will be entitled to an additional equivalent
dividend per share on an as-converted basis (as adjusted for certain
anti-dilutive provisions).
Conversion
Each share of Series B preferred stock, at the option of the holder, is
convertible into one share of common stock (subject to adjustment for certain
anti-dilutive provisions). All shares of Series B and Series A preferred stock
shall automatically be converted into shares of common stock at a 1:1 conversion
rate (as adjusted for certain anti-dilutive provisions), at any time upon the
affirmative vote or written consent of the holders of at least 66 2/3% of the
then outstanding shares of Series B and Series A preferred stock (voting
together as one class) or immediately upon the closing of a underwritten public
offering of common stock which generates gross proceeds of at least $10,000,000
with an offering price per share of at least $6.00 (as adjusted for certain
anti-dilutive provisions).
Redemption
At any time on or after the seventh anniversary of the Series B original
issue date, the Company will, at the request of holders of at least a majority
of the then outstanding shares of Series B preferred stock, redeem all
outstanding shares of Series B preferred stock at a price per share equal to the
Series B Original Issue Price plus an amount equal to 10% of the Series B
Original Issue Price per year that the Series B preferred stock is outstanding
(including partial years) plus all declared and unpaid dividends on such shares.
If the funds of the Company legally available for redemption of shares of
Series B preferred stock are insufficient to redeem the total number of shares,
those funds which are
14
15
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
legally available will be used to redeem the maximum possible number of shares
of Series B preferred stock on a pro-rata basis among the holders of Series B
preferred stock.
Liquidation
In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of Series B preferred stock are
entitled to receive, prior to and in preference of any distribution of any of
the assets of the Company to the holders of Series A preferred stock and common
stock, an amount per share equal to the sum of the Original Series B Issue Price
for each share plus an amount equal to 10% of the Original Series B Issue Price
per annum plus all declared and unpaid dividends with respect to such shares
(the "Series B Liquidation Preference"). If funds are insufficient to fully pay
the Series B Liquidation Preference then the available funds will be paid on a
pro-rata basis to the holders of Series B preferred stock.
After the full payment of the Series B Liquidation Preference, the holders
of Series A preferred stock are entitled to receive, prior to and in preference
of any distribution of any of the assets of the Company to the holders of common
stock, the Series A Liquidation Preference. If funds are insufficient to fully
pay the Series A Liquidation Preference then the available funds will be paid on
a pro-rata basis to the holders of Series A preferred stock.
The remaining assets of the Company legally available for distribution, if
any, will be distributed to the holders of common stock until each common stock
holder receives an amount per share of common stock equal to the
per-share-weighted-average of the Series B Liquidation Preference and the Series
A Liquidation Preference (the "Common Liquidation Preference").
After the payment of the full Series B Liquidation Preference and the full
Series A Liquidation Preference, the remaining assets legally available for
distribution will be paid ratably to the holders of common stock and the holders
of Series B and Series A preferred stock on an as-converted basis (as adjusted
for certain anti-dilutive provisions).
Voting
The holder of each share of Series B preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which each
share of Series B preferred stock could be converted.
Stock Options
Under the Company's 1997 Flexible Stock Incentive Plan (the "Plan"),
3,469,444 shares of common stock were reserved for the issuance of incentive
stock options ("ISO") or non-statutory stock options ("NSO") to employees,
officers, directors, and consultants. The ISOs may be granted at a price per
share not less than 100% (110% if granted to holders of 10% or more of the
Company's stock) of the fair market value on the date of the grant. The NSOs may
be granted at a price per share not less than 85% (110% if
15
16
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
granted to holders of 10% or more of the Company's stock) of the fair market
value at the date of grant. Options granted under the Plan are exercisable over
a maximum term of ten years from the date of grant and generally vest over
periods of up to four years. A summary of the Company's stock option activity
under the Plan is set forth below:
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE PRICE
SHARES PER SHARE
--------- --------------
Granted......................................... 2,033,644 $.07
Exercised....................................... (236,525) .03
Canceled........................................ (5,000) .10
--------- ----
Outstanding at December 31, 1997................ 1,792,119 .08
Granted......................................... 850,000 .18
Exercised....................................... (350,232) .06
Canceled........................................ (321,640) .10
--------- ----
Outstanding at December 31, 1998................ 1,970,247 $.12
========= ====
Exercisable at December 31, 1998................ 505,041 $.09
========= ====
Available for grant at December 31, 1998........ 912,440
=========
At December 31, 1998, the weighted-average remaining contractual life of
options outstanding is 7.55 years. The weighted-average fair value at grant date
of options granted during the years ended December 31, 1998 and 1997 was $.18
and $.02 per share, respectively. Information regarding the weighted average
remaining contractual life and weighted average exercise price of options
outstanding and options exercisable at December 31, 1998 for selected exercise
price ranges is as follows:
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- AND VESTED
AVERAGE --------------------------
REMAINING WEIGHTED- WEIGHTED-
CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- -------------- --------- ------------ -------------- --------- --------------
$0.002 166,699 7.59 $0.002 61,196 $0.002
0.10 1,173,548 6.43 0.10 443,845 0.10
0.20 630,000 9.52 0.20 --
--------- ---------
1,970,247 505,041
========= =========
During fiscal 1998, the Company issued options to purchase 850,000 shares
of common stock. The Company recorded deferred compensation of approximately
$263,000 for financial reporting purposes with respect to such option grants to
reflect the difference between the exercise price of the options and deemed fair
value of the Company's
16
17
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
common shares. Amortization of deferred compensation for the fiscal year ended
December 31, 1998 totaled approximately $44,000.
During the three months ended March 31, 1999, common stock options for
2,215,500 shares were granted with a weighted average exercise price of $0.20;
options for 105,902 shares were exercised with a weighted average exercise price
of $0.13; and options for 177,917 shares were canceled with a weighted average
exercise price of $0.13; thereby resulting in 3,901,928 options outstanding at
March 31, 1999 with a weighted average exercise price of $0.10; of which 819,862
options were exercisable with a weighted average exercise price of $0.09. The
Company recorded deferred compensation of approximately $2,080,000 during the
quarter ended March 31, 1999 for financial reporting purposes with respect to
such option grants to reflect the difference between the exercise price of the
options and deemed fair value of the Company's common shares. Amortization of
deferred compensation for the quarter ended March 31, 1999 totaled $289,000.
Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, the Company granted to the shareholders warrants
to purchase 139,626 shares of Series A preferred stock at an exercise price of
$.75 per share. These warrants are exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, the Company granted to the shareholders warrants to purchase
166,667 shares of Series B preferred stock at an exercise price of $1.50 per
share.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 153,333 shares of Series B preferred stock at an
exercise price of $1.50 per share. At December 31, 1998, the Company had no
authorized unissued Series B preferred stock. In April 1999, the Company
authorized and reserved additional Series B preferred stock with respect to the
warrants.
17
18
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. SHAREHOLDERS' EQUITY AND REDEEMABLE CONVERTIBLE PREFERRED STOCK (CONTINUED)
Shares Reserved for Future Issuance
At December 31, 1998, the Company has reserved shares for future issuance
as follows:
PREFERRED
COMMON SERIES A
---------- ---------
Redeemable convertible preferred stock, including
effect of Series B warrants.................... 5,000,000 --
Convertible preferred stock, including effect of
Series A warrants.............................. 4,406,453 --
Stock option plan................................ 2,882,687 --
Warrants to purchase Series A preferred stock.... -- 139,626
---------- -------
12,289,140 139,626
========== =======
9. INCOME TAXES
At December 31, 1998, the Company had federal net operating loss
carryforwards of approximately $11,046,000, which expire in the year 2012
through 2018.
Due to the "change in ownership" provisions of the Internal Revenue Code, a
portion of the Company's net operating loss carryforwards could be subject to
annual limitation regarding their utilization against taxable income in future
periods.
The Company had deferred tax assets of approximately $1,231,000 and
$4,828,000 at December 31, 1997 and 1998, respectively, which relate primarily
to net operating loss carryforwards. These deferred tax assets have been fully
reserved by a valuation allowance. The valuation allowance increased by
$1,231,000 and $3,597,000 during the year ended December 31, 1997 and 1998,
respectively.
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED)
Like many companies, Year 2000 computer issues create certain risks for the
Company. If the Company's internal and network information systems do not
correctly recognize and process date information beyond the year 1999, there
could be an adverse impact on the Company's operations. The Company has
evaluated its internal and network systems and management believes the Company's
critical systems are Year 2000 compliant. The costs incurred to date have not
been material.
The Company will also initiate communications with its significant
suppliers and financial institutions to determine the extent to which the
Company is vulnerable to the future by third parties remedying their own Year
2000 issues.
While the Company currently expects that the Year 2000 issue will not pose
significant operational problems, failure to fully identify all Year 2000
dependencies in the Company's existing systems, in the systems of its suppliers,
and the systems of its financial institutions could have material adverse
consequences. Therefore, the Company is in the
18
19
SEEKER SOFTWARE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE THREE MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. RISKS ASSOCIATED WITH THE YEAR 2000 (UNAUDITED) (CONTINUED)
process of developing contingency plans for continuing operations in the event
such problems arise.
11. SUBSEQUENT EVENTS (UNAUDITED)
Series C Preferred Stock
In April 1999, the Company issued 5,797,097 shares of Series C preferred
stock at $2.07 per share for cash of approximately $9,434,348 and the conversion
of the notes payable to shareholders and accrued interest of approximately
$2,565,652.
Series B Preferred Stock
In April 1999, the Company authorized and reserved an additional 320,000
Series B preferred stock for outstanding warrants.
Merger
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 between
the Company and Concur Technologies, Inc. ("Concur"), Concur acquired all of the
outstanding capital of the Company. The transaction has been accounted for as a
pooling of interests.
19
20
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
The following financial information presents the Concur Technologies,
Inc. ("Concur" or the Company) Pro Forma Consolidated Balance Sheet at March 31,
1999.
The Company's merger with Seeker Software, Inc. ("Seeker") effective
June 1, 1999, has been accounted for as a pooling of interests. The following
Pro Forma Consolidated Balance Sheet as of March 31, 1999 gives effect to the
merger with Seeker Software as presented in the Supplemental Consolidated
Financial Statements. The information has been prepared in accordance with the
rules and regulations of the Commission and is provided for comparative purposes
only. The pro forma information does not purport to be indicative of the results
that actually would have occurred had the combination been effected at March 31,
1999.
20
21
CONCUR TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
(UNAUDITED)
(IN THOUSANDS)
PRO FORMA PRO FORMA
CONCUR ADJUSTMENTS CONSOLIDATED
-------- ----------- ------------
Current assets:
Cash & cash equivalents.................................. $ 9,860 -- $ 9,860
Marketable securities.................................... 37,544 -- 37,544
Accounts receivable...................................... 8,680 -- 8,680
Prepaid expenses & other current assets.................. 1,415 -- 1,415
-------- ------- --------
Total current assets................................ 57,499 -- 57,499
Equipment & furniture, net................................. 3,488 -- 3,488
Deposits and other assets.................................. 3,653 -- 3,653
-------- ------- --------
Total assets........................................ $ 64,640 -- $ 64,640
======== ======= ========
Liabilities & Stockholders' Equity
Current liabilities:
Accounts payable & accrued liabilities................... $ 14,675 -- $ 14,675
Notes payable to stockholders............................ 2,667 -- 2,667
Current portion of long term obligations................. 5,556 -- 5,556
Deferred revenue......................................... 4,445 -- 4,445
Accrued merger expenses.................................. -- 8,900 8,900
-------- ------- --------
Total current liabilities........................ 27,343 8,900 36,243
Long term obligations, net of current portion.............. 8,940 8,940
Redeemable convertible preferred stock..................... 8,201 (8,201) --
Stockholders' equity:
Convertible preferred stock.............................. 3,139 (3,139) --
Common stock............................................. 79,000 11,340 90,340
Deferred stock compensation.............................. (2,329) -- (2,329)
Accumulated deficit...................................... (59,654) (8,900) (68,554)
-------- ------- --------
Total stockholders' equity.......................... 20,156 (699) 19,457
-------- ------- --------
Total liabilities and stockholders' equity.......... $ 64,640 $ -- $ 64,640
======== ======= ========
See accompanying notes.
21
22
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET
1. BASIS OF PRESENTATION
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999, Concur
entered into a merger with Seeker Software, Inc. ("Seeker") that resulted in a
merger accounted for as a pooling of interests. Seeker develops markets and
sells web-based self-service HR workplace solution applications which allow
employees within an organization to access, update and share information from
their desktop computers.
The pro forma balance sheet has been prepared using the pooling of
interest method of accounting to reflect the Seeker merger as presented in the
supplemental consolidated financial statements. The supplemental consolidated
financial statements of Concur reflect the restatement of Concur's financial
statements as if the merger occurred prior to the periods presented. Once
financial statements are issued that reflect results after the merger, the
supplemental consolidated financial statements will become the historical
consolidated financial statements of Concur. The supplemental consolidated
balance sheet has been adjusted, on a pro forma basis, to reflect the merger as
if it had occurred on March 31, 1999, as described below.
The unaudited pro forma balance sheet presented is not necessarily
indicative of future consolidated financial condition of Concur. The unaudited
pro forma balance sheet at March 31, 1999 reflects the merger with Seeker as if
the merger occurred on March 31, 1999.
22
23
CONCUR TECHNOLOGIES, INC.
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET (CONTINUED)
2. PROFORMA ADJUSTMENTS
Pro forma adjustments to the March 31, 1999 Supplemental Consolidated
Balance Sheet have been prepared to reflect the conversion of the Seeker
preferred stock to Concur common stock and to reflect the accrual of $8.9
million of merger related costs consisting primarily of financial advisory fees
for both companies, attorneys, accountants, financial printing, and other
related charges.
23
24
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors of
Concur Technologies, Inc.
We have audited the accompanying supplemental consolidated balance sheets
of Concur Technologies, Inc. ("Concur") (formed as a result of the merger of
Concur Technologies, Inc. and Seeker Software, Inc. ("Seeker")) as of September
30, 1997 and 1998 and the related supplemental consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the three
years in the period ended September 30, 1998. The supplemental consolidated
financial statements give retroactive effect to the merger of Concur and Seeker
on June 1, 1999, which has been accounted for using the pooling of interests
method as described in the notes to the supplemental consolidated financial
statements. These supplemental consolidated financial statements are the
responsibility of the management of Concur. Our responsibility is to express an
opinion on these supplemental consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the supplemental consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of Concur at September 30, 1997 and 1998, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended September 30, 1998 after giving retroactive effect to the merger of Seeker
as described in the notes to the supplemental consolidated financial statements,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
June 30, 1999
24
25
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
SEPTEMBER 30,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
Current assets:
Cash and cash equivalents.......................... $ 7,721 $ 17,058 $ 9,860
Marketable securities.............................. -- -- 37,544
Accounts receivable, net of allowance for doubtful
accounts of $170 and $619 at September 30, 1997
and 1998, respectively; $870 at March 31, 1999... 4,600 6,049 8,680
Prepaid expenses and other current assets.......... 403 605 1,248
Note receivable from stockholders.................. -- 167 167
-------- -------- --------
Total current assets........................ 12,724 23,879 57,499
Equipment and furniture, net......................... 1,405 3,026 3,488
Deposits and other assets............................ 51 504 2,600
Note receivable from stockholders, net of current
portion............................................ -- 333 333
Capitalized technology and other intangible assets... -- 880 720
-------- -------- --------
Total assets................................ $ 14,180 $ 28,622 $ 64,640
======== ======== ========
Current liabilities:
Accounts payable................................... $ 1,202 $ 2,330 $ 5,486
Accrued liabilities................................ 1,389 4,533 7,931
Accrued commissions................................ 538 976 1,258
Current portion of accrued payment to
stockholders..................................... -- 167 2,667
Current portion of long-term debt.................. 329 2,800 3,875
Current portion of capital lease obligations....... 351 1,004 1,681
Deferred revenues.................................. 1,841 3,619 4,445
-------- -------- --------
Total current liabilities................... 5,650 15,429 27,343
Accrued payment to stockholders, net of current
portion............................................ -- 333 333
Long-term debt, net of current portion............... 2,171 6,145 6,514
Capital lease obligations, net of current portion.... 1,516 2,127 1,910
Deferred rental expense.............................. -- 183 183
Redeemable convertible preferred stock:
Issued and outstanding shares --
9,404,058, 11,052,718 and 839,165 in 1997, 1998
and March 31, 1999, respectively.............. 17,264 37,512 8,201
Redeemable convertible preferred stock warrants...... 82 444 --
Commitments
Stockholders' equity (deficit):
Convertible preferred stock, par value $0.001 per
share:
Authorized shares -- 5,000,000, issued and
outstanding 721,682, 716,114, and 716,144 in
1997, 1998, and March 31, 1999,
respectively.................................. 3,182 3,139 3,139
Common stock, par value $0.001 per share:
Authorized shares -- 60,000,000
Issued and outstanding shares -- 3,026,952,
3,911,985 and 17,957,140 in 1997, 1998 and
March 31, 1999, respectively.................. 470 6,593 79,000
Deferred stock compensation........................ -- (529) (2,329)
Accumulated deficit................................ (16,155) (42,754) (59,654)
-------- -------- --------
Total stockholders' equity (deficit)........ (12,503) (33,551) 20,156
-------- -------- --------
Total liabilities and stockholders' equity
(deficit)................................ $ 14,180 $ 28,622 $ 64,640
======== ======== ========
See accompanying notes.
25
26
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
Revenues, net:
Licenses.................. $ 1,717 $ 6,504 $ 13,176 $ 5,564 $ 11,167
Services.................. 253 2,499 6,952 2,854 5,647
------- ------- -------- ------- --------
Total revenues......... 1,970 9,003 20,128 8,418 16,814
Cost of revenues:
Licenses.................. 386 394 558 172 573
Services.................. 876 2,721 8,063 3,181 7,042
------- ------- -------- ------- --------
Total cost of
revenues............. 1,262 3,115 8,621 3,353 7,615
------- ------- -------- ------- --------
Gross profit................ 708 5,888 11,507 5,065 9,199
Operating expenses:
Sales and marketing....... 2,990 6,692 16,070 6,082 13,359
Research and
development............ 1,808 4,479 10,276 3,845 8,056
General and
administrative......... 1,019 2,307 5,919 2,276 4,344
Acquired in-process
technology (Note 3).... -- -- 5,203 -- --
------- ------- -------- ------- --------
Total operating
expenses....... 5,817 13,478 37,468 12,203 25,759
------- ------- -------- ------- --------
Loss from operations........ (5,109) (7,590) (25,961) (7,138) (16,560)
Interest income............. 92 186 454 126 883
Interest expense............ (43) (94) (539) (248) (736)
Other expense, net.......... (44) (61) (178) (77) (112)
------- ------- -------- ------- --------
Net loss.................... $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
======= ======= ======== ======= ========
Basic and diluted net loss
per share................. $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
======= ======= ======== ======= ========
Shares used in calculation
of basic and diluted net
loss per share............ 3,019 3,025 3,207 3,076 12,154
======= ======= ======== ======= ========
See accompanying notes.
26
27
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE
PREFERRED STOCK COMMON STOCK DEFERRED TOTAL
---------------- -------------------- STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT COMPENSATION DEFICIT EQUITY (DEFICIT)
------- ------ ---------- ------- ------------ ----------- ----------------
Balance at October 31, 1995.......... -- $ -- 2,280,028 $ 258 $ -- $ (3,492) $ (3,234)
Issuance of common stock........... -- -- 24,466 7 -- -- 7
Issuance of common stock from
exercise of stock options........ -- -- 8,217 1 -- -- 1
Net loss........................... -- -- -- -- -- (5,104) (5,104)
------- ------ ---------- ------- ------- --------- --------
Balance at October 1, 1996........... -- -- 2,312,711 266 -- (8,596) (8,330)
Issuance of convertible preferred
stock (net of issuance costs of
$43)............................. 721,682 3,182 -- -- -- -- 3,182
Issuance of common stock........... -- -- 712,993 204 -- -- 204
Issuance of common stock from
exercise of stock options........ -- -- 1,248 -- -- -- --
Net loss........................... -- -- -- -- -- (7,559) (7,559)
------- ------ ---------- ------- ------- --------- --------
Balance at September 30,1997......... 721,682 3,182 3,026,952 470 -- (16,155) (12,503)
Accretion of preferred stock....... -- -- -- -- -- (375) (375)
Repurchase of preferred stock...... (5,568) (43) -- -- -- -- (43)
Issuance of common stock from
exercise of stock options........ -- -- 176,115 30 -- -- 30
Deferred stock compensation........ -- -- -- 950 (950) -- --
Amortization of deferred stock
compensation..................... -- -- -- -- 421 -- 421
Issuance of common stock in
connection with acquisition
(Note 3)......................... -- -- 708,918 4,378 -- -- 4,378
Assumption of stock options in
connection with acquisition (Note
3)............................... -- -- -- 765 -- -- 765
Net loss........................... -- -- -- -- -- (26,224) (26,224)
------- ------ ---------- ------- ------- --------- --------
Balance at September 30, 1998........ 716,114 3,139 3,911,985 6,593 (529) (42,754) (33,551)
Accretion of preferred stock
(unaudited)...................... -- -- -- -- -- (375) (375)
Proceeds from initial public
offering, net of offering costs
(unaudited)...................... -- -- 3,365,000 37,369 -- -- 37,369
Conversion of redeemable
convertible preferred stock into
common stock (unaudited)......... -- -- 10,213,553 29,685 -- -- 29,685
Conversion of redeemable
convertible preferred warrants
into common stock warrants
(unaudited)...................... -- -- -- 444 -- -- 444
Proceeds from issuance of common
stock from exercise of common
stock warrants (unaudited)....... -- -- 225,000 2,616 -- -- 2,616
Issuance of common stock from net
exercise of common stock warrants
(unaudited)...................... -- -- 44,052 -- -- -- --
Issuance of common stock from
exercise of stock options
(unaudited)...................... -- -- 197,550 39 -- -- 39
Deferred stock compensation
(unaudited)...................... -- -- -- 2,254 (2,254) -- --
Amortization of deferred stock
compensation (unaudited)......... -- -- -- -- 454 -- 454
Net loss (unaudited)............... -- -- -- -- -- (16,525) (16,525)
------- ------ ---------- ------- ------- --------- --------
Balance at March 31, 1999
(unaudited)........................ 716,114 $3,139 17,957,140 $79,000 $(2,329) $ (59,654) $ 20,156
======= ====== ========== ======= ======= ========= ========
See accompanying notes.
27
28
CONCUR TECHNOLOGIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(UNAUDITED)
OPERATING ACTIVITIES
Net loss.................................................... $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
Adjustments to reconcile net loss to net cash used in
operating activities:
Acquired in-process technology.......................... -- -- 5,203 -- --
Amortization of acquired in-process technology.......... -- -- -- -- 160
Amortization of deferred stock compensation............. -- -- 421 190 423
Accrued interest converted to preferred stock........... -- -- 14 14 --
Warrant expense......................................... 5 53 23 -- --
Depreciation............................................ 148 445 856 333 747
Provisions for bad debts................................ 91 45 525 97 251
Other................................................... 17 -- 183 48 --
Changes in operating assets and liabilities:
Accounts receivable................................... (656) (3,931) (1,937) (819) (2,882)
Notes receivable from stockholders.................... -- -- (668) -- --
Prepaid expenses, deposits and other assets........... 60 (320) (448) 94 (2,739)
Accounts payable...................................... (18) 568 1,128 (339) 3,156
Accrued liabilities and accrued commissions........... 597 1,051 3,168 1,207 3,680
Deferred revenues..................................... 613 1,190 1,778 93 826
------- ------- -------- ------- --------
Net cash used in operating activities....................... (4,247) (8,458) (15,978) (6,419) (12,903)
------- ------- -------- ------- --------
INVESTING ACTIVITIES
Purchases of equipment and furniture........................ (462) (1,350) (814) (425) (238)
Payment in connection with acquisition of 7Software......... -- -- (130) -- --
Purchase of marketable securities........................... -- -- -- -- (37,544)
------- ------- -------- ------- --------
Net cash used in investing activities....................... (462) (1,350) (944) (425) (37,782)
------- ------- -------- ------- --------
FINANCING ACTIVITIES
Proceeds from initial public offering....................... -- -- -- -- 37,369
Proceeds from exercise of preferred stock warrants.......... -- -- -- -- 2,616
Proceeds from sales leaseback transaction................... -- 1,800 192 192 --
Proceeds from capital lease financing....................... -- 67 -- -- --
Proceeds from borrowings.................................... 763 3,112 7,827 2,598 4,817
Proceeds from issuance of common stock...................... 8 204 30 10 71
Payments on borrowings...................................... (380) (1,150) (335) (1,289) (873)
Payment on capital leases................................... -- -- (500) (170) (513)
Issuance of convertible preferred stock..................... -- 3,182 6,390 6,390 --
Repurchase of preferred stock............................... -- -- (43) -- --
Issuance of redeemable convertible preferred stock and
warrants.................................................. 7,479 4,612 12,698 -- --
------- ------- -------- ------- --------
Net cash provided by financing activities................... 7,870 11,827 26,259 7,731 43,487
------- ------- -------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 3,161 2,019 9,337 887 (7,198)
------- ------- -------- ------- --------
Cash and cash equivalents at beginning of period............ 2,541 5,702 7,721 7,721 17,058
------- ------- -------- ------- --------
Cash and cash equivalents at end of period.................. $ 5,702 $ 7,721 $ 17,058 $ 8,608 $ 9,860
======= ======= ======== ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 27 $ 86 $ 496 $ 222 $ 506
Issuance of redeemable convertible preferred stock in
exchange for cancellation of notes payable................ -- 267 -- --
Issuance of warrants in connection with financing
activity.................................................. -- 30 75 --
Issuance of Series B redeemable convertible preferred stock
in exchange for cancellation of notes payable and related
accrued interest.......................................... -- -- 1,062 1,062
Equipment and furniture obtained through capital leases..... -- -- 1,572 818 973
Conversion of redeemable convertible preferred stock and
warrants into common stock and common stock warrants...... -- -- -- 29,992
Assets and liabilities acquired in exchange for common stock
in connection with acquisition of 7Software:
Operating assets........................................ -- -- 85 --
Accounts payable and accrued expenses................... -- -- (15) --
Intangible assets....................................... -- -- 960 --
See accompanying notes.
28
29
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.)
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 Intranet-based employee-facing applications that extend automation to
employees throughout the enterprise and to partners, vendors and service
providers in the extended enterprise. The Company's Xpense Management Solution
("XMS") and CompanyStore products automate the preparation, approval, processing
and data analysis of travel and entertainment ("T&E") expense reports and
front-office procurement requisitions. The Company was originally incorporated
in the State of Washington on August 19, 1993 and reincorporated in Delaware on
November 25, 1998. Operations commenced during 1994.
Basis of Supplemental Financial Statement Presentation
On June 1, 1999, pursuant to a Merger Agreement dated May 31, 1999 among
the Company and Seeker Software, Inc. ("Seeker") the Company acquired all of the
outstanding capital of Seeker. Seeker develops, markets, and sells web-based
self-service HR workplace solution applications which allow employees within an
organization to access, update, and share information from their desktop
computers.
The Company issued 3,419,929 shares of common stock in exchange for all
outstanding preferred stock, preferred stock purchase warrants, and common stock
of Seeker and assumed all outstanding options in connection with the acquisition
of Seeker 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. These supplemental consolidated financial statements have been
prepared to reflect the restatement of all periods presented to include the
accounts of Seeker. The historical results of the pooled entities reflect each
of their actual operating cost structures and, as a result, do not necessarily
reflect the cost structure of the newly combined entity.
Historically, the fiscal year of Seeker ended on December 31. For purposes
of preparing the supplemental consolidated financial statements, all Seeker
financial statements have been restated to fiscal periods ending on September
30. The supplemental consolidated balance sheets as of September 30, 1997 and
1998 and March 31, 1999 reflect the combination of the balance sheets of Concur
and Seeker as of the same periods. The supplemental consolidated statements of
operations for all periods presented give effect to the merger as of the
inception of Seeker. As such, Seeker's statements of stockholders' equity,
operations and cash flows for each of the three years in the period ended
September 30, 1998 and for each of the six month periods ended March 31, 1998
and 1999 have been combined with Concur's statements of operations for each of
the same periods. These supplemental consolidated financial statements will
become the historical financial statements of the Company after financial
statements covering the date of consummation of the merger are issued.
29
30
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Net revenue and net loss for the separate and combined Companies are as
follows:
CONCUR THE
TECHNOLOGIES SEEKER COMBINED
INC. SOFTWARE, INC. COMPANY
------------ -------------- --------
Year ended September 30, 1996
Net revenue............................. $ 1,959 $ 11 $ 1,970
Net loss................................ $ (4,953) $ (151) $ (5,104)
Year ended September 30, 1997
Net revenue............................. $ 8,270 $ 733 $ 9,003
Net loss................................ $ (5,524) $(2,035) $ (7,559)
Year ended September 30, 1998
Net revenue............................. $ 17,159 $ 2,969 $ 20,128
Net loss................................ $(18,074) $(8,150) $(26,224)
Six months ended March 31, 1998
Net revenue............................. $ 7,074 $ 1,344 $ 8,418
Net loss................................ $ (4,063) $(3,274) $ (7,337)
Six months ended March 31, 1999
Net revenue............................. $ 13,591 $ 3,223 $ 16,814
Net loss................................ $(11,263) $(5,262) $(16,525)
Unaudited Interim Financial Information
The supplemental consolidated financial information as of March 31, 1999
and for the periods ended March 31, 1998 and 1999 is unaudited, but includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of the financial position at such
dates and the operations and cash flows for the periods then ended. Operating
results for the period ended March 31, 1999 are not necessarily indicative of
results that may be expected for the entire year.
Principles of Consolidation
The supplemental consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries, Seeker Software, Inc., Concur
Technologies (UK) Ltd., Concur Technologies Pty. Limited, and 7Software, Inc.
("7Software"). All significant intercompany accounts and transactions are
eliminated in consolidation.
Revenue Recognition Policy
The Company generates revenues from licensing the rights to use its
software products directly to end users. The Company also generates revenues
from sales of customer support contracts and integration services performed for
customers who license the software.
30
31
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Software license revenues are recognized when a non-cancelable license
agreement has been signed with a customer, the software is shipped, no
significant post-delivery vendor obligations remain, and collection is deemed
probable. Customer support revenues are recognized ratably over the term of the
customer support contract, typically one year. Revenues from consulting services
and other post-sales are recognized when the services are performed.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2").
The Company adopted SOP 97-2 beginning in fiscal 1999. SOP 97-2 has been
modified by SOP 98-4 and SOP 98-9 as it relates to certain transactions. These
standards generally require revenues earned on software arrangements involving
multiple elements, such as software products, upgrades, enhancements,
postcontract customer support, installation and training, to be allocated to
each element based on the relative fair values of the elements. The fair value
of an element must be based on evidence that is specific to the vendor. Evidence
of the fair value of each element is based on the price charged when the element
is sold separately; if the element is not being sold separately, the price for
each element established by management having relevant authority. The revenues
allocated to software products, including specified upgrades or enhancements,
generally are recognized upon delivery of the products. The revenues allocated
to unspecified upgrades, updates and other postcontract customer support
generally are recognized ratably over the term of the contract. If evidence of
the fair value for all elements of the arrangement does not exist, all revenues
from the arrangement are deferred until such evidence exists or until all
elements are delivered. Full guidelines for SOP 97-2 and related modifications
have not been issued. Once available, such guidelines could lead to
unanticipated changes in the Company's current revenue accounting practices, and
such changes could materially adversely affect the Company's future revenues and
earnings.
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. ("SFAS") 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Management determines the appropriate classification of its investments in
marketable securities at the time of purchase and reevaluates such determination
at each balance sheet date. The Company has classified its marketable securities
as available-for-sale,
31
32
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
which are carried at fair value, with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. At March 31, 1999, the
fair value of marketable securities (consisting primarily of corporate bonds and
commercial paper) approximates their cost. Therefore, no comprehensive income or
loss has been recorded.
Fair Values of Financial Instruments
The Company has the following financial instruments: cash and cash
equivalents, marketable securities, accounts receivable, accounts payable,
accrued liabilities, accrued commissions, long-term debt and capital lease
obligations, bank lines of credit ("LOC"), and standby letters of credit. The
carrying value of cash and cash equivalents, marketable securities, accounts
receivable, accounts payable, accrued liabilities and accrued commissions
approximates fair value based on the liquidity of these financial instruments or
based on their short-term nature. The carrying value of long-term debt, LOC,
standby letters of credit, and capital lease obligations approximates carrying
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 statements of operations.
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 $711,000, $717,000 and $2,600,000 in fiscal year ended
September 30, 1996, 1997 and 1998, respectively.
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," 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.
32
33
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Stock-Based Compensation
The Company adopted the "disclosure only" provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") and has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, compensation cost for stock
options is measured as the excess, if any, of the market price of the Company's
common stock at the date of grant over the stock option exercise price.
Equipment and Furniture
Equipment and furniture are carried at cost. The Company provides for
depreciation and amortization using the straight-line method for financial
reporting purposes over estimated useful lives ranging from 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 average number
of shares of common stock outstanding. Other common stock equivalents, including
preferred stock, stock options and warrants, are excluded from the computation
as their effect is antidilutive. See Note 13.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from these estimates.
Concentrations of Credit Risk
The Company's customer base is dispersed across many different geographic
areas throughout the world in a variety of industries. No single customer
accounted for more than 10% of the Company's sales in any of the periods
presented. The Company does not require collateral or other security to support
credit sales, but provides an allowance for bad debts based on historical
experience and specific identification.
The Company is subject to concentrations of credit risk from its cash and
cash equivalents. Under terms of certain of its debt agreements, the Company is
required to maintain its cash and cash equivalents primarily at one financial
institution.
33
34
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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 adjustment resulting from this process were insignificant at
September 30, 1996, 1997 and 1998, respectively and at March 31, 1999. Gains and
losses on foreign currency transactions are included in the consolidated
statement of operations as incurred. To date, gains and losses on foreign
currency transactions have not been significant.
Recently Issued Accounting Standards
In 1997, the following accounting standards were issued: SFAS No. 129,
"Disclosure of Information About Capital Structure," requiring supplemental
disclosure of capital structure, SFAS No. 130, "Reporting Comprehensive Income"
(this statement establishes standards for reporting and disclosure of
comprehensive income and its components, including revenues, expenses, gains,
and losses, in a full set of general-purpose financial statements), SFAS No.
131, "Disclosures About Segments of an Enterprise and Related Information;" and
SOP 97-2, "Software Revenue Recognition." Each of these standards became
effective for the Company in fiscal 1999. The adoption of these standards is not
expected to have a significant impact upon the Company's financial statements or
disclosures. Also, in June 1998, SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities was issued and is required to be adopted by
the Company in fiscal 2001. Because of the Company's minimal use of derivatives,
management does not anticipate that the adoption of the new Statement will have
a significant effect on earnings or the financial position of the Company.
2. EQUIPMENT AND FURNITURE
Equipment and furniture consisted of the following:
SEPTEMBER 30,
----------------
1997 1998
------ ------
(IN THOUSANDS)
Computer hardware and software............... $ 607 $ 905
Furniture and equipment...................... 113 321
Leased equipment............................. 789 2,607
------ ------
1,509 3,833
Less accumulated depreciation................ (104) (807)
------ ------
$1,405 $3,026
====== ======
34
35
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC.
On June 30, 1998, the Company acquired 7Software, a privately-held software
company and the developer of CompanyStore. The Company issued 708,918 shares of
its common stock in exchange for all outstanding shares of 7Software and also
assumed all outstanding 7Software options, which were converted to options to
purchase approximately 123,921 shares of the Company's common stock. The total
7Software purchase price of $6,233,000 includes the estimated fair value of the
common stock ($4,378,000), the estimated fair value of converted options issued
($765,000), $500,000 payable to certain former 7Software shareholders, cash
payments of $130,000 and other direct acquisition costs of $460,000. The amount
due to former 7Software shareholders is payable in the amount of $167,000 per
year for three years. The acquisition was accounted for as a purchase.
Therefore, the results of operations of 7Software and the fair value of the
assets acquired and liabilities assumed were included in the Company's financial
statements beginning on the acquisition date.
In connection with the purchase of 7Software, the Company assumed
7Software's 1997 stock option plan. All outstanding options to purchase the
stock of 7Software on the acquisition date were converted into options to
purchase 123,921 shares of common stock of the Company. The outstanding options
can be exercised at a price of approximately $0.025 per share, vest over four
years, and are exercisable for a period not to exceed ten years.
The allocation of the purchase price resulted in intangible assets
(primarily developed software and the value of an acquired workforce) of
$960,000, which has been capitalized and is being amortized on a straight line
basis over three years. Amortization expense for the year ended September 30,
1998 was $80,000. Acquired in-process technology has been valued using the
income approach, resulting in a charge of $5,203,000.
Values assigned to acquired in-process research and development, developed
technology, and trademarks were determined using a discounted cash flow
analysis. The value assigned to the acquired workforce was based on replacement
cost. To determine the value of the in-process research and development, the
Company considered, among other factors, the state of development of each
project, the time and cost needed to complete each project, expected income, and
associated risks, which included the inherent difficulties and uncertainties in
completing the project and thereby achieving technological feasibility and risks
related to the viability of and potential changes to future target markets. This
analysis resulted in amounts assigned to in-process research and development
projects that had not yet reached technological feasibility or do not have
alternative future uses. To determine the value of the developed technology, the
expected future cash flows of the existing technology product were discounted
taking into account risks related to the characteristics and applications of
each product, existing and future markets, and assessments of the life cycle
stage of each product. Based on this analysis, the existing technology that had
reached technological feasibility was capitalized.
As of the date of acquisition, the CompanyStore development project
consisted of ongoing research and development efforts in the following areas:
(i) compatibility with additional databases, (ii) compatibility with additional
enterprise resource planning
35
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CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
platforms, (iii) multiple catalog support, (iv) fundamental redesign of the user
interface, and (v) redesign and rewriting of the administrative functionality.
Based on management's initial estimates, the remaining research and development
efforts relating to the completion of the CompanyStore technology were expected
to continue into the first quarter of fiscal 1999, the anticipated product
release date. Accordingly, the cost to complete the in-process technology was
estimated based on the number of man-months required to reach technological
feasibility for the CompanyStore technology, the type of professional and
engineering staff involved in the completion process and their fully burdened
monthly salaries. Management estimated the direct costs to achieve technological
feasibility to be approximately $307,000. Beyond this period, management
estimated significantly less expense in supporting and maintaining active
products identified at the acquisition date to be in-process technology. If the
in-process projects contemplated in management's forecast are not successfully
developed, future revenue and profitability might be adversely affected.
Additionally, the value of other intangible assets acquired may become impaired.
The unaudited pro forma combined historical results, as if 7Software had
been acquired on October 1, 1997, excluding the non-recurring one-time charge
for acquired in-process technology, are as follows:
YEAR ENDED
SEPTEMBER 30, 1998
--------------------
PRO
ACTUAL FORMA
-------- --------
(IN THOUSANDS)
(UNAUDITED)
Total revenues, net...................... $ 20,128 $ 20,325
Net loss................................. $(26,224) $(21,500)
Pro forma net loss per share............. $ (8.18) $ (6.21)
The pro forma information does not purport to be indicative of the results
that would have been attained had these events occurred at the beginning of the
period presented and is not necessarily indicative of future results.
In connection with the purchase of 7Software, the Company also entered into
separate employment agreements with certain former 7Software officers and
shareholders. Under the terms of these arrangements, the Company loaned $500,000
to these officers and shareholders in the form of a note receivable. This
receivable is payable in aggregate annual installments of $167,000 plus interest
at variable rates. The note is secured by second mortgages on real property.
Approximately 124,000 shares of the Company's common stock issued in
connection with the purchase of 7Software will be held in escrow until June 30,
1999 subject to resolution of any unresolved claims by the Company. The value of
these shares was included in the 7Software purchase price, as no such unresolved
claims are known. In addition, as of September 30, 1998, 340,452 shares of
Common Stock issued to the founders in connection with the acquisition included
restrictions entitling the Company to repurchase such shares in
36
37
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
3. ACQUISITION OF 7SOFTWARE, INC. (CONTINUED)
the event of termination. These shares were issued in exchange for 7Software
shares that included the same restrictions. These restrictions lapse at various
rates through June 2000. The estimated fair value of these shares has been
included in the purchase price referred to above.
4. LINES OF CREDIT
In fiscal 1998, the Company had a $2.0 million line of credit and an
additional $1.0 million line of credit available for operating needs. Borrowings
under these credit lines bear interest at rates ranging from prime interest rate
plus 0.5% to 1.5%. The borrowing base for these lines is to be monitored on a
monthly basis and is to consist of the sum of up to 80% of eligible accounts
receivable. Interest is due monthly and principal is due upon maturity.
There were no outstanding borrowings under the $2.0 million line at
September 30, 1998. The bank had issued standby letters of credit on behalf of
the Company at September 30, 1998 in the amount of $465,000, and the amount
available under the line of credit on that date was $1,535,000. The line is
secured by all non-leased assets of the Company, including intellectual
property. The line of credit agreement requires the Company to meet certain
financial covenants, including limitations on the Company's ability to pay
dividends. See Note 11 for a discussion of warrants issued in conjunction with
the line of credit and other debt. In March 1999, the line of credit was
increased to $4.0 million under substantially similar terms and was amended to
expire in March 2000.
The $1 million line of credit is secured by virtually all assets of Seeker
Software and matures in May of 1999. Outstanding borrowings under this line of
credit were $545,000 at September 30, 1998. This amount is included in the
current portion of long-term debt in the accompanying balance sheet.
In September 1998, the Company entered into an equipment line of credit
with another lender which provided for borrowings of up to $1.0 million and
expires in September 1999. Borrowings under the line of credit bear interest
payable monthly at 8.25% per year. No amounts were outstanding at September 30,
1998 under this line of credit.
5. LONG-TERM DEBT
Long-term debt at September 30, 1998 consisted of: (i) a $3.0 million
senior term loan facility; (ii) a $1.5 million subordinated promissory note;
(iii) a $3.5 million subordinated promissory note and (iv) several equipment
loans. The subordinated promissory notes are held by Comdisco. The proceeds from
these obligations may be used for equipment purchases and general corporate
purposes.
The senior term loan facility with a remaining balance of $3 million at
September 30, 1998 bears interest at the lending bank's prime rate less 1.0%
(7.5% at September 30, 1998) and matures on February 15, 2001. Payments are
interest only through February 15,
37
38
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
5. LONG-TERM DEBT (CONTINUED)
1999. At February 15, 1999, the outstanding balance under the facility will be
paid in 24 equal monthly principal payments, plus applicable interest. The loan
is secured by a perfected senior security interest in all non-leased assets of
the Company with specific filings for intellectual property (both the line of
credit and senior term loan were issued by the same lender and include the same
financial covenants and restrictions discussed above).
The subordinated promissory notes (which have an aggregate remaining
balance of $4.7 million at September 30, 1998 and which are subordinated to both
the line of credit and senior term loan) are secured by the Company's
receivables, equipment, general intangibles, inventory, and all other goods and
personal property of the Company. The $1.5 million note bears interest at 8.5%,
has principal and interest payments of approximately $38,000 due monthly, and
matures in August 2001. The $3.5 million note bears interest at 11.0%, has
monthly principal and interest payments of approximately $101,000 beginning in
November 1998, and matures in April 2002. The underlying debt agreement allows
the Company to obtain additional long-term borrowings of up to $1.5 million, at
an interest rate of 12.5%. This commitment by the lending institution expired on
December 31, 1998.
The equipment loans are secured by virtually all assets of Seeker Software
and bear interest at rates ranging from prime plus 0.75% to prime plus 1.5%.
These loans are payable in aggregate monthly principal payments of $32,000 plus
accrued interest and mature between March of 2000 and October of 2001. The
aggregate balance of the equipment loans is $735,000 at September 30, 1998.
Maturities of long-term debt are as follows:
(IN THOUSANDS)
--------------
Fiscal year ending September 30:
1999........................... $ 2,800
2000........................... 3,241
2001........................... 2,223
2002........................... 681
-------
$ 8,945
=======
In the first quarter of fiscal 1999 the company entered into an additional
subordinated promissory note agreement in the amount of $2 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 of 2001.
6. NOTES PAYABLE TO STOCKHOLDERS
In December 1996, the Company agreed to exchange two notes payable to
stockholders totaling $233,000, plus accrued interest, for 134,920 shares of
Series C
38
39
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
6. NOTES PAYABLE TO STOCKHOLDERS (CONTINUED)
Preferred Stock. At the time of the conversion to Series C Preferred Stock, the
outstanding balance of the notes plus accrued interest was $267,000.
In December 1997, Seeker issued $1,047,200 of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrued interest at the prime rate and were due and payable with
accrued interest in December 2000. Seeker closed a private placement in March
1998, in which all of the notes payable to shareholders, along with accrued
interest, were converted into shares of Seeker Series B preferred stock.
In December 1998, Seeker issued $2.5 million of unsecured convertible
promissory notes to shareholders in exchange for the same amount in cash in
anticipation of an offering of preferred stock. The notes payable to
shareholders accrue interest at the prime rate and are payable with accrued
interest in December 2005. As further described in Note 19, Seeker closed a
private placement in April 1999, in which all of the notes payable to
shareholders, along with accrued interest, were converted into shares of Seeker
Series C preferred stock.
7. COMMITMENTS
The Company leases office space and equipment under noncancelable operating
leases and capital leases. In October 1997, the Company signed a five-year lease
for a new corporate headquarters in Redmond, Washington, which commenced
February 1998. The Company also leases facilities in Oakland California under a
lease expiring in 2001. 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 achieving certain economic goals. In January and February 1998, the
Company signed two-year subleases for its former corporate headquarters.
39
40
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
7. COMMITMENTS (CONTINUED)
Future minimum rental payments under noncancelable leases, net of the
future minimum rentals of $274,000 to be received under the subleases, are as
follows:
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
Fiscal year ending September 30:
1999..................................... $ 1,234 $1,194
2000..................................... 1,244 1,037
2001..................................... 1,036 1,002
2002..................................... 27 754
2003..................................... -- 276
------- ------
3,541 $4,263
======
Less amount representing interest.......... (410)
-------
Present value of net minimum capital lease
obligations.............................. 3,131
Less current portion....................... (1,004)
-------
Capital lease obligations, less current
portion.................................. $ 2,127
=======
Total rent expense for the years ended September 30, 1996, 1997 and 1998
was $178,000, $320,000 and $1,270,000 respectively.
In July 1997, the Company entered into a Master Lease Agreement with
Comdisco, Inc. ("Comdisco"), a preferred stockholder, under which Comdisco
agreed to provide the Company lease financing, up to an aggregate purchase price
of $2.5 million. In connection with this master lease agreement the Company
entered into several sale leaseback transactions in September and October of
1997 under which the Company sold assets with a total net book value of
$970,000. No gain or loss was recognized in connection with these sale leaseback
transactions because the fair value of the equipment sold approximated net book
value. Leases executed pursuant to this loan agreement aggregated approximately
$2 million and provide for equal monthly payments over a four-year term with an
imputed interest rate of 8.2%.
In February 1998, the Company entered into a second Master Lease Agreement,
whereby the total financing commitment extended by Comdisco was increased by an
additional $1.0 million, to a total of $3.5 million. In July 1998, the Company
entered into a third Master Lease Agreement with Comdisco, whereby the total
financing commitment was increased by an additional $1.5 million for a total of
$5.0 million. As of September 30, 1998, approximately $1,369,000 was available
under this agreement. The Company accounts for its obligations under these
Master Lease Agreements as capital leases.
40
41
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
8. 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,
1998, the Company has net operating loss carryforwards of $29,478,000 and tax
credit carryforwards of $262,000 all of which expire between 2009 and 2018.
As a result of prior equity financings, 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:
SEPTEMBER 30,
-------------------
1997 1998
------- --------
(IN THOUSANDS)
Deferred tax assets:
Net operating loss carryforwards................ $ 4,094 $ 10,022
Tax credit carryforwards........................ 152 262
Deferred revenues............................... 626 1,230
Expenses not currently deductible and other..... 630 1,291
------- --------
Total deferred tax assets............... 5,502 12,805
Valuation allowance............................... (5,502) (12,805)
------- --------
$ -- $ --
======= ========
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 $3,443,000 and $7,303,000 during the years ended
September 30, 1997 and 1998.
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
issuance of options to acquire 2,760,000 shares of common stock. The 1994 Plan
provides for the granting of incentive stock options to employees and
nonqualified stock options to employees, directors and other eligible
participants. Options granted under the 1994 Plan vest at variable rates,
typically four years, determined by the Board of Directors, and remain
exercisable for a period not to exceed ten years. At September 30, 1998, 354,768
shares were available for future grant.
On August 21, 1998, the Board adopted the 1998 Equity Incentive Plan, the
Director Stock Option Plan and the Employee Stock Purchase Plan. The Equity
Incentive Plan authorizes issuance of 3,240,000 shares of common stock upon the
exercise of stock
41
42
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
options or otherwise pursuant to the plan. The Director Stock Option Plan
authorizes the issuance of 240,000 shares of common stock upon the exercise of
stock options that may be granted pursuant to the plan. The Employee Stock
Purchase Plan authorizes the issuance of 320,000 shares of Common Stock. All
Seeker common stock options were exchanged for Concur common stock options as
issued under the 1998 Equity Incentive Plan in the June 1, 1999 merger. At
September 30, 1998, a total of 329,952 such options were outstanding and
2,910,048 options were available for grant. No options were granted under the
Director Stock Option Plan or the Employee Stock Purchase Plan at September 30,
1998.
A summary of the Company's stock option activity under the 1994 Plan and
the options issued in exchange for options of 7Software and related weighted
average exercise prices is as follows:
SEPTEMBER 30, 1996 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998
-------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
-------- -------- ---------- -------- ---------- --------
Balance at beginning of year...... 324,100 $0.11 622,879 $0.15 1,120,225 $0.23
Granted......................... 360,400 0.18 522,028 0.38 871,780 1.72
Issued in exchange for options
of 7Software.................. -- -- -- -- 123,921 0.03
Exercised....................... (8,218) 0.13 (1,250) 0.18 (176,121) 0.21
Canceled........................ (53,403) 0.14 (23,432) 0.36 (70,332) 0.52
-------- ---------- ----------
Balance at end of year............ 622,879 0.15 1,120,225 0.25 1,869,473 0.92
======== ========== ==========
Exercisable at end of year........ 199,157 0.10 531,907 0.12 691,368 0.19
======== ========== ==========
Weighted average fair value of
options granted during the year
Granted at fair value......... $0.18 $0.05 $1.45
Granted at below fair value... -- 0.18 1.96
Information regarding the weighted average remaining contractual life and
weighted average exercise price of options outstanding and options exercisable
at September 30, 1998 for selected exercise price ranges is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------- --------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE
EXERCISE PRICES LIFE (IN YEARS) SHARES SHARES PRICE
--------------- --------------- --------- --------- --------
$0.01 - 0.20 7.25 818,012 582,003 $ 0.12
0.37 9.07 585,619 5,123 0.38
0.60 - 1.19 8.88 289,846 104,167 0.60
1.88 - 11.63 9.75 175,996 75 3.13
--------- ---------
$0.01 - 11.63 8.32 1,869,473 691,368 $ 0.19
========= =========
During the six months ended March 31, 1999, common stock options for
1,615,165 shares were granted with a weighted average exercise price of $13.90;
options for 197,548 shares were exercised with a weighted average exercise price
of $0.17; and options
42
43
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
9. STOCK OPTION PLANS AND EMPLOYEE STOCK PURCHASE PLAN (CONTINUED)
for 45,073 shares were canceled with a weighted average exercise price of $4.69;
thereby resulting in 3,242,017 options outstanding at March 31, 1999 with a
weighted average exercise price of $7.38; of which 884,017 options were
exercisable with a weighted average exercise price of $2.87.
The Company uses the intrinsic value-based method to account for all its
employee stock-based compensation arrangements. The Company has recorded
deferred stock compensation expense of $950,000 and $2,254,000 relating to
options granted during the year ended September 30, 1998 and the six months
ended March 31, 1999 respectively. These amounts represent the difference
between the exercise price and the deemed fair value for financial reporting
purposes of the Company's common stock during the periods in which such options
were granted. Amortization of deferred stock compensation of $421,000 and
$454,000 was recognized during the year ended September 30, 1998 and the six
months ended March 31, 1999 respectively.
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
with the following weighted average assumptions: risk-free interest rates range
from 5.5% to 6.5% in 1996, 1997, and 1998; a dividend yield rate of 0% for all
periods; and the options will be exercised one year after they vest.
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:
YEAR ENDED SEPTEMBER 30,
---------------------------------
1996 1997 1998
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
Net loss as reported.......................... $(5,104) $(7,559) $(26,224)
Incremental pro forma compensation expense
under SFAS 123.............................. (2) (7) (37)
------- ------- --------
Pro forma net loss............................ $(5,106) $(7,566) $(26,261)
======= ======= ========
Pro forma loss per share...................... $ (1.69) $ (2.50) $ (8.19)
======= ======= ========
Under SFAS 123, compensation expense representing the fair value of the
option grant is recognized over the vesting period. The initial impact on pro
forma net loss may not be representative of compensation expense in future
years, when the effect of amortization of multiple awards would be reflected in
pro forma earnings.
43
44
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
10. STOCKHOLDER NOTES RECEIVABLE
In October 1994, certain stockholders exercised options to purchase shares
of common stock. In connection with the issuance, the Company accepted
promissory notes totaling $80,000. These notes are due in October 1999 and bear
interest at the higher of 5% or the minimum interest rate required to avoid
implied interest under the Internal Revenue Code, payable annually. These notes
are full recourse and are secured by the common stock purchased with the
proceeds thereof.
The Company accepted a secured, non-recourse promissory note from a former
shareholder of the Company in the amount of $168,000 in March of 1998. Interest
is accrued at 5% per annum and all principal and accrued interest is due and
payable two years from execution of the agreement. The note is secured by 33,567
shares of common stock of the Company owned by the former shareholder. In
connection with this agreement the Company has the right to repurchase the
common stock for $6.26 per share. In May of 1999 the Company exercised its stock
repurchase right through cancellation of the $168,000 note and related accrued
interest and by payment of cash of approximately $30,000.
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS
Concur Redeemable Convertible Preferred Stock
In October 1994, the Company designated and issued 1,529,636 shares of
Series A redeemable convertible preferred stock ("Series A Preferred Stock")
through a private offering. Net proceeds from the financing amounted to
$1,963,000.
In July 1995, the Company designated and issued 1,874,999 shares of Series
B redeemable convertible preferred stock ("Series B Preferred Stock") through a
private offering. Net proceeds from the financing amounted to $2,939,000.
In July 1996, the Company designated 3,909,920 shares and issued 3,750,000
shares of Series C redeemable convertible preferred stock ("Series C Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$7,479,000. In December 1996, the Company agreed to issue an additional 134,920
shares of Series C Preferred Stock in exchange for the cancellation of notes
payable totaling $267,000.
In July 1997, the Company designated 1,343,159 shares and issued 1,275,338
shares of Series D redeemable convertible preferred stock ("Series D Preferred
Stock") through a private offering. Net proceeds from the financing amounted to
$4,612,000.
In June 1998, the Company designated 1,800,000 shares and issued 1,003,499
shares of Series E redeemable convertible preferred stock ("Series E Preferred
Stock") through a private offering. In August 1998, the Series E Preferred Stock
Purchase Agreement (the "Purchase Agreement") was amended for the sale of an
additional 645,161 shares of the Company's Series E Preferred Stock and Series E
Preferred Stock Warrants to purchase an additional 2,400,000 shares of Series E
Preferred Stock for $4,999,999 to American Express Travel Related Services
Company, Inc. ("TRS"). The total number of shares of
44
45
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
Series E Preferred Stock issued was 1,648,660. Total net proceeds from the
Series E Preferred Stock financing amounted to $12,698,000.
In connection with the initial public offering referred to in Note 19, all
Concur redeemable convertible preferred stock automatically converted into
common stock.
Following is a summary of terms and conditions for each series of Concur
redeemable convertible preferred stock as of September 30, 1998:
ANNUAL
AGGREGATE DIVIDEND
SHARES STATED LIQUIDATION RATE --
OUTSTANDING VALUE VALUE NONCUMULATIVE
----------- ------ ----------- -------------
Issues and outstanding:
Series A.................... 1,529,636 $1.30 $ 2,000,000 $0.0915
Series B.................... 1,874,999 1.60 3,000,000 0.1120
Series C.................... 3,884,920 2.00 7,770,000 0.1400
Series D.................... 1,275,338 3.65 4,655,000 0.2550
Series E.................... 1,648,660 7.75 12,777,000 0.5425
---------- -----------
10,213,553 $30,202,000
========== ===========
Seeker Preferred Stock
In February 1997, Seeker issued 721,682 shares of convertible preferred
stock at $4.47 per share, with gross proceeds of $3,225,000, of which advance
payments of $112,500 had been received in December 1996.
In March 1998, Seeker issued 839,165 shares of redeemable convertible
preferred stock at $8.94 per share for cash of approximately $6,442,000 and the
conversion of notes payable to shareholders and accrued interest of
approximately $1,062,000.
All shares of Seeker preferred stock were exchanged for Concur common stock
in the June 1, 1999 merger.
Concur Warrants to Purchase Preferred Stock
In May 1996, the Company issued warrants to purchase 28,125 shares of
redeemable convertible preferred stock in conjunction with a renewal and
increase in the bank line of credit (see Note 4). The warrants were immediately
exercisable at a price of $2.00 per share, expiring May 2001. The estimated fair
value of these warrants of $5,000 has been recorded as debt issuance costs. At
the time of the initial public offering, the warrants were exercised.
In July 1997, the Company issued warrants to Comdisco to purchase 44,827
and 22,988 shares of Series D Preferred Stock in conjunction with the Company's
receipt of financing commitments relating to the promissory note and lease
agreement, respectively
45
46
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
(see Note 2). Each has a purchase price of $3.65 per share. The warrants become
immediately exercisable on the effective date of the agreements and remain
exercisable for a period of five years; or two years from the effective date of
the Company's initial public offering, whichever is longer. The estimated fair
values of these warrants of $30,000 and $16,000, respectively, has been recorded
as debt issuance costs.
In September 1997, the Company issued warrants to purchase 14,000 shares of
Series D Preferred Stock in conjunction with a new loan facility and an
increase/renewal in the bank line of credit (see Note 4). The warrants have an
initial exercise price of $3.65 per share, a five-year maturity inclusive of
certain provisions to include, but not limited by, a net exercise provision,
antidilution protection and a $30,000 put option. The right to exercise the put
option expires two years from the issue date of the warrants. The estimated fair
value of these warrants of $30,000 has been recorded as debt issuance costs. At
the time of the initial public offering, the warrants were exercised.
In April 1998, the Company issued warrants to purchase 13,187 shares of
Series E Preferred Stock in conjunction with the increase to the senior loan
facility. The warrants have an initial exercise price of $7.75 per share. The
warrants became immediately exercisable on the effective date of the agreements
and are exercisable for a period of five years. Additionally, the agreement
provides for a $75,000 put option, which expires in April 2000. The estimated
fair value of these warrants of $75,000 has been recorded as debt issuance
costs. These warrants were exercised in February 1999.
In May 1998, the Company issued warrants to Comdisco to purchase 56,451
shares of Series E Preferred Stock in conjunction with the new subordinated
promissory note (see Note 2). The warrants are immediately exercisable at a
price of $7.75 per share and are exercisable for a period of five years; or two
years from effective date of the Company's initial public offering, whichever is
longer. The estimated fair value of these warrants of $11,000 has been recorded
as debt issuance costs. Under the terms of this subordinated debt agreement, the
Company had an outstanding commitment to issue additional warrants to purchase
as many as 27,096 shares of Series E Preferred Stock at an exercise price of
$7.75 per share if it utilized the $1.5 million additional financing available
under the agreement. This commitment expired December 31, 1998 under the terms
of the agreement.
In connection with the sale of an additional 645,161 shares of Series E
Preferred Stock, the Company issued a warrant to TRS and its assignees to
purchase an additional 2,400,000 shares of Series E Preferred Stock. As all of
the shares of Series E Preferred Stock are converted into shares of common stock
in connection with the initial public offering of the Company's common stock,
this warrant will automatically be converted into common stock warrants
exercisable for 2,325,000 shares of the Company's common stock. The terms of the
warrant provide that it is exercisable in four tranches as follows: 300,000
shares may be acquired at the time of the Company's initial public offering at a
cash purchase price per share equal to the initial public offering price per
share less 7%; 700,000 shares may be acquired at any time on or before October
15, 1999 at a cash purchase
46
47
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
11. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
price of $33.75 per share; 700,000 shares may be acquired at any time on or
before January 15, 2001 at a cash purchase 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 a cash purchase 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 initial public offering
or on or before October 15, 1999. In connection with an amendment to a
standstill agreement with TRS, the Board of Directors subsequently rescinded its
25% reduction in the number of shares that can be acquired on or before October
15, 1999. At the time of the initial public offering, the initial traunch of
this warrant was exercised for 225,000 shares of common stock. The estimated
fair value of this warrant, determined based on a Black Scholes fair value
model, is approximately $278,000, which has been recorded as redeemable
convertible preferred stock warrants.
All Concur preferred stock warrants automatically converted into common
stock warrants upon the closing of the initial public offering of the Company's
common stock.
Seeker Warrants
During the year ended December 31, 1997, in connection with the issuance of
notes payable to shareholders, Seeker granted to the shareholders warrants to
purchase 23,434 shares of convertible preferred stock at an exercise price of
$4.46 per share. These warrants were exercisable through December 2000.
In December 1998, in connection with the issuance of notes payable to
shareholders, Seeker granted to the shareholders warrants to purchase 27,972
shares of redeemable convertible preferred stock at an exercise price of $8.94
per share.
During the year ended December 31, 1998, in connection with the
subordinated loan and equipment line of credit, the Company granted to the
lender warrants to purchase 25,734 shares of redeemable convertible preferred
stock at an exercise price of $8.94 per share.
All Seeker stock warrants were exchanged on a net exercise basis for Concur
common stock in the June 1, 1999 merger.
47
48
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
12. STOCKHOLDERS' EQUITY
The Company has reserved shares of common stock for future issuance as
follows:
SEPTEMBER 30, MARCH 31,
1998 1999
------------- ---------
Outstanding stock options...................... 1,869,473 3,242,017
Stock Options available for grant:
1994 Stock Option Plan.................... 354,768 334,230
1998 Equity Incentive Plan................ 2,910,048 1,500,760
Director Stock Option Plan................ 240,000 140,000
Employee Stock Purchase Plan................... 320,000 490,297
Conversion of redeemable convertible preferred
stock:
Series A.................................. 1,529,636 --
Series B.................................. 1,874,999 --
Series C.................................. 3,909,920 --
Series D.................................. 1,343,159 --
Series E.................................. 1,800,000 --
Warrants to purchase Series C Preferred Stock
that are convertible to common stock......... 28,125 --
Warrants to purchase Series D Preferred Stock
that are convertible to common stock......... 81,815 --
Warrants to purchase Series E Preferred Stock
that are convertible to common stock......... 2,219,638 --
Warrants to purchase common stock.............. -- 2,224,267
Warrants to purchase Seeker preferred stock.... 23,437 77,140
---------- ---------
Total................................ 18,505,018 8,008,711
========== =========
All of the shares of our common stock which remained available for issuance
under the 1994 Stock Option Plan when the 1998 Equity Incentive Plan became
effective, became available for issuance under the 1998 Equity Incentive Plan.
48
49
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
13. NET LOSS PER SHARE
Basic and diluted net loss per common share is calculated by dividing net
loss by the weighted average number of common shares outstanding.
SIX MONTHS
YEAR ENDED SEPTEMBER 30, ENDED MARCH 31,
---------------------------- ------------------
1996 1997 1998 1998 1999
------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net loss............................. $(5,104) $(7,559) $(26,224) $(7,337) $(16,525)
======= ======= ======== ======= ========
Basic and diluted net loss per common
share.............................. $ (1.69) $ (2.50) $ (8.18) $ (2.39) $ (1.36)
======= ======= ======== ======= ========
Weighted average number of common
shares used for basic and diluted
per share amounts.................. 3,019 3,025 3,207 3,076 12,154
======= ======= ======== ======= ========
Options to purchase 3,242,017 shares of common stock with exercise prices
of $0.01 to $38.81 per share, warrants to purchase 2,242,267 shares of common
stock and warrants to purchase 77,140 shares of Seeker preferred stock at a
range of $3.65 to $85.00 per share were outstanding at March 31, 1999. These
options and warrants and 1,555,279 shares of convertible preferred stock at
March 31, 1999 were excluded from the computation of diluted earnings per share
because their effect was anti-dilutive.
14. RETIREMENT 401(k) PLAN
The Company sponsors a 401(k) Profit Sharing and Trust Plan that is
available to substantially all employees. Each employee may elect to contribute
up to 20% of his or her pre-tax gross earnings, subject to annual limits. The
Company reserves the right to amend the Plan at any time. Employee contributions
to the Plan are subject to statutory limitations regarding maximum
contributions. There are no Company matching contributions.
49
50
CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
15. INTERNATIONAL REVENUES
The Company licenses and markets its products primarily in the United
States, and operates in a single industry segment. Information regarding
revenues in different geographic regions is as follows:
REVENUES
--------------------------
COUNTRY 1996 1997 1998
------- ------ ------ -------
(IN THOUSANDS)
United States................................ $1,970 $7,714 $19,318
Europe....................................... -- 612 364
Canada....................................... -- 677 31
Australia.................................... -- -- 398
Asia......................................... -- -- 17
------ ------ -------
Total.............................. $1,970 $9,003 $20,128
====== ====== =======
From the inception of the Company to September 30, 1996, there were no
significant export sales or operations in countries outside of the United
States.
16. SIGNIFICANT AGREEMENTS
Strategic Marketing Alliance Agreement with American Express
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 T&E expense management software solution. Under the terms of the
agreement, American Express receives a fee for referring to the Company clients
of American Express who become XMS customers. The fee varies based upon
licensing revenue realized from referred customers. Except for the referral, the
Company is responsible for the entire sales effort and also for customer support
and warranty service. Under the agreement, the Company and American Express have
also agreed to develop certain product features enabling a higher level of
integration between XMS and certain American Express services and products.
Strategic Marketing Alliance Agreement with ADP, Inc.
In November 1998, the Company entered into a strategic alliance agreement
with ADP, Inc., a subsidiary of Automatic Data Processing, Inc., under which ADP
has agreed to refer potential customers for travel and entertainment expense
management software products and services exclusively to the Company. The
Company and ADP also agreed to jointly market the Company's travel and
entertainment expense report processing products and services to ADP customers.
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CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
16. SIGNIFICANT AGREEMENTS (CONTINUED)
Co-Branded XMS Service Marketing Agreement
In August 1998, the Company entered into a Co-Branded XMS Service Marketing
Agreement with American Express' affiliate TRS. Under the terms of the
agreement, TRS will receive a fee for marketing to TRS's clients a co-branded
enterprise service provider ("ESP") version of XMS containing special features.
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. In addition, under the terms of the agreement, the Company and TRS
have agreed to jointly develop certain product features for integration into the
co-branded ESP version of XMS.
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
$203,000 and $348,000 for the years ended September 30, 1997 and 1998,
respectively. Amounts recognized in 1996 were insignificant.
17. RELATED PARTY TRANSACTION
During 1998 the Company paid fees of $121,000 to a stockholder and received
proceeds of $41,000 under the terms of a sales referral agreement. Additionally,
the Company recorded $134,000 in revenue for the sale of a license agreement to
another stockholder in 1998. No sales were made to stockholders or under the
sales referral agreement prior to 1998. At September 30, 1998 accounts
receivable from stockholders were $152,000 and accounts payable to stockholders
were $83,000. For the six months ended March 31, 1999, the Company paid fees of
$254,000 and received proceeds totaling $219,000 under the terms of the sales
referral agreement. At March 31, 1999, accounts receivable from stockholders was
$0 and accounts payable to stockholders was $95,000.
18. SUBSEQUENT EVENT
Reverse Stock Split
On August 21, 1998 the Board of Directors authorized a reverse stock split
of the Company's common stock and a split ratio of 1-to-2.5 effected on December
9, 1998. The related common share, preferred share and per share data in the
accompanying financial statements has been retroactively restated to reflect the
reverse stock split, including preferred share data on an as-converted to common
stock basis.
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CONCUR TECHNOLOGIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR EACH OF THE SIX MONTH PERIODS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED.) (CONTINUED)
19. INITIAL PUBLIC OFFERING ("IPO"), FOLLOW-ON OFFERING, AND PRIVATE PLACEMENT
On December 16, 1998, the Company issued 3,365,000 shares of its Common
Stock (including 465,000 shares issued upon the exercise of the underwriters'
over allotment option) at an initial public offering price of $12.50 per share.
The net proceeds to the Company from the offering, net of offering costs were
approximately $37.4 million. In connection with the IPO, warrants were exercised
to purchase 225,000 shares of common stock at a price of $11.625 per share,
resulting in additional proceeds to the Company totaling $2.6 million.
Concurrent with the IPO, each outstanding share of the Company's redeemable
convertible preferred stock was automatically converted into one share of Common
Stock and remaining preferred stock warrants for 2,237,454 shares were
automatically converted into warrants for the purchase of 2,237,454 shares of
common stock.
On April 16, 1999 the Company completed a follow on offering of its common
stock and issued an additional 2,018,620 shares at an offering price $43.50. The
net proceeds to the Company, net of offering costs, were approximately $82.5
million.
In April of 1999 Seeker issued 972,944 shares of Series C preferred stock
in a private placement for cash of $9,434,000 and conversion of notes payable to
stockholders and accrued interest aggregating to $2,566,000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Concur Technologies, Inc.
Date: August 12, 1999 By: /s/ STERLING WILSON
-------------------------------------
Sterling R. Wilson
Executive Vice President of
Operations and Chief Financial
Officer
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EXHIBIT INDEX
NUMBER DESCRIPTION
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23.01 Consent of Ernst & Young LLP, Independent Auditors.
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